-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UMtJzL226wIurnnDsenhco18/H+FbUYQyEkb2fl0B7YfAjG6/1gVhapkq4lxNQRG lUqRwpzAnkzPD8zEzfaR2w== 0001047469-04-027540.txt : 20040830 0001047469-04-027540.hdr.sgml : 20040830 20040830161802 ACCESSION NUMBER: 0001047469-04-027540 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040830 DATE AS OF CHANGE: 20040830 EFFECTIVENESS DATE: 20040830 FILER: COMPANY DATA: COMPANY CONFORMED NAME: USLICO SERIES FUND/VA/ CENTRAL INDEX KEY: 0000827885 IRS NUMBER: 541499398 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-05451 FILM NUMBER: 041005629 BUSINESS ADDRESS: STREET 1: 4601 N FAIRFAX DR STREET 2: P O BOX 3700 CITY: ARLINGTON STATE: VA ZIP: 22203 BUSINESS PHONE: 703-875-3400 MAIL ADDRESS: STREET 1: 4601 N FAIRFAX DRIVE CITY: ARLINGTON STATE: VA ZIP: 22203 FORMER COMPANY: FORMER CONFORMED NAME: USLICO SERIES FUND DATE OF NAME CHANGE: 19880321 N-CSRS 1 a2142447zn-csrs.txt N-CSRS ----------------------------- OMB APPROVAL ----------------------------- OMB Number: 3235-0570 Expires: October 31, 2006 Estimated average burden hours per response...... 19.3 ----------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-05451 -------------------------------------------- USLICO Series Fund - ------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 7337 E. Doubletree Ranch Rd., Scottsdale, AZ 85258 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) CT Corporation System, 101 Federal Street, Boston, MA 02110 - ------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: 1-800-992-0180 ---------------------------- Date of fiscal year end: December 31 -------------------------- Date of reporting period: January 1, 2004 to June 30, 2004 --------------------------------- ITEM 1. REPORTS TO STOCKHOLDERS. The following is a copy of the report transmitted to stockholders pursuant to Rule 30e-1 under the Act (17 CFR 270.30e-1): 1 SEMI-ANNUAL REPORT SEMI-ANNUAL REPORT JUNE 30, 2004 [GRAPHIC] USLICO SERIES FUND THE STOCK PORTFOLIO THE MONEY MARKET PORTFOLIO THE BOND PORTFOLIO THE ASSET ALLOCATION PORTFOLIO [ING FUNDS LOGO] TABLE OF CONTENTS President's Letter 1 Market Perspective 2 Portfolio Managers' Reports 4 Statements of Assets and Liabilities 10 Statements of Operations 11 Statements of Changes in Net Assets 12 Financial Highlights 14 Notes to Financial Statements 18 Portfolios of Investments 25 Trustee and Officer Information 38
(THIS PAGE INTENTIONALLY LEFT BLANK) PRESIDENT'S LETTER [PHOTO OF JAMES M. HENNESSY] JAMES M. HENNESSY Dear Shareholder, The past year has been unpredictable for investors. Strong growth in the overall economy coupled with questions concerning mutual fund trading practices have challenged investors. In general, economic activity has continued to increase, with the growth being widespread. Personal consumption of goods and services is leading the recovery supported by corporate purchases of equipment and software and by Government spending on defense. Worries of possible interest rate increases, worsening global turmoil and increasing oil prices have reduced the gains the market realized in the first few months of 2004. However, investors remain steadfast as nearly each of the last six months has seen an overall increase in assets invested in mutual funds despite continuing investigations into late trading and market timing issues at some of the largest and most respected financial services companies in the country. You should have received a letter from Thomas J. McInerney, the Chief Executive Officer of ING U.S. Financial Services, which provided information about the internal review ING management conducted regarding trading practices in ING mutual fund products. If you did not receive a copy of the letter, please contact Investor Services at 1-800-992-0180 and we will provide you with a copy. I wish to thank you on behalf of everyone here at ING Funds for your continued confidence. We look forward to helping you meet your investment goals in the future. Sincerely, /s/ James M. Hennessy James M. Hennessy President ING Funds July 19, 2004 1 MARKET PERSPECTIVE: SIX MONTHS ENDED JUNE 30, 2004 OVERVIEW Perhaps it was inevitable that the markets should be a little neurotic after the heady gains of 2003. But whatever the reasons, investors in 2004 alternately cheered and fretted over the developing economic outlook, sending markets up, down and up again before ending the first six months of 2004 with modest and distinctly fragile gains. At first the worry was the so-called jobless recovery, then half way through the six-month period a very strong U.S. employment report was released. The report generated euphoria until people realized that as the job market tightens, inflation picks up and rising interest rates were likely not far away. Investors took comfort from Federal Open Market Committee ("FOMC") Chairman Greenspan's soothing advice that the rebound in interest rates would be "measured". But as the six months ended June 30, 2004 drew to a close, attention switched nervously to the impending U.S. earnings season and the strong possibility that the splendid results of the last few quarters would likely not be maintained. GLOBAL EQUITIES managed a 3.52% return, net of withholding tax on dividends, for the six months ended June 30, 2004 according to the Morgan Stanley Capital International ("MSCI") World Index(1) in dollars, after peaking on average in mid February and spending much of May in negative territory. Among CURRENCIES, the euro reached a post launch record also in mid February before retreating and ending about 3.0% lower for the six months ended June 30, 2004. The British pound ended the six months 2.0% higher against the dollar, as the Bank of England became the first of the major central banks to raise interest rates. The yen lost approximately 1.5%, ironically after the Bank of Japan stopped buying dollars to keep the yen weak, spending a staggering $144 billion in the first quarter of 2004 to do so. FIXED INCOME MARKET U.S. FIXED INCOME classes started 2004 as they had ended 2003. Disappointing jobs reports, together with stubbornly high new unemployment claims, suggested continuing weakness, and gave bond investors a solid first quarter of gains. That all changed on the first Friday in April 2004, with the very bullish U.S. employment report. Investment grade bonds unsurprisingly bore the brunt of fears that a new cycle of rising interest rates from multi-decade low levels was about to start. For the six months ended June 30, 2004, the Lehman Brothers Aggregate Bond Index(2) of investment grade bonds returned a tiny 0.16%. The Lehman Brothers Corporate Index(3) component and the Lehman Brothers Treasury Bond Index(4) fell by 0.26% and 0.20%, respectively. Ten-year Treasury yields rose by 36 basis points to 4.62%, passing through rates not seen in nearly two years. Yields on 90-day Treasury Bills rose 39 basis points to 1.3%, emphatically breaching the 1.0% level, a rate above which they had not closed since June 9, 2003. High yield bonds did better, the Lehman Brothers U.S. Corporate High Yield Bond Index(5) hung on to return 1.35% for the six-month period. DOMESTIC EQUITY MARKET The U.S. EQUITIES market rose 3.44% in the six months ended June 30, 2004, based on the Standard & Poor's ("S&P") 500 Index(6) including dividends. This implies a price-to-earnings (P/E) level of just over 17 times 2004 earnings. Three strong employment reports in the second quarter of 2004 were welcomed, but all was not in harmony. For while successive, upbeat economic statistics sang of good economic times, there was also a steady drumbeat of evidence that inflation was picking up. The Federal Funds rate at just 1.0% meant that real interest rates were becoming ever more negative at the same time, while the economy was growing at over 4.0%. With labor markets tightening and oil prices breaking above $40 per barrel, this appears to be an increasingly unstable situation. Meanwhile, the FOMC took almost the entire second quarter of 2004 before increasing the Federal Funds rate to 1.25% on June 30, 2004. However, in the week before the increase, the wind seemed to shift again. First quarter of 2004 gross domestic product ("GDP") growth was revised down to 3.9%, durable goods orders fell, and retailers and auto companies complained of slack sales. On the day the FOMC raised rates, the Chicago Purchasing Managers' Index(7) had its largest monthly drop in 30 years. Perhaps Greenspan's "measured" policy was right, but perhaps something else was wrong. The first half of 2004 ended, with investors again nervously awaiting the employment report two days later. 2 MARKET PERSPECTIVE: SIX MONTHS ENDED JUNE 30, 2004 INTERNATIONAL MARKETS Most INTERNATIONAL MARKETS eked out similarly modest gains for the six months ended June 30, 2004, but JAPAN was the star, rising 10.73% in dollars according to the MSCI Japan Index(8). Sentiment was encouraged by first quarter GDP growth, reported at a surprisingly strong 6.1% annualized, suggesting that the world's second largest economy was at last emerging from its slump of more than a decade. EUROPEAN EX UK MARKETS gained 2.88% in dollars in the six months ended June 30, 2004, according to the MSCI Europe ex UK Index(9). Buoyant exports were about the only good news, as domestic demand still languished under unemployment of 9.0%. Still, these markets look relatively cheap. Finally the UK market rose 3.32% in dollars during the first six months of 2004, based on the MSCI UK Index(10). The economy appears to be strong, but the troubling imbalances of an over-indebted consumer and a housing price bubble led to three interest rate increases by the Bank of England, with more likely on the way. - ---------- (1) The MSCI WORLD INDEX reflects the stock markets of 22 countries, including the United States, Europe, Canada, Australia, New Zealand and the Far East -- comprising approximately 1,500 securities -- with values expressed in U.S. dollars. (2) The LEHMAN BROTHERS AGGREGATE BOND INDEX is composed of securities from the Lehman Brothers Government/Corporate Bond Index, Mortgage-Backed Securities Index, and the Asset-Backed Securities Index. Total return comprises price appreciation/depreciation and income as a percentage of the original investment. (3) The LEHMAN BROTHERS CORPORATE INDEX includes all publicly issued, fixed-rate, nonconvertible, dollar-denominated, SEC-registered, investment-grade corporate debt. (4) The LEHMAN BROTHERS TREASURY BOND INDEX (U.S. Dollars) is composed of all bonds covered by the Lehman Brothers Aggregate Bond Index with maturities of 10 years or greater. Total return comprises price appreciation/depreciation and income as a percentage of the original investment. (5) The LEHMAN BROTHERS U.S. CORPORATE HIGH YIELD BOND INDEX is generally representative of corporate bonds rated below investment-grade. (6) The S&P 500 INDEX is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. (7) The CHICAGO PURCHASING MANAGERS' INDEX measures manufacturing activity in the industrial Midwest. (8) The MSCI JAPAN INDEX is a free float-adjusted market capitalization index that is designed to measure developed market equity performance in Japan. (9) The MSCI EUROPE EX UK INDEX is a free float-adjusted market capitalization index that is designed to measure developed market equity performance in Europe, excluding the UK. (10) The MSCI UK INDEX is a free float-adjusted market capitalization index that is designed to measure developed market equity performance in the UK. ALL INDICES ARE UNMANAGED AND INVESTORS CANNOT INVEST DIRECTLY IN AN INDEX. THE PERFORMANCE UPDATE ILLUSTRATES PERFORMANCE FOR A VARIABLE INVESTMENT OPTION AVAILABLE THROUGH A VARIABLE ANNUITY CONTRACT. THE PERFORMANCE SHOWN INDICATES PAST PERFORMANCE AND IS NOT A PROJECTION OR PREDICTION OF FUTURE RESULTS. ACTUAL INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT SHARES AND/OR UNITS, AT REDEMPTION, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE PORTFOLIOS' PERFORMANCE IS SUBJECT TO CHANGE SINCE THE PERIOD'S END AND MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA SHOWN. FOR VARIABLE ANNUITY CONTRACTS, PLEASE CALL (800) 366-0066 TO GET PERFORMANCE THROUGH THE MOST RECENT MONTH END. MARKET PERSPECTIVE REFLECTS THE VIEWS OF THE CHIEF INVESTMENT RISK OFFICER ONLY THROUGH THE END OF THE PERIOD, AND IS SUBJECT TO CHANGE BASED ON MARKET AND OTHER CONDITIONS. 3 THE USLICO STOCK PORTFOLIO PORTFOLIO MANAGERS' REPORT PORTFOLIO MANAGEMENT TEAM: A team of investment professional led by James A. Vail, CFA, ING Investment Management Co. (formerly, Aeltus Investment Management, Inc.) -- the Sub-Adviser. GOAL: The USLICO Series Fund -- Stock Portfolio (the "Portfolio") seeks intermediate and long-term growth of capital. Its secondary investment objective is to receive a reasonable level of income. PERFORMANCE: For the six months ended June 30, 2004, the Portfolio provided a return of 5.47%, compared to the Standard & Poor's ("S&P") 500 Index(1), which returned 3.44% for the same period. PORTFOLIO SPECIFICS: The Portfolio benefited from strong performance in the information technology and health care sectors. The strong performing companies were Biogen IDEC, Inc., as well as Advance PCS and National Semiconductor, which were held during the period. Other strong individual performers were eBay, Inc. and Yahoo!, Inc. as both continued to take share from their traditional competitors. In the industrials sector, Tyco International Ltd. benefited from a company-specific turnaround, as well as leverage to the overall strengthening economy. Performance was hurt in the energy sector, as we did not hold any of the large integrated oil companies, such as Exxon Mobil, ChevronTexaco and Conoco Phillips. MARKET OUTLOOK: In our opinion, the market is performing well in the face of geopolitical uncertainties, high energy prices, and concerns over a weakening China economy. As we ended the reporting period, despite recent indications of a measured response by the Federal Reserve to an expanding domestic economy, the market appeared to be transfixed on the letter of the statements and not the spirit. All in all, the economic environment should be good for stocks, and we remain encouraged by the outlook. Near-term concerns should abate as the year continues to unfold and the market should move higher by year-end. The Portfolio remains exposed to sectors experiencing improving economic activity, specifically energy and industrials; however, our focus in the second half of 2004 is to identify stocks that will benefit from later stage activity, such as the lodging and gaming sectors. History also indicates that large-capitalization pharmaceutical companies perform well in the face of rising interest rates. While the first half of 2004 has been a difficult period, we remain encouraged by the outlook for stocks and believe the Portfolio is well positioned in the environment we foresee.
AVERAGE ANNUAL TOTAL RETURNS FOR THE YEARS ENDED JUNE 30, 2004 -------------------------------------------------------------- 1 YEAR 5 YEAR 10 YEAR ------ ------ ------- Stock Portfolio 25.05% (10.46)% 3.28% S&P 500 Index(1) 19.11% (2.17)% 11.87%
The table above illustrates the total return of Stock Portfolio against the S&P 500 Index. The Index is unmanaged and has no cash in its portfolio, imposes no sales charges and incurs no operating expenses. An investor cannot invest directly in an index. The Portfolio's performance is shown without the imposition of any expenses or charges which are, or may be, imposed under your annuity contract. Total returns would have been lower if such expenses or charges were included. The performance table does not reflect the deduction of taxes that a shareholder will pay on Portfolio distributions or the redemption of Portfolio shares. TOTAL RETURNS REFLECT THE FACT THAT THE INVESTMENT MANAGER HAS WAIVED CERTAIN FEES AND OPERATING EXPENSES OTHERWISE PAYABLE BY THE PORTFOLIO, SUBJECT TO POSSIBLE LATER REIMBURSEMENT DURING A THREE-YEAR PERIOD. TOTAL RETURNS WOULD HAVE BEEN LOWER HAD THERE BEEN NO WAIVER TO THE PORTFOLIO. THE PERFORMANCE UPDATE ILLUSTRATES PERFORMANCE FOR A VARIABLE INVESTMENT OPTION AVAILABLE THROUGH A VARIABLE ANNUITY CONTRACT. THE PERFORMANCE SHOWN INDICATES PAST PERFORMANCE AND IS NOT A PROJECTION OR PREDICTION OF FUTURE RESULTS. ACTUAL INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT SHARES AND/OR UNITS, AT REDEMPTION, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PLEASE CALL (800) 366-0066 TO GET PERFORMANCE THROUGH THE MOST RECENT MONTH END. THIS REPORT CONTAINS STATEMENTS THAT MAY BE "FORWARD-LOOKING" STATEMENTS. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN THE "FORWARD-LOOKING" STATEMENTS. THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER, ONLY THROUGH THE END OF THE PERIOD AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE DAILY. (1) The S&P 500 Index is an unmanaged index that measures the performance of securities of approximately 500 large-capitalization companies whose securities are traded on major U.S. stock markets. PRINCIPAL RISK FACTOR(S): Exposure to financial and market risks that accompany investments in equities. The value of securities of smaller issuers can be more volatile than that of larger issuers. Derivatives are subject to the risk of changes in the market price of a security, credit risk with respect to the counterparty to the derivative instrument, and the risk of loss due to changes in interest rates. Certain derivatives may also have a leveraging effect, which may increase the volatility of the portfolio. The Portfolio is generally expected to engage in frequent and active trading of portfolio securities, which may result in an increase in brokerage commissions and other transaction costs. An investment in the Portfolio is not guaranteed by the Federal Deposit Insurance Corporation. 4 PORTFOLIO MANAGERS' REPORT THE USLICO MONEY MARKET PORTFOLIO PORTFOLIO MANAGEMENT TEAM: A team of investment professionals led by Jennifer J. Thompson, CFA, ING Investment Management Co. (formerly, Aeltus Investment Management, Inc.) -- the Sub-Adviser. GOAL: The USLICO Series Fund -- Money Market Portfolio (the "Portfolio") seeks maximum current income consistent with preservation of capital and liquidity. PORTFOLIO SPECIFICS: The first half of 2004 yielded varying and dramatic shifts in interest rate expectations and ended with the Federal Reserve ("Fed") Board's Federal Open Market Committee ("FOMC") raising the Federal Funds target rate 25 basis points to 1.25% on June 30, 2004. As market participants changed their views of the economy's strength throughout the period, the LIBOR yield curve flattened initially and then steepened dramatically. Specifically, the LIBOR yield curve (the difference between 1-month to 12-month LIBOR) steepened by 76 basis points to 109 basis points. The curve reached its flattest point of 19 basis points in mid-March, but a significant shift in Fed Funds expectations shortly thereafter caused yield levels to rise with the back-end of the LIBOR curve incurring the greatest change. Over the period, 12-month LIBOR increased by 100 basis points to 2.46% from 1.46%. Throughout the first quarter of 2004, the Portfolio utilized a barbell portfolio strategy that called for purchasing longer-dated paper (nine months to thirteen months) balanced by the purchase of short-term commercial paper and floating rate notes. The strategy worked well and resulted in strong performance. The Portfolio's weighted average maturity remained significantly longer than competitors' funds early in the year. However, in early April, as the market priced in an earlier start to the tightening cycle beginning with the June 30 meeting, the Portfolio eased off its barbell strategy and limited investments solely to short commercial paper and floating rate notes. This better positioned the Portfolio to take advantage of the higher interest rate environment. Accordingly, the Portfolio's weighted average maturity significantly declined during the second half of the reporting period and finished the period at 48 days compared with 45 days for the benchmark, iMoneyNet First Tier Retail Index. MARKET OUTLOOK: The June 30 FOMC statement appeared to signal the Fed's intent to gradually raise the target interest rate. At the end of the period, the market priced in a year-end Fed Funds rate of roughly 2.00% to 2.25%, or 25 basis points per FOMC meeting. But some market observers believe inflation will accelerate, causing the Fed to move more aggressively than the market currently thinks it will. Given such high level of uncertainty, particularly in light of current market levels for longer term maturities, we believe that continuing our strategy of limiting purchases to short-term commercial paper or floating rate notes is most appropriate. PRINCIPAL RISK FACTOR(S): An investment in the Portfolio is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Portfolio seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Portfolio. THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS ONLY THROUGH THE END OF THE PERIOD AS STATED ON THE COVER. THE PORTFOLIO MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. Portfolio holdings are subject to change daily. This report contains statements that may be "forward-looking" statements. Actual results may differ materially from those projected in the "forward-looking" statements. 5 THE USLICO BOND PORTFOLIO PORTFOLIO MANAGERS' REPORT PORTFOLIO MANAGEMENT TEAM: A team of investment professionals led by James B. Kauffmann, ING Investment Management Co. (formerly, Aeltus Investment Management, Inc.) -- the Sub-Adviser. GOAL: The USLICO Series Fund -- Bond Portfolio (the "Portfolio") seeks high level of income consistent with prudent risk and the preservation of capital. As a secondary objective, the Portfolio seeks capital appreciation when consistent with its principal objective. PERFORMANCE: For the six months ended June 30, 2004, the Portfolio provided a return of -0.81%, compared to the Lehman Brothers Aggregate Bond Index(1), which returned 0.16% for the same period. PORTFOLIO SPECIFICS: During the period, we reduced our exposure to longer-dated and lower-rated corporates in the face of stretched valuations. As a rule, longer-dated credit-sensitive paper underperformed. Our exposure in securitized sectors generally proved beneficial. A slight overweight in financial institutions early in the year contributed positively. In the second half we were underweight the sector, which also contributed positively to relative performance as the sector fared poorly as the market prepared for Federal Reserve ("Fed") tightening. We were also underweight in dollar-denominated issues of foreign countries, another sector that had a negative return. Mortgages produced a small positive excess return, and our position varied from neutral to underweight during the period. Exposure to emerging market debt contributed to returns in the first half of the reporting period, but was a significant drag on our performance in the second half as incremental yield was not sufficient to offset price depreciation. However, our declining high yield exposure broadly supported returns, although the exposure is now miniscule. MARKET OUTLOOK: In our opinion, Treasury yields do not yet fully reflect the quickening pace of the economy and the recent rise in a number of inflation metrics, but the bond market has begun to incorporate a cycle of less accommodative monetary policy. Now that Alan Greenspan has successfully navigated the economy past the immediate concerns of deflation, we are anxious to see if he can avoid the effects of inflation. While the recent rise in inflation releases were amplified by increases in hotel rates, apparel, medical care, and adjustments to owners' equivalent rent, the trajectory is worrisome. One observer drew the analogy that Fed tightening cycles are like confronting a tee shot with a putter. Should inflationary expectations become manifest in unit labor costs, the Fed may be forced into a more aggressive stance. Many in the bond market believe that the Fed's reactive approach will be tardy in responding to increasing inflation, and we are cognizant of the lagged effect of monetary policy. Historically, changes in the Fed Funds rate can take 12 to 18 months to influence economic activity, but one may argue that today's domestic scene of high consumer indebtedness and increased variable rate financing could indicate speedier transmission of policy changes. In the months ahead, employment and inflation releases and comments from Fed officials will likely remain key data as bond market observers seek to divine the timing, frequency, and magnitude of future tightenings. Tactically, the Portfolio is still short in duration in the face of anticipated improving global economic fundamentals, but we have reduced the magnitude of that posture following the recent rise in rates. We are neutral home mortgages, overweight asset-backed and commercial mortgage-backed securities, and underweight the front-end of the yield curve, which appears most vulnerable in a tightening cycle. We are underweight agencies. Stretched valuations in investment-grade credit and plus sectors warrant some caution, and we have reduced the contribution to duration of these spread sectors. Additionally, we have reduced our exposure in emerging markets, and our high yield position has been eliminated with the exception of a few crossover and special situation issues that tend to track the investment grade market. However, we are watchful for points of potential re-entry. 6 PORTFOLIO MANAGERS' REPORT THE USLICO BOND PORTFOLIO
AVERAGE ANNUAL TOTAL RETURNS FOR THE YEARS ENDED JUNE 30, 2004 -------------------------------------------------------------- 1 YEAR 5 YEAR 10 YEAR ------ ------ ------- Bond Portfolio (0.21)% 4.06% 5.13% Lehman Brothers Aggregate Bond Index(1) 0.32% 6.95% 7.39%
The table above illustrates the total return of Bond Portfolio against the Lehman Brothers Aggregate Bond Index. The Index is unmanaged and has no cash in its portfolio, imposes no sales charges and incurs no operating expenses. An investor cannot invest directly in an index. The Portfolio's performance is shown without the imposition of any expenses or charges which are, or may be, imposed under your annuity contract. Total returns would have been lower if such expenses or charges were included. The performance table does not reflect the deduction of taxes that a shareholder will pay on Portfolio distributions or the redemption of Portfolio shares. TOTAL RETURNS REFLECT THE FACT THAT THE INVESTMENT MANAGER HAS WAIVED CERTAIN FEES AND OPERATING EXPENSES OTHERWISE PAYABLE BY THE PORTFOLIO, SUBJECT TO POSSIBLE LATER REIMBURSEMENT DURING A THREE-YEAR PERIOD. TOTAL RETURNS WOULD HAVE BEEN LOWER HAD THERE BEEN NO WAIVER TO THE PORTFOLIO. THE PERFORMANCE UPDATE ILLUSTRATES PERFORMANCE FOR A VARIABLE INVESTMENT OPTION AVAILABLE THROUGH A VARIABLE ANNUITY CONTRACT. THE PERFORMANCE SHOWN INDICATES PAST PERFORMANCE AND IS NOT A PROJECTION OR PREDICTION OF FUTURE RESULTS. ACTUAL INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT SHARES AND/OR UNITS, AT REDEMPTION, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PLEASE CALL (800) 366-0066 TO GET PERFORMANCE THROUGH THE MOST RECENT MONTH END. THIS REPORT CONTAINS STATEMENTS THAT MAY BE "FORWARD-LOOKING" STATEMENTS. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN THE "FORWARD-LOOKING" STATEMENTS. THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER, ONLY THROUGH THE END OF THE PERIOD AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE DAILY. (1) The Lehman Brothers Aggregate Bond Index is a widely recognized, unmanaged index of publicly issued investment grade U.S. Government, mortgage-backed, asset-backed and corporate debt securities. PRINCIPAL RISK FACTOR(S): Credit, interest rate and other risks that accompany debt instruments. Debt securities are subject to loss due to default in payment of principal and/or interest by an issuer. The ability of an issuer of a debt security to repay principal prior to a security's maturity can cause greater price volatility if interest rates change and less income is received due to prepayment in a lower interest rate environment. The Portfolio is generally expected to engage in frequent and active trading of portfolio securities, which may result in an increase in brokerage commissions and other transaction costs. An investment in the Portfolio is not guaranteed by the Federal Deposit Insurance Corporation. 7 THE USLICO ASSET ALLOCATION PORTFOLIO PORTFOLIO MANAGERS' REPORT PORTFOLIO MANAGEMENT TEAM: A team of investment professional led by James A. Vail, CFA, manages the equity portion, a team of investment professionals led by James B. Kauffmann manages the bond portion and a team of investment professionals led by Jennifer J. Thompson, CFA, manages the money market portion of the Portfolio. They are all with ING Investment Management Co. (formerly, Aeltus Investment Management, Inc.) -- the Sub-Adviser. GOAL: The USLICO Series Fund -- Asset Allocation Portfolio (the "Portfolio") seeks to obtain high total return with reduced risk over the long term by allocating its assets among stocks, bonds and short-term instruments. PERFORMANCE: For the six months ended June 30, 2004, the Portfolio provided a return of 3.37%, compared to the Standard & Poor's ("S&P") 500 Index(1) and the Lehman Brothers Aggregate Bond Index(2), which returned 3.44% and 0.16%, respectively, for the same period. PORTFOLIO SPECIFICS: The Portfolio benefited from strong performance in the information technology and health care sectors. The strong performing companies were Biogen IDEC, Inc., as well as Advance PCS and National Semiconductor, which were held during the period. Other strong individual performers were eBay, Inc. and Yahoo!, Inc. as both continued to take share from their traditional competitors. In the industrials sector, Tyco International Ltd. benefited from a company-specific turnaround, as well as leverage to the overall strengthening economy. Performance was hurt in the energy sector, as we did not hold any of the large integrated oil companies, such as Exxon Mobil, ChevronTexaco and Conoco Phillips. Our short duration stance was a major source of the good performance of the fixed income portion relative to the benchmark. During the period, we reduced our exposure to longer-dated and lower-rated corporates in the face of stretched valuations. As a rule, longer-dated, credit-sensitive paper underperformed. Our exposure in securitized sectors generally proved beneficial. A slight overweight in financial institutions early in the year contributed positively. In the second half of the reporting period, we were underweight the sector. This contributed positively to relative performance, as the sector fared poorly as the market prepared for Federal Reserve ("Fed") tightening. We were also underweight in dollar-denominated issues of foreign countries, another sector that had a negative return. Mortgages produced a small positive excess return, and our position varied from neutral to underweight during the period. Exposure to emerging market debt contributed to returns in the first half of the reporting period, but was a significant drag on our performance in the second half as incremental yield was not sufficient to offset price depreciation. However, our declining high yield exposure broadly supported returns, although the exposure is now miniscule. MARKET OUTLOOK: In our opinion, the market is performing well in the face of geopolitical uncertainties, high energy prices, and concerns over a weakening China economy. As we ended the period, despite recent indications of a measured response by the Fed to an expanding domestic economy, the market appeared to be transfixed on the letter of the statements and not the spirit. Again, in our opinion, the market is ignoring the fact that first-quarter earnings grew 27.5% year-over-year, and second-quarter projections call for a gain of 30%. All in all, the economic environment should be good for stocks, and we remain encouraged by the outlook. Near-term concerns should abate, as the year continues to unfold and the stock market should move higher by year-end. In the months ahead, employment and inflation releases and comments from Fed officials will likely remain key data as bond market observers seek to divine the timing, frequency, and magnitude of future tightenings. Tactically, the fixed income portion of the Portfolio is still short in duration in the face of anticipated improving global economic fundamentals, but we have reduced the magnitude of that posture following the recent rise in rates. We are neutral home mortgages, overweight asset-backed and commercial mortgage backed securities, and underweight the front-end of the yield curve, which appears most vulnerable in a tightening cycle. We are underweight agencies. Stretched valuations in investment-grade credit and plus sectors warrant some caution, and we have reduced the contribution to duration of these spread sectors. Additionally, we have reduced our exposure in emerging markets, and our high yield position has been eliminated with the exception of a few crossover and special situation issues that tend to track the investment grade market. However, we are watchful for points of potential re-entry. 8 PORTFOLIO MANAGERS' REPORT THE USLICO ASSET ALLOCATION PORTFOLIO
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED JUNE 30, 2004 ---------------------------------------------------------------- 1 YEAR 5 YEAR 10 YEAR ------ ------ ------- Asset Allocation Portfolio 13.25% (2.25)% 5.38% S&P 500 Index(1) 19.11% (2.17)% 11.87% Lehman Brothers Aggregate Bond Index(2) 0.32% 6.95% 7.39%
The table illustrates the total return of Asset Allocation Portfolio against both the S&P 500 Index and the Lehman Brothers Aggregate Bond Index. The Indices are unmanaged and have no cash in their portfolios, impose no sales charges and incur no operating expenses. An investor cannot invest directly in an index. The Portfolio's performance is shown without the imposition of any expenses or charges which are, or may be, imposed under your annuity contract. Total returns would have been lower if such expenses or charges were included. The performance table does not reflect the deduction of taxes that a shareholder will pay on Portfolio distributions or the redemption of Portfolio shares. TOTAL RETURNS REFLECT THE FACT THAT THE INVESTMENT MANAGER HAS WAIVED CERTAIN FEES AND OPERATING EXPENSES OTHERWISE PAYABLE BY THE PORTFOLIO, SUBJECT TO POSSIBLE LATER REIMBURSEMENT DURING A THREE-YEAR PERIOD. TOTAL RETURNS WOULD HAVE BEEN LOWER HAD THERE BEEN NO WAIVER TO THE PORTFOLIO. THE PERFORMANCE UPDATE ILLUSTRATES PERFORMANCE FOR A VARIABLE INVESTMENT OPTION AVAILABLE THROUGH A VARIABLE ANNUITY CONTRACT. THE PERFORMANCE SHOWN INDICATES PAST PERFORMANCE AND IS NOT A PROJECTION OR PREDICTION OF FUTURE RESULTS. ACTUAL INVESTMENT RETURNS AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT SHARES AND/OR UNITS, AT REDEMPTION, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PLEASE CALL (800) 366-0066 TO GET PERFORMANCE THROUGH THE MOST RECENT MONTH END. THIS REPORT CONTAINS STATEMENTS THAT MAY BE "FORWARD-LOOKING" STATEMENTS. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN THE "FORWARD-LOOKING" STATEMENTS. THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS, ONLY THROUGH THE END OF THE PERIOD AS STATED ON THE COVER. THE MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. PORTFOLIO HOLDINGS ARE SUBJECT TO CHANGE DAILY. (1) The S&P 500 Index is an unmanaged index that measures the performance of securities of approximately 500 large-capitalization companies whose securities are traded on major U.S. stock markets. (2) The Lehman Brothers Aggregate Bond Index is a widely recognized, unmanaged index of publicly issued investment grade U.S. Government, mortgage-backed, asset-backed and corporate debt securities. PRINCIPAL RISK FACTOR(S): Exposure to financial and market risks that accompany investments in equities. Credit, interest rate and other risks that accompany debt instruments. The value of securities of smaller issuers can be more volatile than that of larger issuers. Derivatives are subject to the risk of changes in the market price of a security, credit risk with respect to the counterparty to the derivative instrument, and the risk of loss due to changes in interest rates. Certain derivatives may also have a leveraging effect, which may increase the volatility of the portfolio. The ability of an issuer of a debt security to repay principal prior to a security's maturity can cause greater price volatility if interest rates change and less income is received due to prepayment in a lower interest rate environment. The Portfolio is generally expected to engage in frequent and active trading of portfolio securities, which may result in an increase in brokerage commissions and other transaction costs. An investment in the Portfolio is not guaranteed by the Federal Deposit Insurance Corporation. 9 STATEMENTS OF ASSETS AND LIABILITIES as of June 30, 2004 (Unaudited)
THE THE THE THE STOCK MONEY MARKET BOND ASSET ALLOCATION PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO -------------- -------------- -------------- ------------------ ASSETS: Investments in securities at value* $ 14,579,009 $ -- $ 2,804,928 $ 12,986,500 Short-term investments at amortized cost -- 5,004,194 -- -- Repurchase agreement 691,000 898,000 825,000 1,084,000 Cash 438 811 1,732 -- Receivables: Investment securities sold 350,015 -- 38,115 209,439 Dividends and interest 7,641 12,967 21,522 51,516 Prepaid expenses 105 93 85 109 Reimbursement due from manager -- 708 1,354 1,495 -------------- -------------- -------------- ------------------ Total assets 15,628,208 5,916,773 3,692,736 14,333,059 -------------- -------------- -------------- ------------------ LIABILITIES: Payable for investment securities purchased 73,757 -- 838,770 1,361,381 Income distribution payable -- 1,402 -- -- Payable to affiliates 4,861 1,770 851 3,854 Payable to custodian -- -- -- 416,791 Payable for trustee fees 4,018 3,061 2,125 3,020 Other accrued expenses and liabilities 80,992 22,121 23,565 59,397 -------------- -------------- -------------- ------------------ Total liabilities 163,628 28,354 865,311 1,844,443 -------------- -------------- -------------- ------------------ NET ASSETS $ 15,464,580 $ 5,888,419 $ 2,827,425 $ 12,488,616 ============== ============== ============== ================== NET ASSETS WERE COMPRISED OF: Paid-in capital $ 28,943,275 $ 5,889,063 $ 2,945,286 $ 16,480,575 Undistributed net investment income 17,480 -- 26,149 61,765 Accumulated net realized loss on investments and options (15,770,382) (644) (129,741) (5,282,921) Net unrealized appreciation (depreciation) on investments and options 2,274,207 -- (14,269) 1,229,197 -------------- -------------- -------------- ------------------ NET ASSETS $ 15,464,580 $ 5,888,419 $ 2,827,425 $ 12,488,616 ============== ============== ============== ================== - ---------- *Cost of investments in securities $ 12,304,802 $ -- $ 2,819,197 $ 11,757,303 Net assets $ 15,464,580 $ 5,888,419 $ 2,827,425 $ 12,488,616 Shares authorized unlimited unlimited unlimited unlimited Par value $ 0.001 $ 0.001 $ 0.001 $ 0.001 Shares outstanding 2,167,182 5,889,133 289,584 1,358,174 Net asset value and redemption price per share $ 7.14 $ 1.00 $ 9.76 $ 9.20
See Accompanying Notes to Financial Statements 10 STATEMENTS OF OPERATIONS for the six months ended June 30, 2004 (Unaudited)
THE THE THE THE STOCK MONEY MARKET BOND ASSET ALLOCATION PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO -------------- -------------- -------------- ------------------ INVESTMENT INCOME: Dividends, net of foreign taxes withheld* $ 53,142 $ -- $ 560 $ 36,526 Interest 30,185 35,859 59,235 127,050 -------------- -------------- -------------- ------------------ Total investment income 83,327 35,859 59,795 163,576 -------------- -------------- -------------- ------------------ EXPENSES: Investment management fees 36,554 15,380 7,480 33,334 Transfer agent fees 3,290 2,393 2,202 3,146 Administrative service fees 7,311 3,076 1,496 6,667 Shareholder reporting expense 4,807 2,026 925 4,588 Professional fees 17,990 13,845 6,370 18,955 Custody and accounting expense 9,659 2,730 9,730 17,265 Trustee fees 4,914 1,092 1,456 3,822 Miscellaneous expense 683 255 197 430 -------------- -------------- -------------- ------------------ Total expenses 85,208 40,797 29,856 88,207 -------------- -------------- -------------- ------------------ Less: Net waived and reimbursed fees 19,361 13,028 16,377 28,149 -------------- -------------- -------------- ------------------ Net expenses 65,847 27,769 13,479 60,058 -------------- -------------- -------------- ------------------ Net investment income 17,480 8,090 46,316 103,518 -------------- -------------- -------------- ------------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND OPTIONS: Net realized gain (loss) on: Investments 1,324,093 (644) 4,343 596,652 Options (5,036) -- -- (2,571) -------------- -------------- -------------- ------------------ Net realized gain (loss) on investments and options 1,319,057 (644) 4,343 594,081 -------------- -------------- -------------- ------------------ Net change in unrealized appreciation or depreciation on: Investments (565,030) -- (50,469) (223,574) Options (4,880) -- -- (2,440) -------------- -------------- -------------- ------------------ Net change in unrealized appreciation or depreciation on investments and options (569,910) -- (50,469) (226,014) -------------- -------------- -------------- ------------------ Net realized and unrealized gain (loss) on investments and options 749,147 (644) (46,126) 368,067 -------------- -------------- -------------- ------------------ INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 766,627 $ 7,446 $ 190 $ 471,585 ============== ============== ============== ================== - ---------- *Foreign taxes $ 125 $ -- $ -- $ 132
See Accompanying Notes to Financial Statements 11 STATEMENTS OF CHANGES IN NET ASSETS (Unaudited)
THE STOCK PORTFOLIO THE MONEY MARKET PORTFOLIO -------------------------------- ------------------------------------ SIX MONTHS YEAR SIX MONTHS YEAR ENDED ENDED ENDED ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 2004 2003 2004 2003 -------------- -------------- -------------- ------------------ FROM OPERATIONS: Net investment income (loss) $ 17,480 $ (28,209) $ 8,090 $ 17,877 Net realized gain (loss) on investments and options 1,319,057 1,044,281 (644) (69) Net change in unrealized appreciation or depreciation on investments and options (569,910) 2,720,022 -- -- -------------- -------------- -------------- ------------------ Net increase in net assets resulting from operations 766,627 3,736,094 7,446 17,808 -------------- -------------- -------------- ------------------ FROM DISTRIBUTIONS TO SHAREHOLDERS: Net investment income -- -- (8,090) (17,877) -------------- -------------- -------------- ------------------ Total distributions -- -- (8,090) (17,877) -------------- -------------- -------------- ------------------ FROM CAPITAL SHARE TRANSACTIONS: Net proceeds from sale of shares 415,432 412,117 -- -- Dividends reinvested -- -- 8,000 17,877 -------------- -------------- -------------- ------------------ 415,432 412,117 8,000 17,877 Cost of shares redeemed -- (5,854) (303,889) (282,842) -------------- -------------- -------------- ------------------ Net increase (decrease) in net asset resulting from capital share transactions 415,432 406,263 (295,889) (264,965) -------------- -------------- -------------- ------------------ Net increase (decrease) in net assets 1,182,059 4,142,357 (296,533) (265,034) -------------- -------------- -------------- ------------------ NET ASSETS: Beginning of period 14,282,521 10,140,164 6,184,952 6,449,986 -------------- -------------- -------------- ------------------ End of period $ 15,464,580 $ 14,282,521 $ 5,888,419 $ 6,184,952 ============== ============== ============== ================== Undistributed net investment income at end of period $ 17,480 $ -- $ -- $ -- ============== ============== ============== ==================
See Accompanying Notes to Financial Statements 12 STATEMENTS OF CHANGES IN NET ASSETS (Unaudited)
THE BOND PORTFOLIO THE ASSET ALLOCATION PORTFOLIO -------------------------------- ------------------------------------ SIX MONTHS YEAR SIX MONTHS YEAR ENDED ENDED ENDED ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 2004 2003 2004 2003 -------------- -------------- -------------- ------------------ FROM OPERATIONS: Net investment income $ 46,316 $ 112,733 $ 103,518 $ 222,669 Net realized gain on investments and options 4,343 41,841 594,081 642,224 Net change in unrealized appreciation or depreciation on investments and options (50,469) (19,376) (226,014) 1,258,624 -------------- -------------- -------------- ------------------ Net increase in net assets resulting from operations 190 135,198 471,585 2,123,517 -------------- -------------- -------------- ------------------ FROM DISTRIBUTIONS TO SHAREHOLDERS: Net investment income (24,203) (108,697) (47,573) (216,849) -------------- -------------- -------------- ------------------ Total distributions (24,203) (108,697) (47,573) (216,849) -------------- -------------- -------------- ------------------ FROM CAPITAL SHARE TRANSACTIONS: Dividends reinvested 24,203 108,697 47,573 216,849 Cost of shares redeemed (163,910) (230,065) (1,133,605) (575,963) -------------- -------------- -------------- ------------------ Net decrease in net asset resulting from capital share transactions (139,707) (121,368) (1,086,032) (359,114) -------------- -------------- -------------- ------------------ Net increase (decrease) in net assets (163,720) (94,867) (662,020) 1,547,554 -------------- -------------- -------------- ------------------ NET ASSETS: Beginning of period 2,991,145 3,086,012 13,150,636 11,603,082 -------------- -------------- -------------- ------------------ End of period $ 2,827,425 $ 2,991,145 $ 12,488,616 $ 13,150,636 ============== ============== ============== ================== Undistributed net investment income at end of period $ 26,149 $ 4,036 $ 61,765 $ 5,820 ============== ============== ============== ==================
See Accompanying Notes to Financial Statements 13 THE USLICO STOCK PORTFOLIO (UNAUDITED) FINANCIAL HIGHLIGHTS Selected data for a share of beneficial interest outstanding throughout each period.
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ---------------------------------------------------------- 2004 2003 2002 2001(1) 2000 1999 - -------------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 6.77 4.96 7.32 12.42 16.06 13.64 Income (loss) from investment operations: Net investment income (loss) $ 0.01 (0.01) (0.04) (0.05) (0.02) 0.12 Net realized and unrealized gain (loss) on investments $ 0.36 1.82 (2.32) (5.05) (3.18) 3.93 Total from investment operations $ 0.37 1.81 (2.36) (5.10) (3.20) 4.05 Less distributions from: Net investment income $ -- -- -- -- -- 0.13 Net realized gain on investments $ -- -- -- -- 0.44 1.50 Total distributions $ -- -- -- -- 0.44 1.63 Net asset value, end of period $ 7.14 6.77 4.96 7.32 12.42 16.06 TOTAL RETURN(2) % 5.47 36.49 (32.24) (41.06) (19.94) 30.08 RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 15,465 14,283 10,140 14,972 26,513 34,493 Ratios to average net assets: Net expenses after expense reimbursement(3)(4) % 0.90 0.90 0.90 0.90 0.62 0.90 Gross expenses prior to expense reimbursement(4) % 1.16 1.08 1.47 1.42 0.87 1.15 Net investment income (loss) after expense reimbursement(3)(4) % 0.24 (0.24) (0.59) (0.61) (0.11) 0.84 Portfolio turnover rate % 63 189 418 510 365 306
(1) Effective May 11, 2001, ING Investments, LLC began serving as Adviser to the Portfolio. (2) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value. Total returns for periods less than one year are not annualized. (3) The Investment Adviser has agreed to limit expenses, (excluding interest, taxes, brokerage and extraordinary expenses) subject to possible recoupment by ING Investments, LLC within three years. (4) Annualized for periods less than one year. See Accompanying Notes to Financial Statements. 14 THE USLICO MONEY MARKET PORTFOLIO (UNAUDITED) FINANCIAL HIGHLIGHTS Selected data for a share of beneficial interest outstanding throughout each period.
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ---------------------------------------------------------- 2004 2003 2002 2001(1) 2000(2) 1999 - -------------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 1.00 1.00 1.00 1.00 1.00 1.00 Income from investment operations: Net investment income $ 0.00* 0.00* 0.01 0.03 0.05 0.04 Total from investment operations $ 0.00* 0.00* 0.01 0.03 0.05 0.04 Less distributions from: Net investment income $ 0.00* 0.00* 0.01 0.03 0.05 0.04 Total distributions $ 0.00* 0.00* 0.01 0.03 0.05 0.04 Net asset value, end of period $ 1.00 1.00 1.00 1.00 1.00 1.00 TOTAL RETURN(3) % 0.13 0.28 0.88 3.14 5.59 5.00 RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 5,888 6,185 6,450 6,400 6,331 6,058 Ratios to average net assets: Net expenses after expense reimbursement(4)(5) % 0.90 0.90 0.78 0.90 0.90 0.90 Gross expenses prior to expense reimbursement(5) % 1.33 1.11 1.03 1.63 1.34 1.15 Net investment income after expense reimbursement(4)(5) % 0.26 0.28 0.97 3.13 5.45 4.27
(1) Effective May 11, 2001, ING Investments, LLC ceased serving as the Sub-Adviser to the Portfolio and began serving as Adviser to the Portfolio. (2) Effective December 1, 2000, ING Investments, LLC became Sub-Adviser to the Portfolio. (3) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value. Total returns for periods less than one year are not annualized. (4) The Investment Adviser has agreed to limit expenses, (excluding interest, taxes, brokerage and extraordinary expenses) subject to possible recoupment by ING Investments, LLC within three years. (5) Annualized for periods less than one year. * Amount is less than $0.01 per share. See Accompanying Notes to Financial Statements. 15 THE USLICO BOND PORTFOLIO (UNAUDITED) FINANCIAL HIGHLIGHTS Selected data for a share of beneficial interest outstanding throughout each period.
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ---------------------------------------------------------- 2004 2003 2002 2001(1) 2000(2) 1999 - -------------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 9.84 9.75 9.41 9.21 9.01 9.74 Income (loss) from investment operations: Net investment income $ 0.16 0.36 0.39 0.48 0.40 0.46 Net realized and unrealized gain (loss) on investments $ (0.16) 0.08 0.35 0.11 0.20 (0.73) Total from investment operations $ -- 0.44 0.74 0.59 0.60 (0.27) Less distributions from: Net investment income $ 0.08 0.35 0.40 0.39 0.40 0.46 Total distributions $ 0.08 0.35 0.40 0.39 0.40 0.46 Net asset value, end of period $ 9.76 9.84 9.75 9.41 9.21 9.01 TOTAL RETURN(3) % (0.81) 4.57 8.07 6.47 6.74 (2.87) RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 2,827 2,991 3,086 2,846 2,881 2,765 Ratios to average net assets: Net expenses after expense reimbursement(4)(5) % 0.90 0.91 0.89 0.90 0.90 0.90 Gross expenses prior to expense reimbursement(5) % 2.00 1.52 1.37 2.15 1.83 1.15 Net investment income after expense reimbursement(4)(5) % 3.10 3.65 4.20 5.02(6) 4.30 4.88 Portfolio turnover rate % 253 368 159 215 49 46
(1) Effective May 11, 2001, ING Investments, LLC ceased serving as the Sub-Adviser to the Portfolio and began serving as Adviser to the Portfolio. (2) Effective December 1, 2000, ING Investments, LLC became Sub-Adviser to the Portfolio. (3) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value. Total returns for periods less than one year are not annualized. (4) The Investment Adviser has agreed to limit expenses, (excluding interest, taxes, brokerage and extraordinary expenses) subject to possible recoupment by ING Investments, LLC within three years. (5) Annualized for periods less than one year. (6) Had the Bond Portfolio not amortized premiums and accreted discounts the ratio of net investment income to average net assets would have been 4.56%. See Accompanying Notes to Financial Statements. 16 THE USLICO ASSET ALLOCATION PORTFOLIO (UNAUDITED) FINANCIAL HIGHLIGHTS Selected data for a share of beneficial interest outstanding throughout each period.
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ---------------------------------------------------------- 2004 2003 2002 2001(1) 2000(2) 1999 - -------------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 8.90 7.64 8.64 11.04 12.68 11.92 Income (loss) from investment operations: Net investment income $ 0.37 0.15 0.19 0.22 0.18 0.31 Net realized and unrealized gain (loss) on investments $ 0.25 1.25 (0.94) (2.43) (1.41) 1.48 Total from investment operations $ 0.62 1.40 (0.75) (2.21) (1.23) 1.79 Less distributions from: Net investment income $ 0.32 0.14 0.25 0.19 0.18 0.31 Net realized gain on investments $ -- -- -- -- 0.23 0.72 Total distributions $ 0.32 0.14 0.25 0.19 0.41 1.03 Net asset value, end of period $ 9.20 8.90 7.64 8.64 11.04 12.68 TOTAL RETURN(3) % 3.37 18.54 (8.72) (20.09) (9.80) 15.10 RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 12,489 13,151 11,603 12,752 15,591 18,180 Ratios to average net assets: Net expenses after expense reimbursement(4)(5) % 0.90 0.91 0.90 0.90 0.90 0.90 Gross expenses prior to expense reimbursement(5) % 1.32 1.07 1.34 1.76 1.18 1.15 Net investment income after expense reimbursement(4)(5) % 1.55 1.81 2.42 2.37(6) 1.44 2.58 Portfolio turnover rate % 142 210 258 354 243 227
(1) Effective May 11, 2001, ING Investments, LLC ceased serving as the Sub-Adviser to the Portfolio and began serving as Adviser to the Portfolio. (2) Effective December 1, 2000, ING Investments, LLC became Sub-Adviser to the Portfolio. (3) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value. Total returns for periods less than one year are not annualized. (4) The Investment Adviser has agreed to limit expenses, (excluding interest, taxes, brokerage and extraordinary expenses) subject to possible recoupment by ING Investments, LLC within three years. (5) Annualized for periods less than one year. (6) Had the Asset Allocation Portfolio not amortized premiums and accreted discounts the ratio of net investment income to average net assets would have been 2.09%. See Accompanying Notes to Financial Statements. 17 NOTES TO FINANCIAL STATEMENTS as of June 30, 2004 (Unaudited) NOTE 1 -- ORGANIZATION ORGANIZATION. USLICO Series Fund (the "Fund") is an open-end, diversified management investment company registered under the Investment Company Act of 1940 and consisting of four separate portfolios. The four portfolios of the Fund are as follows: The Stock Portfolio ("Stock Portfolio"), The Money Market Portfolio ("Money Market Portfolio"), The Bond Portfolio ("Bond Portfolio") and The Asset Allocation Portfolio ("Asset Allocation Portfolio"). Each Portfolio has its own investment objectives and policies which are detailed in the Prospectus for each Portfolio. The Fund was organized as a business trust under the laws of Massachusetts on January 19, 1988. Shares of the Portfolio are sold only to separate accounts of ReliaStar Life Insurance Company (ReliaStar Life) and ReliaStar Life Insurance Company of New York (ReliaStar Life of New York, a wholly owned subsidiary of ReliaStar Life) to serve as the investment medium for variable life insurance policies issued by these companies. The separate accounts invest in shares of one or more of the Portfolios, in accordance with allocation instructions received from policyowners. Each Portfolio share outstanding represents a beneficial interest in the respective Portfolio. ING Investments, LLC ("ING Investments"), an Arizona limited liability company, serves as the investment adviser to the Portfolios. ING Investments has engaged ING Investment Management Co. (formerly, Aeltus Investment Management, Inc., "ING IM"), a Connecticut corporation, to serve as the Sub-Adviser to the Portfolios. ING Funds Distributor, LLC is the principal underwriter of the Portfolios. ING Funds Services, LLC serves as the administrator to each Portfolio. ING Investments, ING IM, ING Funds Distributor, LLC and ING Funds Services, LLC are indirect wholly-owned subsidiaries of ING Groep N.V. ING Groep N.V. is a global financial institution active in the field of insurance, banking and asset management. NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES The following significant accounting policies are consistently followed by the Portfolios in the preparation of their financial statements. Such policies are in conformity with accounting principles generally accepted in the United States of America for investment companies. A. SECURITY VALUATION. Investments in equity securities traded on a national securities exchange are valued at the last reported sale price. Securities reported by NASDAQ will be valued at the NASDAQ official closing prices. Securities traded on an exchange or NASDAQ for which there has been no sale and securities traded in the over-the-counter-market are valued at the mean between the last reported bid and ask prices. All investments quoted in foreign currencies will be valued daily in U.S. dollars on the basis of the foreign currency exchange rates prevailing at that time. Debt securities are valued at prices obtained from independent services or from one or more dealers making markets in the securities and may be adjusted based on the Portfolios' valuation procedures. U.S. Government obligations are valued by using market quotations or independent pricing services that use prices provided by market-makers or estimates of market values obtained from yield data relating to instruments or securities with similar characteristics. Securities and assets for which market quotations are not readily available (which may include certain restricted securities which are subject to limitations as to their sale) are valued at their fair values as determined in good faith by or under the supervision of the Portfolio's Board of Directors ("Board"), in accordance with methods that are specifically authorized by the Board. Securities traded on exchanges, including foreign exchanges, which close earlier than the time that a Portfolio calculates its net asset value may also be valued at their fair values as determined in good faith by or under the supervision of a Portfolio's Board, in accordance with methods that are specifically authorized by the Board. If a significant event which is likely to impact the value of one or more foreign securities held by Portfolio occurs after the time at which the foreign market for such security(ies) closes but before the time that the Portfolio's net asset value is calculated on any business day, such event may be taken into account in determining the fair value of such security(ies) at the time the Portfolio calculates its net asset value. For these purposes, significant events after the close of trading on a foreign market may include, among others, securities trading in the U.S. and other markets, corporate announcements, natural and other disasters, and political and other events. Among other elements of analysis, the Board has authorized the use of one or more research services to assist with the determination of the fair value of foreign securities in light of significant events. Research services use statistical 18 NOTES TO FINANCIAL STATEMENTS as of June 30, 2004 (Unaudited) (continued) NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) analyses and quantitative models to help determine fair value as of the time a Portfolio calculates its net asset value. Unlike the closing price of a security on an exchange, fair value determinations employ elements of judgment, and the fair value assigned to a security may not represent the actual value that a Portfolio could obtain if it were to sell the security at the time the close of the NYSE. Investments in securities maturing in less than 60 days are valued at amortized cost, which, when combined with accrued interest, approximates market value. B. SECURITY TRANSACTIONS AND REVENUE RECOGNITION. Securities transactions are accounted for on the trade date. Realized gains and losses are reported on the basis of identified cost of securities sold. Interest income is recorded on an accrual basis. Dividend income is recorded on the ex-dividend date, or for certain foreign securities, when the information becomes available to the Portfolios. Premium amortization and discount accretion are determined by the effective yield method. C. PURCHASES AND SALES. Purchases and sales of Portfolio shares are made on the basis of the net asset value per share prevailing at the close of business on the preceding business day. D. DISTRIBUTIONS TO SHAREHOLDERS. The Portfolios record distributions to their shareholders on ex-dividend date. Dividends from net investment income and capital gains, if any, are declared and paid annually by the Portfolios. The Portfolios may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code. The characteristics of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from accounting principles generally accepted in the United States of America for investment companies. E. FEDERAL INCOME TAXES. It is the policy of the Portfolios to comply with subchapter M of the Internal Revenue Code and related excise tax provisions applicable to regulated investment companies and to distribute substantially all of their net investment income and any net realized capital gains to their shareholders. Therefore, no federal income tax provision is required. No capital gain distributions shall be made until any capital loss carryforwards have been fully utilized or expired. F. USE OF ESTIMATES. Management of the Portfolios has made certain estimates and assumptions relating to the reporting of assets, liabilities, income, and expenses to prepare these financial statements in conformity with accounting principles generally accepted in the United States of America for investment companies. Actual results could differ from these estimates. G. REPURCHASE AGREEMENTS. Each Portfolio may invest in repurchase agreements only with government securities dealers recognized by the Board of Governors of the Federal Reserve System. Under such agreements, the seller of the security agrees to repurchase it at a mutually agreed upon time and price. The resale price is in excess of the purchase price and reflects an agreed upon interest rate for the period of time the agreement is outstanding. The period of the repurchase agreements is usually short, from overnight to one week, while the underlying securities generally have longer maturities. Each Portfolio will receive as collateral securities acceptable to it whose market value is equal to at least 100% of the carrying amount of the repurchase agreements, plus accrued interest, being invested by the Portfolio. The underlying collateral is valued daily on a mark to market basis to assure that the value, including accrued interest is at least equal to the repurchase price. If the seller defaults, a Portfolio might incur a loss or delay in the realization of proceeds if the value of the security collateralizing the repurchase agreement declines, and it might incur disposition costs in liquidating the collateral. H. ILLIQUID AND RESTRICTED SECURITIES. The Portfolios may not invest more than 10% of their net assets in illiquid securities. Illiquid securities are not readily marketable. Disposing of illiquid investments may involve time-consuming negotiation and legal expenses, and it may be difficult or impossible for the Portfolios to sell them promptly at an acceptable price. Each Portfolio may also invest in restricted securities, which include those sold under Rule 144A of the Securities Act of 1933 (1933 Act) or securities offered pursuant to Section 4(2) of the 1933 Act, and/or are subject to legal or contractual restrictions on resale and may not be publicly sold without registration under the 1933 Act. Certain restricted securities may be considered liquid pursuant to procedures adopted by the Board or may be deemed to be illiquid because they may not be readily marketable. Illiquid and 19 NOTES TO FINANCIAL STATEMENTS as of June 30, 2004 (Unaudited) (continued) NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) restricted securities are valued using market quotations when readily available. In the absence of market quotations, the securities are valued based upon their fair value determined under procedures approved by the Board. I. DELAYED DELIVERY TRANSACTIONS. The Portfolios may purchase or sell securities on a when-issued or forward commitment basis. The price of the underlying securities and date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. The market value of such is identified in each Portfolio's Portfolio of Investments. Losses may arise due to changes in the market value of the securities or from the inability of counterparties to meet the terms of the contract. In connection with such purchases, the Portfolios are required to segregate liquid assets sufficient to cover the purchase price. J. MORTGAGE DOLLAR ROLL TRANSACTIONS. In connection with a Portfolio's ability to purchase or sell securities on a when-issued basis, the Portfolios may engage in dollar roll transactions with respect to mortgage-backed securities issued by Government National Mortgage Association, Federal National Mortgage Association and Federal Home Loan Mortgage Corp. In a dollar roll transaction, a Portfolio sells a mortgage-backed security to a financial institution, such as a bank or broker/dealer, and simultaneously agrees to repurchase a substantially similar (i.e., same type, coupon, and maturity) security from the institution on a delayed delivery basis an agreed upon price. The mortgage-backed securities that are repurchased will bear the same interest rate as those sold, but generally will be collateralized by different pools of mortgages with different prepayment histories. The Portfolios account for dollar roll transactions as purchases and sales. K. OPTIONS CONTRACTS. Stock and Asset Allocation Portfolios may purchase put and call options and may write (sell) call options on debt and other securities in standardized contracts traded on national securities exchanges or boards of trade. Option contracts are valued daily and unrealized gains or losses are recorded based upon the last sales price on the principal exchange on which the options are traded. The Portfolios will realize a gain or loss upon the expiration or closing of the option contract. When an option is exercised, the proceeds on sales of the underlying security for a written call option, the purchase cost of the security for a written put option, or the cost of the security for a purchased put or call option is adjusted by the amount of premium received or paid. Realized and unrealized gains or losses on option contracts are reflected in the accompanying financial statements. The risk in writing a call option is that the Portfolios give up the opportunity for profit if the market price of the security increases and the option is exercised. The risk in writing a put option is that the Portfolios may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Portfolios pay a premium whether or not the option is exercised. Risks may also arise from an illiquid secondary market or from the inability of counterparties to meet the terms of the contract. NOTE 3 -- INVESTMENT TRANSACTIONS For the six months ended June 30, 2004, the cost of purchases and the proceeds from the sales of securities, excluding short-term securities, were as follows:
PURCHASES SALES ------------ ------------ Stock Portfolio $ 8,848,973 $ 8,909,690 Bond Portfolio 903,688 1,109,248 Asset Allocation Portfolio 6,075,933 6,583,785
U.S. Government securities not included above were as follows:
PURCHASES SALES ------------ ------------ Bond Portfolio $ 6,443,606 $ 6,185,366 Asset Allocation Portfolio 11,608,203 11,081,214
NOTE 4 -- INVESTMENT MANAGEMENT AND ADMINISTRATIVE FEES The Portfolios have entered into an Investment Management Agreement with ING Investments (the "Investment Manager"). The Investment Management Agreement compensates the Investment Manager with a fee, computed daily and payable monthly, based on the average daily net assets of each Portfolio, at the annual percentage rate of 0.50% on the first $100 million of average daily net assets and 0.45% of average daily net assets in excess therof. The Investment Manager entered into a Sub-Advisory Agreement with ING IM. Subject to such policies as the Board or the Investment Manager may determine, ING IM manages the Portfolios' assets in accordance with Portfolios' investment objectives, policies, and limitations. 20 NOTES TO FINANCIAL STATEMENTS as of June 30, 2004 (Unaudited) (continued) NOTE 4 -- INVESTMENT MANAGEMENT AND ADMINISTRATIVE FEES (CONTINUED) The Investment Manager has contractually agreed to waive management fees charged to each of the Portfolios to the extent they exceed 0.25% of the average daily net assets of each Portfolio. The Investment Manager has also agreed to limit the annual expenses of each Portfolio, other than management fees, to 0.65% of the average net assets of each Portfolio. The Investment Manager may at a later date recoup from a Portfolio for management fees waived and other expenses assumed by the Investment Manager during the previous 36 months, but only if, after such reimbursement, the Portfolios' expense ratio does not exceed the percentage described above. Waived and reimbursed fees net of any recoupment by the Investment Manager of such waived and reimbursed fees are reflected on the accompanying Statements of Operations. As of June 30, 2004, the amounts of reimbursed fees that are subject to possible recoupment by the Investment Manager and the related expiration dates are as follows:
JUNE 30, ------------------------------------ 2005 2006 2007 TOTAL ---------- ---------- ---------- ---------- Stock Portfolio $ 61,463 $ 41,107 $ 7,357 $ 109,927 Money Market Portfolio 45,414 -- 16,481 61,895 Bond Portfolio 53,736 8,271 25,261 87,268 Asset Allocation Portfolio 104,976 16,730 21,125 142,831
The Expense Limitation Agreement is contractual and shall renew automatically for one-year terms unless ING Investments provides written notice of the termination of the Expense Limitation Agreement within 90 days of the end of the then current term. Pursuant to an Administration Agreement, ING Funds Services, LLC ("IFS") serves as administrator and provides certain administrative and shareholder services necessary for Portfolio operations and is responsible for the supervision of other service providers. IFS is entitled to receive from each Portfolio a fee at an annual rate of 0.10% of each Portfolio's average daily net assets. ING Funds Distributor, LLC serves as Distributor of the Portfolios. No fees are charged to the Portfolios for distribution services. NOTE 5 -- OTHER TRANSACTIONS WITH AFFILIATED AND RELATED PARTIES At June 30, 2004, the Portfolios had the following amounts recorded in payable to affiliates on the accompanying Statements of Assets and Liabilities (see Note 4):
ACCRUED INVESTMENT ACCRUED MANAGEMENT ADMINISTRATIVE FEES FEES TOTAL ---------- -------------- --------- Stock Portfolio $ 3,647 $ 1,214 $ 4,861 Money Market Portfolio 1,265 505 1,770 Bond Portfolio 608 243 851 Asset Allocation Portfolio 2,754 1,100 3,854
Each Portfolio has adopted a Retirement Policy covering all independent trustees of the Portfolio who will have served as an independent trustee for at least five years at the time of retirement. Benefits under this plan are based on an annual rate as defined in the plan agreement. NOTE 6 -- CALL OPTIONS WRITTEN Written option activity for the Stock and Asset Allocation Portfolios for the six months ended June 30, 2004 was as follows:
NUMBER OF PREMIUMS CONTRACTS RECEIVED --------- --------- STOCK PORTFOLIO Options outstanding at December 31, 2003 40 $ 5,280 Options written -- -- Options expired (40) (5,280) ASSET ALLOCATION PORTFOLIO Options outstanding at December 31, 2003 20 $ 2,640 Options written -- -- Options expired (20) (2,640)
NOTE 7 -- LINE OF CREDIT The Portfolios, in addition to certain other funds managed by the Investment Manager, have entered into an unsecured committed revolving line of credit agreement (the "Credit Agreement") with The Bank of New York for an aggregate amount of $125,000,000. The proceeds may be used to: (1) temporarily finance the purchase and sale of securities; (2) finance the redemption of shares of an investor in the funds; and (3) enable the funds to meet other emergency expenses as defined in the Credit Agreement. The funds to which the line of credit is available pay a commitment fee equal to 0.09% per annum on the daily unused portion of the committed line amount 21 NOTES TO FINANCIAL STATEMENTS as of June 30, 2004 (Unaudited) (continued) NOTE 7 -- LINE OF CREDIT (CONTINUED) payable quarterly in arrears. The Asset Allocation Portfolio utilized the line of credit for one day during the six months ended June 30, 2004, with a daily balance of $500,000 and an interest rate of 1.50%. NOTE 8 -- CAPITAL SHARE TRANSACTIONS Transaction in capital shares and dollars were as follows:
SIX MONTHS ENDED YEAR ENDED JUNE 30, 2004 DECEMBER 31, 2003 ------------------ ------------------ STOCK PORTFOLIO (NUMBER OF SHARES) Shares sold 58,843 65,938 Shares redeemed -- (936) ------------------ ------------------ Net increase in shares outstanding 58,843 65,002 ================== ================== STOCK PORTFOLIO ($) Shares sold $ 415,432 $ 412,117 Shares redeemed -- (5,854) ------------------ ------------------ Net increase $ 415,432 $ 406,263 ================== ================== SIX MONTHS ENDED YEAR ENDED JUNE 30, 2004 DECEMBER 31, 2003 ------------------ ------------------ MONEY MARKET PORTFOLIO (NUMBER OF SHARES) Shares reinvested 8,000 17,877 Shares redeemed (303,889) (282,842) ------------------ ------------------ Net decrease in shares outstanding (295,889) (264,965) ================== ================== MONEY MARKET PORTFOLIO ($) Shares reinvested $ 8,000 $ 17,877 Shares redeemed (303,889) (282,842) ------------------ ------------------ Net decrease $ (295,889) $ (264,965) ================== ================== SIX MONTHS ENDED YEAR ENDED JUNE 30, 2004 DECEMBER 31, 2003 ------------------ ------------------ BOND PORTFOLIO (NUMBER OF SHARES) Shares reinvested 2,428 11,049 Shares redeemed (16,898) (23,500) ------------------ ------------------ Net decrease in shares outstanding (14,470) (12,451) ================== ================== BOND PORTFOLIO ($) Shares reinvested $ 24,203 $ 108,697 Shares redeemed (163,910) (230,065) ------------------ ------------------ Net decrease $ (139,707) $ (121,368) ================== ================== SIX MONTHS ENDED YEAR ENDED JUNE 30, 2004 DECEMBER 31, 2003 ------------------ ------------------ ASSET ALLOCATION PORTFOLIO (NUMBER OF SHARES) Shares reinvested 5,193 26,221 Shares redeemed (124,435) (67,760) ------------------ ------------------ Net decrease in shares outstanding (119,242) (41,539) ================== ================== ASSET ALLOCATION PORTFOLIO ($) Shares reinvested $ 47,573 $ 216,849 Shares redeemed (1,133,605) (575,963) ------------------ ------------------ Net decrease $ (1,086,032) $ (359,114) ================== ==================
22 NOTES TO FINANCIAL STATEMENTS as of June 30, 2004 (Unaudited) (continued) NOTE 9 -- FEDERAL INCOME TAXES The amount of distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations, which may differ from accounting principles generally accepted in the United States of America for investment companies. These book/tax differences may be either temporary or permanent. Permanent differences are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences are not reclassified. Key differences include the treatment of short-term capital gains, foreign currency transactions, and wash sale deferrals. Distributions in excess of net investment income and/or net realized capital gains for tax purposes are reported as distributions of paid-in capital. Dividends paid by the Portfolios from net investment income and distributions of net realized short-term capital gains are, for federal income tax purposes, taxable as ordinary income to shareholders. The tax composition of dividends and distributions to shareholders was as follows:
SIX MONTHS ENDED YEAR ENDED JUNE 30, 2004 DECEMBER 31, 2003 ORDINARY INCOME ORDINARY INCOME ---------------- ----------------- Money Market Portfolio $ 8,090 $ 17,877 Bond Portfolio 24,203 108,697 Asset Allocation Portfolio 47,573 216,849
The tax-basis components of distributable earnings and the expiration dates of the capital loss carryforwards which may be used to offset future realized capital gains for federal income tax purposes as of December 31, 2003 were as follows:
UNREALIZED CAPITAL UNDISTRIBUTED APPRECIATION/ LOSS EXPIRATION ORDINARY INCOME (DEPRECIATION) CARRYFORWARDS DATES --------------- -------------- --------------- ---------- Stock Portfolio $ -- $ 2,822,516 $ (13,524,755) 2009 (3,543,083) 2010 --------------- $ (17,067,838) =============== Bond Portfolio 4,058 36,200 $ (119,834) 2009 (14,250) 2010 --------------- $ (134,084) =============== Asset Allocation Portfolio 5,864 1,442,395 $ (4,571,088) 2009 (1,293,099) 2010 --------------- $ (5,864,187) ===============
NOTE 10 -- ILLIQUID SECURITIES Pursuant to guidelines adopted by the Portfolios' Board, the following securities have been deemed to be illiquid. The Portfolios currently limit investment in illiquid securities to 10% of the Portfolios' net assets, at market value, at time of purchase.
INITIAL PERCENT PRINCIPAL ACQUISITION OF NET PORTFOLIO SECURITY AMOUNT PORTFOLIO COST VALUE ASSETS - --------- -------- --------- ----------- -------- --------- -------- Bond Federal Home Loan Mortgage Corp., 4.458%, due 12/01/26 $ 17,060 09/11/97 $ 17,335 $ 16,551 0.6% Federal National Mortgage Association, 3.454%, due 07/01/27 1,455 10/02/97 1,476 1,475 0.1% Federal National Mortgage Association, 3.555%, due 07/01/27 11,317 09/11/97 11,507 11,522 0.4% United Cos. Financial Corp., 0.000%, due 11/02/99 100,000 11/07/01 -- -- 0.0% -------- --------- -------- $ 30,318 $ 29,549 1.1% ======== ========= ======== Asset Allocation Federal Home Loan Mortgage Corp., 4.458%, due 12/01/26 44,618 09/11/97 45,184 43,288 0.3% Federal National Mortgage Association, 3.454%, due 07/01/27 7,275 10/02/97 7,364 7,376 0.1% Federal National Mortgage Association, 3.555%, due 07/01/27 30,104 09/11/97 30,523 30,650 0.2% United Cos. Financial Corp., 0.000%, due 11/02/99 200,000 11/07/01 -- -- 0.0% -------- --------- -------- $ 83,071 $ 81,313 0.6% ======== ========= ========
23 NOTES TO FINANCIAL STATEMENTS as of June 30, 2004 (Unaudited) (continued) NOTE 11 -- OTHER INFORMATION As with many financial services companies, ING Investments and affiliates of ING Investments (collectively, "ING") have received requests for information from various governmental and self-regulatory agencies in connection with investigations related to trading in investment company shares. In each case, full cooperation and responses are being provided. In addition to responding to regulatory requests, ING management initiated an internal review of trading in ING insurance, retirement, and mutual fund products. The goal of this review has been to identify whether there have been any instances of inappropriate trading in those products by third parties or by ING investment professionals and other ING personnel. Additionally, ING reviewed its controls and procedures in a continuing effort to deter improper frequent trading in ING products. ING's internal reviews related to mutual fund trading are continuing. The internal review has identified several arrangements allowing third parties to engage in frequent trading of mutual funds within our variable insurance and mutual fund products, and identified other circumstances where frequent trading occurred despite measures taken by ING intended to combat market timing. In addition, the review has identified five arrangements that allowed frequent trading in certain ING Funds. ING entities did not receive special benefits in return for any of these arrangements, which have all been terminated. The internal review also identified two investment professionals who engaged in improper frequent trading in ING Funds. ING will reimburse any ING Fund or its shareholders affected by inappropriate trading for any improper profits that accrued to any person who engaged in improper frequent trading for which ING is responsible. NOTE 12 -- SUBSEQUENT EVENT DIVIDENDS. Subsequent to June 30, 2004, the following Portfolios declared dividends from net investment income of:
PER SHARE AMOUNT PAYABLE DATE RECORD DATE --------- ------------ ------------- Stock Portfolio $ 0.0081 July 1, 2004 June 30, 2004 Bond Portfolio $ 0.0904 July 1, 2004 June 30, 2004 Asset Allocation Portfolio $ 0.0455 July 1, 2004 June 30, 2004
24 PORTFOLIO OF INVESTMENTS THE USLICO STOCK PORTFOLIO as of June 30, 2004 (Unaudited)
SHARES VALUE - ------------------------------------------------------------------------------------ COMMON STOCK: 94.2% AEROSPACE/DEFENSE: 5.1% 5,515 @ Alliant Techsystems, Inc. $ 349,320 2,750 General Dyna 273,075 4,900 @ United Defense Industries, Inc. 171,500 -------------- 793,895 -------------- AGRICULTURE: 1.1% 3,400 Altria Group, Inc. 170,170 -------------- 170,170 -------------- APPAREL: 1.3% 5,750 Polo Ralph Lauren Corp. 198,088 -------------- 198,088 -------------- AUTO MANUFACTURERS: 1.1% 2,850 Paccar, Inc. 165,272 -------------- 165,272 -------------- BANKS: 1.2% 3,300 Wells Fargo & Co. 188,859 -------------- 188,859 -------------- BEVERAGES: 2.0% 3,100 Coca-Cola Co. 156,488 2,900 PepsiCo, Inc. 156,252 -------------- 312,740 -------------- BIOTECHNOLOGY: 4.5% 2,750 @ Amgen, Inc. 150,068 4,495 @ Biogen IDEC, Inc. 284,308 4,600 @ Celgene Corp. 263,396 -------------- 697,772 -------------- CHEMICALS: 3.0% 2,200 Air Products & Chemicals, Inc. 115,390 2,950 Praxair, Inc. 117,735 5,500 Sherwin-Williams Co. 228,525 -------------- 461,650 -------------- COMMERCIAL SERVICES: 1.4% 8,600 Cendant Corp. 210,528 -------------- 210,528 -------------- COMPUTERS: 2.5% 7,750 Hewlett-Packard Co. 163,525 2,500 International Business Machines Corp. 220,375 -------------- 383,900 -------------- DIVERSIFIED FINANCIAL SERVICES: 9.4% 10,000 Citigroup, Inc. 464,999 3,220 Countrywide Financial Corp. 226,205 3,300 Goldman Sachs Group, Inc. 310,728 5,850 JP Morgan Chase & Co. 226,805 3,200 Lehman Brothers Holdings, Inc. 240,800 -------------- 1,469,537 -------------- ELECTRONICS: 3.0% 4,600 @ Amphenol Corp. 153,272 5,200 Parker Hannifin Corp. 309,192 -------------- 462,464 -------------- ENTERTAINMENT: 1.0% 4,000 International Game Technology 154,400 -------------- 154,400 -------------- ENVIRONMENTAL CONTROL: 1.8% 5,300 @ Stericycle, Inc. $ 274,222 -------------- 274,222 -------------- HEALTHCARE-PRODUCTS: 3.0% 5,500 @ Boston Scientific Corp. 235,400 3,700 @ Inamed Corp. 232,545 -------------- 467,945 -------------- HEALTHCARE-SERVICES: 1.1% 1,500 @ WellPoint Health Networks 168,015 -------------- 168,015 -------------- INSURANCE: 2.3% 5,000 American Intl. Group 356,400 -------------- 356,400 -------------- INTERNET: 5.8% 4,250 @ eBay, Inc. 390,788 13,800 @ Yahoo!, Inc. 501,353 -------------- 892,141 -------------- LEISURE TIME: 2.7% 4,150 Carnival Corp. 195,050 3,500 Harley-Davidson, Inc. 216,790 -------------- 411,840 -------------- LODGING: 1.5% 3,000 Marriott Intl., Inc. 149,640 1,800 Starwood Hotels & Resorts Worldwide, Inc. 80,730 -------------- 230,370 -------------- MACHINERY-DIVERSIFIED: 1.8% 7,450 Rockwell Automation, Inc. 279,450 -------------- 279,450 -------------- MEDIA: 2.5% 12,552 @ DIRECTV Group, Inc. 214,639 6,800 Walt Disney Co. 173,332 -------------- 387,971 -------------- MISCELLANEOUS MANUFACTURING: 6.8% 1,550 3M Co. 139,516 2,950 Eaton Corp. 190,983 6,850 General Electric Co. 221,940 14,950 @@ Tyco Intl. Ltd. 495,442 -------------- 1,047,881 -------------- OIL AND GAS: 2.6% 8,800 @,@@ Nabors Industries Ltd. 397,936 -------------- 397,936 -------------- PHARMACEUTICALS: 7.7% 2,800 @ Barr Laboratories, Inc. 94,360 9,464 @ Caremark Rx, Inc. 311,744 2,450 @ Gilead Sciences, Inc. 164,150 5,850 @ Par Pharmaceutical Cos., Inc. 205,979 12,650 Pfizer, Inc. 433,641 -------------- 1,209,874 -------------- RETAIL: 3.8% 700 @ Cabela's, Inc. 18,865 4,750 @ Chico's FAS, Inc. 214,510
See Accompanying Notes to Financial Statements 25 PORTFOLIO OF INVESTMENTS THE USLICO STOCK PORTFOLIO as of June 30, 2004 (Unaudited) (continued)
SHARES VALUE - ------------------------------------------------------------------------------------ RETAIL (CONTINUED) 6,800 Wal-Mart Stores, Inc. $ 358,768 -------------- 592,143 -------------- SAVINGS AND LOANS: 1.7% 6,700 Greenpoint Financial Corp. 265,990 -------------- 265,990 -------------- SEMICONDUCTORS: 3.6% 7,950 @ Applied Materials, Inc. 155,979 8,700 Intel Corp. 240,120 7,650 @ Nvidia Corp. 156,825 -------------- 552,924 -------------- SOFTWARE: 3.7% 3,700 @ Electronic Arts, Inc. 201,835 12,950 Microsoft Corp. 369,852 -------------- 571,687 -------------- TELECOMMUNICATIONS: 5.2% 4,900 @ Avaya, Inc. 77,371 5,700 @ Cisco Systems, Inc. 135,090 6,050 @ Comcast Corp. 167,041 18,950 @ Corning, Inc. 247,487 6,600 @ Nextel Communications, Inc. 175,956 -------------- 802,945 -------------- Total Common Stock (Cost $12,304,802) 14,579,009 -------------- PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------------ SHORT-TERM INVESTMENTS: 4.5% REPURCHASE AGREEMENT: 4.5% $ 691,000 Goldman Sachs Repurchase Agreement dated 06/30/04, 1.500%, due 07/01/04, $691,029 to be received upon repurchase (Collateralized by $705,000 Federal Home Loan Mortgage Corporation, 1.100%, Market Value plus accrued interest $706,775, due 10/07/05) $ 691,000 -------------- Total Short-Term Investments (Cost $691,000) 691,000 -------------- TOTAL INVESTMENTS IN SECURITIES (COST $12,995,802)* 98.7% $ 15,270,009 OTHER ASSETS AND LIABILITIES-NET 1.3 194,571 ----- -------------- NET ASSETS 100.0% $ 15,464,580 ===== ==============
@ Non-income producing security @@ Foreign issuer * Cost for federal income tax purposes is $13,017,403. Net unrealized appreciation consists of: Gross Unrealized Appreciation $ 2,498,323 Gross Unrealized Depreciation (245,717) -------------- Net Unrealized Appreciation $ 2,252,606 ==============
See Accompanying Notes to Financial Statements 26 PORTFOLIO OF INVESTMENTS THE USLICO MONEY MARKET PORTFOLIO(1) as of June 30, 2004 (Unaudited)
PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------------ CORPORATE NOTES: 14.4% $ 100,000 ABN Amro Bank NV/Chicago, 1.189%, due 03/18/05 $ 99,986 250,000 Fleet National Bank, 1.280%, due 11/22/04 250,130 100,000 HSBC Bank USA, 1.555%, due 04/22/05 100,000 100,000 @@ Royal Bank of Canada/New York, 1.270%, due 03/30/05 99,988 200,000 Toyota Motor Credit Corp., 4.100%, due 09/08/04 201,096 100,000 Wachovia Bank NA/Charlotte, 1.449%, due 07/30/04 100,028 -------------- Total Corporate Notes (Cost $851,228) 851,228 -------------- COMMERCIAL PAPER: 58.6% 250,000 Barton Capital Corp., 0.000%, due 07/01/04 250,000 300,000 Blue Ridge Asset Funding, 0.540%, due 07/02/04 299,991 300,000 Concord Minutemen Cap., 1.160%, due 07/07/05 300,000 250,000 Crown Point Capital Co., 1.190%, due 10/06/04 249,192 300,000 Dexia Delaware LLC, 1.190%, due 07/02/04 299,990 200,000 General Electric Capital Corp, 4.250%, due 01/28/05 203,255 200,000 HBOS Treasury Services, 1.460%, due 09/03/04 199,481 100,000 HSBC USA, Inc., 1.050%, due 08/10/04 99,881 250,000 Jupiter Securities Corp., 1.040%, due 07/09/04 249,935 100,000 LaSalle Bank Note, 1.210%, due 11/05/04 100,000 200,000 @@ Royal Bank of Scotland, 1.400%, due 10/21/04 199,994 250,000 St. Germain Holdings Ltd., 1.030%, due 07/06/04 249,957 100,000 @@ Svenska Handelsbank PLC, 1.310%, due 08/05/04 99,869 300,000 Thunder Bay Funding, Inc., 0.000%, due 07/01/04 299,999 250,000 Tulip Funding Corp., 1.210%, due 07/12/04 249,908 100,000 Washington Mutual Bank, 1.120%, due 07/14/04 100,000 -------------- Total Commercial Paper (Cost $3,451,452) 3,451,452 -------------- CERTIFICATE OF DEPOSIT: 1.7% 100,000 UBS AG Stanford, 1.195%, due 12/06/04 100,002 -------------- Total Certificate of Deposit (Cost $100,002) 100,002 -------------- U.S. GOVERNMENT AGENCY OBLIGATIONS: 8.5% FEDERAL HOME LOAN BANK: 8.5% $ 150,000 1.240%, due 03/01/05 $ 150,000 100,000 1.510%, due 12/08/04 100,000 250,000 3.625%, due 10/15/04 251,512 -------------- Total U.S. Government Agency Obligations (Cost $501,512) 501,512 -------------- INVESTMENT COMPANY: 1.7% 100,000 LaSalle Bank, 1.160%, due 12/17/04 100,000 -------------- Total Investment Company (Cost $100,000) 100,000 -------------- REPURCHASE AGREEMENT: 15.3% 898,000 Goldman Sachs Repurchase Agreement dated, 1.500%, due 07/01/04, $898,037 to be received upon repurchase (Collateralized by $925,000 Federal Home Loan Mortgage Corporation, 1.100%, Market Value plus accrued interest $927,329 due 10/07/05) 898,000 -------------- Total Repurchase Agreement (Cost $898,000) 898,000 -------------- TOTAL INVESTMENTS IN SECURITIES (COST $5,902,194)* 100.2% $ 5,902,194 OTHER ASSETS AND LIABILITIES-NET (0.2) (13,775) ----- -------------- NET ASSETS 100.0% $ 5,888,419 ===== ==============
(1) All securities with a maturity date greater than one year have either a variable rate, a demand feature, are prerefunded or have an optional or mandatory put resulting in an effective maturity of one year or less. Rate shown reflects current rate. @@ Foreign issuer
PERCENTAGE OF INDUSTRY NET ASSETS - ----------------------------------------------------------------------------------- Consumer Banks - Central U.S. 1.7% Consumer Banks - Southern U.S. 3.4 Diversified Financial Services 14.5 Finance - Auto Loans 3.4 Finance - Other Services 4.2 Money Center Banks 18.7 S&L/Thrifts - Western U.S. 1.7 Sovereign Agency 8.5 Special Purpose Entity 22.9 Super-Regional Banks - U.S. 5.9 Repurchase Agreement 15.3 Other Assets and Liabilities, Net (0.2) ------------- NET ASSETS 100.0% =============
See Accompanying Notes to Financial Statements 27 PORTFOLIO OF INVESTMENTS THE USLICO BOND PORTFOLIO as of June 30, 2004 (Unaudited)
PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------------ CORPORATE BONDS: 27.9% AIRLINES: 0.3% $ 11,000 American Airlines, Inc., 7.324%, due 10/15/09 $ 9,057 -------------- 9,057 -------------- AUTO MANUFACTURERS: 0.1% 3,000 Ford Motor Co., 6.625%, due 10/01/28 2,634 -------------- 2,634 -------------- BANKS: 6.9% 5,000 #,@@ Banco Bradesco SA, 8.750%, due 10/24/13 5,038 13,000 @@ Banco Santander Chile SA, 7.375%, due 07/18/12 14,329 1,000 # Bank of New York Institutional Capital Trust A, 7.780%, due 12/01/26 1,071 2,000 # BankAmerica Institutional Capital B, 7.700%, due 12/31/26 2,143 5,000 Barnett Capital I, 8.060%, due 12/01/26 5,481 2,000 Barnett Capital II, 7.950%, due 12/01/26 2,199 5,000 #,@@ Danske Bank A/S, 5.914%, due 12/29/49 5,077 15,000 # Dresdner Funding Trust I, 8.151%, due 06/30/31 16,757 5,000 FBS Capital I, 8.090%, due 11/15/26 5,527 3,000 First Union Capital I, 7.935%, due 01/15/27 3,283 11,000 First Union Institutional Capital II, 7.850%, due 01/01/27 11,830 5,000 #,@@ HBOS Capital Funding LP, 6.071%, due 06/30/49 5,029 10,000 @@ HSBC Bank PLC, 1.975%, due 06/29/49 8,466 10,000 @@ HSBC Bank PLC, 2.125%, due 06/29/49 8,475 10,000 @@ Lloyds TSB Bank PLC, 1.270%, due 08/29/49 8,614 10,000 @@ Lloyds TSB Bank PLC, 2.188%, due 06/29/49 8,737 8,000 M&T Bank Corp., 3.850%, due 04/01/13 7,854 10,000 Mellon Capital I, 7.720%, due 12/01/26 10,844 10,000 @@ National Westminster Bank PLC, 1.438%, due 11/29/49 8,458 4,000 #,@@ Northern Rock PLC, 5.600%, due 04/30/49 3,894 7,000 # Rabobank Capital Funding II, 5.260%, due 12/29/49 6,786 10,000 @@,C Societe Generale, 1.688%, due 11/29/49 8,362 20,000 @@,C Standard Chartered PLC, 1.800%, due 11/29/49 15,795 10,000 @@,C Standard Chartered PLC, 2.070%, due 12/29/49 7,875 100,000 #,X,I United Cos. Financial Corp., 0.000%, due 11/02/99 0 12,000 # Westpac Capital Trust IV, 5.256%, due 12/29/49 11,078 -------------- 193,002 -------------- BEVERAGES: 0.7% $ 10,000 #,@@ Cia Brasileira de Bebidas, 8.750%, due 09/15/13 $ 10,600 1,000 @@ Cia Brasileira de Bebidas, 10.500%, due 12/15/11 1,150 9,000 # Miller Brewing Co., 4.250%, due 08/15/08 8,964 -------------- 20,714 -------------- CHEMICALS: 0.1% 2,000 Dow Chemical Co., 5.750%, due 11/15/09 2,090 2,000 #,@@ Sociedad Quimica y Minera de Chile SA, 7.700%, due 09/15/06 2,141 -------------- 4,231 -------------- DIVERSIFIED FINANCIAL SERVICES: 4.1% 5,000 #,@@ Arcel Finance Ltd., 6.361%, due 05/01/12 4,971 2,000 #,@@ Arcel Finance Ltd., 7.048%, due 09/01/11 1,990 8,000 Boeing Capital Corp., 7.375%, due 09/27/10 9,057 12,000 #,@@ Brazilian Merchant Voucher Receivables Ltd., 5.911%, due 06/15/11 11,670 1,000 Citigroup Capital II, 7.750%, due 12/01/36 1,078 2,000 # Farmers Exchange Capital, 7.050%, due 07/15/28 1,925 8,000 # Farmers Exchange Capital, 7.200%, due 07/15/48 7,756 5,000 @@ Financiere CSFB NV, 1.250%, due 03/29/49 4,006 3,000 Ford Motor Credit Co., 7.000%, due 10/01/13 3,034 6,000 General Motors Acceptance Corp., 6.875%, due 08/28/12 6,113 3,000 General Motors Acceptance Corp., 8.000%, due 11/01/31 3,082 6,000 General Motors Acceptance Corp., 7.750%, due 01/19/10 6,521 2,000 JPM Capital Trust I, 7.540%, due 01/15/27 2,124 13,000 # Mangrove Bay Pass-Through Trust, 6.102%, due 07/15/33 12,868 2,000 # Mizuho Preferred Capital Co. LLC, 8.790%, due 12/29/49 2,200 6,000 #,@@ PF Export Receivables Master Trust, 3.748%, due 06/01/13 5,723 8,982 #,@@ PF Export Receivables Master Trust, 6.436%, due 06/01/15 8,863 15,000 # Tokai Preferred Capital Co. LLC, 9.980%, due 12/29/49 16,898 5,000 # Wachovia Capital Trust V, 7.965%, due 06/01/27 5,492 -------------- 115,371 -------------- ELECTRIC: 4.8% 6,000 #,@@ AES Gener SA, 7.500%, due 03/25/14 5,700 5,509 # Allegheny Energy Supply Statutory Trust 2001, 10.250%, due 11/15/07 5,963 599 # Allegheny Energy Supply Statutory Trust 2001, 13.000%, due 11/15/07 614
See Accompanying Notes to Financial Statements 28 PORTFOLIO OF INVESTMENTS THE USLICO BOND PORTFOLIO as of June 30, 2004 (Unaudited) (continued)
PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------------ ELECTRIC (CONTINUED) $ 2,000 Consumers Energy Co., 4.250%, due 04/15/08 $ 1,984 6,000 Consumers Energy Co., 4.800%, due 02/17/09 6,011 7,000 DTE Energy Co., 2.324%, due 06/01/07 6,997 14,000 @@ Empresa Nacional de Electricidad SA/Chile, 7.750%, due 07/15/08 14,952 19,000 Enserch Capital I, 2.460%, due 07/01/28 17,780 8,000 Enterprise Capital Trust II, 2.806%, due 06/30/28 7,570 6,000 FirstEnergy Corp., 6.450%, due 11/15/11 6,230 8,000 # Monongahela Power Co., 6.700%, due 06/15/14 8,116 12,000 Ohio Power Co., 6.375%, due 07/15/33 11,781 22,000 # PG&E Corp., 6.875%, due 07/15/08 23,101 1,746 # Power Contract Financing LLC, 5.200%, due 02/01/06 1,758 12,000 # Power Contract Financing LLC, 6.256%, due 02/01/10 12,234 1,747 PPL Montana LLC, 8.903%, due 07/02/20 1,905 3,000 # Tenaska Virginia Partners LP, 6.119%, due 03/30/24 2,973 -------------- 135,669 -------------- FOOD: 1.0% 4,000 Kroger Co., 7.250%, due 06/01/09 4,448 7,000 Safeway, Inc., 4.800%, due 07/16/07 7,160 5,000 Supervalu, Inc., 7.875%, due 08/01/09 5,653 10,000 Tyson Foods, Inc., 7.250%, due 10/01/06 10,777 -------------- 28,038 -------------- GAS: 0.3% 9,000 # Williams Gas Pipelines Central, Inc., 7.375%, due 11/15/06 9,664 -------------- 9,664 -------------- HOME BUILDERS: 0.0% 1,000 Technical Olympic USA, Inc., 9.000%, due 07/01/10 1,030 -------------- 1,030 -------------- INSURANCE: 0.7% 9,000 # Farmers Insurance Exchange, 8.625%, due 05/01/24 10,106 6,000 # Monumental Global Funding II, 3.850%, due 03/03/08 5,991 4,000 # Zurich Capital Trust I, 8.376%, due 06/01/37 4,431 -------------- 20,528 -------------- LODGING: 0.2% 4,000 Caesars Entertainment, Inc., 9.375%, due 02/15/07 4,355 -------------- 4,355 -------------- MEDIA: 0.1% 3,000 Time Warner, Inc., 6.875%, due 05/01/12 3,247 -------------- 3,247 -------------- MINING: 0.5% $ 3,000 #,@@ Corp Nacional del Cobre de Chile - CODELCO, 6.375%, due 11/30/12 $ 3,181 2,000 @@ Vale Overseas Ltd., 8.250%, due 01/17/34 1,750 9,000 @@ Vale Overseas Ltd., 8.625%, due 03/08/07 9,675 -------------- 14,606 -------------- MULTI-NATIONAL: 0.7% 10,000 @@ Corp. Andina de Fomento CAF, 5.200%, due 05/21/13 9,637 9,000 @@ Corp. Andina de Fomento CAF, 6.875%, due 03/15/12 9,692 -------------- 19,329 -------------- OIL AND GAS: 2.4% 5,000 Amerada Hess Corp., 6.650%, due 08/15/11 5,299 8,000 Amerada Hess Corp., 7.875%, due 10/01/29 8,667 7,000 #,@@ Empresa Nacional de Petroleo ENAP, 4.875%, due 03/15/14 6,531 18,000 @@,+ Husky Oil Co., 8.900%, due 08/15/28 20,399 17,000 # Pemex Project Funding Master Trust, 2.820%, due 06/15/10 17,119 3,000 Pemex Project Funding Master Trust, 7.375%, due 12/15/14 3,075 5,000 Valero Energy Corp., 8.750%, due 06/15/30 6,256 -------------- 67,346 -------------- PACKAGING AND CONTAINERS: 0.5% 4,000 # Sealed Air Corp., 5.375%, due 04/15/08 4,140 9,000 # Sealed Air Corp., 6.950%, due 05/15/09 9,835 -------------- 13,975 -------------- REAL ESTATE: 0.7% 8,000 EOP Operating LP, 7.750%, due 11/15/07 8,885 1,000 Liberty Property-LP, 6.375%, due 08/15/12 1,052 1,000 Liberty Property-LP, 6.950%, due 12/01/06 1,082 7,000 Liberty Property-LP, 7.750%, due 04/15/09 7,958 -------------- 18,977 -------------- REAL ESTATE INVESTMENT TRUSTS: 1.2% 6,000 # iStar Financial, Inc., 5.700%, due 03/01/14 5,662 11,000 # iStar Financial, Inc., 5.125%, due 04/01/11 10,516 6,000 Simon Property Group LP, 4.875%, due 03/18/10 5,946 11,000 Simon Property Group LP, 6.375%, due 11/15/07 11,784 -------------- 33,908 -------------- SAVINGS AND LOANS: 1.0% 7,000 Great Western Financial, 8.206%, due 02/01/27 7,623 9,000 Sovereign Bancorp, Inc., 10.500%, due 11/15/06 10,316
See Accompanying Notes to Financial Statements 29 PORTFOLIO OF INVESTMENTS THE USLICO BOND PORTFOLIO as of June 30, 2004 (Unaudited) (continued)
PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------------ SAVINGS AND LOANS (CONTINUED) $ 9,000 Washington Mutual, Inc., 4.375%, due 01/15/08 $ 9,065 -------------- 27,004 -------------- TELECOMMUNICATIONS: 1.6% 7,000 @@ Cia de Telecomunicaciones de Chile SA, 7.625%, due 07/15/06 7,550 10,000 + Sprint Capital Corp., 4.780%, due 08/17/06 10,199 3,000 Sprint Capital Corp., 8.750%, due 03/15/32 3,506 7,000 Sprint Capital Corp., 6.875%, due 11/15/28 6,748 18,000 Verizon Virginia, Inc., 4.625%, due 03/15/13 16,836 -------------- 44,839 -------------- Total Corporate Bonds (Cost $791,248) 787,524 -------------- U.S. GOVERNMENT AGENCY OBLIGATIONS: 42.2% FEDERAL HOME LOAN MORTGAGE CORPORATION: 11.6% 65,000 2.700%, due 03/16/07 63,940 30,000 2.750%, due 02/09/07 29,599 16,831 I 4.458%, due 12/01/26 16,551 34,424 4.500%, due 04/01/14 33,782 20,744 6.000%, due 01/15/29 20,948 19,000 6.000%, due 01/15/28 19,775 13,000 6.000%, due 01/15/29 13,285 126,000 6.500%, due 07/15/34 131,316 -------------- 329,196 -------------- FEDERAL NATIONAL MORTGAGE ASSOCIATION: 30.6% 30,000 2.875%, due 05/19/08 28,907 1,424 I 3.454%, due 07/01/27 1,475 11,175 I 3.555%, due 07/01/27 11,522 46,000 4.500%, due 07/01/17 44,951 14,000 4.750%, due 12/25/42 14,038 131,000 5.000%, due 07/01/18 131,164 271,000 5.000%, due 07/15/34 261,768 15,000 5.250%, due 08/01/12 15,013 47,000 5.500%, due 08/15/19 47,896 74,000 5.500%, due 07/15/34 73,653 20,233 6.000%, due 07/25/29 20,530 9,442 6.000%, due 07/25/29 9,584 13,362 6.000%, due 04/25/31 13,542 52,000 6.000%, due 08/01/33 52,878 29,688 6.500%, due 11/01/29 31,845 46,000 6.500%, due 07/15/33 47,898 15,000 6.625%, due 11/15/10 16,676 23,000 7.000%, due 07/15/33 24,258 7,886 7.500%, due 06/25/32 8,455 9,691 7.500%, due 01/25/48 10,339 -------------- 866,392 -------------- Total U.S. Government Agency Obligations (Cost $1,192,240) 1,195,588 -------------- COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET-BACKED SECURITIES: 12.5% AUTOMOBILE ASSET BACKED SECURITIES: 0.7% 20,000 USAA Auto Owner Trust, 2.040%, due 02/16/10 19,586 -------------- 19,586 -------------- COMMERCIAL MORTGAGE-BACKED SECURITIES: 4.7% $ 8,000 Bear Stearns Commercial Mortgage Securities, 4.170%, due 01/12/41 $ 7,925 17,000 CS First Boston Mortgage Securities Corp., 3.861%, due 03/15/36 16,703 4,000 CS First Boston Mortgage Securities Corp., 7.810%, due 04/14/62 4,577 22,000 DLJ Commercial Mortgage Corp., 6.240%, due 11/12/31 23,606 63,000 DLJ Commercial Mortgage Corp., 7.300%, due 06/10/32 70,593 10,000 GE Capital Commercial Mortgage Corp., 5.994%, due 12/10/35 10,622 -------------- 134,026 -------------- CREDIT CARD ASSET BACKED SECURITIES:1.4% 6,000 Bank One Issuance Trust, 4.540%, due 09/15/10 6,056 6,000 Capital One Master Trust, 4.900%, due 03/15/10 6,223 19,000 Citibank Credit Card Issuance Trust, 5.650%, due 06/16/08 19,924 8,000 MBNA Credit Card Master Note Trust, 4.950%, due 06/15/09 8,331 -------------- 40,534 -------------- OTHER ASSET-BACKED SECURITIES: 0.6% 6,000 Chase Funding Mortgage Loan Asset-Backed Certificates, 2.734%, due 09/25/24 5,891 4,000 Chase Funding Mortgage Loan Asset-Backed Certificates, 4.045%, due 05/25/33 3,900 7,000 Residential Asset Mortgage Products, Inc., 2.140%, due 02/25/30 6,929 -------------- 16,720 -------------- WHOLE LOAN COLLATERALIZED MORTGAGE: 3.5% 13,168 Bank of America Mortgage Securities, 5.000%, due 06/25/33 13,287 31,000 CS First Boston Mortgage Securities Corp., 4.187%, due 10/25/33 31,221 15,830 GMAC Mortgage Corp Loan Trust, 5.250%, due 04/25/34 16,047 22,000 GMAC Mortgage Corp. Loan Trust, 5.500%, due 01/25/34 22,170 9,162 GSR Mortgage Loan Trust, 6.500%, due 01/25/34 9,522 5,608 MASTR Asset Securitization Trust, 8.000%, due 06/25/33 5,928 -------------- 98,175 -------------- WHOLE LOAN COLLATERALIZED PLANNED AMORTIZATION CLASS: 1.5% 17,131 MASTR Alternative Loans Trust, 8.500%, due 05/25/33 17,581 18,000 Residential Funding Securities Corp., 4.750%, due 02/25/33 18,218 5,662 Residential Funding Securities Corp., 8.500%, due 05/25/33 6,026 -------------- 41,825 --------------
See Accompanying Notes to Financial Statements 30 PORTFOLIO OF INVESTMENTS THE USLICO BOND PORTFOLIO as of June 30, 2004 (Unaudited) (continued)
PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------------ WHOLE LOAN COLLATERALIZED SUPPORT: 0.1% $ 2,708 XX Bank of America Mortgage Securities, 5.500%, due 11/25/33 $ 2,678 -------------- 2,678 -------------- Total Collateralized Mortgage Obligations and Asset-backed Securities (Cost $362,985) 353,544 -------------- U.S. TREASURY OBLIGATIONS: 14.2% U.S. TREASURY BONDS: 10.9% 10,000 4.000%, due 02/15/14 9,534 43,000 4.750%, due 05/15/14 43,462 34,000 5.290%, due 05/15/16 18,441 79,000 5.375%, due 02/15/31 79,700 71,000 6.250%, due 08/15/23 78,644 30,000 10.375%, due 11/15/12 36,642 30,000 13.250%, due 05/15/14 42,495 -------------- 308,918 -------------- U.S. TREASURY NOTES: 3.3% 25,000 2.250%, due 07/31/04 25,029 28,000 2.500%, due 05/31/06 27,915 23,000 3.125%, due 05/15/07 23,007 16,000 4.000%, due 06/15/09 16,142 -------------- 92,093 -------------- Total U.S. Treasury Obligations (Cost $402,547) 401,011 -------------- OTHER BONDS: 2.0% SOVEREIGN: 2.0% 2,824 @@ Brazilian Government Intl. Bond, 2.188%, due 04/15/12 2,378 4,000 @@ Brazilian Government Intl. Bond, 10.000%, due 08/07/11 3,900 6,000 @@ Colombia Government Intl. Bond, 10.000%, due 01/23/12 6,239 6,000 @@ Dominican Republic Intl. Bond, 9.040%, due 01/23/13 3,720 4,000 @@ Ecuador Government Intl. Bond, 7.000%, due 08/15/30 2,835 1,000 @@ Panama Government International Bond, 9.375%, due 07/23/12 1,098 2,000 @@ Panama Government Intl. Bond, 9.375%, due 01/16/23 2,050 6,000 @@ Peru Government Intl. Bond, 4.500%, due 03/07/17 4,873 1,000 @@ Philippine Government Intl. Bond, 9.875%, due 01/15/19 1,000 13,000 @@,+ Russia Government Intl. Bond, 5.000%, due 03/31/30 11,901 6,000 @@ Turkey Government Intl. Bond, 12.375%, due 06/15/09 6,892 1,000 #,@@ Ukraine Government Intl. Bond, 7.650%, due 06/11/13 958 3,390 @@,XX Uruguay Government Intl. Bond, 10.500%, due 10/20/06 3,729 5,000 @@ Venezuela Government Intl. Bond, 10.750%, due 09/19/13 4,938 -------------- Total Other Bonds (Cost $59,299) 56,511 -------------- SHARES VALUE - ------------------------------------------------------------------------------------ PREFERRED STOCK: 0.4% BANKS: 0.4% 1 #,XX DG Funding Trust $ 10,750 Total Preferred Stock (Cost $10,878) 10,750 -------------- Total Long-Term Investments (Cost $2,819,197) 2,804,928 -------------- PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------------ SHORT-TERM INVESTMENTS: 29.2% REPURCHASE AGREEMENT: 29.2% $ 825,000 Goldman Sachs Repurchase Agreement dated, 1.500%, due 07/01/04, $825,034 to be received upon repurchase (Collateralized by $845,000 Federal Home Loan Mortgage Association, 1.100%, Market Value plus accrued interest $847,127 due 10/07/05) 825,000 -------------- Total Short-Term Investments (Cost $825,000) 825,000 -------------- TOTAL INVESTMENTS IN SECURITIES (COST $3,644,197)* 128.4% $ 3,629,928 OTHER ASSETS AND LIABILITIES-NET (28.4) (802,503) ----- -------------- NET ASSETS 100.0% $ 2,827,425 ===== ==============
# Securities with purchases pursuant to Rule 144A, under the Securities Act of 1933 and may not be resold subject to that rule except to qualified institutional buyers. These securities have been determined to be liquid under the guidelines established by the Funds' Board of Directors/Trustees. @@ Foreign issuer C Bond may be called prior to maturity date. X Fair value determined by ING Funds Valuation Committee appointed by the Funds' Board of Directors/Trustees. I Illiquid security + Step-up basis bonds. Interest rates shown reflect current and future coupon rates. XX Value of securities obtained from one or more dealers making markets in the securities in accordance with the Fund's valuation procedures. * Cost for federal income tax purposes is the same as for financial statement purposes. Net unrealized depreciation consists of: Gross Unrealized Appreciation $ 22,607 Gross Unrealized Depreciation (38,876) -------------- Net Unrealized Depreciation $ (16,269) ==============
See Accompanying Notes to Financial Statements 31 PORTFOLIO OF INVESTMENTS THE USLICO ASSET ALLOCATION PORTFOLIO as of June 30, 2004 (Unaudited)
PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------------ CORPORATE BONDS: 11.6% AIRLINES: 0.1% $ 22,000 American Airlines, Inc., 7.324%, due 10/15/09 $ 18,114 -------------- 18,114 -------------- AUTO MANUFACTURERS: 0.0% 5,000 Ford Motor Co., 6.625%, due 10/01/28 4,391 -------------- 4,391 -------------- BANKS: 3.1% 10,000 #,@@ Banco Bradesco SA/Cayman Islands, 8.750%, due 10/24/13 10,075 22,000 @@ Banco Santander Santiago Chile SA, 7.375%, due 07/18/12 24,248 4,000 # BankAmerica Institutional Capital B, 7.700%, due 12/31/26 4,287 10,000 Barnett Capital I, 8.060%, due 12/01/26 10,961 4,000 Barnett Capital II, 7.950%, due 12/01/26 4,398 40,000 @@ Citibank NA, 1.800%, due 11/29/49 31,588 10,000 #,@@ Danske Bank A/S, 5.914%, due 12/29/49 10,155 29,000 # Dresdner Funding Trust I, 8.151%, due 06/30/31 32,397 10,000 FBS Capital I, 8.090%, due 11/15/26 11,053 5,000 First Union Capital I, 7.935%, due 01/15/27 5,472 21,000 First Union Institutional Capital II, 7.850%, due 01/01/27 22,585 10,000 #,@@ HBOS Capital Funding LP, 6.071%, due 06/30/49 10,059 5,000 @@ Hongkong & Shanghai Banking Corp. Ltd., 1.313%, due 07/29/49 4,247 20,000 @@ HSBC Bank PLC, 1.975%, due 06/29/49 16,931 20,000 @@ HSBC Bank PLC, 2.125%, due 06/29/49 16,950 10,000 @@ Lloyds TSB Bank PLC, 1.270%, due 08/29/49 8,614 10,000 @@ Lloyds TSB Bank PLC, 2.188%, due 06/29/49 8,737 16,000 M&T Bank Corp., 3.850%, due 04/01/13 15,708 20,000 Mellon Capital I, 7.720%, due 12/01/26 21,689 10,000 @@ National Westminster Bank PLC, 1.375%, due 08/29/49 8,631 20,000 @@ National Westminster Bank PLC, 1.438%, due 11/29/49 16,915 8,000 #,@@ Northern Rock PLC, 5.600%, due 04/30/49 7,787 13,000 # Rabobank Capital Funding II, 5.260%, due 12/29/49 12,603 10,000 @@,C Societe Generale, 1.688%, due 11/29/49 8,362 20,000 @@,C Standard Chartered PLC, 2.070%, due 12/29/49 15,750 $ 200,000 #,I,X United Cos. Financial Corp., .000%, due 11/02/99 $ -- 10,000 @@ Westpac Banking Corp., 1.338%, due 09/29/49 8,445 23,000 # Westpac Capital Trust IV, 5.256%, due 12/29/49 21,234 -------------- 369,881 -------------- BEVERAGES: 0.3% 19,000 #,@@ Cia Brasileira de Bebidas, 8.750%, due 09/15/13 20,140 2,000 @@ Cia Brasileira de Bebidas, 10.500%, due 12/15/11 2,300 18,000 # Miller Brewing Co., 4.250%, due 08/15/08 17,929 -------------- 40,369 -------------- CHEMICALS: 0.1% 4,000 Dow Chemical Co., 5.750%, due 11/15/09 4,179 4,000 #,@@ Sociedad Quimica y Minera de Chile SA, 7.700%, due 09/15/06 4,282 -------------- 8,461 -------------- DIVERSIFIED FINANCIAL SERVICES: 1.7% 9,000 #,@@ Arcel Finance Ltd, 6.361%, due 05/01/12 8,947 4,000 #,@@ Arcel Finance Ltd., 7.048%, due 09/01/11 3,980 15,000 Boeing Capital Corp., 7.375%, due 09/27/10 16,983 22,000 #,@@ Brazilian Merchant Voucher Receivables Ltd., 5.911%, due 06/15/11 21,395 2,000 Citigroup Capital II, 7.750%, due 12/01/36 2,156 4,000 # Farmers Exchange Capital, 7.050%, due 07/15/28 3,850 15,000 # Farmers Exchange Capital, 7.200%, due 07/15/48 14,543 5,000 @@ Financiere CSFB NV, 1.250%, due 03/29/49 4,006 8,000 Ford Motor Credit Co., 7.000%, due 10/01/13 8,089 8,000 General Motors Acceptance Corp., 6.875%, due 08/28/12 8,151 12,000 General Motors Acceptance Corp., 7.750%, due 01/19/10 13,042 6,000 General Motors Acceptance Corp., 8.000%, due 11/01/31 6,165 6,000 JPM Capital Trust I, 7.540%, due 01/15/27 6,372 25,000 # Mangrove Bay Pass-Through Trust, 6.102%, due 07/15/33 24,745 3,000 # Mizuho Preferred Capital Co LLC, 8.790%, due 12/29/49 3,300 12,000 #,@@ PF Export Receivables Master Trust, 3.748%, due 06/01/13 11,446 17,065 #,@@ PF Export Receivables Master Trust, 6.436%, due 06/01/15 16,839 29,000 # Tokai Preferred Capital Co. LLC, 9.980%, due 12/29/49 32,670
See Accompanying Notes to Financial Statements 32 PORTFOLIO OF INVESTMENTS THE USLICO ASSET ALLOCATION PORTFOLIO as of June 30, 2004 (Unaudited) (continued)
PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------------ DIVERSIFIED FINANCIAL SERVICES (CONTINUED) $ 5,000 # Wachovia Capital Trust V, 7.965%, due 06/01/27 $ 5,492 -------------- 212,171 -------------- ELECTRIC: 2.1% 11,000 #,@@ AES Gener SA, 7.500%, due 03/25/14 10,450 10,502 # Allegheny Energy Supply Statutory Trust 2001, 10.250%, due 11/15/07 11,368 1,194 # Allegheny Energy Supply Statutory Trust 2001, 13.000%, due 11/15/07 1,224 4,000 Consumers Energy Co., 4.250%, due 04/15/08 3,968 13,000 Consumers Energy Co., 4.800%, due 02/17/09 13,024 14,000 DTE Energy Co., 2.324%, due 06/01/07 13,994 26,000 @@ Empresa Nacional de Electricidad SA/Chile, 7.750%, due 07/15/08 27,768 36,000 Enserch Capital I, 2.460%, due 07/01/28 33,689 16,000 Enterprise Capital Trust II, 2.806%, due 06/30/28 15,139 10,000 FirstEnergy Corp., 6.450%, due 11/15/11 10,383 15,000 # Monongahela Power Co., 6.700%, due 06/15/14 15,218 23,000 Ohio Power Co., 6.375%, due 07/15/33 22,581 41,000 # PG&E Corp., 6.875%, due 07/15/08 43,051 3,492 # Power Contract Financing LLC, 5.200%, due 02/01/06 3,515 23,000 # Power Contract Financing LLC, 6.256%, due 02/01/10 23,449 3,494 PPL Montana LLC, 8.903%, due 07/02/20 3,810 5,000 # Tenaska Virginia Partners LP, 6.119%, due 03/30/24 4,955 -------------- 257,586 -------------- FOOD: 0.4% 8,000 Kroger Co., 7.250%, due 06/01/09 8,897 14,000 Safeway, Inc., 4.800%, due 07/16/07 14,321 10,000 Supervalu, Inc., 7.875%, due 08/01/09 11,307 19,000 Tyson Foods, Inc., 7.250%, due 10/01/06 20,474 -------------- 54,999 -------------- GAS: 0.1% 17,000 # Williams Gas Pipelines Central, Inc., 7.375%, due 11/15/06 18,254 -------------- 18,254 -------------- HOME BUILDERS: 0.0% 1,000 Technical Olympic USA, Inc., 9.000%, due 07/01/10 1,030 -------------- 1,030 -------------- INSURANCE: 0.3% $ 17,000 # Farmers Insurance Exchange, 8.625%, due 05/01/24 $ 19,089 12,000 # Monumental Global Funding II, 3.850%, due 03/03/08 11,983 8,000 # Zurich Capital Trust I, 8.376%, due 06/01/37 8,862 -------------- 39,934 -------------- LODGING: 0.1% 8,000 Caesars Entertainment, Inc., 9.375%, due 02/15/07 8,710 -------------- 8,710 -------------- MEDIA: 0.1% 6,000 Time Warner, Inc., 6.875%, due 05/01/12 6,493 -------------- 6,493 -------------- MINING: 0.2% 6,000 #,@@ Corp Nacional del Cobre de Chile, 6.375%, due 11/30/12 6,363 3,000 @@ Vale Overseas Ltd., 8.250%, due 01/17/34 2,625 17,000 @@ Vale Overseas Ltd., 8.625%, due 03/08/07 18,275 -------------- 27,263 -------------- MULTI-NATIONAL: 0.3% 20,000 @@ Corp Andina de Fomento CAF, 5.200%, due 05/21/13 19,273 17,000 @@ Corp Andina de Fomento CAF, 6.875%, due 03/15/12 18,308 -------------- 37,581 -------------- OIL AND GAS: 1.0% 10,000 Amerada Hess Corp., 6.650%, due 08/15/11 10,597 15,000 Amerada Hess Corp., 7.875%, due 10/01/29 16,251 14,000 Empresa Nacional de Petroleo ENAP, 4.875%, due 03/15/14 13,062 33,000 @@,+ Husky Oil Co., 8.900%, due 08/15/28 37,399 32,000 # Pemex Project Funding Master Trust, 2.820%, due 06/15/10 32,224 6,000 Pemex Project Funding Master Trust, 7.375%, due 12/15/14 6,150 9,000 Valero Energy Corp., 8.750%, due 06/15/30 11,261 -------------- 126,944 -------------- PACKAGING AND CONTAINERS: 0.2% 7,000 # Sealed Air Corp., 5.375%, due 04/15/08 7,245 18,000 # Sealed Air Corp., 6.950%, due 05/15/09 19,670 -------------- 26,915 -------------- REAL ESTATE: 0.3% 15,000 EOP Operating LP, 7.750%, due 11/15/07 16,659
See Accompanying Notes to Financial Statements 33 PORTFOLIO OF INVESTMENTS THE USLICO ASSET ALLOCATION PORTFOLIO as of June 30, 2004 (Unaudited) (continued)
PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------------ REAL ESTATE (CONTINUED) $ 3,000 Liberty Property-LP, 6.375%, due 08/15/12 $ 3,155 1,000 Liberty Property-LP, 6.950%, due 12/01/06 1,082 13,000 Liberty Property-LP, 7.750%, due 04/15/09 14,780 -------------- 35,676 -------------- REAL ESTATE INVESTMENT TRUSTS: 0.5% 11,000 # iStar Financial, Inc., 5.700%, due 03/01/14 10,380 21,000 # iStar Financial, Inc., 5.125%, due 04/01/11 20,077 11,000 Simon Property Group LP, 4.875%, due 03/18/10 10,901 22,000 Simon Property Group LP, 6.375%, due 11/15/07 23,566 -------------- 64,924 -------------- SAVINGS AND LOANS: 0.4% 13,000 Great Western Financial, 8.206%, due 02/01/27 14,157 17,000 Sovereign Bancorp, Inc., 10.500%, due 11/15/06 19,487 18,000 Washington Mutual, Inc., 4.375%, due 01/15/08 18,129 -------------- 51,773 -------------- TELECOMMUNICATIONS: 0.8% 10,000 #,@@ Brasil Telecom SA, 9.375%, due 02/18/14 9,750 14,000 @@ Cia de Telecomunicaciones de Chile SA, 7.625%, due 07/15/06 15,100 20,000 + Sprint Capital Corp., 4.780%, due 08/17/06 20,397 13,000 Sprint Capital Corp., 6.875%, due 11/15/28 12,532 7,000 Sprint Capital Corp., 8.750%, due 03/15/32 8,180 32,000 Verizon Virginia, Inc., 4.625%, due 03/15/13 29,933 -------------- 95,892 -------------- Total Corporate Bonds (Cost $1,513,734) 1,507,361 -------------- U.S. GOVERNMENT AGENCY OBLIGATIONS: 17.4% FEDERAL HOME LOAN MORTGAGE CORPORATION: 5.6% 120,000 2.700%, due 03/16/07 118,043 60,000 2.750%, due 02/09/07 59,198 44,020 I 4.458%, due 12/01/26 43,288 53,549 4.500%, due 04/01/14 52,551 50,000 5.500%, due 07/15/34 49,781 37,000 6.000%, due 01/15/28 38,510 25,000 6.000%, due 01/15/29 25,548 40,104 6.000%, due 01/15/29 40,499 148,917 6.500%, due 12/01/31 155,496 109,000 6.500%, due 07/15/34 113,598 -------------- 696,512 -------------- FEDERAL NATIONAL MORTGAGE ASSOCIATION: 11.8% $ 60,000 2.875%, due 05/19/08 $ 57,814 7,121 I 3.454%, due 07/01/27 7,376 29,726 I 3.555%, due 07/01/27 30,650 102,000 4.500%, due 07/01/17 99,673 25,000 4.750%, due 12/25/42 25,068 502,000 5.000%, due 07/15/34 484,902 30,000 5.250%, due 08/01/12 30,027 67,440 5.500%, due 07/15/19 68,978 57,000 5.500%, due 07/15/34 56,733 41,814 6.000%, due 07/25/29 42,428 17,535 6.000%, due 07/25/29 17,798 25,509 6.000%, due 04/25/31 25,852 303,000 6.000%, due 07/15/34 309,344 29,688 6.500%, due 11/01/29 31,845 82,000 6.500%, due 07/15/33 85,383 25,000 6.625%, due 11/15/10 27,794 41,000 7.000%, due 07/15/33 43,242 14,194 7.500%, due 06/25/32 15,219 18,872 7.500%, due 01/25/48 20,135 -------------- 1,480,261 -------------- Total U.S. Government Agency Obligations (Cost $2,167,630) 2,176,773 -------------- COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET-BACKED SECURITIES: 5.3% AUTOMOBILE ASSET BACKED SECURITIES: 0.3% 35,000 USAA Auto Owner Trust, 2.040%, due 02/16/10 34,276 -------------- 34,276 -------------- COMMERCIAL MORTGAGE-BACKED SECURITIES: 1.9% 15,000 Bear Stearns Commercial Mortgage Securities, 4.170%, due 01/12/41 14,860 32,000 CS First Boston Mortgage Securities Corp., 3.861%, due 03/15/36 31,440 8,000 CS First Boston Mortgage Securities Corp., 7.810%, due 04/14/62 9,155 41,000 DLJ Commercial Mortgage Corp., 6.240%, due 11/12/31 43,993 115,000 DLJ Commercial Mortgage Corp., 7.300%, due 06/10/32 128,860 19,000 GE Capital Commercial Mortgage Corp., 5.994%, due 12/10/35 20,181 -------------- 248,489 -------------- CREDIT CARD ASSET BACKED SECURITIES: 0.6% 12,000 Bank One Issuance Trust, 4.540%, due 09/15/10 12,112 11,000 Capital One Master Trust, 4.900%, due 03/15/10 11,409 36,000 Citibank Credit Card Issuance Trust, 5.650%, due 06/16/08 37,751
See Accompanying Notes to Financial Statements 34 PORTFOLIO OF INVESTMENTS THE USLICO ASSET ALLOCATION PORTFOLIO as of June 30, 2004 (Unaudited) (continued)
PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------------ CREDIT CARD ASSET BACKED SECURITIES (CONTINUED) $ 12,000 MBNA Credit Card Master Note Trust, 4.950%, due 06/15/09 $ 12,496 -------------- 73,768 -------------- OTHER ASSET-BACKED SECURITIES: 0.2% 10,000 Chase Funding Mortgage Loan Asset-Backed Certificates, 2.734%, due 09/25/24 9,818 5,000 Chase Funding Mortgage Loan Asset-Backed Certificates, 4.045%, due 05/25/33 4,876 15,000 Residential Asset Mortgage Products, Inc., 2.140%, due 02/25/30 14,847 -------------- 29,541 -------------- WHOLE LOAN COLLATERALIZED MORTGAGE: 1.6% 25,191 Bank of America Mortgage Securities, 5.000%, due 06/25/33 25,418 54,000 CS First Boston Mortgage Securities Corp., 4.187%, due 10/25/33 54,387 29,993 GMAC Mortgage Corp. Loan Trust, 5.250%, due 04/25/34 30,406 42,000 GMAC Mortgage Corp. Loan Trust, 5.500%, due 01/25/34 42,324 33,830 GSR Mortgage Loan Trust, 6.500%, due 01/25/34 35,156 10,197 MASTR Asset Securitization Trust, 8.000%, due 06/25/33 10,777 -------------- 198,468 -------------- WHOLE LOAN COLLATERALIZED SUPPORT: 0.1% 6,318 XX Bank of America Mortgage Securities, 5.500%, due 11/25/33 6,248 -------------- 6,248 -------------- WHOLE LOAN COLLATERALIZED PLANNED AMORTIZATION CLASS: 0.6% 31,346 MASTR Alternative Loans Trust, 8.500%, due 05/25/33 32,170 10,381 Residential Funding Securities Corp., 8.500%, due 05/25/33 11,048 33,000 Residential Funding Securities Corp., 4.750%, due 02/25/33 33,400 -------------- 76,618 -------------- Total Collateralized Mortgage Obligations and Asset-backed Securities (Cost $684,710) 667,408 -------------- U.S. TREASURY OBLIGATIONS: 6.3% U.S. TREASURY BONDS: 5.0% 142,000 4.750%, due 05/15/14 143,526 $ 63,000 5.290%, due 05/15/16 $ 34,170 149,000 5.375%, due 02/15/31 150,322 127,000 6.250%, due 08/15/23 140,672 56,000 10.375%, due 11/15/12 68,399 59,000 13.250%, due 05/15/14 83,572 -------------- 620,661 -------------- U.S. TREASURY NOTES: 1.3% 66,000 2.500%, due 05/31/06 65,798 56,000 3.125%, due 05/15/07 56,018 39,000 4.000%, due 06/15/09 39,346 -------------- 161,162 -------------- Total U.S. Treasury Obligations (Cost $785,671) 781,823 -------------- OTHER BONDS: 0.9% 5,647 @@ Brazilian Government Intl. Bond, 2.188%, due 04/15/12 4,755 8,000 @@ Brazilian Government Intl. Bond, 10.000%, due 08/07/11 7,800 11,000 @@ Colombia Government Intl. Bond, 10.000%, due 01/23/12 11,440 13,000 @@ Dominican Republic Intl. Bond, 9.040%, due 01/23/13 8,060 6,000 @@ Ecuador Government Intl. Bond, 7.000%, due 08/15/30 4,253 11,000 @@ Peru Government Intl. Bond, 4.500%, due 03/07/17 8,934 3,000 @@ Philippine Government Intl. Bond, 9.875%, due 01/15/19 3,000 1,000 @@ Panama Government Intl. Bond, 9.375%, due 07/23/12 1,098 3,000 Panama Government Intl. Bond, 9.375%, due 01/16/23 3,075 24,000 @@ Russia Government Intl. Bond, 5.000%, due 03/31/30 21,972 11,000 @@ Turkey Government Intl. Bond, 12.375%, due 06/15/09 12,635 3,000 #,@@ Ukraine Government Intl. Bond, 7.650%, due 06/11/13 2,873 10,169 XX Uruguay Government Intl. Bond, 10.500%, due 10/20/06 11,185 10,000 Venezuela Government Intl. Bond, 10.750%, due 09/19/13 9,875 -------------- Total Other Bonds (Cost $116,266) 110,955 --------------
See Accompanying Notes to Financial Statements 35 PORTFOLIO OF INVESTMENTS THE USLICO ASSET ALLOCATION PORTFOLIO as of June 30, 2004 (Unaudited) (continued)
SHARES VALUE - ------------------------------------------------------------------------------------ COMMON STOCK: 61.7% AEROSPACE/DEFENSE: 4.5% 2,725 @ Alliant Techsystems, Inc. $ 172,601 1,300 General Dynamics Corp. 129,090 1,750 Lockheed Martin Corp. 91,140 2,500 @ United Defense Industries, Inc. 87,500 900 United Technologies Corp. 82,332 -------------- 562,663 -------------- AGRICULTURE: 0.7% 1,750 Altria Group, Inc. 87,588 -------------- 87,588 -------------- APPAREL: 0.8% 3,000 Polo Ralph Lauren Corp. 103,350 -------------- 103,350 -------------- AUTO MANUFACTURERS: 0.7% 1,550 Paccar, Inc. 89,885 -------------- 89,885 -------------- BANKS: 1.7% 4,150 US Bancorp 114,374 1,800 Wells Fargo & Co. 103,014 -------------- 217,388 -------------- BEVERAGES: 1.3% 1,550 Coca-Cola Co. 78,244 1,500 PepsiCo, Inc. 80,820 -------------- 159,064 -------------- BIOTECHNOLOGY: 1.8% 1,770 @ Biogen IDEC, Inc. 111,953 1,900 @ Celgene Corp. 108,794 -------------- 220,747 -------------- CHEMICALS: 2.9% 1,175 Air Products & Chemicals, Inc. 61,629 3,000 Dow Chemical Co. 122,100 1,575 Praxair, Inc. 62,858 2,700 Sherwin-Williams Co. 112,185 -------------- 358,772 -------------- COMMERCIAL SERVICES: 0.8% 4,150 @ Cendant Corp. 101,592 -------------- 101,592 -------------- COMPUTERS: 1.5% 3,700 Hewlett-Packard Co. 78,070 1,300 International Business Machines Corp. 114,595 -------------- 192,665 -------------- DIVERSIFIED FINANCIAL SERVICES: 5.7% 5,500 Citigroup, Inc. 255,749 1,640 Countrywide Financial Corp. 115,210 1,650 Goldman Sachs Group, Inc. 155,364 1,950 JP Morgan Chase & Co. 75,602 1,600 Lehman Brothers Holdings Inc 120,400 -------------- 722,325 -------------- ELECTRIC: 0.7% 2,050 Consolidated Edison, Inc. 81,508 -------------- 81,508 -------------- ELECTRONICS: 1.8% 2,425 @ Amphenol Corp. $ 80,801 2,500 Parker Hannifin Corp. 148,650 -------------- 229,451 -------------- ENTERTAINMENT: 0.7% 2,125 International Game Technology 82,025 -------------- 82,025 -------------- ENVIRONMENTAL CONTROL: 1.0% 2,500 @ Stericycle, Inc. 129,350 -------------- 129,350 -------------- HEALTHCARE-PRODUCTS: 2.9% 2,900 @ Boston Scientific Corp. 124,120 1,750 @ Inamed Corp. 109,988 2,250 Johnson & Johnson 125,325 -------------- 359,433 -------------- HEALTHCARE-SERVICES: 0.6% 700 @ WellPoint Health Networks 78,407 -------------- 78,407 -------------- INSURANCE: 1.5% 2,700 American Intl. Group, Inc. 192,456 -------------- 192,456 -------------- INTERNET: 3.1% 1,300 @ eBay, Inc. 119,535 7,250 @ Yahoo!, Inc. 263,392 -------------- 382,927 -------------- LEISURE TIME: 1.6% 1,950 Carnival Corp. 91,650 1,800 Harley-Davidson, Inc. 111,492 -------------- 203,142 -------------- LODGING: 1.0% 1,575 Marriott Intl., Inc. 78,561 950 Starwood Hotels & Resorts Worldwide, Inc. 42,608 -------------- 121,169 -------------- MACHINERY-DIVERSIFIED: 1.8% 1,200 Deere & Co. 84,168 3,600 Rockwell Automation, Inc. 135,036 -------------- 219,204 -------------- MEDIA: 2.2% 2,900 @ Comcast Corp. 80,069 5,998 @ DIRECTV Group, Inc. 102,566 3,500 Walt Disney Co. 89,215 -------------- 271,850 -------------- MINING: 1.0% 3,800 Alcoa, Inc. 125,514 -------------- 125,514 -------------- MISCELLANEOUS MANUFACTURING: 4.5% 750 3M Co. 67,508 1,450 Eaton Corp. 93,873 4,350 General Electric Co. 140,940 7,650 @@ Tyco Intl. Ltd. 253,520 -------------- 555,841 --------------
See Accompanying Notes to Financial Statements 36 PORTFOLIO OF INVESTMENTS THE USLICO ASSET ALLOCATION PORTFOLIO as of June 30, 2004 (Unaudited) (continued)
SHARES VALUE - ------------------------------------------------------------------------------------ OIL AND GAS: 1.5% 4,150 @@,@ Nabors Industries Ltd. $ 187,663 -------------- 187,663 -------------- PHARMACEUTICALS: 4.1% 1,100 @ Barr Laboratories, Inc. 37,070 3,486 @ Caremark Rx, Inc. 114,829 1,250 @ Gilead Sciences, Inc. 83,750 1,490 Merck & Co., Inc. 70,775 6,000 Pfizer, Inc. 205,679 -------------- 512,103 -------------- RETAIL: 2.3% 400 @ Cabela's, Inc. 10,780 2,400 @ Chico's FAS, Inc. 108,384 3,300 Wal-Mart Stores, Inc. 174,108 -------------- 293,272 -------------- SAVINGS AND LOANS: 0.7% 2,150 Greenpoint Financial Corp. 85,355 -------------- 85,355 -------------- SEMICONDUCTORS: 1.5% 4,250 Intel Corp. 117,300 3,600 @ Nvidia Corp. 73,800 -------------- 191,100 -------------- SOFTWARE: 2.2% 1,700 @ Electronic Arts, Inc. 92,735 6,300 Microsoft Corp. 179,928 -------------- 272,663 -------------- TELECOMMUNICATIONS: 2.6% 2,500 @ Avaya, Inc. 39,475 2,700 @ Cisco Systems, Inc. 63,990 9,700 @ Corning, Inc. 126,682 3,350 @ Nextel Communications, Inc. 89,311 -------------- 319,458 -------------- Total Common Stock (Cost $6,456,657) 7,709,930 -------------- PREFERRED STOCK: 0.3% BANKS: 0.3% 3 #,XX,@ DG Funding Trust 32,250 -------------- Total Preferred Stock (Cost $32,635) 32,250 -------------- Total Long-Term Investments (Cost $11,757,303) 12,986,500 -------------- AMOUNT VALUE - ------------------------------------------------------------------------------------ SHORT-TERM INVESTMENTS: 8.7% REPURCHASE AGREEMENT: 8.7% $ 1,084,000 Goldman Sachs Repurchase Agreement, dated 06/30/04, 1.500%, due 07/01/04, $1,084,045 to be received upon repurchase (Collateralized by $1,014,000 U.S. Treasury Bond, 6.000%, Market Value plus accrued interest $1,105,815, due 02/15/26) $ 1,084,000 -------------- Total Repurchase Agreement (Cost $1,084,000) 1,084,000 -------------- TOTAL INVESTMENTS IN SECURITIES (COST $12,841,303)* 112.7% $ 14,070,500 OTHER ASSETS AND LIABILITIES-NET (12.7) (1,581,884) ----- -------------- NET ASSETS 100.0% $ 12,488,616 ===== ==============
@ Non-income producing security @@ Foreign issuer # Securities with purchases pursuant to Rule 144A, under the Securities Act of 1933 and may not be resold subject to that rule except to qualified institutional buyers. These securities have been determined to be liquid under the guidelines established by the Funds' Board of Directors/Trustees. C Bond may be called prior to maturity date. I Illiquid security X Fair value determined by ING Funds Valuation Committee appointed by the Funds' Board of Directors/Trustees. + Step-up basis bonds. Interest rates shown reflect current and future coupon rates. XX Value of securities obtained from one or more dealers making markets in the securities in accordance with the Fund's valuation procedures. * Cost for federal income tax purposes is $12,854,119. Net unrealized appreciation consists of: Gross Unrealized Appreciation $ 1,325,071 Gross Unrealized Depreciation (108,690) -------------- Net Unrealized Appreciation $ 1,216,381 ==============
See Accompanying Notes to Financial Statements 37 TRUSTEE AND OFFICER INFORMATION (Unaudited) The business and affairs of the Trusts are managed under the direction of the Trusts' Board of Trustees. A Trustee who is not an interested person of the Trusts, as defined in the 1940 Act, is an independent trustee ("Independent Trustee"). The Trustees and Officers of the Trust are listed below. The Statement of Additional Information includes additional information about trustees of the Registrant and is available, without charge, upon request at 1-800-992-0180.
TERM OF NUMBER OF OFFICE AND PRINCIPAL PORTFOLIOS IN OTHER POSITION(S) LENGTH OF OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS NAME, ADDRESS HELD WITH TIME DURING THE OVERSEEN HELD BY AND AGE TRUST SERVED(1) PAST FIVE YEARS BY TRUSTEE TRUSTEE ------------- ----------- ---------- --------------- ------------- ------------- INDEPENDENT TRUSTEES Paul S. Doherty(2) Trustee September Mr. Doherty is President 118 University of Massachusetts 7337 E. Doubletree Ranch Rd. 1999 - Present and Partner, Doherty, Foundation Board (April 2004 Scottsdale, AZ 85258 Wallace, Pillsbury and - Present). Born: 1934 Murphy, P.C., Attorneys (1996 - Present). J. Michael Earley(3) Trustee February 2002 - President and Chief 118 None 7337 E. Doubletree Ranch Rd. Present Executive Officer, Scottsdale, AZ 85258 Bankers Trust Company, Born: 1945 N.A. (1992 - Present). R. Barbara Gitenstein(2) Trustee February 2002 - President, College of 118 New Jersey Resources 7337 E. Doubletree Ranch Rd. Present New Jersey (1999 - (September 2003 - Present). Scottsdale, AZ 85258 Present). Born: 1948 Walter H. May(2) Trustee September Retired. Formerly, 118 Trustee, BestPrep Charity 7337 E. Doubletree Ranch Rd. 1999 - Present Managing Director and (1991 - Present) - Charitable Scottsdale, AZ 85258 Director of Marketing, organization. Born: 1936 Piper Jaffray, Inc. Jock Patton(2) Trustee February 2001 - Private Investor 118 Director, Hypercom, Inc. 7337 E. Doubletree Ranch Rd. Present (June 1997 - Present). (January 1999 - Present); Scottsdale, AZ 85258 Formerly Director and JDA Software Group, Inc. Born: 1945 Chief Executive Officer, (January 1999 - Present); Rainbow Multimedia Swift Transportation Co. Group, Inc. (January (March 2004 - Present). 1999 - December 2001). David W.C. Putnam(3) Trustee September President and Director, 118 Anchor International Bond 7337 E. Doubletree Ranch Rd. 1999 - Present F.L. Putnam Securities (December 2000 - Present); Scottsdale, AZ 85258 Company, Inc. and its Progressive Capital Born: 1939 affiliates (1978- Accumulation Trust (August Present); President, 1998 - Present); Principled Secretary and Trustee, Equity Market Fund (November The Principled Equity 1996 - Present), Mercy Market Fund (1996- Endowment Foundation (1995 - Present). Present); Director, F.L. Putnam Investment Management Company (December 2001 - Present); Asian American Bank and Trust Company (June 1992 - Present); and Notre Dame Health Care Center (1991 - Present) F.L. Putnam Securities Company, Inc. (June 1978 - Present); and an Honorary Trustee, Mercy Hospital (1973 - Present).
38 TRUSTEE AND OFFICER INFORMATION (Unaudited) (continued)
TERM OF NUMBER OF OFFICE AND PRINCIPAL PORTFOLIOS IN OTHER POSITION(S) LENGTH OF OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS NAME, ADDRESS HELD WITH TIME DURING THE OVERSEEN HELD BY AND AGE TRUST SERVED(1) PAST FIVE YEARS BY TRUSTEE TRUSTEE ------------- ----------- ---------- --------------- ------------- ------------- Blaine E. Rieke(3) Trustee February 2001 - General Partner, 118 Trustee, Morgan Chase 7337 E. Doubletree Ranch Rd. Present Huntington Partners Trust Co. (January 1998 - Scottsdale, AZ 85258 (January 1997 - Present); Director, Members Born: 1933 Present). Chairman of Trust Co. (November 2003 - the Board and Trustee Present). of each of the funds managed by ING Investment Management Co. LLC (November 1998 - February 2001). Roger B. Vincent(3) Trustee February 2002 - President, Springwell 118 Director, AmeriGas Propane, 7337 E. Doubletree Ranch Rd. Present Corporation (1989 - Inc. (1998 - Present). Scottsdale, AZ 85258 Present). Formerly, Born: 1945 Director Tatham Offshore, Inc. (1996 - 2000). Richard A. Wedemeyer(2) Trustee February 2001 - Retired. Formerly Vice 118 Director, Touchstone 7337 E. Doubletree Ranch Rd. Present President - Finance and Consulting Group (1997 - Scottsdale, AZ 85258 Administration, Present); Trustee, Jim Henson Born: 1936 Channel Corporation Legacy (1994 - Present). (June 1996 - April 2002); and Trustee of each of the funds managed by ING Management Co. LLC (1998 - 2001). TRUSTEES WHO ARE "INTERESTED PERSONS" Thomas J. McInerney(4) Trustee February 2001 - Chief Executive Officer, 171 Director, Equitable Life 7337 E. Doubletree Ranch Rd. Present ING U.S. Financial Insurance Co., Golden American Scottsdale, AZ 85258 Services (September 2001 Life Insurance Co., Life Born: 1956 - Present); Member ING Insurance Company of Georgia, Americas Executive Midwestern United Life Committee (2001 - Insurance Co., ReliaStar Life Present); ING Aeltus Insurance Co., Security Life Holding Company, Inc. of Denver, Security (2000 - Present), ING Connecticut Life Insurance Retail Holding Company Co., Southland Life Insurance (1998 - Present), and Co., USG Annuity and Life ING Retirement Holdings, Company, and United Life and Inc. (1997-Present). Annuity Insurance Co. Inc Formerly, President, ING (March 2001 - Present); Member Life Insurance Annuity of the Board, Bushnell Company (September 1997 Performing Arts Center; St. - November 2002); Francis Hospital; National President, Chief Conference of Community Executive Officer and Justice; and Metro Atlanta Director of Northern Chamber of Commerce. Life Insurance Company (March 2001 - October 2002); General Manager and Chief Executive Officer, ING Worksite Division (December 2000 - October 2001), President ING-SCI, Inc. (August 1997 - December 2000); President, Aetna Financial Services (August 1997 - December 2000).
39 TRUSTEE AND OFFICER INFORMATION (Unaudited) (continued)
TERM OF NUMBER OF OFFICE AND PRINCIPAL PORTFOLIOS IN OTHER POSITION(S) LENGTH OF OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS NAME, ADDRESS HELD WITH TIME DURING THE OVERSEEN HELD BY AND AGE TRUST SERVED(1) PAST FIVE YEARS BY TRUSTEE TRUSTEE ------------- ----------- ---------- --------------- ------------- ------------- John G. Turner(5) Trustee February 2001 - Chairman, Hillcrest 118 Director, Hormel Foods 7337 E. Doubletree Ranch Rd. Present Capital Partners (May Corporation (March 2000 - Scottsdale, AZ 85258 2002 - Present); Present); Shopko Stores, Inc. Born: 1939 Formerly, Vice Chairman (August 1999 - Present); and of ING Americas (2000 - M.A. Mortenson Company (March 2002); Chairman and 2002 - Present); Conseco, Inc. Chief Executive Officer (September 2003 - Present). of ReliaStar Financial Corp. and ReliaStar Life Insurance Company (1993 - 2000); Chairman of ReliaStar United Services Life Insurance Company (1995 - 1998); Chairman of ReliaStar Life Insurance Company of New York (1995 - 1998); Chairman of Northern Life Insurance Company (1992 - 2001); Chairman and Trustee of the Northstar affiliated investment companies (1993 - 2001) and Director, Northstar Investment Management Corporation and its affiliates (1993 - 1999).
- ---------- (1) Trustees serve until their successors are duly elected and qualified, subject to the Board's retirement policy. (2) Valuation and Proxy Voting Committee (formerly the Valuation Committee) member. (3) Audit Committee member. (4) Mr. McInerney is an "interested person," as defined under the 1940 Act, because of his affiliation with ING U.S. Financial Services and ING U.S. Worksite Financial Services, both affiliates of ING Investments, LLC. (5) Mr. Turner is an "interested person," as defined under the 1940 Act, because of his affiliation with ING Americas, an affiliate of ING Investments, LLC. 40 TRUSTEE AND OFFICER INFORMATION (Unaudited) (continued)
PRINCIPAL TERM OF OFFICE OCCUPATION(S) NAME, ADDRESS POSITION(S) AND LENGTH OF DURING THE AND AGE HELD WITH THE TRUST TIME SERVED(1) PAST FIVE YEARS ------------- ------------------- -------------- --------------- OFFICERS: James M. Hennessy President, Chief February 2001 - President and Chief Executive Officer, 7337 E. Doubletree Ranch Rd. Executive Officer and Present ING Investments, LLC (December 2001 - Scottsdale, AZ 85258 Chief Operating Present). Formerly, Senior Executive Born: 1949 Officer Vice President and Chief Operating Officer, ING Investments, LLC (April 1995 - December 2000); and Executive Vice President, ING Investments, LLC (May 1998 - June 2000). Michael J. Roland Executive Vice February 2002 - Executive Vice President, Chief 7337 E. Doubletree Ranch Rd. President and Present Financial Officer and Treasurer, Scottsdale, AZ 85258 Assistant Secretary ING Investments, LLC (December Born: 1958 2001 - Present). Formerly, Senior Principal Financial January 2000 - Vice President, ING Investments, Officer Present LLC (June 1998 - December 2001). Stanley D. Vyner Executive Vice July 2000 - Executive Vice President, ING 7337 E. Doubletree Ranch Rd. President Present Investments, LLC and certain of its Scottsdale, Arizona 85258 affiliates (July 2000 - Present) and Born: 1950 Chief Investment Risk Officer (June 2003 - Present); Formerly, Chief Investment Officer for the International Portfolios, ING Investments, LLC (July 1996 - June 2003); and President and Chief Executive Officer, ING Investments, LLC (August 1996 - August 2000). Robert S. Naka Senior Vice President January 2000 - Senior Vice President and Assistant 7337 E. Doubletree Ranch Rd. and Assistant Present Secretary, ING Funds Services, LLC Scottsdale, AZ 85258 Secretary (October 2001 - Present). Formerly, Born: 1963 Senior Vice President and Assistant Secretary, ING Funds Services, LLC (February 1997 - August 1999). Kimberly A. Anderson Senior Vice President November 2003 - Senior Vice President, ING Investments, 7337 E. Doubletree Ranch Rd. Present LLC (October 2003 - Present). Formerly, Scottsdale, AZ 85258 Vice President and Assistant Secretary, Born: 1964 ING Investments, LLC (October 2001 - October 2003); Assistant Vice President, ING Funds Services, LLC (November 1999 - January 2001); and has held various other positions with ING Funds Services, LLC for more than the last five years. Robyn L. Ichilov Vice President and July 2000 - Vice President, ING Funds Services, LLC 7337 E. Doubletree Ranch Rd. Treasurer Present (October 2001 - Present) and ING Scottsdale, AZ 85258 Investments, LLC (August 1997 - Born: 1967 Present). Lauren D. Bensinger Vice President February 2003 - Vice President and Chief Compliance 7337 E. Doubletree Ranch Rd. Present Officer, ING Funds Distributor, LLC Scottsdale, Arizona 85258 (July 1995 - Present); Vice President Born: 1954 (February 1996 - Present) and Chief Compliance Officer (October 2001 - Present), ING Investments, LLC.
41 TRUSTEE AND OFFICER INFORMATION (Unaudited) (continued)
PRINCIPAL TERM OF OFFICE OCCUPATION(S) NAME, ADDRESS POSITION(S) AND LENGTH OF DURING THE AND AGE HELD WITH THE TRUST TIME SERVED(1) PAST FIVE YEARS ------------- ------------------- -------------- --------------- Todd Modic Vice President August 2003 - Vice President of Financial Reporting - 7337 E. Doubletree Ranch Rd. Present Fund Accounting of ING Funds Services, Scottsdale, AZ 85258 LLC (September 2002 - Present). Born: 1967 Formerly, Director of Financial Reporting, ING Investments, LLC (March 2001 - September 2002); Director of Financial Reporting, Axient Communications, Inc. (May 2000 - January 2001); and Director of Finance, Rural/Metro Corporation (March 1995 - May 2000). Huey P. Falgout, Jr. Secretary August 2003 - Chief Counsel, ING U.S. Financial 7337 E. Doubletree Ranch Rd. Present Services (September 2003 - Present). Scottsdale, Arizona 85258 Formerly, Counsel, ING U.S. Financial Born: 1963 Services (November 2002 - September 2003); and Associate General Counsel of AIG American General (January 1999 - November 2002). Susan P. Kinens Assistant Vice February 2003 - Assistant Vice President and Assistant 7337 E. Doubletree Ranch Rd. President and Present Secretary, ING Funds Services, LLC Scottsdale, AZ 85258 Assistant Secretary (December 2002 - Present); and has held Born: 1976 various other positions with ING Funds Services, LLC for more than the last five years. Maria M. Anderson Assistant Vice August 2001 - Assistant Vice President of ING Funds 7337 E. Doubletree Ranch Rd. President Present Services, LLC (October 2001 - Present). Scottsdale, AZ 85258 Formerly, Manager of Fund Accounting and Born: 1958 Fund Compliance, ING Investments, LLC (September 1999 - November 2001); and Section Manager of Fund Accounting, Stein Roe Mutual Funds (July 1998 - August 1999). Theresa Kelety Assistant Secretary August 2003 - Counsel, ING U.S. Financial Services 7337 E. Doubletree Ranch Rd. Present (April 2003 - Present). Formerly, Senior Scottsdale, Arizona 85258 Associate with Shearman & Sterling Born: 1963 (February 2000 - April 2003); and Associate with Sutherland Asbill & Brennan (1996 - February 2000).
- ---------- (1) The officers hold office until the next annual meeting of the Trustees and until their successors have been elected and qualified. 42 INVESTMENT MANAGER ING Investments, LLC 7337 E. Doubletree Ranch Road Scottsdale, Arizona 85258 ADMINISTRATOR ING Funds Services, LLC 7337 E. Doubletree Ranch Road Scottsdale, Arizona 85258 DISTRIBUTOR ING Funds Distributor, LLC 7337 E. Doubletree Ranch Road Scottsdale, Arizona 85258 1-800-334-3444 TRANSFER AGENT DST Systems, Inc. P.O. Box 419368 Kansas City, Missouri 64141 CUSTODIAN The Bank of New York 100 Colonial Center Parkway, Suite 300 Lake Mary, FL 32746 LEGAL COUNSEL Dechert LLP 1775 I Street, N.W. Washington, D.C. 20006 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM KPMG LLP 99 High Street Boston, MA 02110 BEFORE INVESTING, CAREFULLY CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES OF THE VARIABLE ANNUITY CONTRACT AND THE UNDERLYING VARIABLE INVESTMENT OPTIONS. THIS AND OTHER INFORMATION IS CONTAINED IN THE PROSPECTUS FOR THE VARIABLE ANNUITY CONTRACT AND THE UNDERLYING VARIABLE INVESTMENT OPTIONS. OBTAIN THESE PROSPECTUSES FROM YOUR AGENT/REGISTERED REPRESENTATIVE AND READ THEM CAREFULLY BEFORE INVESTING. THE TRUSTS' PROXY VOTING RECORD WILL BE AVAILABLE WITHOUT CHARGE ON OR ABOUT AUGUST 31, 2004 ON THE TRUST'S WEBSITE AT www.ingfunds.com AND ON THE SEC'S WEBSITE AT www.sec.gov. [ING FUNDS LOGO] PRESORTED STANDARD U.S. POSTAGE PAID BOSTON MA PERMIT NO. 57842 VPSAR-USLICO (0604-081804) ITEM 2. CODE OF ETHICS. As of the end of the period covered by this report, Registrant had adopted a code of ethics, as defined in Item 2 of Form N-CSR, that applies to the Registrant's principal executive officer and principal financial officer. There were no amendments to the Code during the period covered by the report. The Registrant did not grant any waivers, including implicit waivers, from any provisions of the Code during the period covered by this report. The code of ethics is filed herewith pursuant to Item 11(a)(1), Exhibit 99.CODE ETH. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The Board of Trustees has determined that David Putnam is an audit committee financial expert, as defined in Item 3 of Form N-CSR. Mr. Putnam is "independent" for purposes of Item 3 of Form N-CSR. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. SCHEDULE OF INVESTMENTS. Schedule is included as part of the report to shareholders filed under Item 1 of this Form. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS Not applicable. ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Board has a Nominating Committee ("Committee") for the purpose of considering and presenting to the Board candidates it proposes for nomination to fill Trustee vacancies on the Board. The Committee currently consists of four Trustees of the Board, none of whom are considered "interested persons" of the Trust within the meaning of Section 2(a)(19) of the Investment Company Act of 1940. The Committee has adopted a written charter that sets forth the policies and procedures of the Committee. The Committee will accept referrals for potential candidates from Board members, Fund shareholders, legal counsel to the disinterested Trustees or such other sources as the Committee deems appropriate. Shareholders can submit recommendations in writing to the attention of the Chairperson of the Committee at an address to be maintained by Fund management for this purpose. In order for the Committee to consider a potential candidate, the Committee initially must receive at least the following information regarding such person: (1) name; (2) date of birth; (3) education; (4) business, professional or other relevant experience and areas of expertise; (5) current business, professional or other relevant experience and areas of expertise; (6) current business and home addresses and contact information; (7) other board positions or prior experience; and (8) any knowledge and experience relating to investment companies and investment company governance. ITEM 10. CONTROLS AND PROCEDURES. (a) Based on our evaluation conducted within 90 days of the filing date, hereof, the design and operation of the registrant's disclosure controls and procedures are effective to ensure that material information relating to the registrant is made known to the certifying officers by others within the appropriate entities, particularly during the period in which Forms N-CSR are being prepared, and the registrant's disclosure controls and procedures allow timely preparation and review of the information for the registrant's Form N-CSR and the officer certifications of such Form N-CSR. 2 (b) There were no significant changes in the registrant's internal controls that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 11. EXHIBITS. (a)(1) Code of Ethics pursuant to Item 2 of Form N-CSR is filed and attached hereto as EX-99.CODE ETH. (a)(2) A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2 under the Act (17 CFR 270.30a-2) is attached hereto as EX-99.CERT. (b) The officer certifications required by Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto as EX-99.906CERT. (3) Not applicable. 3 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant): USLICO SERIES FUND By /s/ James M. Hennessy --------------------- James M. Hennessy President and Chief Executive Officer Date: August 30, 2004 --------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By /s/ James M. Hennessy --------------------- James M. Hennessy President and Chief Executive Officer Date: AUGUST 30, 2004 By /s/ Michael J. Roland --------------------- Michael J. Roland Executive Vice President and Chief Financial Officer Date: August 30, 2004 --------------- 4 EX-99.CODEETH 2 a2142447zex-99_codeeth.txt EX-99.CODEETH EX-99.CODE ETH ING FUNDS SARBANES-OXLEY ACT CODE OF ETHICS A. ADOPTION The Boards of Directors/Trustees (collectively, the "Board") of the ING Funds (each a "Fund," and collectively, the "Funds") set forth on EXHIBIT A hereto, as such exhibit may be amended from time to time, have adopted this code of ethics (the "Code") in connection with the requirements of Section 406 of the Sarbanes-Oxley Act of 2002 (the "Act") concerning disclosure of a code of ethics for the principal executive officer, the principal financial officer, the principal accounting officer or controller, and persons performing similar functions (regardless of whether they are employed by a Fund or a third party) of the Funds (the "Covered Officers"). For the purposes of this Code, the chief executive officer and the chief financial officer of the Funds are the Covered Officers for the Funds. B. POLICY AND PURPOSE; CONFLICTS WITH LAW AND POLICY 1. POLICY AND PURPOSE It is the policy of the Funds to conduct their affairs in an honest and ethical manner, and to comply with all applicable laws, rules and regulations. The purpose of this Code is to assist in the accomplishment of the foregoing policy, to deter wrongdoing and to promote: a. Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships. b. Full, fair, accurate, timely and understandable disclosure in reports and documents that a Fund files with, or submits to, the Securities and Exchange Commission (the "SEC") and in other public communications made by a Fund. c. Compliance with applicable laws and governmental rules and regulations. d. The prompt internal reporting of violations of this Code to an appropriate person or persons identified in this Code. e. Accountability for adherence to this Code. 2. CONFLICTS WITH LAW AND POLICY If any part of this Code, or if compliance with any part of this Code, violates or is in conflict with any applicable law, the provisions of such applicable law shall control. If any part of this Code, or if compliance with any part of this Code, violates or is in conflict with any policy or practice of the Funds or of any service provider to the Funds, the provisions of this Code shall control. C. COVERED OFFICER DUTIES Each Covered Officer shall adhere to a high standard of business ethics in his or her dealings with and on behalf of a Fund. Specifically, each Covered Officer shall: 1. Conduct himself or herself in an honest and ethical manner when dealing with or on behalf of a Fund. 5 2. Refrain from engaging in any activity that would compromise his or her professional ethics or otherwise prejudice his or her ability faithfully to carry out his or her duties to the Funds. 3. Refrain from using or appearing to use material non-public information acquired in the course of his or her work for the Funds for unethical or illegal advantage, either directly or indirectly through others. 4. Place the interests of the Funds and their shareholders before his or her personal interests, and handle actual or apparent conflicts of interest between his or her personal interests and the interests of a Fund in an ethical manner. 5. Be familiar with the disclosure requirements generally applicable to the Funds and take all reasonable actions, consistent with his or her position(s) with a Fund and/or a Fund's service provider(s) to ensure full, fair, accurate, timely and understandable disclosure in reports and documents that a Fund files with, or submits to, the SEC or other governmental authorities, and in other public communications made by a Fund. 6. Comply with applicable laws and governmental rules and regulations in his or her dealings with or on behalf of a Fund, and take all reasonable actions, consistent with his or her position(s) with a Fund and/or a Fund's service provider(s), to ensure compliance by the Fund with applicable laws and governmental rules and regulations. 7. Take all reasonable actions, consistent with his or her position(s) with a Fund and/or a Fund's service provider(s), to ensure prompt internal reporting of violations of this Code to an appropriate person or persons identified in this Code. 8. Not knowingly misrepresent, or knowingly cause or permit others to misrepresent, facts about a Fund to a Fund's shareholders, directors, counsel or auditors, to governmental regulators or self-regulatory organizations, or to the public. 9. Consult with other officers and employees of a Fund, and its adviser(s), administrator and principal underwriter, with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Fund files with, or submits to, the SEC and in other public communications made by the Funds. 10. Promote compliance by the Funds with the standards and restrictions imposed by applicable laws, rules and regulations. 11. Not influence investment decisions or financial or other reporting by the Fund whereby the Covered Officer would benefit personally. 12. Not cause a Fund to take an action, or fail to take an action, whereby the Covered Officer would benefit personally. 13. Not retaliate or take any adverse action against, or cause or permit any retaliation or adverse action to be taken against, any other Covered Officer or any employee of the Funds or their affiliated persons for reports of potential violations of this Code or of applicable laws and governmental rules and regulations that are made in good faith. D. DEFINITIONS 1. CONFLICTS OF INTEREST For the purposes of this Code (i) an "actual conflict of interest" is a situation in which a Covered Officer, a member of a Covered Officer's immediate family, or an entity other than a Fund on whose behalf a Covered Officer is acting or from which a Covered Officer may receive compensation or other personal benefit, has an interest in a transaction or the results of a transaction in which a Fund is involved that is different from the interests of the Fund with regard to that same transaction, and (ii) an "apparent conflict of interest" is a situation in which a Covered Officer, a member of a Covered Officer's immediate family, or an entity other than a Fund on whose behalf a Covered Officer is acting or from which a Covered Officer may receive compensation or other personal benefit, appears to have an actual conflict of interest, without regard to whether an actual conflict of interest in fact exists.(1) - ---------- (1) Certain actual conflicts of interest are inherent in the relationship between a Fund and a Covered Officer who is employed by the Fund's investment adviser, administrator or principal underwriter. As a result, this Code recognizes that Covered Officers will, in the normal course of their duties (whether acting on behalf of a Fund or on behalf of the adviser, 6 Notwithstanding the foregoing, an actual conflict of interest shall not include situations that are covered by law or by the Funds' and an investment adviser's code of ethics required under Rule 17j-1 of the Investment Company Act of 1940.2 2. WAIVER AND IMPLICIT WAIVER The term "waiver" means the approval by a Fund of a material departure from a provision of this Code. The term "implicit waiver" means a failure by a Fund to take action within a reasonable period of time regarding a material departure from a provision of this Code that has been made known to an executive officer3 of the Fund. 3. BENEFIT PERSONALLY; IMMEDIATE FAMILY With regard to a Covered Officer, the term "benefit personally" means the direct or indirect receipt by the Covered Officer, by a member of the Covered Officer's immediate family, or by any entity (other than a Fund's investment adviser or any affiliate thereof) of which the Covered Officer or any member of the Covered Officer's immediate family owns 5% or more of the beneficial ownership interest or by which the Covered Officer or any member of the Covered Officer's immediate family is employed, or from which the Covered Officer or any member of the Covered Officer's immediate family receives any compensation or other benefit, of any compensation or other personal benefit. For the purposes of this Code, the term "member of the immediate family" means a Covered Officer's parent, spouse of a parent, child, spouse of a child, spouse, brother, or sister, and includes step and adoptive relationships. E. ACTIVITIES REQUIRING PRIOR APPROVAL A Covered Officer and his or her immediate family shall not engage in any of the following activities without the prior written approval of the Funds' Chief Legal Officer (the "Chief Legal Officer") and the Funds' Chief Executive Officer, except that in the case of the Chief Executive Officer or a member of the Chief Executive Officer's immediate family, such approval shall be from - ---------- administrator or principal underwriter, or for a combination thereof), be involved in recommending actions that may have different effects on the respective parties or may redound to the benefit of the adviser, the administrator or the principal underwriter at the expense of the Fund. For example, the negotiation of the underlying advisory, administrative and underwriting agreements necessarily places such Covered Officers in an actual conflict of interest position as to a Fund. These inherent conflicts of interest are known to and understood by the Funds and the Board, and the Board has determined that the existence of these conflicts of interest is consistent with the performance by the Covered Officers of their duties as officers of the Fund. Therefore, the fact that a Covered Officer acts primarily or exclusively on behalf of a party other than a Fund with regard to a transaction that is covered by such inherent conflicts of interest shall not IPSO FACTO cause such conduct to be in violation of the requirements of this Code. Absent specific dishonest or unethical conduct in such a transaction, the actions by a Covered Officer in such regard shall be deemed to be honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships. (2) These inherent conflicts of interest are already subject to prohibitions in the Investment Company Act of 1940 (the "Investment Company Act") and the Investment Advisers Act of 1940 (the "Investment Advisers Act"). For example, a Covered Officer may not individually engage in certain transactions (such as the purchase of sale or securities or other property) with a Fund because of his or her status as an "affiliated person" of the Fund. The Funds' and the investment adviser's compliance programs and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat and replace those programs and procedures, and such actual and apparent conflicts of interest fall outside of the coverage of this Code. All other actual and apparent conflicts of interest, even if such actual and apparent conflicts of interest are not subject to provisions in the Investment Company Act or the Investment Advisers Act, are covered by this Code. (3) The term "executive officer," when used with reference to a registrant, means its president, any vice president of the registrant in charge of a principal business unit, division or function (such as sales, administration or finance), any other officer who performs a policy making function or any other person who performs similar policy making functions for the registrant. 7 the Chief Legal Officer and the Coordination and Compliance Committee of the Board. To obtain such approval, the Covered Officer shall submit a written statement to the Chief Legal Officer describing in detail the proposed activity and the reasons for it. 1. Service as a director, partner, officer, manager or managing member on the board of any public or private company4 other than a Fund's investment adviser, administrator, principal underwriter, or an affiliate of any of the foregoing, if such company has current or prospective business dealings with a Fund or if any Fund may invest in securities issued by such company. 2. Receipt of any entertainment5 or meals from any company with which the Fund has current or prospective business dealings unless such entertainment or meals are business-related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety. For the purposes of this Code, entertainment and meals that are incidental to a business conference, seminar or meeting shall be deemed business-related, reasonable in cost, and appropriate as to time and place. 3. Having any ownership interest in, or any consulting, employment or compensation relationship with, any of a Fund's service providers, other than its investment adviser(s), administrator, principal underwriter, or any affiliated person thereof. 4. Exploit for his or her own personal gain any opportunity which a Fund may exploit. This prohibition shall not apply to securities trading undertaken in conformance with the Funds' and an investment adviser's code of ethics adopted pursuant to Rule 17j-1 of the Investment Company Act. F. PROHIBITED ACTIVITIES A Covered Officer and his or her immediate family shall not engage in any of the following activities: 1. Have a direct or indirect financial interest, such as compensation or equity ownership, in commissions, transaction charges or spreads paid by the Fund for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer's employment with the Fund's investment adviser, administrator, principal underwriter, or any affiliated person thereof. 2. Receive any gifts in excess of $500 in any calendar year from any entity or person that directly or indirectly currently or prospectively does or will do business with or receives compensation or other benefits from a Fund. For the purposes of this restriction, gifts from different persons employed by the same entity shall be aggregated, along with any gifts from the entity itself, in order to determine whether the $500 limit has been exceeded. 3. Accept employment from any company, other than a Fund's investment adviser(s), administrator or principal underwriter (or any affiliate thereof), with which the Fund has current or prospective business dealings within one year after the latest to occur of such Covered Officer's termination of employment at the Fund or at the Fund's investment adviser(s), administrator or principal underwriter (or any affiliate thereof). 4. Borrow money from any Fund, or borrow money from or have any other financial transactions with any company, other than a Fund's investment adviser(s), administrator or principal underwriter (or any affiliate thereof), with which the Fund has current or prospective business dealings, other than routine retail transactions that are effected on the same terms and conditions as are available to the general public. - ---------- (4) For the purposes of this Code, "company" includes any legal or business entity such as a corporation, limited liability company, partnership, limited partnership, trust, association, sole proprietorship, ETC. (5) For the purposes of this Code, "entertainment" means activities or events, such as golfing, theater, sporting events, ETC., at which a representative of the entertaining company is present along with the Covered Officer or his or her immediate family member. If a representative of the entertaining company is not present, such activities or events shall be treated as gifts hereunder. 8 5. Engage in a transaction directly as a principal with a Fund, except that this prohibition shall not apply to the purchase or redemption of the shares of any Fund on the same terms and conditions as all other shareholders. 6. Any other activity that would cause them to benefit personally at the expense of a Fund. G. REPORTING AND ACCOUNTABILITY 1. REPORTING Each Covered Officer must: a. Upon adoption of this Code (or thereafter, as applicable, upon becoming a Covered Officer), affirm in writing to the Chief Legal Officer and the Board that he or she has received, read and understands this Code. Such affirmation shall be substantially in the form attached hereto as EXHIBIT B. b. Annually thereafter affirm to the Chief Legal Officer and the Board that he or she has complied with the requirements of this Code. Such affirmation shall be substantially in the form attached hereto as EXHIBIT C. c. Report at least annually all employment, ownership, affiliations or other relationships related to conflicts of interest that the Fund's Directors and Officers Questionnaire covers. d. Notify the Chief Legal Officer promptly if he or she knows of any violation of this Code or of any applicable laws and governmental rules and regulations. Failure to do so is itself a violation of this Code. 2. INTERPRETATIONS The Chief Legal Officer has the authority and shall be responsible for applying this Code to specific situations and for making interpretations of this Code in any particular situation. In making interpretations of this Code, the Chief Legal Officer may consult with the Funds' outside counsel. 3. INVESTIGATIONS The Funds will follow these procedures in investigating and enforcing this Code: a. The Chief Legal Officer will take all appropriate action to investigate any potential violations reported to him or her. b. If, after such investigation, the Chief Legal Officer believes that no violation has occurred, the Chief Legal Officer is not required to take any further action. c. If, after such investigation, the Chief Legal Officer believes that a violation has occurred, the Chief Legal Officer shall report such potential violation to the Coordination and Compliance Committee. d. If the Coordination and Compliance Committee concurs that a violation has occurred, it will inform and make a recommendation to the Board, which will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the investment adviser or its board; and a recommendation to discipline or dismiss the Covered Officer or to require reimbursement or disgorgement by the Covered Officer of any personal benefits received. 4. WAIVERS The Coordination and Compliance Committee and the Chief Legal Officer, as applicable, may grant a waiver to compliance with this Code by a Covered Officer or his or her immediate family if the Coordination and Compliance Committee or the Chief Legal Officer determines that the proposed activity will not have an adverse impact on any Fund or on the ability of a Covered Officer faithfully to perform his or her duties to the Funds. To obtain a waiver, a Covered Officer shall submit a written statement to the Chief Legal Officer describing in detail the proposed activity, and the reasons for it, and the provision(s) of this Code as to which a waiver is requested. Any waivers of the provisions of this Code shall be disclosed to the extent required by law and SEC rules. 9 H. RELATIONSHIP TO OTHER POLICIES AND PROCEDURES This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the Funds, the Funds' adviser(s), administrator, principal underwriter, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. The Funds' and their investment advisers' and principal underwriter's codes of ethics under Rule 17j-1 under the Investment Company Act are separate requirements applying to the Covered Officers and others, and are not part of this Code. I. CONFIDENTIALITY All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the appropriate Board or committee thereof or the Funds' outside counsel. J. INTERNAL USE The Code is intended solely for the internal use by the Funds and does not constitute an admission, by or on behalf of any Fund or any Covered Officer or his or her immediate family, as to any fact, circumstance, or legal conclusion. K. AMENDMENTS Any amendments to this Code must be approved or ratified by a majority vote of the Board, including a majority of the independent directors. Any amendments to this Code shall be disclosed to the extent required by law and SEC rules. Date: --------------------------------- 10 EXHIBIT A ING INVESTORS TRUST ING EQUITY TRUST ING FUNDS TRUST ING INVESTMENT FUNDS, INC. ING MAYFLOWER TRUST ING MUTUAL FUNDS ING PRIME RATE TRUST ING SENIOR INCOME FUND ING VARIABLE INSURANCE TRUST ING VARIABLE PRODUCTS TRUST ING VP EMERGING MARKETS FUND, INC. ING VP NATURAL RESOURCES TRUST USLICO SERIES FUND 11 EXHIBIT B INITIAL ACKNOWLEDGEMENT Covered Officer Name and Title: ---------------------------------------- (PLEASE PRINT) I acknowledge that I have received and read a copy of the ING Funds Sarbanes-Oxley Act Code of Ethics (the "Code") and that I understand it. I further acknowledge that I am responsible for understanding and complying with the policies set forth in the Code during my tenure as a Covered Officer, as defined in the Code. I also acknowledge my responsibility to report any violation of the Code to the Chief Legal Officer of the Funds. I further acknowledge that the policies contained in the Code are not intended to create any contractual rights or obligations, express or implied. I also understand that, consistent with applicable law, the Funds have the right to amend, interpret, modify or withdraw any of the provisions of the Code at any time in their sole discretion, with or without notice. - ---------------------------------------------- ------------------ Signature Date 12 EXHIBIT C ANNUAL ACKNOWLEDGEMENT Covered Officer Name and Title: -------------------------------------------- (PLEASE PRINT) I acknowledge that I have received and read a copy of the ING Funds Sarbanes-Oxley Act Code of Ethics (the "Code") and that I understand it. I further acknowledge that I am responsible for understanding and complying with the policies set forth in the Code during my tenure as a Covered Officer, as defined in the Code. I also acknowledge that I have fully complied with the terms and provisions of the Code during the period of time since the most recent Initial or Annual Acknowledgement provided by me. I further acknowledge that the policies contained in the Code are not intended to create any contractual rights or obligations, express or implied. I also understand that, consistent with applicable law, the Funds have the right to amend, interpret, modify or withdraw any of the provisions of the Code at any time in their sole discretion, with or without notice. - ---------------------------------------------- ------------------ Signature Date 13 EX-99.CERT 3 a2142447zex-99_cert.txt EX-99.CERT Exhibit 99.Cert CERTIFICATION I, James M. Hennessy, certify that: 1. I have reviewed this report on Form N-CSR of USLICO SERIES FUND; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 30, 2004 /s/ James M. Hennessy --------------- --------------------- James M. Hennessy President and Chief Executive Officer 14 CERTIFICATION I, Michael J. Roland, certify that: 1. I have reviewed this report on Form N-CSR of USLICO SERIES FUND; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 30, 2004 /s/ Michael J. Roland --------------- --------------------- Michael J. Roland Executive Vice President and Chief Financial Officer 15 EX-99.906CERT 4 a2142447zex-99_906cert.txt EX-99.906CERT Exhibit 99.906 Cert CERTIFICATION Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Name of Registrant: USLICO SERIES FUND Date of Form N-CSR: JUNE 30, 2004 The undersigned, the principal executive officer of the above named registrant (the "Fund"), hereby certifies that, with respect to the Form N-CSR referred to above, to the best of his knowledge and belief, after reasonable inquiry: 1. such Form N-CSR fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. the information contained in such Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Fund. A signed original of this written statement required by Section 906 has been provided to USLICO SERIES FUND and will be retained by USLICO SERIES FUND and furnished to the Securities and Exchange Commission or its staff upon request. IN WITNESS WHEREOF, the undersigned has executed this Certification below, as of this 30TH day of AUGUST, 2004. /s/ James M. Hennessy --------------------- James M. Hennessy 16 CERTIFICATION Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Name of Registrant: USLICO SERIES FUND Date of Form N-CSR: JUNE 30, 2004 The undersigned, the principal executive officer of the above named registrant (the "Fund"), hereby certifies that, with respect to the Form N-CSR referred to above, to the best of his knowledge and belief, after reasonable inquiry: 1. such Form N-CSR fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. the information contained in such Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Fund. A signed original of this written statement required by Section 906 has been provided to USLICO SERIES FUND and will be retained by USLICO SERIES FUND and furnished to the Securities and Exchange Commission or its staff upon request. IN WITNESS WHEREOF, the undersigned has executed this Certification below, as of this 30TH day of AUGUST, 2004. /s/ Michael J. Roland --------------------- Michael J. Roland 17 -----END PRIVACY-ENHANCED MESSAGE-----