<PAGE>
 
                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D. C. 20549

                                    FORM 10-Q



(Mark One)

[X]          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 1998

                                       OR

[ ]            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition period from __________________ to _________________.

Commission File Number  1-10640

                            RELIASTAR FINANCIAL CORP.
                            -------------------------
             (Exact name of registrant as specified in its charter)

                   DELAWARE                             41-1620373
         (State or other jurisdiction of             (I.R.S. Employer
          incorporation or organization)            Identification No.)

            20 WASHINGTON AVENUE SOUTH, MINNEAPOLIS, MINNESOTA 55401
            --------------------------------------------------------
                    (Address of principal executive offices)
                                   (Zip Code)

                                 (612) 372-5432
                                 --------------
              (Registrant's telephone number, including area code)


--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES _X_  NO ___

Number of shares of common stock outstanding as of July 31, 1998 was 91,405,417.
<PAGE>
 
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

                            RELIASTAR FINANCIAL CORP.
                      Condensed Consolidated Balance Sheets
                                  (in millions)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                 June 30, 1998  December 31, 1997
                                                                     ---------    ---------
<S>                                                                  <C>          <C>      
ASSETS
Fixed Maturity Securities                                            $11,342.2    $11,146.7
Equity Securities                                                         45.3         27.0
Mortgage Loans on Real Estate                                          2,128.2      2,270.7
Real Estate and Leases                                                    64.6         74.5
Policy Loans                                                             676.4        663.3
Other Invested Assets                                                    116.4         81.1
Short-Term Investments                                                   253.3        157.2
                                                                     ---------    ---------
     Total Investments                                                14,626.4     14,420.5
Cash                                                                      12.4         46.4
Accounts and Notes Receivable                                            279.0        217.5
Reinsurance Receivable                                                   348.5        324.4
Deferred Policy Acquisition Costs                                      1,149.5      1,091.9
Present Value of Future Profits                                          446.9        480.0
Property and Equipment, Net                                              112.6        112.4
Accrued Investment Income                                                189.6        200.6
Other Assets                                                             772.4        641.2
Participation Fund Account Assets                                        314.6        316.6
Assets Held in Separate Accounts                                       3,796.5      3,149.3
                                                                     ---------    ---------
       TOTAL ASSETS                                                  $22,048.4    $21,000.8
                                                                     =========    =========

LIABILITIES
Future Policy and Contract Benefits                                  $13,410.9    $13,329.4
Pending Policy Claims                                                    361.6        340.5
Other Policyholder Funds                                                 278.2        286.5
Notes and Mortgages Payable                                              647.9        593.5
Income Taxes                                                             203.9        192.1
Other Liabilities                                                        645.9        545.5
Participation Fund Account Liabilities                                   314.6        316.6
Liabilities Related to Separate Accounts                               3,791.0      3,143.8
                                                                     ---------    ---------
       TOTAL LIABILITIES                                              19,654.0     18,747.9
                                                                     ---------    ---------

Company-Obligated Mandatorily Redeemable Preferred
   Securities Issued by Consolidated Subsidiaries                        242.1        241.9
                                                                     ---------    ---------

SHAREHOLDERS' EQUITY
Common Stock (Shares Issued: 1998 and 1997, 98.1)                           .9           .9
Additional Paid-in Capital                                             1,009.1      1,019.8
Retained Earnings                                                      1,067.6        964.8
Net Unrealized Investment Gains                                          245.0        226.2
Note Receivable from ESOP                                                (20.3)       (20.8)
Unamortized Restricted Stock Awards                                       (1.0)        (1.0)
Treasury Common Stock, at Cost (Shares Held: 1998, 6.7; 1997, 7.7)      (149.0)      (178.9)
                                                                     ---------    ---------
       TOTAL SHAREHOLDERS' EQUITY                                      2,152.3      2,011.0
                                                                     ---------    ---------

       TOTAL LIABILITIES AND
       SHAREHOLDERS' EQUITY                                          $22,048.4    $21,000.8
                                                                     =========    =========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       2
<PAGE>
 
                            RELIASTAR FINANCIAL CORP.
                   Condensed Consolidated Statements of Income
                      (in millions, except per share data)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                         Three Months Ended June 30  Six Months Ended June 30
                                                         --------------------------  ------------------------
                                                                  1998      1997       1998        1997
                                                                -------    -------   --------    --------
<S>                                                             <C>        <C>       <C>         <C>     
REVENUES
Premiums                                                        $ 257.3    $ 215.1   $  492.3    $  419.8
Net Investment Income                                             274.3      235.9      548.7       467.4
Realized Investment Gains, Net                                     10.3         .3       17.5         2.5
Policy and Contract Charges                                       102.1       64.7      202.7       129.6
Other Income                                                       77.8       56.3      150.2       110.1
                                                                -------    -------   --------    --------
     Total                                                        721.8      572.3    1,411.4     1,129.4
                                                                -------    -------   --------    --------

BENEFITS AND EXPENSES
Benefits to Policyholders                                         385.0      320.9      765.3       638.4
Sales and Operating Expenses                                      153.9      125.4      303.1       243.6
Amortization of Deferred Policy Acquisition Costs
     and Present Value of Future Profits                           48.2       31.6       90.1        60.0
Interest Expense                                                    6.4        4.8       12.9         9.6
Dividends and Experience Refunds to Policyholders                  10.6        7.4       16.5        14.5
                                                                -------    -------   --------    --------
     Total                                                        604.1      490.1    1,187.9       966.1
                                                                -------    -------   --------    --------

Income from Continuing Operations Before Income Taxes and
    Dividends on Preferred Securities of Subsidiaries             117.7       82.2      223.5       163.3
Income Tax Expense                                                 41.5       29.4       79.5        57.7
Dividends on Preferred Securities of Subsidiaries, Net of Tax       3.3        2.1        6.6         3.8
                                                                -------    -------   --------    --------

Income from Continuing Operations                                  72.9       50.7      137.4       101.8

Income (Loss) from Discontinued Operations, Net of Tax             (3.5)       1.2       (3.4)        1.4
                                                                -------    -------   --------    --------

Net Income                                                      $  69.4    $  51.9   $  134.0    $  103.2
                                                                =======    =======   ========    ========

PER COMMON SHARE
Basic
Income from Continuing Operations                               $   .80    $   .63   $   1.51    $   1.26
Income (Loss) from Discontinued Operations                         (.04)       .02       (.04)        .02
                                                                -------    -------   --------    --------
Net Income                                                      $   .76    $   .65   $   1.47    $   1.28
                                                                =======    =======   ========    ========

Diluted
Income from Continuing Operations                               $   .79    $   .62   $   1.48    $   1.24
Income (Loss) from Discontinued Operations                         (.04)       .02       (.04)        .02
                                                                -------    -------   --------    --------
Net Income                                                      $   .75    $   .64   $   1.44    $   1.26
                                                                =======    =======   ========    ========

Weighted Average Common Shares
     Basic                                                         91.2       80.4       91.1        80.3
     Diluted                                                       92.9       81.7       92.8        81.6

</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       3
<PAGE>
 
                            RELIASTAR FINANCIAL CORP.
            Condensed Consolidated Statements of Shareholders' Equity
                      (in millions, except per share data)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                           Six Months Ended June 30
                                                                           ------------------------
                                                                               1998         1997
                                                                             --------    --------
<S>                                                                          <C>         <C>     
COMMON STOCK
   Beginning and End of Period                                               $     .9    $     .4
                                                                             --------    --------

ADDITIONAL PAID-IN CAPITAL
   Beginning of Year                                                          1,019.8       571.9
   Issued for Benefit Plans                                                      --          11.0
   Loss on Treasury Shares Reissued for Benefit Plans                           (18.9)        (.2)
   Loss on Treasury Shares Reissued for Acquisitions                              (.9)       --
   Tax Benefit on Stock Options Exercised                                         9.1         3.8
                                                                             --------    --------
      End of Period                                                           1,009.1       586.5
                                                                             --------    --------

RETAINED EARNINGS
   Beginning  of Year                                                           964.8       794.2
   Net Income                                                                   134.0       103.2
   Common Dividends to Shareholders: (Per Share: 1998, $.185; 1997, $.155)      (31.0)      (23.7)
   Other, Net                                                                     (.2)         .4
                                                                             --------    --------
      End of Period                                                           1,067.6       874.1
                                                                             --------    --------

NET UNREALIZED INVESTMENT GAINS
   Beginning of Year                                                            226.2       140.8
   Change for the Period                                                         18.8        (9.2)
                                                                             --------    --------
      End of Period                                                             245.0       131.6
                                                                             --------    --------

NOTE RECEIVABLE FROM ESOP
   Beginning of Year                                                            (20.8)      (21.6)
   Repayments, Accrued or Paid                                                     .5          .6
                                                                             --------    --------
      End of Period                                                             (20.3)      (21.0)
                                                                             --------    --------

UNAMORTIZED RESTRICTED STOCK AWARDS
   Beginning of Year                                                             (1.0)       (1.8)
   Awards, Net                                                                    (.1)        (.2)
   Amortization of Restricted Stock Awards                                         .1          .5
                                                                             --------    --------
      End of Period                                                              (1.0)       (1.5)
                                                                             --------    --------

TREASURY COMMON STOCK
   Beginning of Year                                                           (178.9)      (66.2)
   Acquired                                                                     (33.7)       (4.7)
   Reissued for Acquisitions                                                     21.2        --
   Reissued, Other                                                               42.4         1.5
                                                                             --------    --------
      End of Period                                                            (149.0)      (69.4)
                                                                             --------    --------

TOTAL SHAREHOLDERS' EQUITY                                                   $2,152.3    $1,500.7
                                                                             ========    ========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       4
<PAGE>
 
                            RELIASTAR FINANCIAL CORP.
                 Condensed Consolidated Statements of Cash Flows
                                  (in millions)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                   Six Months Ended June 30
                                                                   ------------------------
                                                                       1998      1997
                                                                      ------    ------
<S>                                                                   <C>       <C>   
OPERATING ACTIVITIES
Net Income                                                            $134.0    $103.2
Adjustments to Reconcile Net Income to Net Cash Provided by
  Operating Activities
     Interest Credited to Insurance Contracts                          276.3     249.7
     Future Policy Benefits                                           (217.3)   (115.9)
     Capitalization of Policy Acquisition Costs                       (110.9)   (100.4)
     Amortization of Deferred Policy Acquisition Costs and Present
        Value of Future Profits                                         90.1      60.0
     Deferred Income Taxes                                               7.2       9.7
     Net Change in Receivables and Payables                             (1.9)    (37.2)
     Other Assets                                                      (60.9)    (69.2)
     Realized Investment Gains, Net                                    (17.5)     (2.5)
     Other                                                              (5.7)     10.2
                                                                      ------    ------
          Net Cash Provided by Operating Activities                     93.4     107.6
                                                                      ------    ------

INVESTING ACTIVITIES
Proceeds from Sales of Fixed Maturity Securities                       196.2     188.9
Proceeds from Maturities or Repayment of Fixed Maturity Securities     573.0     389.0
Cost of Fixed Maturity Securities Acquired                            (956.6)   (656.0)
Sales (Purchases) of Equity Securities, Net                            (18.5)     12.7
Proceeds of Mortgage Loans Sold, Matured or Repaid                     309.2     290.4
Cost of Mortgage Loans Acquired                                       (167.8)   (436.9)
Sales of Real Estate and Leases, Net                                    11.8      10.3
Policy Loans Issued, Net                                               (13.1)    (17.9)
Sales (Purchases) of Other Invested Assets, Net                           .3     (10.1)
Purchases of Short-Term Investments, Net                               (95.4)    (53.6)
Cash Acquired with Acquisitions, Net                                     1.3      --
                                                                      ------    ------
          Net Cash Used by Investing Activities                       (159.6)   (283.2)
                                                                      ------    ------

FINANCING ACTIVITIES
Deposits to Insurance Contracts                                        722.2     632.1
Maturities and Withdrawals from Insurance Contracts                   (699.4)   (618.3)
Net Proceeds from Issuance of Trust Originated Preferred Securities     --       120.8
Increase in Notes and Mortgages Payable                                 71.5      68.0
Repayment of Notes and Mortgages Payable                               (17.5)    (15.4)
Issuance of Common Stock Under Stock Option and Other Plans             20.1      12.3
Dividends on Common Stock                                              (31.0)    (23.7)
Acquisition of Treasury Common Stock                                   (33.7)     (4.7)
                                                                      ------    ------
          Net Cash Provided by Financing Activities                     32.2     171.1
                                                                      ------    ------
Decrease in Cash                                                       (34.0)     (4.5)
Cash at Beginning of Period                                             46.4      32.4
                                                                      ------    ------
Cash at End of Period                                                 $ 12.4    $ 27.9
                                                                      ======    ======
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       5
<PAGE>
 
                            RELIASTAR FINANCIAL CORP.
              Notes to Condensed Consolidated Financial Statements
                                   (unaudited)

Note 1. Basis of Presentation

The condensed consolidated financial statements have been prepared in conformity
with generally accepted accounting principles and such principles were applied
on a basis consistent with that reflected in the Annual Report of ReliaStar
Financial Corp. (the Company or ReliaStar) for the year ended December 31, 1997
filed with the Securities and Exchange Commission (SEC) except for the
accounting changes as described in Note 2. The financial information included
herein, other than the condensed consolidated balance sheet as of December 31,
1997, has been prepared by management without audit by independent certified
public accountants. The condensed consolidated balance sheet as of December 31,
1997 has been derived from, and does not include all of the disclosures
contained in, the audited consolidated financial statements for the year ended
December 31, 1997.

The information furnished includes all adjustments and accruals consisting only
of normal, recurring accrual adjustments which are, in the opinion of
management, necessary for a fair statement of results for the interim period.
The results of operations for any interim period are not necessarily indicative
of results for the full year. The unaudited interim condensed consolidated
financial statements should be read in conjunction with the financial statements
and notes thereto contained in the Company's 1997 Annual Report.

Note 2. Accounting Changes

ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS
OF LIABILITIES

Effective for transactions occurring on or after January 1, 1998, the Company
adopted those provisions of Statement of Financial Accounting Standards (SFAS)
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," which were deferred by SFAS No. 127, "Deferral
of the Effective Date of Certain Provisions of FASB Statement No. 125." SFAS No.
125 requires a company to recognize the financial and servicing assets it
controls and the liabilities it has incurred and to derecognize financial assets
when control has been surrendered in accordance with the criteria provided in
SFAS No. 125. The adoption of these provisions had no effect on the financial
results of the Company.

REPORTING COMPREHENSIVE INCOME

Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for the reporting and
display of comprehensive income and its components in a company's full set of
financial statements. SFAS No. 130 defines comprehensive income as "the change
in equity (net assets) of a business enterprise during a period from
transactions and other events and circumstances from nonowner sources. It
includes all changes in equity during a period except those resulting from
investments by owners and distributions to owners." Comprehensive income for the
three and six month periods ended June 30, 1998 and 1997 was as follows (in
millions):

                                           Three Months Ended  Six Months Ended
                                               June 30              June 30
                                           -----------------   -----------------
                                            1998       1997     1998      1997
                                           ------     ------   ------    ------

Net Income                                 $ 69.4     $ 51.9   $134.0    $103.2
Change in Net Unrealized Investment Gains    16.5       71.5     18.8      (9.2)
                                           ------     ------   ------    ------
     Comprehensive Income                  $ 85.9     $123.4   $152.8    $ 94.0
                                           ======     ======   ======    ======

                                       6
<PAGE>
 
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION

Effective January 1, 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 establishes
standards for the way that a company reports information about operating
segments in financial statements using a "management approach" to aggregate
operating segments. The Company operates in four reportable segments: Personal
Financial Services, which represents the Company's individual life insurance
products; Worksite Financial Services, which sells group and individual
insurance products, retirement plans and financial services to employers and
their employees at the worksite; Tax-Sheltered and Fixed Annuities, which sells
403(b) annuities and other retirement products, primarily to the K-12
schoolteacher market; and Reinsurance, which sells group life, health and
special risk reinsurance and specialty insurance products in the United States
and internationally.

ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL
USE

During the second quarter of 1998, the Company adopted Statement of Position
(SOP) No. 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." SOP No. 98-1 provides guidance on accounting for
costs associated with computer software developed or obtained for internal use.
The Company adopted this pronouncement during the second quarter of 1998,
retroactive to the beginning of the year. Adoption of SOP No. 98-1 increased
second quarter and year-to-date net income by $1.7 million, which reflects the
impact of the required capitalization of applicable costs incurred during 1998.

Note 3. Acquisitions

In January 1998, the Company completed the acquisitions of ReliaStar Bancshares,
Inc., formerly known as Citizens Community Bancshares Co., and ReliaStar
Managing Underwriters, Inc., formerly known as LaMar & Phillips, Inc.

ReliaStar Bancshares, Inc. is a thrift holding company whose subsidiary,
ReliaStar Bank, is based in St. Cloud, Minnesota. ReliaStar Bank is a federally
chartered savings bank that provides consumer banking products. This acquisition
was accounted for using the purchase method of accounting and was effected
through a stock-for-stock exchange whereby the Company issued approximately
228,000 shares of ReliaStar common stock from treasury. Goodwill recorded as a
result of this transaction was approximately $3 million.

ReliaStar Managing Underwriters, Inc. is a managing general underwriter, located
in Brentwood, Tennessee, specializing in the HMO reinsurance and provider excess
business. This acquisition was accounted for using the purchase method of
accounting and was effected through a stock-for-stock exchange whereby the
Company issued approximately 330,000 shares of ReliaStar common stock from
treasury. Goodwill recorded as a result of this transaction was approximately
$14 million.

The pro forma effect of these transactions on prior period consolidated results
is not material.

During the first quarter of 1998, the Company repurchased 560,000 of its common
shares in a common stock buyback program completed in conjunction with these
acquisitions.

Note 4. Discontinued Operations

During the second quarter of 1998, the Company announced that it had signed a
definitive agreement to sell its mortgage banking subsidiary, ReliaStar Mortgage
Corporation (RMC). The transaction closed on July 31, 1998.

The results of RMC are presented as discontinued operations on the Condensed
Consolidated Statements of Income; prior periods have been restated to reflect
this presentation.

                                       7
<PAGE>
 
Assets of $352.8 million and liabilities of $329.3 million of RMC were included
on the June 30, 1998 Condensed Consolidated Balance Sheet. Revenues of RMC for
the three month periods ended June 30, 1998 and 1997 were $6.7 million and $8.5
million, respectively. Revenues of RMC for the six month periods ended June 30,
1998 and 1997 were $15.4 million and $14.6 million, respectively. The $6.3 
million pretax loss ($3.5 million aftertax) recorded in the second quarter of 
1998 on the disposal of RMC included a loss from operations totaling $2.8 
million pretax ($1.8 million aftertax).

Note 5. Subsequent Event

On July 22, 1998, the Company announced that it had entered into an agreement to
form a strategic alliance with Trustmark Insurance Co. (Trustmark) to outsource
the back office claims processing and administration for its insured group
medical and Administrative Services Only (ASO) lines of business. Under the
alliance, ReliaStar will transfer to Trustmark the claims processing and
administration for its insured group medical, ASO and split risk lines of
business. The group medical contracts will continue to be underwritten by
ReliaStar until their renewal date, at which time Trustmark will directly
provide products and services to these customers, in addition to handling claims
processing. The Company does not expect this transaction to have a material
impact on earnings. The transaction is subject to regulatory and other approvals
and is expected to close during the third quarter of 1998.

                                       8
<PAGE>
 
ITEM 2.

                            RELIASTAR FINANCIAL CORP.

                      Management's Discussion and Analysis
                of Financial Condition and Results of Operations

RESULTS OF OPERATIONS

Results of operations by operating segment are summarized below (in millions):

<TABLE>
<CAPTION>
                                                              Three Months            Six Months
                                                              Ended June 30          Ended June 30
                                                              -------------          -------------
                                                            1998        1997        1998        1997
                                                           ------      ------      ------      ------
<S>                                                        <C>         <C>         <C>         <C>   
Operating Income (Loss) (1)
   Personal Financial Services Segment                     $ 23.8      $ 13.2      $ 45.2      $ 25.7
   Worksite Financial Services Segment                       13.9        13.8        27.8        24.0
   Tax-Sheltered and Fixed Annuities Segment                 19.5        17.4        37.3        37.8
   Reinsurance Segment                                       11.6         8.3        21.0        17.0
   Other Business Units                                       2.2          .6         5.9         1.7
   Corporate                                                 (3.5)       (2.6)       (8.6)       (5.4)
                                                           ------      ------      ------      ------
   Operating Income                                          67.5        50.7       128.6       100.8
Net Realized Investment Gains, Net of Tax                     5.4        --           8.8         1.0
                                                           ------      ------      ------      ------
Income From Continuing Operations                            72.9        50.7       137.4       101.8
Income (Loss) From Discontinued Operations, Net of Tax       (3.5)        1.2        (3.4)        1.4
                                                           ------      ------      ------      ------
   Net Income                                              $ 69.4      $ 51.9      $134.0      $103.2
                                                           ======      ======      ======      ======
</TABLE>

(1) Operating income is after-tax and excludes realized investment gains and
losses and their impact on the amortization of deferred policy acquisition costs
(DAC) and present value of future profits (PVFP).


Effective January 1, 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." As a result, the Company now
reports its segment results consistent with the way it manages its businesses.
The Company has four reportable operating segments: Personal Financial Services,
Worksite Financial Services, Tax-Sheltered and Fixed Annuities, and Reinsurance
(see Note 2 to Notes to Condensed Consolidated Financial Statements). Prior
period segment information has been restated to conform to the current
presentation.

The Company conducts its operations primarily through its life insurance
subsidiaries: ReliaStar Life Insurance Company (ReliaStar Life), Northern Life
Insurance Company (Northern), ReliaStar United Services Life Insurance Company
(United Services), Security-Connecticut Life Insurance Company
(Security-Connecticut), and ReliaStar Life Insurance Company of New York (RLNY).
These subsidiaries are sometimes collectively referred to as the Insurers.

On July 1, 1997, ReliaStar completed the acquisition of Security-Connecticut
Corporation (SCC). The acquisition was accounted for using the purchase method
of accounting and, accordingly, the results of operations prior to July 1, 1997
do not include the results of SCC or its former subsidiaries.

The discussion of segment operating results that follows refers to the above
after-tax segment results and, in each instance, amounts are after-tax unless
otherwise indicated.

                                       9
<PAGE>
 
Personal Financial Services
---------------------------

Operating income of the Personal Financial Services segment for the second
quarter of 1998 increased $10.6 million, or 80%, compared with the same period
in 1997. The increase in operating income is primarily due to the additional
earnings in 1998 from the SCC life insurance subsidiaries which totaled $9.2
million. The remaining increase in operating income was primarily due to growth
in assets under management and lower expenses, partially offset by unfavorable
mortality experience. Expenses in the second quarter of 1998 were affected by
the adoption of SOP No. 98-1. Year-to-date operating income increased 76% over
the comparable period in 1997 also due to the additional earnings in 1998 from
the SCC life insurance subsidiaries which totaled $16.3 million. The remaining
increase in operating income was primarily due to an increase in interest
spreads, growth in assets under management and lower expenses, partially offset
by unfavorable mortality experience.  

The interest spread for the Personal Financial Services segment of 237 basis
points in the second quarter of 1998 compares to 246 basis points in the second
of 1997. This decrease in spreads reflects a 15 basis point decrease in the
portfolio yield and a 6 basis point reduction in the average crediting rate. We
expect that the average interest spread for the remainder of 1998 will be lower
than the rate experienced in the first half of 1998, primarily as a result of
declining investment portfolio yields. It should be noted that the interest
spread calculation is an annualized measure and can be overly influenced in a
particular period by the level of prepayments, recoveries on problem investments
and other variances in the level of net investment income. For some of the
business included in the Personal Financial Services segment, crediting rates on
in force business are reset annually at the beginning of the calendar year and
are guaranteed for one year. The balance of the business has crediting rates
that can be changed on the policy anniversary or some other date. Crediting
rates offered on new business can be changed at any time in response to
competition and market interest rates and are guaranteed on most new premiums
received to the end of the calendar year.

Total assets under management increased 47% to $6.9 billion as of June 30, 1998
from $4.7 billion as of June 30, 1997. This increase includes $1.8 billion of
general account assets under management from the SCC life insurance
subsidiaries. Separate account assets under management increased 36% to $1.9
billion as of June 30, 1998 from $1.4 billion as of June 30, 1997.

Total sales (annualized new premiums and deposits) for the second quarter of
1998 were $126.3 million compared to $79.6 million in the same period of 1997.
Sales from the SCC life insurance subsidiaries totaled $20.6 million in the
second quarter of 1998. Excluding sales from the SCC life insurance
subsidiaries, sales for the second quarter of 1998 increased 33% compared with
the same period in 1997, reflecting a 22% increase in individual life insurance
sales and a 52% increase in variable annuity sales, partially offset by a 69%
decrease in fixed annuity sales. Total sales for the first six months of 1998
were $230.6 million compared to the $163.6 million in the same period of 1997.
Sales from the SCC life insurance subsidiaries totaled $34.1 million in the
first half of 1998. Excluding sales from the SCC life insurance subsidiaries,
sales for the first half of 1998 increased 20% compared with the same period in
1997, reflecting a 18% increase in individual life insurance sales and a 30%
increase in variable annuity sales, partially offset by a 51% decrease in fixed
annuity sales.

Worksite Financial Services
---------------------------

Operating income of the Worksite Financial Services segment for the second
quarter of 1998 increased $.1 million, or 1%, compared with the same period in
1997. The increase in operating income is primarily due to favorable claims
experience in the employee benefits unit and higher fee income, reflecting
growth in assets under management in the retirement plans unit, partially offset
by increased start-up costs in the Worksite Advisory Services unit and decreased
investment income in the pension unit. Operating income in the group life and
retirement plans lines of business increased in the second quarter of 1998 by
$.3 million and $.6 million, respectively, compared with the same period in
1997. Operating income from the closed block of pension contract liabilities
decreased $.7 million in the second quarter of 1998 compared with the same
period of 1997. Year-to-date operating income increased 16%, compared with the
same period in 1997. The increase in operating income is primarily due to
favorable claims experience, higher investment income and lower expenses in the
employee benefits unit and higher assets under management in

                                       10
<PAGE>
 
the retirement plans unit. This increase in operating income was partially
offset by increased start-up costs in the Worksite Advisory Services unit.

Total sales for the second quarter of 1998 were $100.7 million compared with
$94.6 million in the same period of 1997. Total sales for the first six months
of 1998 were $257.7 million compared to $255.1 in the same period of 1997.

During July 1998, the Company entered into an agreement related to its back 
office claims processing and administration for its insured group medical and 
ASO lines of business (see Note 5 to Notes to Condensed Consolidated Financial 
Statements). This transaction is not expected to have a material impact on 
future reported earnings of the Worksite Financial Services segment.

Tax-Sheltered and Fixed Annuities
---------------------------------

Operating income of the Tax-Sheltered and Fixed Annuities segment for the second
quarter of 1998 increased $2.1 million, or 12%, compared with the same period in
1997. The increase in operating income is primarily due to an increase in
interest spreads, growth in assets under management and lower expenses. Expenses
in the second quarter of 1998 were affected by the adoption of SOP 98-1. 
Year-to-date operating income decreased 1% compared with the same period in 
1997. The decrease in operating income is primarily due to strong 1997 results
related to a favorable DAC catch-up adjustment, increased expenses and lower
earnings on non-interest sensitive business, partially offset by growth in
assets under management.

The interest spread of 256 basis points in the second quarter of 1998 compares
to 247 basis points in the second quarter of 1997. This increase in spreads
reflects a 6 basis point decrease in the portfolio yield, offset by a 15 basis
point reduction in the average crediting rate. We expect that the average
interest spread for the remainder of 1998 will be lower than the rate
experienced in the first half of 1998, primarily as a result of declining
investment portfolio yields. It should be noted that the interest spread
calculation is an annualized measure and can be overly influenced in a
particular period by the level of prepayments, recoveries on problem investments
and other variances in the level of net investment income. For some of the
business included in the Tax-Sheltered and Fixed Annuities segment, crediting
rates on in force business are reset annually at the beginning of the calendar
year and are guaranteed for one year. The balance of the business has crediting
rates that can be changed on the policy anniversary or some other date.
Crediting rates offered on new business can be changed at any time in response
to competition and market interest rates and are guaranteed on most new premiums
received to the end of the calendar year.

Total assets under management increased 9% to $7.1 billion as of June 30, 1998
from $6.5 billion as of June 30, 1997. Separate account assets under management
increased 205% to $244 million at June 30, 1998 from $80 million at June 30,
1997.

Total sales for the second quarter of 1998 were $140.4 million compared with
$123.4 million in the same period of 1997. The increase in sales reflects a 133%
increase in sales of variable annuities and a 12% decrease in fixed annuity
sales. Total sales for the first six months of 1998 were $272.0 million compared
with $250.6 million in the same period of 1997. The increase in sales reflects a
98% increase in sales of variable annuities and an 11% decrease in fixed annuity
sales.

Reinsurance
-----------

Operating income of the Reinsurance segment for the second quarter of 1998
increased $3.3 million, or 40%, compared with the same period in 1997. The
increase in operating income is primarily due to a 52% increase in net earned
premiums. Year-to-date operating income increased 24% compared with the same
period in 1997. The increase in operating income is primarily due to an increase
in net earned premiums, partially offset by a less favorable overall loss ratio.
Earnings in the reinsurance business can fluctuate based upon a number of
factors, including pricing, market capacity, the availability and pricing of
retrocessional programs, loss experience and the risk profile of the book of
business included in this segment.

Total sales for the second quarter of 1998 were $48.7 million compared with
$25.8 million in the same period of 1997, an increase of 89%, primarily due to
strong sales of group life and medical reinsurance and specialty insurance
products. Total sales for the first half of 1998 were $100.7 million compared to
the $52.4 million in the same period of 1997.

                                       11
<PAGE>
 
Other Business Units
--------------------

Other Business Units include the Company's mutual fund operation, broker/dealer
operations, banking operation and personal finance education company. Operating
income of the Other Business Units for the second quarter of 1998 increased $1.6
million, or 267%, compared with the same period in 1997. The increase in
operating income is primarily due to improved operating earnings from the
Company's mutual fund and broker/dealer operations. Year-to-date operating
income of the Other Business Units for the first six months of 1998 increased
247%, compared with the same period in 1997. The increase in operating earnings
is primarily due to improved operating earnings from the Company's mutual fund
operation which included a $2.7 million pretax gain in the first quarter of 1998
from the sale of 12b-1 fees attributable to a portion of their Class B shares.

Corporate
---------

Corporate includes financing costs, goodwill amortization and other unallocated
costs. Operating losses of Corporate for the second quarter of 1998 increased
$.9 million compared with the same period in 1997. Operating losses of Corporate
for the first half of 1998 increased $3.2 million compared with the same period
in 1997. The increase in operating losses is primarily due to increased
financing costs and goodwill amortization related to the acquisition of SCC,
partially offset by increased recovery of corporate costs.

REALIZED INVESTMENT GAINS AND LOSSES

The sources of net realized investment gains (losses) were as follows (in
millions):

                                                Three Months       Six Months
                                                Ended June 30     Ended June 30
                                                1998     1997     1998     1997
                                               -----    -----    -----    -----
Net Gains (Losses) on Sales of Investments
   Fixed Maturity Securities
       Gross Gains                             $ 8.3    $ 2.0    $ 9.2    $ 2.6
       Gross Losses                             (1.5)    (1.0)    (1.7)    (4.2)
   Equity Securities                              .3       .2       .9      2.4
   Mortgage Loans                                (.3)      .1      (.3)      .1
   Foreclosed Real Estate                        3.0      (.1)     3.0       .1
   Real Estate                                    .3     --         .3       .1
   Other                                         4.2       .2     13.9      5.6
Provision for Losses on Investments
   Fixed Maturity Securities                    (2.8)    (1.0)    (6.3)    (1.7)
   Mortgage Loans                               --       --       --       (1.4)
   Foreclosed Real Estate                       (1.2)     (.1)    (1.5)    (1.1)
                                               -----    -----    -----    -----
Pretax Realized Investment Gains                10.3       .3     17.5      2.5
DAC/PVFP Amortization (1)                       (1.8)     (.4)    (3.8)    (1.0)
Income Taxes                                    (3.1)      .1     (4.9)     (.5)
                                               -----    -----    -----    -----
   Net Realized Investment Gains, Net of Tax   $ 5.4     --      $ 8.8    $ 1.0
                                               =====    =====    =====    =====
 
(1) Due to pretax realized investment gains and losses.


The Company establishes allowances and writes down the value of specific assets
based upon its continuing review of individual problem investments. The
Company's recording of allowances and write-downs based upon a review of
individual problem investments results in fluctuations in the level of the
provision for losses on investments reported in each period. The provision for
losses on investments is affected to a significant degree by general economic
conditions and the status of the real estate market. While the Company believes
it has set aside appropriate reserves and allowances for problem investments,
subsequent economic and market conditions may require the establishment of
additional reserves.

                                       12
<PAGE>
 
FINANCIAL CONDITION

LIQUIDITY AND CAPITAL RESOURCES - RELIASTAR FINANCIAL CORP.

ReliaStar, as parent, is dependent upon dividends, interest, and payments for
other charges received from its subsidiaries to pay dividends to shareholders,
service its debt and pay other obligations. The payment of dividends, interest
or other charges is subject to restrictions imposed by applicable laws and
regulations.

The payment of future dividends by ReliaStar will be largely dependent upon the
ability of ReliaStar Life to pay dividends to the Company. Under Minnesota
insurance law regulating the payment of dividends by ReliaStar Life, any such
payment must be in an amount deemed prudent by ReliaStar Life's Board of
Directors and, unless otherwise approved by the Commissioner of the Minnesota
Department of Commerce (the Commissioner), must be paid solely from the adjusted
earned surplus of ReliaStar Life. Adjusted earned surplus means the earned
surplus as determined in accordance with statutory accounting practices
(unassigned funds) less 25% of the amount of such earned surplus which is
attributable to net unrealized capital gains. Further, without approval of the
Commissioner, ReliaStar Life may not pay in any calendar year any dividend
which, when combined with other dividends paid within the preceding 12 months,
exceeds the greater of (i) 10% of ReliaStar Life's statutory surplus at the
prior year-end or (ii) 100% of ReliaStar Life's statutory net gain from
operations (not including realized capital gains) for the prior calendar year.
For 1998, the amount of dividends which can be paid by ReliaStar Life without
Commissioner approval is $186.4 million.

The Company maintains a $75.0 million unsecured revolving credit facility with a
group of banks. As of June 30, 1998, $45.0 million remained available for
borrowing under this facility.

During the first quarter of 1998, the Company repurchased 560,000 of its common
shares at an average price of $46.58 per share in a common stock buyback program
completed in conjunction with the acquisition of ReliaStar Managing
Underwriters, Inc. and ReliaStar Bancshares, Inc.

LIQUIDITY AND CAPITAL RESOURCES - INSURERS

Liquidity for life insurance companies is measured by their ability to pay
scheduled contractual benefits, pay operating expenses and fund investment
commitments. Sources of liquidity include scheduled and unscheduled principal
and interest payments on investments, premium payments and deposits and the sale
of liquid investments. These sources of liquidity for the Insurers significantly
exceed scheduled uses.

Liquidity is also affected by unscheduled benefit payments, including death
benefits, benefits under insured accident and health policies and contract
withdrawals and surrenders. The amount of withdrawals and surrenders is affected
by a variety of factors such as credited interest rates for competing products,
general economic conditions, the Insurers' claims paying ratings and events in
the industry which affect policyholders' confidence.

The Insurers' investment portfolios represent a significant source of liquid
assets. As of June 30, 1998, the Insurers' investment portfolios included $8.0
billion (36% of consolidated assets) of short-term investments and investment
grade marketable bonds. The June 30, 1998 investment portfolio also included
$2.7 billion of investment grade privately placed bonds which, while not
publicly traded, are a source of liquidity.

Some of the policies and annuities issued by the Insurers contain provisions
which allow contractholders to withdraw or surrender their contracts under
defined circumstances. These policies and annuities generally contain provisions
which apply penalties or otherwise restrict the ability of contractholders to
make such withdrawals or surrenders. The Insurers monitor the surrender and
policy loan activity of their insurance products and manage the composition of
their investment portfolios, including liquidity, in light of such activity.
While the Insurers have experienced an increase in withdrawal and surrender
activity attributable to their individual fixed annuity products, the surrender
activity is well below a level which would have a material effect on liquidity.

                                       13
<PAGE>
 
Changes in interest rates may affect the incidence of policy surrenders and
other withdrawals. In addition to the potential impact on liquidity,
unanticipated withdrawals in a changed interest rate environment could adversely
affect earnings if the Company were required to sell investments at reduced
values in order to meet liquidity demands. The Company seeks assets which have
duration characteristics similar to the liabilities which they support. The
Company also uses derivative instruments, such as interest rate swaps, to adjust
the duration of the asset and liability portfolios (see Investments-Derivative
Financial Instruments).

Statutory surplus is computed according to rules prescribed by the National
Association of Insurance Commissioners (NAIC), as modified by each Insurer's
state of domicile. Statutory accounting rules are different from generally
accepted accounting principles (GAAP) and are intended to reflect a more
conservative perspective by, for example, requiring immediate recognition of
selling expenses.

The Company's long-term growth goals contemplate continued growth in its
insurance businesses. To achieve these growth goals, the Insurers will need to
increase their statutory surplus. Additional statutory surplus may be secured
through various sources such as internally generated statutory earnings or
equity infusions by the Company with funds generated through debt or equity
offerings.

The state of domicile of each of the Insurers imposes NAIC developed minimum
risk-based capital requirements on insurance enterprises. The formulas for
determining the amount of risk-based capital specify various weighting factors
that are applied to financial balances and various levels of activity, based
upon the nature and perceived degree of risk associated with such balances and
levels of activity. Regulatory compliance is measured by a company's risk-based
capital ratio, which is calculated as a company's regulatory total adjusted
capital, as defined, divided by its authorized control level risk-based capital,
as defined. Companies with ratios below specific trigger points are classified
within certain regulatory action levels, each of which requires specified
corrective action. The risk-based capital ratio of each of the Insurers
significantly exceeds the ratio at which regulatory corrective action would be
required.

CONSOLIDATED CASH FLOWS

The Company's cash balance at June 30, 1998 was $12.4 million. During the six
months ended June 30, 1998, net cash provided by operating and financing
activities was $93.4 million and $32.2 million, respectively, which was offset
by net cash used by investing activities of $159.6 million.

The $93.4 million of net cash provided by operating activities was primarily the
result of positive cash flow from premiums and investment income in excess of
cash outflows for insurance benefits and sales and operating expenses. Net cash
provided by financing activities of $32.2 million was primarily the result of
proceeds from short-term borrowings and issuance of commercial paper, partially
offset by funds used to acquire ReliaStar common stock.

INVESTMENTS

The current investment strategy for the Company is designed to maintain the
overall quality of the portfolios, to maintain an appropriate liquidity
position, to assure appropriate asset/liability structures, to achieve asset
type diversification and to avoid issuer concentration.

The Company intends to direct most of its new investment cash flow for the
remainder of 1998 to the acquisition of investment grade marketable and
privately placed bonds and commercial mortgages. The marketable bonds category
includes both corporate issues and structured finance securities such as
collateralized mortgage obligations (CMOs) and other mortgage-backed securities.
The Company will make new investments in below investment grade bonds subject to
overall limitations.

The assets held by each of the Insurers are legally segregated and support only
their respective contractual obligations. The investment portfolios of each
Insurer are structured to reflect the characteristics of the liabilities which
they support. The Company internally allocates assets within the Insurers to
facilitate segment asset/liability matching. These segment allocations are
solely for portfolio management purposes, and generally all of the assets
allocated to a segment are available to satisfy the respective liabilities of
all segments within each Insurer. Assets within these

                                       14
<PAGE>
 
portfolios are selected to provide duration, cash flow and return
characteristics which are compatible with the liabilities they support. All of
the investments in the Insurers' portfolios are subject to diversification,
quality and reserving requirements of state laws regulating the Insurers.

The following table provides information regarding the composition of the
Company's invested assets as of the indicated dates (in millions):

                                       June 30, 1998       December 31, 1997
                                       -------------       -----------------
                                     Amount    Percent     Amount     Percent
                                   ---------   -------    ---------   -------
Investment Grade Bonds:
    Marketables                    $ 7,785.5      53.2%   $ 7,824.4      54.2%
    Private Placements               2,701.0      18.5      2,619.4      18.2
                                   ---------   -------    ---------   -------
        Subtotal                    10,486.5      71.7     10,443.8      72.4

Below Investment Grade Bonds:
    Marketables                        364.4       2.5        296.7       2.0
    Private Placements                 481.7       3.3        400.6       2.8
                                   ---------   -------    ---------   -------
           Subtotal                    846.1       5.8        697.3       4.8

Equity Securities                       45.3        .3         27.0        .2
Commercial Mortgages                 1,569.7      10.7      1,594.9      11.1
Mortgages, Residential and Other       558.5       3.8        675.8       4.7
Real Estate                             64.6        .5         74.5        .5
Short-Term Investments                 253.3       1.7        157.2       1.1
Other                                  802.4       5.5        750.0       5.2
                                   ---------   -------    ---------   -------
Total Invested Assets              $14,626.4     100.0%   $14,420.5     100.0%
                                   =========   =======    =========   =======

FIXED MATURITY SECURITIES

The amounts invested in fixed maturity securities as of June 30, 1998 and
December 31, 1997 were $11.3 billion and $11.1 billion, respectively. The
average marketable and private placement bond investments in a single corporate
issuer (excluding structured finance securities such as CMOs, mortgage-backed
pass throughs and asset-backed securities) as of June 30, 1998 were $9.3 million
and $7.1 million, respectively.

All of the Company's marketable and privately placed bonds are required to be
evaluated by the Securities Valuation Office (SVO) of the NAIC. The SVO
evaluates the investments of insurers for regulatory reporting purposes and
assigns securities to one of six investment categories. The NAIC's categories
closely follow the public rating agencies' categories for marketable bonds. NAIC
categories 1 and 2 include bonds considered investment grade (BBB or higher) by
the public rating agencies. Categories 3 through 6 are referred to as below
investment grade (BB or lower).

As of June 30, 1998, the weighted average book yields of the Company's
investment grade portfolio and below investment grade portfolio were 7.6% and
8.5%, respectively. The weighted average book yield is not necessarily
reflective of the net investment income ultimately realized by the Company.
Investments with greater credit risk have a greater risk of default than
investment grade securities, and accordingly, some of the incremental book yield
of the below investment grade portfolio may not be realized.

                                       15
<PAGE>
 
The following tables identify the amortized cost and the fair value of the
Company's fixed maturity securities with respect to each NAIC credit
classification as of the indicated dates (in millions):
<TABLE>
<CAPTION>
                                            June 30, 1998
---------------------------------------------------------------------------------------------------------
                                Marketables                                Private Placements
              ---------------------------------------------   -------------------------------------------
                             Gross Unrealized                               Gross Unrealized       
NAIC          Amortized     ------------------      Fair      Amortized     ----------------       Fair
Rating          Cost        Gains     (Losses)      Value       Cost        Gains    (Losses)      Value
------          ----        -----     --------      -----       ----        -----    --------      -----
<S>           <C>           <C>        <C>        <C>        <C>          <C>          <C>     <C>      
1             $5,250.8      $271.2     $  (5.2)   $5,516.8   $  854.4     $  38.9      $(2.0)  $   891.3
2              2,163.9       110.2        (5.4)    2,268.7    1,743.7        68.8       (2.8)    1,809.7
3                311.8        11.1        (2.8)      320.1      329.3         7.5        (.5)      336.3
4                 40.8         1.4         (.2)       42.0      127.4         3.4        (.7)      130.1
5                  1.6           -         (.1)        1.5       15.8          .5       (1.4)       14.9
6                   .8           -           -          .8         .4           -          -          .4
Redeemable
  Preferred
  Stock            7.5          .6           -         8.1        1.5           -          -         1.5
              --------      ------      ------    --------   --------      ------      -----     -------
    Total     $7,777.2      $394.5      $(13.7)   $8,158.0   $3,072.5      $119.1      $(7.4)   $3,184.2
              ========      ======      ======    ========   ========      ======      =====    ========
</TABLE>


<TABLE>
<CAPTION>
                                                    December 31, 1997
---------------------------------------------------------------------------------------------------------
                                Marketables                                Private Placements
              ---------------------------------------------   -------------------------------------------
                             Gross Unrealized                               Gross Unrealized       
NAIC          Amortized     ------------------      Fair      Amortized     ----------------       Fair
Rating          Cost        Gains     (Losses)      Value       Cost        Gains    (Losses)      Value
------          ----        -----     --------      -----       ----        -----    --------      -----
<S>           <C>           <C>        <C>        <C>        <C>          <C>          <C>      <C>     
1             $5,306.0      $260.8     $  (6.6)   $5,560.2   $  877.0     $  41.6      $(2.0)   $  916.6
2              2,154.5       114.1        (4.4)    2,264.2    1,634.2        71.7       (3.1)    1,702.8
3                264.2        11.5        (0.8)      274.9      244.7         5.2       (0.6)      249.3
4                 19.0         0.5        (0.2)       19.3      137.5         3.9       (1.2)      140.2
5                  1.6         0.1        (0.1)        1.6       10.2         0.1       (0.1)       10.2
6                  0.9           -           -         0.9        0.9           -          -         0.9
Redeemable
  Preferred
  Stock            3.7         0.4           -         4.1        1.5           -          -         1.5
              --------      ------      ------    --------   --------      ------      -----    --------
    Total     $7,749.9      $387.4      $(12.1)   $8,125.2   $2,906.0      $122.5      $(7.0)   $3,021.5
              ========      ======      ======    ========   ========      ======      =====    ========
</TABLE>

The amortized cost and fair value of fixed maturity securities by contractual
maturity are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties (in millions).
<TABLE>
<CAPTION>

                                         June 30, 1998         December 31, 1997
                                     ---------------------   ----------------------
                                      Amortized     Fair      Amortized     Fair
                                        Cost        Value       Cost        Value
                                        ----        -----       ----        -----
<S>                                  <C>         <C>         <C>         <C>      
Maturing in:
   One Year or Less                  $   253.6   $   255.8   $   199.9   $   200.9
   One to Five Years                   3,620.8     3,758.1     3,651.3     3,789.2
   Five to Ten Years                   3,011.8     3,182.2     3,006.4     3,180.7
   Ten Years or Later                  1,222.3     1,302.0     1,244.0     1,324.4
Mortgage-Backed/Structured Finance     2,741.2     2,844.1     2,554.3     2,651.5
                                     ---------   ---------   ---------   ---------
     Total                           $10,849.7   $11,342.2   $10,655.9   $11,146.7
                                     =========   =========   =========   =========
</TABLE>

The fair values for the marketable bonds are based upon the quoted market prices
for bonds actively traded. The fair values for marketable bonds without an
active market are obtained through several commercial pricing services which
provide the estimated fair values. Fair market values for privately placed bonds
which are not considered problems are determined utilizing a matrix-based
pricing model. The model considers the current level of risk-free interest
rates, 

                                       16
<PAGE>
 
current corporate spreads, the credit quality of the issuer and cash flow
characteristics of the security. Utilizing these data, the model generates
estimated market values which the Company considers reflective of the fair value
of each privately placed bond. Fair values for privately placed bonds which are
considered problems are determined through consideration of factors such as the
net worth of borrower, the value of collateral, the capital structure of the
borrower, the presence of guarantees and the Company's evaluation of the
borrower's ability to compete in their relevant market (see Problem
Investments).

Fair values of fixed income securities fluctuate due to a number of factors,
including the market level of interest rates, fluctuations in the corporate
spreads over the risk-free rate and changes in the credit quality of specific
investments.

The Company's marketable and private placement bond portfolios were diversified
by industry (based upon amortized cost) as of the indicated dates as set forth
in the following table:
<TABLE>
<CAPTION>
                                     Marketables              Private Placements    
                              ------------------------     ------------------------ 
                                June 30,  December 31,        June 30,  December 31,
                                 1998        1997              1998        1997
                                 ----        ----              ----        ----
<S>                               <C>         <C>               <C>         <C> 
Basic Materials                   6.8%        6.7%              7.7%        8.9%
Consumer Non-Cyclical             5.6         5.7              15.5        18.0
Consumer Products/Services        7.5         7.5              18.0        16.8
Energy                            5.8         5.7               6.4         6.6
Financial Services               20.8        20.8              17.7        20.5
Government                        3.0         3.2               0.5         0.6
Industrial                        4.4         3.9              11.3         9.3
Mortgage-Backed/Structured                                   
   Finance                       31.5        31.4               9.7         4.3
Real Estate                       0.8         0.7               1.4         1.5
Retailing                         2.0         2.1               5.1         5.6
Technology                        1.9         1.8               2.2         2.5
Utilities                         9.9        10.5               4.5         5.4
                                -----       -----             -----       -----
    Total                       100.0%      100.0%            100.0%      100.0%
                                =====       =====             =====       =====
</TABLE>

BELOW INVESTMENT GRADE INVESTMENTS

Issuers of below investment grade debt frequently have relatively high levels of
indebtedness and are more sensitive to adverse economic conditions, such as
recession or increasing interest rates, than are issuers of investment grade
securities.

The largest investment in below investment grade bonds of any one borrower was
approximately two-tenths of one percent of invested assets at June 30, 1998. The
largest investment in below investment grade bonds of any one industry grouping
was approximately 2.1% of invested assets at June 30, 1998. The portfolio of
below investment grade bonds is regularly analyzed and managed in an effort to
avoid concentration risks.

                                       17
<PAGE>
 
MORTGAGE-BACKED/STRUCTURED FINANCE SECURITIES

The Company's investment policy permits the acquisition of mortgage-backed
securities and collateralized mortgage obligations (collectively referred to as
MBS securities) provided that the Company's aggregate investment in MBS
securities shall not exceed 50% of its statutory assets and the Company shall
not acquire any interests in residual, interest only, principal only or inverse
floater tranches of MBS securities. The Company's investment strategy has been
to invest primarily in actively traded MBS securities which are structured to
reduce prepayment risk as compared to direct investments in the underlying
mortgage collateral. The amortized cost and estimated fair value of investments
in MBS securities, categorized by interest rates on the underlying collateral,
were comprised of the following (in millions):
<TABLE>
<CAPTION>

                                               June 30, 1998
                                       ----------------------------
                                       Amortized
                                         Cost            Fair Value
                                         ----            ----------
<S>                                    <C>               <C>     
Adjustable Rate Pass Through:
    Below 6%                           $   12.0          $   12.1
    6% - 7%                                69.7              70.0
    7% - 8%                               186.3             185.5
    Above 8%                               24.3              24.5

Fixed Rate Pass Through:
    Below 9%                               90.5              92.9
    Above 9%                                8.9               9.4

Planned Amortization Class:
    Below 7%                              300.0             320.0
    7% - 8%                               379.8             400.2
    8% - 9%                                97.3             101.8
    Above 9%                                3.2               3.3

Other:
    Below 7%                              221.1             236.3
    7% - 8%                                90.4              98.2
    8% - 9%                                22.5              23.7
    Above 9%                               10.4              10.7
                                       --------          --------
      Total                            $1,516.4          $1,588.6
                                       ========          ========
</TABLE>

The Company invests in public and private asset-backed securities in addition to
the MBS securities described above. As of June 30, 1998, the Insurers held
asset-backed securities with an amortized cost of $1,224.8 million and a fair
value of $1,255.5 million. These securities are collateralized by diversified
pools of manufactured housing loans, credit card receivables, automobile loans,
home equity loans, commercial mortgage loans, and high yield bank loans and
corporate bonds. The investment strategy has been to purchase primarily senior
structures and tranches that minimize prepayment and default risk. 
Approximately 34% of these securities are collateralized by manufactured housing
loans, 21% by commercial mortgage loans and 18% by high yield bank loans and
corporate bonds. None of the remaining collateral types exceed, on an individual
basis, 10% of total asset-backed securities.

                                       18
<PAGE>
 
MORTGAGE LOANS

The Company's commercial mortgage loans generally range in size from $4 million
to $7 million, with the average commercial mortgage loan investment as of June
30, 1998 being approximately $2.6 million.

The commercial mortgage loan portfolio diversification by property type and
geographic region of the United States was as follows:


                                             June 30,       December 31,
                                               1998            1997
                                               ----            ----
Property Type                             
-------------                             
Apartment                                      23.1%           20.9%
Industrial                                     20.7            20.8
Office                                         18.0            20.4
Retail                                         19.0            18.4
Special Purpose                                18.2            18.2
Hotel/Motel                                     1.0             1.3
                                              -----           -----
     Total                                    100.0%          100.0%
                                              =====           =====
                                          
                                             June 30,       December 31,
                                               1998            1997
                                               ----            ----
Geographic Region                         
-----------------                         
Midwest                                        33.3%           32.7%
Pacific                                        25.5            25.3
Southeast                                      17.8            18.5
Northeast                                       9.5             9.9
Mountain                                        7.9             7.5
Southwest                                       6.0             6.1
                                              -----           -----
     Total                                    100.0%          100.0%
                                              =====           =====
                       
The weighted average yield of the commercial mortgage loan portfolio as of June
30, 1998 was 8.4%. The weighted average maturity of these loans was 7.6 years.

The Company invests in individual and pools of individual residential mortgage
loans in addition to the structured finance securities backed by residential
mortgages. As of June 30, 1998 and December 31, 1997, the Insurers held $557.6
million and $674.6 million, respectively, of non-securitized residential
mortgage loans.

UNREALIZED INVESTMENT GAINS AND LOSSES

The Company's debt and equity securities classified as available-for-sale are
carried at fair value on the Condensed Consolidated Balance Sheets with
unrealized investment gains and losses excluded from income and reported as a
separate component of shareholders' equity.

The components of net unrealized investment gains reported in shareholders'
equity are shown below (in millions):

                                           June 30,         December 31,
                                             1998               1997
                                             ----               ----
Unrealized Investment Gains                 $509.4            $489.1
DAC/PVFP Adjustment                         (132.7)           (138.8)
Deferred Income Taxes                       (131.7)           (124.1)
                                            ------            ------
     Net Unrealized Investment Gains        $245.0            $226.2
                                            ======            ======

Changes in unrealized investment gains or losses are primarily the result of
fluctuations in market interest rates which impact the market value of fixed
interest rate securities. The change in market value of the Company's fixed
maturity securities is not expected to have a significant effect on results of
operations or liquidity because: (i) the Company has 

                                       19
<PAGE>
 
the present intent and practice to hold most of its available-for-sale fixed
maturity securities to maturity and (ii) the Company's asset/liability
management activity is designed to monitor and adjust for the effects of changes
in market interest rates.

DERIVATIVE FINANCIAL INSTRUMENTS

The Company has an established program prescribing the use of derivatives in its
asset/liability management activity. The investment policy of each of the
Insurers expressly precludes the use of such instruments for speculative
purposes. The policy details permissible uses and instruments and contains
accounting and management controls designed to assure compliance with these
policies. The Company is not a party to leveraged derivatives.

The insurance liabilities of the Company are sensitive to changes in market
interest rates. The Company has established procedures for evaluating these
liabilities and attempts to structure investment asset portfolios with
compatible characteristics. Investment assets are selected in an effort to
provide yield, cash flow and interest rate sensitivities appropriate to support
the insurance products.

The Company manages its interest rate risk by managing its assets within target
duration ranges, based on the Company's liability profile. The Company uses
duration analysis to estimate the amount of sensitivity to market interest rate
changes. The duration of a bond or portfolio can be thought of as the life, in
years, of a notional zero-coupon bond whose fair value would change by the same
amount in response to any change in market interest rates. The portfolio
duration includes the duration impact added by interest rate swaps and caps. The
target duration ranges are determined by the Company based upon the subjective
evaluation of a number of characteristics of the liabilities, including such
factors as the ability of the Company to modify interest crediting rates, the
presence and magnitude of surrender charges, historical and projected lapse
experience, the level of market interest rates and competition. A goal of this
risk control process is to optimize portfolio performance relative to the
product liability requirements.

The following table sets forth the asset duration, portfolio duration and target
duration for the investment portfolio of each operating segment (in years):


                                                 June 30, 1998  
                                       -------------------------------------
                                         Asset       Portfolio      Target
                                       Duration      Duration      Duration
                                       --------      --------      --------
Personal Financial Services              3.8           3.9         3.5 - 5.0
Worksite Financial Services              2.9           3.3         3.0 - 6.0
Tax-Sheltered and Fixed Annuities        3.9           4.0         3.5 - 5.0
Reinsurance                              4.2           4.3         3.5 - 8.0

The Company uses interest rate swaps as part of this asset/liability management
program. The Company has acquired a significant amount of certain shorter
duration investments, such as floating rate or adjustable rate investments.
Acquisition of these assets shortens the duration of an asset portfolio. The
Company uses interest rate swaps to extend the duration of these portfolios as
an alternative to purchasing longer duration investments.

At June 30, 1998, the Company had 61 interest rate swap contracts in effect with
a notional amount of $908 million. At December 31, 1997, the Company had 71
interest rate swap contracts in effect with a notional amount of $1.16 billion.
During the six months ended June 30, 1998, 2 interest rate swap contracts were
entered into with a notional amount of $50.0 million and 12 interest rate swap
contracts matured with a notional amount of $305.0 million. There were no
terminations of interest rate swap contracts prior to maturity during the first
six months of 1998. The Company had no deferred gains or losses at June 30, 1998
related to interest rate swap contracts terminated early. The estimated fair
value of the interest rate swap contracts in effect at June 30, 1998 was an
unrealized gain of $15.4 million.

                                       20
<PAGE>
 
All of the interest rate swap contracts are standard contracts whereby the
Company pays a floating rate of interest (generally based upon the LIBOR rate as
determined from time to time) and receives a fixed rate (generally a specified
contract rate). The following table details the characteristics of the Company's
interest rate swap contracts at June 30, 1998 (dollars in millions).


                                     Notional               Range of Fixed
                                      Amount                Rates Received
                                      ------                --------------
Maturing in:
   One Year or Less                  $ 15.0                    5.1 - 5.2%
   One to Three Years                 527.5                    5.3 - 7.6%
   Three to Five Years                205.0                    6.3 - 8.2%
   Five to Seven Years                160.0                    6.0 - 6.8%
                                     ------
     Total                           $907.5
                                     ======

The Company monitors the effect of the swap position on reported income. The
Company's investment portfolio includes a substantial amount of floating rate
investments. Changes in market interest rates have an opposite (and
approximately offsetting) effect on the reported income from the swap portfolio.
Accordingly, the reported investment income (or loss) attributable to the
Company's swap position will be approximately offset by the changed investment
income of the Company's floating or adjustable rate investments in a changing
rate environment. At June 30, 1998, the Company held $1.4 billion of adjustable
rate invested assets, short-term investments and cash.

The Company also uses interest rate caps as part of its overall interest rate
risk management strategy for certain annuity products primarily to hedge the
risk of investment losses due to product surrenders in an increasing interest
rate environment. The Company held eight interest rate caps with a notional
amount of $510.0 million and a fair value of approximately $33,000 as of June
30, 1998.

PROBLEM INVESTMENTS

The Company classifies invested assets of the Insurers as problem investments
where: (i) an asset is delinquent in a required payment of principal or
interest; (ii) an asset is the subject of a foreclosure action or the borrower
is in bankruptcy; (iii) a loan has been restructured; or (iv) a loan has been
foreclosed and the collateral is owned (Problem Investments). The Company
reports a mortgage loan as delinquent when a required payment of principal or
interest is 60 days past due. Fixed maturity securities are reported as
delinquent following the contractual grace period allowed for any required
payment of principal or interest. The Company generally considers a loan as
restructured when one or more of the following terms is changed for the benefit
of the borrower: (i) interest rate for a specified period of time or for the
life of the loan; (ii) maturity date; (iii) principal face amount or timing of
principal repayments on a contingent or absolute basis; or (iv) amount or timing
of payment of accrued interest.

The amortized cost of Problem Investments, net of related write-offs and
allowances and non-recourse debt, was as follows (in millions):

                                              June 30,       December 31,
                                                1998             1997
                                             ---------       -----------
Private Placement Bonds                        $17.2            $ 6.2
Marketable Bonds                                 2.4              2.7
Commercial Mortgage Loans                       17.3             12.5
Residential and Other Mortgage Loans             5.0              7.3
Investment Real Estate1                          8.4              8.4
Foreclosed Real Estate                          33.1             42.3
                                               -----            -----
    Total                                      $83.4            $79.4
                                               =====            =====

1 The amounts shown represent real estate acquired as an investment which the
Company has determined to be Problem Investments.

                                       21
<PAGE>
 
The amortized cost of Problem Investments in the preceding table reflects
reductions for write-offs and allowances taken by the Company. The cumulative
amounts of such write-offs and allowances on problem invested assets of the
Insurers on the Condensed Consolidated Balance Sheets were as follows (in
millions):

                                                 June 30,        December 31,
                                                  1998             1997
                                                 -------        -----------
Private Placement Bonds                           $12.1           $  6.0
Marketable Bonds                                    1.1               .8
Commercial Mortgage Loans                           9.0              9.0
Residential and Other Mortgage Loans                1.1              1.1
Foreclosed Real Estate                             22.4             23.6

The Company establishes the carrying value of all Problem Investments. For
problem marketable securities, the fair value is the quoted market value. For
problem private placement debt securities, the fair value is determined through
consideration of factors such as the net worth of the borrower, the value of
collateral, the capital structure of the borrower, the presence of guarantees
and the Company's evaluation of the borrower's ability to compete in their
relevant market.

For problem and potential problem securities, the Company determines whether a
decline in fair value below the amortized cost is other than temporary. If the
decline in fair value is determined to be other than temporary, the Company
writes down the cost basis to fair value and the amount of the write-down is
recorded as a realized loss. Subsequent changes in the fair value of problem
available-for-sale securities which are determined to be temporary are reflected
directly in equity as unrealized investment gains or losses.

Fair value for problem real estate and problem mortgage loans is determined
taking into consideration one or more of the following factors, depending on the
circumstances for each property, including: (i) property valuation techniques
utilizing discounted cash flows at the time of stabilization including capital
expenditures and stabilization costs; (ii) sales of comparable properties; (iii)
geographic location of the property and related market conditions; and (iv)
disposition costs. In many instances, there is not an active market for such
properties. Therefore, the fair value determined by the Company may be greater
than the price which may be realized if the Company were forced to liquidate
such properties on an immediate sale basis. If fair value of a problem mortgage
loan or real estate investment is less than the carrying value, the Company
records a write-off or an increase in the allowance for uncollectible amounts.
Foreclosed properties are managed by the Company in order to maximize net
realizable value. The Company has the intent and ability to hold these assets
until appropriate sales opportunities arise.

The Company also monitors its portfolios in an attempt to identify loans which
are not currently classified as Problem Investments, but where the Company has
knowledge which causes it to have serious doubts as to the ability of borrowers
to comply with the present loan repayment terms. These loans (Potential Problem
Investments) are subject to increased scrutiny and review by the Company. The
amounts of private placements, marketable bonds, and mortgage loan Potential
Problem Investments were $18.5 million, $1.8 million and $16.5 million,
respectively, at June 30, 1998.

KNOWN TRENDS AND UNCERTAINTIES WHICH MAY AFFECT FUTURE REPORTED RESULTS

GUARANTY ASSOCIATION ASSESSMENTS

The Insurers are subject to state guaranty association assessments in all states
in which they are admitted. Generally, these associations guarantee specified
amounts (commonly $100,000 of surrender values or $300,000 of other benefits)
payable to residents of the state under policies of insolvent insurers. State
laws vary widely on coverage (and inclusion in the assessment base) of GICs.
Most state laws permit assessments or some portion thereof to be credited
against future premium taxes. However, several states do not permit such a
credit. While the Company believes that it has accrued appropriate amounts based
upon currently available information, the Company could be subject to additional
future assessments in amounts which may be material.

                                       22
<PAGE>
 
LITIGATION

The Company is a defendant in a number of lawsuits arising out of the normal
course of its businesses, including several class action suits which seek both
compensatory and punitive damages. The Company believes the results of
litigation will not have a material adverse effect on the financial position of
the Company. Some financial services companies have recently been subjected to
significant awards in connection with class actions and/or suits seeking
punitive damages. While the Company is not aware of any actions or allegations
which should reasonably give rise to any material adverse effect, it is possible
that the Company could be subjected to such a claim in an amount which could be
material.

FINANCIAL SERVICES DEREGULATION

The United States Congress is currently considering a number of legislative
proposals intended to reduce or eliminate restrictions on affiliations among
financial services organizations. Proposals are extant which would allow banks
to own or affiliate with insurers and securities firms. An increased presence of
banks in the life insurance and annuity businesses may increase competition in
these markets. The Company cannot predict the impact of these proposals on the
earnings of the Company.

YEAR 2000 SYSTEMS MODIFICATIONS

The Company's business units utilize data processing systems in the
administration of the insurance and financial services products which they
market. Most of the Company's data processing systems require modifications to
enable them to process dates including the year 2000 and beyond.

In 1995 the Company initiated an enterprise wide program of identifying and
modifying systems affected by the year 2000. The Company developed a plan
whereby all systems will be identified, modified and tested for year 2000
compliance by the end of 1998. The Company initiated a structured review and
reporting system whereby senior management is regularly advised of the status of
the project. The Company expects that virtually all systems will have completed
testing and be deemed compliant by the end of 1998 with the remaining systems 
testwork expected to be completed by the end of the first quarter of 1999.

The Company does business with a multitude of business entities whose ability to
comply with year 2000 systems issues may affect the business operations of the
Company. The Company has made an attempt to determine whether such entities have
adequate plans for year 2000 compliance and the Company is not aware of any
instances where a key supplier or vendor will not be compliant. The Company does
not have the ability to assure with any certainty the compliance capacity of
third parties.

Since the inception of the year 2000 program and for the remainder of the
program the Company has and expects to continue to redirect certain internal and
external data processing resources to its year 2000 efforts. Certain technology
initiatives have been deferred to meet the year 2000 objectives. The Company
believes that the net effect of these efforts will not materially impact the
Company's business plans or its 1998 consolidated financial statements, however,
some additional expenditures for external resources will be incurred.

The Company's business would be adversely affected if it does not meet its goals
relative to year 2000 preparedness and the Company's plans reflect the
importance of this project. Due to the Company's dependence on data processing
for the operation of its business, the Company cannot reasonably develop a
contingency plan which would comprehensively address widespread systems
failures.

IMPACT OF ACCOUNTING PRONOUNCEMENTS TO BE ADOPTED IN THE FUTURE

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 provides a comprehensive and
consistent standard for the recognition and measurement of derivatives and
hedging activities. This pronouncement is effective for fiscal years beginning
after June 15, 1999. The Company has not completed its analysis of the impact on
future financial results of applying this pronouncement.

                                       23
<PAGE>
 
CERTAIN FORWARD-LOOKING INFORMATION

All statements contained in this Form 10-Q relative to markets for the Company's
products and trends in the Company's operations or financial results, as well as
other statements including words such as "anticipate," "believe," "expect," and
other similar expressions, constitute forward-looking statements under the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements are subject to known and unknown risks, uncertainties and other
factors that may cause actual results to be materially different from those
contemplated by the forward-looking statements. Such factors include, among
other things: general economic conditions and other factors, including
prevailing interest rate levels and stock market performance, which may affect
the Company's ability to sell its products, the market value of the Company's
investments and the lapse rate and profitability of the Company's policies; the
Company's ability to achieve anticipated levels of operating efficiencies;
mortality and morbidity; changes in federal income tax laws that may affect the
relative tax advantages of some of the Company's products; and regulatory
changes or actions, including those relating to regulation of financial services
affecting bank sales and underwriting of insurance products and regulation of
the sale, underwriting and pricing of insurance products.

                                       24
<PAGE>
 
PART II. OTHER INFORMATION


                            RELIASTAR FINANCIAL CORP.

ITEM 2.  CHANGES IN SECURITIES:

(c)      Recent Sales of Unregistered Securities:

         Since January 1, 1998, the Registrant has issued and sold an aggregate
         of 558,272 shares of common stock that were not registered under the
         Securities Act of 1933, as amended ("Securities Act"). 227,888 of these
         shares were issued to the former shareholders of Citizens Community
         Bancshares Co. in connection with the acquisition by the Registrant of
         such company and its wholly-owned subsidiary, Citizens Community Bank
         (now known as ReliaStar Bank). In addition, 330,384 of these shares
         were issued to the former shareholders of LaMar & Phillips, Inc. in
         connection with the acquisition of that company (now known as ReliaStar
         Managing Underwriters, Inc.) These issuances were made by the
         Registrant in reliance upon Sections 4(2) and 4(6) of the Securities
         Act. With respect to such issuances, the certificates representing such
         shares were printed with a legend restricting their transfer and a stop
         transfer order was given to the Registrant's transfer agent with
         respect to such shares.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

(a)      The Registrant's annual meeting was held on May 14, 1998.

(b) The following matters were submitted to a vote of security holders:

         Proposal 1 - Election of Directors
         To elect the following nominees to terms expiring in 2001:

         Nominees                    Votes For             Votes Withheld
         --------                    ---------             --------------

         William A. Hodder          78,830,766                508,509
         Richard L. Knowlton        78,844,806                494,469
         John G. Turner             78,825,406                513,869

         Carolyn H. Baldwin, David C. Cox, John H. Flittie, Luella G. Goldberg,
         James J. Howard, III, Randy C. James, David A. Koch, Richard M.
         Kovacevich, Glen D. Nelson, M.D. and James J. Renier continued to
         serve as directors following the meeting.

         Proposal 2 - Proposal to Ratify the Appointment of Independent Public
         Accountants:

                           Votes for:                   78,845,497
                           Votes against:                  189,497
                           Votes to abstain:               304,281
                           Broker non-votes:                     -

                                       25
<PAGE>
 
ITEM 5.  OTHER INFORMATION

         As disclosed in the Registrant's Proxy Statement for the 1998 Annual
         Meeting, in order for a shareholder proposal to be considered for
         inclusion in the Registrant's Proxy Statement and identified in its
         form of proxy for the 1999 Annual Meeting the proposal must be received
         by the Registrant no later than November 26, 1998. In addition, if a
         shareholder fails to notify the Registrant of a proposal to be
         presented by the shareholder at the 1999 Annual Meeting prior to March
         14, 1999 then the proxies appointed by the Board of Directors of the
         Registrant will be allowed to use their discretionary voting authority
         when the proposal is raised at the 1999 Annual Meeting, without any
         discussion of the matter in the Registrant's Proxy Statement or form of
         proxy for such meeting. The 1999 Annual Meeting of the Registrant has
         been scheduled for May 13, 1999.



ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K:

(a)      Exhibits:

             (11)    Statement re Computation of Per Share Earnings

             (27)    Financial Data Schedule

(b)       Reports on Form 8-K:

             None.

                                       26
<PAGE>
 
                                   SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.





                               Dated   August 13, 1998
                                     ------------------------
                                RELIASTAR FINANCIAL CORP.








                                  /s/ James R. Miller
                               --------------------------------------
                               by James R. Miller
                               Senior Vice President, Chief Financial
                               Officer and Treasurer

                                       27