File No. 33-30156
As filed with the Securities and Exchange Commission on April 30, 1997
--------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
[X] SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No.
[X] Post-Effective Amendment No. 9
and/or
REGISTRATION STATEMENT UNDER THE
[X] INVESTMENT COMPANY ACT OF 1940
[X] Amendment No. 10
(Check appropriate box or boxes)
AUL AMERICAN SERIES FUND, INC.
(Exact Name of Registrant)
One American Square, Indianapolis, Indiana 46282
(Address of Principal Executive Offices)
Insurance Company's Telephone Number: (317) 263-1877
Richard A. Wacker, One American Square, Indianapolis, Indiana 46282
(Name and Address of Agent for Service)
Title of Securities Being Registered: Shares of common stock
Declaration Pursuant to Rule 24f-2: Registrant has registered an indefinite
number of shares of common stock under the Securities Act of 1933 pursuant to
Rule 24f-2 under the Investment Company Act of 1940. Registrant will file its
notice pursuant to Rule 24f-2 for its fiscal year ending December 31, 1997 on or
before February 28, 1998.
It is proposed that this filing will become effective (Check appropriate Space)
_____ immediately upon filing pursuant to paragraph (b) of Rule 485
X on May 1, 1997 pursuant to paragraph (b) of Rule 485
_____ --------------
_____ 60 days after filing pursuant to paragraph (a) of Rule 485
_____ on (date) pursuant to paragraph (a) of Rule 485
_____ 75 days after filing pursuant to paragraph (a)(ii)
_____ on (date) pursuant to paragraph (a)(ii) of Rule 485
_____ this post-effective amendment designates a new effective
date for a previously filed amendment.
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2
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CROSS REFERENCE SHEET
Required by Rule 404 under the Securities Act of 1933
Showing Location in Part A (Prospectus) and Part B (Statement of Additional
Information) of Registration Statement of Information Required by Form N-1A
PART A - PROSPECTUS
Heading of Item Prospectus Caption
- --------------- ------------------
<S> <C>
1. Cover Page........................................................ Cover Page
2. Synopsis.......................................................... General Description of the Fund
3. Condensed Financial Information................................... Condensed Financial Information
4. General Description of Registrant................................. General Description of the Fund;
General Description of the Fund;
Investment Objectives and Policies;
Investment Restrictions; Description
of Securities and Investment Techniques
5. Management of the Fund............................................ Management of the Fund
6. Capital Stock and Other Securities................................ Portfolio Transactions; Description of
the Fund's Shares; Dividends, Distributions
and Taxes
7. Purchase of Securities............................................ Purchase and Redemption of Shares
8. Redemption or Repurchase of Securities Being Offered.............. Purchase and Redemption of Shares
9. Legal Proceedings................................................. Not Applicable
PART B - STATEMENT OF ADDITIONAL INFORMATION
Heading of Item Statement of Additional Information Caption
- --------------- -------------------------------------------
10. Cover Page........................................................ Cover Page
11. Table of Contents................................................. Table of Contents
12. General Information and History................................... Management of the Fund
13. Investment Objectives and Policies................................ Not Applicable
14. Management of the Registrant...................................... Management of the Fund
15. Control Persons and Principal Holders of Securities............... Not Applicable
16. Investment Advisory and Other Services............................ Management of the Fund
17. Brokerage Allocation and Other Practices.......................... Portfolio Transactions and Brokerage
18. Capital Stock and Other Securities................................ Capitalization; Voting Rights
19. Purchase, Redemption and Pricing of Securities Being
Offered........................................................ Net Asset Value
20. Tax Status........................................................ Taxation
21. Underwriters...................................................... Not Applicable
22. Calculation of Yield Quotations of Money Market Funds............. Performance Information
23. Financial Statements.............................................. Financial Statements
</TABLE>
<PAGE>
1
AUL American Series Fund, Inc.
One American Square
Indianapolis, Indiana 46282
(800) 634-1629
AUL American Series Fund, Inc. (the "Fund") is an open-end, diversified
management investment company currently consisting of five separate investment
portfolios (the "Portfolios"), each of which has its own investment objectives
and policies. The five Portfolios of the Fund are the AUL American Equity
Portfolio ("Equity Portfolio"), the AUL American Bond Portfolio ("Bond
Portfolio"), the AUL American Money Market Portfolio ("Money Market Portfolio"),
the AUL American Managed Portfolio ("Managed Portfolio"), and the AUL American
Tactical Asset Allocation Portfolio ("Tactical Asset Allocation Portfolio").
Shares of the Portfolios are sold to separate accounts of American United
Life Insurance Company(R) ("AUL") to serve as the investment medium for variable
annuity contracts issued by AUL (the "Contracts"). The separate accounts invest
in shares of one or more of the Portfolios in accordance with allocation
instructions received from owners or participants in the Contracts. Such
allocation rights are described further in the Contract (or the Certificate
thereunder) and, if applicable, in the prospectus offering the Contract.
Information about the investment objective or objectives and policies of each
Portfolio, along with a detailed description of the types of securities in which
each Portfolio may invest, are set forth in this Prospectus. There can be no
assurance that the investment objective or objectives for any Portfolio will be
achieved.
This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Fund. A Statement of Additional Information,
dated May 1, 1997, containing additional and more detailed information about the
Fund has been filed with the Securities and Exchange Commission and is hereby
incorporated by reference into this Prospectus. The Statement of Additional
Information is available without charge and may be obtained by writing to or
calling the Fund at the address or telephone number printed above.
SHARES OF THE FUND ARE AVAILABLE EXCLUSIVELY TO INSURANCE COMPANY SEPARATE
ACCOUNTS AS AN INVESTMENT VEHICLE FOR VARIABLE ANNUITY CONTRACTS. THIS
PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH THE VARIABLE ANNUITY CONTRACT (OR
CERTIFICATE THEREUNDER) AND, IF APPLICABLE, THE PROSPECTUS OFFERING THE VARIABLE
ANNUITY CONTRACT. THIS PROSPECTUS SHOULD BE READ CAREFULLY AND RETAINED FOR
FUTURE REFERENCE.
INVESTMENT IN THE AUL AMERICAN MONEY MARKET PORTFOLIO (OR IN ANY OTHER
PORTFOLIO) IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN
BE NO ASSURANCE THAT THE AUL AMERICAN MONEY MARKET PORTFOLIO WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES OR INSURANCE COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES OR INSURANCE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is May 1, 1997.
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2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Description Page
<S> <C>
GENERAL DESCRIPTION OF THE FUND........................................ 3
CONDENSED FINANCIAL INFORMATION........................................ 3-5
THE FUND'S PERFORMANCE................................................. 6
INVESTMENT OBJECTIVES AND POLICIES........................................ 6-9
The Equity Portfolio.................................................... 6
The Bond Portfolio...................................................... 7
The Money Market Portfolio.............................................. 7
The Managed Portfolio................................................... 8
The Tactical Asset Allocation Portfolio................................. 8
MANAGEMENT OF THE FUND..................................................... 9-11
Investment Adviser-American United Life Insurance Company(R)............. 9
The Sub-Advisor to the Tactical Asset Allocation Portfolio............... 10
Other Expenses........................................................... 10
Portfolio Expenses....................................................... 11
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES........................11-15
U.S. Government Securities............................................... 11
Mortgage-Related Securities.............................................. 11
GNMA Certificates....................................................... 11
FNMA and FHLMC Mortgage-Backed Obligations.............................. 11
Other Mortgage-Backed Securities........................................ 12
Risks of Mortgage-Related Securities.................................... 12
Zero Coupon Bonds........................................................ 12
Foreign Securities....................................................... 12
Repurchase Agreements.................................................... 12
Reverse Repurchase Agreements............................................ 13
Banking Industry and Savings Industry Obligations........................ 13
Options.................................................................. 13
Risks of Options Transactions........................................... 14
Futures Contracts........................................................ 14
Risks of Futures........................................................ 14
Other Investment Companies............................................... 14
INVESTMENT RESTRICTIONS.................................................... 15
PORTFOLIO TRANSACTIONS AND TURNOVER........................................ 15
DESCRIPTION OF THE FUND'S SHARES........................................... 16
DIVIDENDS, DISTRIBUTION AND TAXES.......................................... 16
Federal Income Tax Status................................................ 16
Distributions and Dividends.............................................. 16
PURCHASE AND REDEMPTION OF SHARES.......................................... 16
NET ASSET VALUE............................................................ 17
PERFORMANCE INFORMATION.................................................... 17
LEGAL COUNSEL.............................................................. 17
INDEPENDENT ACCOUNTANTS.................................................... 17
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS...................... 18
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3
GENERAL DESCRIPTION OF THE FUND
The Fund was incorporated under the laws of Maryland on July 26, 1989, and
is registered under the Investment Company Act of 1940 (the "1940 Act") as an
open-end, diversified management investment company.
As a "series" type of mutual fund, the Fund issues shares of common stock
relating to separate investment portfolios (the "Portfolios") currently
consisting of the Equity Portfolio, Bond Portfolio, Money Market Portfolio,
Managed Portfolio, and Tactical Asset Allocation Portfolio. Additional
portfolios may be established in the future. An interest in the Fund is limited
to the assets of the particular Portfolio in which shares are held, and
shareholders of each Portfolio are entitled to a pro rata share of all dividends
and distributions paid by the Portfolio.
The Fund's shares currently are offered only to separate accounts of
American United Life Insurance Company(R) ("AUL") to serve as an investment
medium for variable annuity contracts issued by AUL. Shares of each Portfolio
may be offered in the future to separate accounts of other affiliated or
unaffiliated insurance companies to serve as an underlying investment vehicle
for variable annuity contracts. The separate accounts invest in shares of the
Fund in accordance with allocation instructions received from owners and
participants of the Contracts.
CONDENSED FINANCIAL INFORMATION
Per Share Data and Ratios for the Year Ended December 31, 1996
The following are selected per share data and ratios. Per share amounts
presented are based on a share outstanding throughout the period from the
commencement of operations, April 10, 1990, through December 31, 1996. The
ratios for the period from April 10, 1990 through December 31, 1990 are
annualized. The information in the tables is included in the Fund's financial
statements that have been audited by Coopers & Lybrand L.L.P., the Fund's
independent accountants. The tables should be read in conjunction with the
Fund's financial statements, which are included in the Fund's Annual Report as
of December 31, 1996.
<TABLE>
<CAPTION>
EQUITY PORTFOLIO
----------------
April 10, 1990
through
1996 1995 1994 1993 1992 1991 December 31, 1990
---- ---- ---- ---- ---- ---- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, $ 14.21 $ 12.27 $ 12.68 $ 11.49 $ 10.49 $ 9.58 $ 10.00
BEGINNING OF PERIOD -------- -------- -------- -------- -------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.28 0.28 0.24 0.18 0.23 0.31 0.27
Net Realized and Unrealized
gain (loss) on securities 2.44 2.12 0.26 1.58 0.92 2.23 (0.39)
---- ---- ---- ---- ---- ---- -----
Total from Investment
Operations 2.72 2.40 0.50 1.76 1.15 2.54 (0.12)
---- ---- ---- ---- ---- ---- -----
LESS DISTRIBUTIONS
Dividends (from net
investment income) 0.28 0.27 0.24 0.18 0.23 0.31 0.27
Distributions (from capital
gains) 0.00 0.19 0.67 0.39 0.32 0.92 0.03
---- ---- ---- ---- ---- ---- ----
Total Distributions 0.28 0.46 0.91 0.57 0.55 1.23 0.30
---- ---- ---- ---- ---- ---- ----
NET ASSET VALUE, END OF
PERIOD $ 16.65 $ 14.21 $ 12.27 $ 12.68 $ 11.49 $ 10.89 $ 9.58
======== ======== ======== ======= ======== ======= =======
TOTAL RETURN 19.17% 19.45% 2.64% 14.80% 10.03% 25.58% (1.60%)
RATIOS/SUPPLEMENTAL DATA
Net Assets, end of
period (in thousands) $ 50,652 $ 35,299 $ 20,563 $ 11,468 $ 6,969 $ 4,128 $ 2,969
Ratio of expenses to
average net assets 0.70% 0.70% 0.73% 0.82% 0.84% 0.80% 1.00%(1)
Ratio of net investment
income to average net
assets 1.81% 2.08% 1.85% 1.46% 2.04% 2.75% 3.93%(1)
Portfolio Turnover Rate 11% 10% 20% 10% 15% 43% 9%
<FN>
(1) In 1990, the ratios were favorably affected by a guarantee of expenses by
the Adviser that the ordinary operating expenses shall not exceed 1% of each
Portfolio's average daily net assets. This guarantee continues month to month
unless the Investment Advisory Agreement is terminated by either party on 30
days prior written notice.
</FN>
<CAPTION>
<PAGE>
4
CONDENSED FINANCIAL INFORMATION (CONTINUED)
BOND PORTFOLIO
--------------
April 10, 1990
through
1996 1995 1994 1993 1992 1991 December 31, 1990
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 11.06 $ 9.99 $ 11.00 $ 10.65 $ 10.90 $ 10.32 $ 10.00
-------- -------- -------- --------- -------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.62 0.67 0.64 0.66 0.70 0.79 0.55
Net Realized and Unrealized
gain (loss) on securities (0.39) 1.07 (1.01) 0.49 0.06 0.85 0.33
------ ---- ----- ---- ---- ---- ----
Total from Investment
Operations 0.23 1.74 (0.37) 1.15 0.76 1.64 0.88
---- ---- ----- ---- ---- ---- ----
LESS DISTRIBUTIONS
Dividends (from net
investment income) 0.63 0.66 0.64 0.66 0.70 0.79 0.55
Distributions (from
capital gains) 0.01 0.01 --- 0.14 0.31 0.27 0.01
---- ---- ---- ---- ---- ----
Total Distributions 0.64 0.67 0.64 0.80 1.01 1.06 0.56
---- ---- ---- ---- ---- ---- ----
NET ASSET VALUE,
END OF PERIOD $ 10.65 $ 11.06 $ 9.99 $ 11.00 $ 10.65 $ 10.90 $ 10.32
======== ======== ======== ======== ======== ======= =======
TOTAL RETURN 2.23% 17.79% (3.56%) 10.69% 7.19% 16.36% 12.07%
RATIOS/SUPPLEMENTAL DATA
Net Assets, end of period
(in thousands) $ 28,188 $ 25,429 $ 20,453 $ 14,721 $ 11,966 $11,749 $10,897
Ratio of expenses to
average net assets 0.71% 0.70% 0.73% 0.80% 0.79% 0.71% 1.00%(1)
Ratio of net investment
income to average net
assets 5.85% 6.28% 6.19% 5.95% 6.47% 7.46% 7.46%(1)
Portfolio Turnover Rate 62% 55% 50% 29% 41% 61% 5%
MONEY MARKET PORTFOLIO
----------------------
April 10, 1990
through
1996 1995 1994 1993 1992 1991 December 31, 1990
---- ---- ---- ---- ---- ---- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.05 0.05 0.04 0.02 0.03 0.05 0.05
Net Realized and
Unrealized gain
(loss) on securities --- --- --- --- --- --- ---
-------- -------- -------- -------- -------- ------- -------
Total from
Investment
Operations 0.05 0.05 0.04 0.02 0.03 0.05 0.05
---- ---- ---- ---- ---- ---- ----
LESS DISTRIBUTIONS
Dividends (from net
investment income) 0.05 0.05 0.04 0.02 0.03 0.05 0.05
Distributions (from
capital gains) --- --- --- --- --- --- ---
-------- -------- -------- -------- ------- ------ ------
Total Distributions 0.05 0.05 0.04 0.02 0.03 0.05 0.05
NET ASSET VALUE,
END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======= =======
TOTAL RETURN 4.63% 5.09% 3.38% 2.33% 3.01% 5.53% 7.13%
RATIOS/SUPPLEMENTAL DATA
Net Assets, end of
period (in thousands) $ 40,227 $ 24,290 $ 15,496 $ 6,153 $ 5,480 $ 5,420 $ 5,269
Ratio of expenses
to average net assets 0.70% 0.73% 0.75% 0.84% 0.85% 0.85% 1.00%(1)
Ratio of net investment
income to average
net assets 4.64% 5.13% 3.71% 2.30% 2.98% 5.35% 7.10%(1)
Portfolio Turnover Rate --- --- --- --- --- --- ---
<FN>
(1) In 1990, the ratios were favorably affected by a guarantee of expenses by
the Adviser that the ordinary operating expenses shall not exceed 1% of each
Portfolio's average daily net assets. This guarantee continues month to month
unless the Investment Advisory Agreement is terminated by either party on 30
days prior written notice.
</FN>
<PAGE>
5
<CAPTION>
CONDENSED FINANCIAL INFORMATION (CONTINUED)
MANAGED PORTFOLIO
-----------------
April 10, 1990
through
1996 1995 1994 1993 1992 1991 December 31, 1990
---- ---- ---- ---- ---- ---- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 12.42 $ 11.00 $ 11.75 $ 10.92 $ 10.86 $ 10.11 $ 10.00
-------- -------- -------- -------- -------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.44 0.46 0.42 0.40 0.49 0.61 0.47
Net Realized and
Unrealized gain
(loss) on securities 1.01 1.62 (0.45) 1.07 0.41 1.06 0.12
---- ---- ----- ---- ---- ---- ----
Total from Investment
Operations 1.45 2.08 (0.03) 1.47 0.90 1.67 0.59
---- ---- ----- ---- ---- ---- ----
LESS DISTRIBUTIONS
Dividends (from net
investment income) 0.44 0.46 0.42 0.40 0.49 0.61 0.47
Distributions (from
capital gains) 0.03 0.20 0.30 0.24 0.35 0.31 0.01
---- ---- ---- ---- ---- ---- ----
Total Distributions 0.47 0.66 0.72 0.64 0.84 0.92 0.48
---- ---- ---- ---- ---- ---- ----
NET ASSET VALUE,
END OF PERIOD $ 13.40 $ 12.42 $ 11.00 $ 11.75 $ 10.92 $ 10.86 $ 10.11
======== ======== ======== ======== ======== ======= =======
TOTAL RETURN 11.79% 19.13% (0.92%) 12.98% 7.95% 16.73% 7.67%
RATIOS/SUPPLEMENTAL DATA
Net Assets, end of
period (in thousands) $ 43,092 $ 30,844 $ 24,558 $ 14,070 $ 8,300 $ 6,185 $ 5,302
Ratio of expenses to
average net assets 0.70% 0.70% 0.73% 0.81% 0.82% 0.94% 0.98%
Ratio of net investment
income to average
net assets 3.43% 3.86% 3.63% 3.49% 4.46% 5.74% 6.15%
Portfolio Turnover Rate 34% 35% 34% 9% 33% 36% 2%
<CAPTION>
TACTICAL ASSET ALLOCATION PORTFOLIO
-----------------------------------
April 10, 1990
through
1996 1995 1994 1993 1992 1991 December 31, 1990
---- ---- ---- ---- ---- ---- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 10.44 $ 10.00 N.A. N.A. N.A. N.A. N.A.
-------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.28 0.16 N.A. N.A. N.A. N.A. N.A.
Net Realized and Unrealized
gain (loss) on securities 1.38 0.49 N.A. N.A. N.A. N.A. N.A.
-------- --------
Total from Investment
Operations 1.66 0.65 N.A. N.A. N.A. N.A. N.A.
-------- --------
LESS DISTRIBUTIONS
Dividends (from net
investment income) 0.28 0.16 N.A. N.A. N.A. N.A. N.A.
Distributions (from
capital gains) 0.17 0.05 N.A. N.A. N.A. N.A. N.A.
-------- --------
Total Distributions 0.45 0.21 N.A. N.A. N.A. N.A. N.A.
-------- --------
NET ASSET VALUE,
END OF PERIOD $ 11.65 $ 10.44 N.A. N.A. N.A. N.A. N.A.
========= ========
TOTAL RETURN(1) 15.67% 6.49% N.A. N.A. N.A. N.A. N.A.
RATIOS/SUPPLEMENTAL DATA(1)
Net Assets, end of
period (in thousands) $ 2,145 $ 1,139 N.A. N.A. N.A. N.A. N.A.
Ratio of expenses to
average net assets 1.00% 1.00% N.A. N.A. N.A. N.A. N.A.
Ratio of net investment income
to average net assets 6.03% 3.70% N.A. N.A. N.A. N.A. N.A.
Portfolio Turnover Rate 25% 4% N.A. N.A. N.A. N.A. N.A.
<FN>
(1) Ratios calculated for period July 31, 1995 through December 31,1995 on annualized basis.
</FN>
</TABLE>
<PAGE>
6
THE FUND'S PERFORMANCE
The following table presents the total return for each Portfolio of the Fund.
Total return represents a change in the value of an investment in the Fund, and
includes reinvestments of dividends and distributions. Total Return for a
Portfolio does not include deductions from a separate account for mortality and
expense risk charges or for charges made under the terms of the Contracts, which
are described in the Contracts (or Certificates thereunder), and if applicable,
the prospectus for the separate account. Further information on Fund performance
including Management's Discussion and Analysis is contained in the Fund's Annual
Report, which is available without charge and may be obtained by writing to the
Fund at One American Square, Indianapolis, IN 46282 or by calling the Fund at
(800) 634-1629.
<TABLE>
<CAPTION>
Avg Ann
Total ROI
4/10/90 Year Year Year Year Year Year Cumm Total Since Incept
through Ending Ending Ending Ending Ending Ending Since Incp through
Portfolio 12/31/90* 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 thru 12/31/96 12/31/96
- --------- --------- -------- ------- -------- -------- --------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity ....... (1.16%) 25.58% 10.03% 14.80% 2.64% 19.45% 19.17% 129.66% 13.16%
Bond ......... 8.76% 16.36% 7.19% 10.69% (3.56%) 17.79% 2.23% 74.92% 8.67%
Money Market . 5.19% 5.53% 3.01% 2.33% 3.38% 5.09% 4.63% 33.24% 4.36%
Managed ...... 5.57% 16.73% 7.95% 12.98% (0.93%) 19.13% 11.79% 99.43% 10.81%
Tactical Asset
Allocation . N.A. N.A. N.A. N.A. N.A. N.A. 15.67% 23.22% 15.85%
<FN>
*These figures are not annualized.
</FN>
</TABLE>
INVESTMENT OBJECTIVES AND POLICIES
The Fund currently offers five Portfolios with separate investment
objectives as described below. There can be no assurance that any of the
Portfolios will achieve its investment objective or objectives. Each Portfolio
is subject to the general risk of changes in economic, business, or other
financial conditions. As with any security, a risk of loss is inherent in an
investment in Fund shares.
The different types of securities and investment techniques used by the
individual Portfolios all have attendant risks of varying degrees. For examples,
with respect to equity securities, there can be no assurance of capital
appreciation and there is a risk of market decline. With respect to debt
securities, there is the risk that the issuer of a security may not be able to
meet its obligation to make scheduled interest or principal payments. Because
each Portfolio seeks different investment objectives, each is subject to varying
degrees of financial and market risks.
Certain types of investments and investment techniques common to one or
more Portfolios are described in greater detail, including the risks of each, in
this Prospectus under "Description of Securities and Investment Techniques" and
in the Statement of Additional Information (the "SAI").
The Portfolios are subject to investment restrictions that are summarized
under "Investment Restrictions" and that are set forth in the SAI. Those
investment restrictions so designated in the SAI and the investment objective or
objectives of each Portfolio are "fundamental policies" of the pertinent
Portfolio, which means that they may not be changed without a majority vote of
shareholders of the affected Portfolio. Except for the investment objective or
objectives and those restrictions specifically identified as fundamental, all
investment policies and practices described in this Prospectus and in the SAI
are not fundamental, and may be changed by the Fund's Board of Directors without
shareholder approval.
THE EQUITY PORTFOLIO
The primary investment objective of the Equity Portfolio is long-term
capital appreciation. The Portfolio seeks current investment income as a
secondary objective. To achieve these objectives, the Portfolio invests
primarily in equity securities selected on the basis of fundamental investment
research for their long-term growth prospects.
Typically, at least 65% of the Portfolio's assets will be invested in
common stocks listed on a national securities exchange or actively traded
over-the-counter on the NASDAQ national market system. The Portfolio may invest
up to 35% of its assets in American Depository Receipts, preferred stock,
debentures convertible into common stocks or which are accompanied by warrants
for the purchase of common stock, nonconvertible debt securities, U.S.
Government securities, commercial paper and other money market instruments,
repurchase agreements and reverse repurchase agreements.
When, in the judgment of the Adviser, financial, economic, and/or market
conditions warrant a defensive strategy, the Portfolio may invest to a greater
degree in nonconvertible debt securities, U.S. Government securities, commercial
paper and other money market instruments, repurchase agreements and reverse
repurchase agreements. In furtherance of its secondary objective of current
income, the Portfolio may also write (i.e.,
<PAGE>
7
sell) covered call options and secured put options on securities and securities
indices. The Portfolio may purchase a put or call only to effect a "closing
purchase transaction." The Portfolio will not invest in options for speculative
purposes.
The day-to-day management of the Equity Portfolio is the responsibility of
Kathryn Hudspeth, CFA, Vice President, Equities. Ms. Hudspeth has been the
Portfolio Manager of the Equity Portfolio since its inception and has been with
AUL since 1989. Previously, Ms. Hudspeth has held positions with AUL which
include Assistant Vice President, Equities, Equity Portfolio Manager and
Director of Equity Investments. Before coming to AUL, she was employed by Bank
One, Indianapolis, as a Vice President and Trust Officer in the Personal Trust
Division.
THE BOND PORTFOLIO
The primary investment objective of the Bond Portfolio is to provide a high
level of income consistent with prudent investment risk. As a secondary
objective, the Portfolio seeks to provide capital appreciation to the extent
consistent with the primary objective. To achieve these objectives, the
Portfolio invests primarily in corporate bonds and other debt securities. The
corporate bonds in which the Portfolio may invest will be rated BBB or better by
Standard & Poor's ("S&P") or Baa or better by Moody's Investors Service, Inc.
("Moody's") or, if not rated, of equivalent quality in the judgment of the
Adviser. The Portfolio may also invest in U.S. Government securities,
convertible debentures and privately issued mortgage-backed securities.
The Portfolio may invest in debt securities whose maturity is considered
long (10 years or more), intermediate (1-10 years), or short-term (1 year or
less). The dollar-weighted average maturity of the Portfolio will vary from time
to time, depending upon the judgment of the Adviser as to prevailing market
conditions including the prospects for interest rate changes among different
categories of fixed-income securities.
It is intended that the portfolio securities will be of sufficient credit
quality to provide a high level of protection against loss of principal or
interest. In addition, the Portfolio will, under normal circumstances, be
positioned to take advantage of any extra yield available on bonds rated below
AAA or Aaa when the higher yield of such instruments is considered by the
Adviser to be sufficient compensation for the risk involved. However, the
Portfolio will not invest in securities rated less than BBB or Baa.
The Portfolio may also invest in money market instruments, repurchase
agreements, and reverse repurchase agreements. In addition, the Portfolio may
invest in dollar-denominated foreign securities, including corporate bonds and
other debt securities that are consistent with the maturity and credit quality
criteria described above. In pursuing its investment objectives, the Portfolio
may engage in the writing (i.e., selling) of covered call and secured put
options and the purchase of call options on debt securities to the extent
described under "Options." The Portfolio will purchase a put option only to
effect a closing purchase transaction. In addition, the Portfolio may purchase
or sell interest rate futures contracts for hedging purposes as described under
"Futures Contracts."
The investment return on a debt security reflects interest earnings and
changes in the market value of the security. The market value of the Portfolio's
securities may be affected by, among other things, changes in interest rates
since the price of debt obligations generally will rise and fall inversely with
interest rates. Longer term debt obligations will generally have greater price
volatility than shorter term obligations. Since shares of the Portfolio normally
represent an investment primarily in debt securities with market prices that
will vary, the value of the Portfolio's shares will vary as the aggregate value
of the Portfolio's investments increases or decreases.
A debt security also presents the risk that the issuer of the security may
not be able to meet its obligations on interest or principal payments at the
time called for by the instrument. Bonds rated BBB or Baa, which are considered
medium-grade category bonds, do not have economic characteristics that provide
the high degree of security with respect to payment of principal and interest
associated with higher rated bonds, and generally have some speculative
characteristics. A bond will be placed in this rating category where interest
payments and principal security appear adequate for the present, but economic
characteristics that provide longer term protection may be lacking. Any bond,
and particularly those rated BBB or Baa, may be susceptible to changing
conditions, particularly to economic downturns, which could lead to a weakened
capacity to pay interest and principal.
The day-to-day management of the Bond Portfolio is the responsibility of
Kent Adams, CFA, Vice President, Fixed Income Securities. Mr. Adams has been the
Portfolio Manager of the Bond Portfolio since its inception and has been with
AUL since 1977. Previously, Mr. Adams has held positions with AUL which include
Senior Securities Analyst, Investment Officer, and Assistant Vice President,
Securities.
THE MONEY MARKET PORTFOLIO
The investment objective of the Money Market Portfolio is to provide a high
level of current income while preserving assets and maintaining liquidity and
investment quality. The Portfolio attempts to achieve this objective by
investing in short-term money market instruments that are of the highest
quality. The Portfolio invests only in money market instruments denominated in
U.S. dollars.
The Portfolio will invest only in money market instruments that, at the
time of acquisition, present minimal credit risk, are of the highest quality,
and have a maturity or remaining maturity of 13 months or less (or that are
subject to a repurchase agreement requiring repurchase from the Portfolio within
13 months or less). Such instruments may include the following: U.S. Government
securities, repurchase agreements maturing
<PAGE>
8
in seven days or less with Federal Reserve System banks or with dealers in U.S.
Government securities, reverse repurchase agreements, certificates of deposit
and other obligations of banks or other depository institutions, debt
securities, commercial paper, and variable amount floating rate notes and master
notes.
The Adviser shall determine whether a money market instrument presents
minimal credit risk under procedures adopted by the Fund's Board of Directors.
An instrument shall be considered to be of the highest quality under the
following circumstances: (1) it is a U.S. Government security; (2) it (or
another comparable short-term debt obligation of the same issuer) is rated (i)
in the highest rating category (i.e., AAA or A-1 by S&P, Aaa or P-1 by Moody's,
or AAA or D-1 by Duff & Phelps, Inc.) by any nationally recognized statistical
rating organizations ("NRSROs"), or (ii) if rated by only one NRSRO, by that
NRSRO if the acquisition is approved or ratified by the Board of Directors; or
(3) it is not rated but it is of comparable quality as determined by the Adviser
and the acquisition is approved or ratified by the Board of Directors. In the
event that an instrument acquired by the Portfolio is downgraded or otherwise
ceases to be of the highest quality, the Adviser, under procedures approved by
the Board of Directors (or the Board of Directors itself under certain
circumstances) shall promptly reassess whether such security presents minimal
credit risk and determine whether or not to retain the instrument.
Within certain limits, the Portfolio may invest in securities of registered
investment companies with investment policies not substantially broader than
those of the Portfolio.
The Portfolio may invest up to 10% of its total assets in repurchase
agreements maturing in more than seven days or in portfolio securities not
readily marketable.
The Portfolio will be managed so as to maintain a dollar-weighted average
maturity of 90 days or less.
THE MANAGED PORTFOLIO
The investment objective of the Managed Portfolio is to provide a high
total return consistent with prudent investment risk. The Portfolio attempts to
achieve this objective through a fully managed investment policy utilizing
publicly traded common stock, debt securities (including convertible
debentures), and money market securities. Total return is the sum of dividend
and interest income and capital changes in the assets of the Portfolio. The
composition of the Portfolio will vary from time to time, based upon the
Adviser's evaluation of economic and market trends and the anticipated relative
total return available from a particular type of security. Accordingly, at any
given time, up to 100% of the Portfolio may be invested in any one sector such
as common stocks, debt securities (including convertible debentures), or money
market instruments.
The Portfolio may invest in the common stock and debt securities which are
also eligible for purchase by the Equity Portfolio and Bond Portfolio,
respectively, and may invest in high quality money market instruments, i.e.
money market instruments rated AA or A-2 or better by S&P, Aa or P-2 or better
by Moody's, or AA or D-2 or better by Duff & Phelps, or if not rated, deemed of
equivalent quality by the Adviser. In pursuing its investment objectives, the
Portfolio may engage in the writing of covered call and secured put options on
equity and debt securities, and may purchase call options on debt securities to
the extent described in "Options." In addition, the Portfolio may purchase or
sell interest rate future contracts for hedging purposes as described in
"Futures Contracts." The Portfolio may also enter into repurchase agreements and
reverse repurchase agreements.
The day-to-day management of the Managed Portfolio is the joint
responsibility of Kathryn Hudspeth, Vice President, Equities and Kent Adams,
Vice President, Fixed Income Securities, AUL. Biographical information for these
individuals is listed in the descriptions of the AUL American Equity Portfolio
and the AUL American Bond Portfolio.
THE TACTICAL ASSET ALLOCATION PORTFOLIO
The investment objective of the Tactical Asset Allocation Portfolio is
preservation of capital and competitive investment returns. The Portfolio seeks
to achieve its objective by investing primarily in stocks, United States
Treasury bonds, notes and bills, and money market funds. The Portfolio's
approach seeks positive investment performance during advancing markets, and
maintenance of positive investment performance in declining markets through
reduction in equity exposure. For this purpose, the Portfolio's Sub-Adviser
utilizes forecasting models which evaluate risk versus reward relationships of
different asset classes. These models enable the Sub-Adviser to determine when
to "tactically" adjust the asset allocation through a gradual shifting of assets
among the various categories of investments. The Portfolio will seek to achieve
income yield in excess of the dividend income yield of the Standard & Poor's
Index of 500 Common Stocks.
The principles by which the Sub-Adviser makes its stock selection are based
on value investing combining the attempt to preserve principal while seeking
above average returns. The Sub-Adviser seeks to identify companies whose stocks
are reasonably priced and that the Sub-Adviser believes will perform better than
the current expectations for earnings/cash flow over the next several years.
The Sub-Adviser's focus is on primarily high quality, liquid, large
capitalization stocks. The selection process starts with a "bottoms up"
screening of the market to identify stocks that are statistically undervalued
based on financial characteristics such as Price to Cash Flow, Price to Sales,
Price to Earnings, Dividend Yield, and Return on Equity relative to the stock's
historical norms. The Sub-Adviser seeks to preserve a "margin of safety" which
is critical to the preservation of capital. However, the Sub-Adviser believes
that investors' expecta-
<PAGE>
9
tions and the company's operating performance ultimately determine which
statistically "undervalued" stocks make good investments. The Sub-Adviser's
research staff looks to the future to see which stocks are likely to provide
investors with positive surprises, while avoiding negative surprises, taking
into account projected future cash flows, earnings, and dividends. The
Sub-Adviser's goal is to choose stocks which the market has undervalued based on
"over reaction" to perceived risks.
A stock's fundamentals dominate the selection process. However, technical
analysis is used to improve the timeliness of the Sub-Adviser's trading
decisions. The Sub-Adviser utilizes a series of linear statistical models that
attempt to forecast total stock market returns for both short (12 to 18 months)
and long (36 to 60 months) run time periods. These time series models assist the
Sub-Adviser in comparing the risks and rewards of holding stocks versus treasury
notes and money market funds, and assist the Sub-Adviser in determining when to
"tactically" adjust the asset allocation through a gradual shifting of assets
among stocks, U.S. Treasury bonds and notes, and money market funds. A
combination of fundamental, technical, sentimental, and monetary variables are
used in the forecasting models.
The Portfolio seeks to invest its assets primarily in income producing
common or preferred stock when the Sub-Adviser believes that the relevant market
environment favors profitable investing in those securities. The Portfolio does
not presently intend to invest more than 20% of its total assets in equity
securities which do not pay a dividend. It is anticipated that almost all of the
equity securities in which the Portfolio invests will be listed on a national
securities exchange or on NASDAQ or will be traded in the U.S. over-the-counter
market. The Portfolio may invest up to 25% of its total assets in equity
securities of foreign issuers. It is anticipated that most of the Portfolio's
investments in securities of foreign issuers will be American Depositary
Receipts (ADRs). See "Foreign Securities" for a discussion of some of the risks
involved in foreign investment.
The portion of the Portfolio not invested in equity securities, which will
vary from time to time, will be invested in debt obligations, including U.S.
Government securities, corporate bonds and debentures, high-grade commercial
paper, convertible securities, and certificates of deposit. The Portfolio may
increase its investment in such securities when the Sub-Adviser determines that
equity investment opportunities with desirable risk/reward characteristics are
unavailable, or for temporary defensive purposes. The Portfolio may only invest
in debt securities of U.S. issuers. The Portfolio may also invest in zero coupon
bonds or "strips," which are described under "Zero Coupon Bonds" below.
The Portfolio may invest in corporate debt securities that are rated within
the four highest grades by Moody's (Aaa, Aa, A, or Baa) or S&P (AAA, AA, A, or
BBB). Bonds rated Baa by Moody's or BBB by S&P may have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case for higher grade bonds. In the event that ratings
decline after the Portfolio's investment in securities, the Sub-Adviser will
consider all such factors as it deems relevant to the advisability of retaining
such securities. Investments in commercial paper are limited to obligations
rated P-1 by Moody's or A-1 by S&P. See Appendix I in the Statement of
Additional Information for further information concerning bond and commercial
paper ratings.
Dean Investment Associates serves as Sub-Adviser to the Portfolio, as
described below under "The Sub-Adviser to the Tactical Asset Allocation
Portfolio." The Portfolio is managed by a team of 10 senior investment
professionals (Central Investment Committee).
John C. Riazzi, CFA, serves as the Senior Portfolio Manager of the
Portfolio and Arvind Sachdeva, CFA, serves as Senior Equity Strategist. Mr.
Riazzi joined the Sub-Adviser in March of 1989. Before being promoted to Vice
President and Director of Consulting Services at the Sub-Adviser, Mr. Riazzi was
responsible for client servicing, portfolio execution and trading operations.
Mr. Riazzi has been a member of the Central Investment Committee and a Senior
Institutional Portfolio Manager since 1990. He received a B.A. in Economics from
Kenyon College in 1985 and was awarded the Chartered Financial Analyst
designation in 1993.
Mr. Sachdeva joined the Sub-Adviser in 1993. Prior to working at the
Sub-Adviser, he was the Senior Security Analyst and Equity Portfolio Manager for
Carillon Advisors, Inc., from January 1985 to September 1993. Carillon Advisors,
Inc., is an investment subsidiary of the Union Central Life Insurance Co.
Because of the Portfolio's flexible investment policy, portfolio turnover
may be greater than for a portfolio that does not allocate assets among various
types of securities.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of its
Board of Directors according to applicable laws of the State of Maryland and the
Fund's Articles of Incorporation and Bylaws. The Fund's directors are James W.
Murphy, Ronald D. Anderson, Leslie Lenkowsky, and James P. Shanahan. Inform-
ation about the directors and the Fund's executive officers may be found in the
Statement of Additional Information under the heading "Management of the Fund."
<PAGE>
10
INVESTMENT ADVISER-AMERICAN UNITED LIFE INSURANCE COMPANY(R)
The Fund has entered into an Investment Advisory Agreement (the
"Agreement") with AUL (the "Adviser"). The Adviser is a legal reserve mutual
life insurance company existing under the laws of the State of Indiana. It was
originally incorporated as a fraternal society on November 7, 1877, under the
laws of the federal government, and reincorporated under the laws of the State
of Indiana in 1933. It is qualified to do business in 47 states and the District
of Columbia. As a mutual company, it is owned by and operated exclusively for
the benefit of its policyowners. The Adviser has its principal business office
located at One American Square, Indianapolis, IN 46282.
The Adviser conducts a conventional life insurance, reinsurance, and
annuity business, and manages pension and other accounts. At December 31, 1996,
the Adviser had admitted assets of $7,852,292,848 and had a policyowners'
surplus of $572,825,650. The Adviser is registered with the SEC as an investment
adviser. Such registration does not involve supervision by the Securities and
Exchange Commission (the "SEC") over investment advice.
Subject to overall supervision of the Board of Directors, the Adviser
exercises overall responsibility for the investment and reinvestment of the
Fund's assets. In so doing, the Adviser manages the day-to-day investment
operations of each Portfolio, except the Tactical Asset Allocation Portfolio,
and the composition of the investment portfolio of such Portfolios, including
the purchase, retention, and disposition of the investments, securities, and
cash contained therein in accordance with the Portfolios' investment objectives
and policies as stated in the Fund's Prospectus as may be from time to time in
effect.
AUL has engaged a Sub-Adviser to manage the assets of the Tactical Asset
Allocation Portfolio, as described below.
At the Fund's request, the Adviser provides, without charge, personnel (who
may be the Fund's officers) to render certain clerical, accounting,
administrative and other services to the Fund as may from time to time be
requested. Also, the Adviser furnishes to the Fund, without additional charge,
such administrative and management supervision and office facilities (which may
be the Adviser's own offices) as the Adviser may believe appropriate or as the
Fund may reasonably request. However, the Fund may also hire its own employees
and contract for services to be performed by third parties.
Under the Investment Advisory Agreement, the Adviser is compensated for its
services, by a monthly fee based on an annual percentage of the average daily
net assets of each Portfolio. For each Portfolio, the Fund pays the Adviser a
fee at an annual rate of .50% of the Portfolio's average daily net assets,
except for the Tactical Asset Allocation Portfolio, the fee for which is an
annual rate of .80% of the Portfolio's average daily net assets.
THE SUB-ADVISER TO THE TACTICAL ASSET ALLOCATION PORTFOLIO
AUL has engaged Dean Investment Associates, a Division of C.H. Dean and
Associates, Inc., to serve as Sub-Adviser to the Tactical Asset Allocation
Portfolio. Dean Investment Associates is located at 2480 Kettering Tower,
Dayton, Ohio 45423-2480, and is a registered investment adviser with the
Securities and Exchange Commission. Dean Investment Associates is wholly-owned
by C.H. Dean and Associates, Inc. Founded in 1972, Dean Investment Associates
manages portfolios for individuals and institutional clients worldwide. Dean
Investment Associates provides a full range of investment advisory services and
currently has over $4 billion of assets under management.
Subject to the supervision of the Investment Adviser and the Fund's Board
of Directors, the Sub-Adviser is responsible for the actual management of the
Portfolio and for making decisions to buy, sell or hold any particular security,
and it places orders to buy or sell securities on behalf of the Portfolio.
For its services, the Sub-Adviser receives fees from the Investment Adviser
(and not the Portfolio) in the amount of (i) 68.75% of the advisory fees
received by the Investment Adviser with respect to the Tactical Asset Allocation
Portfolio, less (ii) 50% of the amount of any excess expenses paid by the
Investment Adviser on behalf of the Portfolio pursuant to the expense guarantee
described below.
OTHER EXPENSES
The Fund is responsible for bearing all costs of its operations. Such costs
include fees to the Adviser, shareholder servicing costs, directors' fees and
expenses, legal and auditing fees, custodian fees, registration fees, and
others. Sub-Advisory fees paid to Dean Investment Associates with respect to the
Tactical Asset Allocation Portfolio are borne by the Adviser and not the
Portfolio. Fund expenses directly attributable to a Portfolio are charged to
that Portfolio; other expenses are allocated proportionately among all the
Portfolios in relation to the net assets of each Portfolio. The Adviser has
currently agreed to reduce its fee with respect to a Portfolio to the extent
necessary to prevent the Portfolio's ordinary operating expenses from exceeding
1.0% of the Portfolio's average daily net assets during the year. In the event
that this fee arrangement is insufficient to prevent a Portfolio's aggregate
ordinary operating expenses from exceeding 1.0% of the Portfolio's average daily
net assets during the year, the Adviser has further agreed to assume a
Portfolio's expenses to the extent necessary to limit such expenses to 1.0% of
the Portfolio's average daily net assets during the year. Ordinary operating
expenses include the advisory fee but do not include interest, taxes, brokerage
commissions and other transactional expenses and, if any, legal claims and
liabilities, litigation costs and indemnification payments in connection with
litigation, and other extraordinary expenses. If the Adviser has reduced its fee
with respect to a Portfolio in any given year, in any of the next five
succeeding years in which the Portfolio's ordinary operating expenses do not
exceed 1.0% of average daily net assets, the Adviser's fee
<PAGE>
11
will be increased with respect to that Portfolio by an amount equal to any prior
fee reduction; provided that such fee increase does not cause the Portfolio's
expenses to exceed 1.0% of the Portfolio's average daily net assets in that
year. The Adviser may terminate the policy of reducing its fee and/or assuming
Fund expenses upon 30 days written notice to the Fund and such policy will be
terminated automatically by the termination of the Investment Advisory
Agreement.
PORTFOLIO EXPENSES
On December 31 of the years 1996, 1995, 1994, 1993, 1992, 1991, and for the
period from April 10, 1990 (the date the Fund commenced operations) through
December 31, 1990, the total expenses of each Portfolio of the Fund were the
following percentages of average daily net assets for the periods shown. The
Tactical Asset Allocation Portfolio commenced operations July 31, 1995.
<TABLE>
<CAPTION>
Tactical
Year Equity Bond Money Market Managed Asset
---- ------ ---- ------------ ------- -----
<S> <C> <C> <C> <C> <C>
1996 .70% .71% .70% .70% 1.00%
1995 .70% .70% .73% .70% 1.00%(1)
1994 .73% .73% .75% .73% N.A.
1993 .82% .80% .84%. .81% N.A.
1992 .84% .79% .85% .82% N.A.
1991 .80% .71% .85% .94% N.A.
1990 1.00% 1.00% 1.00% .98% N.A.
<FN>
(1) Ratio calculated for period July 31, 1995 through December 31, 1995 on an
annualized basis.
</FN>
</TABLE>
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES
U.S. GOVERNMENT SECURITIES
All of the Portfolios may invest in U.S. Government securities. U.S.
Government securities are obligations of or obligations guaranteed by the U.S.
Government, its agencies or instrumentalities. Securities guaranteed by the U.S.
Government include: (1) direct obligations of the U.S. Treasury (such as
Treasury bills, notes, and bonds) and (2) federal agency obligations guaranteed
as to principal and interest by the U.S. Treasury (such as GNMA certificates).
With respect to these securities, the payment of principal and interest is
unconditionally guaranteed by the U.S. Government, and thus they are of the
highest credit quality. Such securities are subject to variations in market
value due to fluctuations in interest rates, but, if held to maturity, are
guaranteed by the U.S. Government to be paid in full. Securities issued by U.S.
Government instrumentalities and certain federal agencies are neither direct
obligations of nor obligations guaranteed by the Treasury. However, they involve
federal sponsorship in one way or another: some are supported by the
discretionary authority of the Treasury to purchase certain obligations of the
issuer; others are supported only by the credit of the issuing government agency
or instrumentality. These agencies and instrumentalities include, but are not
limited to, Federal Land Banks, Farmers Home Administration, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, and Federal Home Loan Banks.
MORTGAGE-RELATED SECURITIES
The Bond Portfolio, Managed Portfolio, and Tactical Asset Allocation
Portfolio may invest in GNMA certificates, FNMA and FHLMC mortgage-backed
obligations and privately issued mortgage-backed securities.
GNMA Certificates: Government National Mortgage Association (GNMA)
certificates are mortgage-backed securities representing part ownership of a
pool of mortgage loans on which timely payment of interest and principal is
guaranteed by the full faith and credit of the U.S. Government. GNMA
certificates differ from typical bonds since principal is repaid monthly over
the term of the loan rather than returned in a lump-sum at maturity. Although
GNMA guarantees timely payment even if homeowners delay or default, tracking the
"pass-through" payments may, at times, be difficult. Expected payments may be
delayed due to the delays in registering the newly traded paper securities. The
Custodian's policies for crediting missed payments while errant receipts are
tracked down may vary. Although the mortgage loans in the pool will have
maturities of up to 30 years, the actual average life of the GNMA certificates,
typically, will be substantially less, since the mortgages will be subject to
normal principal amortization and may be prepaid prior to maturity.
FNMA and FHLMC Mortgage-Backed Obligations: The Federal National Mortgage
Association ("FNMA"), a federally chartered and privately-owned corporation,
issues pass-through securities representing interests in a pool of conventional
mortgage loans. FNMA guarantees the timely payment of principal and interest but
this guarantee is not backed by the full faith and credit of the U.S.
Government. The Federal Home Loan Mortgage Corporation ("FHLMC"), a corporate
instrumentality of the United States, issues participation certificates which
represent interests in a pool of conventional mortgage loans. FHLMC guarantees
the timely payment of interest and the ultimate collection of principal and
maintains reserves to protect holders against losses due to default, but the
certificates are not backed by the full faith and credit of the U.S. Government.
As in the case with GNMA certificates, the actual maturity of and realized yield
on particular FNMA and FHLMC pass-through securities will vary based on the
prepayment experience of the underlying pool of mortgages.
<PAGE>
12
Other Mortgage-Backed Securities: Mortgage-backed securities are also
issued by financial institutions such as commercial banks, savings and loan
associations, mortgage banks, and securities broker-dealers (or affiliates of
such institutions established to issue these securities) in the form of either
collateralized mortgage obligations ("CMOs") or mortgage-backed bonds. CMOs are
obligations fully collateralized directly or indirectly by a pool of mortgages
on which payments of principal and interest are dedicated to payment of
principal and interest on the CMOs. Payments are passed through to the holders,
although not necessarily on a pro rata basis, on the same schedule as they are
received. Mortgage-backed bonds are general obligations of the issuer fully
collateralized directly or indirectly by a pool of mortgages. The mortgages
serve as collateral for the issuer's payment obligations on the bonds, but
interest and principal payments on the mortgages are not passed through either
directly (as with GNMA certificates and FNMA and FHLMC pass-through securities)
or on a modified basis (as with CMOs). Accordingly, a change in the rate of
prepayments on the pool of mortgages could change the effective maturity of a
CMO but not that of a mortgage-backed bond (although, like many bonds,
mortgage-backed bonds can provide that they are callable by the issuer prior to
maturity).
It is expected that governmental, government-related, or private entities
may create mortgage loan pools and other mortgage-backed securities offering
mortgage pass-through and mortgage-collateralized investments in addition to
those described above. As new types of mortgage-backed securities are developed
and offered to investors, investments in such new types of mortgage-backed
securities will be considered.
Risks of Mortgage-Related Securities: In the case of mortgage pass-through
securities such as GNMA certificates or FNMA and FHLMC mortgage-backed
obligations, early repayment of principal arising from prepayments of principal
on the underlying mortgage loans due to the sale of the underlying property, the
refinancing of the loan, or foreclosure may expose a Portfolio to a lower rate
of return upon reinvestment of principal. Prepayment rates vary widely and may
be affected by changes in market interest rates. In periods of falling interest
rates, the rate of prepayment tends to increase, thereby shortening the actual
average life of the mortgage-related security. Conversely, when interest rates
are rising, the rate of prepayment tends to decrease, thereby lengthening the
actual average life of the mortgage-related security. Accordingly, it is not
possible to accurately predict the average life of a particular pool.
Reinvestment of prepayments may occur at higher or lower rates than the original
yield on the certificates. Therefore, the actual maturity and realized yield on
pass-through or modified pass-through mortgage-related securities will vary
based upon the prepayment experience on the underlying pool of mortgages.
ZERO COUPON BONDS
The Tactical Asset Allocation Portfolio may invest in zero coupon bonds or
"strips." Zero coupon bonds do not make regular interest payments; rather, they
are sold at a discount from face value. Principal and accredit discount
(representing interest accrued but not paid) are paid at maturity. "Strips" are
debt securities that are stripped of their interest after the securities are
issued, but otherwise are comparable to zero coupon bonds. The issuers of all
zero coupon bonds, and the obligor of all "strips" purchased by the Portfolio,
will be the U.S. Government and its agencies or instrumentalities. The market
value of "strips" and zero coupon bonds generally fluctuates in response to
changes in interest rates to a greater degree than interest-paying securities of
comparable term and quality. The Tactical Asset Allocation Portfolio may also
invest in step coupon securities. For a description of these securities, see
"Zero Coupon and Step Coupon Securities" in the Statement of Additional
Information.
FOREIGN SECURITIES
The Tactical Asset Allocation Portfolio may invest up to 25% of its total
assets in equity securities of foreign issuers. It is anticipated that most of
the Portfolio's investments in securities of foreign issuers will be American
Depositary Receipts (ADRs). The Equity Portfolio may also invest in ADRs. ADRs
are dollar-denominated receipts issued generally by domestic banks and represent
the deposit with the bank of a security of a foreign issuer. ADRs are publicly
traded on exchanges or over-the-counter in the United States.
Foreign securities may be subject to foreign government taxes which would
reduce the income yield on such securities. Foreign investments involve certain
risks, such as political or economic instability of the issuer or of the country
of issue, the difficulty of predicting international trade patterns, fluctuating
exchange rates and the possibility of imposition of exchange controls. Such
securities may also be subject to greater fluctuations in price than securities
of domestic corporations or of the U.S. Government. In addition, there may be
less publicly available information about a foreign company than about a
domestic company. Foreign companies generally are not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic companies. There is generally less government regulation
of stock exchanges, brokers and listed companies abroad than in the United
States, and, with respect to certain foreign countries, there is a possibility
of expropriation or confiscatory taxation, or diplomatic developments which
could affect investment in those countries. Finally, in the event of a default
on any such foreign securities, it may be more difficult for the Portfolio to
obtain or to enforce a judgment against the issuers of such securities. See the
Statement of Additional Information regarding additional risks associated with
foreign countries.
REPURCHASE AGREEMENTS
All of the Portfolios may invest in repurchase agreements. Repurchase
agreements are agreements by which a Portfolio purchases a security and obtains
a simultaneous commitment from the seller (a member bank of the Federal Reserve
System or a recognized securities dealer) to repurchase the security at
<PAGE>
13
an agreed upon price and date. The resale price is in excess of the purchase
price and reflects an agreed upon market rate of return unrelated to the coupon
rate on the purchased security. Such transactions afford an opportunity for a
Portfolio to maintain liquidity and earn income over periods of time as short as
overnight.
The underlying securities on repurchase agreements are ordinarily U.S.
Government securities, but may be other securities in which the Portfolio might
otherwise invest. A Portfolio will enter into repurchase agreements only if they
are fully collateralized. The market value of the collateral, including accrued
interest, will equal or exceed the repurchase price, and the collateral will be
in the actual or constructive possession of the Portfolio.
A repurchase agreement subjects a Portfolio to the risk of the inability of
the seller to pay the repurchase price on the delivery date; however, the
underlying security constitutes the collateral for the seller's obligation. In
addition, a Portfolio will enter into repurchase agreements only with parties
that the Adviser considers creditworthy. In the event the seller does default,
the Portfolio may incur (i) a loss if the value of the collateral declines and
(ii) disposition costs in connection with liquidating the collateral. In the
event bankruptcy proceedings are commenced with respect to the seller,
realization of the collateral by the Portfolio may be delayed or limited and a
loss may be incurred if the collateral securing the repurchase agreement
declines in value during the bankruptcy proceedings.
REVERSE REPURCHASE AGREEMENTS
All of the Portfolios may invest in reverse repurchase agreements. A
reverse repurchase agreement involves the sale of a security by a Portfolio and
its agreement to repurchase the instrument at a specified time and price. A
Portfolio will maintain a segregated account consisting of cash, U.S. Government
securities, or high-grade debt obligations to cover its obligations under
reverse repurchase agreements. A portfolio will limit its investments in reverse
repurchase agreements and other borrowings to no more than one-third of the
current market value of the Portfolio's total assets, as reverse repurchase
agreements may be considered borrowings by a Portfolio under the 1940 Act. The
use of reverse repurchase agreements by a Portfolio creates leverage which
increases a Portfolio's investment risk. If the income and gains on securities
purchased with the proceeds of reverse repurchase agreements exceed the cost of
the agreements, the Portfolio's earnings or net asset value will increase faster
than otherwise would be the case; conversely, if the income and gains fail to
exceed the costs, earnings or net asset value would decline faster than
otherwise would be the case.
BANKING INDUSTRY AND SAVINGS INDUSTRY OBLIGATIONS
All Portfolios may invest in certificates of deposit, time deposits,
bankers' acceptances, and other short-term debt obligations issued by commercial
banks and in certificates of deposit, time deposits, and other short-term
obligations issued by savings and loan associations ("S&Ls"). Certificates of
deposit are receipts from a bank or an S&L for funds deposited for a specified
period of time at a specified rate of return. Bankers' acceptances are time
drafts drawn on commercial banks by borrowers, usually in connection with
international commercial transactions. The Portfolios may also invest in
obligations of foreign branches of commercial banks and foreign banks so long as
the securities are U.S. dollar-denominated. See "Foreign Securities" discussion
in this section for further information regarding risks associated with
investment in foreign securities.
The Portfolios will not invest in obligations issued by a commercial bank
or S&L unless the bank or S&L has total assets of at least $1 billion, or the
equivalent in other currencies, and the institution has outstanding securities
rated A or better by S&P or Moody's, or, if the institution has no outstanding
securities rated by S&P or Moody's, such institution, in the determination of
the Adviser, has creditworthiness similar to institutions having outstanding
securities so rated.
See the Statement of Additional Information "Description of Securities and
Investment Techniques" for further information regarding these obligations.
OPTIONS
In pursuing their investment objectives, the Equity Portfolio, Bond
Portfolio, and Managed Portfolio may engage in certain transactions in put and
call options.
The Equity Portfolio, the Bond Portfolio, and the Managed Portfolio may
each write (i.e., sell) call options ("calls") in furtherance of its respective
investment objective or objectives if (i) after any sale, not more than 25% of
that Portfolio's total as- sets are subject to calls; (ii) the calls are traded
on a domestic securities exchange or board of trade; and (iii) the calls are
"covered."
The Equity Portfolio, the Bond Portfolio, and the Managed Portfolio may
also write put options ("puts") if (i) after any sale, the aggregate of the
exercise prices of all outstanding puts written by the Portfolio do not exceed
25% of the Portfolio's total assets; (ii) the puts are traded on a domestic
securities exchange or board of trade; and (iii) the puts are "secured." Each of
these Portfolios may purchase a put only in a closing purchase transaction to
terminate an obligation on a put which it has written.
A Portfolio may write a call or put option only if the option is "covered"
or "secured" by the Portfolio holding a position in the underlying securities.
The Bond Portfolio and Managed Portfolio may each purchase call options
("calls") on securities to protect against substantial increases in prices of
securities the Portfolio may wish to purchase pending its ability to invest in
such securities in an orderly manner. The Equity Portfolio may purchase a call
only
<PAGE>
14
in a closing purchase transaction to terminate its obligation on a call which it
has written. a portfolio may sell calls it has previously purchased, which could
result in a net gain or loss depending on whether the amount realized on the
sale is more or less than the premium and other transaction costs paid on the
call which is sold.
Risks of Options Transactions: The purchase and writing of options involves
certain risks. During the option period, the covered call writer has, in return
for the premium on the option, given up the opportunity to profit from a price
increase in the underlying securities above the exercise price, but, as long as
its obligation as a writer continues, has retained the risk of loss should the
price of the underlying security decline. The writer of an option has no control
over the time when it may be required to fulfill its obligation as a writer of
the option. If a call option purchased by a Portfolio is not sold when it has
remaining value, and if the market price of the underlying security remains less
than or equal to the exercise price, the Portfolio will lose its entire
investment in the option.
There can be no assurance that a liquid market will exist when a Portfolio
seeks to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, a Portfolio may be unable to
close out a position. If a Portfolio cannot effect a closing transaction, it
will not be able to sell the underlying security while the previously written
option remains outstanding, even if it might otherwise be advantageous to do so.
Since option premiums paid or received by a Portfolio, as compared to
underlying investments, are small in relation to the market value of such
investments, buying call options offers large amounts of leverage, which could
result in the Portfolios' net asset value being more sensitive to changes in the
value of the underlying securities.
FUTURES CONTRACTS
The Bond Portfolio and the Managed Portfolio may invest in interest rate
futures contracts. These investments may be made solely for the purpose of
hedging against changes in the value of a Portfolio's securities or securities
intended to be purchased due to anticipated changes in interest rates and market
conditions, and not for purposes of speculation.
As a hedging strategy, a Portfolio might purchase an interest rate futures
contract when it is not fully invested in long-term debt securities but wishes
to defer their purchase for some time until it can invest in such securities or
because short-term yields are higher than long-term yields. Such purchase would
enable a Portfolio to earn the income on a short-term security while at the same
time minimizing the effect of all or part of an increase of the market price of
the long-term debt security which the Portfolio intended to purchase in the
future. A Portfolio would sell an interest rate futures contract in order to
continue to receive the income from a long-term debt security while endeavoring
to avoid part or all of the decline in market value of that security which would
accompany an increase in interest rates.
Risks of Futures: There are several risks associated with the use of
futures for hedging purposes. While a Portfolio's hedging transactions may
protect the Portfolio against adverse movements in the general level of interest
rates, such transactions could also preclude the opportunity to benefit from
favorable movements in the level of interest rates. There can be no guarantee
that there will be a correlation between price movements in the hedging vehicle
and in the securities being hedged. An incorrect correlation could result in a
loss on both the hedged securities in a Portfolio and the hedging vehicle so
that the Portfolio return might have been better had hedging not been attempted.
The successful use of futures is dependent on the Adviser's ability to predict
correctly movements in the direction of the stock market and no assurance can be
given that the Adviser's judgment in this respect will be correct.
There can be no assurance that a liquid market will exist at a time when a
Portfolio seeks to close out a futures contract. Most futures exchanges and
boards of trade limit the amount of fluctuation permitted in futures contract
prices during a single day; once the daily limit has been reached on a
particular contract, no trades may be made that day at a price beyond that
limit. In addition, certain of these instruments are relatively new and without
a significant trading history. As a result, there is no assurance that an active
secondary market will develop or continue to exist. Lack of a liquid market for
any reason may prevent the Portfolio from liquidating an unfavorable position
and the Portfolio would remain obligated to meet margin requirements until the
position is closed.
A Portfolio will only enter into futures contracts which are standardized
and traded on a U.S. exchange or board of trade. A Portfolio will not enter into
a futures contract if immediately thereafter the initial margin deposits for
futures contracts held by the Portfolio plus premiums paid by it for open
futures option positions, less the amount by which any such positions are
"in-the-money," would exceed 5% of the Portfolio's total assets.
OTHER INVESTMENT COMPANIES
Each of the Fund's Portfolios may invest in shares issued by other
investment companies. The Tactical Asset Allocation Portfolio may invest up to
10% of its total assets in money market funds, within limits imposed by the 1940
Act upon investment by the Portfolio in other investment companies. If the
forecasting models employed by the Sub-Adviser predict a decline in the stock
market, the Sub-Adviser expects to reduce equity exposure and increase the
Portfolio's cash position, including investment in money market funds. A
Portfolio is limited in the degree to which it may invest in shares of another
investment company in that it may not, at the time of the purchase, (1) acquire
more than 3% of the outstanding voting shares of the investment company, (2)
invest more than 5% of
<PAGE>
15
the Portfolio's total assets in the investment company, or (3) invest more than
10% of the Portfolio's total assets in all investment company holdings. As a
shareholder in any investment company, a Portfolio will bear its ratable share
of the investment company's expenses, including management fees in the case of a
management investment company.
INVESTMENT RESTRICTIONS
The Fund has adopted certain investment restrictions applicable to each of
the Portfolios. The restrictions are stated in the SAI, and some are briefly
described in this paragraph. A Portfolio will not, with respect to 75% of its
assets, invest more than 5% of its assets in securities of any one issuer,
except that this restriction does not apply to U.S. Government securities. A
Portfolio will not, with respect to 75% of its assets, invest in more than 10%
of any one issuer's outstanding voting securities. No Portfolio will concentrate
more than 25% of its assets in any particular industry, except that this
restriction does not apply to U.S. Government securities and, with respect to
the Money Market Portfolio, to securities or obligations (other than commercial
paper) issued by domestic branches of U.S. banks. In addition, no Portfolio will
borrow money or pledge its assets, with certain exceptions that are set forth
under "Investment Restrictions" in the SAI.
Each Portfolio is subject to the above-referenced and other investment
restrictions, all of which are stated in the SAI. Those restrictions, together
with each Portfolio's investment objective or objectives as set forth under
"Investment Objectives and Policies," are fundamental policies of each existing
Portfolio and may not be changed with respect to any Portfolio without the
approval of a majority of the outstanding voting shares of that Portfolio. The
vote of a majority of the outstanding voting shares of a Portfolio means the
vote at an annual or special meeting of: (i) 67% or more of the voting
securities present at such meeting, if the holders of more than 50% of the
outstanding voting shares of such Portfolio are present or represented by proxy;
or (ii) more than 50% of the outstanding voting securities of such Portfolio,
whichever is less.
PORTFOLIO TRANSACTIONS AND TURNOVER
Pursuant to the Investment Advisory Agreement (and the Sub-Advisory
Agreement with respect to the Tactical Asset Allocation Portfolio), the Adviser
or Sub-Adviser places orders for the purchase and sale of portfolio investments
for the Fund's Portfolios with brokers or dealers selected by it in its
discretion. In executing transactions, the Adviser or Sub-Adviser will attempt
to obtain the best execution for a Portfolio taking into account such factors
deemed appropriate by the Adviser or Sub-Adviser. In effecting purchases and
sales of portfolio securities for the account of the Fund, the Adviser or
Sub-Adviser may pay higher commission rates than the lowest available when the
Adviser or Sub-Adviser believes it is reasonable to do so in light of the value
of the brokerage and research services provided by the broker effecting the
transaction. In the case of securities traded on the over-the-counter markets,
there is generally no stated commission, but the price includes an undisclosed
commission or markup. For a more complete description of procedures on effecting
portfolio transactions, see the SAI.
Some securities considered for investment by the Fund may also be
appropriate for other accounts served by the Adviser or Sub-Adviser, including
the Adviser's or Sub-Adviser's general account. If a purchase or sale of
securities consistent with the investment policies of a Portfolio and one or
more of these other accounts served by the Adviser or Sub-Adviser is considered
at or about the same time, it is the policy of AUL and the Sub-Advisor not to
favor any one account or Portfolio over another, and any purchase or sale orders
executed contemporaneously are allocated at the average price and as nearly as
practicable on a pro rata basis in proportion to the amounts desired to be
purchased or sold by each account or Portfolio. While it is conceivable that in
certain instances this Procedure could adversely affect the price or number of
shares involved in a particular Portfolio transaction, it is believed that the
procedure generally contributes to better overall execution of the Fund's
portfolio transactions. This allocation method and the results of such
allocations, are subject to periodic review by the Fund's Adviser, Sub-Adviser,
and Board of Directors.
For reporting purposes, each Portfolio's turnover rate is calculated by
dividing the value of the lesser of purchases or sales of portfolio securities
for the fiscal year by the monthly average of the value of portfolio securities
owned by the Portfolio during the fiscal year. In determining such portfolio
turnover, all securities whose maturities at the time of acquisition were one
year or less are excluded. A 100% portfolio turnover rate would occur, for
example, if all of the securities in the Portfolio (other than short-term
securities) were replaced once during the fiscal year. The turnover rate for
each of the Portfolios is listed in the section titled "Condensed Financial
Information" in this Prospectus.
The turnover rate for each of the Portfolios will vary from year to year,
and, depending on market conditions, turnover could be greater in periods of
unusual market movement and volatility. A higher turnover rate would result in
greater brokerage commissions or other transactional expenses which must be
borne, directly or indirectly, by a Portfolio and ultimately by the Portfolio's
shareholders.
<PAGE>
16
DESCRIPTION OF THE FUND'S SHARES
The Fund was organized as a Maryland Corporation on July 26, 1989, and
currently consists of five separately managed Portfolios. The Board of Directors
may establish additional portfolios in the future. The capitalization of the
Fund consists of 125,000,000 authorized shares of common stock, par value $0.001
per share with 10,000,000 unallocated shares. When issued, shares of the Fund
are fully paid, non-assessable, and freely transferable. Maryland corporate law
does not require the Fund to hold annual shareholder meetings, although special
meetings may be called for a specific Portfolio, or for the Fund as a whole, for
purposes such as electing or removing directors, changing fundamental policies,
or approving an advisory contract.
In accordance with current law, it is anticipated that AUL will request
voting instructions from owners or participants of any Contracts that are funded
by separate accounts that are registered investment companies under the
Investment Company Act of 1940 and will vote shares in any such separate account
attributable to the Contracts in proportion to the voting instructions received.
AUL may vote shares of any Portfolio, if any, that it owns beneficially in its
own discretion. In connection with the organization of the Fund, AUL invested in
shares of the Portfolios to provide the initial capital. Thus, until a
significant number of shares of the Portfolios are sold in connection with
Contracts funded by registered separate accounts, AUL may control the
Portfolios. It is anticipated that AUL and one or more of its separate accounts
will be the sole record shareholders of the Fund.
DIVIDENDS, DISTRIBUTION AND TAXES
FEDERAL INCOME TAX STATUS
Each Portfolio intends to qualify and to elect to be treated each year as a
regulated investment company under Sub-chapter M of the Internal Revenue Code
(the "Code"). Each Portfolio that qualifies as a regulated investment company
will not be subject to Federal income tax on the net income (including capital
gains) distributed by it. Such income and capital gains distributions are
automatically reinvested in additional shares of the Portfolio unless the
shareholder (separate account) elects otherwise.
Distributions of any net investment income and of any net realized
short-term capital gains are treated as ordinary income for tax purposes in the
hands of the shareholder (separate account). The excess of any net long-term
capital gains over the short-term capital losses will, to the extent
distributed, be treated as long-term capital gains in the hands of the separate
account regardless of the length of time the separate account may have held the
shares.
Reference is made to the Prospectus for the separate account or accounts
that invest in the Fund and/or the applicable contract for information regarding
the federal income tax treatment of distributions to the separate account or
accounts.
DISTRIBUTIONS AND DIVIDENDS
Any distributions made by a Portfolio will be automatically reinvested in
additional shares of that Portfolio, unless an election is made on behalf of a
separate account to receive distributions in cash. Dividends or distributions by
a Portfolio other than the Money Market Portfolio will reduce the per-share net
asset value by the per-share amount so paid.
PURCHASE AND REDEMPTION OF SHARES
As of the date of this Prospectus, shares of the Fund are offered only
for purchase by one or more separate accounts of AUL to serve as an investment
medium for the Contracts issued by AUL. Shares of each Portfolio may be offered
in the future to separate accounts of other affiliated or unaffiliated insurance
companies to serve as the underlying investments for variable annuity contracts.
Shares of each Portfolio are sold at their respective net asset values (without
a sales charge) next computed after receipt of a purchase order by AUL at its
Home Office, on behalf of a separate account. Redemptions will be effected by
the separate accounts to meet obligations under the Contracts. Owners of the
Contracts do not deal directly with the Fund with respect to acquisition,
redemption, or transfer of shares, and should refer to the Contract (or
Certificate thereunder), or if applicable, the prospectus for the separate
account for information on allocation of premiums and on transfers of account
value.
Shares of a Portfolio may be redeemed on any day that AUL is open for
business. Redemptions are effected at the per share net asset value next
determined after receipt of the redemption request by AUL at its home office, on
behalf of a separate account. Redemption proceeds normally will be paid within
seven days following receipt of instructions in proper form. The right of
redemption may be suspended by the Fund (i) when the New York Stock Exchange is
closed (other than customary weekend and holiday closings) or for any period
during which trading thereon is restricted; (ii) because an emergency exists, as
determined by the Securities and Exchange Commission, making disposal of
portfolio securities or valuation of new assets not reasonably practicable; and
(iii) whenever the Securities and Exchange Commission has by order permitted
such suspension or postponement for the protection of shareholders.
<PAGE>
17
NET ASSET VALUE
The net asset value is determined by dividing the value of each Portfolio's
net assets by the number of its shares outstanding. That determination is made
once each business day, Monday through Friday, at or about 4 p.m., eastern
standard time ("EST"). The determination may be made earlier than 4 p.m. EST if
the markets close earlier than 4 p.m. EST and it is possible to determine the
net asset value at that time. Net asset value will not be determined on days
that the New York Stock Exchange is closed, on any federal holidays or on days
when AUL is not open for business. Traditionally, in addition to federal
holidays, AUL is not open for business on the day after Thanksgiving and either
the day before or after Christmas or Independence Day. The value of the assets
of each Portfolio other than the Money Market Portfolio is based on actual or
estimated market value, with special provisions for assets not having readily
available market quotations and for short-term debt securities. The net asset
value per share of each Portfolio except the Money Market Portfolio will
fluctuate in response to changes in market conditions and other factors. The
Money Market Portfolio will attempt to maintain a constant net asset value per
share of $1.00, which will not fluctuate in response to changes in market
conditions, although there can be no assurance that this will be achieved.
The Money Market Portfolio attempts to maintain a constant net asset value
per share by using the amortized cost method of valuation for its portfolio
securities. This involves valuing a security at cost on the date of acquisition
and thereafter assuming a constant accretion of a discount or amortization of a
premium to maturity. See the Statement of Additional Information for a
description of certain conditions and procedures followed by the Portfolio in
connection with amortized cost valuation.
PERFORMANCE INFORMATION
The Fund may, from time to time, include the yield and effective yield of
the Money Market Portfolio, the yield of the remaining Portfolios, and the total
return of all Portfolios in advertisements and sales literature. Performance
information for the Fund will not be advertised or included in sales literature
unless accompanied by comparable performance information for a separate account
to which the Fund offers its shares.
Current yield for the Money Market Portfolio will be based on income
received by a hypothetical investment over a given 7-day period (less expenses
accrued during the period), and then "annualized" (i.e., assuming that the 7-day
yield would be received for 52 weeks, stated in terms of an annual percentage
return on the investment). "Effective yield" for the Money Market Portfolio is
calculated in a manner similar to that used to calculate yield, but reflects the
compounding effect of earnings on reinvested dividends.
For the remaining Portfolios, any quotations of yield will be based on all
investment income per share earned during a given 30-day period (including
dividends and interest), less expenses accrued during the period ("net
investment income"), and will be computed by dividing net investment income by
the maximum public offering price per share on the last day of the period.
Quotations of average annual total return for any Portfolio will be
expressed in terms of the average annual compounded rate of return on a
hypothetical investment in the Portfolio over periods of one, five and ten years
(or if less, up to the life of the Portfolio), will reflect the deduction of a
proportional share of Portfolio expenses (on an annual basis), and will assume
that all dividends and distributions are reinvested when paid. Quotations of
total return may also be shown for other periods.
Quotations of yield or total return for the Fund will not take into account
charges or deductions against any separate account to which Fund shares are sold
or charges and deductions against the Contracts issued by AUL. Performance
information for any Portfolio reflects only the performance of a hypothetical
investment in the Portfolio during the particular time period on which the
calculations are based. Performance information should be considered in light of
the Portfolio's investment objective or objectives, policies and
characteristics, and the market conditions during the given time period, and
should not be considered as a representation of what may be achieved in the
future. For a description of the methods used to determine yield and total
return for the Portfolio, see "Performance Information" in the Statement of
Additional Information.
LEGAL COUNSEL
Dechert Price & Rhoads, Washington, D.C., has passed upon certain legal
matters in connection with the shares offered by this Prospectus, and also acts
as outside counsel to the Fund.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., One American Square, Indianapolis, Indiana, serve
as independent accountants of the Fund.
<PAGE>
18
STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information contains more specific information
relating to the AUL American Series Fund, Inc. A summary of the Table of
Contents of the Statement of Additional Information is set forth below:
<TABLE>
<CAPTION>
Description Page
<S> <C>
INTRODUCTION.............................................................................................................
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES......................................................................
INVESTMENT RESTRICTIONS..................................................................................................
MANAGEMENT OF THE FUND...................................................................................................
PORTFOLIO TRANSACTIONS AND BROKERAGE.....................................................................................
NET ASSET VALUE..........................................................................................................
PERFORMANCE INFORMATION..................................................................................................
TAXATION.................................................................................................................
OTHER INFORMATION........................................................................................................
FINANCIAL STATEMENTS.....................................................................................................
APPENDIX I...............................................................................................................
</TABLE>
A Statement of Additional Information may be obtained by calling or writing to
AUL at the telephone number and address in the front of this Prospectus.
<PAGE>
19
================================================================================
No dealer, salesman or any other person is authorized by the AUL
American Series Fund to give any information or to make any
representation other than as contained in this Prospectus in connection
with the offering described herein.
There has been filed with the Securities and Exchange Commission,
Washington, D.C., a Registration Statement under the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as amended,
with respect to the offering herein described. For further information
with respect to the AUL American Series Fund, reference is made thereto
and the exhibits filed therewith or incorporated therein, which include
all contracts or documents referred to herein.
================================================================================
AUL AMERICAN SERIES FUND, INC.
Variable Annuity Contracts
Sold By
AMERICAN UNITED
LIFE INSURANCE COMPANY(R)
One American Square
Indianapolis, Indiana 46282
PROSPECTUS
Dated: May 1, 1997
================================================================================
<PAGE>
1
STATEMENT OF ADDITIONAL INFORMATION
AUL AMERICAN SERIES FUND, INC.
May 1, 1997
- --------------------------------------------------------------------------------
AUL American Series Fund, Inc. (the "Fund") is an open-end, diversified
management investment company currently consisting of five separate
investment portfolios: the AUL American Equity Portfolio ("Equity
Portfolio"), the AUL American Bond Portfolio ("Bond Portfolio"), the
AUL American Money Market Portfolio ("Money Market Portfolio"), the AUL
American Managed Portfolio ("Managed Portfolio"), and the AUL American
Tactical Asset Allocation Portfolio ("Tactical Asset Allocation
Portfolio")
This Statement of Additional Information is intended to supplement the
information provided to investors in the Prospectus dated May 1, 1997,
of AUL American Series Fund, Inc., and has been filed with the
Securities and Exchange Commission as part of the Fund's Registration
Statement. Investors should note, however, that this Statement of
Additional Information is not itself a prospectus and should be read
carefully in conjunction with the Fund's Prospectus and retained for
future reference. The contents of this Statement of Additional
Information are incorporated by reference in the Prospectus in their
entirety. A copy of the Prospectus may be obtained free of charge from
the Fund at the address and telephone number listed below.
- --------------------------------------------------------------------------------
AUL American Series Fund, Inc.
One American Square
Indianapolis, Indiana 46282
(800) 634-1629
<PAGE>
2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Description Page
INTRODUCTION...............................................................................................................
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES........................................................................
U.S. Government Securities...............................................................................................
Mortgage-Related Securities..............................................................................................
GNMA Certificates.......................................................................................................
FNMA and FHLMC Obligations..............................................................................................
Collateralized Mortgage Obligations.....................................................................................
Other Mortgage-Backed Securities........................................................................................
Repurchase Agreements....................................................................................................
Reverse Repurchase Agreements............................................................................................
Banking Industry and Savings Industry Obligations........................................................................
Options..................................................................................................................
Risks Associated with Options...........................................................................................
Futures Contracts........................................................................................................
Limitations.............................................................................................................
Risks Associated with Futures...........................................................................................
INVESTMENT RESTRICTIONS....................................................................................................
MANAGEMENT OF THE FUND.....................................................................................................
Directors and Officers...................................................................................................
Compensation of Directors................................................................................................
The Investment Adviser...................................................................................................
The Sub-Adviser..........................................................................................................
Purchases and Redemptions................................................................................................
PORTFOLIO TRANSACTIONS AND BROKERAGE.......................................................................................
Brokerage and Research Services..........................................................................................
NET ASSET VALUE............................................................................................................
PERFORMANCE INFORMATION....................................................................................................
TAXATION...................................................................................................................
Distributions............................................................................................................
OTHER INFORMATION..........................................................................................................
Capitalization...........................................................................................................
Voting Rights............................................................................................................
Custodian, Transfer Agent, and Dividend Disbursing Agent.................................................................
Independent Accountants..................................................................................................
Counsel..................................................................................................................
FINANCIAL STATEMENTS.......................................................................................................
APPENDIX I.................................................................................................................
Corporate Bonds..........................................................................................................
Commercial Paper.........................................................................................................
</TABLE>
<PAGE>
3
INTRODUCTION
This Statement of Additional Information is designed to elaborate upon the
discussion of certain securities and investment techniques which are described
in the Prospectus. The more detailed information contained herein is intended
solely for investors who have read the Prospectus and are interested in a more
detailed explanation of certain aspects of the Fund's securities and investment
techniques. Captions and defined terms in this Statement of Additional
Information generally correspond to like captions and terms in the Prospectus.
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES
U.S. GOVERNMENT SECURITIES
All of the Portfolios may invest in U.S. Government securities. U.S.
Government securities are obligations of, or obligations guaranteed by, the U.S.
Government, its agencies or instrumentalities. Direct obligations of the U.S.
Government include a variety of Treasury securities which differ with respect to
coupons, maturities, and dates of issue. Treasury bills have a maturity of one
year or less. Treasury notes have maturities of one to ten years, and Treasury
bonds generally have a maturity of greater than ten years. Securities guaranteed
by the U.S. Government include federal agency obligations guaranteed as to
principal and interest by the U.S. Treasury (such as Government National
Mortgage Association ("GNMA") certificates and Federal Housing Administration
debentures). The payment of principal and interest of these securities is
unconditionally guaranteed by the U.S. Government. They are thus of the highest
credit quality. Such securities are subject to variations in market value due to
fluctuations in interest rates but, if held to maturity, the United States is
directly obligated or guarantees to pay them in full.
Securities issued by U.S. Government instrumentalities and certain federal
agencies are neither direct obligations of, nor obligations guaranteed by, the
U.S. Treasury. However, they involve federal sponsorship in one way or another:
some are supported by the issuer's right to borrow from the U.S. Government;
others are supported only by the credit of the issuing government agency or
instrumentality. These agencies and instrumentalities include, but are not
limited to, Federal National Mortgage Association ("FNMA"), Federal Home Loan
Bank, Federal Land Banks, Farmers Financing Bank, Farm Credit Banks, and the
Tennessee Valley Authority.
MORTGAGE-RELATED SECURITIES
The Bond Portfolio, the Managed Portfolio, and the Tactical Allocation
Portfolio may invest in GNMA certificates and FNMA and Federal Home Loan
Mortgage Corporation ("FHLMC") mortgage-backed obligations. Mortgage-related
securities are interests in pools of mortgage loans made to residential home
buyers, including mortgage loans made by savings and loan institutions, mortgage
bankers, commercial banks, and others. Pools of mortgage loans are assembled as
securities for sale to investors by various governmental and government-related
organizations.
GNMA Certificates: GNMA certificates are mortgage-backed securities
representing part ownership of a pool of mortgage loans on which timely payment
of interest and principal is guaranteed by the full faith and credit of the U.S.
Government. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA is authorized to guarantee,
with the full faith and credit of the U.S. Government, the timely payment of
principal and interest on securities issued by institutions approved by GNMA
(such as savings and loan institutions, commercial banks, and mortgage bankers)
and backed by pools of FHA-insured or VA-guaranteed mortgages.
Interests in pools of mortgage loans differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal payments at maturity or specified call dates. Instead,
these securities provide a periodic payment which consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
periodic payments made by the individual borrowers on the residential mortgage
loans, net of any fees paid to the issuer or guarantor of such securities.
Additional payments are caused by repayments of principal resulting from the
refinancing, foreclosure or sale of the underlying residential property, net of
fees or costs which may be incurred. Mortgage-related securities issued by GNMA
are described as "modified pass-through" securities. These securities entitle
the holder to receive all interest and principal payments owed on the mortgage
pool, net of certain fees, at the scheduled payment dates, regardless of whether
or not the mortgagor actually makes the payment. Although GNMA guarantees timely
payment even if homeowners delay or default, tracking the "pass-through"
payments may, at times, be difficult.
Although the mortgage loans in the pool will have maturities of up to 30
years, the actual average life of the GNMA certificates typically will be
substantially less because the mortgages will be subject to normal principal
amortization and may be prepaid prior to maturity. Early repayments of principal
on the underlying mortgages may expose a Portfolio to a lower rate of return
upon reinvestment of principal. Prepayment rates vary widely and may be affected
by changes in market interest rates. In periods of falling interest rates, the
rate of prepayment tends to increase, thereby shortening the actual average life
of the GNMA certificates. Conversely, when interest rates are rising, the rate
of prepayment tends to decrease, thereby lengthening the actual average life of
the GNMA certificates. Accordingly, it is not possible to accurately predict the
average life of a particular pool. Reinvestment of prepayments may
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4
occur at higher or lower rates than the original yield on the certificates. Due
to the prepayment feature and the need to reinvest prepayments of principal at
current rates, GNMA certificates can be less effective than typical bonds of
similar maturities at "locking in" yields during periods of declining interest
rates, although they may have comparable risks of decline in value during
periods of rising interest rates.
FNMA and FHLMC Obligations: FNMA, a federally-chartered and privately-owned
corporation, issues pass-through securities representing interests in a pool of
conventional mortgage loans. FNMA guarantees the timely payment of principal and
interest but this guarantee is not backed by the full faith and credit of the
U.S. Government. FNMA is a government sponsored corporation owned entirely by
private stockholders. It is subject to general regulation by the Secretary of
Housing and Urban Development. FNMA purchases conventional (i.e., not insured or
guaranteed by any government agency) residential mortgages from a list of
approved seller/servicers which include state and federally-chartered savings
and loan associations, mutual savings banks, commercial banks, credit unions,
and mortgage bankers.
FHLMC, a corporate instrumentality of the United States, was created by
Congress in 1970 for the purpose of increasing the availability of mortgage
credit for residential housing. Its stock is owned by the 12 Federal Home Loan
Banks. FHLMC issues Participation Certificates ("PCs") which represent interests
in conventional mortgages from FHLMC's national portfolio. FHLMC guarantees the
timely payment of interest and ultimate collection of principal and maintains
reserves to protect holders against losses due to default, but PCs are not
backed by the full faith and credit of the U.S. Government. As is the case with
GNMA certificates, the actual maturity of and realized yield on particular FNMA
and FHLMC pass-through securities will vary based on the prepayment experience
of the underlying pool of mortgages.
Collateralized Mortgage Obligations (CMOs): A CMO is a hybrid between a
mortgage-backed bond and a mortgage pass-through security. Similar to a bond,
interest and prepaid principal are paid, in most cases, semi-annually. CMOs may
be collateralized by whole mortgage loans, but are more typically collateralized
by portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or
FNMA, and their income streams.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying investors, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner-than-desired return
of principal because of the sequential payments.
In a typical CMO transaction, a corporation ("issuer") issues multiple
portfolios (e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond
offering are used to purchase mortgages or mortgage pass-through certificates
("Collateral"). The Collateral is pledged to a third party trustee as security
for the Bonds. Principal and interest payments from the Collateral are used to
pay principal on the Bonds in the order A, B, C, Z. The portfolio A, B, and C
Bonds all bear current interest. Interest on the portfolio Z Bond is accrued and
added to the principal; a like amount is paid as principal on the portfolio A,
B, or C Bond currently being paid off. When the portfolio A, B, and C Bonds are
paid in full, interest and principal on the portfolio Z Bond begin to be paid
currently. With some CMOs, the issuer acts as a conduit to allow loan
originators (usually builders or savings and loan associations) to borrow
against their loan portfolios.
Certain classes of CMOs pay the holders only the interest paid on the
underlying mortgages or mortgage pass-through securities ("interest-only
class"). Other classes pay the holders only the principal paid on the underlying
mortgages or mortgage pass-through securities ("principal-only class").
Interest-only and principal-only classes of CMOs purchased by a Portfolio are
currently considered to be illiquid securities subject to the 10% limitation on
investment in illiquid securities. See "Investment Restrictions."
Other Mortgage-Backed Securities: Commercial banks, savings and loan
institutions, private mortgage insurance companies, mortgage bankers, and other
secondary market issuers also create pass-through pools of conventional
residential mortgage loans. In addition, such issuers may be the originators
and/or servicers of underlying mortgage loans as well as the guarantors of the
mortgage-backed securities. Pools created by such non-governmental issuers
generally offer a higher rate of interest than government and government-related
pools, because there are no direct or indirect government or agency guarantees
of payments in the former pools. Timely payment of interest and principal of
these pools may be supported by various forms of insurance or guarantees,
including individual loan, title, pool and hazard insurance, and letters of
credit. The insurance and guarantees are issued by governmental entities,
private insurers, and the mortgage poolers. Such insurance, guarantees, and the
creditworthiness of the issuers thereof will be considered in determining
whether a mortgage-backed security meets a Portfolio's investment quality
standards. There can be no assurance that the private insurers or guarantors can
meet their obligations under the insurance policies or guarantee arrangements.
All Portfolios may buy mortgage-backed securities without insurance or
guarantees, if the Adviser determines that the securities meet a Portfolio's
quality standards. Although the market for such securities is becoming
increasingly liquid, securities by certain private organizations may not be
readily
<PAGE>
5
marketable. A Portfolio will not purchase mortgage-backed securities or any
other assets which, in the opinion of the Adviser, are illiquid if, as a result,
more than 10% of the value of a Portfolio's total assets will be illiquid. As
new types of mortgage-backed securities are developed and offered to investors,
the Adviser will, consistent with a Portfolio's investment objectives, policies,
and quality standards, consider making investments in such new types of
mortgage-backed securities.
REPURCHASE AGREEMENTS
All Portfolios may invest in repurchase agreements. If a Portfolio acquires
a security from a bank or broker-dealer, it may simultaneously enter into a
repurchase agreement with the seller wherein the seller agrees at the time of
sale to repurchase the security at a mutually agreed upon time and price. The
term of such an agreement is generally quite short, possibly overnight or for a
few days, although it may extend over a number of months (up to one year) from
the date of delivery. The resale price is in excess of the purchase price by an
amount which reflects an agreed upon market rate of return, effective for the
period of time the Portfolio is invested in the security. This results in a
fixed rate of return protected from market fluctuations during the term of the
agreement. This rate is not tied to the coupon rate on the security subject to
the repurchase agreement.
Under the Investment Company Act of 1940 (the "1940 Act"), repurchase
agreements are considered to be loans by the purchaser collateralized by the
underlying securities. The Fund's Adviser (or Sub-Adviser, in the case of the
Tactical Asset Allocation Portfolio) will monitor the value of the underlying
securities at the time a repurchase agreement is entered into and at all times
during the term of the agreement to ensure that its value always equals or
exceeds the agreed upon repurchase price to be paid to the Portfolio. The
Adviser or Sub-Adviser will also evaluate the creditworthiness and financial
responsibility of the banks and broker-dealers with which the Portfolios enter
into repurchase agreements.
A Portfolio may not enter into a repurchase agreement having more than
seven days remaining to maturity if, as a result, such agreements together with
any other securities which are not readily marketable, would exceed ten percent
(10%) of the net assets of the Portfolio. If the seller should become bankrupt
or default on its obligations to repurchase the securities, a Portfolio may
experience delay or difficulties in exercising its rights to the securities held
as collateral and might incur a loss if the value of the securities should
decline. A Portfolio also might incur disposition costs in connection with
liquidation of the securities.
REVERSE REPURCHASE AGREEMENTS
All of the Portfolios may invest in reverse repurchase agreements. Reverse
repurchase agreements involve the sale of a security by a Portfolio and its
agreement to repurchase the instrument at a specified time and price.
A Portfolio will use the proceeds of a reverse repurchase agreement to
purchase other money market instruments which either mature at a date
simultaneous with or prior to the expiration of the reverse repurchase agreement
or which are held under an agreement to resell maturing as of that time. A
Portfolio will enter into a reverse repurchase agreement only when the interest
income to be earned from the investment of the proceeds of the transaction is
greater than the interest expense of the transaction. However, reverse
repurchase agreements involve the risk that the market value of securities
retained by the Portfolio may decline below the repurchase price of the
securities sold by the Portfolio which it is obligated to repurchase.
Under the 1940 Act, reverse repurchase agreements may be considered to be
borrowings by the seller. A Portfolio may not enter into a reverse repurchase
agreement if, as a result, its current obligations under such agreements would
exceed, when combined with the total borrowings, one-third of the current market
value of the Portfolio's total assets (less all its liabilities other than
obligations under such agreements).
A Portfolio may enter into reverse repurchase agreements with banks or
broker-dealers. Entry into such agreements with broker-dealers requires the
creation and maintenance of a segregated account consisting of U.S. Government
securities or cash or cash equivalents equal to its obligations under reverse
repurchase agreements.
BANKING INDUSTRY AND SAVINGS INDUSTRY OBLIGATIONS
All Portfolios may invest in (i) certificates of deposit, time deposits,
bankers' acceptances, and other short-term debt obligations issued by commercial
banks; and (ii) certificates of deposit, time deposits, and other short-term
obligations issued by savings and loan associations ("S&L").
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or S&L for a definite period of time and earning
a specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, which are normally drawn by an importer or exporter to pay for
specific merchandise, and which are "accepted" by a bank, meaning, in effect,
that the bank unconditionally agrees to pay the face value of the instrument on
maturity. Fixed-time deposits are bank obligations payable at a stated maturity
date and bearing interest at a fixed rate. Fixed-time deposits may be withdrawn
on demand by the investor, but may be subject to early withdrawal penalties
which vary depending upon market conditions and the remaining maturity of the
obligation. There are no contractual restrictions on the right to transfer a
beneficial interest in a fixed-time deposit to a third party, because there is
no market for such deposits. A Portfolio will not invest in fixed-time deposits
(i) which are not subject to prepayment or (ii) which provide for withdrawal
penalties upon prepayment (other than overnight deposits), if, in the aggregate,
more than
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6
10% of its assets would be invested in such deposits, in repurchase agreements
maturing in more than seven days, and in other illiquid assets.
The Money Market, Managed, and Tactical Asset Allocation Portfolios may
invest in U.S. dollar-denominated obligations of foreign branches of U.S. banks
and foreign banks. Obligations of foreign banks involve somewhat different
investment risks than those affecting obligations of U.S. banks, which include:
(i) the possibility that their liquidity could be impaired because of future
political and economic developments; (ii) their obligations may be less
marketable than comparable obligations of U.S. banks; (iii) a foreign
jurisdiction might impose withholding taxes on interest income payable on those
obligations; (iv) foreign deposits may be seized or nationalized; (v) foreign
governmental restrictions, such as exchange controls, may be adopted which might
adversely affect the payment of principal and interest on those obligations; and
(vi) the selection of those obligations may be more difficult because there may
be less publicly available information concerning foreign banks and/or because
the accounting, auditing, and financial reporting standards, practices, and
requirements applicable to foreign banks may differ from those applicable to
U.S. banks. Foreign banks are not generally subject to examination by any U.S.
Government agency or instrumentality.
OPTIONS
In pursuing their investment objectives, the Equity Portfolio, the Bond
Portfolio, and the Managed Portfolio may engage in the writing (i.e., selling)
of put options ("puts") and call options ("calls") on securities. The Bond
Portfolio and the Managed Portfolio may also purchase calls on securities to
protect against substantial increases in prices of securities the Portfolio
intends to purchase pending its ability to invest in such securities in an
orderly manner. The Equity Portfolio may purchase a call only in a closing
purchase transaction to terminate its obligation on a call which it has written.
The Equity Portfolio, the Bond Portfolio and the Managed Portfolio may purchase
a put only in a closing purchase transaction to terminate its obligation on a
put which it has written.
An option on a security is a contract that gives the holder of the option,
in return for a premium, the right to buy from (in the case of a call) or sell
to (in the case of a put) the writer of the option the underlying security at a
specified exercise price at any time during the term of the option. The writer
of an option on a security has the obligation upon exercise of the option to
deliver the underlying security (in the case of a call) upon payment of the
exercise price or to pay the exercise price (in the case of a put) upon delivery
of the underlying security.
A Portfolio may write calls and puts only if they are "covered" or
"secured." In the case of a call on a security, the option is "covered" if the
Portfolio owns the security underlying the call or has an absolute and immediate
right to acquire that security without additional cash consideration (or, if
additional cash consideration is required, cash or cash equivalents in such
amount are placed in a segregated account by its Custodian) upon conversion or
exchange of other securities held by the Portfolio. A put is secured if the
Portfolio maintains cash, cash equivalents or U.S. Government securities with a
value equal to the exercise price in a segregated account or holds a put on the
same underlying security at an equal or greater exercise price.
If an option written by a Portfolio expires unexercised, the Portfolio
realizes a capital gain equal to the premium received at the time the option was
written. If an option purchased by a Portfolio expires unexercised, the
Portfolio realizes a capital loss equal to the premium paid. Prior to the
earlier of exercise or expiration of a call, it may be closed out by an
offsetting purchase of a call option of the same series (type, exchange,
underlying security, exercise price and expiration).
A Portfolio will realize a capital gain from a closing purchase transaction
if the cost of the closing option is less than the premium received from writing
the option. If the cost of closing the option is more, the Portfolio will
realize a capital loss. The principal factors affecting the market value of a
call include supply and demand, interest rates, the current market price of the
underlying security in relation to the exercise price of the option, the
volatility of the underlying security, and the time remaining until the
expiration date.
The premium received for an option written by a Portfolio is recorded as a
deferred credit. The value of the option is marked-to-market daily and is valued
at the closing price on the exchange or board of trade on which it is traded,
or, if no closing price is available, at the mean between the last bid and asked
prices.
Risks Associated with Options: There are several risks associated with
transactions in options. For example, there are significant differences between
the securities and options markets that could result in an imperfect correlation
between these markets, causing a given transaction not to achieve its
objectives. A decision as to whether, when, and how to use an option involves
the exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events.
There can be no assurance that a liquid market will exist when a Portfolio
seeks to close out an option position. If a Portfolio were unable to close out a
covered call option it had written on a security, it would not be able to sell
the underlying security unless the option expired without exercise. As a writer
of a covered call option, a Portfolio forgoes, during the option's life, the
opportunity to profit from increases in the market value of the security
covering the call option above the sum of the premium and the exercise price of
the call.
If trading were suspended in an option written by a Portfolio, the
Portfolio would not be able to close out the option. If restrictions on exercise
were imposed, the Portfolio might be unable to exercise an option it has
purchased.
<PAGE>
7
FUTURES CONTRACTS
The Bond Portfolio and the Managed Portfolio may invest in interest rate
futures contracts. An interest rate futures contract provides for the future
sale by one party and purchase by another party of a specified quantity of a
financial instrument at a specified price and time. A public market exists in
futures contracts covering various financial instruments including U.S. Treasury
bonds, U.S. Treasury notes, GNMA certificates, three-month U.S. Treasury bills,
90-day commercial paper, bank certificates of deposit, and Eurodollar
certificates of deposit.
To the extent required by regulatory authorities, each investing Portfolio
will limit its use of futures contracts to hedging and related transactions so
that a Portfolio will not be deemed a commodity pool. For example, the Bond
Portfolio and the Managed Portfolio each might use futures contracts to hedge
against anticipated changes in interest rates that might adversely affect either
the value of the Portfolio's securities or the price of the securities which the
Portfolio may wish to purchase. The hedging techniques used by these Portfolios
may include sales of futures contracts as an offset against the effect of
expected increases in interest rates, and purchases of futures contracts an
offset against the effect of expected declines in interest rates. Although other
techniques could be used to reduce a Portfolio's exposure to interest rate
fluctuations, a Portfolio may be able to hedge its exposure more effectively and
perhaps at a lower cost by using futures contracts.
A Portfolio will only enter into futures contracts which are standardized
and traded on a U.S. exchange, board of trade, or similar entity.
If a purchase or sale of a futures contract is made by a Portfolio, the
Portfolio is required to deposit with its Custodian (or broker, if legally
permitted) a specified amount of cash or U.S. Government securities ("initial
margin"). The margin required for a futures contract is set by the exchange on
which the contract is traded and may be modified during the term of the
contract. The initial margin is in the nature of a performance bond or good
faith deposit on the futures contract which is returned to the Portfolio upon
termination of the contract, assuming all contractual obligations have been
satisfied. Each investing Portfolio expects to earn interest income on its
initial margin deposits. A futures contract held by a Portfolio is valued daily
at the official settlement price of the exchange on which it is traded. Each day
the Portfolio pays or receives cash, called "variation margin," equal to the
daily change in value of the futures contract. This process is known as
"marking-to-market." Variation margin does not represent a borrowing or loan by
a Portfolio but is instead settlement between the Portfolio and the broker of
the amount one would owe the other if the futures contract expired. In computing
daily net asset value, each Portfolio will mark-to-market its open futures
positions.
Although some futures contracts call for making or taking delivery of the
underlying securities, generally these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security, and delivery month). If an offsetting purchase
price is less than the original sale price, the Portfolio realizes a capital
gain, or if it is more, the Portfolio realizes a capital loss. Conversely, if an
offsetting sale price is more than the original purchase price, the Portfolio
realizes a capital gain, or if it is less, the Portfolio realizes a capital
loss. The transaction costs must also be included in these calculations.
Limitations: A Portfolio will not enter into a futures contract if,
immediately thereafter, the initial margin deposits for futures contracts held
by that Portfolio would exceed 5% of the Portfolios' total assets.
When purchasing a futures contract, a Portfolio must maintain with its
Custodian (or broker, if legally permitted) cash, U.S. Government securities, or
other liquid high grade debt obligations (including any margin) equal to the
market value of such contract. When writing a futures contract, a Portfolio must
maintain with its Custodian cash, U.S. Government securities, or other liquid
high grade debt obligations that, when added to the amounts deposited with a
futures commission merchant or broker as margin, are equal to the market value
of the instruments underlying the contract. Alternatively, a Portfolio may
"cover" its position by owning the instruments underlying the contract, or
holding a call permitting the Portfolio to purchase the same futures contract at
a price no higher than the price of the contract written by the Portfolio (or at
a higher price if the difference is maintained in liquid assets with its
Custodian).
A Portfolio may not maintain open short positions in futures contracts if,
in the aggregate, the market value of all such open positions exceeds the
current value of its portfolio securities, plus or minus unrealized gains and
losses on the open positions, adjusted for the historical relative volatility of
the relationship between the Portfolio and the positions.
The Fund will comply with certain regulations of the Commodity Futures
Trading Commission, under which an in vestment company may engage in futures
transactions and qualify for an exclusion from being a "commodity pool," which
require a Portfolio to invest in futures contracts for bona fide hedging
purposes, or alternatively, to set aside cash and short-term obligations with
respect to long positions in a futures contract. Under these regulations, the
"underlying commodity value" (the size of the contract multiplied by the daily
settlement price of the contract) of each long position in a commodity futures
contract in which a Portfolio may invest may not at any time exceed the sum of:
(i) the value of short-term U.S. debt obligations or other U.S.
dollar-denominated high quality short-term money market instruments and
cash set aside in an identifiable manner, plus any funds deposited as
margin on the contract;
(ii) unrealized appreciation on the contract held by the broker; and
(iii) cash proceeds from existing investments due in not more than 30 days.
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8
The Fund reserves the right to engage in other types of futures
transactions in the future and to use futures for other than hedging purposes to
the extent permitted by regulatory authorities. If other types of futures
contracts are traded in the future, a Portfolio may also use such investment
techniques, provided that the Board of Directors determines that their use is
consistent with the Portfolio's investment objective or objectives.
Risks Associated with Futures: There are several risks associated with the
use of futures contracts as hedging techniques. A purchase or sale of a futures
contract may result in losses in excess of the amount invested in the futures
contract. There can be significant differences between the securities and
futures markets that could result in an imperfect correlation between the
markets, causing a given hedge not to achieve its objective. The degree of
imperfection of correlation depends on circumstances such as variations in
speculative market demand for futures on securities, including technical
influences in futures trading, and differences between the portfolio securities
being hedged and the instruments underlying the hedging vehicle in such respects
as interest rate levels, maturities, conditions affecting particular industries
and creditworthiness of issuers. A decision as to whether, when and how to hedge
involves the exercise of skill and judgment and even a well-conceived hedge may
be unsuccessful to some degree because of market behavior or unexpected interest
rate trends.
The price of futures contracts may not correlate perfectly with movement in
the underlying security or stock index, due to certain market distortions. This
might result from decisions by a significant number of market participants
holding stock index futures positions to close out their futures contracts
through offsetting transactions rather than to make additional margin deposits.
Also, increased participation by speculators in the futures market may cause
temporary price distortions. These factors may increase the difficulty of
effecting a fully successful hedging transaction, particularly over a short time
frame. If a hedging transaction is not successful, the Portfolio might
experience losses which it would not have incurred if it had not established
futures positions.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of the current trading
session. Once the daily limit has been reached in a futures contract subject to
the limit, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day and
therefore does not limit potential losses because the limit may work to prevent
the liquidation of unfavorable positions. For example, futures prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of positions and
subjecting some holders of futures contracts to substantial losses.
There can be no assurance that a liquid market will exist at a time when a
Portfolio seeks to close out a futures position. When such a market does not
exist, the Portfolio remains obligated to meet margin requirements until the
position is closed.
LENDING OF PORTFOLIO SECURITIES
The Tactical Asset Allocation Portfolio from time to time may lend
securities from its portfolio to brokers, dealers and financial institutions and
receive as collateral cash or U.S. Treasury securities which at all times while
the loan is outstanding will be maintained in amounts equal to at least 100% of
the current market value of the loaned securities. Any cash collateral will be
invested in short-term securities. Such loans may not have terms longer than 30
days and will be terminable at any time. The Portfolio may also pay reasonable
fees to persons unaffiliated with the Portfolio for services in arranging such
loans.
FOREIGN SECURITIES
The Tactical Asset Allocation Portfolio may purchase certain foreign
securities and American Depositary Receipts ("ADRs"), although the Portfolio may
not hold more than 25% of its total assets in such securities. ADRs are
dollar-denominated receipts issued generally by domestic banks and represent the
deposit with the bank of a security of a foreign issuer. ADRs are publicly
traded on exchanges or over-the-counter in the United States. Investments in
foreign securities, particularly those of non-governmental issuers, involve
considerations which are not ordinarily associated with investing in domestic
issuers. These considerations include changes in currency rates, currency
exchange control regulations, the possibility of expropriation, the
unavailability of financial information or the difficulty of interpreting
financial information prepared under foreign accounting standards, less
liquidity and more volatility in foreign securities markets, the impact of
political, social or diplomatic developments, and the difficulty of assessing
economic trends in foreign countries. It is possible that market quotations for
foreign securities will not be readily available. In such event, these
securities shall be valued at fair market value as determined in good faith by
Dean Investment Associates under the supervision of the Board of Directors of
the Fund. If it should become necessary, the Portfolio could encounter greater
difficulties in invoking legal processes abroad than would be the case in the
United States. Transaction costs with respect to foreign securities may be
higher. Dean Investment Associates will consider these and other factors before
investing in foreign securities. The Portfolio may concentrate its investments
in ADRs in securities of issuers of one or more foreign countries.
OTHER INVESTMENT COMPANIES
The Tactical Asset Allocation Portfolio may invest up to 10% of its total
assets, calculated at the time of purchase, in the securities of money market
funds, which are investment com-
<PAGE>
9
panies. The Portfolio may not invest (i) more than 5% of its total assets in the
securities of any one investment company; or (ii) in more than 3% of the voting
securities of any other investment company. The Portfolio will indirectly bear
its proportionate share of any investment advisory fees and expenses paid by the
funds in which it invests, in addition to the investment advisory fee and
expenses paid by the Portfolio.
ZERO COUPON AND STEP COUPON SECURITIES
The Tactical Asset Allocation Portfolio may invest in zero coupon and step
coupon securities. Zero coupon and step coupon bonds are issued and traded at a
discount from their face amounts. They do not entitle the holder to any periodic
payment of interest prior to maturity or prior to a specified date when the
securities begin paying current interest. The discount from the face amount or
par value depends on the time remaining until cash payments begin, prevailing
interest rates, liquidity of the security, and the perceived credit quality of
the issuer.
Current Federal income tax law requires holders of zero coupon securities
and step coupon securities to report the portion of the original issue discount
on such securities that accrues that year as interest income, even though the
holders receive no cash payments of interest during the year. In order to
qualify as a "regulated investment company" under the Internal Revenue Code of
1986, as amended ("Code"), the Tactical Asset Allocation Portfolio must
distribute its investment company taxable income, including the original issue
discount accrued on zero coupon or step coupon bonds.
Generally, the market prices of zero coupon and step coupon securities are
more volatile than the prices of securities that pay interest periodically and
in cash and are likely to respond to changes in interest rates to a greater
degree than other types of debt securities having similar maturities and credit
quality.
INVESTMENT RESTRICTIONS
Each Portfolio's investment objective or objectives as set forth in the
Prospectus under "Investment Objectives and Policies," together with the
investment restrictions set forth below, are fundamental policies of each
existing Portfolio and may not be changed with respect to any Portfolio without
the approval of a majority of the outstanding voting shares of that Portfolio.
The vote of a majority of the outstanding voting shares of a Portfolio means the
vote at an annual or special meeting of the lesser of: (i) 67% or more of the
voting securities present at such meeting, if the holders of more than 50% of
the outstanding voting shares of such Portfolio are present or represented by
proxy; or (ii) more than 50% of the outstanding voting securities of such
Portfolio. Under these restrictions, an existing Portfolio may not:
(1) Invest in a security if, with respect to 75% of its total assets, more than
5% of its total assets (taken at market value at the time of such
investment) would be invested in the securities of any one issuer, except
that this restriction does not apply to U.S. Government securities.
(2) Invest in a security if, with respect to 75% of its assets, it would hold
more than 10% (taken at the time of such investment) of the outstanding
voting securities of any one issuer, except that this restriction does not
apply to U.S. Government securities.
(3) Invest in a security if more than 25% of its total assets (taken at market
value at the time of such investment) would be invested in the securities
of issuers in any particular industry, except that this restriction does
not apply (a) to U.S. Government securities (or repurchase agreements with
respect thereto), and (b) with respect to the Money Market and Managed
Portfolios, to securities or obligations (other than commercial paper)
issued by domestic branches of U.S. banks.
(4) Purchase or sell real estate, except that a Portfolio may invest in
securities secured by real estate or real estate interests or issued by
companies in the real estate industry or which invest in real estate or
real estate interests.
(5) Purchase securities on margin (except for use of short-term credit
necessary for clearance of purchases and sales of portfolio securities),
except a Portfolio engaged in transactions in options and futures, and
options on futures may make margin deposits in connection with those
transactions.
(6) Issue senior securities, except insofar as a Portfolio may be deemed to
have issued a senior security by reason of borrowing money in accordance
with that Portfolio's borrowing policies. For purposes of this investment
restriction, the writing of stock options, and collateral arrangements with
respect to margin or other deposits respecting futures contracts, and
related options, are not deemed to be an issuance of a senior security.
(7) Act as an underwriter of securities of other issuers, except, when in
connection with the disposition of portfolio securities, a Portfolio may be
deemed to be an underwriter under the federal securities laws.
(8) Make short sales of securities, except short sales against the box.
(9) Borrow money or pledge, mortgage, or hypothecate its assets, except that a
Portfolio may (a) borrow from banks for temporary purposes, but any such
borrowing is limited to an amount equal to 25% of a Portfolio's net assets
and a Portfolio will not purchase additional securities while borrowing
funds in excess of 5% of that Portfolio's net assets; and (b) enter into
reverse repurchase agreements and transactions in options, and interest
rate futures contracts, stock index futures contracts, other futures
contracts based on other financial instruments, and options on such futures
contracts. For these purposes, the deposit of assets in escrow in
connection with the writing of covered put and call options and the
purchase of securities on a "when-issued" or delayed delivery basis and
collateral
<PAGE>
10
arrangements with respect to initial or variation margin and other deposits
for futures contracts, and options on futures contracts, will not be deemed
to be pledges of a Portfolio's assets.
(10) Invest in securities that are illiquid because they are subject to legal
or contractual restrictions on resale, in repurchase agreements maturing
in more than seven days, or other securities which in the determination of
the Adviser are illiquid if, as a result of such investment, more than 10%
of the total assets of the Portfolio (taken at market value at the time of
such investment) would be invested in such securities.
(11) Purchase or sell commodities or commodities contracts, except that any
Portfolio may engage in transactions in interest rate futures contracts,
stock index futures contracts, and other futures contracts based on other
financial instruments, and on options on such futures contracts.
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
Information pertaining to the directors and officers of the Fund is set
forth below.
Principal Occupation During
Name and Position the Past Five Years
----------------- ---------------------------
James W. Murphy,* Senior Vice President
Chairman of the Board and President Corporate Finance, AUL
Dr. Ronald D. Anderson, Director Professor: School of Business,
Indiana University, Indianapolis Indiana University,
801 W. Michigan St. Indianapolis
Indianapolis, IN 46223
Dr. Leslie Lenkowsky, Director President, Hudson Institute
Hudson Institute
5395 Emerson Way
Indianapolis, IN 46226
R. Stephen Radcliffe** Executive Vice President, AUL
(2/94 to Present); Senior Vice
President & Chief Actuary
10/87 to 2/94)
James P. Shanahan,* Senior Vice President, Pension
Director, Vice President and Treasurer Operations, AUL
Richard A. Wacker,* Secretary Associate General Counsel, AUL,
(10/92 to present); Senior
Counsel, AUL,(11/87 to 10/92)
*Because of their positions as stated above, Messrs. Murphy, Radcliffe (if
elected) ,Shanahan and Wacker are "interested persons" of the Fund, as defined
in the 1940 Act. Their business address is One American Square, Indianapolis,
Indiana 46282.
** Due to the resignation of Leonard D Schutt as a Director effective March 1,
1997 the Board approved the nomination of Mr. Radcliffe at the 3/27/97 meeting
of the Board of Directors. Mr. Radcliffe's election as a Director, as well as
the re-election of the existing members of the Board, will be submitted to the
Shareholders of the Fund at a meeting called for that purpose and presently
scheduled to be held on June 2, 1997 at One American Square, Indianapolis,
Indiana, 46282.
COMPENSATION OF DIRECTORS
The Fund pays those directors who are not officers or employees of AUL a
fee of $4,500 per year plus $450.00 per board meeting attended. The Fund also
pays travel expenses incurred by all directors to attend meetings of the board
or of the audit committee. During the fiscal year ended December 31, 1996, the
Fund paid to all directors who are not "interested persons" of the Fund fees
aggregating $17,925. AUL pays all salaries, fees, and expenses of any officer or
director of the Fund who is an officer or employee of AUL. As of the end of the
1996 fiscal year, the officers and directors, as a group, have no interest in
any contracts which would entitle them to give voting instructions for any
Portfolio.
THE INVESTMENT ADVISER
American United Life Insurance Company(R) serves as Adviser to the Fund
pursuant to an Investment Advisory Agreement (the "Advisory Agreement") between
it and the Fund. The Adviser is responsible for administering affairs of the
Fund and supervising the investment program for the Portfolios in accordance
with applicable laws and regulations. The Adviser also furnishes to the Board of
Directors, which has overall responsibility for the business and affairs of the
Fund, periodic reports on the investment performance of each Portfolio.
The Investment Advisory Agreement with the Adviser, dated March 8, 1990,
was originally approved by a majority of the Fund's directors, including a
majority of the directors who are not parties to the agreement or interested
persons of any such party (the "independent directors"). Subsequently, on May
10, 1991, the Agreement was approved by a majority of the Fund's shareholders at
a meeting called for the purpose of voting on the approval of the Agreement.
From year to year thereafter, the Agreement will continue in effect, provided
such continuance is approved at least annually by (i) the holders of a majority
of the outstanding voting securities of the
<PAGE>
11
Fund or by the Board and (ii) a majority of the independent directors. The
Agreement will terminate automatically in the event of its assignment, and it
may be terminated without penalty on sixty days' written notice by the Adviser,
the Board, or pursuant to a majority vote, in accordance with the 1940 Act, of
the persons entitled to vote in respect to the Fund. The Agreement was last
approved by the Board, including a majority of the independent directors, on
March 27, 1997 for the period March 27, 1997 to March 27, 1998 or if a regularly
scheduled Board meeting is not held in March 1998, at the next regularly
scheduled meeting of the Board of Directors held thereafter.
The Fund pays the Adviser for its services under the Advisory Agreement a
fee based on an annual percentage of the average daily net assets of each
Portfolio. For each Portfolio, the Fund pays the Adviser a monthly fee at an
annual rate of 0.50% (0.80% for the Tactical Asset Allocation Portfolio) of the
average daily net assets of the Portfolio. For the years ending December 31,
1996, 1995, and 1994, respectively, the Advisor was entitled to receive (or did
receive) the following advisory fees from the Portfolios: $212,114, $144,456,
and $80,105 from the Equity Portfolio; $166,215, $117,761, and $88,991 from the
Bond Portfolio; $137,536, $96,175, and $48,589 from the Money Market Portfolio;
and $184,974, $142,020, and $102,277 from the Managed Portfolio; and $11,644 and
$2,399 respectively from the Tactical Asset Allocation Portfolio for the the
years ending December 31, 1996 and 1995.
As of December 31, 1996, the percentage of the outstanding voting shares
owned by AUL and held in its general account were as follows: 10.2% of the
Equity Portfolio and 27.17% of the Tactical Asset Allocation Portfolio. As a
result of this ownership, as of December 31, 1996, AUL may be able to control
the outcome of any issue submitted to the vote of shareholders of the Tactical
Asset Portfolio.
THE SUB-ADVISER
Dean Investment Associates (the "Sub-Adviser"), a division of C.H. Dean and
Associates, Inc., serves as the Sub-Adviser for the Tactical Asset Allocation
Portfolio pursuant to a Sub-Advisory Agreement dated May 15, 1995. The
Sub-Advisory Agreement was approved by the Board of Directors of the Fund,
including a majority of the Directors who are not parties to the agreement or
"interested persons" of any such party (as defined in the 1940 Act) on May 12,
1995. The Sub-Advisory Agreement provides that it will continue in effect for an
initial term ending May 15, 1997, and from year to year thereafter if approved
annually (a) by the Board of Directors of the Fund or by a majority of the
outstanding shares of the Portfolio, and (b) by a majority of the Directors who
are not parties to such agreement or "interested persons" of any such party. The
Sub-Advisory Agreement may be terminated without penalty on 60 days' written
notice at the option of the Fund or AUL and upon six months written notice at
the option of Dean, and terminates automatically in the event of its assignment.
Subject to the supervision of the Investment Adviser and the Fund's Board
of Directors, the Sub-Adviser is responsible for the actual management of the
Tactical Asset Allocation Portfolio and for making decisions to buy, sell, or
hold any particular security, and it places orders to buy or sell securities on
behalf of the Portfolio.
PURCHASES AND REDEMPTIONS
For information on purchase and redemption of shares, see "Purchase and
Redemption of Shares" in the Prospectus. The Fund may suspend the right of
redemption of shares of any Portfolio for any period: (i) during which the New
York Stock Exchange is closed other than customary weekend and holiday closings
or during which trading on the New York Stock Exchange is restricted; (ii) when
the Securities and Exchange Commission determines that a state of emergency
exists which may make payment or transfer not reasonably practicable; (iii) as
the Securities and Exchange Commission may by order permit for the protection of
the security holders of the Fund; or (iv) at any other time when the Fund may,
under applicable laws and regulations, suspend payment on the redemption of its
shares.
PORTFOLIO TRANSACTIONS AND BROKERAGE
BROKERAGE AND RESEARCH SERVICES
The Portfolios generally pay a fee or incur an expense in connection with
effecting transactions in securities. Transactions on national stock exchanges
and other agency transactions involve the payment by a Portfolio of brokerage
commissions. Such commissions may be negotiable and may vary among different
brokers. Also, a particular broker may charge different commissions according to
such factors as the difficulty and size of the transaction. There is generally
no stated commission in the case of fixed-income securities, most of which are
traded in the over-the-counter markets, but the price paid by a Portfolio
usually includes an undisclosed dealer commission or mark-up. In underwritten
offerings, the price paid by a Portfolio includes a disclosed, fixed commission
or discount retained by the underwriter or dealer.
The Adviser or Sub-Adviser for a Portfolio places orders for the purchase
and sale of portfolio securities and options for a Portfolio through a
substantial number of broker-dealers. In executing transactions, the Adviser or
Sub-Adviser will attempt to obtain the best execution for a Portfolio taking
into account such factors as price (including the applicable brokerage
commission or dollar spread), size of order, the nature of the market for the
security, the timing of the transaction, the reputation, experience and
financial stability of the broker-dealer involved, the quality of the service,
the difficulty of execution and operational facilities of the firms involved,
and the
<PAGE>
12
firm's risk in positioning a block of securities. In effecting purchases and
sales of portfolio securities in transactions on national stock exchanges for
the account of a Portfolio, the Adviser or Sub-Adviser may pay higher commission
rates than the lowest available when the Adviser or Sub-Adviser believes it is
reasonable to do so in light of the value of the brokerage and research services
provided by the broker-dealer effecting the transaction, as described below. In
the case of securities traded on the over-the-counter markets, there is
generally no stated commission, but the price includes an undisclosed commission
or mark-up.
Some securities considered for investment by the Fund's Portfolios may also
be appropriate for other accounts served by the Adviser or Sub-Adviser,
including the Adviser's or Sub-Adviser's general account. If a purchase or sale
of securities consistent with the investment policies of a Portfolio and one or
more of these accounts served by the Adviser or Sub-Adviser is considered at or
about the same time, it is the policy of AUL and the Sub-Adviser not to favor
any one account or Portfolio over another, and any purchase or sale orders
executed contemporaneously are allocated at the average price and as nearly as
practicable on a pro rata basis in proportion to the amounts desired to be
purchased or sold by each account or portfolio. While it is conceivable that in
certain instances this procedure could adversely affect the price or number of
shares involved in a particular portfolio transaction, it is believed that the
procedure generally contributes to better overall execution of the Fund's
portfolio transactions. This allocation method, and the results of such
allocations, are subject to periodic review by the Fund's Adviser, Sub-Adviser,
and Board of Directors.
For many years, it has been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive research services from broker-dealers which execute portfolio
transactions for the clients of such advisers. Consistent with this practice,
the Adviser or Sub-Adviser may receive research services from many
broker-dealers with which the Adviser or Sub-Adviser places portfolio
transactions. These services, which in some cases may also be purchased for
cash, include such matters as general economic and security market reviews,
industry and company reviews, evaluations of securities, and recommendations as
to the purchase and sale of securities. Some of these services may be of value
to the Adviser or Sub-Adviser in advising its various clients (including the
Fund), although not all of these services are necessarily useful and of value in
managing the Fund. The management fee paid by the Fund is not reduced because
the Adviser, Sub-Adviser, and their affiliates receive such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the
Adviser or Sub-Adviser may cause the Fund to pay a broker-dealer, which provides
"brokerage and research services" (as defined in that Act) to the Adviser or
Sub-Adviser, an amount of disclosed commission for effecting the commission
which another broker-dealer would have charged for effecting that transaction.
During the fiscal years ended December 31, 1996, 1995, and 1994,
respectively, brokerage commissions in the amount of $28,865, $25,122, and
$19,789 were paid for transactions in the Equity Portfolio and brokerage
commissions in the amount of $16,728, $14,437, and $14,080 were paid for
transactions involving the Managed Portfolio. During the fiscal years ended
December 31, 1996 and 1995 brokerage commissions in the amount of $608 and
$1,534 were paid for transactions involving the Tactical Asset Allocation
Portfolio. The Tactical Asset Allocation Portfolio was not in existence for the
year 1994. There were no brokerage commissions paid for the Bond and Money
Market Portfolios. The aggregate dollar value of equity transactions (net of
commissions and SEC charges) on which brokerage commissions were paid for the
years ended December 31, 1996, 1995, and 1994, respectively, were as follows:
$13,255,756, $9,735,024, and $8,031,772 for the Equity Portfolio and $7,694,750,
$5,663,294, and $5,669,202 for the Managed Portfolio, respectively. The
aggregate dollar value of equity transactions (net of commissions and SEC
charges) on which brokerage commissions were paid for the years ended December
31, 1996 and 1995 were $187,488 and $1,068,342 for the Tactical Asset Allocation
Portfolio. All of the broker-dealers through which brokerage transactions were
executed provided research services to AUL.
NET ASSET VALUE
As indicated under "Net Asset Value" in the Prospectus, the Fund's net
asset value per share for the purpose of pricing purchase and redemption orders
is determined at or about 4:00 P.M. eastern standard time, on each day the New
York Stock Exchange is open for trading. The determination may be made earlier
than 4:00 P.M. EST if the markets close earlier than 4:00 P.M. and it is
possible to determine the Net asset value at that time. Net asset value will not
be determined on days that the New York Stock Exchange is closed, on any federal
holidays or on days when AUL is not open for business. Traditionally, in
addition to federal holidays, AUL is not open for business on the day after
Thanksgiving and either the day before or after Christmas or Independence Day.
The Money Market Portfolio's securities are valued using the amortized cost
method of valuation. This involves valuing a money market security at cost on
the date of acquisition and thereafter assuming a constant accretion of a
discount or amortization of a premium to maturity, regardless of the impact of
fluctuating interest rates on the market value of the instrument. While this
method provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price the
Portfolio would receive if it sold the instrument. During such periods the yield
to investors in the Portfolio may differ somewhat from that obtained in a
similar investment company which uses available market quotations to value all
of its portfolio securities.
<PAGE>
13
The Securities and Exchange Commission's regulations require the Money
Market Portfolio to adhere to certain conditions in connection with using the
amortized cost method of valuation. The Portfolio is required to maintain a
dollar-weighted average portfolio maturity of 90 days or less, to limit its
investments to instruments having remaining maturities of 13 months or less
(except securities held subject to repurchase agreements having 13 months or
less to maturity), and to invest only in securities determined by the Adviser to
be of the highest quality with minimal credit risks.
PERFORMANCE INFORMATION
The Fund may, from time to time, include the yield and effective yield of
the Money Market Portfolio, the yield of the remaining Portfolios, and the total
return of all Portfolios in advertisements or sales literature. Performance
information for the Portfolios will not be advertised or included in sales
literature unless accompanied by comparable performance information for a
Separate Account to which the Fund offers its shares.
Current yield for the Money Market Portfolio will be based on the change in
the value of a hypothetical investment (exclusive of capital charges) over a
particular 7-day period, less a pro rata share of Portfolio expenses accrued
over that period (the "base period"), and stated as a percentage of the
investment at the start of the base period (the "base period return"). The base
period return is then annualized by multiplying by 365/7, with the resulting
yield figure carried to at least the nearest hundredth of one percent.
"Effective yield" for the Money Market Portfolio assumes that all dividends
received during an annual period have been reinvested. Calculation of "effective
yield" begins with the same "base period return" used in the calculation of
yield, which is then annualized to reflect weekly compounding pursuant to the
following formula:
Effective Yield = [(Base Period Return + 1)**365/7]-1
For the 7-day period ending December 31, 1996, the current yield for the
Money Market Portfolio was 4.94% and the effective yield was 5.06%.
Quotations of yield for the remaining Portfolios will be based on all
investment income per share earned during a particular 30-day period (including
dividends and interest), less expenses accrued during the period ("net
investment income"), and are computed by dividing net investment income by the
maximum offering price per share on the last day of the period, according to the
following formula:
YIELD = 2[(a-b/cd + 1)**6 - 1]
where
a = dividends and interests earned during the period,
b = expenses accrued for the period (net of reimbursements),
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the period.
For the period ending December 31, 1996, the yield for the Equity Portfolio
was 1.55%, for the Bond Portfolio was 6.28%, for the Managed Portfolio was
3.48%, and 2.77% for the Tactical Asset Allocation Portfolio.
Quotations of average annual total return for a Portfolio will be expressed
in terms of the average annual compounded rate of return of a hypothetical
investment in the Portfolio over certain periods that will include periods of
one, five, and ten years (or, if less, up to the life of the Portfolio),
calculated pursuant to the following formula: P (1 + T)**n = ERV (where P = a
hypothetical initial payment of $1,000, T = the average annual total return, n =
the number of years, and ERV = the ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the period). Quotations of total return
may also be shown for other periods. All total return figures reflect the
deduction of a proportional share of Portfolio expenses on an annual basis, and
assume that all dividends and distributions are reinvested when paid. The
average annual total return for each of the Portfolios for the year ending
December 31, 1996, was 19.17% for the Equity Portfolio, 2.23% for the Bond
Portfolio, 4.63% for the Money Market Portfolio, 11.79% for the Managed
Portfolio and 15.67% for the Tactical Asset Allocation Portfolio. The average
annual total return for the period from April 10, 1990 (the date the Fund
commenced operations) through December 31, 1996 for each of the Portfolios was
13.16% for the Equity Portfolio, 8.67% for the Bond Portfolio, 4.36% for the
Money Market Portfolio, and 10.81% for the Managed Portfolio. The average annual
total return for the Tactical Asset Allocation Portfolio for the period from
July 31, 1995 (the date the Portfolio commenced operations) through December 31,
1996 was 15.85%.
Performance information for a Portfolio may be compared, in advertisements,
sales literature, and reports to shareholders to: (i) the Standard & Poor's 500
Stock Index ("S&P 500"), the Dow Jones Industrial Average ("DJIA"), the Lehman
Brothers Government Bond Index, the Donoghue Money Market Institutional
Averages, the Lehman Brothers Government Corporation Index, the Salomon High
Yield Index, or other indices that measure performance of a pertinent group of
securities; (ii) other groups of mutual funds tracked by Lipper Analytical
Services, a widely used independent research firm which ranks mutual funds by
overall performance, investment objectives, and assets, or tracked by other
services, companies, publications or persons who rank mutual funds on overall
performance or other criteria; and (iii) the Consumer Price Index (measure for
inflation) to assess the real rate of return from an investment in the
Portfolio. Unmanaged indices may assume the reinvestment of dividends but
generally do not reflect deductions for administrative and management costs and
expenses.
Quotations of yield or total return for the Fund will not take into account
charges and deductions against any Separate Account or Accounts to which the
Fund shares are sold or charges and deductions against the annuity contracts
issued by AUL.
<PAGE>
14
Performance information for any Portfolio reflects only the performance of
a hypothetical investment in the Portfolio during the particular time period on
which the calculations are based. Performance information should be considered
in light of the Portfolio's investment objectives and policies, and the market
conditions during the given time period, and should not be considered as a
representation of what may be achieved in the future.
TAXATION
Each Portfolio intends to qualify annually and elects to be treated as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code").
To qualify as a regulated investment company, each Portfolio must, among
other things: (i) derive in each taxable year at least ninety percent (90%) of
its gross income from dividends, interest, payments with respect to securities
loans, and gains from the sale or other disposition of stock, securities or
foreign currencies, or other income derived with respect to its business of
investing in such stock, securities or currencies; (ii) derive in each taxable
year less than thirty percent (30%) of its gross income from the sale or other
disposition of stocks, securities, and certain other assets held less than three
months; (iii) diversify its holdings so that, at the end of each quarter of the
taxable year, (a) at least fifty percent (50%) of the market value of the
Portfolio's assets are represented by cash, U.S. Government securities, the
securities of other regulated investment companies with such other securities
any one issuer limited for the purposes of this calculation to an amount not
greater than five percent (5%) of the value of the Portfolio's total assets and
ten percent (10%) of the outstanding voting securities of such issuer, and (b)
not more than twenty-five percent (25%) of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities or the securities of other regulated investment companies); and (iv)
distribute at least ninety percent (90%) of its net investment income (which
includes dividends, interest, and net short-term capital gains in excess of any
net long-term capital losses) each taxable year. Certain hedging transactions
that may be undertaken by one or more Portfolios may be limited by the
requirements relating to a Portfolio's status as a regulated investment company.
As a regulated investment company, a Portfolio will not be subject to U.S.
federal income tax on its net investment income and net capital gains (any net
long-term capital gains in excess of the sum of net short-term capital losses
and capital loss carryovers from prior years), if any, that it distributes to
shareholders. Each Portfolio intends to distribute to its shareholders, at least
annually, substantially all of its net investment income and any net capital
gains. In addition, amounts not distributed by a Portfolio on a timely basis in
accordance with a calendar year distribution requirement may be subject to a
nondeductible four percent (4%) excise tax. To avoid the tax, a Portfolio must
distribute during each calendar year, (i) at least ninety-eight percent (98%) of
its ordinary income (not taking into account any capital gains or losses) for
the calendar year, (ii) at least ninety-eight percent (98%) of its capital gains
in excess of its capital losses (adjusted for certain ordinary losses) for the
twelve-month period ending on October 31 of the calendar year, and (iii) all
ordinary income and capital gains for previous years that were not distributed
during such years. Each year, each Portfolio will determine whether it may be
subject to the calendar year distribution requirement. If a Portfolio determines
that it is subject to this distribution requirement, it intends to make its
distributions in accordance with the calendar year distribution requirement. A
distribution will be treated as paid December 31 if it is declared by a
Portfolio in October, November, or December of the year and paid by the
Portfolio by January 31 of the following year. Such distributions will be
taxable to shareholders in the year in which the distributions are declared,
rather than the year in which the distributions are received.
DISTRIBUTIONS
Distributions of any net investment income by a Portfolio are taxable to
the shareholder as ordinary income. Net capital gains will be treated, to the
extent distributed, as long-term capital gains in the hands of the shareholder.
OTHER INFORMATION
CAPITALIZATION
The Fund was incorporated under the laws of Maryland on July 26, 1989. The
capitalization of the Fund consists of 125,000,000 authorized shares of common
stock with a par value of $0.001 each with 10,000,000 unallocated shares. The
Board of Directors may establish additional Portfolios (with different
investment objectives and fundamental policies) at any time in the future.
Establishment and offering of additional Portfolios will not alter the rights of
the Fund's shareholders. When issued, shares are fully paid, nonassessable,
redeemable, and freely transferable. Shares do not have preemptive rights or
subscription rights. In liquidation of a Portfolio of the Fund, each shareholder
is entitled to receive his or her pro rata share of the net assets of that
Portfolio.
Expenses incurred by the Fund in connection with the organization of the
Tactical Asset Allocation Portfolio aggregated approximately $8,688. These costs
have been deferred and are being amortized over a period of 5 years beginning
with the commencement of operations.
VOTING RIGHTS
Shareholders of the Fund are given certain voting rights. Each share of
each Portfolio will be given one vote, and each
<PAGE>
15
fractional share will be given a proportionate fractional vote, unless a
different allocation of voting rights is required under applicable law for a
mutual fund that is an investment medium for variable insurance products.
Under the Fund's charter, the Fund is not required to hold annual meetings
of shareholders to elect directors or for other purposes and it is not
anticipated that the Fund will hold shareholders' meetings unless required by
law or the Fund's charter. In this regard, the Fund will be required to hold a
meeting to elect directors to fill any existing vacancies on the Board if, at
any time, fewer than a majority of the directors have been elected by the
shareholders of the Fund. In addition, the charter provides that the holders of
not less than two-thirds of the outstanding shares of the Fund may remove a
person serving as director either by declaration in writing or at a meeting
called for such purpose. The Fund's shares do not have cumulative voting rights.
CUSTODIAN, TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT
The Bank of New York, New York, New York, serves as the Fund's Custodian
and Dividend Dispursing Agent. AUL serves as the Fund's Transfer Agent.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P. serves as independent accountants of the Fund.
COUNSEL
Dechert Price & Rhoads, Washington, D.C., has passed upon certain legal
matters in connection with the shares offered by the Fund and acts as outside
counsel to the Fund.
FINANCIAL STATEMENTS
The Financial Statements of the Fund, as of December 31, 1996, including the
Notes thereto, are incorporated by reference in the Statement of Additional
Information from the Annual Report of the Fund as of December 31, 1996. The
Financial Statements have been audited by Coopers & Lybrand L.L.P., the
independent accountants for the Fund. Management's Discussion and Analysis is
contained in the Fund's Annual Report, which is available without charge and may
be obtained by writing to the Fund at One American Square, Indianapolis, IN
46282 or by calling the Fund at (800) 634-1629.
<PAGE>
16
APPENDIX I
CORPORATE BOND AND COMMERCIAL PAPER RATINGS
CORPORATE BONDS
Bonds rated Aa by Moody's Investors Service, Inc. ("Moody's") are judged by
Moody's to be of high quality by all standards. Together with bonds rated Aaa
(Moody's highest rating) they comprise what are generally known as high-grade
bonds. Aa bonds are rated lower than Aaa bonds because margins of protection may
not be as large as those of Aaa bonds, or fluctuation of protective elements may
be of greater amplitude, or there may be other elements present which make the
long-term risks appear somewhat larger than those applicable to Aaa securities.
Bonds which are rated A by Moody's possess many favorable investment attributes
and are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some time in the future.
Moody's Baa rated bonds are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
Bonds rated AA by Standard & Poor's Corporation ("Standard & Poor's") are
judged by Standard & Poor's to be high-grade obligations and in the majority of
instances differ only in small degree from issues rated AAA (Standard & Poor's
highest rating). Bonds rated AAA are considered by Standard & Poor's to be the
highest grade obligations and possess the ultimate degree of protection as to
principal and interest. With AA bonds, as with AAA bonds, prices move with the
long-term money market. Bonds rated A by Standard & Poor's have a strong
capacity to pay principal and interest, although they are somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions.
Standard & Poor's BBB rated bonds, or medium-grade category bonds, are
borderline between definitely sound obligations and those where the speculative
elements begin to predominate. These bonds have adequate asset coverage and
normally are protected by satisfactory earnings. Their susceptibility to
changing conditions, particularly to depressions, necessitates constant
watching. These bonds generally are more responsive to business and trade
conditions than to interest rates. This group is the lowest which qualifies for
commercial bank investment.
COMMERCIAL PAPER
The prime rating is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: (1) evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors.
Commercial paper rated A by Standard & Poor's has the following
characteristics: (1) liquidity ratios are adequate to meet cash requirements;
(2) long-term senior debt rating should be A or better, although in some cases
BBB credits may be allowed if other factors outweigh the BBB; (3) the issuer
should have access to at least two additional channels of borrowing; (4) basic
earnings and cash flow should have an upward trend with allowances made for
unusual circumstances; and (5) typically the issuer's industry should be well
established and the issuer should have a strong position within its industry and
the reliability and quality of management should be unquestioned. Issuers rated
A are further referred to by use of numbers 1, 2 and 3 to denote relative
strength within this highest classification.
- --------------------------------------------------------------------------------
<PAGE>
17
================================================================================
No dealer, salesman or any other person is authorized by the AUL
American Series Fund to give any information or to make any
representation other than as contained in this Statement of Additional
Information in connection with the offering described herein.
There has been filed with the Securities and Exchange Commission,
Washington, D.C., a Registration Statement under the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as amended,
with respect to the offering herein described. For further information
with respect to the AUL American Series Fund, reference is made thereto
and the exhibits filed therewith or incorporated therein, which include
all contracts or documents referred to herein.
================================================================================
AUL AMERICAN SERIES FUND, INC.
Variable Annuity Contracts
Sold By
AMERICAN UNITED
LIFE INSURANCE COMPANY(R)
One American Square
Indianapolis, Indiana 46282
STATEMENT OF ADDITIONAL INFORMATION
Dated: May 1, 1997
================================================================================
<PAGE>
1
Part C: Other Information
ITEM 24: FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
1. Included in Prospectus (Part A):
Condensed Financial Information
2. Included in Statement of Additional Information (Part B):
Registrant's Annual Report is incorporated by reference
thereto and contains the following Financial Statements:
Management's Discussion of Fund Performance
Report of Independent Accountants
Statement of Net Assets for the year ended December 31, 1996
Statement of Operations for the year ended December 31, 1996
Statement of Changes in Net Assets for the years ended December 31,
1996 and 1995
Schedule of Investments--Equity Portfolio--December 31, 1996
Schedule of Investments--Money Market Portfolio--December 31, 1996
Schedule of Investments--Bond Portfolio--December 31, 1996
Schedule of Investments--Managed Portfolio--December 31, 1996
Schedule of Investments--Tactical Asset Allocation Portfolio--
December 31, 1996
Notes to Financial Statements
(b) Exhibits (the number of each exhibit relates to the exhibit designation
in Form N-1A):
1. Articles of Incorporation(1)
2. By-laws(1)
3. Not applicable
4. Not applicable
5. Form in Investment Advisory Agreement(2)
6. Not applicable
7. Not applicable
8. Form of Custodian Agreement(3)(6)
9. Form of Agency Agreement(3)
10. Opinion and Consent of Counsel(2)
11. (a) Consent of Independent Accountants(6)
(b) Powers of Attorney(2)(5)
12. Financial Statements(6)
13. Not applicable
14. Not applicable
15. Not applicable
16. Computation of Performance Quotations
17. Financial Data Schedules(2)(5)(6)
(1) Filed with the Registrant's Registration Statement (File No. 33-30156)
on July 27, 1989, and incorporated by reference herein.
(2) Filed with Pre-Effective Amendment No. 2, dated January 16, 1990, to
the Registrant's Registration Statement, and incorporated by reference herein.
(3) Filed with Pre-Effective Amendment No. 3, dated January 26, 1990, to
the Registrant's Registration Statement, and incorporated by reference herein.
(4) Filed as an Exhibit with Post-Effective Amendment No. 6, dated April
28, 1995, to the Registrant's Registration Statement, and incorporated by
reference herein.
(5) Filed as an Exhibit with Post-Effective Amendment No. 8, dated May 1,
1996, to the Registrant's Registration Statement, and incorporated by reference
herein.
(6) Filed as an Exhibit with Post-Effective Amendment No. 9, dated May 1,
1997, to the Registrant's Registration Statement, and incorporated by reference
herein.
<PAGE>
2
ITEM 25: PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
In accordance with current law, it is anticipated that American United Life
Insurance Company(R) ("AUL") will request voting instructions from owners or
participants of any Contracts that are funded by separate accounts that are
registered investment companies under the Investment Company Act of 1940 and
will vote shares in any such separate account attributable to the Contracts in
proportion to the voting instructions received. AUL may vote shares of any
Portfolio, if any, that it owns beneficially in its own discretion. As a result
of providing the initial capital for the Portfolios, on December 31, 1996, AUL
owned 10.2% of the outstanding shares of Registrant's Equity Portfolio and 27.2%
of the Registrant's Tactical Asset Allocation Portfolio. Therefore, AUL may be
able to control the outcome of any issue submitted generally to the vote of Fund
shareholders and probably would be able to control the outcome of any issue
submitted to the vote of shareholders of the Tactical Asset Portfolio. As a
mutual insurance company organized under the laws of the state of Indiana, AUL
has no shareholders and therefore, no one individual controls as much as 10% of
AUL.
AUL American Unit Trust and AUL American Individual Unit Trust are separate
accounts of AUL, organized for the purpose of the respective sale of group and
individual variable annuity contracts.
American United Life Pooled Equity Fund B is a separate account of AUL organized
for the purpose of the sale of group variable annuity contracts.
AUL Equity Sales Corp. is a wholly owned subsidiary of AUL, organized under the
laws of the State of Indiana in 1969 for the purpose of the sale of mutual funds
on an "application-way" basis only.
AUL may also be deemed to control State Life Insurance Company(R) ("State Life")
since a majority of AUL's Directors also serve as Directors of State Life. By
virtue of an agreement between AUL and State Life, AUL provides investment and
other support services for State Life on a contractual basis.
AUL owns a 20% share of the stock of Princeton Reinsurance Managers, LLC, a
limited liability Delaware company. AUl's affiliation provides an alternative
marketing channel for its Reinsurance Division.
ITEM 26: NUMBER OF HOLDERS OF SECURITIES.
As of the date of this Post-Effective Amendment to the Registration Statement,
AUL, the AUL American Unit Trust, the AUL American Individual Unit Trust, and
the AUL Group Retirement Annuity Separate Account II, separate accounts of AUL,
are the sole record holders of securities registered pursuant to this
Registration Statement.
ITEM 27: INDEMNIFICATION.
Reference is made to Article VIII of the Registrant's Articles of Incorporation
and to Article XI of the Registrant's By-laws, both of which are incorporated by
reference herein.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant by the Registrant pursuant to the Fund's Articles of Incorporation,
its By-laws or otherwise, the Registrant is aware that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act, and therefore, is unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by directors, officers or
controlling persons of the Registrant in connection with the successful defense
of any act, suit or proceeding) is asserted by such directors, officers or
controlling persons in connection with the shares being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issues.
<PAGE>
3
ITEM 28: BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
The business and other connections of Registrant's investment adviser are
described in Part B of this Registrations Statement and in Item 25 above.
Information relating to the Adviser's officers and directors is provided herein.
Name and Address Positions and Offices with AUL
- ---------------- ------------------------------
John H. Barbre* Senior Vice President
Steven C. Beering M.D. Director
Purdue University
West Lafayette, Indiana
William R. Brown* General Counsel and Secretary, AUL
Secretary, State Life
Arthur L. Bryant Director
P.O. Box 406
Indianapolis, Indiana
James E. Cornelius Director
P.O. Box 44906
Indianapolis, Indiana
James E. Dora Director
P.O. Box 42908
Indianapolis, Indiana
Otto N. Frenzel III Director and Chairman of the
101 W. Washington St., Suite 400E Audit Committee
Indianapolis, Indiana
David W. Goodrich Director
Box 82055
Indianapolis, Indiana
William P. Johnson Director
P.O. Box 517
Goshen, Indiana
Charles D. Lineback* Senior Vice President
James T. Morris Director
1220 Waterway Boulevard
Indianapolis, Indiana
James W. Murphy* Senior Vice President
Jerry L. Plummer* Senior Vice President
R. Stephen Radcliffe* Director and Executive
Vice President
Thomas E. Reilly Jr. Director and Chairman of the
300 N. Meridian St., Suite 1500 Finance Committee
Indianapolis, Indiana
- ----------------------------------------------
*One American Square, Indianapolis, Indiana
<PAGE>
4
ITEM 28: BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER. (CONTINUED)
Name and Address Positions and Offices with AUL
- ---------------- ------------------------------
William R. Riggs* Director
G. David Sapp* Senior Vice President
Jerry D. Semler* Chairman of the Board, President,
Chief Executive Officer and
Chairman of the Executive
Committee, AUL; Chairman of the
Board, Chief Executive Officer,
State Life
Yvonne H. Shaheen Director
1310 S. Franklin Road
Indianapolis, Indiana
James P. Shanahan* Senior Vice President
Frank D. Walker Director
P.O. Box 40972
Indianapolis, Indiana
Gerald T. Walker* Senior Vice President
- ----------------------------------------------
*One American Square, Indianapolis, Indiana
ITEM 29: PRINCIPAL UNDERWRITERS.
Not applicable.
ITEM 30: LOCATION OF ACCOUNTS AND RECORDS.
The Registrant and its Adviser maintain at the Fund's principal office located
at One American Square, Indianapolis, Indiana, 46282, physical possession of
each account, book or other document, and shareholder records as required by
Section 31(a) of the 1940 Act and rules thereunder. Certain records with respect
to the Portfolios of the Fund may be kept by the Fund's custodian.
ITEM 31: MANAGEMENT SERVICES.
There are no management-related service contracts not discussed in Part A or
Part B.
ITEM 32: UNDERTAKINGS.
(a) Not applicable.
(b) Not applicable.
(c) Registrant hereby undertakes to provide Management's Discussion of Fund
Performance, which is provided in Registrant's latest Annual Report, to
each person to whom a Prospectus is given upon request and without
charge.
<PAGE>
5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) of the Securities Act of 1933 and
has duly caused this Post-Effective Amendment to the Registration Statement
(Form N-1A) to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Indianapolis and the State of Indiana on this
30th day of April, 1997.
AUL AMERICAN SERIES FUND, INC.
----------------------------------------
By: James W. Murphy*, President
/s/ Richard A. Wacker
- ------------------------
*By: Richard A. Wacker as Attorney-in-fact
Date: April 30, 1997
Pursuant to the requirements of the Securities Act of 1933,this Post-Effective
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
- --------------------------------- Chairman of the Board April ___, 1997
James W. Murphy* and President (Chief
Executive Officer)
- --------------------------------- Director, Vice-President April ___, 1997
James P. Shanahan* and Treasurer (Chief
Financial Officer)
- --------------------------------- Director April ___, 1997
Ronald D. Anderson*
- --------------------------------- Director April ___, 1997
Leslie Lenkowsky*
/s/ Richard A. Wacker
-----------------------
By: Richard A. Wacker as Attorney-in-fact
Date: April 30, 1997
<PAGE>
6
EXHIBIT LIST
Exhibit Number Name of Exhibit
-------------- ---------------
8 Form of Custodian Agreement
11(a) Consent of Independent Accountants
12 Financial Statements
17 Financial Data Schedule
CUSTODY AGREEMENT
Agreement made as of this 28th day of February, 1997, between AUL AMERICAN
SERIES FUND INC., a Maryland corporation organized and existing under the laws
of the State of Maryland, having its principal office and place of business at
Indianapolis, Indiana (hereinafter called the "Fund"), and THE BANK OF NEW YORK,
a New York corporation authorized to do a banking business, having its principal
office and place of business at 48 Wall Street, New York, New York 10286
(hereinafter called the "Custodian").
W I T N E S S E T H :
that for and in consideration of the mutual promises hereinafter set forth, the
Fund and the Custodian agree as follows:
ARTICLE I.
DEFINITIONS
Whenever used in this Agreement, the following words and phrases, unless the
context otherwise requires, shall have the following meanings:
1. "Book-Entry System" shall mean the Federal Reserve/Treasury book-entry system
for United States and federal agency securities, its successor or successors and
its nominee or nominees.
2. "Call Option" shall mean an exchange traded option with respect to Securities
other than Stock Index Options, Futures Contracts, and Futures Contract Options
entitling the holder, upon timely exercise and payment of the exercise price, as
specified therein, to purchase from the writer thereof the specified underlying
Securities.
3. "Certificate" shall mean any notice, instruction, or other instrument in
writing, authorized or required by this Agreement to be given to the Custodian
which is actually received by the custodian and signed on behalf of the Fund by
any two Officers, and the term Certificate shall also include Instructions.
4. "Clearing Member" shall mean a registered broker-dealer which is a clearing
member under the rules of
<PAGE>
2
O.C.C. and a member of a national securities exchange qualified to act as a
custodian for an investment company, or any broker-dealer reasonably believed by
the Custodian to be such a clearing member.
5. "Collateral Account" shall mean a segregated account so denominated which is
specifically allocated to a Series and pledged to the Custodian as security for,
and in consideration of, the Custodian's issuance of (a) any Put Option
guarantee letter or similar document described in paragraph 8 of Article V
herein, or (b) any receipt described in Article V or VIII herein.
6. "Covered Call Option" shall mean an exchange traded option entitling the
holder, upon timely exercise and payment of the exercise price, as specified
therein, to purchase from the writer thereof the specified underlying Securities
(excluding Futures Contracts) which are owned by the writer thereof and subject
to appropriate restrictions. 7. "Composite Currency Unit" shall mean the
European Currency Unit or any other composite unit consisting of the aggregate
of specified amounts of specified Currencies as such unit may be constituted
from time to time.
8. "Currency" shall mean money denominated in a lawful currency of any country
or the European Currency Unit.
9. "Depository" shall mean The Depository Trust Company ("DTC"), a clearing
agency registered with the Securities and Exchange Commission, its successor or
successors and its nominee or nominees. The term "Depository" shall further mean
and include any other person authorized to act as a depository under the
Investment Company Act of 1940, its successor or successors and its nominee or
nominees, specifically identified in a certified copy of a resolution of the
Fund's Board of Directors specifically approving deposits therein by the
Custodian.
10. "Financial Futures Contract" shall mean the firm commitment to buy or sell
fixed income securities including, without limitation, U.S. Treasury Bills, U.S.
Treasury Notes, U.S. Treasury Bonds, domestic bank certificates of deposit, and
Eurodollar certificates of deposit, during a specified month at an agreed upon
price.
11. "Futures Contract" shall mean a Financial Futures Contract and/or Stock
Index Futures Contracts.
12. "Futures Contract Option" shall mean an option with respect to a Futures
Contract.
13. "FX Transaction" shall mean any transaction for the purchase by one party of
an agreed amount in one Currency
<PAGE>
3
against the sale by it to the other party of an agreed amount in another
Currency.
14. "Instructions" shall mean instructions communications transmitted by
electronic or
telecommunications media including S.W.I.F.T., computer-to-computer interface,
dedicated transmission line, facsimile transmission (which may be signed by an
Officer or unsigned) and tested telex.
15. "Margin Account" shall mean a segregated account in the name of a broker,
dealer, futures commission merchant, or a Clearing Member, or in the name of the
Fund for the benefit of a broker, dealer, futures commission merchant, or
Clearing Member, or otherwise, in accordance with an agreement between the Fund,
the Custodian and a broker, dealer, futures commission merchant or a Clearing
Member (a "Margin Account Agreement"), separate and distinct from the custody
account, in which certain Securities and/or money of the Fund shall be deposited
and withdrawn from time to time in connection with such transactions as the Fund
may from time to time determine. Securities held in the Book-Entry System or the
Depository shall be deemed to have been deposited in, or withdrawn from, a
Margin Account upon the Custodian's effecting an appropriate entry in its books
and records.
16. "Money Market Security" shall be deemed to include, without limitation,
certain Reverse Repurchase Agreements, debt obligations issued or guaranteed as
to interest and principal by the government of the United States or agencies or
instrumentalities thereof, any tax, bond or revenue anticipation note issued by
any state or municipal government or public authority, commercial paper,
certificates of deposit and bankers' acceptances, repurchase agreements with
respect to the same and bank time deposits, where the purchase and sale of such
securities normally requires settlement in federal funds on the same day as such
purchase or sale. 17. "O.C.C." shall mean the Options Clearing Corporation, a
clearing agency registered under Section 17A of the Securities Exchange Act of
1934, its successor or successors, and its nominee or nominees.
18. "Officers" shall be deemed to include the President, any Vice President, the
Secretary, the Treasurer, the Controller, any Assistant Secretary, any Assistant
Treasurer, and any other person or persons, whether or not any such other person
is an officer of the Fund, duly authorized by the Board of Directors of the Fund
to execute any Certificate, instruction, notice or other instrument on behalf of
the Fund and listed in the Certificate annexed hereto as Appendix A or such
other Certificate as may be received by the Custodian from time to time.
<PAGE>
4
19. "Option" shall mean a Call Option, Covered Call Option, Stock Index Option
and/or a Put Option.
20. "Oral Instructions" shall mean verbal instructions actually received by the
Custodian from an Officer or from a person reasonably believed by the Custodian
to be an Officer.
21. "Put Option" shall mean an exchange traded option with respect to Securities
other than Stock Index Options, Futures Contracts, and Futures Contract Options
entitling the holder, upon timely exercise and tender of the specified
underlying Securities, to sell such Securities to the writer thereof for the
exercise price.
22. "Reverse Repurchase Agreement" shall mean an agreement pursuant to which the
Fund sells Securities and agrees to repurchase such Securities at a described or
specified date and price.
23. "Security" shall be deemed to include, without limitation, Money Market
Securities, Call Options, Put Options, Stock Index Options, Stock Index Futures
Contracts, Stock Index Futures Contract Options, Financial Futures Contracts,
Financial Futures Contract Options, Reverse Repurchase Agreements, common stocks
and other securities having characteristics similar to common stocks, preferred
stocks, debt obligations issued by state or municipal governments and by public
authorities, (including, without limitation, general obligation bonds, revenue
bonds, industrial bonds and industrial development bonds), bonds, debentures,
notes, mortgages or other obligations, and any certificates, receipts, warrants
or other instruments representing rights to receive, purchase, sell or subscribe
for the same, or evidencing or representing any other rights or interest
therein, or any property or assets.
24. "Senior Security Account" shall mean an account maintained and specifically
allocated to a Series under the terms of this Agreement as a segregated account,
by recordation or otherwise, within the custody account in which certain
Securities and/or other assets of the Fund specifically allocated to such Series
shall be deposited and withdrawn from time to time in accordance with
Certificates received by the Custodian in connection with such transactions as
the Fund may from time to time determine.
25. "Series" shall mean the various portfolios, if any, of the Fund listed on
Appendix B hereto as amended from time to time.
26. "Shares" shall mean the shares of capital stock of the Fund, each of which
is, in the case of a Fund having Series, allocated to a particular Series.
<PAGE>
5
27. "Stock Index Futures Contract" shall mean a bilateral agreement pursuant to
which the parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the value of a particular
stock index at the close of the last business day of the contract and the price
at which the futures contract is originally struck.
28. "Stock Index Option" shall mean an exchange traded option entitling the
holder, upon timely exercise, to receive an amount of cash determined by
reference to the difference between the exercise price and the value of the
index on the date of exercise.
ARTICLE II.
APPOINTMENT OF CUSTODIAN
1. The Fund hereby constitutes and appoints the Custodian as custodian of the
Securities and moneys at any time owned by the Fund during the period of this
Agreement.
2. The Custodian hereby accepts appointment as such custodian and agrees to
perform the duties thereof as hereinafter set forth.
ARTICLE III.
CUSTODY OF CASH AND SECURITIES
1. Except as otherwise provided in paragraph 7 of this Article and in Article
VIII, the Fund will deliver or cause to be delivered to the Custodian all
Securities and all moneys owned by it, at any time during the period of this
Agreement, and shall specify with respect to such Securities and money the
Series to which the same are specifically allocated. The Custodian shall
segregate, keep and maintain the assets of the Series separate and apart. The
Custodian will not be responsible for any Securities and moneys not actually
received by it. The Custodian will be entitled to reverse any credits made on
the Fund's behalf where such credits have been previously made and moneys are
not finally collected. The Fund shall deliver to the Custodian a certified
resolution of the Board of Directors of the Fund, substantially in the form of
Exhibit A hereto, approving, authorizing and instructing the Custodian on a
continuous and on-going basis to deposit in the Book-Entry System all Securities
eligible for deposit therein, regardless of the Series to which the same are
specifically allocated and to utilize the Book-Entry System to the extent
possible in connection with its performance hereunder, including, without
limitation, in connection with settlements of purchases and sales of Securities,
loans of
<PAGE>
6
Securities and deliveries and returns of Securities collateral. Prior to a
deposit of Securities specifically allocated to a Series in the Depository, the
Fund shall deliver to the Custodian a certified resolution of the Board of
Directors of the Fund, substantially in the form of Exhibit B hereto, approving,
authorizing and instructing the Custodian on a continuous and ongoing basis
until instructed to the contrary by a Certificate actually received by the
Custodian to deposit in the Depository all Securities specifically allocated to
such Series eligible for deposit therein, and to utilize the Depository to the
extent possible with respect to such Securities in connection with its
performance hereunder, including, without limitation, in connection with
settlements of purchases and sales of Securities, loans of Securities, and
deliveries and returns of Securities collateral. Securities and moneys deposited
in either the Book-Entry System or the Depository will be represented in
accounts which include only assets held by the Custodian for customers,
including, but not limited to, accounts in which the Custodian acts in a
fiduciary or representative capacity and will be specifically allocated on the
Custodian's books to the separate account for the applicable Series. Prior to
the Custodian's accepting, utilizing and acting with respect to Clearing Member
confirmations for Options and transactions in Options for a Series as provided
in this Agreement, the Custodian shall have received a certified resolution of
the Fund's Board of Directors, substantially in the form of Exhibit C hereto,
approving, authorizing and instructing the Custodian on a continuous and
on-going basis, until instructed to the contrary by a Certificate actually
received by the Custodian, to accept, utilize and act in accordance with such
confirmations as provided in this Agreement with respect to such Series.
2. The Custodian shall establish and maintain separate accounts, in the name of
each Series, and shall credit to the separate account for each Series all moneys
received by it for the account of the Fund with respect to such Series. Money
credited to a separate account for a Series shall be disbursed by the Custodian
only:
(a) As hereinafter provided;
(b) Pursuant to Certificates setting forth the name and address of the person to
whom the payment is to be made, the Series account from which payment is to be
made and the purpose for which payment is to be made; or
(c) In payment of the fees and in reimbursement of the expenses and liabilities
of the Custodian attributable to such Series.
3. Promptly after the close of business on each day, the Custodian shall furnish
the Fund with confirmations and a summary, on a per Series basis, of all
transfers to or from
<PAGE>
7
the account of the Fund for a Series, either hereunder or with any co-custodian
or sub-custodian appointed in accordance with this Agreement during said day.
Where Securities are transferred to the account of the Fund for a Series, the
Custodian shall also by book-entry or otherwise identify as belonging to such
Series a quantity of Securities in a fungible bulk of Securities registered in
the name of the Custodian (or its nominee) or shown on the Custodian's account
on the books of the Book-Entry System or the Depository. At least monthly and
from time to time as may be agreed upon by the Fund and the Custodian, the
Custodian shall furnish the Fund with a detailed statement, on a per Series
basis, of the Securities and moneys held by the Custodian for the Fund.
4. Except as otherwise provided in paragraph 7 of this Article and in Article
VIII, all Securities held by the Custodian hereunder, which are issued or
issuable only in bearer form, except such Securities as are held in the
Book-Entry System, shall be held by the Custodian in that form; all other
Securities held hereunder may be registered in the name of the Fund, in the name
of any duly appointed registered nominee of the Custodian as the Custodian may
from time to time determine, or in the name of the Book-Entry System or the
Depository or their successor or successors, or their nominee or nominees. The
Fund agrees to furnish to the Custodian appropriate instruments to enable the
Custodian to hold or deliver in proper form for transfer, or to register in the
name of its registered nominee or in the name of the Book-Entry System or the
Depository any Securities which it may hold hereunder and which may from time to
time be registered in the name of the Fund. The Custodian shall hold all such
Securities specifically allocated to a Series which are not held in the
Book-Entry System or in the Depository in a separate account in the name of such
Series physically segregated at all times from those of any other person or
persons.
5. Except as otherwise provided in this Agreement and unless otherwise
instructed to the contrary by a Certificate, the Custodian by itself, or through
the use of the Book-Entry System or the Depository with respect to Securities
held hereunder and therein deposited, shall with respect to all Securities held
for the Fund hereunder in accordance with preceding paragraph 4:
(a) Collect all income, dividends and distributions due or payable;
(b) Give notice to the Fund and present payment and collect the amount payable
upon such Securities which are called, but only if either (i) the Custodian
receives a written notice of such call, or (ii) notice of such call appears in
one or more of the publications listed in Appendix C annexed hereto, which may
be amended at any time by the
<PAGE>
8
Custodian without the prior notification or consent of the Fund;
(c) Present for payment and collect the amount payable upon all Securities which
mature;
(d) Surrender Securities in temporary form for definitive Securities;
(e) Execute, as custodian, any necessary declarations or certificates of
ownership under the Federal Income Tax Laws or the laws or regulations of any
other taxing authority now or hereafter in effect;
(f) Hold directly, or through the Book-Entry System or the Depository with
respect to Securities therein deposited, for the account of a Series, all rights
and similar securities issued with respect to any Securities held by the
Custodian for such Series hereunder; and
(g) Promptly deliver to the Fund all notices, proxies, proxy soliciting
materials, consents and other written information (including, without
limitation, notices of tender offers and exchange offers, pendency of calls,
maturities of Securities and expiration of rights) relating to Securities held
pursuant to this Agreement which are actually received by the Custodian, such
proxies and other similar materials to be executed by the registered owner (if
Securities are registered otherwise than in the name of the Fund), but without
indicating the manner in which proxies or consents are to be voted.
6. Upon receipt of a Certificate and not otherwise, the Custodian, directly or
through the use of the Book-Entry System or the Depository, shall:
(a) Execute and deliver to such persons as may be designated in such Certificate
proxies, consents, authorizations, and any other instruments whereby the
authority of the Fund as owner of any Securities held by the Custodian hereunder
for the Series specified in such Certificate may be exercised;
(b) Deliver any Securities held by the Custodian hereunder for the Series
specified in such Certificate in exchange for other Securities or cash issued or
paid in connection with the liquidation, reorganization, refinancing, merger,
consolidation or recapitalization of any corporation, or the exercise of any
conversion privilege and receive and hold hereunder specifically allocated to
such Series any cash or other Securities received in exchange;
(c) Deliver any Securities held by the Custodian hereunder for the Series
specified in such Certificate to any
<PAGE>
9
protective committee, reorganization committee or other person in connection
with the reorganization, refinancing, merger, consolidation, recapitalization or
sale of assets of any corporation, and receive and hold hereunder specifically
allocated to such Series such certificates of deposit, interim receipts or other
instruments or documents as may be issued to it to evidence such delivery;
(d) Make such transfers or exchanges of the assets of the Series specified in
such Certificate, and take such other steps as shall be stated in such
Certificate to be for the purpose of effectuating any duly authorized plan of
liquidation, reorganization, merger, consolidation or recapitalization of the
Fund;
(e) Present for payment and collect the amount payable upon Securities not
described in preceding paragraph 5(b) of this Article which may be called as
specified in the Certificate; and
(f) Execute ownership and other certificates and affidavits, all as specified in
a Certificate, for federal and state tax purposes in connection with receipt of
income or other payments with respect to domestic securities of each Series held
by it and in connection with transfers of securities.
7. Notwithstanding any provision elsewhere contained herein, the Custodian shall
not be required to obtain possession of any instrument or certificate
representing any Futures Contract, any Option, or any Futures Contract Option
until after it shall have determined, or shall have received a Certificate from
the Fund stating, that any such instruments or certificates are available. The
Fund shall deliver to the Custodian such a Certificate no later than the
business day preceding the availability of any such instrument or certificate.
Prior to such availability, the Custodian shall comply with Section 17(f) of the
Investment Company Act of 1940, as amended, in connection with the purchase,
sale, settlement, closing out or writing of Futures Contracts, Options, or
Futures Contract Options by making payments or deliveries specified in
Certificates received by the Custodian in connection with any such purchase,
sale, writing, settlement or closing out upon its receipt from a broker, dealer,
or futures commission merchant of a statement or confirmation reasonably
believed by the Custodian to be in the form customarily used by brokers,
dealers, or future commission merchants with respect to such Futures Contracts,
Options, or Futures Contract Options, as the case may be, confirming that such
Security is held by such broker, dealer or futures commission merchant, in
book-entry form or otherwise, in the name of the Custodian (or any nominee of
the Custodian) as custodian for the Fund, provided, however, that
notwithstanding the foregoing, payments to or deliveries from the Margin
<PAGE>
10
Account, and payments with respect to Securities to which a Margin Account
relates, shall be made in accordance with the terms and conditions of the Margin
Account Agreement. Whenever any such instruments or certificates are available,
the Custodian shall, notwithstanding any provision in this Agreement to the
contrary, make payment for any Futures Contract, Option, or Futures Contract
Option for which such instruments or such certificates are available only
against the delivery to the Custodian of such instrument or such certificate,
and deliver any Futures Contract, Option or Futures Contract Option for which
such instruments or such certificates are available only against receipt by the
Custodian of payment therefor. Any such instrument or certificate delivered to
the Custodian shall be held by the Custodian hereunder in accordance with, and
subject to, the provisions of this Agreement.
ARTICLE IV.
PURCHASE AND SALE OF INVESTMENTS OF THE FUND OTHER THAN OPTIONS,
FUTURES CONTRACTS AND FUTURES CONTRACT OPTIONS
1. Promptly after each purchase of Securities by the Fund, other than a purchase
of an Option, a Futures Contract, or a Futures Contract Option, the Fund shall
deliver to the Custodian (i) with respect to each purchase of Securities which
are not Money Market Securities, a Certificate, and (ii) with respect to each
purchase of Money Market Securities, a Certificate or Oral Instructions,
specifying with respect to each such purchase: (a) the Series to which such
Securities are to be specifically allocated; (b) the name of the issuer and the
title of the Securities; (c) the number of shares or the principal amount
purchased and accrued interest, if any; (d) the date of purchase and settlement;
(e) the purchase price per unit; (f) the total amount payable upon such
purchase; (g) the name of the person from whom or the broker through whom the
purchase was made, and the name of the clearing broker, if any; and (h) the name
of the broker to whom payment is to be made. The Custodian shall, upon receipt
of Securities purchased by or for the Fund, pay to the broker specified in the
Certificate out of the moneys held for the account of such Series the total
amount payable upon such purchase, provided that the same conforms to the total
amount payable as set forth in such Certificate or Oral Instructions.
2. Promptly after each sale of Securities by the Fund, other than a sale of any
Option, Futures Contract, Futures Contract Option, or any Reverse Repurchase
Agreement, the Fund shall deliver to the Custodian (i) with respect to each sale
of Securities which are not Money Market Securities, a Certificate, and (ii)
with respect to each sale of Money Market Securities, a Certificate or Oral
Instructions,
<PAGE>
11
specifying with respect to each such sale: (a) the Series to which such
Securities were specifically allocated; (b) the name of the issuer and the title
of the Security; (c) the number of shares or principal amount sold, and accrued
interest, if any; (d) the date of sale; (e) the sale price per unit; (f) the
total amount payable to the Fund upon such sale; (g) the name of the broker
through whom or the person to whom the sale was made, and the name of the
clearing broker, if any; and (h) the name of the broker to whom the Securities
are to be delivered. The Custodian shall deliver the Securities specifically
allocated to such Series to the broker specified in the Certificate against
payment of the total amount payable to the Fund upon such sale, provided that
the same conforms to the total amount payable as set forth in such Certificate
or Oral Instructions.
ARTICLE V.
OPTIONS
1. Promptly after the purchase of any Option by the Fund, the Fund shall deliver
to the Custodian a Certificate specifying with respect to each Option purchased:
(a) the Series to which such Option is specifically allocated; (b) the type of
Option (put or call); (c) the name of the issuer and the title and number of
shares subject to such Option or, in the case of a Stock Index Option, the stock
index to which such Option relates and the number of Stock Index Options
purchased; (d) the expiration date; (e) the exercise price; (f) the dates of
purchase and settlement; (g) the total amount payable by the Fund in connection
with such purchase; (h) the name of the Clearing Member through whom such Option
was purchased; and (i) the name of the broker to whom payment is to be made. The
Custodian shall pay, upon receipt of a Clearing Member's statement confirming
the purchase of such Option held by such Clearing Member for the account of the
Custodian (or any duly appointed and registered nominee of the Custodian) as
custodian for the Fund, out of moneys held for the account of the Series to
which such Option is to be specifically allocated, the total amount payable upon
such purchase to the Clearing Member through whom the purchase was made,
provided that the same conforms to the total amount payable as set forth in such
Certificate.
2. Promptly after the sale of any Option purchased by the Fund pursuant to
paragraph 1 hereof, the Fund shall deliver to the Custodian a Certificate
specifying with respect to each such sale: (a) the Series to which such Option
was specifically allocated; (b) the type of Option (put or call); (c) the name
of the issuer and the title and number of shares subject to such Option or, in
the case of a Stock Index Option, the stock index to which such Option relates
and the number of Stock Index Options sold; (d) the date of sale; (e)
<PAGE>
12
the sale price; (f) the date of settlement; (g) the total amount payable to the
Fund upon such sale; and (h) the name of the Clearing Member through whom the
sale was made. The Custodian shall consent to the delivery of the Option sold by
the Clearing Member which previously supplied the confirmation described in
preceding paragraph 1 of this Article with respect to such Option against
payment to the Custodian of the total amount payable to the Fund, provided that
the same conforms to the total amount payable as set forth in such Certificate.
3. Promptly after the exercise by the Fund of any Call Option purchased by the
Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the Custodian a
Certificate specifying with respect to such Call Option: (a) the Series to which
such Call Option was specifically allocated; (b) the name of the issuer and the
title and number of shares subject to the Call Option; (c) the expiration date;
(d) the date of exercise and settlement; (e) the exercise price per share; (f)
the total amount to be paid by the Fund upon such exercise; and (g) the name of
the Clearing Member through whom such Call Option was exercised. The Custodian
shall, upon receipt of the Securities underlying the Call Option which was
exercised, pay out of the moneys held for the account of the Series to which
such Call Option was specifically allocated the total amount payable to the
Clearing Member through whom the Call Option was exercised, provided that the
same conforms to the total amount payable as set forth in such Certificate.
4. Promptly after the exercise by the Fund of any Put Option purchased by the
Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the Custodian a
Certificate specifying with respect to such Put Option: (a) the Series to which
such Put Option was specifically allocated; (b) the name of the issuer and the
title and number of shares subject to the Put Option; (c) the expiration date;
(d) the date of exercise and settlement; (e) the exercise price per share; (f)
the total amount to be paid to the Fund upon such exercise; and (g) the name of
the Clearing Member through whom such Put Option was exercised. The Custodian
shall, upon receipt of the amount payable upon the exercise of the Put Option,
deliver or direct the Depository to deliver the Securities specifically
allocated to such Series, provided the same conforms to the amount payable to
the Fund as set forth in such Certificate.
5. Promptly after the exercise by the Fund of any Stock Index Option purchased
by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the
Custodian a Certificate specifying with respect to such Stock Index Option: (a)
the Series to which such Stock Index Option was specifically allocated; (b) the
type of Stock Index Option (put or call); (c) the number of Options being
exercised; (d) the stock index to which such Option relates; (e) the expiration
date; (f) the exercise price; (g) the total amount to be received by the
<PAGE>
13
Fund in connection with such exercise; and (h) the Clearing Member from whom
such payment is to be received.
6. Whenever the Fund writes a Covered Call Option, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Covered
Call Option: (a) the Series for which such Covered Call Option was written; (b)
the name of the issuer and the title and number of shares for which the Covered
Call Option was written and which underlie the same; (c) the expiration date;
(d) the exercise price; (e) the premium to be received by the Fund; (f) the date
such Covered Call Option was written; and (g) the name of the Clearing Member
through whom the premium is to be received. The Custodian shall deliver or cause
to be delivered, in exchange for receipt of the premium specified in the
Certificate with respect to such Covered Call Option, such receipts as are
required in accordance with the customs prevailing among Clearing Members
dealing in Covered Call Options and shall impose, or direct the Depository to
impose, upon the underlying Securities specified in the Certificate specifically
allocated to such Series such restrictions as may be required by such receipts.
Notwithstanding the foregoing, the Custodian has the right, upon prior written
notification to the Fund, at any time to refuse to issue any receipts for
Securities in the possession of the Custodian and not deposited with the
Depository underlying a Covered Call Option.
7. Whenever a Covered Call Option written by the Fund and described in the
preceding paragraph of this Article is exercised, the Fund shall promptly
deliver to the Custodian a Certificate instructing the Custodian to deliver, or
to direct the Depository to deliver, the Securities subject to such Covered Call
Option and specifying: (a) the Series for which such Covered Call Option was
written; (b) the name of the issuer and the title and number of shares subject
to the Covered Call Option; (c) the Clearing Member to whom the underlying
Securities are to be delivered; and (d) the total amount payable to the Fund
upon such delivery. Upon the return and/or cancellation of any receipts
delivered pursuant to paragraph 6 of this Article, the Custodian shall deliver,
or direct the Depository to deliver, the underlying Securities as specified in
the Certificate against payment of the amount to be received as set forth in
such Certificate.
8. Whenever the Fund writes a Put Option, the Fund shall promptly deliver to the
Custodian a Certificate specifying with respect to such Put Option: (a) the
Series for which such Put Option was written; (b) the name of the issuer and the
title and number of shares for which the Put Option is written and which
underlie the same; (c) the expiration date; (d) the exercise price; (e) the
premium to be received by the Fund; (f) the date such Put Option is written; (g)
the name of the Clearing Member through whom the premium is to be received
<PAGE>
14
and to whom a Put Option guarantee letter is to be delivered; (h) the amount of
cash, and/or the amount and kind of Securities, if any, specifically allocated
to such Series to be deposited in the Senior Security Account for such Series;
and (i) the amount of cash and/or the amount and kind of Securities specifically
allocated to such Series to be deposited into the Collateral Account for such
Series. The Custodian shall, after making the deposits into the Collateral
Account specified in the Certificate, issue a Put Option guarantee letter
substantially in the form utilized by the Custodian on the date hereof, and
deliver the same to the Clearing Member specified in the Certificate against
receipt of the premium specified in said Certificate. Notwithstanding the
foregoing, the Custodian shall be under no obligation to issue any Put Option
guarantee letter or similar document if it is unable to make any of the
representations contained therein.
9. Whenever a Put Option written by the Fund and described in the preceding
paragraph is exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the Series to which such Put Option was written; (b)
the name of the issuer and title and number of shares subject to the Put Option;
(c) the Clearing Member from whom the underlying Securities are to be received;
(d) the total amount payable by the Fund upon such delivery; (e) the amount of
cash and/or the amount and kind of Securities specifically allocated to such
Series to be withdrawn from the Collateral Account for such Series and (f) the
amount of cash and/or the amount and kind of Securities, specifically allocated
to such Series, if any, to be withdrawn from the Senior Security Account. Upon
the return and/or cancellation of any Put Option guarantee letter or similar
document issued by the Custodian in connection with such Put Option, the
Custodian shall pay out of the moneys held for the account of the Series to
which such Put Option was specifically allocated the total amount payable to the
Clearing Member specified in the Certificate as set forth in such Certificate
against delivery of such Securities, and shall make the withdrawals specified in
such Certificate.
10. Whenever the Fund writes a Stock Index Option, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Stock
Index Option: (a) the Series for which such Stock Index Option was written; (b)
whether such Stock Index Option is a put or a call; (c) the number of options
written; (d) the stock index to which such Option relates; (e) the expiration
date; (f) the exercise price; (g) the Clearing Member through whom such Option
was written; (h) the premium to be received by the Fund; (i) the amount of cash
and/or the amount and kind of Securities, if any, specifically allocated to such
Series to be deposited in the Senior Security Account for such Series; (j) the
amount of cash and/or the amount and kind of Securities, if any, specifically
allocated to such Series to be deposited in the
<PAGE>
15
Collateral Account for such Series; and (k) the amount of cash and/or the amount
and kind of Securities, if any, specifically allocated to such Series to be
deposited in a Margin Account, and the name in which such account is to be or
has been established. The Custodian shall, upon receipt of the premium specified
in the Certificate, make the deposits, if any, into the Senior Security Account
specified in the Certificate, and either (1) deliver such receipts, if any,
which the Custodian has specifically agreed to issue, which are in accordance
with the customs prevailing among Clearing Members in Stock Index Options and
make the deposits into the Collateral Account specified in the Certificate, or
(2) make the deposits into the Margin Account specified in the Certificate.
11. Whenever a Stock Index Option written by the Fund and described in the
preceding paragraph of this Article is exercised, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Stock
Index Option: (a) the Series for which such Stock Index Option was written; (b)
such information as may be necessary to identify the Stock Index Option being
exercised; (c) the Clearing Member through whom such Stock Index Option is being
exercised; (d) the total amount payable upon such exercise, and whether such
amount is to be paid by or to the Fund; (e) the amount of cash and/or amount and
kind of Securities, if any, to be withdrawn from the Margin Account; and (f) the
amount of cash and/or amount and kind of Securities, if any, to be withdrawn
from the Senior Security Account for such Series; and the amount of cash and/or
the amount and kind of Securities, if any, to be withdrawn from the Collateral
Account for such Series. Upon the return and/or cancellation of the receipt, if
any, delivered pursuant to the preceding paragraph of this Article, the
Custodian shall pay out of the moneys held for the account of the Series to
which such Stock Index Option was specifically allocated to the Clearing Member
specified in the Certificate the total amount payable, if any, as specified
therein.
12. Whenever the Fund purchases any Option identical to a previously written
Option described in paragraphs, 6, 8 or 10 of this Article in a transaction
expressly designated as a "Closing Purchase Transaction" in order to liquidate
its position as a writer of an Option, the Fund shall promptly deliver to the
Custodian a Certificate specifying with respect to the Option being purchased:
(a) that the transaction is a Closing Purchase Transaction; (b) the Series for
which the Option was written; (c) the name of the issuer and the title and
number of shares subject to the Option, or, in the case of a Stock Index Option,
the stock index to which such Option relates and the number of Options held; (d)
the exercise price; (e) the premium to be paid by the Fund; (f) the expiration
date; (g) the type of Option (put or call); (h) the date of such purchase; (i)
the name of the Clearing Member to whom the premium is to be paid; and (j) the
amount of cash and/or the
<PAGE>
16
amount and kind of Securities, if any, to be withdrawn from the Collateral
Account, a specified Margin Account, or the Senior Security Account for such
Series. Upon the Custodian's payment of the premium and the return and/or
cancellation of any receipt issued pursuant to paragraphs 6, 8 or 10 of this
Article with respect to the Option being liquidated through the Closing Purchase
Transaction, the Custodian shall remove, or direct the Depository to remove, the
previously imposed restrictions on the Securities underlying the Call Option.
13. Upon the expiration, exercise or consummation of a Closing Purchase
Transaction with respect to any Option purchased or written by the Fund and
described in this Article, the Custodian shall delete such Option from the
statements delivered to the Fund pursuant to paragraph 3 Article III herein, and
upon the return and/or cancellation of any receipts issued by the Custodian,
shall make such withdrawals from the Collateral Account, and the Margin Account
and/or the Senior Security Account as may be specified in a Certificate received
in connection with such expiration, exercise, or consummation.
ARTICLE VI.
FUTURES CONTRACTS
1. Whenever the Fund shall enter into a Futures Contract, the Fund shall deliver
to the Custodian a Certificate specifying with respect to such Futures Contract,
(or with respect to any number of identical Futures Contract(s)): (a) the Series
for which the Futures Contract is being entered; (b) the category of Futures
Contract (the name of the underlying stock index or financial instrument); (c)
the number of identical Futures Contracts entered into; (d) the delivery or
settlement date of the Futures Contract(s); (e) the date the Futures Contract(s)
was (were) entered into and the maturity date; (f) whether the Fund is buying
(going long) or selling (going short) on such Futures Contract(s); (g) the
amount of cash and/or the amount and kind of Securities, if any, to be deposited
in the Senior Security Account for such Series; (h) the name of the broker,
dealer, or futures commission merchant through whom the Futures Contract was
entered into; and (i) the amount of fee or commission, if any, to be paid and
the name of the broker, dealer, or futures commission merchant to whom such
amount is to be paid. The Custodian shall make the deposits, if any, to the
Margin Account in accordance with the terms and conditions of the Margin Account
Agreement. The Custodian shall make payment out of the moneys specifically
allocated to such Series of the fee or commission, if any, specified in the
Certificate and deposit in the Senior Security Account for such Series the
amount of cash and/or the amount and kind of Securities specified in said
Certificate.
<PAGE>
17
2. (a) Any variation margin payment or similar payment required to be made by
the Fund to a broker, dealer, or futures commission merchant with respect to an
outstanding Futures Contract, shall be made by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
(b) Any variation margin payment or similar payment from a broker, dealer, or
futures commission merchant to the Fund with respect to an outstanding Futures
Contract, shall be received and dealt with by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
3. Whenever a Futures Contract held by the Custodian hereunder is retained by
the Fund until delivery or settlement is made on such Futures Contract, the Fund
shall deliver to the Custodian a Certificate specifying: (a) the Futures
Contract and the Series to which the same relates; (b) with respect to a Stock
Index Futures Contract, the total cash settlement amount to be paid or received,
and with respect to a Financial Futures Contract, the Securities and/or amount
of cash to be delivered or received; (c) the broker, dealer, or futures
commission merchant to or from whom payment or delivery is to be made or
received; and (d) the amount of cash and/or Securities to be withdrawn from the
Senior Security Account for such Series. The Custodian shall make the payment or
delivery specified in the Certificate, and delete such Futures Contract from the
statements delivered to the Fund pursuant to paragraph 3 of Article III herein.
4. Whenever the Fund shall enter into a Futures Contract to offset a Futures
Contract held by the Custodian hereunder, the Fund shall deliver to the
Custodian a Certificate specifying: (a) the items of information required in a
Certificate described in paragraph 1 of this Article, and (b) the Futures
Contract being offset. The Custodian shall make payment out of the money
specifically allocated to such Series of the fee or commission, if any,
specified in the Certificate and delete the Futures Contract being offset from
the statements delivered to the Fund pursuant to paragraph 3 of Article III
herein, and make such withdrawals from the Senior Security Account for such
Series as may be specified in such Certificate. The withdrawals, if any, to be
made from the Margin Account shall be made by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
ARTICLE VII.
FUTURES CONTRACT OPTIONS
1. Promptly after the purchase of any Futures Contract Option by the Fund, the
Fund shall promptly deliver to the
<PAGE>
18
Custodian a Certificate specifying with respect to such Futures Contract Option:
(a) the Series to which such Option is specifically allocated; (b) the type of
Futures Contract Option (put or call); (c) the type of Futures Contract and such
other information as may be necessary to identify the Futures Contract
underlying the Futures Contract Option purchased; (d) the expiration date; (e)
the exercise price; (f) the dates of purchase and settlement; (g) the amount of
premium to be paid by the Fund upon such purchase; (h) the name of the broker or
futures commission merchant through whom such option was purchased; and (i) the
name of the broker, or futures commission merchant, to whom payment is to be
made. The Custodian shall pay out of the moneys specifically allocated to such
Series, the total amount to be paid upon such purchase to the broker or futures
commissions merchant through whom the purchase was made, provided that the same
conforms to the amount set forth in such Certificate.
2. Promptly after the sale of any Futures Contract Option purchased by the Fund
pursuant to paragraph 1 hereof, the Fund shall promptly deliver to the Custodian
a Certificate specifying with respect to each such sale: (a) the Series to which
such Futures Contract Option was specifically allocated; (b) the type of Future
Contract Option (put or call); (c) the type of Futures Contract and such other
information as may be necessary to identify the Futures Contract underlying the
Futures Contract Option; (d) the date of sale; (e) the sale price; (f) the date
of settlement; (g) the total amount payable to the Fund upon such sale; and (h)
the name of the broker of futures commission merchant through whom the sale was
made. The Custodian shall consent to the cancellation of the Futures Contract
Option being closed against payment to the Custodian of the total amount payable
to the Fund, provided the same conforms to the total amount payable as set forth
in such Certificate.
3. Whenever a Futures Contract Option purchased by the Fund pursuant to
paragraph 1 is exercised by the Fund, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such Futures
Contract Option was specifically allocated; (b) the particular Futures Contract
Option (put or call) being exercised; (c) the type of Futures Contract
underlying the Futures Contract Option; (d) the date of exercise; (e) the name
of the broker or futures commission merchant through whom the Futures Contract
Option is exercised; (f) the net total amount, if any, payable by the Fund; (g)
the amount, if any, to be received by the Fund; and (h) the amount of cash
and/or the amount and kind of Securities to be deposited in the Senior Security
Account for such Series. The Custodian shall make, out of the moneys and
Securities specifically allocated to such Series, the payments, if any, and the
deposits, if any, into the Senior Security Account as specified in the
Certificate. The deposits, if any, to be made to the Margin Account shall be
<PAGE>
19
4. Whenever the Fund writes a Futures Contract Option, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Futures
Contract Option: (a) the Series for which such Futures Contract Option was
written; (b) the type of Futures Contract Option (put or call); (c) the type of
Futures Contract and such other information as may be necessary to identify the
Futures Contract underlying the Futures Contract Option; (d) the expiration
date; (e) the exercise price; (f) the premium to be received by the Fund; (g)
the name of the broker or futures commission merchant through whom the premium
is to be received; and (h) the amount of cash and/or the amount and kind of
Securities, if any, to be deposited in the Senior Security Account for such
Series. The Custodian shall, upon receipt of the premium specified in the
Certificate, make out of the moneys and Securities specifically allocated to
such Series the deposits into the Senior Security Account, if any, as specified
in the Certificate. The deposits, if any, to be made to the Margin Account shall
be made by the Custodian in accordance with the terms and conditions of the
Margin Account Agreement.
5. Whenever a Futures Contract Option written by the Fund which is a call is
exercised, the Fund shall promptly deliver to the Custodian a Certificate
specifying: (a) the Series to which such Futures Contract Option was
specifically allocated; (b) the particular Futures Contract Option exercised;
(c) the type of Futures Contract underlying the Futures Contract Option; (d) the
name of the broker or futures commission merchant through whom such Futures
Contract Option was exercised; (e) the net total amount, if any, payable to the
Fund upon such exercise; (f) the net total amount, if any, payable by the Fund
upon such exercise; and (g) the amount of cash and/or the amount and kind of
Securities to be deposited in the Senior Security Account for such Series. The
Custodian shall, upon its receipt of the net total amount payable to the Fund,
if any, specified in such Certificate make the payments, if any, and the
deposits, if any, into the Senior Security Account as specified in the
Certificate. The deposits, if any, to be made to the Margin Account shall be
made by the Custodian in accordance with the terms and conditions of the Margin
Account Agreement.
6. Whenever a Futures Contract Option which is written by the Fund and which is
a put is exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the Series to which such Option was specifically
allocated; (b) the particular Futures Contract Option exercised; (c) the type of
Futures Contract underlying such Futures Contract Option; (d) the name of the
broker or futures commission merchant through whom such Futures Contract Option
is exercised; (e) the net total amount, if any, payable to the
<PAGE>
20
Fund upon such exercise; (f) the net total amount, if any, payable by the Fund
upon such exercise; and (g) the amount and kind of Securities and/or cash to be
withdrawn from or deposited in, the Senior Security Account for such Series, if
any. The Custodian shall, upon its receipt of the net total amount payable to
the Fund, if any, specified in the Certificate, make out of the moneys and
Securities specifically allocated to such Series, the payments, if any, and the
deposits, if any, into the Senior Security Account as specified in the
Certificate. The deposits to and/or withdrawals from the Margin Account, if any,
shall be made by the Custodian in accordance with the terms and conditions of
the Margin Account Agreement.
7. Whenever the Fund purchases any Futures Contract Option identical to a
previously written Futures Contract Option described in this Article in order to
liquidate its position as a writer of such Futures Contract Option, the Fund
shall promptly deliver to the Custodian a Certificate specifying with respect to
the Futures Contract Option being purchased: (a) the Series to which such Option
is specifically allocated; (b) that the transaction is a closing transaction;
(c) the type of Future Contract and such other information as may be necessary
to identify the Futures Contract underlying the Futures Option Contract; (d) the
exercise price; (e) the premium to be paid by the Fund; (f) the expiration date;
(g) the name of the broker or futures commission merchant to whom the premium is
to be paid; and (h) the amount of cash and/or the amount and kind of Securities,
if any, to be withdrawn from the Senior Security Account for such Series. The
Custodian shall effect the withdrawals from the Senior Security Account
specified in the Certificate. The withdrawals, if any, to be made from the
Margin Account shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
8. Upon the expiration, exercise, or consummation of a closing transaction with
respect to, any Futures Contract Option written or purchased by the Fund and
described in this Article, the Custodian shall (a) delete such Futures Contract
Option from the statements delivered to the Fund pursuant to paragraph 3 of
Article III herein and, (b) make such withdrawals from and/or in the case of an
exercise such deposits into the Senior Security Account as may be specified in a
Certificate. The deposits to and/or withdrawals from the Margin Account, if any,
shall be made by the Custodian in accordance with the terms and conditions of
the Margin Account Agreement.
9. Futures Contracts acquired by the Fund through the exercise of a Futures
Contract Option described in this Article shall be subject to Article VI hereof.
<PAGE>
21
ARTICLE VIII.
SHORT SALES
1. Promptly after any short sales by any Series of the Fund, the Fund shall
promptly deliver to the Custodian a Certificate specifying: (a) the Series for
which such short sale was made; (b) the name of the issuer and the title of the
Security; (c) the number of shares or principal amount sold, and accrued
interest or dividends, if any; (d) the dates of the sale and settlement; (e) the
sale price per unit; (f) the total amount credited to the Fund upon such sale,
if any, (g) the amount of cash and/or the amount and kind of Securities, if any,
which are to be deposited in a Margin Account and the name in which such Margin
Account has been or is to be established; (h) the amount of cash and/or the
amount and kind of Securities, if any, to be deposited in a Senior Security
Account, and (i) the name of the broker through whom such short sale was made.
The Custodian shall upon its receipt of a statement from such broker confirming
such sale and that the total amount credited to the Fund upon such sale, if any,
as specified in the Certificate is held by such broker for the account of the
Custodian (or any nominee of the Custodian) as custodian of the Fund, issue a
receipt or make the deposits into the Margin Account and the Senior Security
Account specified in the Certificate.
2. In connection with the closing-out of any short sale, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to each such
closing out: (a) the Series for which such transaction is being made; (b) the
name of the issuer and the title of the Security; (c) the number of shares or
the principal amount, and accrued interest or dividends, if any, required to
effect such closing-out to be delivered to the broker; (d) the dates of
closing-out and settlement; (e) the purchase price per unit; (f) the net total
amount payable to the Fund upon such closing-out; (g) the net total amount
payable to the broker upon such closing-out; (h) the amount of cash and the
amount and kind of Securities to be withdrawn, if any, from the Margin Account;
(i) the amount of cash and/or the amount an kind of Securities, if any, to be
withdrawn from the Senior Security Account; and (j) the name of the broker
through whom the Fund is effecting such closing-out. The Custodian shall, upon
receipt of the net total amount payable to the Fund upon such closing-out, and
the return and/or cancellation of the receipts, if any, issued by the Custodian
with respect to the short sale being closed-out, pay out of the moneys held for
the account of the Fund to the broker the net total amount payable to the
broker, and make the withdrawals from the Margin Account and the Senior Security
Account, as the same are specified in the Certificate.
<PAGE>
22
ARTICLE IX.
REVERSE REPURCHASE AGREEMENTS
1. Promptly after the Fund enters into a Reverse Repurchase Agreement with
respect to Securities and money held by the Custodian hereunder, the Fund shall
deliver to the Custodian a Certificate, or in the event such Reverse Repurchase
Agreement is a Money Market Security, a Certificate or Oral Instructions
specifying: (a) the Series for which the Reverse Repurchase Agreement is
entered; (b) the total amount payable to the Fund in connection with such
Reverse Repurchase Agreement and specifically allocated to such Series; (c) the
broker or dealer through or with whom the Reverse Repurchase Agreement is
entered; (d) the amount and kind of Securities to be delivered by the Fund to
such broker or dealer; (e) the date of such Reverse Repurchase Agreement; and
(f) the amount of cash and/or the amount and kind of Securities, if any,
specifically allocated to such Series to be deposited in a Senior Security
Account for such Series in connection with such Reverse Repurchase Agreement.
The Custodian shall, upon receipt of the total amount payable to the Fund
specified in the Certificate or Oral Instructions make the delivery to the
broker or dealer, and the deposits, if any, to the Senior Security Account,
specified in such Certificate or Oral Instructions.
2. Upon the termination of a Reverse Repurchase Agreement described in preceding
paragraph 1 of this Article, the Fund shall promptly deliver a Certificate or,
in the event such Reverse Repurchase Agreement is a Money Market Security, a
Certificate or Oral Instructions to the Custodian specifying: (a) the Reverse
Repurchase Agreement being terminated and the Series for which same was entered;
(b) the total amount payable by the Fund in connection with such termination;
(c) the amount and kind of Securities to be received by the Fund and
specifically allocated to such Series in connection with such termination; (d)
the date of termination; (e) the name of the broker or dealer with or through
whom the Reverse Repurchase Agreement is to be terminated; and (f) the amount of
cash and/or the amount and kind of Securities to be withdrawn from the Senior
Securities Account for such Series. The Custodian shall, upon receipt of the
amount and kind of Securities to be received by the Fund specified in the
Certificate or Oral Instructions, make the payment to the broker or dealer, and
the withdrawals, if any, from the Senior Security Account, specified in such
Certificate or Oral Instructions.
<PAGE>
23
ARTICLE X.
LOAN OF PORTFOLIO SECURITIES OF THE FUND
1. Promptly after each loan of portfolio Securities specifically allocated to a
Series held by the Custodian hereunder, the Fund shall deliver or cause to be
delivered to the Custodian a Certificate specifying with respect to each such
loan: (a) the Series to which the loaned Securities are specifically allocated;
(b) the name of the issuer and the title of the Securities, (c) the number of
shares or the principal amount loaned, (d) the date of loan and delivery, (e)
the total amount to be delivered to the Custodian against the loan of the
Securities, including the amount of cash collateral and the premium, if any,
separately identified, and (f) the name of the broker, dealer, or financial
institution to which the loan was made. The Custodian shall deliver the
Securities thus designated to the broker, dealer or financial institution to
which the loan was made upon receipt of the total amount designated as to be
delivered against the loan of Securities. The Custodian may accept payment in
connection with a delivery otherwise than through the Book-Entry System or
Depository only in the form of a certified or bank cashier's check payable to
the order of the Fund or the Custodian drawn on New York Clearing House funds
and may deliver Securities in accordance with the customs prevailing among
dealers in securities.
2. Promptly after each termination of the loan of Securities by the Fund, the
Fund shall deliver or cause to be delivered to the Custodian a Certificate
specifying with respect to each such loan termination and return of Securities:
(a) the Series to which the loaned Securities are specifically allocated; (b)
the name of the issuer and the title of the Securities to be returned, (c) the
number of shares or the principal amount to be returned, (d) the date of
termination, (e) the total amount to be delivered by the Custodian (including
the cash collateral for such Securities minus any offsetting credits as
described in said Certificate), and (f) the name of the broker, dealer, or
financial institution from which the Securities will be returned. The Custodian
shall receive all Securities returned from the broker, dealer, or financial
institution to which such Securities were loaned and upon receipt thereof shall
pay, out of the moneys held for the account of the Fund, the total amount
payable upon such return of Securities as set forth in the Certificate.
<PAGE>
24
ARTICLE XI.
CONCERNING MARGIN ACCOUNTS, SENIOR SECURITY
ACCOUNTS, AND COLLATERAL ACCOUNTS
1. The Custodian shall, from time to time, make such deposits to, or withdrawals
from, a Senior Security Account as specified in a Certificate received by the
Custodian. Such Certificate shall specify the Series for which such deposit or
withdrawal is to be made and the amount of cash and/or the amount and kind of
Securities specifically allocated to such Series to be deposited in, or
withdrawn from, such Senior Security Account for such Series. In the event that
the Fund fails to specify in a Certificate the Series, the name of the issuer,
the title and the number of shares or the principal amount of any particular
Securities to be deposited by the Custodian into, or withdrawn from, a Senior
Securities Account, the Custodian shall be under no obligation to make any such
deposit or withdrawal and shall promptly so notify the Fund.
2. The Custodian shall make deliveries or payments from a Margin Account to the
broker, dealer, futures commission merchant or Clearing Member in whose name, or
for whose benefit, the account was established as specified in the Margin
Account Agreement.
3. Amounts received by the Custodian as payments or distributions with respect
to Securities deposited in any Margin Account shall be dealt with in accordance
with the terms and conditions of the Margin Account Agreement.
4. The Custodian shall have a continuing lien and security interest in and to
any property at any time held by the Custodian in any Collateral Account
described herein. In accordance with applicable law the Custodian may enforce
its lien and realize on any such property whenever the Custodian has made
payment or delivery pursuant to any Put Option guarantee letter or similar
document or any receipt issued hereunder by the Custodian. In the event the
Custodian should realize on any such property net proceeds which are less than
the Custodian's obligations under any Put Option guarantee letter or similar
document or any receipt, such deficiency shall be a debt owed the Custodian by
the Fund within the scope of Article XIV herein.
5. On each business day the Custodian shall furnish the Fund with a written
statement with respect to each Margin Account in which money or Securities are
held specifying as of the close of business on the previous business day: (a)
the name of the Margin Account; (b) the amount and kind of Securities held
therein; and (c) the amount of money held therein. The Custodian shall make
available upon request to any broker, dealer, or futures commission merchant
specified
<PAGE>
25
in the name of a Margin Account a written copy of the statement furnished the
Fund with respect to such Margin Account.
6. Promptly after the close of business on each business day in which cash
and/or Securities are maintained in a Collateral Account for any Series, the
Custodian shall furnish the Fund with a written statement with respect to such
Collateral Account specifying the amount of cash and/or the amount and kind of
Securities held therein. No later than the close of business next succeeding the
delivery to the Fund of such statement, the Fund shall furnish to the Custodian
a written Certificate specifying the then market value of the Securities
described in such statement. In the event such then market value is indicated to
be less than the Custodian's obligation with respect to any outstanding Put
Option guarantee letter or similar document, the Fund shall promptly specify in
a written Certificate the additional cash and/or Securities to be deposited in
such Collateral Account to eliminate such deficiency.
ARTICLE XII.
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Fund shall furnish to the Custodian a copy of the resolution of the Board
of Directors of the Fund, certified by the Secretary or any Assistant Secretary,
either (i) setting forth with respect to the Series specified therein the date
of the declaration of a dividend or distribution, the date of payment thereof,
the record date as of which shareholders entitled to payment shall be
determined, the amount payable per Share of such Series to the shareholders of
record as of that date and the total amount payable to the Dividend Agent and
any sub-dividend agent or co-dividend agent of the Fund on the payment date, or
(ii) authorizing with respect to the Series specified therein the declaration of
dividends and distributions on a daily basis and authorizing the Custodian to
rely on Oral Instructions or a Certificate setting forth the date of the
declaration of such dividend or distribution, the date of payment thereof, the
record date as of which shareholders entitled to payment shall be determined,
the amount payable per Share of such Series to the shareholders of record as of
that date and the total amount payable to the Dividend Agent on the payment
date.
2. Upon the payment date specified in such resolution, Oral Instructions or
Certificate, as the case may be, the Custodian shall pay out of the moneys held
for the account of each Series the total amount payable to the Dividend Agent
and any sub-dividend agent or co-dividend agent of the Fund with respect to such
Series.
<PAGE>
26
ARTICLE XIII.
SALE AND REDEMPTION OF SHARES
1. Whenever the Fund shall sell any Shares, it shall deliver to the Custodian a
Certificate duly specifying:
(a) The Series, the number of Shares sold, trade date, and price; and
(b) The amount of money to be received by the Custodian for the sale of such
Shares and specifically allocated to the separate account in the name of such
Series.
2. Upon receipt of such money from the Transfer Agent, the Custodian shall
credit such money to the separate account in the name of the Series for which
such money was received.
3. Upon issuance of any Shares of any Series described in the foregoing
provisions of this Article, the Custodian shall pay, out of the money held for
the account of such Series, all original issue or other taxes required to be
paid by the Fund in connection with such issuance upon the receipt of a
Certificate specifying the amount to be paid.
4. Except as provided hereinafter, whenever the Fund desires the Custodian to
make payment out of the money held by the Custodian hereunder in connection with
a redemption of any Shares, it shall furnish to the Custodian a Certificate
specifying:
(a) The number and Series of Shares redeemed; and
(b) The amount to be paid for such Shares.
5. Upon receipt from the Transfer Agent of an advice setting forth the Series
and number of Shares received by the Transfer Agent for redemption and that such
Shares are in good form for redemption, the Custodian shall make payment to the
Transfer Agent out of the moneys held in the separate account in the name of the
Series the total amount specified in the Certificate issued pursuant to the
foregoing paragraph 4 of this Article.
6. Notwithstanding the above provisions regarding the redemption of any Shares,
whenever any Shares are redeemed pursuant to any check redemption privilege
which may from time to time be offered by the Fund, the Custodian, unless
otherwise instructed by a Certificate, shall, upon receipt of an advice from the
Fund or its agent setting forth that the redemption is in good form for
redemption in accordance with the check redemption procedure, honor the check
presented as part of such check redemption privilege out of the moneys held
<PAGE>
27
in the separate account of the Series of the Shares being redeemed.
ARTICLE XIV.
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian, should in its sole discretion advance funds on behalf of
any Series which results in an overdraft because the moneys held by the
Custodian in the separate account for such Series shall be insufficient to pay
the total amount payable upon a purchase of Securities specifically allocated to
such Series, as set forth in a Certificate or Oral Instructions, or which
results in an overdraft in the separate account of such Series for some other
reason, or if the Fund is for any other reason indebted to the Custodian with
respect to a Series, including any indebtedness to The Bank of New York under
the Fund's Cash Management and Related Services Agreement, (except a borrowing
for investment or for temporary or emergency purposes using Securities as
collateral pursuant to a separate agreement and subject to the provisions of
paragraph 2 of this Article), such overdraft or indebtedness shall be deemed to
be a loan made by the Custodian to the Fund for such Series payable on demand
and shall bear interest from the date incurred at a rate per annum (based on a
360-day year for the actual number of days involved) equal to 1/2% over
Custodian's prime commercial lending rate in effect from time to time, such rate
to be adjusted on the effective date of any change in such prime commercial
lending rate but in no event to be less than 6% per annum. In addition, the Fund
hereby agrees that the Custodian shall have a continuing lien and security
interest in and to any property specifically allocated to such Series at any
time held by it for the benefit of such Series or in which the Fund may have an
interest which is then in the Custodian's possession or control or in possession
or control of any third party acting in the Custodian's behalf. The Fund
authorizes the Custodian, in its sole discretion, at any time to charge any such
overdraft or indebtedness together with interest due thereon against any balance
of account standing to such Series' credit on the Custodian's books. In
addition, the Fund hereby covenants that on each Business Day on which either it
intends to enter a Reverse Repurchase Agreement and/ or otherwise borrow from a
third party, or which next succeeds a Business Day on which at the close of
business the Fund had outstanding a Reverse Repurchase Agreement or such a
borrowing, it shall prior to 9 a.m., New York City time, advise the Custodian,
in writing, of each such borrowing, shall specify the Series to which the same
relates, and shall not incur any indebtedness not so specified other than from
the Custodian.
2. The Fund will cause to be delivered to the Custodian by any bank (including,
if the borrowing is pursuant to a
<PAGE>
28
separate agreement, the Custodian) from which it borrows money for investment or
for temporary or emergency purposes using Securities held by the Custodian
hereunder as collateral for such borrowings, a notice or undertaking in the form
currently employed by any such bank setting forth the amount which such bank
will loan to the Fund against delivery of a stated amount of collateral. The
Fund shall promptly deliver to the Custodian a Certificate specifying with
respect to each such borrowing: (a) the Series to which such borrowing relates;
(b) the name of the bank, (c) the amount and terms of the borrowing, which may
be set forth by incorporating by reference an attached promissory note, duly
endorsed by the Fund, or other loan agreement, (d) the time and date, if known,
on which the loan is to be entered into, (e) the date on which the loan becomes
due and payable, (f) the total amount payable to the Fund on the borrowing date,
(g) the market value of Securities to be delivered as collateral for such loan,
including the name of the issuer, the title and the number of shares or the
principal amount of any particular Securities, and (h) a statement specifying
whether such loan is for investment purposes or for temporary or emergency
purposes and that such loan is in conformance with the Investment Company Act of
1940 and the Fund's prospectus. The Custodian shall deliver on the borrowing
date specified in a Certificate the specified collateral and the executed
promissory note, if any, against delivery by the lending bank of the total
amount of the loan payable, provided that the same conforms to the total amount
payable as set forth in the Certificate. The Custodian may, at the option of the
lending bank, keep such collateral in its possession, but such collateral shall
be subject to all rights therein given the lending bank by virtue of any
promissory note or loan agreement. The Custodian shall deliver such Securities
as additional collateral as may be specified in a Certificate to collateralize
further any transaction described in this paragraph. The Fund shall cause all
Securities released from collateral status to be returned directly to the
Custodian, and the Custodian shall receive from time to time such return of
collateral as may be tendered to it. In the event that the Fund fails to specify
in a Certificate the Series, the name of the issuer, the title and number of
shares or the principal amount of any particular Securities to be delivered as
collateral by the Custodian, the Custodian shall not be under any obligation to
deliver any Securities and shall promptly notify the Fund of such action.
ARTICLE XV.
INSTRUCTIONS
1. With respect to any software provided by the Custodian to a Fund, its
Advisors or Sub-Advisors in order for the Fund to transmit Instructions to the
Custodian (the "Software"), the Custodian grants to such Fund, its Advisors
<PAGE>
29
or Sub-Advisors a personal, nontransferable and nonexclusive license to use the
Software solely for the purpose of transmitting Instructions to, and receiving
communications from, the Custodian in connection with its account(s). The Fund
agrees not to sell, reproduce, lease or otherwise provide, directly or
indirectly, the Software or any portion thereof to any third party without the
prior written consent of the Custodian which consent is herewith specifically
granted to American United Life Insurance Company in its capacity as Advisor to
the Fund and to any Sub-Advisor duly appointed by the Advisor.
2. The Fund shall obtain and maintain at its own cost and expense all equipment
and services, including but not limited to communications services, necessary
for it to utilize the Software and transmit Instructions to the Custodian. The
Custodian shall not be responsible for the reliability, compatibility with the
Software or availability of any such equipment or services or the performance or
nonperformance by any nonparty to this Custody Agreement.
3. The Fund acknowledges that the Software, all data bases made available to the
Fund, and to the Fund's Advisors or Sub-Advisors by utilizing the Software
(other than data bases relating solely to the assets of the Fund and
transactions with respect thereto), and any proprietary data, processes,
information and documentation (other than which are or become part of the public
domain or are legally required to be made available to the public)
(collectively, the "Information"), are the exclusive and confidential property
of the Custodian. The Fund shall keep the Information confidential by using the
same care and discretion that the Fund uses with respect to its own confidential
property and trade secrets and shall neither make nor permit any disclosure
without the prior written consent of the Custodian. Upon termination of this
Agreement or the Software license granted hereunder for any reason, the Fund
shall return to the Custodian all copies of the Information which are in its
possession or under its control or which the Fund distributed to third parties
or shall certify the destruction thereof.
4. The Custodian reserves the right to modify the Software from time to time
upon reasonable prior notice and the Fund shall install new releases of the
Software as the Custodian may direct. The Fund agrees not to modify or attempt
to modify the Software without the Custodian's prior written consent. The Fund
acknowledges that any modifications to the Software, whether by the Fund or the
Custodian and whether with or without the Custodian's consent, shall become the
property of the Custodian.
5. The Custodian makes no warranties or representations of any kind with regard
to the Software or the method(s) by which the Fund may transmit Instructions to
the Custodian,
<PAGE>
30
express or implied, including but not limited to any implied warranties or
merchantability or fitness for a particular purpose.
6. Where the method for transmitting Instructions by the Fund involves an
automatic systems acknowledgment by the Custodian of its receipt of such
Instructions, then in the absence of such acknowledgment the Custodian shall not
be liable for any failure to act pursuant to such Instructions, the Fund may not
claim that such Instructions were received by the Custodian, and the Fund shall
deliver a Certificate by some other means.
7. (a) The Fund agrees that where it delivers to the Custodian Instructions
hereunder, it shall be the Fund's sole responsibility to ensure that only
persons duly authorized by the Fund transmit such Instructions to the Custodian.
The Fund will cause all persons transmitting Instructions to the Custodian to
treat applicable user and authorization codes, passwords and authentication keys
with extreme care, and irrevocably authorizes the Custodian to act in accordance
with and rely upon Instructions received by it pursuant hereto.
(b) The Fund hereby represents, acknowledges and agrees that it is fully
informed of the protections and risks associated with the various methods of
transmitting Instructions to the Custodian and that there may be more secure
methods of transmitting instructions to the Custodian than the method(s)
selected by the Fund. The Fund hereby agrees that the security procedures (if
any) to be followed in connection with the Fund's transmission of Instructions
provide to it a commercially reasonable degree of protection in light of its
particular needs and circumstances.
8. The Fund hereby presents, warrants and covenants to the Custodian that this
Agreement has been duly approved by a resolution of its Board of Directors, and
that its transmission of Instructions pursuant hereto shall at all times comply
with the Investment Company Act of 1940, as amended.
9. The Fund shall notify the Custodian of any errors, omissions or interruptions
in, or delay or unavailability of, its ability to send Instructions as promptly
as practicable, and in any event within 24 hours after the earliest of (i)
discovery thereof, (ii) the Business Day on which discovery should have occurred
through the exercise of reasonable care and (iii) in the case of any error, the
date of actual receipt of the earliest notice which reflects such error, it
being agreed that discovery and receipt of notice may only occur on a business
day. The Custodian shall promptly advise the Fund whenever the Custodian learns
of any errors, omissions or interruption in, or delay or unavailability of, the
Fund's ability to send Instructions.
<PAGE>
31
ARTICLE XVI.
DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF
ANY SERIES HELD OUTSIDE OF THE UNITED STATES
1. The Custodian is authorized and instructed to employ, as sub-custodian for
each Series' Foreign Securities (as such term is defined in paragraph (c)(1) of
Rule 17f-5 under the Investment Company Act of 1940, as amended) and other
assets, the foreign banking institutions and foreign securities depositories and
clearing agencies designated on Schedule I hereto ("Foreign Sub-Custodians") to
carry out their respective responsibilities in accordance with the terms of the
sub-custodian agreement between each such Foreign Sub-Custodian and the
Custodian, copies of which have been previously delivered to the Fund and
receipt of which is hereby acknowledged (each such agreement, a "Foreign Sub-
Custodian Agreement"). Upon receipt of a Certificate, together with a certified
resolution substantially in the form attached as Exhibit E of the Fund's Board
of Directors, the Fund may designate any additional foreign sub-custodian with
which the Custodian has an agreement for such entity to act as the Custodian's
agent, as its sub-custodian and any such additional foreign sub-custodian shall
be deemed added to Schedule I. Upon receipt of a Certificate from the Fund, the
Custodian shall cease the employment of any one or more Foreign Sub-Custodians
for maintaining custody of the Fund's assets and such Foreign Sub-Custodian
shall be deemed deleted from Schedule I.
2. Each Foreign Sub-Custodian Agreement shall be substantially in the form
previously delivered to the Fund and will not be amended in a way that
materially adversely affects the Fund without the Fund's prior written consent.
3. The Custodian shall identify on its books as belonging to each Series of the
Fund the Foreign Securities of such Series held by each Foreign Sub-Custodian.
At the election of the Fund, it shall be entitled to be subrogated to the rights
of the Custodian with respect to any claims by the Fund or any Series against a
Foreign Sub-Custodian as a consequence of any loss, damage, cost, expense,
liability or claim sustained or incurred by the Fund or any Series if and to the
extent that the Fund or such Series has not been made whole for any such loss,
damage, cost, expense, liability or claim.
4. Upon request of the Fund, the Custodian will, consistent with the terms of
the applicable Foreign Sub-Custodian Agreement, use reasonable efforts to
arrange for the independent accountants of the Fund to be afforded access to the
books and records of any Foreign Sub-Custodian insofar as such books and records
relate to the performance of such
<PAGE>
32
Foreign Sub-Custodian under its agreement with the Custodian on behalf of the
Fund.
5. The Custodian will supply to the Fund from time to time, as mutually agreed
upon, statements in respect of the securities and other assets of each Series
held by Foreign Sub-Custodians, including but not limited to, an identification
of entities having possession of each Series' Foreign Securities and other
assets, and advices or notifications of any transfers of Foreign Securities to
or from each custodial account maintained by a Foreign Sub-Custodian for the
Custodian on behalf of the Series.
6. The Custodian shall furnish annually to the Fund, as mutually agreed upon,
information concerning the Foreign Sub-Custodians employed by the Custodian.
Such information shall be similar in kind and scope to that furnished to the
Fund in connection with the Fund's initial approval of such Foreign
Sub-Custodians and, in any event, shall include information pertaining to (i)
the Foreign Custodians' financial strength, general reputation and standing in
the countries in which they are located and their ability to provide the
custodial services required, and (ii) whether the Foreign Sub-Custodians would
provide a level of safeguards for safekeeping and custody of securities not
materially different from those prevailing in the United States. The Custodian
shall monitor the general operating performance of each Foreign Sub-Custodian.
The Custodian agrees that it will use reasonable care in monitoring compliance
by each Foreign Sub-Custodian with the terms of the relevant Foreign
Sub-Custodian Agreement and that if it learns of any breach of such Foreign Sub-
Custodian Agreement believed by the Custodian to have a material adverse effect
on the Fund or any Series it will promptly notify the Fund of such breach. The
Custodian also agrees to use reasonable and diligent efforts to enforce its
rights under the relevant Foreign Sub-Custodian Agreement. In addition, the
Custodian will promptly inform the Fund in the event that the Custodian learns
of a material adverse change in the financial condition of a Foreign
Sub-Custodian or any material loss of the assets of the Fund or, in the case of
any Foreign Sub-Custodian not the subject of an appropriate exemptive order from
the Securities and Exchange Commission, is notified by such foreign
Sub-Custodian that there appears to be a substantial likelihood that its
shareholders' equity will decline below $200 million (in U.S. dollars or the
equivalent thereof) or that its shareholders' equity has declined below $200
million (in each case computed in accordance with generally accepted U.S.
accounting principles).
7. The Custodian shall transmit promptly to the Fund all notices, reports or
other written information received pertaining to the Fund's Foreign Securities,
including without
<PAGE>
33
limitation, notices of corporate action, proxies and proxy solicitation
materials.
8. Notwithstanding any provision of this Agreement to the contrary, settlement
and payment for securities received for the account of any Series and delivery
of securities maintained for the account of such Series may be effected in
accordance with the customary or established securities trading or securities
processing practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivery of securities to the
purchaser thereof or to a dealer therefor (or an agent for such purchaser or
dealer) against a receipt with the expectation of receiving later payment for
such securities from such purchaser or dealer.
9. Each Foreign Sub-Custodian Agreement shall require the Foreign Sub-Custodian
to exercise reasonable care in the performance of its duties and to indemnify,
and hold harmless, the Custodian and the Fund from and against any and all loss,
damage, cost, expense, liability or claim arising out of or in connection with
the Foreign Sub-Custodian's performance of such obligations.
10. Notwithstanding any other provision in this Agreement to the contrary, with
respect to any losses or damages arising out of or relating to any actions or
omissions of any Foreign Sub-Custodian the sole responsibility and liability of
the Custodian shall be to take appropriate action at the Fund's expense to
recover such loss or damage from the Foreign Sub-Custodian. It is expressly
understood and agreed that the Custodian's sole responsibility and liability
shall be limited to amounts so recovered from the Foreign Sub-Custodian.
ARTICLE XVII.
FX TRANSACTIONS
1. Whenever the Fund shall enter into an FX Transaction, the Fund shall promptly
deliver to the Custodian a Certificate or Oral Instructions specifying with
respect to such FX Transaction: (a) the Series to which such FX Transaction is
specifically allocated; (b) the type and amount of Currency to be purchased by
the Fund; (c) the type and amount of Currency to be sold by the Fund; (d) the
date on which the Currency to be purchased is to be delivered; (e) the date on
which the Currency to be sold is to be delivered; and (f) the name of the person
from whom or through whom such currencies are to be purchased and sold. Unless
otherwise instructed by a Certificate or Oral Instructions, the Custodian shall
deliver, or shall instruct a Foreign Sub-Custodian to deliver, the Currency to
be sold on the date on
<PAGE>
34
which such delivery is to be made, as set forth in the Certificate, and shall
receive, or instruct a Foreign Sub-Custodian to receive, the Currency to be
purchased on the date as set forth in the Certificate.
2. Where the Currency to be sold is to be delivered on the same day as the
Currency to be purchased, as specified in the Certificate or Oral Instructions,
the Custodian or a Foreign Sub-Custodian may arrange for such deliveries and
receipts to be made in accordance with the customs prevailing from time to time
among brokers or dealers in Currencies, and such receipt and delivery may not be
completed simultaneously. The Fund assumes all responsibility and liability for
all credit risks involved in connection with such receipts and deliveries, which
responsibility and liability shall continue until the Currency to be received by
the Fund has been received in full.
3. Any FX Transaction effected by the Custodian in connection with this
Agreement may be entered with the Custodian, any office, branch or subsidiary of
The Bank of New York Company, Inc., or any Foreign Sub-Custodian acting as
principal or otherwise through customary banking channels. The Fund may issue a
standing Certificate with respect to FX Transaction but the Custodian may
establish rules or limitations concerning any foreign exchange facility made
available to the Fund. The Fund shall bear all risks of investing in Securities
or holding Currency. Without limiting the foregoing, the Fund shall bear the
risks that rules or procedures imposed by a Foreign Sub-Custodian or foreign
depositories, exchange controls, asset freezes or other laws, rules, regulations
or orders shall prohibit or impose burdens or costs on the transfer to, by or
for the account of the Fund of Securities or any cash held outside the Fund's
jurisdiction or denominated in Currency other than its home jurisdiction or the
conversion of cash from one Currency into another currency. The Custodian shall
not be obligated to substitute another Currency for a Currency (including a
Currency that is a component of a Composite Currency Unit) whose
transferability, convertibility or availability has been affected by such law,
regulation, rule or procedure. Neither the Custodian nor any Foreign
Sub-Custodian shall be liable to the Fund for any loss resulting from any of the
foregoing events.
ARTICLE XVIII.
CONCERNING THE CUSTODIAN
1. Except as hereinafter provided, or as provided in Article XVI, neither the
Custodian nor its nominee shall be liable for any loss or damage, including
counsel fees, resulting from its action or omission to act or otherwise,
<PAGE>
35
either hereunder or under any Margin Account Agreement, except for any such loss
or damage arising out of its own negligence or willful misconduct. In no event
shall the Custodian be liable to the Fund or any third party for special,
indirect or consequential damages or lost profits or loss of business, arising
under or in connection with this Agreement, even if previously informed of the
possibility of such damages and regardless of the form of action. The Custodian
may, with respect to questions of law arising hereunder or under any Margin
Account Agreement, apply for and obtain the advice and opinion of counsel to the
Fund at the Fund's expense, or of its own counsel, at its own expense, and shall
be fully protected with respect to anything done or omitted by it in good faith
in conformity with such advice or opinion. The Custodian shall be liable to the
Fund for any loss or damage resulting from the use of the Book-Entry System or
any Depository arising by reason of any negligence or willful misconduct on the
part of the Custodian or any of its employees or agents.
2. Without limiting the generality of the foregoing, the Custodian shall be
under no obligation to inquire into, and shall not be liable for:
(a) The validity of the issue of any Securities purchased, sold, or written by
or for the Fund, the legality of the purchase, sale or writing thereof, or the
propriety of the amount paid or received therefor;
(b) The legality of the sale or redemption of any Shares, or the propriety of
the amount to be received or paid therefor;
(c) The legality of the declaration or payment of any dividend by the Fund;
(d) The legality of any borrowing by the Fund using Securities as collateral;
(e) The legality of any loan of portfolio Securities, nor shall the Custodian be
under any duty or obligation to see to it that any cash collateral delivered to
it by a broker, dealer, or financial institution or held by it at any time as a
result of such loan of portfolio Securities of the Fund is adequate collateral
for the Fund against any loss it might sustain as a result of such loan. The
Custodian specifically, but not by way of limitation, shall not be under any
duty or obligation periodically to check or notify the Fund that the amount of
such cash collateral held by it for the Fund is sufficient collateral for the
Fund, but such duty or obligation shall be the sole responsibility of the Fund.
In addition, the Custodian shall be under no duty or obligation to see that any
broker, dealer or financial institution to which portfolio Securities of the
Fund are lent pursuant to
<PAGE>
36
Article X of this Agreement makes payment to it of any dividends or interest
which are payable to or for the account of the Fund during the period of such
loan or at the termination of such loan, provided, however, that the Custodian
shall promptly notify the Fund in the event that such dividends or interest are
not paid and received when due; or
(f) The sufficiency or value of any amounts of money and/or Securities held in
any Margin Account, Senior Security Account or Collateral Account in connection
with transactions by the Fund. In addition, the Custodian shall be under no duty
or obligation to see that any broker, dealer, futures commission merchant or
Clearing Member makes payment to the Fund of any variation margin payment or
similar payment which the Fund may be entitled to receive from such broker,
dealer, futures commission merchant or Clearing Member, to see that any payment
received by the Custodian from any broker, dealer, futures commission merchant
or Clearing Member is the amount the Fund is entitled to receive, or to notify
the Fund of the Custodian's receipt or non-receipt of any such payment.
3. Provided the Custodian acts without negligence or willful misconduct, the
Custodian shall not be liable for, or considered to be the Custodian of, any
money, whether or not represented by any check, draft, or other instrument for
the payment of money, received by it on behalf of the Fund until the Custodian
actually receives and collects such money directly or by the final crediting of
the account representing the Fund's interest at the Book-Entry System or the
Depository.
4. The Custodian shall have no responsibility and shall not be liable for
ascertaining or acting upon any calls, conversions, exchange offers, tenders,
interest rate changes or similar matters relating to Securities held in the
Depository, unless the Custodian shall have actually received timely notice from
the Depository. In no event shall the Custodian have any responsibility or
liability for the failure of the Depository to collect, or for the late
collection or late crediting by the Depository of any amount payable upon
Securities deposited in the Depository which may mature or be redeemed, retired,
called or otherwise become payable. However, upon receipt of a Certificate from
the Fund of an overdue amount on Securities held in the Depository the Custodian
shall make a claim against the Depository on behalf of the Fund, except that the
Custodian shall not be under any obligation to appear in, prosecute or defend
any action suit or proceeding in respect to any Securities held by the
Depository which in its opinion may involve it in expense or liability, unless
indemnity satisfactory to it against all expense and liability be furnished as
often as may be required.
<PAGE>
37
5. The Custodian shall not be under any duty or obligation to take action to
effect collection of any amount due to the Fund from the Transfer Agent of the
Fund nor to take any action to effect payment or distribution by the Transfer
Agent of the Fund of any amount paid by the Custodian to the Transfer Agent of
the Fund in accordance with this Agreement.
6. The Custodian shall not be under any duty or obligation to take action to
effect collection of any amount if the Securities upon which such amount is
payable are in default, or if payment is refused after due demand or
presentation, unless and until (i) it shall be directed to take such action by a
Certificate and (ii) it shall be assured to its satisfaction of reimbursement of
its costs and expenses in connection with any such action.
7. The Custodian may in addition to the employment of Foreign Sub-Custodians
pursuant to Article XVI appoint one or more banking institutions as Depository
or Depositories, as Sub-Custodian or Sub-Custodians, or as Co-Custodian or
Co-Custodians including, but not limited to, banking institutions located in
foreign countries, of Securities and moneys at any time owned by the Fund, upon
such terms and conditions as may be approved in a Certificate or contained in an
agreement executed by the Custodian, the Fund and the appointed institution.
8. The Custodian shall not be under any duty or obligation (a) to ascertain
whether any Securities at any time delivered to, or held by it or by any Foreign
Sub-Custodian, for the account of the Fund and specifically allocated to a
Series are such as properly may be held by the Fund or such Series under the
provisions of its then current prospectus, or (b) to ascertain whether any
transactions by the Fund, whether or not involving the Custodian, are such
transactions as may properly be engaged in by the Fund.
9. The Custodian shall be entitled to receive and the Fund agrees to pay to the
Custodian all out-of-pocket expenses and such compensation as may be agreed upon
from time to time in writing between the Custodian and the Fund. The Custodian
may charge such compensation and any expenses with respect to a Series incurred
by the Custodian in the performance of its duties pursuant to such agreement
against any money specifically allocated to such Series. Unless and until the
Fund instructs the Custodian by a Certificate to apportion any loss, damage,
liability or expense among the Series in a specified manner, the Custodian shall
also be entitled to charge against any money held by it for the account of a
Series such Series' pro-rata share (based on such Series net asset value at the
time of the charge to the aggregate net asset value of all Series at that time)
of the amount of any loss, damage, liability or expense, including counsel fees,
for which it shall be entitled to reimbursement under the
<PAGE>
38
provisions of this Agreement. The expenses for which the Custodian shall be
entitled to reimbursement hereunder shall include, but are not limited to, the
expenses of sub-custodians and foreign branches of the Custodian incurred in
settling outside of New York City transactions involving the purchase and sale
of Securities of the Fund.
10. The Custodian shall be entitled to rely upon any Certificate, notice or
other instrument in writing received by the Custodian and reasonably believed by
the Custodian to be a Certificate. The Custodian shall be entitled to rely upon
any Oral Instructions actually received by the Custodian hereinabove provided
for. The Fund agrees to forward to the Custodian a Certificate or facsimile
thereof confirming such Oral Instructions in such manner so that such
Certificate or facsimile thereof is received by the Custodian, whether by hand
delivery, telecopier or other similar device, or otherwise, by the close of
business of the same day that such Oral Instructions are given to the Custodian.
The Fund agrees that the fact that such confirming instructions are not
received, or that contrary instructions are received, by the Custodian shall in
no way affect the validity of the transactions or enforceability of the
transactions hereby authorized by the Fund. The Fund agrees that the Custodian
shall incur no liability to the Fund in acting upon Oral Instructions given to
the Custodian hereunder concerning such transactions provided such instructions
reasonably appear to have been received from an Officer in accordance with
procedures for providing Oral Instructions agreed to by the Custodian and the
Fund. In the event the Custodian receives a Certificate contradicting Oral
Instructions before the Custodian commences to act upon Oral Instructions, the
Custodian shall cease acting upon the Oral Instructions and request a clarifying
Certificate from the Fund.
11. The Custodian shall be entitled to rely upon any instrument, instruction or
notice received by the Custodian and reasonably believed by the Custodian to be
given in accordance with the terms and conditions of any Margin Account
Agreement. Without limiting the generality of the foregoing, the Custodian shall
be under no duty to inquire into, and shall not be liable for, the accuracy of
any statements or representations contained in any such instrument or other
notice including, without limitation, any specification of any amount to be paid
to a broker, dealer, futures commission merchant or Clearing Member.
12. The books and records pertaining to the Fund which are in the possession of
the Custodian shall be the property of the Fund. Such books and records shall be
prepared and maintained by the Custodian as required by the Investment Company
Act of 1940, as amended, and other applicable securities laws and rules and
regulations. The Fund, or the Fund's authorized representatives, shall have
access to such
<PAGE>
39
books and records during the Custodian's normal business hours. Upon the
reasonable request of the Fund, copies of any such books and records shall be
provided by the Custodian to the Fund or the Fund's authorized representative,
and the Fund shall reimburse the Custodian its expenses of providing such
copies. Upon reasonable request of the Fund, the Custodian shall provide in hard
copy or on micro-film, whichever the Fund elects, any records included in any
such delivery which are maintained by the Custodian on a computer disc, or are
similarly maintained, and the Fund shall reimburse the Custodian for its
expenses of providing such hard copy or micro-film.
13. The Custodian shall provide the Fund with any report obtained by the
Custodian on the system of internal accounting control of the Book-Entry System,
the Depository or O.C.C., and with such reports on its own systems of internal
accounting control as the Fund may reasonably request from time to time.
14. The Fund agrees to indemnify the Custodian against and save the Custodian
harmless from all liability, claims, losses and demands whatsoever, including
attorney's fees, howsoever arising or incurred because of or in connection with
this Agreement, including the Custodian's payment or non-payment of checks
pursuant to paragraph 6 of Article XIII as part of any check redemption
privilege program of the Fund, except for any such liability, claim, loss and
demand arising out of the Custodian's own negligence or willful misconduct.
15. Subject to the foregoing provisions of this Agreement, including, without
limitation, those contained in Article XVI and XVII the Custodian may deliver
and receive Securities, and receipts with respect to such Securities, and
arrange for payments to be made and received by the Custodian in accordance with
the customs prevailing from time to time among brokers or dealers in such
Securities. When the Custodian is instructed to deliver Securities against
payment, delivery of such Securities and receipt of payment therefor may not be
completed simultaneously. The Fund assumes all responsibility and liability for
all credit risks involved in connection with the Custodian's delivery of
Securities pursuant to instructions of the Fund, which responsibility and
liability shall continue until final payment in full has been received by the
Custodian.
16. The Custodian shall have no duties or responsibilities whatsoever except
such duties and responsibilities as are specifically set forth in this Agree-
ment, and no covenant or obligation shall be implied in this Agreement against
the Custodian.
<PAGE>
40
ARTICLE XIX.
TERMINATION
1. Either of the parties hereto may terminate this Agreement by giving to the
other party a notice in writing specifying the date of such termination, which
shall be not less than one hundred eighty (180) days after the date of giving of
such notice. In the event such notice is given by the Fund, it shall be
accompanied by a copy of a resolution of the Board of Directors of the Fund,
certified by the Secretary or any Assistant Secretary, electing to terminate
this Agreement and designating a successor custodian or custodians, each of
which shall be a bank or trust company having not less than $2,000,000 aggregate
capital, surplus and undivided profits. In the event such notice is given by the
Custodian, the Fund shall, on or before the termination date, deliver to the
Custodian a copy of a resolution of the Board of Directors of the Fund,
certified by the Secretary or any Assistant Secretary, designating a successor
custodian or custodians. In the absence of such designation by the Fund, the
Custodian may designate a successor custodian which shall be a bank or trust
company having not less than $2,000,000 aggregate capital, surplus and undivided
profits. Upon the date set forth in such notice this Agreement shall terminate,
and the Custodian shall upon receipt of a notice of acceptance by the successor
custodian on that date deliver directly to the successor custodian all
Securities and moneys then owned by the Fund and held by it as Custodian, after
deducting all fees, expenses and other amounts for the payment or reimbursement
of which it shall then be entitled.
2. If a successor custodian is not designated by the Fund or the Custodian in
accordance with the preceding paragraph, the Fund shall upon the date specified
in the notice of termination of this Agreement and upon the delivery by the
Custodian of all Securities (other than Securities held in the Book-Entry System
which cannot be delivered to the Fund) and moneys then owned by the Fund be
deemed to be its own custodian and thereafter the Custodian shall be relieved of
all duties and responsibilities pursuant to this Agreement, other than the duty
with respect to Securities held in the Book Entry System which cannot be
delivered to the Fund to hold such Securities hereunder in accordance with this
Agreement.
ARTICLE XX.
MISCELLANEOUS
1. Notwithstanding any other provision of this Custody Agreement, the parties
agree that the assets and liabilities
<PAGE>
41
of each Series are separate and distinct from the assets and liabilities of each
other Series and that no Series shall be liable or shall be charged for any
debt, obligation or liability of any other Series, whether arising under this
Custody Agreement or otherwise.
2. The Custodian agrees that all book, records, information and data pertaining
to the business of the Fund which are exchanged or received pursuant to the
negotiation or administration of this Custody Agreement shall be treated by the
Custodian as confidential information unless and until such information is or
becomes generally available to the public or is or becomes available to the
Custodian from a source other than the Fund. The Custodian agrees that it and
its employees and counsel shall use such information only for purposes of acting
as custodian and consulting with its counsel with respect thereto, and shall not
authorize disclosure of such information except with the Fund's written consent.
Notwithstanding the foregoing, the Custodian may disclose such information (i)
as required by law, regulatory authority or a court of competent jurisdiction,
(ii) as otherwise contemplated by this Custody Agreement and transactions
hereunder, or (iii) when advised by its counsel that the Custodian may be
subject to liability for failure to disclose.
3. Annexed hereto as Appendix A is a Certificate signed by two of the present
Officers of the Fund under its seal, setting forth the names and the signatures
of the present Officers of the Fund. The Fund agrees to furnish to the Custodian
a new Certificate in similar form in the event that any such present Officer
ceases to be an Officer of the Fund, or in the event that other or additional
Officers are elected or appointed. Until such new Certificate shall be received,
the Custodian shall be fully protected in acting under the provisions of this
Agreement or Oral Instructions upon the signatures of the Officers as set forth
in the last delivered Certificate.
4. Any notice or other instrument in writing, authorized or required by this
Agreement to be given to the Custodian, shall be sufficiently given if addressed
to the Custodian and mailed or delivered to it at its offices at 90 Washington
Street, New York, New York 10286, or at such other place as the Custodian may
from time to time designate in writing.
5. Any notice or other instrument in writing, authorized or required by this
Agreement to be given to the Fund shall be sufficiently given if addressed to
the Fund and mailed or delivered to it at its office at the address for the Fund
first above written, or at such other place as the Fund may from time to time
designate in writing.
<PAGE>
42
6. This Agreement may not be amended or modified in any manner except by a
written agreement executed by both parties with the same formality as this
Agreement and approved by a resolution of the Board of Directors of the Fund.
7. This Agreement shall extend to and shall be binding upon the parties hereto,
and their respective successors and assigns; provided, however, that this
Agreement shall not be assignable by the Fund without the written consent of the
Custodian, or by the Custodian without the written consent of the Fund,
authorized or approved by a resolution of the Fund's Board of Directors.
8. This Agreement shall be construed in accordance with the laws of the State of
New York without giving effect to conflict of laws principles thereof. Each
party hereby consents to the jurisdiction of a state or federal court situated
in New York City, New York in connection with any dispute arising hereunder and
hereby waives its right to trial by jury.
9. This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but such counterparts shall, together,
constitute only one instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective Officers, thereunto duly authorized and their respective
seals to be hereunto affixed, as of the day and year first above written.
AUL AMERICAN SERIES FUND INC.
[SEAL] By: /s/ James W. Murphy
__________________________
Chairman & President
Attest:
/s/ Richard A. Wacker
_______________________
Secretary
THE BANK OF NEW YORK
[SEAL] By: /s/ Stephen E. Grunston
Name: Stephen E. Grunston
Title: Vice President
Attest:
/s/ Marjorie McLaughlin
_______________________
<PAGE>
APPENDIX A
I, Richard A. Wacker, the duly authorized Secretary of AUL AMERICAN SERIES FUND
INC., a Maryland corporation (the "Fund"), do hereby certify that:
The following individuals serve in the following positions with the Fund and
each has been duly elected or appointed by the Board of Directors of the Fund to
each such position and qualified therefor in conformity with the Fund's Articles
of Incorporation and By-Laws, and the signatures set forth opposite their
respective names are their true and correct signatures:
<TABLE>
<S> <C> <C>
Name Position Signature
James W. Murphy Chairman, Board of Directors /s/ James W. Murphy
and President, AUL American ________________________
Series Fund, Inc., Senior Vice
President, Corporate Finance,
American United Life Insurance
Company
James P. Shanahan Vice President, Treasurer & /s/ James P. Shanahan
Director, AUL American Series ________________________
Fund, Inc., Senior Vice President,
Pensions, American United Life
Insurance Company
Richard A. Wacker Secretary, AUL American Series /s/ Richard A. Wacker
Fund, Inc., Associate General ________________________
Counsel, American United Life
Insurance Company
</TABLE>
IN WITNESS WHEREOF, I hereunto set my hand and the seal of AUL AMERICAN SERIES
FUND INC., as of the 28th day of February, 1997.
/s/ Richard A. Wacker
____________________________
Richard A. Wacker, Secretary
[SEAL]
<PAGE>
APPENDIX B
PORTFOLIOS
Equity Portfolio
Bond Portfolio
Managed Portfolio
Tactical Asset Allocation Portfolio
Money Market Portfolio
<PAGE>
APPENDIX C
I,____________________________, a Vice President with THE BANK OF NEW YORK do
hereby designate the following publications:
The Bond Buyer
Depository Trust Company Notices
Financial Daily Card Service
JJ Kenney Municipal Bond Service
London Financial Times
New York Times
Standard & Poor's Called Bond Record
Wall Street Journal
<PAGE>
EXHIBIT A
CERTIFICATION
The undersigned, Richard A. Wacker, hereby certifies that he is the duly elected
and acting Secretary of AUL AMERICAN SERIES FUND INC., a Maryland corporation
(the "Fund"), and further certifies that the following resolution was adopted by
the Board of Directors of the Fund at a meeting duly held on February 28, 1997,
at which a quorum was at all times present and that such resolution has not been
modified or rescinded and is in full force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a Custody
Agreement between The Bank of New York and the Fund dated as of February 28,
1997, (the "Custody Agreement") is authorized and instructed on a continuous and
ongoing basis to deposit in the Book-Entry System, as defined in the Custody
Agreement, all securities eligible for deposit therein, regardless of the Series
to which the same are specifically allocated, and to utilize the Book-Entry
System to the extent possible in connection with its performance thereunder,
including, without limitation, in connection with settlements of purchases and
sales of securities, loans of securities, and deliveries and returns of
securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of AUL AMERICAN
SERIES FUND INC., as of the 28th day of February, 1997.
/s/ Richard A. Wacker
______________________________
Richard A. Wacker, Secretary
[SEAL]
<PAGE>
EXHIBIT B
CERTIFICATION
The undersigned, Richard A. Wacker, hereby certifies that he is the duly elected
and acting Secretary of AUL AMERICAN SERIES FUND INC., a Maryland corporation
(the "Fund"), and further certifies that the following resolution was adopted by
the Board of Directors of the Fund at a meeting duly held on February 28, 1997,
at which a quorum was at all times present and that such resolution has not been
modified or rescinded and is in full force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a Custody
Agreement between The Bank of New York and the Fund dated as of February 28,
1997, (the "Custody Agreement") is authorized and instructed on a continuous and
ongoing basis until such time as it receives a Certificate, as defined in the
Custody Agreement, to the contrary to deposit in the Depository, as defined in
the Custody Agreement, all securities eligible for deposit therein, regardless
of the Series to which the same are specifically allocated, and to utilize the
Depository to the extent possible in connection with its performance thereunder,
including, without limitation, in connection with settlements of purchases and
sales of securities, loans of securities, and deliveries and returns of
securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of AUL AMERICAN
SERIES FUND INC., as of the 28th day of February, 1997.
/s/ Richard A. Wacker
______________________________
Richard A. Wacker, Secretary
[SEAL]
<PAGE>
EXHIBIT B-1
CERTIFICATION
The undersigned, Richard A. Wacker, hereby certifies that he is the duly elected
and acting Secretary of AUL AMERICAN SERIES FUND INC., a Maryland corporation
(the "Fund"), and further certifies that the following resolution was adopted by
the Board of Directors of the Fund at a meeting duly held on February 28, 1997,
at which a quorum was at all times present and that such resolution has not been
modified or rescinded and is in full force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a Custody
Agreement between The Bank of New York and the Fund dated as of February 28,
1997, (the "Custody Agreement") is authorized and instructed on a continuous and
ongoing basis until such time as it receives a Certificate, as defined in the
Custody Agreement, to the contrary to deposit in the Participants Trust Company
as Depository, as defined in the Custody Agreement, all securities eligible for
deposit therein, regardless of the Series to which the same are specifically
allocated, and to utilize the Participants Trust Company to the extent possible
in connection with its performance thereunder, including, without limitation, in
connection with settlements of purchases and sales of securities, loans of
securities, and deliveries and returns of securities collateral. IN WITNESS
WHEREOF, I have hereunto set my hand and the seal of AUL AMERICAN SERIES FUND
INC., as of the 28th day of February, 1997.
/s/ Richard A. Wacker
____________________________
Richard A. Wacker, Secretary
[SEAL]
<PAGE>
EXHIBIT C
CERTIFICATION
The undersigned, Richard A. Wacker, hereby certifies that he is the duly elected
and acting Secretary of AUL AMERICAN SERIES FUND INC., a Maryland corporation
(the "Fund"), and further certifies that the following resolution was adopted by
the Board of Directors of the Fund at a meeting duly held on February 28, 1997,
at which a quorum was at all times present and that such resolution has not been
modified or rescinded and is in full force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a Custody
Agreement between The Bank of New York and the Fund dated as of February
28,1997, (the "Custody Agreement") is authorized and instructed on a continuous
and ongoing basis until such time as it receives a Certificate, as defined in
the Custody Agreement, to the contrary, to accept, utilize and act with respect
to Clearing Member confirmations for Options and transaction in Options,
regardless of the Series to which the same are specifically allocated, as such
terms are defined in the Custody Agreement, as provided in the Custody
Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of AUL AMERICAN
SERIES FUND INC., as of the 28th day of February, 1997.
/s/ Richard A. Wacker
_____________________________
Richard A. Wacker, Secretary
[SEAL]
<PAGE>
EXHIBIT D
The undersigned, Richard A. Wacker, hereby certifies that he is the
duly elected and acting Secretary of AUL AMERICAN SERIES FUND INC., a
Maryland corporation (the "Fund"), and further certifies that the
following resolutions were adopted by the Board of Directors of the
Fund at a meeting duly held on February 28, 1997, at which a quorum
was at all times present and that such resolution has not been
modified or rescinded and is in full force and effect as of the date
hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to the
Custody Agreement between The Bank of New York and the Fund dated as
of February 28, 1997 (the "Custody Agreement") is authorized and
instructed on a continuous and ongoing basis to act in accordance
with, and to rely on Instructions (as defined in the Custody
Agreement).
RESOLVED, that the Fund shall establish access codes and grant use of
such access codes only to Officers of the Fund and employees of the
Advisor as defined in the Custody Agreement, shall establish internal
safekeeping procedures to safeguard and protect the confidentiality
and availability of user and access codes, passwords and
authentication keys, and shall use Instructions only in a manner that
does not contravene the Investment Company Act of 1940, as amended, or
the rules and regulations thereunder.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of AUL
AMERICAN SERIES FUND INC., as of the 28th day of February, 1997.
/s/ Richard A. Wacker
________________________
Richard A. Wacker, Secretary
[SEAL]
<PAGE>
EXHIBIT E
The undersigned, Richard A. Wacker, hereby certifies that he is the duly
elected and acting Secretary of AUL AMERICAN SERIES FUND INC., a Maryland
corporation (the "Fund"), and further certifies that the following resolutions
were adopted by the Board of Directors of the Fund at a meeting duly held on
February 28, 1997, at which a quorum was at all times present and that such
resolution has not been modified or rescinded and is in full force and effect as
of the date hereof.
RESOLVED, that the maintenance of the Fund's assets in each country listed
in Schedule I hereto be, and hereby is, approved by the Board of Directors as
consistent with the best interests of the Fund and its shareholders; and further
RESOLVED, that the maintenance of the Fund's assets with the foreign
branches of The Bank of New York (the "Bank") listed in Schedule I located in
the countries specified therein, and with the foreign sub-custodians and
depositories listed in Schedule I located in the countries specified therein be,
and hereby is, approved by the Board of Directors as consistent with the best
interest of the Fund and its shareholders; and further
RESOLVED, that the Sub-Custodian Agreements presented to this meeting
between the Bank and each of the foreign sub-custodians and depositories listed
in Schedule I providing for the maintenance of the Fund's assets with the
applicable entity, be and hereby are, approved by the Board of Directors as
consistent with the best interests of the Fund and its shareholders; and further
RESOLVED, that the appropriate officers of the Fund are hereby authorized
to place assets of the Fund with the aforementioned foreign branches and foreign
sub-custodians and depositories as hereinabove provided; and further
RESOLVED, that the appropriate officers of the Fund, or any of them, are
authorized to do any and all other acts, in the name of the Fund and on its
behalf, as they, or any of them, may determine to be necessary or desirable and
proper in connection with or in furtherance of the foregoing resolutions.
IN WITNESS WHEREOF, I hereunto set my hand and the seal of AUL AMERICAN
SERIES FUND INC., as of the 28th day of February, 1997.
/s/ Richard A. Wacker
______________________________________
Richard A. Wacker, Secretary
[SEAL]
<PAGE>
1
EXHIBIT 11(a)
Consent of Independent Accountants
Board of Directors
AUL American Series Fund, Inc.
Indianapolis, Indiana
We consent to the incorporation by reference in Post Effective Amendment No. 9
to the Registration Statement of the AUL American Series Fund, Inc. (the "Fund")
on Form N-1A (File No. 33-30156) of our report dated January 31, 1997, of our
audit of the statement of net assets, including the schedule of investments of
the Fund as of December 31, 1996, the related statement of operations for the
year then ended, the statement of changes in net assets for each of the two
years then ended, and the selected per share data and ratios for each of the
five years then ended, of the Equity, Money Market, Bond and Managed Portfolios,
and for the Tactical Asset Allocation Portfolio changes in net assets and
financial highlights for the year ended December 31, 1996 and for the period
from July 31, 1995 through December 31, 1995.
We also consent to the reference to our Firm as the independent public
accountants for the "Fund."
/s/ Coopers & Lybrand L.L.P.
Indianapolis, Indiana
April 30, 1997
<PAGE>
1
EXHIBIT 12
Financial Statements
AUL American Series Fund, Inc.
Annual Report
December 31, 1996
AUL(R)
This report may be used as sales literature only when accompanied or preceded by
effective prospectuses of AUL American Series Fund, Inc. and AUL American Unit
Trust or AUL American Individual Unit Trust, which relate sales expense and
other pertinent information.
<PAGE>
1
A Message From The Chairman of the Board and President
The U.S.economy continued its moderate expansion during 1996. Investors began
the year fearing that the economic growth rate would accelerate, forcing the
Federal Reserve to tighten monetary policy. However, GDP (gross domestic
product) grew at a sustainable pace during the year while core inflation
remained subdued. This seemed to have the effect of calming investors and
reduced prospects for monetary tightening by the Federal Reserve in the near
term.
The stock market experienced another rewarding year in 1996 with the Dow Jones
Industrial Average and the S&P 500 (commonly quoted equity indices) establishing
new highs throughout the year. During 1996, investors continued to react
positively to the combination of slow growth and moderate inflation. However,
not all stocks had identical performance. These major equity indices were driven
by the superior returns of large capitalization growth companies while small and
medium size companies lagged conspicuously.
Long maturity Treasury bonds yielded just below 6% at the beginning of 1996.
By midyear, however, investors were increasingly concerned about the
inflationary impact of rapid employment growth in the U.S. economy. Long
maturity Treasury bond yields increased to more than 7%. Although a brief market
rally occurred in the fourth quarter, year-end intermediate and longer maturity
bond yields remained seventy to eighty basis points above levels at the
beginning of the year. Because of the move to higher interest rates and lower
bond prices in 1996, bond market returns were modest, especially relative to
stock market returns.
Equity investors have now experienced two back-to-back years of excellent stock
performance. Even after the exuberance of the last two years, the major stock
averages could still post further gains during 1997, but the gains are expected
to be on a more modest scale. The market could also experience increased
volatility as equity concerns heighten. Good bond performance is likely to be
highly dependent on investors' comfort level with the pace of economic growth
and continued moderate inflation.
Investment performance for the AUL American Series Fund, Inc. for the year 1996
was:
Equity Portfolio 19.2% Managed Portfolio 11.8%
Money Market Portfolio 4.6% Tactical Asset Allocation 15.7%
Bond Portfolio 2.2%
We suggest your careful review of the Portfolio Manager comments found on the
following pages comparing these returns to other indices. The performance
numbers for the AUL American Series Fund, Ind. are net of investment advisory
fees and other expenses paid by each portfolio but do not reflect specified
contract charges and mortality and expense risk charges which may be incurred
when investing in a variable annuity contract.
/s/ James W. Murphy
Chairman of the Board of Directors and President
Indianapolis, Indiana
January 15, 1997
================================================================================
Directors and Officers of AUL American Series Fund, Inc.
James W. Murphy, Chairman of the Board and President
James P. Shanahan, Director, Vice President and Treasurer
Dr. Ronald D. Anderson, Director
Professor, School of Business
Indiana University, Indianapolis, Indiana
Dr. Leslie Lenkowsky, Director
President, Hudson Institute
Indianapolis, Indiana
Leonard D Schutt, Director
Richard A. Wacker, Secretary
<PAGE>
2
A Message From Kathryn Hudspeth,
Portfolio Manager of Equity Portfolio
The Equity Portfolio invests primarily in equity securities selected on the
basis of fundamental investment research for their long-term growth prospects.
Using a bottom-up approach, the Portfolio concentrates on companies which appear
undervalued compared to the market and their own historic valuation levels.
Other important considerations include management ability, freecash flow,
insider ownership and industry dominance.
Equity investors were the obvious winners in 1996 compared to other traditional
asset classes. Except for brief resistance during July and December, the S&P 500
marched confidently to new highs. Investor enthusiasm was fueled by the
possibility of continued moderate economic growth coupled with subdued
inflation. This allowed the Federal Reserve to remain on the sidelines instead
of tightening monetary policy. Another major factor supporting the stock market
during 1996 was its overall liquidity as investors poured record amounts of
money into equity mutual funds.
As a result, 1996 was another impressive year for stocks with the S&P 500
advancing 23%. After considering 1995's investment return, this represents the
largest two-year advance since the mid-1950's. However, not all segments of the
stock market performed as well as the S&P 500. This equity index is dominated by
the returns of large capitalization, or blue chip, companies. During 1996, it
became apparent that profit growth was decelerating. In response, investors
focused almost exclusively on companies with consistent and visible earnings
growth. This resulted in massive purchases of large capitalization growth
companies with pushed the prices of this small group of stocks to extreme
valuation levels. Unfortunately, the rest of the market trailed dramatically.
Therefore, size became an overriding equity theme during 1996.
The Equity Portfolio achieved a 19.2% investment return for calendar 1996 which
is much higher than the long-term average return for stocks. The Portfolio
benefitted from its concentration in technology, pharmaceutical and
merchandising companies. The return of the Portfolio was also propelled by
several merger situations and share repurchase programs. However, since the
Equity Portfolio utilizes a value approach, it did not invest heavily in large
capitalization companies as this area of the market was overvalued and became
more extended as the year progressed.
Equity investors have experienced two successive years of phenomenal
returns. The obvious debate is whether enough positive information exists to
keep equity momentum moving forward. Investors are generally expecting another
year of moderate growth and subdued inflation. Any deviation from this
expectation will cause increased volatility for the stock market. Earnings
momentum and mutual fund flows have slowed since the first of the year. Even
Federal Reserve Chairman, Alan Greenspan, commented on the "irrational
exuberance" of the stock market, which raised concerns that the Federal Reserve
might intervene and tighten monetary policy. While economic fundamentals remain
attractive, equity investing will remain challenging during 1997.
<PAGE>
3
AUL American Series Fund, Inc. Equity Portfolio
Average Annual Total Returns for the period ended December 31, 1996
Equity
Portfolio S&P 500
One Year 19.2% 23.0%
Five Years 13.0% 15.2%
Since Inception (4/10/90) 13.2% 15.3%
Value of a hypothetical $10,000
investment made 4/10/90 $22,915 $26,223
The charts show the Equity Portfolios total returns, which include changes in
share price and reinvestment of dividends and capital gains. Figures for the S&P
500, an unmanaged index of common stocks, include reinvestment of dividends and
capital gains. S&P 500 is a registered trademark of Standard & Poors
Corporation. The inception figures are from commencement of operations.
Performance numbers for the Equity Portfolio are net of all portfolio operating
expenses, but do not include separate account or contract charges. If the
performance data included the effect of these charges, the returns would be
lower. Past performance is no guarantee of future results. Principal and
investment return will vary so shares may be worth more or less than their
original cost when redeemed.
<PAGE>
4
A Message From Kent Adams,
Portfolio Manager of Bond Portfolio
The Bond Portfolio invests primarily in U.S.
Treasury and Agency bonds and notes, investment grade corporate bonds, and U.S.
Agency-backed residential mortgage obligations. Portfolio holdings may range in
maturity from overnight money market investments to bonds with maturities as
long as 30 years. The average maturity of the portfolio is shortened or
lengthened depending on the outlook for interest rates. The mix of corporate
bonds, U.S. Agencies and Treasuries, and mortgage-backed securities in the
portfolio is varied depending on the relative attractiveness of these sectors.
The Bond Portfolio's total return was 2.2% in 1996. This return represents
interest income and the price change of the fixed income securities held in the
Portfolio. The Bond Fund experienced price declines on bond holdings in 1996 due
to the increase in interest rates that occurred. The total return for the Lehman
Government/Corporate Bond Index was 2.9% in 1996.
At the beginning of 1996 the Bond Portfolio's average duration was slightly
shorter than the Lehman Government/Corporate Index's average duration. As
interest rates increased and bond prices decreased during the first half of the
year, the portfolio was lengthened to an average duration longer than the
Index's duration. When interest rates for intermediate and longer maturity
Treasury bonds declined sharply in the fourth quarter of 1996, the average
duration of the Portfolio was reduced to a level slightly shorter than that of
the Lehman Government/Corporate Index.
More then one-half of the Portfolio at year-end 1996 was invested in high
quality U.S. Treasury and Agency holdings. Less than 30 percent of the Portfolio
was invested in corporate bonds at year-end due to the historically low yield
spreads available relative to Treasuries. The percentage of investments in
residential mortgage-backed securities declined slightly during the year to
approximately 14% of the Portfolio. Residential mortgage-backed securities
generally offer high yields but can perform poorly during periods of interest
rate volatility due to the option of the homeowner to refinance when interest
rates decline.
Bond investors will be closely monitoring the Federal Reserve Bank's reaction to
economic trends in 1997. Over a longer term time horizon, bonds should perform
well given the likelihood of moderate economic growth and low inflation. In the
short run, however, a market-disrupting hike in the federal funds rate target
might be necessary before improved bond performance can become a reality.
Beginning in 1997, the bond fund will use the Lehman Aggregate Bond Index
as its benchmark instead of the Lehman Government/Corporate Bond Index which has
been used in the past. The Lehman Aggregate Bond Index includes one-year and
longer government, corporate, Yankee, and U.S. Agency mortgage-backed bonds and
has an average maturity of 8 3/4 years. This Index is a better match to the Bond
Portfolio for comparative purposes because this Index holds mortgage-backed
securities, while the Lehman Government/Corporate Index does not.
<PAGE>
5
AUL American Series Fund, Inc. Bond Portfolio
Average Annual Total Returns for the period ended December 31, 1996
Bond Lehman Brothers
Portfolio Bond Index
One Year 2.2% 2.9%
Five Years 6.6% 7.2%
Since Inception (4/10/90) 8.7% 9.0%
Value of a hypothetical $10,000
investment made 4/10/90 $17,468 $17,887
The charts show the Bond Portfolios total returns, which include changes in
share price and reinvestment of income and capital gains. Figures for the Lehman
Brothers Government/Corporate Bond Index, an unmanaged index of government and
corporate bonds, which is a broad measure of the performance of the U.S. bond
market, include reinvestment of income and capital gains. The inception figures
are from commencement of operations.
Performance numbers for the Bond Portfolio are net of all portfolio operating
expenses, but do not include separate account or contract charges. If the
performance data included the effect of these charges, the returns would be
lower. Past performance is no guarantee of future results. Principal and
investment return will vary so shares may be worth more or less than their
original cost when redeemed.
<PAGE>
6
A Message From Kathryn Hudspeth and Kent Adams,
Portfolio Managers of Managed Portfolio
The Managed Portfolio utilizes a fully managed investment policy by
allocating assets among publicly traded common stocks, debt securities, and
money market instruments. Asset allocation decisions are based on economic
factors and the valuation of each asset class compared to historic levels.
The current economic expansion is well into its sixth year which makes it one of
the longest expansions in post war history. Despite its longevity, it has been
characterized as extremely moderate. The U.S. economy has succeeded in expanding
for almost six years without a serious threat of excessive inflation or any
major setback to the stock market.
After achieving above average returns for both equities and fixed income
securities during 1995, the markets experienced a change of direction during
1996. Interest rates increased dramatically during the first quarter of 1996 as
economic statistics indicated that the economy was advancing faster than
expected. The rise in interest rates took an obvious toll on the bond market as
bond prices declined. The stock market ignored the negative implications of
higher rates and reached ever higher valuations.
Stock investors remained positive throughout the year with only minor setbacks
occurring in July and December. As a result, stock prices rose dramatically and
rewarded equity investors handsomely. However, the equity advance became
increasingly narrow as investors emphasized large capitalization companies with
stable earnings trends.
Halfway through 1996, the Portfolio managers became concerned about the relative
valuation between the stock and bond markets. At that point, the equity
concentration of the Portfolio was reduced. Subsequently, the stock market
experienced a sell-off in July creating a better balance between the two
markets. The asset allocation became more aggressive after the July sell-off and
by the end of 1996, 55% of the Managed Portfolio was invested in stocks, while
42% was invested in high quality bonds and 3% was invested in money market
instruments. This can be compared to an asset allocation of 54% stocks, 41%
bonds and 5% cash equivalents at year-end 1995.
The Managed Portfolio finished 1996 with an investment return of 11.8% compared
to 2.9% for the Lehman Brothers Government/Corporate Bond Index and 23.0% for
the S&P 500.
At the present time, most economists are projecting another year of moderate
growth and low inflation for 1997. Although the stock market has experienced two
consecutive years of above average returns, the major equity indices could still
post further gains. Bond should also do well in 1997 if the economists are
correct in their projections. If, however, the Federal Reserve Bank determines
that a hike in short-term interest rates is necessary to control economic
growth, then both bonds and stocks could experience some near-term price
volatility.
<PAGE>
7
AUL American Series Fund, Inc. Managed Portfolio
Average Annual Total Returns for the period ended December 31, 1996
Managed S&P 500 Lehman Brothers
Portfolio Bond Index
One Year 11.8% 23.0% 2.9%
Five Years 10.0% 15.2% 7.2%
Since Inception (4/10/90) 10.8% 15.3% 9.0%
Value of a hypothetical $10,000
investment made 4/10/90 $19,913 $26,223 $17,887
The charts show the Managed Portfolio's total returns, which include changes in
share price and reinvestment of dividends and capital gains. Figures for the S&P
500, an unmanaged index of common stocks, include reinvestment of dividends and
capital gains. S&P 500 is a registered trademark of Standard & Poor's
Corporation. Figures for the Lehman Brothers Government/Corporate Bond Index, an
unmanaged index of government and corporate bonds, which is a broad measure of
the performance of the U.S. bond market, include reinvestment of income and
capital gains. The inception figures are from commencement of operations.
Performance numbers for the Managed account are net of all portfolio operating
expenses, but do not include separate account or contract charges. If the
performance data included the effect of these charges, it would be lower. Past
performance is no guarantee of future results. Principal and investment return
will vary so shares may be worth more or less than their original cost when
redeemed.
<PAGE>
8
A Message from John Riazzi,
Portfolio Manager of Tactical Asset
Allocation Portfolio
Needless to say, 1996 was a terrific year for the stock market and for the
Tactical Asset Allocation Portfolio.
There is an old adage, who's author or origin we do not know - "the third
time is the charm." Well, in terms of the stock market, it's hard to imagine
1997 being any more charming than the past two years. In fact 1995 and 1996
provided equity investors with the strongest two year period in nearly 40 years.
For 1996, the S&P 500 finished +23%, while bonds, as measured by the Lehman
Intermediate Government/Corporate Index, finished the year +4%. The Tactical
Asset Allocation Portfolio advanced a solid +15.7% for 1996. The results are
very much in keeping with our stated objective of competitive investment
returns, while attempting to provide downside risk protection and preservation
of capital.
As of the end of 1996, and for the greater part of the year, the portfolio
maintained stock exposure ranging between 48% and 55%. The fixed income portion
of the portfolio, represented by a conservative "cover the downside" profile,
was split between short term (less than 3 1/2 year average maturity) U.S.
Government securities and agencies (a total of 30% of the portfolio, and
short-term cash investments (15% of the portfolio).
The fact that 45% of the total portfolio has been positioned to provide
stability and consistency, as stated in the prospectus, may bring into question
our ability to chalk up competitive results. One factor, however, which has
allowed us to show investment returns comparable to other portfolio options
invested 70% - 100% in stock, has been our superior industry and security
selection.
The portfolio maintained its discipline of not exceeding 10% in any one
industry, so no one "industry bet" distorted performance. With this in mind,
however, the Tactical Asset Allocation portfolio had exposure in numerous
industries which outperformed the S&P 500 by double digit margins: Data Storage
- -+43% greater relative return, Energy -+29% greater relative return, Retail
- -+129% greater relative return, Insurance -+26% greater relative return, and
Financial Services -+23% greater relative return.
As we look to 1997, we do not believe investors can continue to enjoy the
"rising tide" for all equity holdings. The current valuations for the overall
stock market are relatively poor. The dividend yield on the S&P 500 is the
lowest in history, and the price-to-book value ratio is at an all time high.
Likewise, technical divergence in the market as portrayed by the narrowing of
leadership among individual stockholdings, provides some evidence of a
vulnerable marketplace. This however, does not have to spell disaster. 1996
displayed a number of these same characteristics, yet the market sustained its
advance, with the help of strong corporate earnings, a low (relative) interest
rate environment and a benign inflation level (the Consumer Price Index
increased just over 3%).
Continuation of these favorable macro trends could allow 1997 to shrug off
a number of the negatives, just as 1996 did. However, as a prudent investor we
will not ignore the caution signals present and we will keep one eye on the exit
door (as is reflected by our asset allocation). At the same time, in an effort
to build on our successes of 1996, our equity research team will work
aggressively to uncover superior investment opportunities.
Rest assured, as 1997 develops - consistence and competitiveness remains at
the heart of our decision making.
<PAGE>
9
AUL American Series Fund, Inc. Tactical Asset Allocation Portfolio
Average Annual Total Returns for the period ended December 31, 1996.
Tactical Asset S&P 500 Lehman Brothers
Allocation Portfolio Bond Index
One Year 15.7% 23.0% 15.2%
Since Inception (7/31/95) 15.9% 24.3% 16.9%
Value of a hypothetical $10,000
investment made 7/31/95 $12,320 $13,609 $12,479
The charts show the Tactical Asset Allocation Portfolio's total returns,
which include changes in share price and reinvestment of dividends and capital
gains. Figures for the S&P 500, an unmanaged index of common stocks, include
reinvestment of dividends and capital gains. S&P 500 is a registered trademark
of Standard & Poors Corporation. Figures for the Lehman Brothers
Government/Corporate Bond Index, an unmanaged index of government and corporate
bonds, which is a broad measure of the performance of the U.S. bond market,
include reinvestment of income and capital gains. The inception figures are from
commencement of operations.
Performance numbers for the Tactical Asset Allocation account are net of
all portfolio operating expenses, but do not include separate account or
contract charges. If the performance data included the effect of these charges,
it would be lower. Past performance is no guarantee of future results. Principal
and investment return will vary so shares may be worth more or less than their
original cost when redeemed.
<PAGE>
10
(This page is intentionally blank.)
<PAGE>
11
Report of Independent Accountants
The Shareholders and Board of Directors
AUL American Series Fund, Inc.
We have audited the accompanying statements of net assets, including the
schedules of investments, of the AUL American Series Fund, Inc. (comprising,
respectively, the Equity, Money Market, Bond, Managed, and Tactical Asset
Allocation Portfolios) as of December 31, 1996, the related statements of
operations for the year then ended, the statement of changes in net assets or
each of the two years then ended, and financial highlights for each of the five
years in the period then ended, and for the Tactical Asset Allocation Portfolio
the statement of changes in net assets, and financial highlights for the year
ended December 31, 1996 and the period July 31, 1995 through December 31, 1995.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments and cash held by
the custodian as of December 31, 1996, confirmation by correspondence with
brokers as to securities purchased but not received at that date, or other
auditing procedures where confirmations from brokers were not received. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the respective portfolios constituting the AUL American Series Fund,
Inc., as of December 31, 1996; the results of their operations for the year then
ended, and, except for the Tactical Asset Allocation Portfolio, the changes in
their net assets for the each of two years in the period then ended, and
financial highlights for each of the five years in the period then ended; and
for the Tactical Asset Allocation Portfolio changes in net assets and financial
highlights for the year ended December 31, 1996 and for the period July 31, 1995
through December 31, 1995, in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P.
Indianapolis, Indiana
January 31, 1997
<PAGE>
12
(This page is intentionally blank.)
<PAGE>
13
<TABLE>
<CAPTION>
AUL American Series Fund, Inc.
STATEMENTS OF NET ASSETS
December 31, 1996
Portfolio
Equity Money Market Bond Managed Tactical Asset
------ ------------ ---- ------- --------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments at market value $ 50,679,067 $ 40,351,959 $ 27,813,660 $ 42,708,728 $ 2,154,548
(cost: $39,000,971, $40,351,959
$27,169,794, $36,664,068
and $1,921,705, respectively)
Cash --- --- --- 50,865 13
Receivable for shares sold, net --- --- --- 32,375 86
Dividends and interest receivable 86,281 58,419 403,354 334,844 12,817
Prepaid expense 89 89 89 89 89
Deferred organization costs --- --- --- --- 5,774
------------- ------------ ------------- ------------- -----------
Total assets 50,765,437 40,410,467 28,217,103 43,126,901 2,173,327
------------- ------------ ------------- ------------- -----------
Liabilities:
Distributions payable to AUL 18,251 --- --- --- 10,440
Distributions payable to Dean --- --- --- --- 10,440
Payable for portfolio shares
redeemed, net 4,711 150,841 5,950 --- ---
Payable for investments purchased 50,863 --- --- --- ---
Investment advisory fees payable 22,669 18,489 13,317 20,129 611
Accrued expenses 16,837 13,662 9,956 15,155 522
Organization costs payable to AUL --- --- --- --- 6,441
------------ ----------- -------------- ------------- -----------
Total liabilities 113,331 182,992 29,223 35,284 28,454
------- ------ ------- ------ ------
Net Assets $ 50,652,106 $ 40,227,475 $ 28,187,880 $ 43,091,617 $ 2,144,873
============= ============ ============ ============= ============
Shares outstanding 3,042,989 40,227,475 2,648,089 3,215,189 184,046
========= ========== ========= ========= =======
Net Asset Value per share $ 16.65 $ 1.00 $ 10.65 $ 13.40 $ 11.65
============= ============ ============ ============= =============
<FN>
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
<PAGE>
14
<TABLE>
<CAPTION>
AUL American Series Fund, Inc.
STATEMENTS OF OPERATIONS
For the year ended December 31, 1996
Portfolio
Tactical
Equity Money Market Bond Managed Asset(1)
------ ------------ ---- ------- --------
<S> <C> <C> <C> <C> <C>
Investment Income:
Income:
Dividends $ 759,611 $ --- $ --- $ 395,677 $15,506
Interest 308,565 1,778,244 1,803,030 1,135,753 44,662
---------- ---------- ---------- ---------- -------
1,068,176 1,778,244 1,803,030 1,531,430 60,168
---------- ---------- ---------- ---------- -------
Expenses:
Investment advisory fee 212,114 166,215 137,536 184,974 11,644
Custodian and service agent fee 57,271 44,878 37,135 49,942 2,297
Professional fees 7,049 5,494 4,607 6,126 312
Amortization of deferred
organization costs --- --- --- --- 1,602
Director fees 5,248 4,145 3,406 4,550 210
Other expenses 16,644 13,093 11,237 14,746 1,017
---------- ---------- ---------- ---------- -------
298,326 233,825 193,921 260,338 17,082
---------- ---------- ---------- ---------- -------
Net investment income 769,850 1,544,419 1,609,109 1,271,092 43,086
---------- ---------- ---------- ---------- -------
Gain (Loss) on Investments:
Net realized gain (loss) (217,011) --- 18,492 77,781 26,150
Net change in
unrealized gain (loss) 6,974,701 --- (1,021,212) 2,961,892 188,464
---------- ---------- ---------- ---------- -------
Net gain (loss) 6,757,690 --- (1,002,720) 3,039,673 214,614
---------- ---------- ---------- ---------- -------
Net Increase in Net Assets
from Operations $7,527,540 $1,544,419 $ 606,389 $4,310,765 $257,700
========== ========== ========== ========== =======
<FN>
The accompanying notes are an integral part of the financial statement.
</FN>
</TABLE>
<PAGE>
15
<TABLE>
<CAPTION>
AUL American Series Fund, Inc.
STATEMENTS OF CHANGES IN NET ASSETS
for the years ended December 31, 1996 and 1995
Portfolio
Equity Money Market
------ ------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
from Operations:
Net investment income $ 769,850 $ 601,923 $ 1,544,419 $ 986,482
Net realized gain (loss) (217,011) 398,786 --- ---
Net Change in
unrealized gain (loss) 6,974,701 4,083,680 --- ---
--------- -------- ------- -------
Increase in Assets
from Operations 7,527,540 5,084,389 1,544,419 986,482
--------- ------- ------- -------
Dividends and Distributions:
From net investment income (760,627) (599,497) (1,544,419) (986,482)
From net realized gain --- (398,786) --- ---
-------- -------- ------- -------
Decrease (760,627) (998,283) (1,544,419) (986,482)
-------- ---------- -------- --------
Shareholder Transactions:
Proceeds from shares sold 14,831,799 14,809,942 82,650,126 51,157,189
Reinvested distributions 677,401 864,872 1,544,419 986,482
Cost of shares redeemed (6,923,532) (5,024,617) (68,257,076) (43,349,308)
---------- ---------- ----------- -----------
Increase 8,585,668 10,650,197 15,937,469 8,794,363
---------- --------- --------- ---------
Net increase 15,352,581 14,736,303 15,937,469 8,794,363
Net Assets at beginning of year 35,299,525 20,563,222 24,290,006 15,495,643
---------- ---------- ---------- ---------
Net Assets at end of year $ 50,652,106 $ 35,299,525 $ 40,227,475 $ 24,290,006
============ ============== ============== ============
Shares sold 965,142 1,118,147 82,650,126 51,157,189
Reinvested distributions 43,359 62,363 1,544,419 986,482
Shares redeemed (449,474) (372,202) (68,257,076) (43,349,308)
-------- -------- ----------- -----------
Net Increase 559,027 808,308 15,937,469 8,794,363
Shares outstanding at beginning of year 2,483,962 1,675,654 24,290,006 15,495,643
--------- ------- ---------- ---------
Shares outstanding at end of year 3,042,989 2,483,962 40,227,475 24,290,006
========= ========= ========== ==========
<FN>
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
<PAGE>
16
<TABLE>
<CAPTION>
AUL American Series Fund, Inc.
STATEMENTS OF CHANGES IN NET ASSETS (continued)
for the years ended December 31, 1996 and 1995
Portfolio
Bond Managed
---- -------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
from Operations:
Net investment income $ 1,609,109 $ 1,479,745 $ 1,271,092 $ 1,097,910
Net realized gain 18,492 263,778 77,781 475,564
Net Change in
unrealized gain (loss) (1,021,212) 2,110,855 2,961,892 3,392,949
--------- ---------- --------- ----------
Increase in Assets
from Operations 606,389 3,854,378 4,310,765 4,966,423
--------- -------- --------- --------
Dividends and Distributions:
From net investment income (1,616,520) (1,471,732) (1,269,322) (1,093,207)
From net realized gain (18,491) (19,580) (77,781) (475,564)
------- ---------- -------- --------
Decrease (1,635,011) (1,491,312) (1,347,103) (1,568,771)
---------- ---------- ---------- ----------
Shareholder Transactions:
Proceeds from shares sold 14,086,640 10,212,753 15,341,831 9,524,234
Reinvested distributions 1,495,931 938,396 1,316,098 1,378,654
Cost of shares redeemed (11,795,234) (8,537,765) (7,374,576) (8,014,116)
---------- ---------- ---------- ----------
Increase 3,787,337 2,613,384 9,283,353 2,888,772
--------- --------- --------- ----------
Net increase 2,758,715 4,976,450 12,247,015 6,286,424
Net Assets at beginning of year 25,429,165 20,452,715 30,844,602 24,558,178
---------- ---------- ---------- ----------
Net Assets at end of year $ 28,187,880 $ 25,429,165 $ 43,091,617 $ 30,844,602
============ ============ ============ ============
Shares sold 1,316,217 952,961 1,203,357 798,921
Reinvested distributions 141,513 87,346 101,708 113,420
Shares redeemed (1,108,222) (788,087) (573,913) (661,602)
-------- -------- -------- --------
Net Increase 349,508 252,220 731,152 250,739
Shares outstanding at beginning of year 2,298,581 2,046,361 2,484,037 2,233,298
--------- --------- --------- ---------
Shares outstanding at end of year 2,648,089 2,298,581 3,215,189 2,484,037
========= ========= ========= =========
<FN>
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
<PAGE>
17
AUL American Series Fund, Inc.
STATEMENTS OF CHANGES IN NET ASSETS (continued)
for the years ended December 31, 1996 and 1995
Portfolio
------------------
Tactical Asset
------------------
1996 1995(1)
---- ----
Increase (Decrease) in Net Assets
from Operations:
Net investment income $ 43,086 $ 16,139
Net realized gain 26,150 5,349
Net change in
unrealized gain (loss) 188,464 44,379
------- --------
Increase in Assets
from Operations 257,700 65,867
------- --------
Dividends and Distributions:
From net investment income (42,732) (16,384)
From net realized gain (26,150) (5,349)
------- --------
Decrease (68,882) (21,733)
------- --------
Shareholder Transactions:
Proceeds from shares sold 874,893 1,104,684
Reinvested distributions 28,262 1,374
Cost of shares redeemed (86,556) (10,736)
---------- ---------
Increase 816,599 1,095,322
--------- ---------
Net increase 1,005,417 1,139,456
Net Assets at beginning of year 1,139,456 ----
--------- ---------
Net Assets at end of year $ 2,144,873 $ 1,139,456
=========== ============
Shares sold 80,409 110,034
Reinvested distributions 2,488 132
Shares redeemed (7,998) (1,019)
------ -------
Net Increase 74,899 109,147
Shares outstanding at beginning of year 109,147 ----
-------- -------
Shares outstanding at end of year 184,046 109,147
======= ============
(1) for the period from July 31, 1995 through December 31, 1995
The accompanying notes are an integral part of the financial statements.
<PAGE>
18
AUL American Series Fund, Inc.
SCHEDULE OF INVESTMENTS
EQUITY PORTFOLIO
December 31, 1996
Market
Description Shares Value
- ----------- ------ -----
Common Stock (90.5%)
Banks & Financial (10.7%)
American Express Co. 21,300 $1,203,450
Banc One Corp. 34,630 1,489,090
Great Western Financial 33,100 959,900
Ohio Casualty Corp. 21,600 766,800
Salomon, Inc. 21,400 1,008,475
-------
5,427,715
---------
Broadcasting & Publishing (9.6%)
Chris-Craft Industries, Inc.* 20,420 855,088
Deluxe Corp. 28,500 933,375
Gibson Greetings, Inc. 44,300 869,387
Harland (John H.) Co. 19,300 636,900
Meredith Corp. 15,100 796,525
Moore Corp., Ltd. 36,600 745,725
-------
4,837,000
---------
Chemicals (1.7%)
Carlisle Companies, Inc. 8,700 526,350
Quaker Chemical Corp. 20,400 334,050
-------
860,400
-------
Electrical Equipment &
Electronics (9.1%)
Baldor Electric Co. 60,110 1,480,209
Dynatech Corp.* 55,500 2,455,875
General Electric Co. 6,900 682,237
-------
4,618,321
---------
Entertainment & Leisure (4.3%)
CPI Corp. 69,700 1,167,475
Fleetwood Enterprises, Inc. 37,600 1,034,000
-------
2,201,475
---------
Furniture and Apparel (13.2%)
Hillenbrand Industries, Inc. 30,900 1,120,125
Kellwood Co. 39,600 792,000
La Z Boy Chair Co. 35,600 1,050,200
Liz Claiborne, Inc. 40,500 1,564,312
Oshkosh B'Gosh, Inc. 42,100 642,025
Class A
Reebok International 36,400 1,528,800
-------
6,697,462
---------
Health Care (7.6%)
Acuson Corp. 37,300 909,188
Guidant Corp 5,983 341,031
Lilly (Eli) & Co. 6,770 494,210
Merck & Co. 12,200 966,850
McKesson Corporation 19,900 1,114,400
---------
3,825,679
---------
Industrial Services (2.4%)
Fluor Daniel 19,206 151,247
Kelly Services, Inc. 38,600 1,042,200
----------
1,193,447
----------
Information Processing &
Telecommunications (7.6%)
Apple Computer, Inc. 15,200 317,300
International Business 6,900 1,041,900
Machines Corp.
Novell, Inc.* 42,000 397,687
Sun Microsystems, Inc.* 49,600 1,274,100
Telxon Corp. 67,500 826,875
-------
3,857,862
---------
Machinery (1.5%)
Lawson Products, Inc. 10,300 225,312
Precision Castparts Corp. 10,300 511,138
-------
736,450
-------
Merchandising (6.4%)
Longs Drug Stores Corp. 25,500 1,252,687
Mac Frugal's Bargains 16,500 431,063
Close-outs, Inc.
Merchantile Stores Co. 17,800 878,875
Stanhome, Inc. 26,200 694,300
-------
3,256,925
---------
Metals & Mining (2.6%)
Aluminum Company of 16,700 1,064,625
America
Oregon Steel Mills, Inc. 14,800 247,900
-------
1,312,525
-------
Oil & Oil Services (4.1%)
Royal Dutch Petroleum Co. 5,100 870,825
Valero Energy Corp. 42,700 1,222,288
-------
2,093,113
---------
Transportation (4.0%)
Alexander & Baldwin, Inc. 41,300 1,032,500
Norfolk Southern Corp. 11,400 997,500
-------
2,030,000
---------
*does not pay cash dividends
The accompanying notes are an integral part of the financial statements.
<PAGE>
19
<TABLE>
<CAPTION>
AUL American Series Fund, Inc.
SCHEDULE OF INVESTMENTS
EQUITY PORTFOLIO (continued)
December 31, 1996
Market
Description Shares Value
- ----------- ------ ------
Common Stock (90.5%), continued
Miscellaneous (5.7%)
Boeing Co. 8,500 $ 904,188
Ford Motor Co. 34,000 1,083,750
Michael Foods, Inc. 49,300 628,575
Sealright, Inc. 27,000 283,500
-------
2,900,013
---------
Total common stock (cost: $34,169,893) 45,848,387
----------
Money Market Mutual Funds (4.4%)
Riverfront U.S. Government Security 762,808 762,808
Merrill Lynch Institutional Fund 1,469,579 1,469,579
-------
Total mutual funds (cost: $2,232,387) $2,232,387
---------
Interest Maturity Principal Market
Rate Date Amount Value
---- ---- ------ -----
<S> <C> <C> <C> <C>
Short-term Notes (5.1%)
Associates Corporation of North America 5.290% 11/22/96 1,000,000 997,050
GE Capital 5.380% 01/10/97 1,000,000 998,675
U.S. Treasury Note 6.500% 05/15/97 600,000 602,568
Total short-term notes (cost: $2,598,691) 2,598,293
---------
Total Investments (cost: $39,000,971) $50,679,067
===========
<FN>
*does not pay cash dividends
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
<PAGE>
20
<TABLE>
<CAPTION>
AUL American Series Fund, Inc.
SCHEDULE OF INVESTMENTS
MONEY MARKET PORTFOLIO
December 31, 1996
Interest Maturity Principal Market
Description Rate Date Amount Value
- ----------- ---- ---- ------ -----
<S> <C> <C> <C> <C>
Short-term Notes (49.4%)
U.S. Government & Agency Obligations (49.4%)
Federal Home Loan Bank Notes 5.260% 1/16/97 $ 4,000,000 $ 3,991,233
Federal Home Loan Bank Notes 5.250% 2/18/97 5,000,000 4,965,000
Federal Home Loan Mortgage Corporation Notes 5.240% 1/13/97 4,500,000 4,492,125
Federal Home Loan Bank Notes 5.250% 1/24/97 3,500,000 3,488,260
Federal Home Loan Bank Notes 5.370% 1/30/97 3,000,000 2,987,023
---------
Total short-term notes (cost: $19,923,641) 19,923,641
----------
Corporate Obligations (37.9%)
Automotive (4.7%)
Ford Motor Credit Corporation 5.380% 1/10/97 1,900,000 1,900,000
Electrical Equipment (9.6%)
General Electric Capital Corporation 5.500% 1/29/97 1,900,000 1,900,000
General Electric Capital Corporation 5.500% 1/30/97 2,000,000 2,000,000
Financial (8.9%)
Norwest Financial Corporation 5.530% 1/24/97 1,800,000 1,800,000
Prudential Funding Corporation 5.400% 1/17/97 1,800,000 1,800,000
Machinery (5.0%)
John Deere Capital Corporation 5.450% 1/30/97 2,000,000 2,000,000
Oil and Gas (5.0%)
Chevron Oil Finance Company 5.430% 1/17/97 2,000,000 2,000,000
Real Estate and Leasing (4.7%)
Associates Corporation of North America 5.480% 1/28/97 1,900,000 1,900,000
---------
Total corporate obligations (cost: $15,300,000) 15,300,000
---------
Shares
------
Money Market Mutual Funds(12.7%)
Dreyfus Masternote Account 1,220,292 1,220,292
Merrill Lynch Institutional Fund 1,927,172 1,927,172
Riverfront U.S. Government Security 1,980,854 1,980,854
-------
Total money market mutual funds (cost: $5,128,318) 5,128,318
-------
Total Investments (cost: $40,351,959) $ 40,351,959
==============
<FN>
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
<PAGE>
21
<TABLE>
<CAPTION>
AUL American Series Fund, Inc.
SCHEDULE OF INVESTMENTS
BOND PORTFOLIO
December 31, 1996
Interest Maturity Principal Market
Description Rate Date Amount Value
- ----------- ---- ---- ------ -----
<S> <C> <C> <C> <C>
Long-term Notes and Bonds (97.9%)
U.S. Government & Agency Obligations (53.8%)
Federal Home Loan Bank Notes 8.375% 10/25/99 $ 1,300,000 $ 1,375,556
Federal Home Loan Bank Notes 5.040% 8/20/98 750,000 739,582
U.S. Treasury Bonds 8.750% 5/15/17 2,750,000 3,355,413
U.S. Treasury Notes 8.000% 5/15/01 700,000 747,880
U.S. Treasury Notes 7.500% 5/15/02 500,000 528,695
U.S. Treasury Notes 7.250% 8/15/04 1,300,000 1,368,042
U.S. Treasury Notes 8.875% 2/15/99 1,850,000 1,957,171
U.S. Treasury Bonds 9.375% 2/15/06 1,350,000 1,625,265
U.S. Treasury Notes 6.125% 8/31/98 1,400,000 1,406,300
U.S. Treasury Notes 6.750% 4/30/00 600,000 611,328
U.S. Treasury Bonds 8.000% 11/15/21 500,000 573,775
U.S. Treasury Strips 2/15/07 1,300,000 674,505
---------
14,963,512
Collateralized Mortgage Obligations (14.5%)
American Southwest Financial Corporation CMO 8.900% 3/01/18 187,551 195,353
Federal National Mortgage Association Notes CMO 7.500% 12/25/09 600,000 596,622
Federal National Mortgage Association Notes CMO 6.500% 5/25/08 800,000 786,168
Fleet Mortgage Securities, Inc. CMO 7.950% 6/01/19 562,205 569,738
Merrill Lynch CMO Trust XXXVIID 8.150% 11/01/18 720,000 738,144
Prudential-Bache Trust CMO 12D 5.350% 10/20/09 1,127,510 1,117,002
---------
4,003,027
Corporate Obligations (29.6%)
Allstate Corporation Notes 5.875% 6/15/98 625,000 622,656
Associates Corporation of North America Notes 5.600% 1/15/01 1,600,000 1,542,000
El Paso Natural Gas Company Notes 7.750% 1/15/02 200,000 208,250
General Motors Acceptance Corporation Notes 5.450% 3/01/99 1,000,000 983,750
Hydro-Quebec Debenture Bonds 8.050% 7/07/24 400,000 438,500
Eli Lilly & Company Notes 8.375% 12/01/06 850,000 945,625
Providence of Ontario Notes 7.625% 6/22/04 950,000 999,875
Service Company International Notes 6.750% 6/01/01 900,000 895,500
Smith Barney Holdings Notes 7.500% 5/01/02 900,000 931,500
Sun, Inc., Debenture Bonds 9.000% 11/01/24 600,000 678,750
-------
8,246,406
----------
Total long-term notes and bonds (cost: $26,569,079) 27,212,945
----------
Shares
------
Money Market Mutual Funds (2.1%)
Riverfront U.S. Government Security 540,949 540,949
Merrill Lynch Institutional Fund 59,766 59,766
------
Total mutual funds (cost: $600,715) 600,715
-------
Total Investments (cost: $27,169,794) $ 27,813,660
=============
<FN>
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
<PAGE>
22
AUL American Series Fund, Inc.
SCHEDULE OF INVESTMENTS
MANAGED PORTFOLIO
December 31, 1996
Market
Description Shares Value
- ----------- ------ -----
Common Stock (55.1%)
Banks & Financial (6.4%)
American Express Co. 10,300 $ 581,950
Banc One Corp. 17,750 763,250
Great Western Finanacial 17,300 501,700
Ohio Casualty Corp. 9,900 351,450
Salomon, Inc. 11,200 527,800
-------
2,726,150
---------
Broadcasting & Publishing (5.1%)
Chris-Craft Industries, Inc.* 10,611 444,336
Deluxe Corp. 15,000 491,250
Gibson Greetings, Inc. 23,400 459,225
Harland (John H.) Co. 9,700 320,100
Meredith Corp. 8,000 422,000
-------
2,136,911
---------
Chemicals (0.9%)
Carlisle Companies, Inc. 4,500 272,250
Quaker Chemical Corp. 8,100 132,637
-------
404,887
-------
Electrical Equipment &
Electronics (5.6%)
Baldor Electric Co. 30,950 762,144
Dynatech Corp.* 28,300 1,252,275
General Electric Co. 3,800 375,725
-------
2,390,144
---------
Entertainment & Leisure (2.7%)
CPI Corp. 36,200 606,350
Fleetwood Enterprises 19,400 533,500
-------
1,139,850
-------
Furniture and Apparel (8.1%)
Hillenbrand Industries, Inc. 15,700 569,125
Kellwood Co. 21,000 420,000
La Z Boy Chair Co. 18,400 542,800
Liz Claiborne, Inc. 20,700 799,537
Oshkosh B'Gosh, Inc. 22,300 340,075
Class A
Reebok International 18,800 789,600
-------
3,461,137
---------
Health Care (4.5%)
Acuson Corp.* 19,000 463,125
Guidant Corp. 3,050 173,850
Lilly (Eli) & Co. 3,252 237,396
Merck & Co. 6,300 499,275
McKesson Corporation 10,300 576,800
-------
1,950,446
-------
Industrial Services (1.5%)
Fluor Daniel 10,555 83,121
Kelly Services 20,000 540,000
-------
623,121
-------
Information Processing &
Telecommunications (4.7%)
Apple Computer, Inc.* 8,600 179,525
International Business 3,600 543,600
Machine Corp.
Novell, Inc. * 21,600 204,525
Sun Microsystems, Inc.* 25,400 652,462
Telxon Corp. 34,800 426,300
-------
2,006,412
---------
Machinery (0.9%)
Lawson Products, Inc. 6,600 144,375
Precision Castparts Corp. 5,100 253,087
-------
397,462
-------
Merchandising (3.9%)
Longs Drug Stores Corp. 13,200 648,450
Mac Frugal's Bargains 8,200 214,225
Close-outs, Inc.
Mercantile Stores Co. 9,300 459,188
Stanhome, Inc. 13,500 357,750
-------
1,679,613
---------
Metals & Mining (1.6%)
Aluminum Company of 8,800 561,000
America
Oregon Steel Mills, Inc. 8,000 134,000
-------
695,000
-------
Oil & Oil Services (2.5%)
Royal Dutch Petroleum Co. 2,500 426,875
Valero Energy Corp. 22,300 638,338
-------
1,065,213
-------
Transportation (2.5%)
Alexander & Baldwin, Inc. 21,300 532,500
Norfolk Southern Corp. 5,900 516,250
-------
1,048,750
-------
*does not pay cash dividends
The accompanying notes are an integral part of the financial statements.
<PAGE>
23
<TABLE>
<CAPTION>
AUL American Series Fund, Inc.
SCHEDULE OF INVESTMENTS
MANAGED PORTFOLIO (continued)
December 31, 1996
Market
Description Shares Value
- ----------- ------ -----
Common Stock (55.1%), continued
Miscellaneous (4.2%)
Boeing Co. 4,100 $ 436,137
Ford Motor Co. 17,500 557,813
Michael Foods, Inc. 23,400 298,350
Moore Corp., Ltd. 18,900 385,088
Sealright, Inc. 11,300 118,650
-------
1,796,038
---------
Total common stock (cost: $17,784,415) 23,521,134
----------
Money Market Mutual Funds (2.7%)
Riverfront U.S. Government Security 808,586 808,586
Merrill Lynch Institutional Fund 342,472 342,472
---------
Total money market mutual funds
(cost: $1,151,058) $1,151,058
---------
Interest Maturity Principal Market
Rate Date Amount Value
---- ---- ------ -----
<S> <C> <C> <C> <C>
Notes and Bonds (42.2%)
U.S. Government and Agency Obligations (31.3%)
Federal Home Loan Bank Bonds 8.600% 6/25/99 $ 500,000 $ 528,480
Federal Home Loan Bank Bonds 8.375% 10/25/99 900,000 952,307
Federal Home Loan Bank Notes 5.040% 8/20/98 250,000 246,528
Federal National Mortgage Association Bonds 8.350% 11/10/99 500,000 529,145
Federal National Mortgage Association CMO 6.500% 5/25/08 500,000 491,355
U.S. Treasury Bonds 9.375% 2/15/06 1,500,000 1,805,850
U.S. Treasury Bonds 8.750% 5/15/17 1,450,000 1,769,218
U.S. Treasury Notes 8.000% 2/15/01 1,125,000 1,201,950
U.S. Treasury Notes 7.500% 2/15/02 700,000 740,173
U.S. Treasury Notes 7.250% 8/15/04 2,000,000 2,104,680
U.S. Treasury Notes 8.875% 2/15/99 1,150,000 1,216,620
U.S. Treasury Bonds 8.000% 11/15/21 200,000 229,510
U.S. Treasury Notes 6.125% 8/31/98 1,000,000 1,004,500
U.S. Treasury Notes 6.750% 4/30/00 200,000 203,776
U.S. Treasury Strips --- 2/15/07 700,000 363,195
---------
13,387,287
Corporate Obligations (10.9%)
Allstate Corporation Notes 5.875% 6/15/98 250,000 249,062
Associates Corporation of North America 5.600% 1/15/01 400,000 385,500
El Paso Natural Gas Company Notes 7.750% 1/15/02 100,000 104,125
General Motors Acceptance Corporation Notes 5.450% 3/01/99 800,000 787,000
Hydro-Quebec Debenture Bonds 8.050% 7/07/24 250,000 274,062
Eli Lilly & Company Notes 8.375% 12/01/06 450,000 500,625
Providence of Ontario Notes 7.625% 6/22/04 550,000 578,875
Service Company International Notes 6.750% 6/01/01 700,000 696,500
Smith Barney Holdings Notes 7.500% 5/01/02 600,000 621,000
Sun, Inc. Debenture Bonds 9.000% 11/01/24 400,000 452,500
-------
Total notes and bonds (cost: $17,728,595) 18,036,536
----------
Total Investments (cost: $36,664,068) $ 42,708,728
============
<FN>
*does not pay cash dividends
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
<PAGE>
24
AUL American Series Fund, Inc.
SCHEDULE OF INVESTMENTS
TACTICAL ASSET ALLOCATION PORTFOLIO
December 31, 1996
Market
Description Shares Value
- ----------- ------ -----
Common Stock (55.8%)
Automotive & Truck (2.9%)
Chrysler Corp. 1,200 $ 39,600
Ford Motor Co. 700 22,312
------
61,912
------
Bank & Financial (11.1%)
AFLAC, Inc. 800 34,200
AMBAC, Inc. 400 26,550
Countrywide Credit Ind. 1,000 28,625
Federal Home Loan
Mortgage Corp. 200 22,025
Federal National Mortgage
Association 1,000 37,250
Lehman Brothers Holding, Inc. 1,000 31,375
MGIC Investment Group 400 30,400
PMI Group, Inc. 500 27,688
------
238,113
-------
Chemicals (2.7%)
Dow Chemical Co. 400 31,350
Georgia Gulf Corp. 1,000 26,875
-----
58,225
------
Information Processing &
Telecommunications (12.4%)
Applied Materials, Inc. 1,000 35,938
Arrow Electronics, Inc. 700 37,450
Digi International, Inc. 2,000 19,000
Intel Corp. 300 39,281
Novell, Inc. 2,500 23,672
Phillips Electronics NV 1,000 40,000
Seagate Technology, Inc. 1,000 39,500
Sprint Corp. 800 31,900
------
266,741
------
Merchandising (8.6%)
Fingerhut Companies, Inc. 1,500 18,375
May Department Store, Inc. 1,000 46,750
Payless Shoesource, Inc. 764 28,650
TJX Companies, Inc. 1,000 47,375
Toys R US 1,500 45,000
------
186,150
-------
Metals & Mining (5.2%)
Alumax, Inc. 1,000 33,375
Aluminum Co. of America 400 25,500
Birmingham Steel Corp. 1,400 26,600
Potash Corp. of Saskatchewan 300 25,500
------
110,975
------
Oil & Oil Services (1.6%)
Ashland, Inc. 400 17,550
Valero Energy Corp. 600 17,175
------
34,725
------
Paper & Containers (1.1%)
International Paper Co. 600 24,225
------
24,225
------
Tobacco (3.1%)
Philip Morris Cos., Inc. 400 45,050
UST , Inc. 700 22,662
------
67,712
------
Miscellaneous (7.1%)
Clayton Homes, Inc. 2,500 33,750
Cracker Barrel
Old Country Store 1,500 38,062
Teleflex, Inc. 500 26,063
Trizec Hahn Corp. 2,500 55,000
-------
152,875
-------
Total common stock (cost: $965,702) 1,201,653
---------
*does not pay cash dividends
The accompanying notes are an integral part of the financial statements.
<PAGE>
25
<TABLE>
<CAPTION>
AUL American Series Fund, Inc.
SCHEDULE OF INVESTMENTS
TACTICAL ASSET PORTFOLIO (CONTINUED)
December 31, 1996
Market
Description Shares Value
- ----------- ------ -------
Money Market Mutual Funds (0.6%)
Riverfront U.S. Government Security 12,402 $ 12,402
------
Total mutual funds (cost: $12,402) 12,402
------
Interest Maturity Principal Market
Rate Date Amount Value
---- ---- ------ -----
<S> <C> <C> <C> <C>
Notes and Bonds (43.6%)
Long Term Notes (24.6%)
U.S. Treasury Note 6.000% 10/15/99 $ 100,000 100,064
U.S. Treasury Note 5.500% 4/15/00 100,000 98,284
U.S. Treasury Note 5.250% 7/31/98 100,000 99,219
U.S. Treasury Note 7.500% 11/15/01 125,000 131,595
Federal National Mortgage Association Note 7.600% 8/02/06 100,000 101,550
--------
Short Term Notes (19.0%)
FingerHut Coupon 5.500% 1/07/97 105,000 104,904
J.P. Morgan Coupon 5.400% 1/10/97 105,000 104,858
Merrill Lynch Commercial Paper 5.800% 1/03/97 100,000 99,968
U.S. Treasury Note 5.500% 7/31/97 100,000 100,051
Total notes and bonds (cost: $943,601) 940,943
--------
Total Investments (cost: $1,921,705) $ 2,154,548
===========
<FN>
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
<PAGE>
26
(This page is intentionally blank.)
<PAGE>
27
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The AUL American Series Fund, Inc. (Fund) was incorporated under the laws of
Maryland on July 26, 1989, and is registered under the Investment Company Act of
1940, as amended, as an open-end, diversified management investment company. As
a "series" type of mutual fund, the Fund issues shares of common stock relating
to separate investment portfolios consisting of the Equity Portfolio, Money
Market Portfolio, Bond Portfolio, Managed Portfolio, and Tactical Asset
Allocation Portfolio (Tactical Asset). Currently, the Fund offers shares only to
separate accounts of American United Life Insurance Company(R) (AUL) to serve as
an underlying investment vehicle for variable annuity contracts. The Fund
commenced operations on April 10, 1990.
INVESTMENTS
Securities traded on a national securities exchange are valued at the last trade
price. Listed securities for which no sale was reported on the valuation date
are valued at the latest bid price. Short-term notes are valued at amortized
cost which approximates market value. Fixed income securities for which
representative market quotes are readily available are valued at the latest bid
price as quoted by one or more dealers who make a market in such securities.
U.S. Government obligations are valued at the latest bid price; however, such
obligations maturing in 60 days or less are valued at amortized cost which
approximates market value.
The Money Market Portfolio securities are valued at amortized cost. The Fund's
use of the amortized cost method is conditioned on its compliance with certain
provisions of Rule 2a-7 of the Investment Company Act of 1940. The Investment
Manager reviews this method of valuation to ensure that the portfolio securities
are reflected at their fair value.
Security transactions are recorded on the trade date plus one. Realized gains
and losses are determined on specific identification basis
INCOME AND EXPENSE
Dividend income is recorded on the ex-dividend date, and interest income is
accrued daily. Portfolio expenses are recorded on an accrual basis.
DEFERRED ORGANIZATION COSTS
Expenses incurred by the Fund in connection with its organization have been
capitalized and are amortized over five years on a straight-line basis.
TAXES
The fund qualifies as a regulated investment company under Section M the
Internal Revenue Code. The Fund's policy is to distribute all income to
shareholders, therefore, no provision has been made for income taxes.
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS
For the Money Market Portfolio, dividends from net investment income are
declared and paid daily. For all other portfolios, dividends from net investment
income are declared and paid quarterly. Distributions from net realized gains on
investments are declared and paid at least annually for all portfolios.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
2. TRANSACTIONS WITH AUL
AUL invested $23,000,000 to established the Fund. As of December 31, 1996.
AUL's investment in the Fund is:
Equity Portfolio $ 3,091,634
Tactical Asset Portfolio 500,000
---------
$ 3,591,634
=============
The Fund has an investment advisory agreement with AUL to act as its investment
advisor. For its services, AUL receives a fee at an annual rate of .50% of the
Portfolios average daily net assets. AUL has also agreed that its fee may be
reduced if the aggregate ordinary operating expenses of the Portfolios exceed 1%
of the average daily net assets during the year. To the extent that AUL has
reduced its advisory fees to prevent the Portfolio's aggregate ordinary
operating expenses from exceeding 1%, it may increase its advisory fee during
any of the next succeeding 5 years, provided that the aggregate ordinary
operating expenses in any given year do not exceed 1% of the average daily net
assets in that year. The total amount of any increase in AUL's fees will not
exceed the prior fee reduction.
<PAGE>
28
<TABLE>
<CAPTION>
NOTES TO FINANCIAL STATEMENTS (continued)
2. TRANSACTIONS WITH AUL, continued:
AUL may terminate the policy of reducing its fee and/or assuming Fund expenses
upon 30 days prior written notice to the Fund, and in any event, the policy will
automatically terminate if the Investment Advisory Agreement is terminated. The
investment advisory fees incurred during the year ended December 31, 1996 and
1995, were $712,483 and $502,811, respectively.
Certain directors of the Fund are officers of AUL.
3. AGREEMENTS WITH BANKS
The Fund has agreements with The Provident Bank (Bank) whereby the Bank serves
as custodian of the securities and other assets of the Fund, as fund accountant,
transfer and disbursing agent for the Fund. The Bank informed the Fund that they
are discontinuing fund accounting services. Accordingly, the Fund is currently
in the process of negotiating with The Bank of New York with regard to
performing the services previously provided by The Provident Bank.
4. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term securities
and money market mutual funds) during the year ended December 31, 1996, were:
Portfolio
---------
Tactical
Equity Money Market Bond Managed Asset
------ ------------ ---- ------- -------
Common Stock:
Purchases $12,290,803 $ --- $ --- $6,579,670 $811,486
Proceeds from sales 4,116,316 --- --- 3,218,744 365,560
Corporate Bonds:
Purchases --- --- 5,341,657 3,063,069 ---
Proceeds from sales --- --- 2,582,262 1,408,104 ---
Government Bonds:
Purchases 609,844 --- 14,969,320 12,373,813 239,652
Proceeds from sales --- --- 13,809,278 7,215,867 ---
5. AUTHORIZED CAPITAL SHARES
The Fund has 125,000,000 authorized shares of $.001 par value capital stock,
which includes 10,000,000 unallocated shares. The remaining shares are allocated
to each of the Fund's portfolios as follows:
Equity Portfolio 10,000,000
Money Market Portfolio 50,000,000
Bond Portfolio 10,000,000
Managed Portfolio 20,000,000
Tactical Asset 25,000,000
----------
115,000,000
===========
6. NET ASSETS
Net Assets at December 31, 1996 are:
Portfolio
---------
Equity Money Market Bond Managed Tactical Asset
------ ------------ ---- ------- --------------
<S> <C> <C> <C> <C> <C>
Proceeds from shares sold
and reinvested distributions $ 54,862,176 $164,049,404 $ 49,988,132 $ 55,466,892 $ 2,009,212
Cost of shares redeemed (15,683,007) (123,821,929) (22,448,586) (18,428,733) (97,291)
Undistributed net investment
income 11,852 --- 4,468 8,798 109
Undistributed net realized
gain (loss) (217,011) --- --- --- ---
Unrealized gain (loss) 11,678,096 --- 643,866 6,044,660 232,843
--------- --------- --------- --------- -------
$ 50,652,106 $ 40,227,475 $ 28,187,880 $ 43,091,617 $ 2,144,873
============ ============ ============ ============ ===========
</TABLE>
<PAGE>
29
<TABLE>
<CAPTION>
NOTES TO FINANCIAL STATEMENTS (continued)
7. UNREALIZED GAIN
Unrealized Gain (Loss) at December 31, 1996 is:
Portfolio
---------
Equity Money Market Bond Managed Tactical Asset
------ ------------ ---- ------- --------------
<S> <C> <C> <C> <C> <C>
Common Stock:
Appreciation $ 12,416,226 $ --- $ --- $ 6,140,335 $ 261,406
Depreciation (737,732) --- --- (403,616) (25,455)
Notes and Bonds
Appreciation --- --- 743,659 371,457 1,549
Depreciation (398) --- (99,793) (63,516) (4,657)
--------- --------- --------- --------- -------
$ 11,678,096 $ --- $ 643,866 $ 6,044,660 $ 232,843
============ ============ ============ ============ ===========
</TABLE>
8. SHARES OUTSTANDING
Shares Outstanding at December 31, 1996, are:
<TABLE>
Portfolio
---------
Equity Money Market Bond Managed Tactical Asset
------ ------------ ---- ------- --------------
<S> <C> <C> <C> <C> <C>
AUL 309,609 --- --- --- 50,001
Dean Investments --- --- --- --- 50,000
AUL American Unit Trust 1,340,827 4,836,248 688,306 1,383,450 ---
AUL Group Retirement Annuity
Separate Account II 1,171,791 32,704,457 1,776,976 1,588,086 ---
AUL American Individual
Unit Trust 220,762 2,686,770 182,807 243,653 84,045
--------- --------- --------- --------- -------
3,042,989 40,227,475 2,648,089 3,215,189 184,046
============ ============ ============ ============ ===========
</TABLE>
<PAGE>
30
(This page is intentionally blank.)
<PAGE>
31
FINANCIAL HIGHLIGHTS
The per share amounts are based on average shares outstanding throughout the
year.
<TABLE>
Equity Portfolio
----------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Per Share Data:
Investment Income $ 0.39 $ 0.37 $ 0.33 $ 0.28 $ 0.32
Expense 0.11 0.09 0.09 0.10 0.09
------------ ------------ ---------- ---------- ----------
Net investment income 0.28 0.28 0.24 0.18 0.23
Net gain (loss) on investments 2.44 2.12 0.26 1.58 0.92
Shareholder distributions:
Net investment income (0.28) (0.27) (0.24) (0.18) (0.23)
Realized gain --- (0.19) (0.67) (0.39) (0.32)
------------ ------------ ---------- ---------- ----------
Net increase (decrease) 2.44 1.94 (0.41) 1.19 0.60
Net asset value at
beginning of year 14.21 12.27 12.68 11.49 10.89
------------ ------------ ---------- ---------- ----------
Net asset value at end of year $ 16.65 $ 14.21 $ 12.27 $ 12.68 $ 11.49
============ ============ ========== ========== ==========
Ratio to average net assets:
Expense 0.70% 0.70% 0.73% 0.82% 0.84%
Net investment income 1.81% 2.08% 1.85% 1.46% 2.04%
Total return 19.17% 19.45% 2.64% 14.80% 10.03%
Portfolio turnover rate 11% 10% 20% 10% 15%
Average commission rate paid* $ 0.0666 N/A N/A N/A N/A
Shares outstanding 3,042,989 2,483,962 1,675,654 904,136 606,686
*Computed by dividing the total amount of commission paid by the total number of shares purchased and sold during the
period for which there was a commission. This disclosure is required by the SEC beginning in 1996.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
32
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED)
The per share amounts are based on average shares outstanding throughout the year.
Money Market Portfolio
----------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Per Share Data:
Investment Income $ 0.06 $ 0.06 $ 0.05 $ 0.03 $ 0.04
Expense 0.01 0.01 0.01 0.01 0.01
------------- ------------- ----------- ------------ ------------
Net investment income 0.05 0.05 0.04 0.02 0.03
Net gain (loss) on investments --- --- --- --- ---
Shareholder distributions:
Net investment income (0.05) (0.05) (0.04) (0.02) (0.03)
Realized gain --- --- --- --- ---
------------- ------------- ------------ ------------ ------------
Net increase --- --- --- --- ---
Net asset value at
beginning of year 1.00 1.00 1.00 1.00 1.00
------------- ------------- ------------ ------------ ------------
Net asset value at end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============= ============= ============ ============ ============
Ratio to average net assets:
Expense 0.70% 0.73% 0.75% 0.84% 0.85%
Net investment income 4.64% 5.31% 3.71% 2.30% 2.98%
Total return 4.63% 5.09% 3.38% 2.33% 3.01%
Portfolio turnover rate --- --- --- --- ---
Average commission rate paid* $ N/A N/A N/A N/A N/A
Shares outstanding 40,227,475 24,290,006 15,495,643 6,153,301 5,480,206
</TABLE>
*Computed by dividing the total amount of commission paid by the total number of
shares purchased and sold during the period for which there was a commission.
This disclosure is required by the SEC beginning in 1996.
The accompanying notes are an integral part of the financial statements.
<PAGE>
33
FINANCIAL HIGHLIGHTS (continued)
The per share amounts are based on average shares outstanding throughout the
year.
<TABLE>
<CAPTION>
Bond Portfolio
--------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Per Share Data:
Investment Income $ 0.70 $ 0.75 $ 0.72 $ 0.75 $ 0.79
Expense 0.08 0.08 0.08 0.09 0.09
------------ ------------ ------------ ------------ ------------
Net investment income 0.62 0.67 0.64 0.66 0.70
Net gain (loss) on investments (0.39) 1.07 (1.01) 0.49 0.06
Shareholder distributions:
Net investment income (0.63) (0.66) (0.64) (0.66) (0.70)
Realized gain (0.01) (0.01) --- (0.14) (0.31)
------------ ------------ ------------ ------------ ------------
Net increase (decrease) (0.41) 1.07 (1.01) 0.35 (0.25)
Net asset value at
beginning of year 11.06 9.99 11.00 10.65 10.90
------------ ------------ ------------ ------------ ------------
Net asset value at end of year $ 10.65 $ 11.06 $ 9.99 $ 11.00 $ 10.65
============ ============ ============ ============ ============
Ratio to average net assets:
Expense 0.71% 0.70% 0.73% 0.80% 0.79%
Net investment income 5.85% 6.28% 6.19% 5.95% 6.47%
Total return 2.23% 17.79% (3.56%) 10.69% 7.19%
Portfolio turnover rate 62% 55% 50% 29% 41%
Average commission rate paid * $ N/A N/A N/A N/A N/A
Shares outstanding 2,648,089 2,298,581 2,046,361 1,338,361 1,123,783
</TABLE>
*Computed by dividing the total amount of commission paid by the total number of
shares purchased and sold during the period for which there was a commission.
This disclosure is required by the SEC beginning in 1996.
The accompanying notes are an integral part of the financial statements.
<PAGE>
34
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (continued)
The per share amounts are based on average shares outstanding throughout the year.
Managed Portfolio
-----------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Per Share Data:
Investment Income $ 0.53 $ 0.54 $ 0.50 $ 0.49 $ 0.58
Expense 0.09 0.08 0.08 0.09 0.09
------------ ------------ ------------ ---------- ----------
Net investment income 0.44 0.46 0.42 0.40 0.49
Net gain (loss) on investments 1.01 1.62 (0.45) 1.07 0.41
Shareholder distributions:
Net investment income (0.44) (0.46) (0.42) (0.40) (0.49)
Realized gain (0.03) (0.20) (0.30) (0.24) (0.35)
------------ ------------ ------------ ---------- ----------
Net increase (decrease) 0.98 1.42 (0.75) 0.83 0.06
Net asset value at
beginning of year 12.42 11.00 11.75 10.92 10.86
------------ ------------ ------------ ---------- ----------
Net asset value at end of year $ 13.40 $ 12.42 $ 11.00 $ 11.75 $ 10.92
============ ============ ============ ========== ==========
Ratio to average net assets:
Expense 0.70% 0.70% 0.73% 0.81% 0.82%
Net investment income 3.43% 3.86% 3.63% 3.49% 4.46%
Total return 11.79% 19.13% (0.92%) 12.98% 7.95%
Portfolio turnover rate 34% 35% 34% 9% 33%
Average commission rate paid* $ 0.0668 N/A N/A N/A N/A
Shares outstanding 3,215,189 2,484,037 2,233,298 1,197,065 760,101
</TABLE>
*Computed by dividing the total amount of commission paid by the total number of
shares purchased and sold during the period for which there was a commission.
This disclosure is required by the SEC beginning in 1996.
The accompanying notes are an integral part of the financial statements.
<PAGE>
35
FINANCIAL HIGHLIGHTS (continued)
The per share amounts are based on average shares outstanding throughout the
year.
Tactical Asset Allocation Portfolio
-------------------------------
1996 1995(1)
------ --------
Per Share Data:
Investment Income $ 0.39 $ 0.20
Expense 0.11 .04
---------- ----------
Net investment income 0.28 .16
Net gain (loss) on investments 1.38 0.49
Shareholder distributions:
Net investment income (0.28) (0.16)
Realized gain (0.17) (0.05)
----------- ----------
Net increase (decrease) 1.21 0.44
Net asset value at
beginning of year 10.44 10.00
---------- ----------
Net asset value at end of year $ 11.65 $ 10.44
========== ==========
Ratio to average net assets:
Expense 1.00% 1.00%
Net investment income 6.03% 3.70%
Total return 15.67% 6.49%
Portfolio turnover rate 25% 4%
Average commission rate paid* $ 0.0799 N/A
Shares outstanding 184,046 109,147
*Computed by dividing the total amount of commission paid by the total number of
shares purchased and sold during the period for which there was a commission.
This disclosure is required by the SEC beginning in 1996.
(1) Ratios calculated for period July 31, 1995 through December 31, 1995 on
annualized basis
The accompanying notes are an integral part of the financial statements.
<PAGE>
36
(This page is intentionally blank.)
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000853618
<NAME> AUL AMERICAN SERIES FUND
<SERIES>
<NUMBER> 1
<NAME> EQUITY PORTFOLIO
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
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