File No. 33-30156
As filed with the Securities and Exchange Commission on April 30, 1998
================================================================================
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. 11
and/or
REGISTRATION STATEMENT UNDER THE
[X] INVESTMENT COMPANY ACT OF 1940
[X] Amendment No. 12
(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
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, 1998 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)(2)
on (date) pursuant to paragraph (a)(2) of Rule 485
_____
_____ this post-effective amendment designates a new effective
date for a previously filed amendment.
<PAGE>
2
<TABLE>
<CAPTION>
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) 249-6269
AUL American Series Fund, Inc. (the "Fund") is an open-end, diversified
management investment company currently consisting of eight separate investment
portfolios (the "Portfolios"), each of which has its own investment objectives
and policies. The eight 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"), the AUL American
Tactical Asset Allocation Portfolio ("Tactical Asset Allocation Portfolio"), the
AUL American Conservative Investor Portfolio ("Conservative Investor
Portfolio"), the AUL American Moderate Investor Portfolio ("Moderate Investor
Portfolio"), and the AUL American Aggressive Investor Portfolio ("Aggressive
Investor 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
life and 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,
("SAI") dated May 1, 1998, containing additional and more detailed information
about the Fund has been filed with the Securities and Exchange Commission (the
"SEC") and is hereby incorporated by reference into this Prospectus. The SAI 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 LIFE AND ANNUITY CONTRACTS. THIS
PROSPECTUS SHOULD BE READ IN CONJUNCTION WITH THE VARIABLE LIFE OR ANNUITY
CONTRACT (OR CERTIFICATE THEREUNDER) AND, IF APPLICABLE, THE PROSPECTUS OFFERING
THE VARIABLE LIFE OR 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, 1998.
(1)
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<PAGE>
<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........................................ 6-11
The Equity Portfolio.................................................... 6
The Bond Portfolio...................................................... 7
The Money Market Portfolio.............................................. 7
The Managed Portfolio................................................... 8
The Tactical Asset Allocation Portfolio................................. 8
The LifeStyle Portfolios: The Conservative, Moderate, and Aggressive
Investor Portfolios................................................. 9
The Conservative Investor Portfolio................................... 9
The Moderate Investor Portfolio....................................... 10
The Aggressive Investor Portfolio..................................... 10
Investment Strategy of the LifeStyle Portfolios....................... 10
Equity Securities................................................... 11
Bonds............................................................... 11
Money Market Instruments............................................ 11
Foreign Securities ................................................. 11
MANAGEMENT OF THE FUND.....................................................12-13
Investment Adviser-American United Life Insurance Company(R)............. 12
The Sub-Advisers......................................................... 12
The Sub-Adviser to the Tactical Asset Allocation Portfolio............. 12
The Sub-Adviser to the LifeStyle Portfolios............................ 12
Other Expenses........................................................... 13
Portfolio Expenses....................................................... 13
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES........................13-19
U.S. Government Securities............................................... 13
Bonds Generally.......................................................... 14
High Yield Securities.................................................... 14
Mortgage-Related Securities.............................................. 15
GNMA Certificates....................................................... 15
FNMA and FHLMC Mortgage-Backed Obligations.............................. 15
Other Mortgage-Backed Securities........................................ 15
Risks of Mortgage-Related Securities.................................... 15
Zero Coupon Bonds........................................................ 15
Foreign Securities....................................................... 15
Forward Foreign Currency Contracts....................................... 16
Repurchase Agreements.................................................... 16
Reverse Repurchase Agreements............................................ 17
Banking Industry and Savings Industry Obligations........................ 17
Options.................................................................. 17
Risks of Options Transactions........................................... 17
Futures Contracts........................................................ 18
Risks of Futures........................................................ 18
Illiquid and Restricted Securities...................................... 19
Other Investment Companies............................................... 19
Lending of Portfolio Securities.......................................... 19
INVESTMENT RESTRICTIONS.................................................... 19
PORTFOLIO TRANSACTIONS AND TURNOVER........................................ 20
DESCRIPTION OF THE FUND'S SHARES........................................... 20
DIVIDENDS, DISTRIBUTION AND TAXES..........................................20-21
Federal Income Tax Status................................................ 20
Distributions and Dividends.............................................. 21
PURCHASE AND REDEMPTION OF SHARES.......................................... 21
NET ASSET VALUE............................................................ 21
PERFORMANCE INFORMATION.................................................... 22
YEAR 2000 ISSUES AND READINESS............................................. 22
LEGAL COUNSEL.............................................................. 22
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS...................... 23
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</TABLE>
2
<PAGE>
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, Tactical Asset Allocation Portfolio, Conservative Investor
Portfolio, Moderate Investor Portfolio, and Aggressive Investor 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 life and 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 life and 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, 1997
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, 1997. 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, 1997. Financial information for the Conservative Investor
Portfolio, the Moderate Investor Portfolio, and the Aggressive Investor
Portfolio is not available because these Portfolios had not commenced operations
during the periods shown. The average commission rate paid is 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.
<TABLE>
<CAPTION>
EQUITY PORTFOLIO
----------------
April 10, 1990
through
1997 1996 1995 1994 1993 1992 1991 December 31, 1990
---- ---- ---- ---- ---- ---- ---- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, $ 16.65 $ 14.21 $ 12.27 $ 12.68 $ 11.49 $ 10.49 $ 9.58 $ 10.00
BEGINNING OF PERIOD ------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.29 0.28 0.28 0.24 0.18 0.23 0.31 0.27
Net Realized and Unrealized
gain (loss) on securities 4.64 2.44 2.12 0.26 1.58 0.92 2.23 (0.39)
----- ---- ---- ---- ---- ---- ---- -----
Total from Investment
Operations 4.93 2.72 2.40 0.50 1.76 1.15 2.54 (0.12)
----- ---- ---- ---- ---- ---- ---- -----
LESS DISTRIBUTIONS
Dividends (from net
investment income) 0.30 0.28 0.27 0.24 0.18 0.23 0.31 0.27
Distributions (from capital
gains) 0.25 0.00 0.19 0.67 0.39 0.32 0.92 0.03
----- ---- ---- ---- ---- ---- ---- ----
Total Distributions 0.55 0.28 0.46 0.91 0.57 0.55 1.23 0.30
----- ---- ---- ---- ---- ---- ---- ----
NET ASSET VALUE, END OF
PERIOD $ 21.03 $ 16.65 $ 14.21 $ 12.27 $ 12.68 $ 11.49 $ 10.89 $ 9.58
======== ======== ======== ======== ======== ======== ======= ========
TOTAL RETURN 29.59% 19.17% 19.45% 2.64% 14.80% 10.03% 25.58% (1.60%)
RATIOS/SUPPLEMENTAL DATA
Net Assets, end of
period (in thousands) $ 80,276 $ 50,652 $ 35,299 $ 20,563 $ 11,468 $ 6,969 $ 4,128 $ 2,969
Ratio of expenses to
average net assets 0.66% 0.70% 0.70% 0.73% 0.82% 0.84% 0.80% 1.00%(1)
Ratio of net investment
income to average net
assets 1.52% 1.81% 2.08% 1.85% 1.46% 2.04% 2.75% 3.93%(1)
Portfolio Turnover Rate 9% 11% 10% 20% 10% 15% 43% 9%
Average Commission Rate
Paid $ 0.0719 $ 0.0666 N.A. N.A. N.A. N.A. N.A. N.A.
<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>
3
<PAGE>
<CAPTION>
CONDENSED FINANCIAL INFORMATION (CONTINUED)
BOND PORTFOLIO
--------------
April 10, 1990
through
1997 1996 1995 1994 1993 1992 1991 December 31, 1990
---- ---- ---- ---- ---- ---- ---- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 10.65 $ 11.06 $ 9.99 $ 11.00 $ 10.65 $ 10.90 $ 10.32 $ 10.00
-------- -------- --------- -------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.60 0.62 0.67 0.64 0.66 0.70 0.79 0.55
Net Realized and Unrealized
gain (loss) on securities 0.25 (0.39) 1.07 (1.01) 0.49 0.06 0.85 0.33
------- ------ ---- ----- ---- ---- ---- ----
Total from Investment
Operations 0.85 0.23 1.74 (0.37) 1.15 0.76 1.64 0.88
------- ---- ---- ----- ---- ---- ---- ----
LESS DISTRIBUTIONS
Dividends (from net
investment income) 0.59 0.63 0.66 0.64 0.66 0.70 0.79 0.55
Distributions (from
capital gains) 0.23 0.01 0.01 --- 0.14 0.31 0.27 0.01
------- ---- ---- ---- ---- ---- ----
Total Distributions 0.81 0.64 0.67 0.64 0.80 1.01 1.06 0.56
------- ---- ---- ---- ---- ---- ---- ----
NET ASSET VALUE,
END OF PERIOD $ 10.68 $ 10.65 $ 11.06 $ 9.99 $ 11.00 $ 10.65 $ 10.90 $ 10.32
======= ======== ======== ======== ======= ======= ======= =======
TOTAL RETURN 7.85% 2.23% 17.79% (3.56%) 10.69% 7.19% 16.36% 12.07%
RATIOS/SUPPLEMENTAL DATA
Net Assets, end of period
(in thousands) $34,718 $ 28,188 $ 25,429 $ 20,453 $14,721 $ 11,966 $11,749 $10,897
Ratio of expenses to
average net assets 0.67% 0.71% 0.70% 0.73% 0.80% 0.79% 0.71% 1.00%(1)
Ratio of net investment
income to average net
assets 5.53% 5.85% 6.28% 6.19% 5.95% 6.47% 7.46% 7.46%(1)
Portfolio Turnover Rate 107% 62% 55% 50% 29% 41% 61% 5%
Average Commission Rate Paid N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A.
MONEY MARKET PORTFOLIO
----------------------
April 10, 1990
through
1997 1996 1995 1994 1993 1992 1991 December 31, 1990
---- ---- ---- ---- ---- ---- ---- -----------------
<S> <C> <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 $ 1.00
------- ------- ------- ------- ------- -------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.05 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 0.05 0.04 0.02 0.03 0.05 0.05
------- ---- ---- ---- ---- ---- ---- ----
LESS DISTRIBUTIONS
Dividends (from net
investment income) 0.05 0.05 0.05 0.04 0.02 0.03 0.05 0.05
Distributions (from
capital gains) --- --- --- --- --- --- --- ---
------- -------- -------- -------- ------- ------ ------ ------
Total Distributions 0.05 0.05 0.05 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 $ 1.00
======= ======== ======== ======== ======= ======= ======= =======
TOTAL RETURN 4.85% 4.63% 5.09% 3.38% 2.33% 3.01% 5.53% 7.13%
RATIOS/SUPPLEMENTAL DATA
Net Assets, end of
period (in thousands) $55,757 $ 40,227 $ 24,290 $ 15,496 $ 6,153 $ 5,480 $ 5,420 $ 5,269
Ratio of expenses
to average net assets 0.66% 0.70% 0.73% 0.75% 0.84% 0.85% 0.85% 1.00%(1)
Ratio of net investment
income to average
net assets 4.83% 4.64% 5.13% 3.71% 2.30% 2.98% 5.35% 7.10%(1)
Portfolio Turnover Rate --- --- --- --- --- --- --- ---
Average Commission Rate
Paid N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A.
<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>
4
<PAGE>
<CAPTION>
CONDENSED FINANCIAL INFORMATION (CONTINUED)
MANAGED PORTFOLIO
April 10, 1990
through
1997 1996 1995 1994 1993 1992 1991 December 31, 1990
---- ---- ---- ---- ---- ---- ---- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD
$13.40 $ 12.42 $ 11.00 $ 11.75 $ 10.92 $ 10.86 $ 10.11 $ 10.00
------ ------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.48 0.44 0.46 0.42 0.40 0.49 0.61 0.47
Net Realized and
Unrealized gain
(loss) on securities 2.34 1.01 1.62 (0.45) 1.07 0.41 1.06 0.12
------- ---- ---- ----- ---- ---- ---- ----
Total from Investment
Operations 2.82 1.45 2.08 (0.03) 1.47 0.90 1.67 0.59
---- ---- ---- ----- ---- ---- ---- ----
LESS DISTRIBUTIONS
Dividends (from net
investment income) 0.48 0.44 0.46 0.42 0.40 0.49 0.61 0.47
Distributions (from
capital gains) 0.41 0.03 0.20 0.30 0.24 0.35 0.31 0.01
------- ---- ---- ---- ---- ---- ---- ----
Total Distributions 0.89 0.47 0.66 0.72 0.64 0.84 0.92 0.48
------- ---- ---- ---- ---- ---- ---- ----
NET ASSET VALUE,
END OF PERIOD $ 15.33 $ 13.40 $ 12.42 $ 11.00 $ 11.75 $ 10.92 $ 10.86 $ 10.11
======= ======== ======== ======== ======= ======== ======= =======
TOTAL RETURN 20.95% 11.79% 19.13% (0.92%) 12.98% 7.95% 16.73% 7.67%
RATIOS/SUPPLEMENTAL DATA
Net Assets, end of
period (in thousands) $ 60,477 $ 43,092 $ 30,844 $ 24,558 $14,070 $ 8,300 $ 6,185 $ 5,302
Ratio of expenses to
average net assets 0.67% 0.70% 0.70% 0.73% 0.81% 0.82% 0.94% 0.98%
Ratio of net investment
income to average
net assets 3.27% 3.43% 3.86% 3.63% 3.49% 4.46% 5.74% 6.15%
Portfolio Turnover Rate 27% 34% 35% 34% 9% 33% 36% 2%
Average Commission Rate
Paid $ 0.0716 $ 0.0668 N.A. N.A. N.A. N.A. N.A. N.A.
<CAPTION>
TACTICAL ASSET ALLOCATION PORTFOLIO
-----------------------------------
April 10, 1990
through
1997 1996 1995 1994 1993 1992 1991 December 31, 1990
---- ---- ---- ---- ---- ---- ---- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 11.65 $ 10.44 $ 10.00 N.A. N.A. N.A. N.A. N.A.
------- -------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.28 0.28 0.16 N.A. N.A. N.A. N.A. N.A.
Net Realized and Unrealized
gain (loss) on securities 1.75 1.38 0.49 N.A. N.A. N.A. N.A. N.A.
------- -------- -------
Total from Investment
Operations 2.02 1.66 0.65 N.A. N.A. N.A. N.A. N.A.
------- -------- --------
LESS DISTRIBUTIONS
Dividends (from net
investment income) 0.28 0.28 0.16 N.A. N.A. N.A. N.A. N.A.
Distributions (from
capital gains) 0.96 0.17 0.05 N.A. N.A. N.A. N.A. N.A.
------- -------- -------
Total Distributions 1.24 0.45 0.21 N.A. N.A. N.A. N.A. N.A.
------- -------- -------
NET ASSET VALUE,
END OF PERIOD $ 12.44 $ 11.65 $ 10.44 N.A. N.A. N.A. N.A. N.A.
======= ======= =======
TOTAL RETURN(1) 15.48% 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) $ 4,452 $ 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% 1.00% N.A. N.A. N.A. N.A. N.A.
Ratio of net investment
income to average net
assets 2.24% 2.62% 3.70% N.A. N.A. N.A. N.A. N.A.
Portfolio Turnover Rate 52% 25% 4% N.A. N.A. N.A. N.A. N.A.
Average Commission Rate
Paid $0.0733 $ 0.0799 N.A. 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>
5
<PAGE>
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) 249-6269. Total return for the Conservative
Investor Portfolio, the Moderate Investor Portfolio, and the Aggressive Investor
Portfolio is not available because these Portfolios had not commenced operations
during the periods shown.
<TABLE>
<CAPTION>
Average Annual
Cumulative Total Return
4/10/90 Year Year Year Year Year Year Year Total Return on Investment
through Ending Ending Ending Ending Ending Ending Ending Since Inception Since Inception
Portfolio 12/31/90* 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 through 12/31/97 through 12/31/97
- --------- --------- -------- -------- -------- -------- --------- -------- -------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity ....... (1.16%) 25.58% 10.03% 14.80% 2.64% 19.45% 19.17% 29.59% 197.55% 15.16%
Bond ......... 8.76% 16.36% 7.19% 10.69% (3.56%) 17.79% 2.23% 7.85% 88.60% 8.56%
Money Market . 5.19% 5.53% 3.01% 2.33% 3.38% 5.09% 4.63% 4.85% 39.67% 4.42%
Managed ...... 5.57% 16.73% 7.95% 12.98% (0.93%) 19.13% 11.79% 20.95% 141.33% 12.08%
Tactical Asset
Allocation . N.A. N.A. N.A. N.A. N.A. N.A. 15.67% 15.48% 15.70% 15.70%
<FN>
*These figures are not annualized.
</FN>
</TABLE>
INVESTMENT OBJECTIVES AND POLICIES
The Fund currently offers eight 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., 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,
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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. At
least 90% percent of 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. Debt securities that are rated BBB or higher by S&P
and Baa or higher by Moody's, or unrated debt securities of equivalent quality,
are considered to be "investment grade" debt securities. 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 generally 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.
The Portfolio may invest no more than 10% of its assets, as of the time the
investment is made, in securities rated less than BBB or Baa. Debt securities
rated below-investment grade, or unrated securities determined to be of
equivalent quality are considered to be "high yield/high risk" securities and
may be referred to colloquially as "junk bonds." For more information on
below-investment grade debt securities, including information regarding the
risks of investing in such securities, see "High Yield Securities" below and
Appendix I in the SAI.
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. See "Bonds Generally"
below for more information on debt securities and Appendix I in the SAI for
further information concerning bond ratings.
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 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
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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
eligible for purchase by the Equity Portfolio and Bond Portfolio, respectively.
Accordingly, the Portfolio may invest up to 10% of its investments in debt
securities that are rated below-investment grade. For more information on high
yield debt securities, including information regarding the risks of investing in
such securities, see "High Yield Securities" below and Appendix I in the SAI.
The Portfolio also 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 objective, 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 as well as by lending
its Portfolio securities to brokers, dealers, and other financial institutions.
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-
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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.
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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). See "Bonds Generally" below for more information on debt 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 SAI 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.
THE LIFESTYLE PORTFOLIOS: THE CONSERVATIVE, MODERATE, AND AGGRESSIVE INVESTOR
PORTFOLIOS
The LifeStyle Portfolios are three individual portfolios that feature
different allocations of assets to help them achieve their investment
objectives. Each Portfolio's assets are invested, in differing proportions, in
three broad asset classes -- equity securities, bonds, and money market
instruments. Investments in those classes may be allocated to a number of
different types of securities.
Each of the LifeStyle Portfolios is designed to fit a different general
risk profile. Investors are encouraged to choose the appropriate Portfolio or
mix of Portfolios based upon their individual circumstances, including the
anticipated timing of major investment goals, such as sending a child to
college, retirement or purchasing a home, as well as their individual risk
tolerance. As investment goals change, investors are encouraged to re-evaluate
their Portfolio choices to determine whether they should move all or a portion
of their investment to a Portfolio with a more appropriate objective and asset
mix.
Based upon the historic performance of the major asset classes (equity
securities, bonds, and money market instruments) over many years, of the three
Portfolios, the Aggressive Investor Portfolio, which has the highest exposure to
equities, has the highest potential for the greatest long-term total return, but
also presents the potential for the greatest volatility and losses. The
Conservative Investor Portfolio, which has the highest exposure to fixed income
securities, has more limited potential for long-term total return, but also
presents the least potential for sustained volatility and losses. The Moderate
Investor Portfolio presents a balance between the potential returns and
volatility of the Aggressive Investor and the Conservative Investor Portfolios.
Of course, there can be no assurance that any of the Portfolios will meet their
investment objectives.
THE CONSERVATIVE INVESTOR PORTFOLIO
The investment objective of the Conservative Investor Portfolio is high
current income, with opportunities for capital appreciation. The Portfolio seeks
this objective by investing in
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a strategically allocated portfolio consisting primarily of bond and money
market instruments with the remainder of the Portfolio invested in equities. The
Portfolio's emphasis on bonds and money market securities is intended to help
provide gains through income accumulation and a measure of principal protection
in the event that the stock market is in decline.
THE MODERATE INVESTOR PORTFOLIO
The investment objective of the Moderate Investor Portfolio is a blend of
capital appreciation and income. The Portfolio seeks this objective by investing
in a strategically allocated portfolio of equities, bonds and money market
instruments with a weighting that normally is slightly heavier in equities. The
asset mix for this Portfolio is intended to provide long-term growth and some
regular income, while helping to moderate losses in the event of stock market
declines.
THE AGGRESSIVE INVESTOR PORTFOLIO
The investment objective of the Aggressive Investor Portfolio is long-term
capital appreciation. The Portfolio seeks this objective by investing in a
strategically allocated portfolio consisting primarily of equities. Current
income is not a primary consideration. The asset mix for this Portfolio is
intended to provide long-term growth, together with a small amount of income to
help cushion the volatility of the equity securities.
Investment Strategy of the LifeStyle Portfolios
In diversifying investments among three major asset classes-- equity
securities, bonds and money market instruments, each LifeStyle Portfolio has its
own target mix that represents a "benchmark" as to how that Portfolio's
investments ideally should be allocated among the major asset classes over the
long term. Each LifeStyle Portfolio's target mix is set forth below:
Target Mixes
LifeStyle Money Market
Portfolio Equity Securities Bonds Instruments
- --------- ----------------- ----- ------------
Conservative 35% 50% 15%
Moderate 55% 35% 10%
Aggressive 80% 20% 0%
Although each LifeStyle Portfolio has a targeted asset allocation, AUL or
the Portfolios' Sub-Adviser may adjust each Portfolio's asset mix based upon
cash flow and an evaluation of market conditions and the anticipated returns and
risks for various asset classes. The mix of a Portfolio will vary depending on
the relative performance and perceived relative value of the various asset
classes. However, each Portfolio has operating ranges that are intended to
restrict the amount by which the assets of each class may fluctuate, so that an
investment in any asset class will not normally be acquired if it would cause
that asset class to fall below or rise above its operating range. Allocation to
an asset class may occasionally exceed or fall below the Portfolio's operating
range, such as at times of large cash inflows or outflows, but deviations are
not normally expected. The operating ranges are set forth below:
Operating Ranges
LifeStyle Equity Money Market
Portfolio Securities Bonds Portfolios
- --------- ---------- ----- -----------
Conservative 25-50% 40-60% 5-25%
Moderate 45-65% 25-45% 0-20%
Aggressive 70-90% 10-30% 0-15%
The LifeStyle Portfolios are "strategic" rather than "tactical" allocation
funds, which means that AUL and the Sub-Adviser do not try to time the market to
identify the exact time when a major reallocation should be made. Instead, AUL
and the Sub-Adviser utilize a longer-term (top-down, valuation driven) approach
in pursuing the Portfolios' investment objectives.
Within each asset class, each LifeStyle Portfolio's holdings are invested
across a diversified group of industries and issuers based upon AUL's and the
Sub-Adviser's investment criteria. AUL and the Sub-Adviser regularly review each
LifeStyle Portfolio's investments and allocations and may make changes in the
particular securities or in the asset mix (within the defined operating ranges)
to favor investments that it believes will help achieve a Portfolio's objective.
The LifeStyle Portfolios invest directly in equities, bonds and money
market instruments. In the future, each Portfolio may seek its investment
objective by investing primarily in other mutual funds and closed-end investment
companies. Investments primarily in such funds may require an exemption from the
SEC and there is no assurance that such an exemption would be granted.
BEA Associates, a member of Credit Suisse Asset Management, serves as
Sub-Adviser to a portion of the LifeStyle Portfolios, as described below under
"The Sub-Adviser to the LifeStyle Portfolios," and in this capacity, manages the
Portfolios' investments in growth-oriented equity securities and foreign equity
securities. AUL manages the Portfolios' investments in all other asset classes.
The Portfolio Manager for the growth-oriented equity securities in the
LifeStyle Portfolios is Eric N. Remole. Mr. Remole joined BEA in 1997 as a
Managing Director and Portfolio Manager and is responsible for the management of
structured equity products. Mr. Remole began his career in 1978 as a systems
analyst at Jaycor, Inc. He joined Bankers Trust in 1980 as an internal
management consultant in securities operations. In 1984 he joined Citicorp
Investment Management, Inc., Chancellor Capital Management, Inc.'s predecessor
and was appointed Managing Director in April of 1993. Mr. Remole received a B.A.
from Dartmouth College in 1978 and an M.S. in Operations Research from Stanford
University in 1981.
The Portfolio Manager for the international equity securities in the
LifeStyle Portfolios is Steven Bleiberg. Mr. Bleiberg joined BEA in 1991 as a
Vice President on the management and research team for international equities,
specializing in the application of quantitative techniques for risk control and
security selection. Mr. Bleiberg manages the Japanese portion of BEA's
international portfolios. He also contributes to the asset
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allocation process for international and global portfolios. Mr. Bleiberg spent
two years as a portfolio manager at Matrix Capital Management, where he was
responsible for all of the firm's active equity assets. Prior to Matrix, he
spent 5 years at BEA in the equity research department. He received a B.A. from
Harvard University and an M.S. from the Sloan School of Management at MIT.
Equity Securities. The equity portion of each LifeStyle Portfolio may be
invested in any type of domestic or foreign equity security, primarily common
stocks, that meet certain standards of selection. In addition to investing in
common stocks, the LifeStyle Portfolios may invest in preferred stock,
convertible preferred stock, convertible debt securities, warrants, depository
receipts, and other securities believed to have equity characteristics. The
equity portion of each Portfolio may be diversified among small, medium and
large companies. Both growth and value investment disciplines are normally
utilized in managing the equity portion of each Portfolio. The growth discipline
attempts to identify companies whose earnings and revenue trends are believed by
the Sub-Adviser to demonstrate, or have the prospects for demonstrating,
accelerating earnings and revenues as compared to prior periods, competitors, or
market expectations. The value investment discipline attempts to identify
companies that are believed by AUL to be temporarily undervalued. It is believed
that value investing tends to provide less volatile results over the long term.
Bonds. The bond portion of each LifeStyle Portfolio may be invested in U.S.
Treasury securities, securities issued or guaranteed by the U.S. Government or a
foreign government, or an agency or instrumentality of the U.S. or a foreign
government, and non-convertible debt obligations issued by U.S. or foreign
corporations. The LifeStyle Portfolios may also invest in mortgage-backed and
other mortgage-related securities as described under "Mortgage-Related
Securities" and in other asset-backed securities. The bond portion of a
Portfolio may be diversified among the various types of fixed income investment
categories described above. The Sub-Adviser's strategy is to actively manage the
LifeStyle Portfolio by investing the Portfolio's assets in sectors it believes
are undervalued (relative to the other sectors) and which represent better
relative long-term investment opportunities.
For the fixed income portion of its assets, each Portfolio invests primarily in
debt securities that, at the time of investment, are "investment grade." These
include bonds rated BBB or better by S&P or Baa or better by Moody's or, if not
rated, of equivalent quality in the judgment of AUL. See "Bonds Generally" below
for more information on debt securities. In addition, 30% of each Portfolio's
fixed income assets may be invested in "high yield" securities which are debt
securities rated, at the time of investment, lower than Baa by Moody's or BBB by
S&P or of equivalent quality as deemed by the Sub-Adviser. "High Yield" bonds
are not considered to be investment grade and are regarded as predominantly
speculative with respect to the issuer's continuing ability to meet principal
and interest payments. See "High Yield Securities" below and Appendix I in the
SAI for further information concerning bond ratings.
Money Market Instruments. The cash equivalent portion of a LifeStyle Portfolio's
securities may be invested in money market instruments (denominated in U.S.
dollars or foreign currencies), including U.S. Government obligations,
obligations of domestic and foreign banks, short-term corporate debt instruments
and repurchase agreements. The LifeStyle Portfolios may only invest in money
market instruments that are rated AAA or A-1 by S&P, Aaa or P-1 by Moody's, or
AAA or D-1 by Duff & Phelps, Inc., or, if not rated, are of equivalent
investment quality as determined by AUL.
Foreign Securities. Each of the Portfolios may invest in the securities of
foreign issuers. In determining the allocation of assets among U.S. and foreign
issuers, AUL and the Sub-Adviser consider the condition and growth potential of
the various economies; the relative valuations of the markets; and social,
political, and economic factors that may affect the markets. The Conservative
Investor Portfolio will generally invest not more than 20% of its assets in
foreign securities; the Moderate Investor Portfolio will generally invest not
more than 30% of its assets in foreign securities; and the Aggressive Investor
Portfolio will generally invest not more than 35% of its assets in foreign
securities. These percentages are measured at the time of investment.
The LifeStyle Portfolios may make investments in foreign securities either
directly or indirectly by purchasing depository receipts or depository shares of
similar instruments ("depository receipts"). Depository receipts are securities
that are listed on exchanges or quoted in the domestic over-the-counter markets
in one country but represent shares of issuers domiciled in another country.
Direct investments in foreign securities may be made either on foreign
securities exchanges or in the over-the-counter markets. Subject to its
investment objective and policies, each Portfolio may invest in common stocks,
convertible securities, preferred stocks, bonds, notes and other debt securities
of foreign issuers and debt securities of foreign governments and their
agencies. The credit quality standards applicable to domestic securities
purchased by each LifeStyle Portfolio are also applicable to its foreign
securities investments. The LifeStyle Portfolios may also invest a portion of
their international holdings in securities of issuers in emerging market
(developing) countries. See "Foreign Securities" below for more information. In
connection with investments in securities denominated in foreign currencies, AUL
and the Sub-Adviser may seek to hedge all or a part of a Portfolio's foreign
currency exposure through the use of forward foreign currency contracts. See
"Forward Foreign Currency Contracts" below.
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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. Information about the directors and
the Fund's executive officers may be found in the SAI under the heading
"Management of the Fund."
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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 48 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, 1997,
the Adviser had admitted assets of $8,597,755,587 and had a policyowners'
surplus of $664,638,385. The Adviser is registered with the SEC as an investment
adviser. Such registration does not involve supervision by 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
a portion of each LifeStyle 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 Sub-Advisers to manage the assets of the Tactical Asset
Allocation Portfolio and a portion of the assets of each LifeStyle 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 the Equity, Bond, Money Market and Managed
Portfolios, the Fund pays the Adviser a fee at an annual rate of .50% of the
Portfolio's average daily net assets. For the Tactical Asset Allocation
Portfolio, the Fund pays the Adviser a fee at an annual rate of .80% of the
Portfolio's average daily net assets. For the LifeStyle Portfolios, the Fund
pays the Adviser a fee at an annual rate of .70% of the average daily net assets
of each Portfolio.
The Sub-Advisers
Dean Investment Associates is the Sub-Adviser to the Tactical Asset
Allocation Portfolio. BEA Associates, a member of Credit Suisse Asset
Management, is Sub-Adviser to a portion of the assets of each LifeStyle
Portfolio. Subject to the supervision of the Investment Adviser and the Fund's
Board of Directors, the Sub-Advisers are responsible for the actual management
of their respective Portfolios or portion thereof, and for making decisions to
buy, sell or hold any particular security, and they place orders to buy or sell
securities on behalf of their respective Portfolios.
The Sub-Advisers serve the Portfolios under sub-advisory agreements. These
agreements may be terminated upon notice by the Fund's Board of Directors or the
Investment Adviser, or by shareholder action. In the event that an agreement
with a Sub-Adviser is terminated, the Investment Adviser may assume portfolio
management responsibilities.
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 SEC.
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.
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.
THE SUB-ADVISER TO THE LIFESTYLE PORTFOLIOS:
AUL has engaged BEA Associates, a member of Credit Suisse Asset Management,
to serve as Sub-Adviser to a portion of the LifeStyle Portfolios. BEA Associates
is located at One Citicorp Center, 153 East 53rd Street, New York, New York
10022, and is a registered investment adviser with the SEC. BEA Associates will
be responsible for managing the growth-
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<PAGE>
oriented equity and international equity portions of the LifeStyle Portfolios.
BEA is a diversified investment adviser managing global equity, fixed-income and
derivative securities accounts for corporate pension and profit-sharing plans,
state pension funds, union funds, endowments and other charitable institutions.
As of December 31, 1997, BEA managed approximately $34.2 billion in assets. BEA
currently acts as investment adviser for 11 other investment companies
registered under the 1940 Act, and acts as sub-adviser to certain portfolios of
12 other registered investment companies.
For its services, the Sub-Adviser receives fees from the Investment Adviser
(and not the LifeStyle Portfolios) as follows:
for domestic equity securities: .60% on the first $25 million of assets,
.55% on the next $25 million of assets, .50% on the next $25 million of
assets, and .45% thereafter, and
for international equities: .80% on the first $25 million of assets,
.70% on the next $25 million of assets, and .60% thereafter.
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 and BEA Associates,
are borne by the Adviser and not the Portfolios. 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 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 1997, 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.
Portfolio Expenses for the Conservative Investor Portfolio, the Moderate
Investor Portfolio, and the Aggressive Investor Portfolio, are not available
because these Portfolios had not commenced operations during the periods shown.
<TABLE>
<CAPTION>
Tactical
Year Equity Bond Money Market Managed Asset
---- ------ ---- ------------ ------- -----
<S> <C> <C> <C> <C> <C>
1997 .66% .67% .66% .67% 1.00%
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
guaran-
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<PAGE>
teed 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.
BONDS GENERALLY
As described above, the Bond Portfolio, the Money Market Portfolio, the
Managed Portfolio, the Tactical Asset Allocation Portfolio, and the LifeStyle
Portfolios may invest in corporate bonds or debt securities, which may include,
without limit, debentures, notes and other similar corporate debt instruments,
including convertible securities. Debt securities may be acquired with warrants
attached. Corporate income-producing securities also may include forms of
preferred or preference stock.
The investment return on a debt security reflects interest earnings and
changes in the market value of the security. The market value of each
Portfolio's securities may be affected by, among other things, changes in
interest rates, and the price of debt obligations will generally rise and fall
inversely with interest rates. Longer term debt obligations will normally have
greater price volatility than shorter term obligations.
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. In the event that ratings decline after
the Portfolio's investment in debt securities, the Adviser or Sub-Adviser will
consider all such factors as it deems relevant to the advisability of retaining
such securities. See Appendix I in the SAI for further information concerning
bond ratings.
HIGH YIELD SECURITIES
The Bond Portfolio may invest up to 10% of its assets, measured at the time
of investment, the Managed Portfolio may invest up to 10% of its fixed income
assets, measured at the time of investment, and each of the LifeStyle Portfolios
may invest up to 30% of its fixed income assets, measured at the time of
investment, in high yield securities. High yield/high risk debt securities are
those rated lower than Baa and BBB, or, if not rated by Moody's or S&P, of
equivalent quality and which are commonly referred to as "junk bonds."
Investment in such securities generally provides greater income and increased
opportunity for capital appreciation than investments in higher quality debt
securities, but they also typically entail greater potential price volatility
and principal and income risk. Debt securities rated lower than investment grade
by either S&P or Moody's, but not the other, are not considered to be high yield
securities for purposes of the Portfolios' limits on investments in high yield
securities.
In general, high yield bonds are not considered to be investment grade.
They are regarded as predominately speculative with respect to the issuing
company's continuing ability to meet principal and interest payments. If the
issuer of high yield securities defaults, a Portfolio may incur additional
expenses to seek recovery. Risk of default or bankruptcy may be greater in
periods of economic uncertainty or recession, as the issuers of high yield
securities may be less able to withstand general economic downturns.
Accordingly, while the prices of high yield bonds have been found to be less
sensitive to interest-rate changes than higher-rated investments, high yield
securities may be expected to be more sensitive to adverse economic downturns or
individual corporate developments. A projection of an economic downturn or of a
period of rising interest rates, for example, could cause a decline in high
yield bond prices. In the case of high yield bonds structured as zero-coupon or
pay-in-kind securities, their market prices are affected to a greater extent by
interest rate changes, and therefore tend to be more volatile than securities
that pay interest periodically and in cash.
The secondary market in which high yield bonds are traded may be less
liquid than the market for higher grade bonds. Less liquidity in the secondary
trading market could adversely affect the price at which a Portfolio could sell
a high yield bond; and could adversely affect the daily net asset value of the
Portfolio's shares. At times of less liquidity, it may be more difficult to
value the high yield bonds because such valuation may require more research, and
elements of judgment may play a greater role in the valuation because there is
less reliable, objective data available.
The use of credit ratings as the sole method of evaluating high yield
securities can involve certain risks, as credit ratings evaluate the safety of
principal and interest payments, not the market value risk of high yield
securities. Also, credit rating agencies may fail to change credit ratings in a
timely fashion to reflect events since the security was last rated. Accordingly,
analysis of the creditworthiness of issuers of high yield securities may be more
complex than for issuers of higher quality debt securities, and the ability of a
Portfolio to achieve its investment objective may, to the extent of its
investments in high yield securities, be more dependent upon such
creditworthiness analysis than would be the case if the Portfolio were investing
in higher quality securities.
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<PAGE>
MORTGAGE-RELATED SECURITIES
The LifeStyle Portfolios, 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.
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 Bond Portfolio, Managed Portfolio, Tactical Asset Allocation Portfolio,
and each of the LifeStyle Portfolios 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 Bond Portfolio, Managed Portfolio, Tactical
Asset Allocation Portfolio, and each of the LifeStyle Portfolios may also invest
in step coupon securities. For a description of these securities, see "Zero
Coupon and Step Coupon Securities" in the SAI.
FOREIGN SECURITIES
As described above, the LifeStyle Portfolios may invest a
15
<PAGE>
certain percentage of their assets in the securities of foreign issuers,
including debt securities of foreign governments and their agencies, when these
securities meet applicable standards of selection. The Tactical Asset Allocation
Portfolio may also invest up to 25% of its total assets in equity securities of
foreign issuers. It is anticipated that most of the Tactical Asset Allocation
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.
The LifeStyle Portfolios may invest a portion of their international
holdings in securities of issuers in emerging market (developing) countries.
Investing in emerging market countries involves significantly higher risk than
investing in countries with developed markets as a result of uncertainty
regarding the companies and the markets in which they operate. Securities prices
can be more volatile than in developed countries as a result of investor
concerns regarding the stability of the government, internal economic pressures,
and the impact of external economic factors. In addition, securities markets in
emerging market countries may trade a small number of securities and may be
unable to respond effectively to increases in trading volume, potentially
resulting in a lack of liquidity and in volatility in the price of securities
traded on those markets. Also, securities markets in emerging market countries
typically offer less regulatory protection for investors.
FORWARD FOREIGN CURRENCY CONTRACTS
The LifeStyle Portfolios and the Tactical Asset Allocation Portfolio may
invest in forward foreign currency contracts. A forward foreign currency
contract is an obligation to purchase or sell a currency against another
currency at a future date at a price set at the time of the contract. A
Portfolio could engage in a forward foreign currency transaction in anticipation
of or to protect itself against fluctuations in currency exchange rates.
Although forward foreign currency contracts typically will involve the purchase
or sale of a foreign currency against the dollar, a Portfolio also may purchase
or sell one foreign currency forward against another foreign currency. In
addition, a Portfolio may hedge a foreign currency with forward contracts on
another ("proxy") currency of which changes in value generally correlate with
the currency to be hedged. There are certain markets where it is not possible to
engage in effective foreign currency hedging. This may be true, for example, for
the currencies of various Latin American countries in which the foreign exchange
markets are not sufficiently developed to permit hedging activity to take place.
A Portfolio's dealings in forward foreign exchange will be limited to
hedging involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of forward foreign currency to "lock
in" the U.S. dollar price of a security purchased or sold by a Portfolio.
Position hedging is the sale of forward foreign currency with respect to
portfolio security positions denominated in a foreign currency. A Portfolio will
not speculate in forward foreign exchange.
Employing hedging strategies with forward currency contracts does not
eliminate fluctuations in the prices of portfolio securities or prevent losses
if the prices of such securities decline. Forward foreign currency contracts
involve some transactional expense for a Portfolio. Although forward foreign
currency contracts will be used primarily to protect a Portfolio from adverse
currency movements, they also involve the risk that anticipated currency
movements will not be accurately predicted, and a Portfolio's total return could
be adversely affected as a result.
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 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
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<PAGE>
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 or Sub-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.
Reverse repurchase agreements may be considered borrowings by a Portfolio under
the 1940 Act. A Portfolio will maintain a segregated account consisting of
liquid assets to cover its obligations under reverse repurchase agreements. To
the extent that positions in reverse repurchase agreements are not covered
through the maintenance of a segregated account consisting of liquid assets at
least equal to the amount of any forward purchase commitment, a Portfolio will
limit its investments in such reverse repurchase agreements and other borrowings
to no more than one-third of the current market value of the Portfolio's total
assets. 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 or Sub-Adviser, has creditworthiness similar to institutions having
outstanding securities so rated.
See the SAI "Description of Securities and Investment Techniques" for
further information regarding these obligations.
OPTIONS
In pursuing their investment objectives, the LifeStyle Portfolios, Equity
Portfolio, Bond Portfolio, and Managed Portfolio may engage in certain
transactions in put and call options.
The LifeStyle Portfolios, Equity Portfolio, Bond Portfolio, and 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 assets 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 LifeStyle Portfolios, Equity Portfolio, Bond Portfolio, and 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 LifeStyle Portfolios, 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 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
remain-
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<PAGE>
ing 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. The LifeStyle Portfolios may invest in interest rate and
stock index 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, market conditions, stock or currency prices 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.
The LifeStyle Portfolios may purchase and sell stock index futures
contracts to hedge their securities portfolios. A LifeStyle Portfolio may engage
in transactions in futures contracts only in an effort to protect it against a
decline in the value of the Portfolio's securities or an increase in the price
of securities that the Portfolio intends to acquire. For example, a LifeStyle
Portfolio may sell stock index futures to protect against a market decline in an
attempt to offset partially or wholly a decrease in the market value of
securities that the LifeStyle Portfolio intends to sell. Similarly, to protect
against a market advance when the LifeStyle Portfolio is not fully invested in
the securities market, the LifeStyle Portfolio may purchase stock index futures
that may partly or entirely offset increases in the cost of securities that the
Portfolio intends to purchase.
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 or stock or currency prices, such transactions could also preclude the
opportunity to benefit from favorable movements in the level of interest rates
or stock or currency prices. A hedging transaction may not correlate perfectly
with price movements in the assets being hedged. An incorrect correlation could
result in a loss on both the hedged assets in a Portfolio and/or the hedging
vehicle, so that the Portfolio's return might have been better had hedging not
been attempted. The successful use of futures is dependent on the Adviser's or
Sub-Adviser's ability to predict correctly movements in the direction of the
stock market and no assurance can be given that the Adviser's or Sub-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.
The Bond and Managed Portfolios will only enter into futures contracts
which are standardized and traded on a U.S. exchange or board of trade. The
LifeStyle Portfolios may also invest in futures contracts on exchanges located
outside of the United States. Foreign markets may offer advantages such as
trading in indices that are not currently traded in the United States. Foreign
markets, however, may have greater risk potential than domestic markets. Unlike
trading on domestic commodity exchanges, trading on foreign commodity exchanges
is not regulated by the Commodity Futures Trading Commission ("CFTC"). Foreign
exchanges generally are principal markets so that no common clearing facility
exists, and a Portfolio might be able to look only to the broker for performance
of the contract. Amounts received for foreign futures may not be provided the
same protection as funds received in respect of transactions on United States
futures exchanges. Trading in foreign futures contracts may not be afforded
certain of the protective measures provided by U.S. law and regulation,
including the right to use reparations proceedings before the CFTC and
arbitration proceedings provided by the National Futures Association or any
domestic futures exchange. In addition, any profits that a Portfolio might
realize in trading could be eliminated by adverse changes in the exchange rate
of the currency in which the transaction is denominated. Transactions on foreign
exchanges may include both commodities that are traded on domestic exchanges or
boards of trade and those that are not.
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
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<PAGE>
option positions, less the amount by which any such positions are
"in-the-money," would exceed 5% of the Portfolio's total assets.
ILLIQUID AND RESTRICTED SECURITIES
A Portfolio may invest in an illiquid or restricted security if the Adviser
or Sub-Adviser believes that it presents an attractive investment opportunity.
Generally, a security is considered illiquid if it cannot be disposed of within
seven days in the ordinary course of business at approximately the amount at
which a Portfolio has valued the security. Its illiquidity might prevent the
sale of such a security at a time when the Adviser or Sub-Adviser might wish to
sell, and these securities could have the effect of decreasing the overall level
of a Portfolio's liquidity. A Portfolio may be subject to significant delays in
disposing of illiquid securities, and transactions in illiquid securities may
entail registration expenses and other transaction costs that are higher than
those for transactions in liquid securities. Further, the lack of an established
secondary market may make it more difficult to value illiquid securities,
requiring the Fund to rely on judgments that may be somewhat subjective in
determining value, which could vary from the amount that a Portfolio could
realize upon disposition.
Restricted securities, including private placements, are subject to legal
or contractual restrictions on resale. They can be eligible for purchase without
SEC registration by certain institutional investors known as "qualified
institutional buyers," and under the Fund's procedures, restricted securities
could be treated as liquid. However, some restricted securities may be illiquid,
and restricted securities that are treated as liquid could be less liquid than
registered securities traded on established secondary markets. A LifeStyle
Portfolio may not invest more than 15% of its total assets in illiquid
securities, measured at the time of investment. The Equity, Bond, Money Market,
and Tactical Asset Allocation Portfolios may invest up to 10% of the total
assets of the Portfolio in illiquid securities, measured at the time of
investment.
OTHER INVESTMENT COMPANIES
Each of the Portfolios may invest in shares issued by other investment
companies. The LifeStyle Portfolios, subject to SEC approval, intend to invest
an unlimited portion of their assets in 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 of the Tactical Asset Allocation Portfolio 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.
Except for the LifeStyle Portfolios, 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 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.
LENDING OF PORTFOLIO SECURITIES
The Portfolios may, from time to time, lend securities from their
Portfolios 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 Portfolios may also pay reasonable fees to
persons unaffiliated with the Portfolios for services in arranging such loans.
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.
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<PAGE>
PORTFOLIO TRANSACTIONS AND TURNOVER
Pursuant to the Investment Advisory Agreement (and the Sub-Advisory
Agreements with respect to the Tactical Asset Allocation Portfolio and the
LifeStyle Portfolios), 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-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-Advisers,
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 that had investment operations during the periods shown
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.
DESCRIPTION OF THE FUND'S SHARES
The Fund was organized as a Maryland Corporation on July 26, 1989, and
currently consists of eight separately managed Portfolios. The Board of
Directors may establish additional portfolios in the future. The capitalization
of the Fund consists of 325,000,000 authorized shares of common stock, par value
$0.001 per share with 20,000,000 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 1940 Act
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
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<PAGE>
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.
To comply with regulations under Section 817(h) of the Code, the Portfolio
underlying a separate account will be required to diversify its investments.
Generally, to meet the requirements, on the last day of each calendar quarter,
no more than 55% of the total assets may be represented by any one investment,
no more than 70% may be represented by any two investments, no more than 80% may
be represented by any three investments, and no more than 90 % may be
represented by any four investments. All securities of a given issuer generally
are regarded for this purpose as one investment and, in the case of U.S.
Government securities, each U.S. Government agency or instrumentality is treated
as a separate issuer. Other tax-related diversification requirements may apply
to each Portfolio in connection with qualifying as a regulated investment
company.
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 life and 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
(the "NYSE") 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 SEC, making disposal of portfolio
securities or valuation of new assets not reasonably practicable; and (iii)
whenever the SEC has by order permitted such suspension or postponement for the
protection of shareholders.
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 NYSE closes 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 NYSE 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 SAI for a description of certain conditions and
procedures followed by the Portfolio in connection with amortized cost
valuation.
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<PAGE>
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 SAI.
YEAR 2000 ISSUES AND READINESS
In recent years, the Year 2000 problem has received extensive publicity.
The problem arises because most computer systems and programs were written with
dates expressed as a 2 digit code. Unless steps are taken, on January 1, 2000,
many systems may read the year "2000" as "1900" and date-related computations
either would not be processed or would be processed incorrectly. This could have
a material and adverse effect on financial institutions such as banks, insurance
companies and mutual funds such as the AUL American Series Fund. To prevent
this, the Board of Directors of the Fund has requested information on Year 2000
issues from AUL, the Fund's Adviser.
Due to the complexity of this issue and the ever-increasing
interrelationships of computer systems in the United States, it would be
extremely difficult for any company to state that it has or will achieve
complete Year 2000 compliance or to guarantee that its systems will not be
affected in any way on January 1, 2000. However, the Adviser currently believes
that all critical computer systems and software (those systems or software,
which would cause great disruption to AUL if they were inoperable for any length
of time or if they were to generate erroneous data) will, before January 1,
2000, be Year 2000 compliant. Although AUL has no reason to believe that these
steps will not be sufficient to avoid any material adverse impact from Year 2000
issues and is addressing its Year 2000 issues by using both internal staff and
external consultants, by replacing hardware, operating systems, and application
software, and by remediating current application software, there can be no
assurance that the Adviser's efforts will be sufficient to avoid any adverse
impact. This project is currently expected to require more than 285,000 hours of
labor at a cost of approximately $17,000,000, which will be expensed against
AUL's current operating funds.
As a part of its plan, the Fund has also surveyed the Custodian and other
primary service providers to be sure that steps have been taken to address the
Year 2000 issues. The Board will continue to periodically monitor the status of
such Year 2000 efforts.
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.
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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............................................................................................................. 3
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES...................................................................... 3-9
INVESTMENT RESTRICTIONS.................................................................................................. 9-10
MANAGEMENT OF THE FUND................................................................................................... 10-11
PORTFOLIO TRANSACTIONS AND BROKERAGE..................................................................................... 11-12
NET ASSET VALUE.......................................................................................................... 12-13
PERFORMANCE INFORMATION.................................................................................................. 13-14
TAXATION................................................................................................................. 14
OTHER INFORMATION........................................................................................................ 14-15
FINANCIAL STATEMENTS..................................................................................................... 15
APPENDIX I............................................................................................................... 16
</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.
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<PAGE>
================================================================================
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 Life and Annuity Contracts
Sold By
AMERICAN UNITED
LIFE INSURANCE COMPANY(R)
One American Square
Indianapolis, Indiana 46282
PROSPECTUS
Dated: May 1, 1998
================================================================================
24
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
AUL AMERICAN SERIES FUND, INC.
May 1, 1998
- --------------------------------------------------------------------------------
AUL American Series Fund, Inc. (the "Fund") is an open-end, diversified
management investment company currently consisting of eight 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"), the AUL American Tactical Asset Allocation Portfolio
("Tactical Asset Allocation Portfolio"), the AUL American Conservative Investor
Portfolio ("Conservative Investor Portfolio"), the AUL American Moderate
Investor Portfolio ("Moderate Investor Portfolio"), and the AUL American
Aggressive Investor Portfolio ("Aggressive Investor Portfolio").
This Statement of Additional Information is intended to supplement the
information provided to investors in the Prospectus dated May 1, 1998, 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) 249-6269
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TABLE OF CONTENTS
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Description Page
INTRODUCTION............................................................................................................... 3
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES........................................................................ 3-9
U.S. Government Securities............................................................................................... 3
Corporate Bonds and Debt Securities...................................................................................... 3
Mortgage-Related Securities.............................................................................................. 3
GNMA Certificates....................................................................................................... 3
FNMA and FHLMC Obligations.............................................................................................. 4
Collateralized Mortgage Obligations..................................................................................... 4
Other Mortgage-Backed Securities........................................................................................ 4
Repurchase Agreements.................................................................................................... 5
Reverse Repurchase Agreements............................................................................................ 5
Banking Industry and Savings Industry Obligations........................................................................ 5
Forward Foreign Currency Contracts.......................................................................................
Options.................................................................................................................. 6
Risks Associated with Options........................................................................................... 6
Futures Contracts........................................................................................................ 7
Limitations............................................................................................................. 7
Risks Associated with Futures........................................................................................... 8
INVESTMENT RESTRICTIONS.................................................................................................... 9-10
MANAGEMENT OF THE FUND..................................................................................................... 10-11
Directors and Officers................................................................................................... 10
Compensation of Directors................................................................................................ 10
The Investment Adviser................................................................................................... 10
The Sub-Advisers......................................................................................................... 11
Purchases and Redemptions................................................................................................ 11
PORTFOLIO TRANSACTIONS AND BROKERAGE....................................................................................... 11-12
Brokerage and Research Services.......................................................................................... 11
NET ASSET VALUE............................................................................................................ 12-13
PERFORMANCE INFORMATION.................................................................................................... 13-14
TAXATION................................................................................................................... 14
Distributions............................................................................................................ 14
OTHER INFORMATION.......................................................................................................... 14-15
Capitalization........................................................................................................... 14
Voting Rights............................................................................................................ 15
Custodian, Transfer Agent, and Dividend Disbursing Agent................................................................. 15
Independent Accountants.................................................................................................. 15
Counsel.................................................................................................................. 15
FINANCIAL STATEMENTS....................................................................................................... 15
APPENDIX I................................................................................................................. 16
Corporate Bonds.......................................................................................................... 16
Commercial Paper......................................................................................................... 16
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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.
CORPORATE BONDS AND DEBT SECURITIES
A Portfolio's investments in U.S. dollar or foreign currency-denominated
corporate debt securities of domestic or foreign issuers are limited to
corporate debt securities (corporate bonds, debentures, notes and other similar
corporate debt instruments, including convertible securities) which meet the
minimum ratings criteria set forth for the Portfolio, or, if unrated, are deemed
to be comparable in quality to corporate debt securities in which the Portfolio
may invest. The rate of return or return of principal on some debt obligations
may be linked or indexed to the level of exchange rates between the U.S. dollar
and a foreign currency or currencies.
Among the corporate debt securities in which the Portfolios may invest are
convertible securities. A convertible debt security is a bond, debenture, note,
or other security that entitles the holder to acquire common stock or other
equity securities of the same or a different issuer. A convertible security
generally entitles the holder to receive interest paid or accrued until the
convertible security matures or is redeemed, converted or exchanged. Before
conversion, convertible securities have characteristics similar to
non-convertible debt securities. Convertible securities rank senior to common
stock in a corporation's capital structure and, therefore, generally entail less
risk than the corporation's common stock, although the extent to which such risk
is reduced depends in large measure upon the degree to which the convertible
security sells above its value as a fixed income security.
A convertible security may be subject to redemption at the option of the
issuer at a predetermined price. If a convertible security held by a Portfolio
is called for redemption, the Portfolio would be required to permit the issuer
to redeem the security and convert it to underlying common stock, or would sell
the convertible security to a third party. A Portfolio generally would invest in
convertible securities for their favorable price characteristics and total
return potential.
Certain Portfolios may invest in or acquire warrants to purchase equity or
fixed income securities. Bonds with warrants attached to purchase equity
securities have many characteristics of convertible bonds and their prices may,
to some degree, reflect the performance of the underlying stock. Bonds also may
be issued with warrants attached to purchase additional fixed income securities
at the same coupon rate. A decline in interest rates would permit a Portfolio to
buy additional bonds at the favorable rate or to sell the warrants at a profit.
If interest rates rise, the warrants would generally expire with no value.
Securities rated Baa and BBB are the lowest which are considered
"investment grade" obligations. Moody's Investors Service, Inc. ("Moody's")
describes securities rated Baa as "medium-grade" obligations; they are "neither
highly protected nor poorly secured . . . [i]nterest 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." Standard & Poor's ("S&P") describes
securities rated BBB as "regarded as having an adequate capacity to pay interest
and repay principal . . . [w]hereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal . . .
than in higher rated categories."
Investments in securities rated below investment grade that are eligible
for purchase by certain of the Portfolios are described as "speculative" by both
Moody's and S&P. Investment in lower rated corporate debt securities ("high
yield securities" or "junk bonds") generally provides greater income and
increased opportunity for capital appreciation than investments in higher
quality securities, but they also typically entail greater price volatility and
principal and income risk. These high yield securities are regarded as
predominantly speculative with respect to the issuer's continuing ability to
meet principal and interest payments. Analysis of the creditworthiness of
issuers of debt securities that are high yield may be more complex than for
issuers of higher quality debt securities.
High yield securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than investment grade securities.
The prices of high yield securities have been found to be less sensitive to
interest-rate changes than higher-rated investments, but more sensitive to
adverse economic downturns or individual corporate developments. A projection of
an economic downturn or of a period of rising interest rates, for example, could
cause a decline in high yield security prices because the advent of a recession
could lessen the ability of a highly leveraged company to make principal and
interest payments on its debt securities. If an issuer of high yield securities
defaults, in addition to risking payment of all or a portion of interest and
principal, the Portfolios investing in such securities may incur additional
expenses to seek recovery. In the case of high yield securities structured as
zero coupon or pay-in-kind securities, their market prices are affected to a
greater extent by interest rate changes, and therefore, tend to be more volatile
than securities which pay interest periodically and in cash.
The secondary market on which high yield securities are traded may be less
liquid than the market for higher grade securities. Less liquidity in the
secondary trading market could adversely affect the price at which the
Portfolios could sell a high yield security, and could adversely affect the
daily net asset value of the shares. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, may decrease the values and
liquidity of high yield securities, especially in a thinly-traded market. When
secondary markets for high yield securities are less liquid than the market for
higher grade securities, it may be more difficult to value the securities
because such valuation may require more research, and elements of judgment may
play a greater role in the valuation because there is less reliable, objective
data available.
MORTGAGE-RELATED SECURITIES
The LifeStyle Portfolios, Bond Portfolio, Managed Portfolio, and 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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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 that may buy mortgage-backed securities may purchase such
securities without insurance or guarantees, if the Adviser or Sub-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
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marketable. As new types of mortgage-backed securities are developed and offered
to investors, the Adviser and the Sub-Advisers 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 Adviser or Sub-Adviser, as appropriate, 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 applicable
limits on the Portfolio's investments in illiquid securities. 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. To the extent that positions in reverse repurchase
agreements are covered through the maintenance of a segregated account
consisting of liquid assets at least equal to the amount of any forward purchase
commitment, such agreements will not be considered to be "senior securities"
subject to the limits otherwise applicable to borrowings by a Portfolio. A
Portfolio may not enter into an uncovered 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 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), consistent with
applicable limits on its investments in illiquid securities.
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The Conservative Investor, Moderate Investor, Aggressive Investor, 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.
FORWARD FOREIGN CURRENCY CONTRACTS
Foreign currency exchange rates may fluctuate significantly over short
periods of time. They generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments in
different countries, actual or perceived changes in interest rates and other
complex factors, as seen from an international perspective. Currency exchange
rates also can be affected unpredictably by intervention (or the failure to
intervene) by U.S. or foreign governments or central banks, by currency controls
or political developments in the U.S. or abroad. Currencies in which the
Portfolios' assets are denominated may be devalued against the U.S. dollar,
resulting in a loss to the Portfolios.
All Portfolios that may invest in securities denominated in foreign
currencies may buy and sell foreign currencies on a forward basis to reduce the
risks of adverse changes in foreign exchange rates. A forward foreign currency
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. By
entering into a forward foreign currency contract, a Portfolio "locks in" the
exchange rate between the currency it will deliver and the currency it will
receive for the duration of the contract. As a result, a Portfolio reduces its
exposure to changes in the value of the currency it will deliver and increases
its exposure to changes in the value of the currency it will exchange into. The
effect on the value of a Portfolio is similar to selling securities denominated
in one currency and purchasing securities denominated in another. Contracts to
sell foreign currency would limit any potential gain which might be realized by
a Portfolio if the value of the hedged currency increases. A Portfolio may enter
into these contracts for the purpose of hedging against foreign exchange risk
arising from the Portfolio's investment or anticipated investment in securities
denominated in foreign currencies. A Portfolio also may enter into these
contracts for purposes of increasing exposure to a foreign currency or to shift
exposure to foreign currency fluctuations from one country to another. A
Portfolio may use one currency (or a basket of currencies) to hedge against
adverse changes in the value of another currency (or a basket of currencies)
when exchange rates between the two currencies are positively correlated.
Under applicable tax law, the Portfolios may be required to limit their
gains from hedging in forward foreign currency contracts. Although the
Portfolios are expected to comply with such limits, the extent to which these
limits apply is subject to tax regulations as yet unissued. Hedging may also
result in the application of the marked-to-market and straddle provisions of the
Internal Revenue Code of 1986, as amended (the "Code"). Those provisions could
result in an increase (or decrease) in the amount of taxable dividends paid by
the Portfolios and could affect whether dividends paid by the Portfolios are
classified as capital gains or ordinary income.
OPTIONS
In pursuing their investment objectives, the LifeStyle Portfolios, Equity
Portfolio, Bond Portfolio, and Managed Portfolio may engage in the writing
(i.e., selling) of put options ("puts") and call options ("calls") on
securities. The LifeStyle Portfolios, Bond Portfolio and 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 LifeStyle Portfolios, Equity
Portfolio, Bond Portfolio and 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.
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FUTURES CONTRACTS
The Bond Portfolio and the Managed Portfolio may invest in interest rate
futures contracts. The LifeStyle Portfolios may invest in interest rate and
stock index futures contracts. A futures contract provides for the future sale
by one party and purchase by another party of a specified quantity of a
financial instrument or the cash value of an index at a specified price and
time. A futures contract on an index is an agreement pursuant to which two
parties agree to take or make delivery of an amount of cash equal to the
difference between the value of the index at the close of the last trading day
of the contract and the price at which the index contract originally was
written. Although the value of an index might be a function of the value of
certain specified securities, no physical delivery of these securities is made.
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, a Portfolio
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 a Portfolio 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 an 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.
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).
Generally, under futures contracts obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying index, 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.
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 investment 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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<PAGE>
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 or
currency markets and the 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 interest rate or stock index
futures, 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.
FOREIGN SECURITIES
Subject to the limits set forth in the Prospectus, each of the LifeStyle
Portfolios and the Tactical Asset Allocation Portfolio may purchase certain
foreign securities and American Depositary Receipts ("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. 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 or BEA Associates under the supervision of the Board
of Directors of the Fund. If it should become necessary, a 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 and BEA Associates will
consider these and other factors before investing in foreign securities. A
Portfolio may concentrate its investments in securities of issuers of one or
more foreign countries.
OTHER INVESTMENT COMPANIES
Subject to the limits set forth in the Prospectus, each Portfolio may
invest in shares issued by 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-
8
<PAGE>
panies. A 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 Bond Portfolio, Managed Portfolio, Tactical Asset Allocation Portfolio,
and the LifeStyle Portfolios 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 Code, a 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
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<PAGE>
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.
To the extent a Portfolio covers its commitment under a reverse repurchase
agreement (or economically similar transaction) by the maintenance of a
segregated account consisting of assets determined to be liquid in accordance
with procedures adopted by the directors, equal in value to the amount of the
Portfolio's commitment to repurchase, such an agreement will not be considered a
"senior security" by the Portfolio and therefore will not be subject to
investment restriction no. 6.
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 Professor: Indiana University
Indiana University Center of Philanthropy Center of Philanthropy
550 W. North St., Suite 301 (9/97 to present)
Indianapolis, IN 46202 President, Hudson Institute
(6/90 - 9/97)
R. Stephen Radcliffe*, Executive Vice President, AUL
Director, Vice President & Treasurer (2/94 to Present); Senior Vice
President & Chief Actuary
(10/87 - 2/94)
James P. Shanahan* Senior Vice President, Pension
Director Operations, AUL (1/84 - 1/98)
11103 Sloop Ct.
Indianapolis, IN 46236
Richard A. Wacker,* Secretary Associate General Counsel, AUL,
(10/92 to present)
*Because of their positions as stated above, Messrs. Murphy, Radcliffe ,Shanahan
and Wacker are "interested persons" of the Fund, as defined in the 1940 Act.
With the exception of Mr. Shanahan, whose address is listed above, their
business address is 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, 1997, the
Fund paid to all directors who are not "interested persons" of the Fund fees
aggregating $20,022. 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
1997 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 Advisory Agreement with the Adviser, dated March 8, 1990, was
originally approved by a majority of
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<PAGE>
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 Advisory 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 Advisory Agreement. From year to year thereafter,
the Advisory 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 11 Fund or by the Board and (ii) a majority of the
independent directors. The Advisory 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 Advisory Agreement was last approved by the Board, including a
majority of the independent directors, on March 2, 1998 for a one year period
ending March 2, 1999 or if there is no regularly scheduled meeting of the Board
held during the first quarter of 1999, then until the next regularly scheduled
meeting of the Board of Directors held thereafter.
The Fund pays the Adviser a fee for its services under the Advisory
Agreement based on an annual percentage of the average daily net assets of each
Portfolio. The Fund pays the Adviser a monthly fee at an annual rate of .50% of
the average daily net assets for each of the Equity Portfolio, Bond Portfolio,
Money Market Portfolio, and Managed Portfolios; .80% for the Tactical Asset
Allocation Portfolio; and .70% for each of the LifeStyle Portfolios. For the
years ended December 31, 1997, 1996, and 1995, respectively, the Adviser was
entitled to receive (or did receive) the following advisory fees from the
Portfolios: $328,408, $212,114, and $144,456 from the Equity Portfolio;
$154,861, $166,215, and $117,761 from the Bond Portfolio; $235,934, $137,536,
and $96,175 from the Money Market Portfolio; $258,903, $184,974, and $142,020
from the Managed Portfolio; and $16,830, $11,644 and $2,399 from the Tactical
Asset Allocation Portfolio.
As of December 31, 1997, the percentage of the outstanding voting shares
owned by AUL and held in its general account were as follows: 8.11% of the
Equity Portfolio and 13.97% of the Tactical Asset Allocation Portfolio. As of
the same date, the directors and officers of the Fund, as a group, owned less
than 1% of the Fund's shares or the shares of any Portfolio.
THE SUB-ADVISERS
Dean Investment Associates, ("Dean") 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 initially 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, and was last 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, on March 2, 1998 for a one year period ending March
2, 1999 or if there is no regularly scheduled meeting of the Board held during
the first quarter of 1999, then until the next regularly scheduled meeting of
the Board of Directors held thereafter. The Sub-Advisory Agreement provides that
it will continue in effect 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. For the years
ended December 31, 1997, 1996, and 1995, Dean was entitled to receive (or did
receive) the following sub-advisory fees from the Adviser: $11,571, $8,005, and
$1,649.
BEA Associates ("BEA"), a member of Credit Suisse Asset Management, serves
as the Sub-Adviser for the growth-oriented equity and foreign equity portions of
each LifeStyle Portfolio pursuant to Sub-Advisory Agreements dated February 10,
1998. The BEA Sub-Advisory Agreement was also 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 February 10, 1998. The BEA Sub-Advisory Agreement provides that it will
continue in effect for an initial term of one year from its execution, 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 applicable LifeStyle
Portfolio, and (b) by a majority of the directors who are not parties to such
agreement or "interested persons" of any such party. The BEA 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
BEA, and terminates automatically in the event of its assignment.
Subject to the supervision of the Adviser and the Fund's Board of
Directors, each Sub-Adviser is responsible for the actual management of the
Portfolio or portion thereof, for which it serves as Sub-Adviser, 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 (the "NYSE") is closed other than customary weekend and
holiday closings or during which trading on the NYSE is restricted; (ii) when
the Securities and Exchange Commission (the "SEC") determines that a state of
emergency exists which may make payment or transfer not reasonably practicable;
(iii) as the SEC 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.
11
<PAGE>
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 irm'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 each 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-Advisers,
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 a 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-Advisers, and their affiliates receive such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the
Adviser or Sub-Advisers 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, 1997, 1996, and 1995,
respectively, brokerage commissions in the amount of $32,117, $28,865, and
$25,122 were paid for transactions in the Equity Portfolio, brokerage
commissions in the amount of $12,426, $16,728, and $14,437, were paid for
transactions involving the Managed Portfolio, and brokerage commissions in the
amount of $822, $608, and $1,534 were paid for transactions involving the
Tactical Asset Allocation Portfolio. There were no brokerage commissions paid
for the Bond and Money Market Portfolios during these periods, and the LifeStyle
Portfolios had not commenced operations during these periods. 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, 1997,
1996, and 1995, respectively, were as follows: $23,657,542, $13,255,756, and
$9,735,024 for the Equity Portfolio, $12,075,867, $7,694,750, and $5,663,294 for
the Managed Portfolio, and $523,428, $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
generally is determined at or about 4:00 P.M. eastern standard time, on each day
the NYSE is open for trading. The determination may be made earlier than 4:00
P.M. EST if the NYSE closes 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 NYSE 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
12
<PAGE>
money market security at cost on he 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.
The SEC'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 ended December 31, 1997, the current yield for the
Money Market Portfolio was 5.00% and the effective yield was 5.12%.
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 ended December 31, 1997, the yield for the Equity Portfolio
was 1.83%; for the Bond Portfolio, 6.16%; for the Managed Portfolio, 3.58%; and
for the Tactical Asset Allocation Portfolio, 3.39%.
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 ended
December 31, 1997 was 29.59% for the Equity Portfolio, 7.85% for the Bond
Portfolio, 4.85% for the Money Market Portfolio, 20.95% for the Managed
Portfolio and 15.48% 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, 1997 for each of the Portfolios was
15.16% for the Equity Portfolio, 8.56% for the Bond Portfolio, 4.42% for the
Money Market Portfolio, and 12.08% 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,
1997 was 15.70%.
Performance information for a Portfolio may be compared, in advertisements,
sales literature, and reports to shareholders to: (i) the Standard & Poor's
Index of 500 Common Stocks ("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
13
<PAGE>
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 life or annuity
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 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 elect to be treated as a
regulated investment company under 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 325,000,000 authorized shares of common
stock with a par value of $0.001 each with 20,000,000 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
14
<PAGE>
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.
Expenses incurred by the Fund through October 31, 1997 in connection with
the organization of the LifeStyle Portfolios aggregated approximately $19,500.
These costs and any other organizational expenses received and incurred for the
period after October 31, 1997 will be deferred and 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 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 and
performs certain accounting and auditing services for 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, 1997, 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, 1997. 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) 249-6269.
15
<PAGE>
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 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.
16
<PAGE>
================================================================================
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 Life and Annuity Contracts
Sold By
AMERICAN UNITED
LIFE INSURANCE COMPANY(R)
One American Square
Indianapolis, Indiana 46282
STATEMENT OF ADDITIONAL INFORMATION
Dated: May 1, 1998
================================================================================
17
<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, 1997
Statement of Operations for the year ended December 31, 1997
Statement of Changes in Net Assets for the years ended December 31,
1997 and 1996
Schedule of Investments--Equity Portfolio--December 31, 1997
Schedule of Investments--Money Market Portfolio--December 31, 1997
Schedule of Investments--Bond Portfolio--December 31, 1997
Schedule of Investments--Managed Portfolio--December 31, 1997
Schedule of Investments--Tactical Asset Allocation Portfolio--
December 31, 1997
Notes to Financial Statements
(b) Exhibits (the number of each exhibit relates to the exhibit designation
in Form N-1A):
1.1 Articles of Incorporation of Registrant............................(1)
1.2 Articles Supplementary of Registrant...............................(1)
2 By-laws of Registrant..............................................(1)
3 Not applicable
4 Not applicable
5.1 Investment Advisory Agreement and Addendums to Agreement between
Registrant and American United Life Insurance Company and the
Expense Limitation Agreement between Registrant and American
United Life Insurance Company....................................(1)
5.2 Sub-Advisory Agreement between American United Life Insurance
Company and Dean Investment Associates...........................(1)
5.3 Sub-Advisory Agreement between American United Life Insurance
Company and BEA Associates.......................................(1)
6 Not applicable
7 Not applicable
8 Form of Custody Agreement between Registrant and Bank of New
York, Fee Schedule, and Amendment(s).............................(1)
9 Form of Fund Accounting Agreement between Registrant and Bank
of New York, Fee Schedule, and Amendment(s)......................(1)
10 Opinion and Consent of Counsel.....................................(2)
11.1 Consent of Independent Accountants.................................(2)
11.2 Powers of Attorney.................................................(1)
12 Financial Statementsof Registrant..................................(2)
13 Not applicable
14 Not applicable
15 Not applicable
16 Computation of Performance Quotations..............................(1)
17 Financial Data Schedules...........................................(2)
(1) Refiled in Registrant's Post Effective Amendment No. 11, Form N1-A,
File No. 33-30156, on April 30, 1998.
(2) Filed in Registrant's Post Effective Amendment No. 11, Form N1-A,
File No. 33-30156, on April 30, 1998.
<PAGE>
2
ITEM 25: PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
American United Life Insurance Company(R) (AUL) is a mutual insurance company
organized under the laws of the State of Indiana. As a mutual company, AUL has
no shareholders and therefore no one individual controls as much as 10% of AUL.
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, 1997, AUL
owned 8.11% of the outstanding shares of Registrant's Equity Portfolio and
13.97% of the Registrant's Tactical Asset Allocation Portfolio.
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,
("Princeton") a limited liability Delaware company. Princeton is a reinsurance
intermediary for certain catastrophic or pooled risks. AUL's affiliation allows
it the opportunity to participate in this reinsurance business.
AUL Equity Sales Corp. is a wholly-owned subsidiary of American United Life
Insurance Company(R) organized under the laws of the State of Indiana in 1969 as
a broker-dealer to market mutual funds.
AUL American Unit Trust and AUL American Individual Unit Trust are separate
accounts of AUL, organized for the purpose of the sale of group and individual
variable annuity contracts, respectively.
AUL American Individual Variable Life Unit Trust is a separate account of AUL,
organized for the purpose of the sale of individual variable life insurance
products.
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.
Indianapolis Life Insurance company ("IL") is an Indiana domestic mutual
insurance company, whose principal business is the sale of life insurance and
annuity contracts. On November 3, 1997, AUL entered into an agreement with IL to
invest $27 million in its wholly owned downstream holding company, Indianapolis
Life Group of Companies, Inc., in exchange for a 25% equity interest. AUL paid
the balance of the $27 million on March 30, 1998; therefore, AUL currently owns
a 25% equity interest in Indianapolis Group of Companies, Inc.
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 Insurance Co.
Arthur L. Bryant Director
141 E. Washington St.
Indianapolis, Indiana
James M. 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 Audit
101 W. Washington St., Suite 400E Committee
Indianapolis, Indiana
David W. Goodrich Director
One American Square, Suite 2500
Indianapolis, Indiana
William P. Johnson Director
P.O. Box 517
Goshen, Indiana
Scott A. Kincaid* Senior Vice President
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 Finance
300 N. Meridian, Suite 1500 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
P.O. Box 82001
Indianapolis, Indiana
G. David Sapp* Senior Vice President
John C. Scully Director
2636 Ocean Dr., # 505
Vero Beach, Florida
Jerry D. Semler* Chairman of the Board, President, Chief
Executive Officer and Chairman of the
Executive Committee, Chairman the Board,
Chief Executive Officer, State Life
Insurance Co.
Yvonne H. Shaheen Director
1310 S. Franklin Road
Indianapolis, Indiana
William L. Tindall* 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, 1998.
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, 1998
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 30, 1998
James W. Murphy* and President (Chief
Executive Officer)
- --------------------------------- Director April 30, 1998
James P. Shanahan*
- --------------------------------- Director April 30, 1998
Ronald D. Anderson*
- --------------------------------- Director April 30, 1998
Leslie Lenkowsky*
- --------------------------------- Director, Vice-President, April 30, 1998
R. Stephen Radcliffe* and Treasurer (Chief
Financial Officer)
/s/ Richard A. Wacker
-----------------------
By: Richard A. Wacker as Attorney-in-fact
Date: April 30, 1998
<PAGE>
EXHIBIT LIST
Exhibit
Number in Exhibit
Form N1-A, Numbering Name of
Item 24(b) Value Exhibit
- --------- --------- -------
1 EX-99.B1.1 Articles of Incorporation of Registrant
1 EX-99.B1.2 Articles Supplementary of Registrant
2 EX-99.B2 By-laws of Registrant
5 EX-99.B5.1 Investment Advisory Agreement and Addendums to
Agreement between Registrant and American United
Life Insurance Company and the Expense Limitation
Agreement between Registrant and American United
Life Insurance Company
5 EX-99.B5.2 Sub-Advisory Agreement between American United
Life Insurance Company and Dean Investment
Associates
5 EX-99.B5.3 Sub-Advisory Agreement between American United
Life Insurance Company and BEA Associates
8 EX-99.B8 Form of Custody Agreement between Registrant and
Bank of New York, Fee Schedule, and Amendment(s)
9 EX-99.B9 Form of Fund Accounting Agreement between
Registrant and Bank of New York, Fee Schedule,
and Amendment(s)
10 EX-99.B10 Opinion and Consent of Counsel
11 EX-99.B11.1 Consent of Independent Accountants
11 EX-99.B11.2 Powers of Attorney
12 EX-99.B12 Financial Statements of Registrant
16 EX-99.B16 Computation of Performance Quotations
17 EX-27 Financial Data Schedules
- --------------------------------------------------------------------------------
EXHIBIT 1.1
ARTICLES OF INCORPORATION OF REGISTRANT
- --------------------------------------------------------------------------------
ARTICLES OF INCORPORATION
OF
AUL AMERICAN SERIES FUND, INC
The undersigned, whose office address is One American Square, Indianapolis,
Indiana, being an adult over eighteen years of age, does hereby form a
corporation under the General Laws of the State of Maryland.
ARTICLE I
NAME
The name of the corporation (hereinafter referred to as the "Corporation")
shall be AUL American Series Fund, Inc.
ARTICLE II
PURPOSES
The purposes for which the Corporation is formed are:
(a) To engage generally in the business of an open end investment company
of the management type, as defined in the Investment Company Act of
1940 (the "1940 Act"), and in connection therewith to invest,
reinvest, own, hold and trade in securities of all types and to issue
redeemable securities; and
1
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(b) In general, to carry on any other lawful business and to have and
exercise all the rights, powers and privileges conferred upon
corporations by the laws of the State of Maryland as in force from
time to time.
The Corporation shall have the power to conduct and its business, or any
part thereof, and to have one offices, and to exercise any or all of its
corporate powers and rights, in the State of Maryland, in any other states,
territories, districts, of the United States, and in any or all foreign
countries. The foregoing clauses shall be construed both as objects and powers
and shall not be held to limit or restrict in any manner the general powers of
the Corporation.
ARTICLE III
PRINCIPAL OFFICE AND RESIDENT AGENT
The post office address of the principal office of the Corporation in
Maryland is 32 South Street, Baltimore, Maryland 21202 The name and address of
the resident agent of the Corporation in Maryland are The Corporation Trust
Incorporated, 32 South Street, Baltimore, Maryland 21202.
2
<PAGE>
ARTICLE IV
CAPITAL STOCK
Section 4.1 TOTAL NUMBER OF SHARES. The total number of shares of capital
stock of all classes which the Corporation shall have authority to issue is one
hundred million shares of common stock, with a par value of $ 001 per share (the
"Shares"), having an aggregate par value of One Hundred Thousand Dollars.
Section 4.2 AUTHORIZATION OF STOCK ISSUANCE. The Board of Directors may
authorize the issuance and sale of capital stock of the Corporation, including
stock of any class or series, from time to time in such amounts and on such
terms and conditions as the Board of Directors shall determine, subject to any
limits required by then applicable law All shares shall be issued on a fully
paid and nonassessable basis.
Section 4.3 CLASSES OF STOCK. Subject to the authority of the Board of
Directors to reclassify any unissued shares, forty million of the Shares may be
issued in the following classes, each class consisting of the number of shares
and having the designations indicated:
Equity Portfolio Common Stock 10 Million
Bond Portfolio Common Stock 10 Million
Money Market Portfolio Common Stock 10 Million
3
<PAGE>
Managed Portfolio Common Stock 10 Million
The Board of Directors may classify the balance of sixty million Shares in
such initial classes, or in any new class or classes and may reclassify any
unissued Shares by setting or changing the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of such Shares, and
pursuant to such classification or reclassification to increase or decrease the
number of authorized Shares of stock or Shares of any existing class or series
of Stock.
Section 4.4 RELATIVE RIGHTS PREFERENCES AND RESTRICTIONS. The Shares of
each class (subject to power of the Board of Directors to reclassify unissued
shares) and any Shares of any other class that may from time to time be
established and designated by the Board of Directors (unless the Board of
Directors expressly provides otherwise3 shall have the following relative
preferences, conversion or other rights, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption:
(a) INVESTMENT OBJECTIVES. The assets belonging to each class shall
constitute a portfolio which shall be invested by the Corporation in
accordance with the
4
<PAGE>
investment objectives duly established therefor from time to time.
(b) ASSETS BELONGING TO CLASSES. All consideration received by the
Corporation for the issue or sale of Shares of a particular class,
together with all assets in which such consideration is invested or
reinvested, all income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation
of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that class for all purposes, subject only to the
liabilities belonging to that class, and shall be so recorded upon the
books of account of the Corporation. All such assets, together with
any Other Assets allocated to that class as provided in the following
sentence, are herein referred to as "assets belonging to" that class.
In the event that there are any assets, income, earnings, profits, and
proceeds thereof, funds, or payments which are not readily
identifiable as belonging to any particular class (collectively "Other
Assets"), such Other Assets shall be allocated by or under the
supervision of the Board of Directors, to and among any one or more of
the classes established and designated from time to time in such
manner and on such
5
<PAGE>
basis as the Board of Directors, in its sole discretion, deems fair
and equitable; and any Other Assets so allocated to a particular class
shall belong to that class. Any such allocation by the Board of
Directors shall be conclusive and binding for all purposes.
(c) LIABILITIES BELONGING TO CLASS. The assets belonging to each
particular class shall be charged with the liabilities of the
Corporation pertaining to that class, including all expenses, costs,
charges and reserves attributable to that class, and any general
liabilities, expenses, costs, charges or reserves of the Corporation
which are not readily identifiable as belonging to any particular
class shall be allocated and charged by or under the supervision of
the Board of Directors to and among any one or more of the classes
established and designated from time to time in such manner and on
such basis as the Board of Directors, in its sole discretion, deems
fair and equitable. All such liabilities are herein referred to as
"liabilities belonging to" that class. Any such allocation of
liabilities by the Board of Directors shall be conclusive and binding
for all purposes.
(d) INCOME. The Board of Directors shall have full discretion, to the
extent not inconsistent with the
6
<PAGE>
General Laws of the State of Maryland and the 1940 Act, to determine
which items shall be treated as income and which items shall be
treated as capital. Each such determination shall be conclusive and
binding.
(e) DIVIDENDS. Dividends on Shares of a particular class may be paid with
such frequency, in such forms and in such amounts as the Board of
Directors may from time to time determine. If paid in Shares of a
Class, any such dividend shall be paid at the net asset value of the
Shares as determined pursuant to subsection 4.4(h). Dividends on
Shares of a class may be accrued daily or otherwise, after providing
for actual and accrued liabilities belonging to that class, pursuant
to a standing resolution or resolutions adopted only once or with such
frequency as the Board of Directors may determine. All dividends on
Shares of a particular class shall be paid only out of surplus or
other lawfully available assets determined by the Board of Directors
as belonging to such class.
(f) LIQUIDATION. In the event of the liquidation or dissolution of the
Corporation, the stockholders of each class that has been established
and designated and is being liquidated shall be entitled to receive,
as a class, when and as declared by the Board of Directors,
7
<PAGE>
the excess of the assets belonging to that class over the liabilities
belonging to that class. The holders of Shares of any class shall not
be entitled thereby to any distribution upon liquidation of any other
class. The assets so distributable to the stockholders of any
particular class shall be distributed among such stockholders in
proportion to the number of Shares of that class held by them and
recorded on the books of the Corporation.
(g) REDEMPTION BY STOCKHOLDER. Each holder of Shares of a particular class
shall have the right to require the Corporation to redeem all or any
part of the Shares of that class standing in the name of such holder
on the books of the Corporation at the redemption price per Share then
in effect. The redemption price of Shares shall be equal to the net
asset value per Share of that class, determined in accordance with
subsection 4.4(h), less such redemption charge, if any, as is
determined by the Board of Directors. Redemption shall be conditional
upon the Corporation having funds legally available therefor. Payment
of the redemption price shall be in cash, provided, however, that if
the Board of Directors determines that conditions exist which make
payment wholly in cash unwise or undesirable, the Corporation may make
payment wholly or partly in
8
<PAGE>
portfolio securities or in other assets belonging to the class of
Shares being redeemed.
Notwithstanding the foregoing, the Corporation may postpone payment of
the redemption price and may suspend the right of the holders of
Shares of any class to require the Corporation to redeem Shares of
that class during any period or at any time when and to the extent
permissible under the 1940 Act.
Without limiting the generality of the foregoing, the Board of
Directors may authorize the Corporation, at its option and to the
extent permitted by and in accordance with the conditions of
applicable law, to redeem stock of the Corporation, or of any class or
series, owned by any stockholder under circumstances deemed
appropriate by the Board of Directors in its sole discretion from time
to time, such circumstances including but not being limited to (l)
failure to provide the Corporation with a tax identification number
and (2) failure to maintain ownership of a specified minimum number or
value of shares of any class or series of stock of the Corporation,
such redemption to be effected at such price, at such time and subject
to such conditions as may be required or permitted by applicable law.
Shares of any class or series which have been redeemed shall
constitute authorized but unissued shares
9
<PAGE>
subject to classification and reclassification as provided in these
Articles of Incorporation.
(h) VALUATION. Subject to the requirements of applicable law, the Board of
Directors may, in its absolute discretion, establish the basis or
method, timing and frequency for determining the value of assets
belonging to each class or series and for determining the net asset
value of each Share of each class or series for purposes of sales,
redemptions, repurchases or otherwise. Without limiting the foregoing,
the Board of Directors may determine that the net asset value per
share of any class or series should be maintained at a designated
constant value and may establish procedures, not inconsistent with
applicable law, to accomplish that result. Such procedures may include
a requirement, in the event of a net loss with respect to the
particular class or series from time to time, for automatic pro rata
capital contributions from each stockholder of that class or series in
amounts sufficient to maintain the designated constant Share value.
(i) Equality Each Share of each particular class shall represent an equal
proportionate interest in the assets belonging to that class (subject
to the liabilities belonging to that class), and each Share of
10
<PAGE>
each particular class shall be equal to each other Share of that
class.
(j) CONVERSION OR EXCHANGE RIGHTS. Subject to compliance with the
requirements of the 1940 Act, the Board of Directors shall have the
authority to provide that the holders of Shares of any class shall
have the right to convert or exchange such Shares into Shares of one
or more other classes in accordance with such requirements and
procedures as may he established by the Board of Directors.
(k) FRACTIONAL SHARES. The Corporation may issue and sell fractions of
Shares having pro rata all the rights of full Shares, including,
without limitation, the right to vote and to receive dividends, but
excluding the right to receive a certificate evidencing a fractional
Share and wherever the words "Share" or "Shares" are used in these
Articles or in the Bylaws, they shall be deemed to include fractions
of Shares, unless the context clearly indicates that only full Shares
are intended.
11
<PAGE>
ARTICLE V
VOTING
Section 5.1 GENERAL PROVISIONS. On each matter submitted to a vote of the
stockholders, each holder of a Share shall be entitled to one vote for each
Share standing in his name on the books of the Corporation, irrespective of the
class thereof, and all outstanding Shares of all classes shall vote as one
class; provided, however, that as to any matter with respect to which a separate
vote of any class is required by the Maryland General Corporation Law or the
1940 Act and rules thereunder as determined by the Board o Directors, in its
sole discretion, only the holders of Shares the one or more affected classes
shall be entitled to vote. Notwithstanding any provision of law requiring any
action to be taken or authorized by the affirmative vote of the holders of a
designated proportion of the votes of all classes or of any class of stock of
the Corporation, such action shall be effective and valid if taken or authorized
by the affirmative vote of a majority of the total number of votes entitled to
be cast thereon, except as otherwise required by the 1940 Act, or as otherwise
provided in these Articles of Incorporation; provided that, to the extent
consistent with applicable law, the Bylaws may provide for authorization to be
by the vote of a proportion less than a
12
<PAGE>
majority of the votes of the Corporation or of a class or series.
Section 5.2 QUORUM. The presence in person or by proxy of the holders of
one-third of the Shares of stock of the Corporation entitled to vote (without
regard to class) shall constitute a quorum at any meeting of the stockholders.
except with respect to any matter which, under applicable statutes or regulatory
requirements, requires approval by a separate vote of one or more classes of
stock, in which case the presence in person or by proxy of the holders of
one-third of the Shares of stock of each class required to vote as a class on
the matter shall constitute a quorum.
ARTICLE Vl
DIRECTORS
Section 6.1 NUMBER OF DIRECTORS. Prior to the issuance of stock, the number
of directors of the Corporation shall be five and after the issuance of stock
shall be as provided in the Bylaws, provided that the Bylaws may, subject to the
limitations of the Maryland General Corporation Law, fix a different number of
directors and may authorize a majority of the directors to increase or decrease
the number of directors set by these Articles or the Bylaws within limits set by
the Bylaws and to fill vacancies created by an increase in the number of
directors. Unless otherwise provided by the
13
<PAGE>
Bylaws, the directors of the Corporation need not be stockholders of the
Corporation. The names of the directors who will serve until the first annual
meeting and until their successors are elected and qualify are:
James W Murphy
James P. Shanahan
Ronald D. Anderson
H. Raymand Swenson
Leonard D Schutt
Section 6.2 REMOVAL OF DIRECTORS. Subject to the limits of the 1940 Act and
unless otherwise provided by the Bylaws, a director may be removed, with or
without cause, by the affirmative vote of a majority of (a) the Board of
Directors, (b) a committee of the Board of Directors appointed for such purpose,
or (c) the stockholders by vote of a majority of the outstanding shares of the
Corporation.
Section 6.3 LIABILITY OF DIRECTORS AND OFFICERS.
(a) To the fullest extent permitted by the Maryland General Corporation
Law and the 1940 Act, no director or officer of the Corporation shall
be liable to the Corporation or to its stockholders for money damages.
No amendment to these Articles of Incorporation or repeal of any of
its provisions shall limit or eliminate the benefits provided to
directors and officers under this provision with respect to
14
<PAGE>
any act or omission which occurred prior to such amendment or repeal.
(b) In performance of his duties, a director is entitled to rely on any
information, opinion, report, or statement, including any financial
statement or other financial data, prepared by others, to the extent
not inconsistent with the General Laws of the State of Maryland. A
person who performs his duties in accordance with the standards of
Article 2-405.1 of the Maryland General Corporation Law or otherwise
in accordance with applicable law shall have no liability by reason of
being or having been a director of the Corporation.
Section 6.4 POWERS OF DIRECTORS. In addition to any powers conferred herein
or in the Bylaws, the Board of Directors may, subject to any express limitations
contained in these Articles of Incorporation or in the Bylaws, exercise the full
extent of powers conferred by the General Laws of the State of Maryland or other
applicable law upon corporations or directors thereof and the enumeration and
definition of particular powers herein or in the Bylaws shall in no way be
deemed to restrict or otherwise limit those lawfully conferred powers. In
furtherance and without limitation of the foregoing, the Board of Directors
shall have power:
15
<PAGE>
(a) to make, alter, amend or repeal from time to time the Bylaws of the
Corporation except as otherwise provided by the Bylaws;
(b) subject to requirements of the 1940 Act and the General Laws of the
State of Maryland, to authorize the Corporation to enter into
contracts with any person, including any firm, corporation, trust or
association in which a director, officer, employee or stockholder of
the Corporation may be interested. Such contracts may be for any
lawful purpose, whether or not such purpose involves delegating
functions normally performed by the board of directors or officers of
a corporation, including, but not limited to, the provision of
investment management for the Corporation's investment portfolio, the
distribution of securities issued by the Corporation, the
administration of the Corporation's affairs, the provision of transfer
agent services with respect to the Corporation's shares of capital
stock, and the custody of the Corporation's assets. Any person
(including its affiliates) may be retained in multiple capacities
pursuant to one or more contracts and may also perform services,
including
16
<PAGE>
other investment companies. Subject to the requirements of applicable
law, such contracts may provide for compensation to be paid by the
Corporation in such amounts, including payments of multiple amounts
for persons (including their affiliates) acting in multiple
capacities, as the Board of Directors shall determine in its
discretion to be proper and reasonable; and
(c) to authorize from time to time the payment of compensation to the
directors for services to the Corporation, including fees for
attendance at meetings of the Board of Directors and committees
thereof.
Section 6.5 DETERMINATIONS BY BOARD OF DIRECTORS. Any determination made by
or pursuant to the direction of the Board of Directors and in accordance with
the standards set by the General Laws of the State of Maryland shall be final
and conclusive and shall be binding upon the Corporation and upon all
stockholders, past, present and future, of each class and series.
17
<PAGE>
ARTICLE VII
PROVISIONS FOR DEFINING, LIMITING AND REGULATING THE POWERS OF
THE CORPORATION AND THE DIRECTORS AND STOCKHOLDERS
Section 7.1 LOCATION OF MEETINGS. Offices and Books. Both directors and
stockholders may hold meetings within or without the State of Maryland and
abroad, and the Corporation may have one or more offices and may keep its books
within or without the State of Maryland and abroad at such places as the
directors shall determine.
Section 7.2 MEETINGS OF STOCKHOLDERS. Except as otherwise provided in the
Bylaws, in accordance with the applicable law, the Corporation shall not be
required to hold an annual meeting of stockholders in any year Election of
directors, whether by the directors or by stockholders, need not be by ballot
unless the Bylaws so provide.
Section 7.3 INSPECTION OF RECORDS. Stockholders of the Corporation shall
have only such rights to inspect and copy the records, documents, accounts and
books for the Corporation and to request statements regarding its affairs as are
provided by the Maryland General Corporation Law, subject to such reasonable
regulations, not contrary to the General Laws of the State of Maryland, as the
Board of Directors may from time to time adopt regarding the conditions and
limits of such rights.
18
<PAGE>
Section 7.4 INDEMNIFICATION. The Corporation, including its successors and
assigns, shall indemnify its directors and officers and make advance payment of
related expenses to the fullest extent permitted, and in accordance with the
procedures required, by the General laws of the State of Maryland and the 1940
Act. The Bylaws may provide that the Corporation shall indemnify its employees
and/or agents in any manner and within such limits as permitted by applicable
law. Such indemnification shall be in addition to any other right or claim to
which any director, officer, employee or agent may otherwise be entitled. The
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the Corporation or is or was
serving at the request of the Corporation as a director, officer, partner,
trustee, employee or agent of another foreign or domestic corporation.
partnership, joint venture, trust or other enterprise or employee benefit plan,
against any liability asserted against and incurred by such person in any such
capacity or arising out of such person's position, whether or not the
Corporation would have had the power to indemnify against such liability. The
rights provided to any person by this Section 7.4 shall be enforceable against
the Corporation by such person who shall be presumed to have relied upon such
rights in serving or continuing to serve in the capacities indicated herein. No
amendment of these Articles of
19
<PAGE>
Incorporation shall impair the rights of any person arising at any time with
respect to events occurring prior to such amendment.
Section 7.5 WHOLLY-OWNED SUBSIDIARIES. The Corporation may own all or any
portion of the securities of, make loans to, or contribute to the costs or other
financial requirements of any company which is wholly owned by the Corporation
or by the Corporation and by one or more other investment companies and is
primarily engaged in the business of providing, at cost, management,
administrative or related services to the Corporation or to the Corporation and
other investment companies.
Section 7.6 REFERENCES TO STATUTES, ARTICLES AND BYLAWS. All references
herein to statutes, to these Articles of Incorporation or to the Bylaws shall be
deemed to refer to those statutes, Articles or Bylaws as they are amended and in
effect from time to time.
ARTICLE VIII
Amendment
The Corporation reserves the right from time to time to alter, amend or
repeal any provisions contained in these Articles of Incorporation, now or
hereafter authorized by law, including any amendment which alters contract
rights of any outstanding Shares, at any time in the manner now or
20
<PAGE>
hereafter prescribed by the laws of the State of Maryland, and all rights
conferred herein upon the Corporation's stockholders, directors and officers are
granted subject to such reservation.
IN WITNESS WHEREOF, the undersigned incorporator of AUL American Series
Fund, Inc. who executed the foregoing Articles of Incorporation hereby
acknowledges the same to be his act.
Dated this 26th day of July, 1989.
/s/ Richard A. Wacker
- ---------------------
Richard A. Wacker
- --------------------------------------------------------------------------------
EXHIBIT 1.2
ARTICLES SUPPLEMENTARY OF REGISTRANT
- --------------------------------------------------------------------------------
AUL AMERICAN SERIES FUND, INC.
ARTICLES SUPPLEMENTARY
AUL AMERICAN SERIES FUND, INC., a Maryland corporation, registered as an
open-end, diversified management investment company under the Investment Company
Act of 1940, having its principal office in Baltimore, Maryland (hereinafter
called the "Corporation"), certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Articles of Incorporation have previously authorized one hundred
million (100,000,000) shares of Common Stock, par value of $.001 per share, with
an aggregate par value of $100,000, with the preferences, rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption thereof as set forth in the Articles of Incorporation,
and whereas the Articles of Incorporation have provided for the allocation of
forty million (40,000,000) shares of Common Stock in the following classes, each
class consisting of the number of shares and having the designations indicated:
Equity Portfolio Common Stock 10 million
Bond Portfolio Common Stock 10 million
Money Market Portfolio Common Stock 10 million
Managed Portfolio Common Stock 10 million
SECOND: The Board of Directors of the Corporation, at a meeting duly
convened and held on March 7, 1990, adopted a resolution reclassifying forty
million (40,000,000) of the authorized but unissued shares as shares of the
Money Market Portfolio Common Stock, and reclassifying ten million (10,000,000)
of the authorized but unissued shares as shares of the Managed Portfolio Common
Stock, with the same preferences, rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption as the shares of Common Stock previously authorized, as follows:
Equity Portfolio Common Stock 10 million
Bond Portfolio Common Stock 10 million
Money Market Portfolio Common Stock 50 million
Managed Portfolio Common Stock 20 million
<PAGE>
The aggregate number of authorized shares of Common Stock remains at one
hundred million (100,000,000) shares of Common Stock, at $.001 per share par
value, and an aggregate par value of $100,000.
FOURTH: The preferences, rights, voting powers, restrictions, limitations
as to dividends, qualifications, and terms and conditions of redemption of
shares of Common Stock are as set forth in the Articles of Incorporation of the
Corporation.
FIFTH: The shares of the Corporation classified pursuant to Section 2-105
of Corporations and Associations Article, Maryland Public General Laws and
pursuant to Article Second of these Articles Supplementary have been so
classified by the Board of Directors under the authority contained in the
Articles of Incorporation.
IN WITNESS WHEREOF, AUL AMERICAN SERIES FUND, INC. has caused these
presents to be signed in its name and on its behalf by its duly authorized
officers who acknowledge that these Articles Supplementary are the act of the
Corporation, that to the best of their knowledge, information and belief the
matters and facts set forth herein relating to the authorization and approval of
the Articles Supplementary are true in all material respects and that this
statement is made under the penalties of perjury.
AUL AMERICAN SERIES FUND, INC.
By: /s/ James W. Murphy
------------------------------
James W. Murphy
President
ATTEST:
By: /s/ Richard A. Wacker
- -------------------------
Richard A. Wacker
Secretary
<PAGE>
AUL AMERICAN SERIES INC.
ARTICLES SUPPLEMENTARY
AUL AMERICAN SERIES FUND, INC., a Maryland corporation, registered as an
open-end, diversified management investment company under the Investment Company
Act of 1940, having a principal office in Baltimore, Maryland (hereinafter
called the "Corporation"), certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Articles of Incorporation dated July 26, 1989, as amended by
Articles Supplementary filed on April 5, 1990, have previously authorized one
hundred million (100,000,000) shares of Common Stock, par value of $.001 per
share, with an aggregate par value of $100,000, with the preferences, rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption thereof as set forth in the Articles of
Incorporation as amended, and whereas the Articles of Incorporation as amended
have provided for the allocation of ninety million (90,000,000) shares of Common
Stock in the following classes, each class consisting of the number of shares
and having the designations indicated:
Equity Portfolio Common Stock 10 million
Bond Portfolio Common Stock 10 million
Money Market Portfolio Common Stock 50 million
Managed Portfolio Common Stock 20 million
SECOND: The Board of Directors of the Corporation, at a meeting duly
convened and held on May 12, 1995, adopted a resolution authorizing the
Corporation to issue an additional twenty- five million (25,000,000) shares of
Common Stock, par value of $.001 per share, and classifying such twenty-five
million (25,000,000) of the authorized but unissued shares as shares of the
Tactical Asset Allocation Portfolio Common Stock, so that immediately after the
effectiveness of these Articles Supplementary, the Corporation has authority to
issue one hundred twenty-five million (125,000,000) shares of Common Stock, par
value $.001 per share, and aggregate par value of $125,000, of which the Board
of Directors has classified one hundred fifteen million (115,000,000) shares as
follows:
Equity Portfolio Common Stock 10 million
Bond Portfolio Common Stock 10 million
Money Market Portfolio Common Stock 50 million
Managed Portfolio Common Stock 20 million
Tactical Asset Allocation Portfolio Common Stock 25 million
THIRD: The preferences, rights, voting powers, restrictions, limitations as
to dividends, qualifications, and terms and conditions of redemption of shares
of Common Stock are as set forth in the Articles of Incorporation as amended, of
the Corporation.
<PAGE>
FOURTH: The shares of the Corporation classified pursuant to Section
2-105(c) of Corporations and Associations Article, Maryland Public General Laws
and pursuant to Article Second of these Articles Supplementary have been so
classified by the Board of Directors under the authority contained in the
Articles of Incorporation.
IN WITNESS WHEREOF, AUL AMERICAN SERIES FUND, INC. has caused these
presents to be signed in its name and on its behalf by its duly authorized
officers who acknowledge that these Articles Supplementary are the act of the
Corporation, that to the best of their knowledge, information and belief the
matters and facts set forth herein relating to the authorization and approval of
the Articles Supplementary are true in all material respects and that this
statement is made under the penalties of perjury.
Date: May 12, 1995
AUL AMERICAN SERIES FUND, INC.
By: /s/ James W. Murphy
-----------------------------
James W. Murphy
Chairman of the Board of
Directors and President
ATTEST:
By: /s/ Richard A. Wacker
- -------------------------
Richard A. Wacker
Secretary
<PAGE>
AUL AMERICAN SERIES FUND
ARTICLES SUPPLEMENTARY
AUL AMERICAN SERIES FUND INC., a Maryland corporation, registered as an
open-ended diversified management investment company under the Investment
Company Act of 1940, having a principal office in Baltimore, Maryland
(hereinafter) called the "Corporation") certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST: The Articles or Incorporation dated July 26 1989 as amended by
Articles Supplementary filed on April 5, 1990 and May 22, 1996, have previously
authorized one hundred twenty-five million (125,000,000 shares of Common Stock,
par value of $.001 per share, with an aggregate par value of $125,000, with the
preferences, rights, voting powers, restrictions, limitations as to dividends,
qua1ifications, and terms and conditions of redemption hereof as set forth in
the Articles of Incorporation as amended have provided for the allocation of one
hundred fifteen million (115,000,000) shares of Common Stock in the following
classes, each class consisting of the number or shares and having the
designations indicated:
AUL American Equity Portfolio
Common Stock 10 Million
AUL American Bond Portfolio
Common Stock 10 Million
AUL American Money Market Portfolio
Common Stock 50 Million
AUL American Managed Portfolio
Common Stock 20 Million
AUL American Tactical Asset Allocation Portfolio
Common Stock 25 Million
SECOND: The Board of Directors of the Corporation, at a meeting duly
convened and held on August 28 1997, adopted a resolution authorizing the
Corporation to reallocate ten million (10,000,000) shares par value of $.001 per
share, of previously authorized but unissued shares of the AUL American Money
Market Portfolio, so that immediately after the effectiveness of these Articles
Supplementary, the Corporation has authority to issue one hundred twenty-five
million (125, 000,000) shares of Common Stock, par value $.001 per share, and
aggregate par value of $125,000,000, of which the Board of Directors has
classified the one hundred twenty-five million (125,000,000) shares as follows:
AUL American Equity Portfolio
Common Stock 10 Million
<PAGE>
AUL American Bond Portfolio
Common Stock 10 Million
AUL American Money Market Portfolio
Common Stock 60 Million
AUL American Managed Portfolio
Common Stock 20 Million
AUL American Tactical Asset Allocation Portfolio
Common Stock 25 Million
FOURTH: The preferences, rights, voting powers, restrictions, limitations
as to dividends, qualifications, and terms and conditions or redemption of
shares of Common Stock are as get forth in the Articles of Incorporation as
amended, of the Corporation.
FIFTH: The shares of the Corporation classified pursuant: to Section
2-105(C) Of Corporations and Associations Article, Maryland Public General Laws
and pursuant to Article Second of these Articles Supplementary have been so
classified by the Board of Directors under the authority contained in the
Articles of Incorporation.
IN WITNESS WHEREOF, AUL AMERICAN SERIES FUND, INC. has caused these
presents to be signed in its name and on its behalf by its duly authorized
officers who acknowledge that these Articles Supplementary are the act of the
Corporation, that to the best of their knowledge, information and belief the
matters and facts set forth herein relating Co the authorization and approval of
the Articles Supplementary are true in all material respects and that this
Statement is made under the penalties of perjury.
Date: August 28, 1997
AUL AMERICAN SERIES FUND, INC.
By: /s/ James W. Murphy
-----------------------------
James W. Murphy
President
ATTEST:
By: /s/ Richard A. Wacker
- -------------------------
Richard A. Wacker
Secretary
<PAGE>
AUL AMERICAN SERIES FUND, INC
ARTICLES SUPPLEMENTARY
AUL AMERICAN SERIES FUND, INC. a Maryland corporation, registered as an
open-end, diversified managers investment company under the Investment Company
Act of 1940, having a principal office in Baltimore, Maryland (hereinafter
called the "Corporation"), certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Articles of Incorporation dated July 26, 1989, as amended by
Articles Supplementary filed on April 5, 1990, May 22, 1995, and September 5,
1997, have previously authorized one hundred twenty-five million (125,000,000)
shares of Common Stock, par value of $.001 per share, with an aggregate par
value of $ 125,000, with the preferences, rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and condition of
redemption thereof as set forth in the Articles of Incorporation as amended, and
whereas the Articles of Incorporation as amended have provided for the
allocation of one hundred twenty-five million (125,000,000) shares of Common
Stock in the following classes, each class consisting of the number of shares
and having the designation indicated:
AUL American Equity Portfolio Common Stock 10 million
AUL American Bond Portfolio Common Stock 10 million
AUL American Money Market Portfolio Common Stock 60 million
AUL American Managed Portfolio Common Stock 20 million
AUL American Tactical Asset Allocation Portfolio Common Stock 25 million
SECOND: The Board of Directors of the Corporation, at a meeting duly
convened and held on September 15, 1997, adopted a resolution authorizing the
Corporation to authorize an additional one hundred twenty-five million
(125,000,000) Shares, par value of $.001 per share, so that immediately after
the effectiveness of these Articles Supplementary, the Corporation has authority
to issue two hundred fifty million (250,000,000) shares of Common Stock, par
value $.001 per share, and aggregate par value of $250,000, which the Board of
Directors has classified as follows:
<PAGE>
AUL American Equity Portfolio Common Stock 20 million
AUL American Bond Portfolio Common Stock 20 million
AUL American Money Market Portfolio Common Stock 125 million
AUL American Managed Portfolio Common Stock 40 million
AUL American Tactical Asset Allocation Portfolio Common Stock 25 million and
the remaining 20 million Shares shall be authorized but unallocated.
FOURTH: The preferences, rights, voting powers, restrictions, limitations
as to dividends, qualifications, and terms and conditions of redemption of
shares of Common Stock are as set forth in the Articles of Incorporation as
amended, of the Corporation.
FIFTH: The shares of the Corporation classified pursuant to Section
2-105(c) of Corporations and Associations Article, Maryland Public General Laws
and pursuant to Article Second of these Articles Supplementary have been so
classified by the Board of Directors under the authority contained in the
Articles of Incorporation.
IN WITNESS WHEREOF, AUL AMERICAN SERIES FUND, INC. has caused these
presents to be signed in its name and on its behalf by its duly authorized
officers who acknowledge that these Articles Supplementary are the act of the
Corporation, that to the best of their knowledge, information and belief the
matters and facts set forth herein relating to the authorization and approval of
the Articles Supplementary are true in all material respects and that this
statement is made under the penalties of perjury.
Date: September 18, 1997
AUL AMERICAN SERIES FUND, INC.
By: /s/ James W. Murphy
-----------------------------
James W. Murphy
President
ATTEST:
By: /s/ Richard A. Wacker
- -------------------------
Richard A. Wacker
Secretary
<PAGE>
AUL AMERICAN SERIES FUND, INC.
ARTICLES SUPPLEMENTARY
AUL AMERICAN SERIES FUND, INC., a Maryland corporation, registered as an
open-end, diversified management investment company under the Investment Company
Act of 1940, having a principal office in Baltimore, Maryland (hereinafter
called the "Corporation"), certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The Articles of Incorporation dated July 26, 1989, as amended by
Articles Supplementary filed on April 5, 1990, May 22, 1995, September 5, 1997
and October 1, 1997, have previously authorized two hundred fifty million
(250,000,000) shares of Common Stock, par value of $.001 per share, with an
aggregate par value of $250,000 with the preferences, rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption thereof as set forth in the Articles of Incorporation
as amended, and whereas the Articles of Incorporation as amended have provided
for the allocation of two hunted thirty million (230,000,000) shares of Common
Stock in the following classes, each class consisting of the number of shares
and having the designations indicated:
AUL American Equity Portfolio
Common Stock 20 million
AUL American Bond Portfolio
Common Stock 20 million
AUL American Money Market Portfolio
Common Stock 125 million
AUL American Managed Portfolio
Common Stock 40 million
AUL American Tactical Asset Allocation Portfolio
Common Stock 25 million and
the remaining 20 million shares shall be authorized but unallocated.
SECOND: The Board of Directors of the Corporation, at a meeting duly
convened and held on November 19, 1997, adopted resolutions authorizing the
Corporation to issue an additional seventy-five million (75,000,000) shares of
Common Stock, par value of $.001 per share, and classifying said seventy-five
million (75,000,000) of the authorized but unissued shares as follows:
twenty-five million (25,000,000) of the authorized but unissued shares
classified as shares of AUL American Conservative Investor Portfolio Common
Stock, twenty-five million (25,000,000) of the authorized but unissued shares
classified as shares of AUL American Moderate Investor Portfolio, and
twenty-five million (25,000,000) of the authorized but unissued shares
classified as shares of AUL American Aggressive Investor Portfolio, so that
immediately after the effectiveness of these Articles Supplementary, the
Corporation has authority to issue three hundred twenty-five million
(325,000,000)] shares of Common Stock, par value $.001 per share, and aggregate
par value of $325,000 of which the Board of Directors has classified three
hundred and five million (305,000,000) shares as follows:
<PAGE>
AUL American Equity Portfolio Common Stock 20 million
AUL American Bond Portfolio Common Stock 20 million
AUL American Money Market Portfolio Common Stock 125 million
AUL American Managed Portfolio Common Stock 40 million
AUL American Tactical Asset Allocation Portfolio Common Stock 25 million
AUL American Conservative Investor Portfolio Common Stock 25 million
AUL American Moderate Investor Portfolio Common Stock 25 million
AUL American Aggressive Investor Portfolio Common Stock 25 million and
the remaining 20 million shares shall be authorized but unallocated.
THIRD: The preferences, rights, voting powers, restrictions, limitations as
to dividends, qualifications, and terms and conditions of redemption of shares
of Common Stock are as set forth in the Articles of Incorporation as amended, of
the Corporation.
FOURTH: The shares of the Corporation classified pursuant to Section
2-105(c) of Corporations and Associations Article, Maryland Public General Laws
and pursuant to Article Second of these Articles Supplementary have been so
classified by the Board of Directors under the authority contained in the
Articles of Incorporation.
IN WITNESS WHEREOF, AUL AMERICAN SERIES FUND, INC. has caused these
presents to be signed in its name and on its behalf by its duly authorized
officers who acknowledge that these Articles Supplementary are the act of the
Corporation, that to the best of their knowledge, information and belief the
matters and facts set forth herein relating to the authorization and approval of
the Articles Supplementary are true in all material respects and that this
statement is made under the penalties of perjury.
Date: November 19, 1997
AUL AMERICAN SERIES FUND, INC.
By: /s/ James W. Murphy
-----------------------------
James W. Murphy, Chairman of the
Board and President
ATTEST:
By: /s/ Richard A. Wacker
- -------------------------
Richard A. Wacker
Secretary
- --------------------------------------------------------------------------------
EXHIBIT 2
BY-LAWS OF REGISTRANT
- --------------------------------------------------------------------------------
BYLAWS
OF
AUL AMERICAN SERIES FUND, INC.
ARTICLE I
STOCKHOLDERS
Section 1. ANNUAL MEETINGS. The annual meeting of the stockholders of the
Corporation, if required, shall be held on such date as may be fixed from time
to time by the Board of Directors. Not less than ten nor more than ninety days'
written or printed notice stating the place, day and hour of each annual meeting
shall be given in the manner provided in Section 1 of Article IX hereof. The
business to be transacted at the annual meetings shall include the election of
directors, consideration and action upon the reports of officers and directors,
and any other business within the power of the Corporation The Company is not
required to and need not hold an annual meeting in any year in which none of the
following is required to be acted on by the stockholders under the Investment
Company Act of 1940, as amended (the "1940 Act") or rules and regulations
promulgated thereunder: (1) election of directors; (2) approval of an investment
advisory agreement; (3) ratification of the selection of independent public
accountants; and (4) approval of a distribution agreement. All annual meetings
shall be general meetings at which any business may be considered without
1
<PAGE>
being specified as a purpose in the notice unless otherwise required by law.
Section 2. SPECIAL MEETINGS CALLED BY CHAIRMAN OF THE BOARD PRESIDENT OR
BOARD OF DIRECTORS. At any time in the interval between annual meetings, special
meetings of stockholders may be called by the Chairman of the Board, or by the
President, or by the Board of Directors. Not less than ten days' nor more than
ninety days' written notice stating the place, day and hour of such meeting and
the matters proposed to be acted on thereat shall be given in the manner
provided in Section 1 of Article IX. No business shall be transacted at any
special meeting except that specified in the notice.
Section 3. SPECIAL MEETING CALLED BY STOCKHOLDERS. Upon the request in
writing delivered to the Secretary by the stockholders entitled to cast at least
25% of all the votes entitled to be cast at the meeting, it shall be the duty of
the Secretary to call forthwith a special meeting of the stockholders. Such
request shall state the purpose of such meeting and the matters proposed to be
acted on thereat, and no other business shall be transacted at any such special
meeting. The Secretary shall inform such stockholders of the reasonably
estimated costs of preparing and mailing the notice of the meeting, and upon
payment to the Corporation of
2
<PAGE>
such costs, the Secretary shall give not less than ten nor more than ninety
days' notice of the time, place and purpose of the meeting in the manner
provided in Section 1 of Article IX. If, upon payment of such costs the
Secretary shall fail to issue a call for such meeting within ten days after the
receipt of such payment (unless such failure is excused by law), then the
stockholders entitled to cast 25% or more of the outstanding shares entitled to
vote may do so upon giving not less than ten days' nor more than ninety days'
notice of the time, place and purpose of the meeting in the manner provided in
Section 1 of Article IX.
Section 4. PLACE OF MEETINGS. all meetings of stockholders shall be held at
such place within the United States as may be fixed from time to time by the
Board of Directors and designated in the notice or in a duly executed waiver of
notice.
Section 5. QUORUM. The presence in person or by proxy of the holders of
one-third of the shares of stock of the Corporation entitled to vote (without
regard to class) shall constitute a quorum at any meeting of the stockholders,
except with respect to any matter which, under applicable statutes or regulatory
requirements, requires approval by a separate vote of one or more classes of
stock, in which case the presence in person or by proxy of the holders of one
3
<PAGE>
third of the shares of stock of each class required to vote as a class on the
matter shall constitute a quorum.
Section 6. ADJOURNED MEETINGS. A meeting of stockholders convened on the
date for which it was called (or one adjourned to achieve a quorum as above
provided in Section 5 of this Article) may be adjourned from time to time
without further notice other than an announcement at the meeting to a date not
more than 120 days after the record date, and any business may be transacted at
any adjourned meeting which could have been transacted at the meeting as
originally called.
Section 7. VOTING. Unless otherwise required by applicable law, each full
share represented at a meeting shall have one vote, and each fractional share
shall have a proportionate fractional vote, on each matter submitted to a vote
of the stockholders; provided, however, if with respect to shares held by a
stockholder in a separate account under a group annuity or variable insurance
contract, the stockholder is required by the 1940 Act to pass through its voting
rights on such shares to contractholders or participants under such contracts,
then such contractholders and participants shall be entitled, and may exercise,
all the rights of such stockholder to vote, in person or by proxy, the shares
4
<PAGE>
representing the interests of such contractholder and participants.
A majority of the votes cast at a meeting of stockholders, duly called and
at which a quorum is present, shall be sufficient to take or authorize action
upon any matter which may properly come before the meeting, unless more than a
majority of votes cast is required by statute or by the Articles of
Incorporation The Board of Directors may fix the record date for the
determination of stockholders entitled to vote in the manner provided in Article
VIII, Section 3 of these Bylaws.
Section 8. PROXIES. A stockholder may vote the shares owned of record by
him either in person or by proxy executed in writing and signed by the
stockholder or by his duly authorized attorney-in- fact. Every proxy shall be
dated, but need not be sealed, witnessed or acknowledged. A proxy purporting to
be executed by or on behalf of a stockholder shall be deemed valid unless
challenged at or prior to its exercise. No proxy shall be valid after eleven
months from its date, unless otherwise provided in the proxy. Every proxy shall
be revocable at the pleasure of the person executing it or of his personal
representatives or assigns. In the case of stock held of record by more than one
person, any co-owner or co-fiduciary may execute the proxy without
5
<PAGE>
the joinder of his co-owner(s) or co-fiduciary(ies), unless the Secretary of the
Corporation is notified in writing by any co-owner or co-fiduciary that the
joinder of more than one is to be required. At all meetings of stockholders, the
proxies shall be filed with and verified by the Secretary of the Corporation,
or, if the meeting shall so decide, by the Secretary of the meeting.
Section 9. REMOVAL OF DIRECTORS. At any meeting of the stockholders called
in the manner provided for by this Article, the stockholders, by the affirmative
vote of a majority of all the votes entitled to be cast for the election of
directors, may remove any director or directors from office, with or without
cause, and may elect a successor or successors to fill any resulting vacancies
for the remainder of his or their terms.
Section 10. INFORMAL ACTION BY STOCKHOLDERS. Any action required or
permitted to be taken at any meeting of stockholders may be taken without a
meeting if (1) a consent in writing setting forth such action is signed by all
the stockholders entitled to vote thereon, (2) all stockholders entitled to
notice of the meeting but not entitled to vote at it sign a written waiver of
any right to dissent, and (3) such consent and waiver, if any, are filed with
the records of stockholders' meetings.
6
<PAGE>
ARTICLE II
DIRECTORS
Section 1. POWERS. The business and affairs of the Corporation shall be
managed under the direction of its Board of Directors. All powers of the
Corporation may be exercised by or under the authority of the Board of Directors
except as conferred on or reserved to the stockholders by law, by the Articles
of Incorporation or by these Bylaws. A director need not be a stockholder. The
Board of Directors shall keep minutes of its meetings and full and fair accounts
of its transactions.
Section 2. NUMBER; TERM OF OFFICE; REMOVAL. The number of directors of the
Corporation shall be not less than three or the same number as the number of
stockholders, whichever is less; provided, however, that such number may be
increased and thereafter decreased from time to time by vote of a majority of
the entire Board of Directors to a number not exceeding fifteen (15). Directors
shall be elected at the annual meeting of stockholders or a special meeting held
for that purpose; provided, however, that if no annual meeting of the
stockholders of the Corporation is required to be held in a particular year
pursuant to Section 1 of Article I of these Bylaws, directors shall be elected
at the next
7
<PAGE>
annual meeting held The term of office of each director shall be from the time
of his election and qualification until the election of directors next
succeeding his election and until his successor shall have been elected and
shall have qualified. A director may be removed from office as provided in
Article I, Section 9 of these Bylaws.
Section 3. MAJORITY TO BE ELECTED BY STOCKHOLDERS. If at any time, less
than a majority of the directors in office shall consist of directors elected by
the stockholders, a meeting of the stockholders shall be called within 60 days
for the purpose of filling any existing vacancies in the Board of Directors
(unless the Securities and Exchange Commission or any court of competent
jurisdiction shall by order extend such period).
Section 4. REGULAR MEETINGS. Regular meetings of the Board may be held at
such date and time as shall from time to time be determined by resolution of the
Board.
Section 5. SPECIAL MEETINGS. Special meetings of the Board may be called by
order of the President or Chairman on one day's notice given to each director in
the manner provided in Section 2 of Article IX hereof. Special meetings will be
called by the President or Secretary in a like manner on the written request of
a majority of the directors.
8
<PAGE>
Section 6. QUORUM. VOTING. Not less than one-third (1/3) of the Board of
Directors (unless there are only two (2) or three (3) directors, in which case
not less than two (2) directors shall constitute a quorum for the transaction of
business at every meeting of the Board of Directors; but, if at any meeting
there be less than a quorum present, a majority of those present may adjourn the
meeting from time to time, but not for a period exceeding ten days at any one
time or sixty days in all, without notice other than by announcement at the
meeting, until a quorum shall attend. At any such adjourned meeting at which a
quorum shall be present, any business may be transacted which might have been
transacted at the meeting as originally called. Except as hereinafter provided
or as otherwise provided by the Articles of Incorporation or by law, directors
shall act by a vote of a majority of those members in attendance at a meeting at
which a quorum is present.
Section 7. NOTICE OF MEETINGS. Notice of the time and place of every
regular and special meeting of the Board of Directors shall be given to each
director in the manner provided in Section 2 of Article IX hereof. At least 24
hours' notice shall be given of all meetings. The purpose of any meeting of the
Board of Directors need not be stated in the notice.
9
<PAGE>
Section 8. VACANCIES. Subject to Section 3 of this Article II, if any
vacancies shall occur in the Board of Directors (i) by reason of death,
resignation, removal or otherwise, the remaining directors shall continue to
act, and such vacancies (if not required to be filled by the stockholders) may
be filled by a majority of the remaining directors, although less than a quorum,
and (ii) by reason of an increase in the authorized number of directors, such
vacancies (if not required to be filled by the stockholders) may be filled only
by a majority vote of the entire Board of Directors.
Section 9. RULES AND REGULATIONS. The Board of Directors may adopt such
rules and regulations for the conduct of its meetings and the management of the
affairs of the Corporation as it may deem proper and not inconsistent with the
laws of the State of Maryland or these Bylaws or the Articles of Incorporation.
Section 10. EXECUTIVE COMMITTEE. The Board of Directors may constitute an
Executive Committee, composed of at least two directors, from among its members.
The Executive Committee shall hold office at the pleasure of the Board of
Directors. Between meetings of the Board of Directors, such Committee shall have
all of the powers of the
10
<PAGE>
Board of Directors in the management of the business and affairs of the
Corporation, except those powers specifically denied by law. If any position on
the Executive Committee becomes vacant, or if the number of members is
increased, such vacancy may be filled by the Board of Directors. The taking of
any action by the Executive Committee shall be conclusive evidence that the
Board of Directors was not in session at the time of such action. The Executive
Committee shall hold formal meetings and keep minutes of all of its proceedings.
A copy of such minutes shall, after approval by the members of the Committee, be
sent to all directors as a matter of information. Any action taken by the
Executive Committee within the limits permitted by law shall have the force and
effect of Board action unless and until revised or altered by the Board. The
presence of not less than a majority of the Committee shall be necessary to
constitute a quorum. Action may be taken without a meeting if a unanimous
written consent is signed by all of the members of the Committee, and if such
consent is filed with the records of the Committee. The Executive Committee
shall have the power to elect one of its members to serve as its Chairman unless
the Board of Directors shall have designated such Chairman.
Section 11. AUDIT COMMITTEE. The Board of Directors may constitute an Audit
Committee of two or more directors who are not "interested persons" of the
Corporation (as
11
<PAGE>
defined in the 1940 Act) who may meet at stated times or on notice to all by any
of their own number. The Committee's duties shall include reviewing both the
audit and other work of the Corporation's independent accountants, recommending
to the Board of Directors the independent accountants to be retained, and
reviewing generally the maintenance and safekeeping of the Corporation's records
and documents.
Section 12. COMPENSATION. The directors may receive a stated salary for
their services, and a fixed sum and expenses of attendance may be allowed for
attendance. An attendance fee, if any, shall be determined by resolution of the
Board; provided, however, that nothing herein contained shall be construed as
precluding a director from serving the Corporation in any other capacity and
receiving compensation therefor.
Section 13. PLACE OF MEETING. Regular or special meetings of the Board may
be held within or without the State of Maryland, as the Board may from time to
time determine. The time and place of meeting may be fixed by the party making
the call.
Section 14. INFORMAL ACTION BY THE DIRECTORS. Subject to the provisions of
the 1940 Act, any action required or permitted to be taken at any meeting of the
Board of
12
<PAGE>
Directors or of any committee thereof may be taken without a meeting if a
written consent to such action is signed by all the members of the Board or
committee, as the case may be, and such consent is filed with the minutes of the
proceedings of the Board or committee.
Section 15. TELEPHONE CONFERENCE. Members of the Board of Directors or any
committee thereof may participate in a meeting of the Board or such committee by
means of a conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other at the same
time and participation by such means shall constitute presence in person at the
meeting.
ARTICLE III
OFFICERS
Section 1. IN GENERAL. The Board of Directors may choose a Chairman of the
Board from among the directors. The Board of Directors shall elect a President,
one or more Vice Presidents, a Treasurer, a Secretary, and such Assistant
Secretaries and Assistant Treasurers as the Board may from time to time deem
appropriate. All officers shall hold office only during the pleasure of the
Board or until their successors are chosen and qualify. Any two of the above
offices, except those of President and Vice President, may
13
<PAGE>
be held by the same person The Board of Directors may from time to time appoint
such other officers, agents and employees with such powers and duties as the
Board may deem proper. In its discretion, the Board of Directors may leave
unfilled any offices except those of President, Treasurer and Secretary.
Section 2. CHAIRMAN OF THE BOARD. The Chairman of the Board, if one is
elected, shall have the responsibility for the implementation of the policies
determined by the Board of Directors and for the administration of the business
affairs of the Corporation. He shall preside over the meetings of the Board and
of the stockholders at which he is present. He shall be the Chief Executive
Officer of the Corporation if so designated by resolution of the Board.
Section 3. PRESIDENT. The President shall have the responsibility for the
active management of the business and general supervision and direction of all
of the affairs of the Corporation. In the absence of a Chairman of the Board, he
shall preside over the meetings of the Board and of the stockholders at which he
shall be present, and shall perform such other duties as may be assigned to him
by the Board of Directors or the Executive Committee. The President shall have
the authority on the Corporation's behalf to endorse securities owned by the
Corporation and to execute any
14
<PAGE>
documents requiring the signature of an executive officer. He shall perform such
other duties as the Board of Directors may direct. He shall be the Chief
Executive Officer of the Corporation unless the Chairman of the Board is so
designated by resolution of the Board.
Section 4. VICE PRESIDENTS. The Vice Presidents, in the order of priority
designated by the Board of Directors, shall be vested with all the power and may
perform all the duties of the President in his absence. They may perform such
other duties as may be prescribed by the Board of Directors or the Executive
Committee or the President.
Section 5. TREASURER. The Treasurer shall be the principal financial and
accounting officer of the Corporation and shall have general charge of the
finances and books of account of the Corporation. Except as otherwise provided
by the Board of Directors, he shall have general supervision of the funds and
property of the Corporation and of the performance by the Custodian of its
duties with respect thereto. He shall render to the Board of Directors, whenever
directed by the Board, an account of the financial condition of the Corporation
and of all his transactions as Treasurer; and as soon as possible after the
close of each fiscal year he shall make and submit to the Board of Directors a
like report for such fiscal year. He shall
15
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perform all acts incidental to the Office of Treasurer, subject to the control
of the Board of Directors.
Section 6. SECRETARY. The Secretary shall keep the minutes of the meetings
of the stockholders, if and when held, and of the Board of Directors and shall
attend to the giving and serving of all notices of the Corporation required by
law or these Bylaws. He shall maintain at all times in the principal office of
the Corporation at least one copy of the Bylaws with all amendments to date, the
minutes of the meetings of the stockholders and of the Board of Directors and
any committees thereof, stock books and such other books and papers as the Board
of Directors may direct, and such books, reports, certificates and other
documents required by law to be kept.
Section 7. ASSISTANT TREASURER AND ASSISTANT SECRETARY. The Board of
Directors may designate from time to time Assistant Treasurers and Assistant
Secretaries, who shall perform such duties as may from time to time be assigned
to them by the Board of Directors or the President.
Section 8. COMPENSATION; REMOVAL; VACANCIES. The Board of Directors shall
have power to fix the compensation of all officers of the Corporation. It may
authorize any committee or officer, upon whom the power of appointing
16
<PAGE>
subordinate officers may have been conferred, to fix the compensation of such
subordinate officers. The Board of Directors shall have the power at any regular
or special meeting to remove any officer, if in the judgment of the Board the
best interests of the Corporation will be served by such removal. The Board of
Directors may authorize any officer to remove subordinate officers. The Board of
Directors may authorize the Corporation's employment of an officer for a period
in excess of the term of the Board.
Section 9. SUBSTITUTES. The Board of Directors may from time to time in the
absence of any one of its officers or at any other time, designate any other
person or persons on behalf of the Corporation to sign any contracts, deeds,
notes or other instruments in the place or stead of any of such officers, and
may designate any person to fill any one of said offices, temporarily or for any
particular purpose; and any instruments so signed in accordance with a
resolution of the Board shall be the valid act of the Corporation as fully as if
executed by any regular officer.
Section 10. SURETY BONDS. The Board of Directors may require any officer or
agent of the Corporation to execute a bond (including, without limitation, any
bond required by the 1940 Act and the rules and regulations of the Securities
and Exchange Commission) to the Corporation in such sum and with
17
<PAGE>
such surety or sureties as the Board of Directors may determine, conditioned
upon the faithful performance of his duties to the Corporation, including
responsibility for negligence and for the accounting of any of the Corporation's
property, funds or securities that may come into his hands.
ARTICLE IV
RESIGNATION
Any director or officer may resign his office at any time. Such resignation
shall be made in writing and shall take effect from the time of its receipt by
the Corporation, unless some other time be fixed in the resignation, and then
from that date. The acceptance of a resignation shall not be required to make it
effective.
ARTICLE V
COMMERCIAL PAPER ETC.
All bills, notes, checks, drafts and commercial paper of all kinds to be
executed by the Corporation as maker, acceptor, endorser or otherwise, and all
assignments and transfers of stock (unless uncertificated as provided in Section
1 of Article VIII), contracts, or written obligations of the Corporation, and
all negotiable instruments, shall be made in the name of the Corporation and
shall be signed by
18
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such officer or officers or person or persons as the Board of Directors or
Executive Committee may from time to time designate.
ARTICLE VI
FISCAL YEAR
The fiscal year of the Corporation shall cover such period of 12 months as
the Board of Directors may determine. In the absence of any such determination,
the accounts of the Corporation shall be kept on a calendar year basis.
ARTICLE VII
SEAL
The seal of the Corporation shall be in the form of two concentric circles
inscribed with the name of the Corporation and the year and State in which it is
incorporated. The Secretary or Treasurer, or any Assistant Secretary or
Assistant Treasurer, shall have the right and power to attest to the corporate
seal. In lieu of affixing the corporate seal to any document, it shall be
sufficient to meet the requirements of any law, rule or regulation relating to a
corporate seal to affix the word "(SEAL)" adjacent to the signature of the
person authorized to sign the document on behalf of the Corporation.
19
<PAGE>
ARTICLE VIII
CAPITAL STOCK
Section 1. STOCK CERTIFICATES. The interest of each stockholder of the
Corporation may be evidenced by certificates for shares of stock in such form as
the Board of Directors may from time to time prescribe. The certificates
representing shares of stock shall be signed by or in the name of the
Corporation by the President or a Vice President and countersigned by the
Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer.
Certificates may be sealed with the actual corporate seal or a facsimile of it
or in any other form. Any or all of the signatures or the seal on the
certificate may be manual or a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate shall be issued, it may be issued by the Corporation
with the same effect as if such officer, transfer agent or registrar were still
in office at the date of issue unless written instructions of the Corporation to
the contrary are delivered to such officer, transfer agent or registrar.
20
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Section 2. TRANSFERS. The Board of Directors shall have power and authority
to make all such rules and regulations as the Board may deem expedient
concerning the issue, transfer and registration of stock certificates. The Board
of Directors may appoint one or more transfer agents and/or registrars for its
outstanding stock, and their duties may be combined. No transfer of stock shall
be recognized or binding upon the Corporation until recorded on the books of the
Corporation, or, as the case may be, of its transfer agent and/or of its
registrar, upon surrender and cancellation of a certificate or certificates for
a like number of shares.
Section 3. RECORD DATES FOR DIVIDENDS AND STOCKHOLDERS' MEETING. The Board
of Directors may fix a date not exceeding ninety days preceding the date of any
meeting of stockholders, any dividend payment date or any date for the allotment
of rights, as a record date for the determination of the stockholders entitled
to notice of and to vote at such meeting, or entitled to receive such dividends
or rights, as the case may be, and only stockholders of record on such date
shall be entitled to notice of and to vote at such meeting or to receive such
dividends or rights, as the case may be. In the case of a meeting of
stockholders, the record date shall be fixed not less than ten days prior to the
date of the meeting.
21
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Section 4. REPLACEMENT CERTIFICATES. In case certificate of stock is lost,
stolen, mutilated or the Board of Directors may authorize the issue of a
certificate in place thereof upon indemnity to the Corporation against loss and
upon such other terms and conditions as it may deem advisable. The Board of
Directors may delegate such power to any officer or officers of the Corporation
or to any transfer agent or registrar of the Corporation; but the Board of
Directors, such officer or officers or such transfer agent or registrar may, in
their discretion, refuse to issue such new certificate save upon the order of
some court having jurisdiction in the premises.
ARTICLE IX
NOTICE
Section 1. NOTICE TO STOCKHOLDERS. Whenever by law or these Bylaws notice
is required to be given to any stockholder, such notice shall be in writing and
may be given to each stockholder by leaving the same with him or at his
residence or usual place of business, or by mailing it, postage prepaid, and
addressed to him at his address as it appears on the books of the Corporation or
its transfer agent. Such leaving or mailing of notice shall be deemed the time
of giving such notice.
22
<PAGE>
Section 2. NOTICE TO DIRECTORS AND OFFICERS. Whenever by law or these
Bylaws notice is required to be given to any director or officer, such notice
may be given in any one of the following ways: by personal notice to such
director or officer, by telephone communication with such director or officer
personally, by telegram, cablegram, radiogram or electronic mail, addressed to
such director or officer at his then address or at his address as it appears on
the books of the Corporation, or by depositing the same in writing in the post
office or in a letter box in a postage paid, sealed wrapper addressed to such
director or officer at his address as it appears on the books of the
Corporation. The time when such notice shall be consigned to a communication
company for delivery shall be deemed to be the time of the giving of such
notice, and 48 hours after the time when such notice shall be mailed shall be
deemed to be the time of the giving of such notice by mail.
Section 3. WAIVER OF NOTICE. Notice to any stockholder or director of the
time, place and/or purpose of any meeting of stockholders or directors required
by these Bylaws may be dispensed with if the person to whom such notice would
otherwise be directed shall either attend in person, by proxy or by other means,
or if such person before or after the holding of such meeting, waives such
notice.
23
<PAGE>
Any such waiver shall be in writing filed with the records of the meeting either
before or after the holding thereof.
ARTICLE X
VOTING OF STOCK IN OTHER CORPORATIONS
Any stock in other corporations, which may from time to time be held by the
Corporation, may be represented and voted at any meeting of stockholders of such
other corporations by the President or a Vice-President or by proxy or proxies
appointed by the President or a Vice- President, or otherwise pursuant to
authorization thereunto given by a resolution of the Board of Directors adopted
by a vote of a majority of the directors.
ARTICLE XI
INDEMNIFICATION
The Corporation shall indemnify (a) its directors and officers, whether
serving the Corporation or at its request any other entity, to the full extent
required or permitted by (i) Maryland law now or hereafter in force, and (ii)
the 1940 Act, including the advance of expenses under the procedures and to the
full extent permitted by law, and (b) other employees and agents to such extent
as shall be authorized by the Board of Directors and be permitted by law. The
24
<PAGE>
foregoing rights of indemnification shall not be exclusive of any other rights
to which those seeking indemnification may be entitled. The Board of Directors
may take such action as is necessary to carry out these indemnification
provisions and is expressly empowered to adopt, approve and amend from time to
time such resolutions or contracts implementing such provisions or such further
indemnification arrangements as may be permitted by law.
ARTICLE XII
INDEPENDENT PUBLIC ACCOUNTANTS
The Corporation shall employ an independent public accountant or a firm of
independent public accountants as its accountants to examine the accounts of the
Corporation and to sign and certify financial statements filed by the
Corporation.
ARTICLE XIII
AMENDMENTS
These Bylaws may be added to, altered, amended, repealed or suspended by a
vote of a majority of the Board of Directors at any regular or special meeting
of the Board.
25
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EXHIBIT 5.1
INVESTMENT ADVISORY AGREEMENT AND ADDENDUMS TO
AGREEMENT BETWEEN REGISTRANT AND AMERICAN UNITED
LIFE INSURANCE COMPANY AND THE EXPENSE LIMITATION
AGREEMENT BETWEEN REGISTRANT AND AMERICAN UNITED
LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
INVESTMENT ADVISORY AGREEMENT
Agreement made this 8th day of March, 1990, between AUL American Series
Fund, Inc. (the "Fund") and American United Life Insurance Company (the
"Adviser").
WITNESSETH:
WHEREAS, the Fund is an open-end, diversified management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), the securities of which are registered under the Securities Act of 1933,
as amended (the "1933 Act"); and
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended (the "Advisers Act"); and
WHEREAS, the Fund is authorized to issue shares of common stock ("Shares")
in separate classes or portfolios, with each such portfolio representing
interests in a separate portfolio of securities and other assets; and
WHEREAS, the Fund has initially established four portfolios, designated the
AUL American Equity Portfolio, the AUL American Bond Portfolio, the AUL American
Money Market Portfolio, and the AUL American Managed Portfolio, such portfolios
together with all other portfolios subsequently established by the Fund with
respect to which the Fund desires to retain the Adviser to render investment
advisory services hereunder and with respect to which the Adviser is willing so
to do being herein collectively referred to as the "Portfolios"; and
WHEREAS, the Fund and the Adviser have entered into an agreement dated
March 8TH 1990 (the "Expense Assumption Agreement"), pursuant to which the
Adviser has agreed, during the term of the Expense Assumption Agreement, first,
to reduce its advisory fee, and then to pay amounts equal to all or a part of
certain Fund expenses, to the extent necessary to prevent the ordinary operating
expenses of any of the Portfolios from exceeding 1 0% of the Portfolio's average
daily net assets during the year
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties as follows:
1. APPOINTMENT. The Fund hereby appoints the Adviser to act as investment
adviser to the Fund with respect to the Portfolios for the period and on the
terms set forth in this Agreement The Adviser accepts such appointment and
agrees to render the services herein set forth, for the compensation herein
provided.
<PAGE>
In the event the Fund establishes one or more additional Portfolios with
respect to which it desires to retain the Adviser to render management and
investment advisory services hereunder, it shall notify the Adviser in writing.
If the Adviser is willing to render such services, it shall notify the Fund in
writing, whereupon such class shall become a Portfolio hereunder.
2. ADVISER'S DUTIES. (a) Subject to the supervision of the Fund's Board of
Directors, the Adviser will provide a continuous investment program for the
Portfolios and determine the composition of the assets of the Portfolios,
including determination of the purchase, retention, or sale of the securities,
cash, and other investments contained in the Portfolios. The Adviser will
provide investment research and conduct a continuous program of evaluation,
investment, sales, and reinvestment of the Portfolios' assets by determining the
securities and other investments that shall be purchased, entered into, sold,
closed, or exchanged for the Portfolios, when these transactions should be
executed, and what portion of the assets of the Portfolios should be held in the
various securities and other investments in which they may invest, and the
Adviser is hereby authorized to execute and perform such services on behalf of
the Portfolios. To the extent permitted by the investment policies of a
Portfolio, the Adviser shall make decisions for the Portfolios as to foreign
currency matters and make determinations as to and execute and perform foreign
currency exchange contracts on behalf of the Portfolios. The Adviser will
provide the services under this Agreement in accordance with each Portfolio's
investment objective or objectives, policies, and restrictions as stated in the
Fund's Registration Statement filed with the Securities and Exchange Commission
("SEC"), as amended, and with the 1940 Act and the provisions of the Internal
Revenue Code relating to regulated investment companies, subject to policy
decisions adopted by the Fund's Board of Directors.
(b) The Adviser also shall provide to the officers of the Fund
administrative assistance in connection with the operation of the Fund and the
Portfolios, which shall include (i) compliance with all reasonable requests of
the Fund for information, including information required in connection with the
Fund's filings with the SEC and state securities or insurance commissions, and
(ii) such other services as the Fund's officers shall, from time to time,
determine to be necessary or useful to the administration of the Fund and the
Portfolios.
(c) The Adviser shall place orders for the purchase and sale of securities,
futures and options contracts, and other assets. The Adviser is authorized to
select brokers, dealers, and futures commission merchants and to open and
maintain
<PAGE>
brokerage accounts and trading accounts for the purchase and sale of securities
and futures and options contracts with such broker dealers and futures
commission merchants for and on behalf of the Portfolios in accordance with any
procedures established by the Adviser and the Fund's Board of Directors.
(d) The Adviser shall furnish to the Fund's Board of Directors periodic
reports on the investment performance of the Fund and its Portfolios and on the
performance of its obligations under this Agreement and shall supply such
additional reports and information as the Fund's officers or Board of Directors
shall reasonably request.
(e) On occasions when the Adviser deems the purchase or sale of a security
to be in the best interest of a Portfolio as well as other of its clients or
accounts, the Adviser, to the extent permitted by applicable law, may aggregate
the securities to be so sold or purchased in order to obtain the best execution
or lower brokerage commissions, if any. The Adviser may also, on occasion,
purchase or sell a particular security for one or more clients or accounts in
different amounts. On either occasion, and to the extent permitted by applicable
law and regulations, allocation of the securities so purchased or sold, as well
as the expenses incurred in the transaction, will be made by the Adviser in a
manner that is fair and equitable in the judgment of the Adviser and consistent
with its fiduciary obligations to the Fund and to such other customers or
accounts.
(f) The Adviser's primary consideration in effecting a security transaction
for a Portfolio will be to obtain the best execution for the Portfolio, taking
into account the factors specified in the prospectus and statement of additional
information for the Fund, which include, among other things, price (including
the applicable brokerage commission or dollar spread), the size of the order,
the nature of the market for the security, the timing of the transaction, the
reputation, the experience and financial stability of the broker-dealer
involved, the quality of the service, the difficulty of execution, and the
execution capabilities and operational facilities of the firm involved, and the
firm's risk in positioning a block of securities. Accordingly, the price to a
Portfolio in any transaction may be less favorable than that available from
another broker-dealer if the difference is reasonably justified, in the judgment
of the Adviser in the exercise of its fiduciary obligations to the Fund, by
other aspects of the execution services offered. Subject to such policies as the
Board of Directors may determine and consistent with Section 28(e) of the
Securities Exchange Act of 1934, the Adviser shall not be deemed to have acted
unlawfully or to have breached any duty created by this Agreement or otherwise
solely by reason of its having caused
<PAGE>
a Portfolio to pay a broker-dealer for effecting an investment transaction in
excess of the amount of commission another broker-dealer would have charged for
effecting that transaction, if the Adviser determines in good faith that such
amount of commission was reasonable in relation to the value of the brokerage
and research services provided by such broker-dealer, viewed in terms of either
that particular transaction or the Adviser's overall responsibilities with
respect to the Portfolio and to its other clients and/or accounts as to which it
exercises investment discretion. To the extent consistent with these standards,
the Adviser is further authorized to allocate the orders placed by it on behalf
of a Portfolio to the Adviser if it is registered as a broker-dealer with the
SEC, to its affiliated broker-dealer, or to such brokers and dealers who also
provide research or statistical material, or other services to the Fund, the
Adviser, or an affiliate of the Adviser.. Such allocation shall be in such
amounts and proportions as the Adviser shall determine consistent with the above
standards, and the Adviser will report on said allocation regularly to the Board
of Directors of the Fund indicating the broker-dealers to which such allocations
have been made and the basis therefor.
(g) In connection with the purchase and sale of securities of each
Portfolio, the Adviser will arrange for the transmission to the Fund's Custodian
or other agent on a daily basis, such confirmations, trade tickets and other
documents and shall provide information reasonably requested by the Fund's
Custodian or other agent for helping such agent perform its administrative
responsibilities to the Fund, including the responsibility to identify
securities to be purchased or sold by the Fund, to determine the value of the
Fund's portfolio securities and other assets and to determine the Fund's net
asset. value per share. With respect to portfolio securities to be purchased or
sold through the Depository Trust Company, the Adviser will arrange for the
automatic transmission of the confirmation of such trades to the Fund's
Custodian.
(h) The Adviser shall, at its expense, (i) employ or associate with itself
such persons as it believes appropriate to assist it in performing its
obligations under this Agreement and (ii) provide all services, equipment and
facilities necessary to perform its obligations under this Agreement.
(i) Subject to the approval of the Fund's Board of Directors and, to the
extent required by law, the shareholders of Portfolios, the Adviser may contract
with such other parties as it deems appropriate to obtain investment research,
information, investment advisory and management services and other assistance,
but any fees, compensation or expenses to be paid to any such
<PAGE>
party shall be paid by the Adviser, and no obligation shall be incurred on the
Fund's behalf in any respect.
3. LIMITATION OF LIABILITY. The Adviser shall give the Fund the benefit of
the Adviser's best judgment and efforts in rendering services under this
Agreement. As an inducement to the Adviser's undertaking to render these
services, the Fund agrees that the Adviser shall not be liable under this
Agreement for any mistake in judgment or in any other event whatsoever, provided
that nothing in this Agreement shall be deemed to protect or purport to protect
the Adviser against any liability to the Fund or its shareholders to which the
Adviser would otherwise be subject by reason of willful misfeasance, bad faith
or gross negligence in the performance of the Adviser's duties under this
Agreement or by reason of the Adviser's reckless disregard of its obligations
and duties hereunder.
4. EXPENSES. The Fund shall be responsible for all of its expenses and
liabilities, including compensation of its directors who are not interested
persons of the Adviser (as defined in the 1940 Act); taxes and governmental
fees; interest charges; fees and expenses of the Fund's independent accountants
and legal counsel; trade association membership dues; fees and expenses of any
custodian (including maintenance of books and accounts and calculation of the
net asset value of the Fund's Shares), transfer agent, registrar and dividend
disbursing agent of the Fund; expenses of issuing, selling, redeeming,
registering and qualifying the Shares for sale; expenses of preparing and
printing Share certificates, prospectuses and reports to if shareholders,
notices, proxy statements and reports to regulatory agencies; the cost of office
supplies, including stationery; travel expenses of all officers, directors and
employees; insurance premiums; brokerage and other expenses of executing
Portfolio transactions; expenses of shareholders' meetings; organizational
expenses; and extraordinary expenses.
5. RECORDS. The Adviser agrees to maintain and to preserve for the periods
prescribed under the 1940 Act any such records as are required to be maintained
by the Adviser with respect to the Fund by the 1940 Act. The Adviser further
agrees that all records which it maintains for the Fund are the property of the
Fund and it will promptly surrender any of such records upon request.
6. COMPENSATION. In consideration of the services to be rendered by the
Adviser under this Agreement, the Fund shall pay the Adviser a fee with respect
to each Portfolio, calculated and accrued daily and paid each month, according
to the following formula: (A) an amount at an annual rate of 0.50% of the
average daily net assets of the Portfolio; (B) minus, until the later of
<PAGE>
the Termination of the Expense Assumption Agreement or December 31, 1990, the
amount by which the Portfolio's aggregate ordinary operating expenses exceed
1.0% of the Portfolio's average daily net assets during the year, but in no
event more than the amount described in (A), above (the "Reduced Amount"), if
any; and (C) plus, if the aggregate ordinary operating expenses of the Portfolio
are less than 1.0% of the Portfolio's average daily net assets during the year
and if this Agreement is still in effect, the lesser of (i) any Reduced Amount
attributable to any of the preceding five years that has not been previously
reflected in a fee increase received by the Adviser, with such Reduced Amounts
considered in the chronological order of their occurrence, or (ii) an amount
which, when added to the Portfolio's other ordinary operating expenses, will
cause the Portfolio's total ordinary operating expenses to equal 1.0% of the
Portfolio's average daily net assets during the year For purposes of this
provision, ordinary operating expenses shall not include interest, taxes,
brokerage commissions, legal claims and liabilities, litigation costs and
indemnification payments in connection with litigation, and other extraordinary
expenses.
7. TERM OF AGREEMENT. (a) This Agreement shall become effective as of the
date indicated above and shall continue in effect until March 8th, 1992. If not
sooner terminated, this Agreement shall continue in effect for successive
periods of 12 months each thereafter, provided that each such continuance shall
be specifically approved at least annually (i) by the vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of the Portfolios or
by the Fund's Board of Directors and (ii) by the vote, cast in person at a
meeting called for the purpose, of a majority of the Fund's Directors who are
not parties to this Agreement or "interested persons" (as defined in the 1940
Act) of any such party.
(b) This Agreement may be terminated with respect to one or more Portfolios
at any time, without the payment of any penalty, by a vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of the Portfolios or
by a vote of a majority of the Fund's entire Board of Directors on 60 days'
written notice to the Adviser or by the Adviser on 60 days' written notice to
the Fund. This Agreement shall terminate automatically in the event of its
assignment (as defined in the 1940 Act and any rules thereunder).
8. AGREEMENT NOT EXCLUSIVE. (a) Except to the extent necessary to perform
the Adviser's obligations under this Agreement, nothing herein shall be deemed
to limit or restrict the right of the Adviser, or any affiliate of the Adviser,
or any employee of the Adviser, to engage in any other business or to devote
time and attention to the management or other aspects of
<PAGE>
any other business, whether of a similar or dissimilar nature, or to render
services of any kind to any other corporation, firm, individual or association.
(b) The investment management services of the Adviser to the Fund under
this Agreement are not to be deemed exclusive as to the Adviser and the Adviser
will be free to render similar services to others.-
9. CONTROLLING LAW. This Agreement shall be construed in accordance with
the laws of the State of Indiana, provided that nothing herein shall be
construed in a manner inconsistent with the 1940 Act.
10. NOTICES. Notices of any kind to be given to the Adviser by the Fund
shall be in writing and shall be duly given if mailed or delivered to the
Adviser at One American Square, Indianapolis, Indiana 46282, attention Richard
A. Wacker, or at such other address or to such individual as shall be specified
by the Adviser to the Fund. Notices of any kind to be given to the Fund by the
Adviser shall be in writing and shall be duly given if mailed or delivered to
One American Square, Indianapolis, Indiana 46282, Attention Richard A. Wacker,
or at such other address or to such individual as shall be specified by the Fund
to the Adviser.
11. USE OF THE NAME "AUL". The Fund acknowledges that all rights in the
name "AUL" are owned by the Adviser. In the event this Agreement is terminated
and the Adviser no longer acts as Adviser to the Fund, the Adviser reserves the
right to withdraw from the Fund the use of the name "AUL" or any name
misleadingly implying a continuing relationship between the Fund and the Adviser
or any of its affiliates.
IN WITNESS WHEREOF, the parties hereto have caused the Agreement to be duly
executed by their duly authorized officers.
AUL AMERICAN SERIES Fund, Inc.
AMERICAN UNITED LIFE INSURANCE COMPANY(R)
By: /s/ James W. Murphy
- -----------------------
Title: James W. Murphy, Chairman
of the Board and President
Date: March 8, 1990
By: /s/ Jerry D. Semler
- -----------------------
Title: Jerry D. Semler, President
and Chief Executive Officer
Date: March 8, 1990
<PAGE>
American United Life Insurance Company
One American square
Indianapolis, Indiana 46204
AUL American Series Fund, Inc.
One American Square
Indianapolis, Indiana 46204
EXPENSE ASSUMPTION AGREEMENT
March 8, 1990
Dear Sirs:
For good and valuable consideration, we agree, in addition to providing the
advisory services specified in the Investment Advisory Agreement between
American United Life Insurance Company ("AUL") and AUL American Series Fund,
Inc. (the "Fund") dated March 8th 1990 (the "Investment Advisory Agreement"),
first, to reduce our advisory fee, and then to pay amounts equal to all or a
part of the following expenses, to the extent necessary to prevent the ordinary
operating expenses of any of the Fund's investment portfolios (the "Portfolios")
from exceeding 1.0% of the Portfolio's average daily net assets during the year:
(a) expenses of all audits by the Fund's independent public accountants;
(b) expenses of the Fund's transfer agent, registrar, dividend disbursing
agent, and shareholder recordkeeping services;
(c) expenses of the Fund's custodial services including recordkeeping
services provided by the custodian;
(d) expenses of maintaining the Fund's tax records;
(e) salaries and other compensation of any of the Fund's executive
officers and employees, if any, who are not officers, directors,
stockholders, or employees of AUL or an affiliate of AUL;
(f) costs and/or fees incident to meetings of the Fund's shareholders, the
preparation and mailings of prospectuses and reports of the Fund to
its shareholders, the filing of reports with regulatory bodies, the
maintenance of the Fund's existence,
<PAGE>
AUL American Series Fund, Inc.
March 8, 1990
Page 2
and the registration of shares with federal and state securities or
insurance authorities;
(g) the Fund's legal fees, including the legal fees related to the
registration and continued qualification of the Fund's shares for
sale;
(h) costs of printing stock certificates representing shares of the Fund;
(i) costs of services required to redeem, issue or repurchase shares of
the Fund;
(j) Directors' fees and expenses to directors who are not officers,
employees, or stockholders of AUL or any affiliate thereof;
(k) premiums payable under the fidelity bond required by Section 17(g) of
the Investment Company Act of 1940, as amended, or other insurance
premiums;
(1) association membership dues;
(m) organizational and offering expenses;
(n) costs of Portfolio pricing services, if any; and
(o) other ordinary operating expenses, as determined by AUL from time to
time.
The listed expenses do not include interest, taxes, brokerage commissions
and other transactional expenses, legal claims and liabilities, litigation costs
and indemnification payments in connection with litigation, or any other
extraordinary costs or expenses. It is agreed that the listed expenses are
incurred with respect to the Fund's business of investing in securities.
No modification or waiver of this agreement or any of its provisions
contained herein shall be binding upon either ~party, unless made in writing and
signed on behalf of each party by a duly authorized person. The Fund agrees that
it may not assign its rights or obligations under this Investment Advisory
Agreement without our prior consent and any assignment without our prior consent
shall be null and void.
<PAGE>
AUL American Series Fund, Inc.
March 8, 1990
Page 3
If accepted by you, this agreement shall be effective as of the date set
forth above and shall continue until December 31, 1990, and thereafter, from
month to month unless either (a) the Investment Advisory Agreement is terminated
or (b) either party terminates this agreement by giving the other party at least
30 days' prior written notice.
American United Life Insurance Company
By: /s/ Jerry D. Semler
-----------------------
Jerry D. Semler, President
and Chief Executive Officer
The foregoing is hereby accepted as
of the date hereof
AUL American Series Fund, Inc.
By: /s/ James W. Murphy
- -----------------------
James W. Murphy, Chairman
of the Board and President
<PAGE>
ADDENDUM TO INVESTMENT ADVISORY AGREEMENT
The Investment Advisory Agreement, made the 8th day of March, 1990, between
the AUL American Series Fund, Inc. (the "Fund"), a Maryland corporation, and
American United Life Insurance Company (the "Adviser"), a life insurance company
domiciled in Indiana, (the "Agreement") is hereby amended by the addition of the
provisions set forth in this addendum to the Agreement, which is made this
15th day of May, 1995.
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares of common stock in separate
portfolios with each such portfolio representing interests in a separate
portfolio of securities and other assets; and
WHEREAS, the Fund currently consists of four separate portfolios designated
as the AUL American Equity Portfolio, the AUL American Bond Portfolio, the AUL
American Money Market Portfolio, and the AUL American Managed Portfolio (each a
"Portfolio"); and
WHEREAS, the Fund intends to establish one additional Portfolio to be
designated as the Tactical Asset Allocation Portfolio; and
WHEREAS, the Fund desires to appoint the Adviser as investment adviser to
the Tactical Asset Allocation Portfolio under the provisions set forth in the
Agreement and in this Addendum to the Agreement; and
WHEREAS, the Adviser is willing to accept such appointment;
NOW THEREFORE, in consideration of the mutual promises and covenants
contained in this Addendum, it is agreed between the parties hereto as follows:
1. In addition to its responsibilities as specified in the Agreement, the
Fund hereby appoints the Adviser to provide investment advisory
services to the Tactical Asset Allocation Portfolio which, in addition
to all other Portfolios previously established, shall be deemed a
Portfolio under the Agreement, subject to the terms and conditions as
specified in the Agreement, including paragraph six (6),
"Compensation," as amended by this Addendum.
2. Paragraph six (6), ("Compensation") of the Agreement is amended by
adding the following underscored language to paragraph six (6), which
is restated as follows:
6. Compensation. In consideration of the services to be rendered by the
Adviser under this Agreement, the Fund shall pay the Adviser a fee
with respect to each of the AUL American Equity, AUL American Bond,
AUL American Money Market, and AUL American Managed Portfolios,
calculated and accrued daily and paid each month, according to the
following formula: (A) an amount
- 1 -
<PAGE>
at an annual rate of 0.50% of the average daily net assets of the
Portfolio; (B) minus, until the later of the Termination of the
Expense Assumption Agreement or December 31, 1990, the amount by which
the Portfolio's aggregate ordinary operating expenses exceed 1.0% of
the Portfolio's average daily net assets during the year, but in no
event more than the amount described in (A), above (the "Reduced
Amount"), if any; and (C) plus, if the aggregate ordinary operating
expenses of the Portfolio are less than 1.0% of the Portfolio's
average daily net assets during the year and if this Agreement is
still in effect, the lesser of (i) any Reduced Amount attributable to
any of the preceding five years that has not been previously reflected
in a fee increase received by the Adviser, with such Reduced Amounts
considered in the chronological order of their occurrence, or (ii) an
amount which, when added to the Portfolio's other ordinary operating
expenses, will cause the Portfolio's total ordinary operating expenses
to equal 1.0% of the Portfolio's average daily net assets during the
year. For purposes of this provision, ordinary operating expenses
shall not include interest, taxes, brokerage commissions, legal claims
and liabilities, litigation costs and indemnification payments in
connection with litigation, and other extraordinary expenses. In
consideration of the services to be rendered by the Adviser under this
Agreement, the Fund shall pay the Adviser a fee with respect to the
Tactical Asset Allocation Portfolio, calculated and accrued daily and
paid each month, equal at an annual rate of 0.80% of the average daily
net assets of such Portfolio.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed by their officers designated below on the date written above.
AUL AMERICAN SERIES FUND, INC.
Attest:
/s/ Richard A. Wacker By: /s/ James W. Murphy
- ------------------------- ------------------------
Richard A. Wacker James W. Murphy
Secretary Chairman of the Board of Directors
and President
AMERICAN UNITED LIFE INSURANCE COMPANY(R)
Attest:
/s/ William R. Brown By: /s/ Jerry D. Semler
- ------------------------- -----------------------
William R. Brown Jerry D. Semler
General Counsel and Secretary Chairman of the Board, President,
and Chief Executive Officer
- 2 -
<PAGE>
ADDENDUM TO INVESTMENT ADVISORY AGREEMENT
The Investment Advisory Agreement, made the 8th day of March, 1990 and
amended the 12th day of May, 1995, between the AUL American Series Fund, Inc.
(the "Fund"), a Maryland corporation, and American United Life Insurance
Company" (the "Adviser"), a life insurance company domiciled in Indiana, (the
"Agreement") is hereby amended by the addition of the provisions set forth in
this addendum to the Agreement, which is made this 19th day of November, 1997.
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares of Common Stock in separate
portfolios with each such portfolio representing interests in a separate
portfolio of securities and other assets; and
WHEREAS, the Fund currently consists of five separate portfolios designated
as the AUL American Equity Portfolio, the AUL American Bond Portfolio, the AUL
American Money Market Portfolio, the AUL American Managed Portfolio, and the AUL
American Tactical Asset Allocation Portfolio (each a "Portfolio"); and
WHEREAS, the Fund intends to establish three additional LifeStyle
Portfolios to be designated as the AUL American Conservative Investor Portfolio
(the "Conservative Investor Portfolio"), the AUL American Moderate Investor
Portfolio (the "Moderate Investor Portfolio"), and the AUL American Aggressive
Investor Portfolio (the "Aggressive Investor Portfolio"); hereinafter
collectively referred to as the "LifeStyle Portfolios" and
WHEREAS, the Fund desires to appoint the Adviser as investment adviser to
the LifeStyle Portfolios under the provisions set forth in the Agreement and in
this Addendum to the Agreement; and
WHEREAS, the Adviser is willing to accept such appointment;
NOW THEREFORE, in consideration of the mutual promises and covenants
contained in this Addendum, it is agreed between the parties hereto as follows:
1. In addition to its responsibilities as specified in the Agreement, the
Fund hereby appoints the Adviser to provide investment advisory services to the
LifeStyle Portfolios which, in addition to all other Portfolios previously
established, shall be deemed Portfolios under the Agreement, subject to the
terms and conditions as specified in the Agreement, including paragraph six (6),
" Compensation, " as amended by this Addendum.
2. Paragraph six (6), ("Compensation") of the Agreement is amended by
adding the following underscored language to paragraph six (6), which is
restated as follows:
6. Compensation. In consideration of the services to be rendered by the
Adviser under this Agreement, the Fund shall pay the Adviser a fee with respect
to each of the AUL American Equity, AUL American Bond, AUL American Money
Market, and AUL American Managed Portfolios, calculated and accrued daily and
paid each month, according to the following formula: (A) an amount at an annual
rate of 0.50% of the average daily net assets of the Portfolio; (B) minus, until
the later
<PAGE>
- 2 -
of the Termination of the Expense Assumption Agreement or December 31, 1990,
the amount by which the Portfolio's aggregate ordinary operating expenses exceed
1.0% of the Portfolio's average daily net assets during the year, but in no
event more than the amount described in (A), above (the "Reduced Amount"), if
any; and (C) plus, if the aggregate ordinary operating expenses of the Portfolio
are less than 1.0% of the Portfolio's average daily net assets during the year
and if this Agreement is still in effect, the lesser of (i) any Reduced Amount
attributable to any of the preceding five years that has not been previously
reflected in a fee increase received by the Adviser, with such Reduced Amounts
considered in the chronological order of their occurrence, or (ii) an amount
which, when added to the Portfolio's other ordinary operating expenses, will
cause the Portfolio's total ordinary operating expenses to equal 1.0% of the
Portfolio's average daily net assets during the year. For purposes of this
provision, ordinary operating expenses shall not include interest, taxes,
brokerage commissions, legal claims and liabilities, litigation costs and
indemnification payments in connection with litigation, and other extraordinary
expenses. In consideration of the services to be rendered by the Adviser under
this Agreement, the Fund shall pay the Adviser a fee with respect to the
Tactical Asset Allocation Portfolio, calculated and accrued daily and paid each
month, equal at an annual rate of 0. 80 % of the average daily net assets of
such Portfolio and a fee with respect to the LifeStyle Portfolios, calculated
and accrued daily and paid each month, equal at an annual rate of 0.70% of the
average daily net assets of such Portfolios.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed by their officers designated below on the date written above.
On Behalf of AUL AMERICAN SERIES FUND, INC.
Attest:
/s/ Richard A. Wacker By: /s/ James W. Murphy
- ------------------------- ------------------------
Richard A. Wacker James W. Murphy
Secretary Chairman of the Board of Directors
and President
AMERICAN UNITED LIFE INSURANCE COMPANY(R)
Attest:
/s/ William R. Brown By: /s/ Jerry D. Semler
- ------------------------- -----------------------
William R. Brown Jerry D. Semler
General Counsel and Secretary Chairman of the Board, President,
and Chief Executive Officer
- --------------------------------------------------------------------------------
EXHIBIT 5.2
SUB-ADVISORY AGREEMENT BETWEEN
AMERICAN UNITED LIFE INSURANCE COMPANY
AND DEAN INVESTMENT ASSOCIATES
- --------------------------------------------------------------------------------
SUB-ADVISORY AGREEMENT
FOR THE TACTICAL ASSET ALLOCATION
SERIES OF AUL AMERICAN SERIES FUND, INC.
AGREEMENT made as of this 15th day of May, 1995 among American United Life
Insurance Company(R) ("AUL"), a life insurance company domiciled in Indiana,
Dean Investment Associates ("Dean"), a division of C.H. Dean and Associates,
Inc., an Ohio corporation, and AUL American Series Fund, Inc. (the "Fund"), a
Maryland corporation, on behalf of the Tactical Asset Allocation Series of the
Fund.
WHEREAS, the Fund is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end, diversified management investment
company and is authorized to issue separate series, each series having its own
investment objective, policies and limitations;
WHEREAS, the Fund intends to offer shares in, among other series, the
Tactical Asset Allocation Series (the "Series");
WHEREAS, the Fund has retained AUL to render investment advisory
services to the Series pursuant to an Investment Advisory Agreement;
WHEREAS, AUL is a registered investment adviser under the Investment
Advisers Act of 1940, as amended ("Advisers Act"); and
WHEREAS, AUL and the Fund desire to retain Dean to furnish sub-advisory
services to the Series in connection with AUL's investment advisory activities
on behalf of the Series, and Dean is willing to furnish such services to AUL and
the Fund;
NOW THEREFORE, in consideration of the promises and mutual covenants herein
contained, it is agreed between AUL, Dean and the Fund as follows:
1. APPOINTMENT. AUL and the Fund hereby appoint Dean to act as Sub-Adviser to
the Series, for the periods and on the terms set forth in this Agreement.
Dean accepts such appointment and agrees to furnish the services herein set
forth, for the compensation herein provided.
In the event the Fund designates one or more of its series other than the
Series with respect to which AUL and the Fund desire to retain Dean to
render sub-advisory services hereunder, they shall notify Dean in writing.
If Dean is willing to render such services, it shall notify AUL and the
Fund in writing, whereupon such series shall become a Series hereunder, and
be subject to this Agreement.
- 1 -
<PAGE>
2. SUB-ADVISORY DUTIES. Subject to the supervision of AUL and the Fund's Board
of Directors, Dean will provide a continuous investment program for the
Series' portfolio, including investment research and management with
respect to all securities and investments and cash equivalents in the
portfolio. Dean will determine from time to time what securities and other
investments will be purchased, retained or sold by the Series. Dean will
provide the services under this Agreement in accordance with the Series'
investment objectives, policies and restrictions as stated in the Fund's
Registration Statement filed with the Securities and Exchange Commission
("SEC"), as amended from time to time. Dean agrees that it will:
(a) conform with all applicable rules and regulations of the 1940 Act, all
other applicable federal and state laws and regulations and with any
applicable procedures adopted by the Fund's Board of Directors;
(b) Dean will (1) manage the Series so that it will qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code,
(2) manage the Series so as to ensure compliance by the Series with
the diversification requirements of Section 817(h) of the Internal
Revenue Code and regulations issued thereunder, and (3) use reasonable
efforts to manage the Series so as to ensure compliance by the Series
with any other rules and regulations pertaining to investment vehicles
underlying variable annuity or variable life insurance policies. AUL
or the Fund will notify Dean of any pertinent changes, modifications
to, or interpretations of Section 817(h) of the Internal Revenue Code
and regulations issued thereunder.
(c) place orders pursuant to its investment determinations for the Series
either directly with the issuer or with any broker or dealer. Dean
will select brokers and dealers for and on behalf of the Series in
accordance with procedures established by AUL and approved by the
Fund's Board of Directors. In placing orders with brokers and dealers,
Dean will attempt to obtain the best net price and the most favorable
execution of its orders and shall comply with any criteria set forth
in the Fund's Registration Statement. Consistent with this obligation,
when, in its view, the execution and price offered by two or more
brokers or dealers are comparable, Dean may, in its discretion, and to
the extent consistent with applicable law, give preference to brokers
and dealers who provide it with research, statistical and other
related services;
- 2 -
<PAGE>
(d) on occasions when Dean deems the purchase or sale of a security to be
in the best interest of the Fund as well as other investment advisory
clients, Dean may, to the extent permitted by applicable laws and
regulations, but shall not be obligated to, aggregate the securities
to be so sold or purchased with those of its other clients where such
aggregation is not inconsistent with the policies set forth in the
Fund's Registration Statement. In such event, allocation of the
securities so purchased or sold, as well as the expenses incurred in
the transactions, will be made by Dean in the manner it considers to
be the most equitable and consistent with its fiduciary obligations to
the Fund and to such other clients, subject to review and supervision
by AUL and the Fund's Board of Directors;
(e) in connection with the purchase and sale of securities of the Series,
Dean will arrange for the transmission to the custodian for the Fund
on a daily basis, such confirmations, trade tickets and other
documents as may be necessary to enable the custodian to perform its
responsibilities with respect to the Series in connection with such
transactions. Such transmission may be automatic with respect to
portfolio securities to be purchased or sold through the Depository
Trust Company;
(f) assist the custodian and recordkeeping agent for the Fund in
determining or confirming, consistent with the procedures and policies
stated in the Fund's Registration Statement, the value of any
portfolio securities or other assets of the Series for which the
custodian and recordkeeping agent seeks assistance from or identifies
for review by Dean; and
(g) maintain and preserve for the periods prescribed under the 1940 Act
any such records as are required to be maintained by Dean with respect
to the Series by the 1940 Act. Dean further agrees that all records
which it maintains for the Series are the property of the Series and
it will promptly surrender any of such records upon request.
(h) Dean will not disclose any information relating to the Series'
portfolio transactions in any manner whatsoever except: (i) as
expressly authorized in this Agreement, (ii) in the ordinary course of
business in connection with placing orders for the purchase or sale of
securities, (iii) if authorized by the Board of Directors of the Fund,
or (iv) if expressly required to do so by federal or state regulatory
authorities.
- 3 -
<PAGE>
(i) Dean shall give AUL and the Fund the benefit of Dean's best judgment
and efforts in rendering services under this Agreement.
3. EXPENSES. During the term of this Agreement, Dean will pay all expenses
incurred by it and its staff in connection with its sub-advisory services
under this Agreement. This does not include costs payable by the Fund or
AUL as set forth in the Investment Advisory Agreement.
4. COMPENSATION. For the services provided by Dean, AUL will pay Dean fees
equal to (i) 55% of the fees received by AUL for services rendered under
the Investment Advisory Agreement by AUL to the Series during the term of
this Agreement, less (ii) 50% of the amount paid by AUL on behalf of the
Series pursuant to any expense limitation or the amount of any other
reimbursement made by AUL to the Series. In the event that this Agreement
shall be effective for only part of a period to which any such fee received
by AUL is attributable, then an appropriate pro- ration of the fee that
would have been payable hereunder if this Agreement had remained in effect
until the end of such period shall be made, based on the number of calendar
days in such period and the number of calendar days during the period in
which this Agreement was in effect. The fees payable to Dean hereunder
shall be payable upon receipt by AUL from the Series of advisory fees
payable to AUL.
5. REPRESENTATION AND WARRANTY. Dean represents and warrants that it is duly
registered as an investment adviser under the Advisers Act and agrees to
remain registered as long as this Agreement is in effect. Dean shall
immediately notify AUL and the Fund in the event that the SEC has censured
Dean, placed limitations upon its activities, suspended or revoked its
registration as an investment adviser, or commenced proceedings or an
investigation that may result in any of these actions.
6. SERVICES NOT EXCLUSIVE. It is understood that the services of Dean are not
exclusive, and nothing in this Agreement shall prevent Dean, or any of its
affiliates, from providing similar services to other clients.
7. DURATION AND TERMINATION. This Agreement shall become effective on the date
first designated above. Unless terminated as provided herein, the Agreement
shall remain in full force and effect for two years from such date and
continue on an annual basis thereafter with respect to a Series unless
terminated in accordance with the following sentence; provided that such
annual continuance is specifically approved each year after the initial two
year period, by (a) the vote of a majority of the entire Board of Directors
of the Fund, or by the vote of a majority of the
- 4 -
<PAGE>
outstanding voting securities of the Series (as defined in the 1940 Act),
and (b) the vote of a majority of those Directors who are not parties to
this Agreement or interested persons (as such term is defined in the 1940
Act) of any such party to this Agreement cast in person at a meeting called
for the purpose of voting on such approval. In the event this Agreement is
not approved with respect to a Series in the manner described in the
preceding sentence, Dean shall not provide any services for such Series or
receive any fees on account of such Series. Notwithstanding the foregoing,
this Agreement may be terminated with respect to a Series: (a) by AUL at
any time without penalty, upon sixty (60) days' written notice to Dean and
the Fund (b) by the Fund at any time without penalty, upon the vote of a
majority of the Fund's Board of Directors or a majority of the outstanding
voting securities of the Series, upon sixty (60) days' written notice to
Dean, or (c) by Dean at any time without penalty, upon six (6) months'
written notice to AUL and the Fund. In the event of termination for any
reason, all records of each Series for which the Agreement is terminated
shall promptly be returned to AUL or the Fund, free from any claim or
retention of rights by Dean. The Agreement shall automatically terminate in
the event of its assignment (as such term is defined in the 1940 Act).
8. AMENDMENTS. This Agreement may be amended only by an instrument in writing
signed by each party, and no amendment of this Agreement shall be effective
until approved by an affirmative vote of (i) the holders of a majority of
the outstanding voting securities of the Series as defined in the 1940 Act,
and (ii) the Directors of the Fund, including a majority of the Directors
of the Fund who are not interested persons of any party to this Agreement,
cast in person at a meeting called for the purpose of voting on such
approval, if such approval is required by applicable law.
9. USE OF NAME. It is understood that the names "American United" and "AUL" or
any derivative thereof or logo associated with those names is the valuable
property of AUL and its affiliates, and that the Fund and/or the Series
have the right to use such names (or derivative or logo) only so long as
AUL is Investment Adviser to the Fund and/or the Series. Upon termination
of the Investment Advisory Agreement between the Fund (or Series) and AUL,
the Fund (or Series) shall forthwith cease to use such names (or derivative
or logo) and, in the case of the Fund, shall promptly amend its Articles of
Incorporation to change its name.
It is understood that the name "Dean" or any derivative thereof or logo
associated with that name is the valuable property of Dean and its
affiliates and that the Fund and/or the Series have the right to use such
name (or derivative or logo) in offering materials of the Fund with the
approval of Dean and for so long as Dean is Sub- Adviser to the Fund and/or
the Series. Upon termination of this Agreement between the Fund (or Series)
AUL and the Fund (or Series) shall forthwith cease to use such name (or
derivative or logo).
10. MISCELLANEOUS
(a) This Agreement shall be governed by the laws of the State of Indiana,
provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, the Advisers Act or rules or orders of
the SEC thereunder.
(b) The captions of this Agreement are included for convenience only and
in no way define or limit any of the provisions hereof or otherwise
affect their construction or effect.
(c) If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby, and to this extent, the
provisions of this Agreement shall be deemed to be severable.
(d) Nothing herein shall be construed as constituting Dean as an agent of
AUL.
- 5 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed as of the day and year first above written.
AMERICAN UNITED LIFE INSURANCE COMPANY(R)
By: /s/ Jerry D. Semler
- --------------------------------
Jerry D. Semler, Chairman of the
Board, President, and Chief
Executive Officer
DEAN INVESTMENT ASSOCIATES, INC.
A division of C.H. Dean and Associates, Inc.
By: /s/ Chauncey H. Dean
- --------------------------------
Chauncey H. Dean, Chairman,
Chief Executive Officer
AUL AMERICAN SERIES FUND, INC.
By: /s/ James W. Murphy
- --------------------------------
James W. Murphy
Chairman of the Board of Directors
and President
- 6 -
- --------------------------------------------------------------------------------
EXHIBIT 5.3
SUB-ADVISORY AGREEMENT BETWEEN
AMERICAN UNITED LIFE INSURANCE COMPANY
AND BEA ASSOCIATES
- --------------------------------------------------------------------------------
SUB-ADVISORY AGREEMENT
FOR THE LIFESTYLE SERIES OF
AUL AMERICAN SERIES FUND, INC.
AGREEMENT made as of this 10th day of February, 1998, among American United
Life Insurance Company(R) ("AUL"), a life insurance company domiciled in
Indiana, BEA Associates, a member of Credit Suisse Management ("BEA" or the
"Sub-Advisor"), a New York General Partnership, and AUL American Series Fund,
Inc. (the "Fund"), a Maryland corporation, on behalf of certain Series of the
Fund.
WHEREAS, the Fund is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end, diversified management investment
company and is authorized to issue separate series, each series having its own
investment objective, policies and limitations;
WHEREAS, the Fund intends to offer shares in, among other series, the AUL
American Conservative Investor Portfolio (the "Conservative Investor
Portfolio"), the AUL American Moderate Investor Portfolio (the "Moderate
Investor Portfolio"), and the AUL American Aggressive Investor Portfolio (the
"Aggressive Investor Portfolio") hereinafter collectively referred to as the
"LifeStyle Portfolios" or the "Series"; and
WHEREAS, the Fund has retained AUL to render investment advisory services
to the Series pursuant to an Investment Advisory Agreement;
WHEREAS, AUL is a registered investment adviser under the Investment
Advisers Act of 1940, as amended ("Advisers Act"); and
WHEREAS, AUL and the Fund desire to retain BEA Associates to furnish
sub-advisory services to the Series in connection with AUL's investment advisory
activities on behalf of the Series, and BEA is willing to furnish such services
to AUL and the Fund;
NOW THEREFORE, in consideration of the promises and mutual covenants herein
contained, it is agreed between AUL, BEA, and the Fund as follows:
1. APPOINTMENT. AUL and the Fund hereby appoint BEA to act as Sub-Adviser to
the Series, for the periods and on the terms set forth in this Agreement.
BEA accepts such appointment and agrees to furnish the services herein set
forth, for the compensation herein provided.
In the event the Fund designates one or more of its series other than the
Series with respect to which AUL and the Fund desire to retain BEA to
render sub-advisory
- 1 -
<PAGE>
services hereunder, they shall notify BEA in writing. If the Sub-Adviser is
willing to render such services, it shall notify AUL and the Fund in
writing, whereupon such series shall become a Series hereunder, and be
subject to this Agreement.
2. SUB-ADVISORY DUTIES. Subject to the asset allocation set forth from time to
time by AUL, the supervision of AUL and the Fund's Board of Directors, BEA
will provide a continuous investment program for a portion of the Series'
portfolios, including investment research and management with respect to
securities and investments and cash equivalents in the portfolios. As to
the portion of the assets managed by the Sub- Adviser, the Sub-Adviser will
determine from time to time what securities and other investments will be
purchased, retained or sold by the Series. The Sub-Adviser will provide the
services under this Agreement in accordance with the Series' investment
objectives, policies and restrictions as stated in the Fund's Registration
Statement filed with the Securities and Exchange Commission ("SEC"), as
amended from time to time. The Sub-Adviser agrees that:
(a) it will conform with all applicable rules and regulations of the 1940
Act, all other applicable federal and state laws and regulations and
with any applicable procedures adopted by the Fund's Board of
Directors, provided that such procedures are communicated to it by
AUL;
(b) the Sub-Adviser will (1) manage the Series so that each series will
qualify as a regulated investment company under Subchapter M of the
Internal Revenue Code, (2) manage the Series so as to ensure
compliance by the Series with the diversification requirements of
Section 817(h) of the Internal Revenue Code and regulations issued
thereunder, and (3) use reasonable efforts to manage the Series so as
to ensure compliance by the Series with any other rules and
regulations pertaining to investment vehicles underlying variable
annuity or variable life insurance policies. AUL or the Fund will
notify the Sub-Adviser of any pertinent changes, modifications to, or
interpretations of Section 817(h) of the Internal Revenue Code and
regulations issued thereunder.
(c) it will place orders pursuant to its investment determinations for the
Series either directly with the issuer or with any broker or dealer.
The Sub-Adviser will select brokers and dealers for and on behalf of
the Series in accordance with procedures established by AUL and
approved by the Fund's Board of Directors. In placing orders with
brokers and dealers, the Sub-Adviser will attempt to obtain the best
net price and the most favorable execution of its orders and shall
comply with any criteria set forth in the Fund's Registration
- 2 -
<PAGE>
Statement. Consistent with this obligation, when, in its view, the
execution and price offered by two or more brokers or dealers are
comparable, the Sub- Adviser may, in its discretion, and to the extent
consistent with applicable law, give preference to brokers and dealers
who provide it with research, statistical and other related services;
(d) on occasions when Sub-Adviser deems the purchase or sale of a security
to be in the best interest of the Fund as well as other investment
advisory clients, it may, to the extent permitted by applicable laws
and regulations, but shall not be obligated to, aggregate the
securities to be so sold or purchased with those of its other clients
where such aggregation is not inconsistent with the policies set forth
in the Fund's Registration Statement. In such event, allocation of the
securities so purchased or sold, as well as the expenses incurred in
the transactions, will be made by the Sub-Adviser in the manner it
considers to be the most equitable and consistent with its fiduciary
obligations to the Fund and to such other clients, subject to review
and supervision by AUL and the Fund's Board of Directors;
(e) in connection with the purchase and sale of securities of the Series,
the Sub- Adviser will arrange for the transmission to the custodian
for the Fund on a daily basis, such confirmations, trade tickets and
other documents as may be necessary to enable the custodian to perform
its responsibilities with respect to the Series in connection with
such transactions. Such transmission may be automatic with respect to
portfolio securities to be purchased or sold through the Depository
Trust Company;
(f) The Sub-Adviser will assist the custodian and recordkeeping agent for
the Fund in determining or confirming, consistent with the procedures
and policies stated in the Fund's Registration Statement, the value of
any portfolio securities or other assets of the Series for which the
custodian and recordkeeping agent seeks assistance from or identifies
for review by the Sub-Adviser; and
(g) The Sub-Adviser will maintain and preserve for the periods prescribed
under the 1940 Act any such records as are required to be maintained
by the Sub-Adviser with respect to the Series by the 1940 Act. The
Sub-Adviser further agrees that all records which it maintains for the
Series are the property of the Series and it will promptly surrender
any of such records upon request.
- 3 -
<PAGE>
(h) The Sub-Adviser will not disclose any information relating to the
Series' portfolio transactions in any manner whatsoever except: (i) as
expressly authorized in this Agreement, (ii) in the ordinary course of
business in connection with placing orders for the purchase or sale of
securities, (iii) if authorized by the Board of Directors of the Fund,
or (iv) if expressly required to do so by federal or state regulatory
authorities.
(i) The Sub-Adviser shall give AUL and the Fund the benefit of its best
judgment and efforts in rendering services under this Agreement.
3. EXPENSES. During the term of this Agreement, the Sub-Adviser will pay all
expenses incurred by it and its staff in connection with its sub-advisory
services under this Agreement. This does not include costs payable by the
Fund or AUL as set forth in the Investment Advisory Agreement.
4. COMPENSATION. For the services provided by BEA, AUL will pay the
Sub-Adviser a portion of the fees received by AUL as Adviser. The portion
of the fees paid to the Sub-Adviser shall be based on the amount invested
each month by the Sub-Adviser according to the asset allocation established
by AUL and based on the market value of the aggregate amount of domestic
growth equities and international equities in the LifeStyle Portfolios as
follows:
Domestic Equities:
-----------------
0.60% on the first $25 million of assets
0.55% on the next $25 million of assets
0.50% on the next $25 million of assets
0.45% thereafter
International Equities:
-----------------------
0.80% on the first $25 million of assets
0.70% on the next $25 million of assets
0.60% thereafter
In the event that this Agreement shall be effective for only part of a
period to which any such fee received by AUL is attributable, then an
appropriate pro-ration of the fee that would have been payable hereunder if
this Agreement had remained in effect until the end of such period shall be
made, based on the number of calendar days in such period and the number of
calendar days during the period in which this Agreement was in effect.
5. REPRESENTATION AND WARRANTY. The Sub-Adviser represents and warrants that
it is duly registered as an investment adviser under the Advisers Act and
agrees to remain registered as long as this Agreement is in effect. The
Sub-Adviser shall immediately
- 4 -
<PAGE>
notify AUL and the Fund in the event that the SEC has censured the
Sub-Adviser, placed limitations upon its activities, suspended or revoked
its registration as an investment adviser, or commenced proceedings or an
investigation that may result in any of these actions.
6. SERVICES NOT EXCLUSIVE. It is understood that the services of the
Sub-Adviser are not exclusive, and nothing in this Agreement shall prevent
the Sub-Adviser, from providing similar services to other clients.
7. DURATION AND TERMINATION. This Agreement shall become effective on the date
first designated above. Unless terminated as provided herein, the Agreement
shall remain in full force and effect for one year from such date and
continue on an annual basis thereafter with respect to a Series unless
terminated in accordance with the following sentence; provided that such
annual continuance is specifically approved each year after the initial one
year period, by (a) the vote of a majority of the entire Board of Directors
of the Fund, or by the vote of a majority of the outstanding voting
securities of the Series (as defined in the 1940 Act), and (b) the vote of
a majority of those Directors who are not parties to this Agreement or
interested persons (as such term is defined in the 1940 Act) of any such
party to this Agreement cast in person at a meeting called for the purpose
of voting on such approval. In the event this Agreement is not approved
with respect to a Series in the manner described in the preceding sentence,
the Sub-Adviser shall not provide any services for such Series or receive
any fees on account of such Series. Notwithstanding the foregoing, this
Agreement may be terminated with respect to a Series: (a) by AUL at any
time without penalty, upon sixty (60) days' written notice to the
Sub-Adviser and the Fund (b) by the Fund at any time without penalty, upon
the vote of a majority of the Fund's Board of Directors or a majority of
the outstanding voting securities of the Series, upon sixty (60) days'
written notice to the Sub-Adviser, or (c) by the Sub-Adviser at any time
without penalty, upon six (6) months' written notice to AUL and the Fund.
In the event of termination for any reason, all records of each Series for
which the Agreement is terminated shall promptly be returned to AUL or the
Fund, free from any claim or retention of rights by the Sub-Adviser. The
Agreement shall automatically terminate in the event of its assignment, as
such term is defined in the 1940 Act.
8. Amendments. This Agreement may be amended only by an instrument in writing
signed by each party, and no amendment of this Agreement shall be effective
until approved by an affirmative vote of (i) the holders of a majority of
the outstanding voting securities of the Series as defined in the 1940 Act,
and (ii) the Directors of the Fund, including a majority of the Directors
of the Fund who are not interested persons
- 5 -
<PAGE>
of any party to this Agreement, cast in person at a meeting called for the
purpose of voting on such approval, if such approval is required by
applicable law.
9. USE OF NAME. It is understood that the names "American United" and "AUL" or
any derivative thereof or logo associated with those names is the valuable
property of AUL and its affiliates, and that the Fund and/or the Series
have the right to use such names (or derivative or logo) only so long as
AUL is Investment Adviser to the Fund and/or the Series. Upon termination
of the Investment Advisory Agreement between the Fund (or Series) and AUL,
the Fund (or Series) shall forthwith cease to use such names (or derivative
or logo) and, in the case of the Fund, shall promptly amend its Articles of
Incorporation to change its name.
It is understood that the name "BEA Associates, a member of Credit Suisse
Asset Management" or any derivative thereof or logo associated with that
name is the valuable property of the Sub-Adviser and its affiliates and
that the Fund and/or the Series have the right to use such name (or
derivative or logo) in offering materials of the Fund with the approval of
the Sub-Adviser and for so long as BEA is the Sub-Adviser to the Fund
and/or the Series. Upon termination of this Agreement between the Fund (or
Series) AUL and the Fund (or Series) shall forthwith cease to use such name
(or derivative or logo).
10. MISCELLANEOUS
(a) This Agreement shall be governed by the laws of the State of Indiana,
provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, the Advisers Act or rules or orders of
the SEC thereunder.
(b) The captions of this Agreement are included for convenience only and
in no way define or limit any of the provisions hereof or otherwise
affect their construction or effect.
(c) If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby, and to this extent, the
provisions of this Agreement shall be deemed to be severable.
(d) Nothing herein shall be construed as constituting the Sub-Adviser as
an agent of AUL.
- 6 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed as of the day and year first above written.
AMERICAN UNITED LIFE INSURANCE COMPANY(R)
By: /s/ Jerry D. Semler
- ------------------------
Jerry D. Semler, Chairman of the Board, President,
and Chief Executive Officer
AUL AMERICAN SERIES FUND, INC.
By: /s/ James W. Murphy
- ------------------------
James W. Murphy, Chairman of the Board of
Directors and President
BEA ASSOCIATES, a Member of Credit Suisse Management, by:
/s/ Hal Liebes
- ------------------------
Hal Liebes
General Counsel
- 7 -
- --------------------------------------------------------------------------------
EXHIBIT 8
FORM OF CUSTODY AGREEMENT BETWEEN
REGISTRANT AND BANK OF NEW YORK,
FEE SCHEDULES, AND AMENDMENTS
- --------------------------------------------------------------------------------
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,
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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>
WORLDWIDE SECURITIES PROCESSING SERVICES
M U T U A L F U N D S
DOMESTIC CUSTODY FEE SCHEDULE
FOR THE
AUL AMERICAN SERIES FUND, INC.
PORTFOLIOS AS
IDENTIFIED ON THE ATTACHED
SCHEDULE I
SAFEKEEPING/INCOME COLLECTION/All REPORTING/DTC-ID AFFIRMATIONS/TRANSMISSION OF
POSITIONS
1 basis point, per annum, on the first $100 million of the net asset
value of portfolio securities.
1/2 basis point on the excess.
CASH RESERVE AND INTEREST ON OVERDRAFTS
Cash Reserve is a Demand Cash Account of The Bank of New York. On a daily basis,
available balances are automatically swept into the Cash Reserve as the last
transaction of the evening for the exact dollar amount available for investment.
Earnings are indexed to The Bank of New York cost of funds and overdrafts, are
computed at 1% above the Federal Funds rate on the day of the overdraft. If
overdraft charges exceed income, the bank will debit the account for the
overdraft expense. If interest income for the Fund exceeds overdraft charges,
the income (accrued daily) will be credited by the third business day of the
following month.
SECURITY TRANSACTION CHARGES/PAYDOWNS
$ 8 Book-Entry Settlements/Paydowns -DTC/FRB/PTC
$15 Physical Settlement Transactions, Options, and Futures
$25 Euro C/D's
FEDERAL FUNDS WIRES/OFFICIAL CHECKS
$6 For wires not related to securities transactions and checks requested
to pay your corporate expenses.
THE
BANK OF
NEW
YORK
<PAGE>
WORLDWIDE SECURITIES PROCESSING SERVICES
M U T U A L F U N D S
DOMESTIC CUSTODY FEE SCHEDULE
FOR THE
AUL AMERICAN SERIES FUND, INC.
PORTFOLIOS AS
IDENTIFIED ON THE ATTACHED
SCHEDULE I
Out-of-Pocket Expenses
- ----------------------
Out-of-Pocket expenses traditionally include, but are not limited to, Federal
Reserve charges, postage and insurance on physical transfer items, attendance at
closing/ telecommunication charges, etc. These expenses will be billed to the
Fund at cost, no mark-up.
AUL American Series Fund, Inc. The Bank of New York
Accepted by: ________________________ Accepted by: ______________________
Title: ______________________________ Title:_____________________________
Date: _______________________________ Date:______________________________
THE
BANK OF
NEW
YORK
<PAGE>
WORLDWIDE SECURITIES PROCESSING SERVICES
M U T U A L F U N D S
THE BANK OF NEW YORK
GLOBAL CUSTODY FEE SCHEDULE
FOR THE
AUL AMERICAN SERIES FUND, INC.
PORTFOLIOS AS
IDENTIFIED ON THE ATTACHED
SCHEDULE I
Global
Safekeeping Fee Transaction Fee
Countries *(in basis points) (U.S. Dollars)
- --------------------------------------------------------------------------------
Argentina ........................................ 18.00 70
Australia ........................................ 4.00 50
Austria .......................................... 5.00 65
Bahrain** ........................................ 60.00 175
Bangladesh ....................................... 45.00 175
Belgium (reg. bds). .............................. 2.00 60
Belgium (equities and Cpn bds).................... 4.00 60
Bermuda** ........................................ 30.00 90
Botswana ......................................... 35.00 65
Brazil ........................................... 30.00 25
Canada ........................................... 2.00 15
Chile ............................................ 30.00 70
China ............................................ 25.00 60
Colombia ......................................... 50.00 135
Costa Rica ....................................... 15.00 60
Croatia* * ....................................... 45.00 125
Cyprus ........................................... 15.00 45
Czech Republic ................................... 23.00 60
Denmark .......................................... 3.00 85
Ecuador .......................................... 55.00 100
Egypt ............................................ 45.00 120
Estonia .......................................... 7.00 20
Euro CD's ........................................ 3.00 30
Euromarket ....................................... 2.00 15
Finland .......................................... 8.00 60
France ........................................... 4.00 60
Germany .......................................... 2.00 35
Ghana ........................................... 35.00 70
Greece ........................................... 30.00 145
Hong Kong ........................................ 8.00 75
Hungary .......................................... 50.00 175
Iceland** ........................................ 60.00 175
India ............................................ 50.00 175
Indonesia ........................................ 12.00 125
Ireland .......................................... 3.50 45
Israel ........................................... 35.00 55
Italy ............................................ 4.00 70
Ivory Coast **.................................... 60.00 175
THE
BANK OF
NEW
YORK
<PAGE>
WORLDWIDE SECURITIES PROCESSING SERVICES
M U T U A L F U N D S
THE BANK OF NEW YORK
GLOBAL CUSTODY FEE SCHEDULE
FOR THE
AUL AMERICAN SERIES FUND, INC.
PORTFOLIOS AS
IDENTIFIED ON THE ATTACHED
SCHEDULE I
Global
Safekeeping Fee Transaction Fee
Countries *(in basis points) (U.S. Dollars)
- --------------------------------------------------------------------------------
Jamaica ........................................ 35.00 50
Japan (bonds) .................................. 3.00 10
Japan (equities) ............................... 3.00 10
Jordan ......................................... 45.00 140
Kenya .......................................... 35.00 65
Korea .......................................... 12.50 25
Luxembourg ..................................... 6.00 65
Malaysia ....................................... 9.00 125
Mexico ......................................... 10.00 25
Morocco ........................................ 35.00 110
Namibia ........................................ 35.00 65
Netherlands .................................... 6.00 35
New Zealand .................................... 3.50 65
Nigeria ........................................ 35.00 65
Norway ......................................... 3.00 80
Oman ........................................... 60.00 175
Pakistan ....................................... 40.00 150
Peru ........................................... 45.00 120
Philippines .................................... 12.00 125
Poland ......................................... 35.00 125
Portugal ....................................... 20.00 100
Romania* * ..................................... 45.00 150
Russia Equities ................................ 45.00 175
Russia (Min. Fin Bonds) ........................ 10.00 100
Singapore ...................................... 8.00 90
Slovak Republic ................................ 35.00 150
South Africa ................................... 1.50 35
Spain .......................................... 5.00 55
Sri Lanka ...................................... 20.00 70
Swaziland ...................................... 35.00 65
Sweden ......................................... 3.00 60
Switzerland .................................... 3.00 75
Taiwan ......................................... 17.00 135
Thailand ....................................... 5.00 45
Turkey ......................................... 20.00 75
Ukraine* * ..................................... 45.00 65
United Kingdom ................................. 3.00 35
United Kingdom (gilts) ......................... 3.50 50
THE
BANK OF
NEW
YORK
<PAGE>
WORLDWIDE SECURITIES PROCESSING SERVICES
M U T U A L F U N D S
THE BANK OF NEW YORK
GLOBAL CUSTODY FEE SCHEDULE
FOR THE
AUL AMERICAN SERIES FUND, INC.
PORTFOLIOS AS
IDENTIFIED ON THE
ATTACHED
SCHEDULE I
Global
Safekeeping Fee Transaction Fee
Countries *(in basis points) (U.S. Dollars)
- --------------------------------------------------------------------------------
Uruguay (equities) .......................... 60.00 85
Uruguay (bonds) ............................. 40.00 85
Venezuela ................................... 50.00 175
Zambia ...................................... 35.00 70
Zimbabwe .................................... 35.00 65
* Fee expressed in basis points per annum is calculated based upon month end
market value.
**Not yet 17f-5 qualified.
Minimum fee for use of our global network
- -----------------------------------------
$500 per month, per portfolio.
Third Party Foreign Exchange Settlements
- ----------------------------------------
$50 per transaction/money movement
Minimum charges imposed by Agent Banks/Local Administrators
- -----------------------------------------------------------
Brazil - 15 basis points for annual administrative charges
Chile - USD $17,500-$20,000 per annum minimum administration charge
Colombia - USD $600 per month minimum administration charge
Ecuador - USD$800 monthly minimum per relationship
Egypt - USD $400 monthly minimum per relationship
Additional Charges
- ------------------
Charges incurred by The Bank of New York for local taxes, stamp duties or other
local duties and assessments, stock exchange fees, postage and insurance for
shipping, extraordinary telecommunication fees or other unusual expenses which
are unique to a country in which our clients is investing will be in addition to
the stated fees.
AUL AMERICAN SERIES FUND. INC. THE BANK OF NEW YORK
Accepted By: ______________________ Accepted By: _______________________
Title: _____________________________ Title:_______________________________
Date: ______________________________ Date:________________________________
THE
BANK OF
NEW
YORK
<PAGE>
WORLDWIDE SECURITIES PROCESSING SERVICES
M U T U A L F U N D S
SCHEDULE I
FOR THE
AUL AMERICAN SERIES FUND, INC.
PORTFOLIOS
The Equity Portfolio (domestic)
The Money Market Portfolio (domestic)
The Bond Fund Portfolio (domestic)
The Managed Fund Portfolio (domestic)
The Tactical Fund Portfolio (domestic)
Conservative Investor (global)
Moderate Investor (global)
Aggressive Investor (global)
THE
BANK OF
NEW
YORK
<PAGE>
FORM OF ADDENDUM TO CUSTODY AGREEMENT
The Custodian Agreement, made the 28th day of February, 1997, between AUL
American Series Fund, Inc. (the "Fund"), a Maryland corporation, and The Bank of
New York (the "Bank"), a banking association having its principal place of
business in New York, New York (the "Agreement") is hereby amended by the
addition of the provisions set forth in this Addendum to the Agreement, which is
made this _____ day of ________________, 1997.
WITNESSETH:
WHEREAS, pursuant to the Agreement, the Fund has appointed the Bank as
Custodian and the Bank has accepted such appointment; and
WHEREAS, the Fund currently consists of five separate portfolios designated
as the AUL American Equity Portfolio, the AUL American Bond Portfolio, the AUL
American Money Market Portfolio, the AUL American Managed Portfolio, and the AUL
American Tactical Asset Allocation Portfolio (each a "Portfolio"); and
WHEREAS, the Fund intends to establish three additional Portfolios to be
designated as the AUL American Conservative Investor Portfolio (the
"Conservative Investor Portfolio"), the AUL American Moderate Investor Portfolio
(the "Moderate Investor Portfolio"), and the AUL American Aggressive Investor
Portfolio (the "Aggressive Investor Portfolio"); hereinafter collectively
referred to as the "LifeStyle Portfolios" and
WHEREAS, the Fund desires to appoint the Bank as Custodian for the
LifeStyle Portfolios on the terms set forth in the Agreement and in this
Addendum to the Agreement; and
WHEREAS, the Bank is willing to accept such appointment;
NOW THEREFORE, in consideration of the mutual promises and covenants
contained in this Addendum, it is agreed between the parties hereto as follows:
1. In addition to its responsibilities as specified in the Agreement, the
Fund hereby constitutes and appoints the Bank as Custodian with respect to the
LifeStyle Portfolios, which, in addition to all other Portfolios previously
established by the Fund, shall be deemed Portfolios under the Agreement as
provided in the Agreement subject to the terms and conditions as specified in
the Agreement and this Addendum, including the compensation provisions in
paragraph [II.5.(g)] of the Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed by their officers designated below on the date written above.
On Behalf of AUL AMERICAN SERIES FUND, INC.
By:___________________________________ _________________________________
ATTEST: Richard A. Wacker, Secretary to James W. Murphy, Chairman of the
the Board of Directors Board of Directors and President
On Behalf of THE BANK OF NEW YORK
By:_________________________________ Attest:________________________________
Name: Name:
Title: Title:
- --------------------------------------------------------------------------------
EXHIBIT 9
FORM OF FUND ACCOUNTING AGREEMENT
BETWEEN REGISTRANT AND BANK OF NEW YORK,
FEE SCHEDULE, AND AMENDMENT(S)
- --------------------------------------------------------------------------------
FUND ACCOUNTING AGREEMENT
AGREEMENT made as of this 28th day of February, 1997 by and between AUL
AMERICAN SERIES FUND INC., a Maryland corporation having its principal 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 place of business at 48 Wall Street, New York, New York 10286
(hereinafter called the "Bank").
W I T N E S S E T H:
In consideration of the mutual agreements herein contained, the Fund and
the Bank hereby agree as follows:
1. The Fund hereby appoints the Bank to perform the duties hereinafter
set forth.
2. The Bank hereby accepts appointment and agrees to perform the duties
hereinafter set forth.
3. Subject to the provisions of paragraphs 5 and 6 below, the Bank shall
compute the net asset value per share of each Series of shares (the
"Series") of the Fund and shall value the securities and other assets
held by the Fund (the "Securities") at such times and dates and in the
manner specified in the then currently effective Prospectus of the
Fund and as specified in any procedures adopted by the Fund and
<PAGE>
specified in written instructions actually received by the Bank from
the Fund.
4. Subject to the provisions of paragraphs 5 and 6 below, the Bank shall
also compute the net income of each Series for dividend purposes and the net
income per share at such times and dates and in the manner specified in the then
currently effective Prospectus of the Fund.
5. To the extent valuation of Securities or computation of a Series' net
asset value, net income for dividend purposes, or net income per share as
specified in the Fund's then currently effective Prospectus is at any time
inconsistent with any applicable laws or regulations, the Fund shall immediately
so notify the Bank in writing and thereafter shall either furnish the Bank at
all appropriate times with the values of such Securities, each Series' net asset
value, net income for dividend purposes or net income per share, as the case may
be, or subject to the prior approval of the Bank, instruct the Bank in writing
to value Securities and compute each Series' net asset value, net income for
dividend purposes, and net income per share in a manner which the Fund then
represents in writing to be consistent with all applicable laws and regulations.
The Fund may also from time to time, subject to the prior approval of the Bank,
instruct the Bank in writing to compute the value of the Securities, a Series'
net asset value, net income for dividend purposes, or net income per share in a
manner other than as specified in paragraphs 3 and 4 of this Agreement. By
giving such instruction, the Fund shall be deemed to have represented that such
instruction is consistent with all applicable laws and regulations and the then
currently effective Prospectus of the Fund. The Fund shall have sole
responsibility for determining the method of valuation of Securities and the
method of computing each Series' net asset value, net income for dividend
purposes and net income per share.
- 2 -
<PAGE>
6. The Fund shall furnish the Bank with any and all instructions,
explanations, information, specifications and documentation deemed necessary by
the Bank in the performance of its duties hereunder, including, without
limitation, the amounts or written formula for calculating the amounts and times
of accrual of Fund liabilities and expenses, and the Bank shall comply with any
such instructions, explanations, information, specifications, and documentation.
The Fund shall also furnish the Bank with bid, offer, or market values of
Securities if the Bank notifies the Fund that same are not available to the Bank
from a security pricing or similar service utilized, or subscribed to, by the
Bank which the Bank in its judgment deems reliable at the time such information
is required for calculations hereunder. At any time and from time to time, the
Fund also may furnish the Bank with bid, offer, or market values of Securities
and instruct the Bank to use such information in its calculations hereunder. The
Bank shall at no time be required or obligated to commence or maintain any
utilization of, or subscriptions to, any securities pricing or similar service.
7. The Bank shall promptly advise the Fund, the Fund's custodian and the
Fund's transfer agent of the net asset value, net income for dividend purposes,
and net income per share of each Series upon completion of the computations
required to be made by the Bank pursuant to this Agreement.
8. The Bank shall, as agent for the Fund, maintain and keep current the
books, accounts and other documents, if any, listed in Appendix A hereto and
made a part hereof, as such Appendix A may be amended from time to time, and
preserve any such books, accounts and other documents in accordance with the
applicable provisions of Rule 31a-2 of the General Rules and Regulations under
the Investment Company Act of 1940, as amended (the "Rules"). Such books,
accounts and other documents shall be made available upon reasonable request for
inspection by
- 3 -
<PAGE>
officers, employees and auditors of the Fund during the Bank's normal business
hours.
9. All records maintained and preserved by the Bank pursuant to this
Agreement which the Fund is required to maintain and preserve in accordance with
the above-mentioned Rules shall be and remain the property of the Fund and shall
be surrendered to the Fund promptly upon request in the form in which such
records have been maintained and preserved. Upon request of the Fund, the Bank
shall provide in hard copy or on micro-film, whichever the Fund shall elect, any
records included in any such delivery which are maintained by the Bank on a
computer disc, or are similarly maintained, and the Fund shall reimburse the
Bank for its expenses of providing such hard copy or micro-film.
10. The Bank, in performing the services required of it under the terms of
this Agreement, shall be entitled to rely fully on the accuracy and validity of
any and all instructions, explanations, information, specifications and
documentation furnished to it by the Fund and shall have no duty or obligation
to review the accuracy, validity or propriety of such instructions,
explanations, information, specifications or documentation, including, without
limitation, evaluations of Securities; the amounts or formula for calculating
the amounts and times of accrual of Series' liabilities and expenses; the
amounts receivable and the amounts payable on the sale or purchase of
Securities; and amounts receivable or amounts payable for the sale or redemption
of Fund shares effected by or on behalf of the Fund. In the event the Bank's
computations hereunder rely, in whole or in part, upon information, including,
without limitation, bid, offer or market values of Securities or other assets,
or accruals of interest or earnings thereon, from a pricing or similar service
utilized, or subscribed to, by the Bank which the Bank in its judgment deems
reliable, the Bank shall not be responsible for, under any duty
- 4 -
<PAGE>
to inquire into, or deemed to make any assurances with respect to, the accuracy
or completeness of such information.
11. The Bank shall not be required to inquire into any valuation of
Securities or other assets by the Fund or any third party described in preceding
paragraph 10 hereof, even though the Bank in performing services similar to the
services provided pursuant to this Agreement for others may receive different
valuations of the same or different securities of the same issuers.
12. The Bank, in performing the services required of it under the terms of
this Agreement, shall not be responsible for determining whether any interest
accruable to the Fund is or will be actually paid, but will accrue such interest
until otherwise instructed by the Fund.
13. The Bank shall not be responsible for delays or errors which occur by
reason of circumstances beyond its control in the performance of its duties
under this Agreement, including, without limitation, labor difficulties beyond
the Bank's control within or without the Bank, mechanical breakdowns beyond the
Bank's control, flood or catastrophe, acts of God, failures of transportation,
communication or power supply beyond the Bank's control, or other similar
circumstances beyond the Bank's control. Nor shall the Bank be responsible for
delays or failures to supply the information or services specified in this
Agreement where such delays or failures are caused by the failure of any
person(s) other than the Bank to supply any instructions, explanations,
information, specifications or documentation deemed necessary by the Bank in the
performance of its duties under this Agreement.
14. No provision of this Agreement shall prevent the Bank from offering
services similar or identical to those covered by this Agreement to any other
corporations, associations or entities of any kind. Any and all operational
- 5 -
<PAGE>
procedures, techniques and devices developed by the Bank in connection with the
performance of its duties and obligations under this Agreement, including those
developed in conjunction with the Fund, shall be and remain the property of the
Bank, and the Bank shall be free to employ such procedures, techniques and
devices in connection with the performance of any other contract with any other
person whether or not such contract is similar or identical to this Agreement.
15. The Bank may, with respect to questions of law, apply to and obtain the
advice and opinion of counsel to the Fund at the Fund's expense or its own
counsel at its own expense and shall be entitled to rely on the advice or
opinion of such counsel. The Bank shall endeavor to notify the Fund in the event
that it acts on advice of counsel that is inconsistent with instructions,
procedures, or requests provided by the Fund.
16. The Bank shall be entitled to rely upon any oral instructions received
by the Bank and reasonably believed by the Bank to be given by or on behalf of
the Fund in accordance with procedures for providing oral instructions agreed to
by the Bank and the Fund, even if the Bank subsequently receives written
instructions contradicting such oral instructions, provided, that if such
contradicting written instructions are received by the Bank before the Bank has
commenced to act on the oral instructions, the Bank shall cease acting and
request clarifying written instructions from the Fund. The books and records of
the Bank with respect to the content of any oral instruction shall be binding
and conclusive.
17. The Bank shall not be liable for any loss, damage or expense, including
counsel fees and other costs and expenses of a defense against any claim or
liability, resulting from, arising out of, or in connection with its performance
hereunder, including its actions or omissions, the incompleteness or inaccuracy
of any specifications or other information furnished by the Fund, or for delays
caused by circumstances beyond the
- 6 -
<PAGE>
Bank's control, unless such loss, damage or expense arises out of the bad faith,
negligence, or willful misconduct of the Bank. In no event shall the Bank be
liable to the Company or any third party for special, indirect, or consequential
damages, or for 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.
18. Without limiting the generality of the foregoing, the Fund shall
indemnify the Bank against and save the Bank harmless from any loss, damage or
expense, including counsel fees and other costs and expenses of a defense
against any claim or liability, arising from any one or more of the following:
(a) Errors in records or instructions, explanations, information,
specifications or documentation of any kind, as the case may be,
supplied to the Bank by any third party described in preceding
paragraph 10 hereof or by or on behalf of the Fund;
(b) Action or inaction taken or omitted to be taken by the Bank pursuant
to written or oral instructions of the Fund or otherwise without bad
faith, negligence or willful misconduct;
(c) Any action taken or omitted to be taken by the Bank in good faith in
accordance with the advice or opinion of counsel for the Fund or its
own counsel;
(d) Any improper use by the Fund or its agents, distributor or investment
advisor of any valuations or computations supplied by the Bank
pursuant to this Agreement;
(e) The method provided or utilized by the Fund of valuation of the
Securities and the method of computing each
- 7 -
<PAGE>
Series' net asset value, net income for dividend purposes, and net
income per share; or
(f) Any valuations of Securities, net asset value, net income for dividend
purposes, or net income per share provided by the Fund.
19. In consideration for all of the services to be performed by the Bank as
set forth herein the Bank shall be entitled to receive reimbursement for all
out-of-pocket expenses reasonably incurred and such compensation as may be
agreed upon in writing from time to time between the Bank and the Fund.
20. Attached hereto as Appendix B is a list of persons duly authorized by
the Board of Directors of the Fund to execute this Agreement and give any
written or oral instructions, or written or oral specifications, by or on behalf
of the Fund. From time to time the Fund may deliver a new Appendix B to add or
delete any person and the Bank shall be entitled to rely on the last Appendix B
actually received by the Bank.
21. The Fund represents and warrants to the Bank that it has all requisite
power to execute and deliver this Agreement, to give any written or oral
instructions contemplated hereby, and to perform the actions or obligations
contemplated to be performed by it hereunder, and has taken all necessary action
to authorize such execution, delivery, and performance.
22. Unless The Bank of New York is acting as the sole custodian for the
Fund, on each day on which the Bank is to make calculations hereunder, the Fund
shall deliver to the Bank, at least one-half hour before the Bank is to make any
such calculations, a signed written specification of the Securities of each
Series. The Bank shall be entitled to rely on such specifications in making its
calculations hereunder for such day. If The Bank of New York is acting as the
sole custodian for the Fund, the Bank shall be entitled to rely on
- 8 -
<PAGE>
specifications of Securities furnished by The Bank of New York as custodian.
23. This Agreement shall not be assignable by the Fund without the prior
written consent of the Bank, or by the Bank without the prior written consent of
the Fund.
24. Either of the parties hereto may terminate this Agreement by giving the
other party a notice in writing specifying the date of such termination, which
shall not be less than one hundred eighty (180) days after the date of giving of
such notice. Upon the date set forth in such notice, the Bank shall deliver to
the Fund all records then the property of the Fund and, upon such delivery, the
Bank shall be relieved of all duties and responsibilities under this Agreement.
25. This Agreement may not be amended or modified in any manner except by
written agreement executed on behalf of both parties hereto.
26. This Agreement is executed in the State of New York and all laws and
rules of construction of the State of New York (other than those relating to
choice of laws) shall govern the rights, duties and obligations of the parties
hereto.
27. The performance and provisions of this Agreement are intended to
benefit only the Bank and the Fund, and no rights shall be granted to any other
person by virtue of this Agreement.
- 9 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first written above.
AUL AMERICAN SERIES FUND INC.
By:__________________________________
Attest:
__________________________________
THE BANK OF NEW YORK
By:___________________________________
Attest:
__________________________________
<PAGE>
APPENDIX B
I, Richard A. Wacker, 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 with American United Life Insurance Company ("AUL"), the Adviser to the
Fund, and each has been duly elected or appointed by the Board of Directors of
the Fund or the Adviser to each such position and qualified therefor in
conformity with the Fund's or AUL's Articles of Incorporation and By-Laws, and
the signatures set forth opposite their respective names are their true and
correct signatures. Except as noted, any two of the following persons are
authorized to give written or oral instructions or written or oral
specifications by or on behalf of the Fund to the Bank.
<TABLE>
<CAPTION>
<S> <C> <C>
Name Position Signature
- ---- -------- ---------
Kent R. Adams Vice President, Fixed Income ___________________________
Securities, American United Life
Insurance Company
William R. Brown General Counsel and Secretary, ___________________________
American United Life Insurance
Company
Steven T. Holland Vice President, Mortgage Loans, ___________________________
American United Life Insurance
Company
Kathryn E. Hudspeth Vice President, Equities, ___________________________
Securities, American United Life
Insurance Company
Jack E. Hufford Treasurer, American United Life ___________________________
Insurance Company
James W. Murphy Chairman, Board of Directors ___________________________
and President, AUL American
Series Fund, Inc., Senior Vice
President, Corporate Finance,
American United Life
Insurance Company
<PAGE>
R. Stephen Radcliffe Executive Vice President and ___________________________
Director, American United Life
Insurance Company
G. David Sapp Senior Vice President, ___________________________
Investments, American United
Life Insurance Company
Jerry D. Semler Chairman of the Board, President ___________________________
and Chief Executive Officer,
American United Life Insurance
Company
James P. Shanahan Vice President, Treasurer & ___________________________
Director, AUL American Series
Fund, Inc., Senior Vice President,
Pensions, American United Life
Insurance Company
Larry Sweany Controller, American United Life ___________________________
Insurance Company
Richard A. Wacker Secretary, AUL American Series ___________________________
Fund, Inc., Associate General
Counsel, American United Life
Insurance Company
</TABLE>
The following individuals are also authorized to act as signatories for the Fund
provided that one of the individuals listed above has previously signed on
behalf of the Fund, and provided further that the Assistant Vice President,
General Accounting, shall not sign with the Controller, AUL, and the Assistant
Treasurer, AUL, shall not sign with the Treasurer, AUL.
<TABLE>
<CAPTION>
<S> <C> <C>
James C. Shields Assistant Treasurer, American ___________________________
United Life Insurance Company
Ronald A. Fritz Assistant Vice President, General ___________________________
Accounting, 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.
______________________________
Richard A. Wacker, Secretary
[SEAL]
<PAGE>
WORLDWIDE SECURITIES PROCESSING SERVICES
M U T U A L F U N D S
FUND ACCOUNTING FEE SCHEDULE
FOR THE
AUL AMERICAN SERIES FUND, INC.
PORTFOLIOS AS
IDENTIFIED ON THE ATTACHED
SCHEDULE I
Domestic Accounting Fee
- -----------------------
5 basis points, per annum, on the net asset value of portfolio securities.
* Global Accounting Fee
- -----------------------
6 basis points, per annum, on the net asset value of portfolio securities.
Minimum Fee
- -----------
If the asset based fee is less than the per annum minimum prorated monthly the
difference is billed monthly.
Domestic Portfolios $30,000, per annum, per portfolio.
Global Portfolios $40,000, per annum, per portfolio.
Multiple Class Charges
- ----------------------
$300.00 per month, for each additional class above one.
* The global fee schedule applies to any Fund holding any foreign denominated
securities.
THE
BANK OF
NEW
YORK
<PAGE>
WORLDWIDE SECURITIES PROCESSING SERVICES
M U T U A L F U N D S
FUND ACCOUNTING FEE SCHEDULE
FOR THE
AUL AMERICAN SERIES FUND, INC.
PORTFOLIOS AS
IDENTIFIED ON THE ATTACHED
SCHEDULE I
Out-of-Pocket Expenses
- ----------------------
Obtaining prices from information vendors will be in addition to the stated
fees.
Billing Cycle
- -------------
The above fees will be billed on a monthly basis.
AUL American Series Fund, Inc. The Bank of New York
Accepted by:__________________________ Accepted by: _______________________
Title: _______________________________ Title ______________________________
Date: ________________________________ Date: ______________________________
THE
BANK OF
NEW
YORK
<PAGE>
WORLDWIDE SECURITIES PROCESSING SERVICES
M U T U A L F U N D S
SCHEDULE I
FOR THE
AUL AMERICAN SERIES FUND, INC.
PORTFOLIOS
The Equity Portfolio (domestic)
The Money Market Portfolio (domestic)
The Bond Fund Portfolio (domestic)
The Managed Fund Portfolio (domestic)
The Tactical Fund Portfolio (domestic)
Conservative Investor (global)
Moderate Investor (global)
Aggressive Investor (global)
THE
BANK OF
NEW
YORK
<PAGE>
APPENDIX A TO FUND ACCOUNTING AGREEMENT
BETWEEN
THE BANK OF NEW YORK
AND
AUL AMERICAN SERIES FUND INC.
I. The Bank of New York (the "Bank"), as agent for AUL AMERICAN SERIES
FUND INC. (the "Fund"), shall maintain the following records on a
daily basis for each Series.
1. Report of priced portfolio securities
2. Statement of net asset value per share
3. Net income of the Fund for dividend purposes
4. Net income per share
5. Yield of the Fund
II. The Bank shall maintain the following records on a monthly basis for
each Series:
1. General Ledger
2. General Journal
3. Cash Receipts Journal
4. Cash Disbursements Journal
5. Subscriptions Journal
6. Redemptions Journal
7. Accounts Receivable Reports
8. Accounts Payable Reports
9. Open Subscriptions/Redemption Reports
10. Transaction (Securities) Journal
11. Broker Net Trades Reports
<PAGE>
- 2 -
III. The Bank shall prepare a Holdings Ledger on a quarterly basis, and a
Buy-Sell Ledger (Broker's Ledger) on a semiannual basis for each
Series. Schedule D shall be produced on an annual basis for each
Series.
The above reports may be printed according to any other required
frequency to meet the requirements of the Internal Revenue Service,
The Securities and Exchange Commission and the Fund's Auditors.
IV. For internal control purposes, the Bank uses the Account Journals
produced by The Bank of New York Custody System to record daily
settlements of the following for each Series:
1. Securities bought
2. Securities sold
3. Interest received
4. Dividends received
5. Capital stock sold
6. Capital stock redeemed
7. Other income and expenses
All portfolio purchases for the Fund are recorded to reflect expected
maturity value and total cost including any prepaid interest.
<PAGE>
FORM OF ADDENDUM TO AGENCY AGREEMENT
The Agency Agreement, made the 28th day of February, 1997, between AUL
American Series Fund, Inc. (the "Fund"), a Maryland corporation, and The Bank of
New York (the "Bank"), a banking association with its principal place of
business in New York, New York (the "Agreement") is hereby amended by the
addition of the provisions set forth in this Addendum to the Agreement, which is
made this ____ day of ________________, 1997.
WITNESSETH:
WHEREAS, pursuant to the Agreement, the Fund has appointed the Bank as
Bookkeeping Agent, Transfer Agent, and Dividend Disbursing Agent and the Bank
has accepted such appointment; and
WHEREAS, the Fund currently consists of five separate portfolios designated
as AUL American Equity Portfolio, the AUL American Bond Portfolio, the AUL
American Money Market Portfolio, the AUL American Managed Portfolio, and the AUL
American Tactical Asset Allocation Portfolio (each a "Portfolio"); and
WHEREAS, the Fund intends to establish three additional Portfolios to be
designated as the AUL American Conservative Investor Portfolio (the "Conserva-
tive Investor Portfolio"), the AUL American Moderate Investor Portfolio (the
"Moderate Investor Portfolio"), and the AUL American Aggressive Investor
Portfolio (the "Aggressive Investor Portfolio"); hereinafter collectively
referred to as the "LifeStyle Portfolios" and
WHEREAS, the Fund desires to appoint the Bank as Bookkeeping Agent,
Transfer Agent, and Dividend Disbursing Agent for the LifeStyle Portfolios on
the terms set forth in the Agreement and in this Addendum to the Agreement; and
WHEREAS, the Bank is willing to accept such appointment;
NOW THEREFORE, in consideration of the mutual promises and covenants
contained in this Addendum, it is agreed between the parties hereto as follows:
1. In addition to its responsibilities as specified in the Agreement, the
Fund hereby employs and appoints the Bank as Bookkeeping Agent, Transfer Agent,
and Dividend Disbursing Agent with respect to the LifeStyle Portfolios which, in
addition to all other Portfolios previously established by the Fund, shall be
deemed Portfolios under the Agreement as provided for in the Agreement, subject
to the terms and conditions as specified in the Agreement and this Addendum,
including the compensation provisions in paragraph fifteen (15) ("Fees and
Charges") of the Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed by their officers designated below on the date written above.
On Behalf of AUL AMERICAN SERIES FUND, INC.
By: ___________________________________ _________________________________
ATTEST: Richard A. Wacker, Secretary to James W. Murphy, Chairman of the
the Board of Directors Board of Directors and President
On Behalf of THE BANK OF NEW YORK
By: ________________________________ Attest:____________________________
Name: Name:
Title: Title:
- --------------------------------------------------------------------------------
EXHIBIT 10
OPINION AND CONSENT OF COUNSEL
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
30 ROCKEFELLER PLAZA LAW OFFICES OF TEN POST OFFICE SQUARE, SOUTH
NEW YORK, NY 10112 BOSTON, MA 02109-4603
(212) 698-3500 DECHERT PRICE & RHOADS (617) 728-7100
1775 EYE STREET, N.W.
4000 BELL ATLANTIC TOWER WASHINGTON, DC 20006-2401 90 STATE HOUSE SQUARE
1717 ARCH STREET TELEPHONE: (202) 261-3300 HARTFORD, CT 06103-3702
PHILADELPHIA, PA 19103-2793 FAX: (202) 261-3333 (860)524-3999
(215) 994-4000
65 AVENUE LOUISE
THIRTY NORTH THIRD STREET 1050 BRUSSELS, BELGIUM
HARRISBURG, PA 17101-1603 (32-2) 535-5411
(717) 237-2000
TITMUSS SANIER DECHERT
PRINCETON PIKE CORPORATE CENTER 2 SERJEANTS' INN
P.O. BOX 5218 LONDON EC4Y 1LT, ENGLAND
PRINCETON, NJ 08543-5218 (44-171) 583-5353
(609) 520-3200
151, BOULEVARD HAUSSMANN
73008 PARIS, FRANCE
(33-1) 53 83 84 70
</TABLE>
March 30, 1998
AUL American Series Fund, Inc.
One American Square
Indianapolis, IN 46204
Dear Sirs:
In connection with the registration under the Securities Act of 1933 of an
indefinite number of shares of common stock of the AUL American Equity
Portfolio, the AUL American Bond Portfolio, the AUL American Money Market
Portfolio, the AUL American Managed Portfolio, the AUL American Tactical Asset
Allocation Portfolio, the AUL American Conservative Investor Portfolio, the AUL
American Moderate Investor Portfolio, and the AUL American Aggressive Investor
Portfolio (the "Portfolios") of AUL American Series Fund, Inc. (the "Fund"), we
have examined such matters as we have deemed necessary, and we are of the
opinion that:
(i) the Fund is a corporation duly organized and existing under the laws of
Maryland;
(ii) the authorized capital of the Fund consists of three hundred twenty-five
million shares, par value of 0.001 per share, three hundred five million
of which are allocated among the Portfolios (subject to the authority of
the Fund's Board of Directors to allocate any authorized but unissued
shares) (the "Shares");
(iii) assuming that the Fund or its agent receives consideration for such Shares
in accordance with the provisions of its Articles of Incorporation, as
supplemented, the Shares will be legally and validly issued, and will be
fully paid and nonassessable.
<PAGE>
AUL American Series Fund, Inc.
March 30,1998
Page 2
We hereby consent to the use of this opinion as an exhibit to the Fund's
Registration Statement on Form N-1A filed with the Securities and Exchange
Commission (File No. 33-30156) for the registration under the Securities Act of
1933 of an indefinite number of the Fund's shares, and to the use of our name in
the prospectus and statement of additional information contained therein, and
any amendments thereto.
Very truly yours,
/s/ Dechert Price & Rhoads
- --------------------------------------------------------------------------------
EXHIBIT 11.1
CONSENT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
Consent of Independent Accountants
Board of Directors
AUL American Series Fund, Inc.
Indianapolis, Indiana
We consent to the inclusion in Post Effective Amendment No. 11 to the
Registration Statement of AUL American Series Fund, Inc. (the "Fund") on Form
N-1A (File No. 33-30156) of our report dated February 2, 1998, on our audit of
the financial statements and financial highlights of the Fund, which report is
included in the Annual Report to Shareholders for the year ended December 31,
1997, which is included in the Post-Effective Amendment to the Registration
Statement. We also consent to the reference to our Firm under the caption
"Independent Accountants".
/s/ Coopers & Lybrand L.L.P.
Indianapolis, Indiana
April 24, 1998
- --------------------------------------------------------------------------------
EXHIBIT 11.2
POWERS OF ATTORNEY
- --------------------------------------------------------------------------------
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes and
appoints Richard A. Wacker and William R. Brown, and each of them his true and
lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution for him in his name, place and stead to sign any and all
Registration Statements (including Registration Statements or any Amendments
thereto arising from any reorganization of a Separate Account with any other
Separate Account) applicable to Separate Accounts established for funding
variable annuity contracts of American United Life Insurance Company(R) and any
Amendments or supplements thereto, and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent may lawfully do or cause to be done by virtue hereof.
Dated: 5/11/90
--------------------------------
/s/ Ronald Anderson
--------------------------------
Ronald Anderson
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes and
appoints Richard A. Wacker and William R. Brown, and each of them his true and
lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution for him in his name, place and stead to sign any and all
Registration Statements (including Registration Statements or any Amendments
thereto arising from any reorganization of a Separate Account with any other
Separate Account) applicable to Separate Accounts established for funding
variable annuity contracts of American United Life Insurance Company(R) and any
Amendments or supplements thereto, and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent may lawfully do or cause to be done by virtue hereof.
Dated: 2/13/96
--------------------------------
/s/ Leslie Lenkowsky
--------------------------------
Leslie Lenkowsky
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Richard A. Wacker and William R. Brown, and each of them his true
and lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution for him in his name, place and stead to sign any and all
Registration Statements (including Registration Statements or any Amendments
thereto arising from any reorganization of a Separate Account with any other
Separate Account) applicable to Separate Accounts established for funding
variable annuity and variable life contracts of American United Life Insurance
Company(R) and any Amendments or supplements thereto, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
Dated: 7/28/97
--------------------------------
/s/ James W. Murphy
--------------------------------
James W. Murphy
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Richard A. Wacker and William R. Brown, and each of them his true
and lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution for him in his name, place and stead to sign any and all
Registration Statements (including Registration Statements or any Amendments
thereto arising from any reorganization of a Separate Account with any other
Separate Account) applicable to Separate Accounts established for funding
variable annuity and variable life contracts of American United Life Insurance
Company(R) and any Amendments or supplements thereto, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
Dated: 7/25/97
--------------------------------
/s/ R. Stephen Radcliffe
--------------------------------
R. Stephen Radcliffe
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes and
appoints Richard A. Wacker and William R. Brown, and each of them his true and
lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution for him in his name, place and stead to sign any and all
Registration Statements (including Registration Statements or any Amendments
thereto arising from any reorganization of a Separate Account with any other
Separate Account) applicable to Separate Accounts established for funding
variable annuity contracts of American United Life Insurance Company(R) and any
Amendments or supplements thereto, and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent may lawfully do or cause to be done by virtue hereof.
Dated: 6/11/90
--------------------------------
/s/ James Shanahan
--------------------------------
James Shanahan
- --------------------------------------------------------------------------------
EXHIBIT 12
FINANCIAL STATEMENTS OF REGISTRANT
- --------------------------------------------------------------------------------
AUL American Series Fund, Inc.
Annual Report
December 31, 1997
This report and the financial statements contained herein are submitted for the
general information of the Participants. The report is not to be distributed to
prospective investors as sales literature unless accompanied or preceded by an
effective prospectus of AUL American Series Fund, Inc. and AUL American Unit
Trust or AUL American Individual Unit Trust, which contains further information
concerning the sales expenses and other pertinent information.
<PAGE>
A Message From The Chairman of the Board and President
The U.S. economy continued to surprise investors with its performance during
1997. The current seven year expansion has been unique in that economic growth
has remained moderate while inflationary pressures have been subdued. The
inflation rate actually declined during 1997, allowing the Federal Reserve to
hold monetary policy steady during the last nine months of the year. Other
positive economic factors during the year included lower interest rates, higher
productivity and improved corporate profit margins.
Equity investors were richly rewarded during the past year with the Dow Jones
Industrial Average and the S&P 500 (commonly quoted equity indices) both
achieving double digit returns. During 1997, equity investors reacted positively
to the combination of slow growth and moderate inflation. However, the
volatility of returns increased dramatically during the second half of the year
as investors became fearful that corporations would experience a decline in
profit growth during 1998. Severe weakness in Asia and Latin America was another
principal catalyst causing increased volatility.
Bond yields moved higher in the first quarter of 1997 in reaction to the Federal
Reserve Bank's 25 basis point increase in the Federal Funds rate target but
declined over the remainder of the year. Moderate inflation, a declining federal
deficit, and turmoil in the Asian markets caused the Federal Reserve Bank to
withhold any further intervention, despite strong economic growth and low
unemployment. As a result, bonds returns, especially for bonds with longer
maturities, were competitive with common stocks in the last six months of 1997
although they still trailed well behind equity returns for the entire year.
Equity investors have now experienced three years of phenomenal equity returns,
returns which are substantially higher than the long-term averages. The major
stock indices could still post further gains during 1998, but the opportunity to
dramatically outperform the long-term averages becomes extremely limited. Good
bond performance will depend on declining interest rates, continued moderate
inflation and bonds being viewed as an ""alternative investment"" for equity
investors.
Investment performance for the AUL American Series Fund, Inc. for the year 1997
was:
Equity Portfolio 29.6% Managed Portfolio 21.0%
Money Market Portfolio 4.9% Tactical Asset Portfolio 15.5%
Bond Portfolio 7.9%
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, Inc. 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
James W. Murphy
Chairman of the Board of Directors and President
Indianapolis, Indiana
January 20, 1998
Directors and Officers of AUL American Series Fund, Inc.
James W. Murphy, Chairman of the Board and President
R. Stephen Radcliffe, Director
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
Indiana University, Center of Philanthropy Indianapolis, Indiana
Richard A. Wacker, Secretary
<PAGE>
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, free cashflow,
insider ownership and industry dominance.
The year 1997 was another impressive
year for the stock market with domestic equity returns easily outpacing bonds,
cash and international market indices. Although the Federal Reserve did
intervene in March 1997, it remained on the sidelines for the rest of the year.
Sustainable economic growth continued, inflation fears subsided, and corporate
profits remained intact.
As a result, the Dow Jones Industrial Average (DJIA) advanced 24.9% during the
year. This represents a record seven consecutive year advance for the DJIA and
the first time in its history that this blue chip index has risen 20% or more
during three consecutive years. During 1997, the S&P 500 advanced 33.4% with a
majority of this performance occurring during the first seven months of the
year.
Investor sentiment changed frequently throughout the year. As we began 1997,
investors focused on large global growth companies that could provide consistent
earnings either from domestic markets or abroad. As a result, smaller
capitalization companies lagged the overall market by a wide margin. Because of
the noticeable disparity in returns, many investors shifted their interest to
smaller companies during May. However, this interest was short lived. Investors
panicked in October in response to the Asian crisis, at which time market
leadership changed again with performance favoring large defensive growth
companies with limited exposure to developing countries. The Equity Portfolio
achieved a 29.6% investment return for calendar 1997 which is higher than the
long-term average return for stocks.
The Equity Portfolio also outperformed the average diversified U.S. stock fund
which returned 24.4%, according to Lipper Analytical Services Inc. The Portfolio
benefitted from its holdings in technology, pharmaceutical, and financial
industries. The return of the Portfolio was also propelled by several merger
situations and share repurchase programs.
U.S. fundamentals remain solid, but the economy is expected to slow down in
1998. The present bull market has narrowed its focus considerably to those
stocks perceived as "safe havens". At current levels, the U.S. stock market
could be vulnerable to any disruption in corporate profits or fallout from the
weakness in Asia.
<PAGE>
AUL American Series Fund, Inc. Equity Portfolio
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIOD ENDED DECEMBER 31, 1997
Equity S&P 500
Portfolio
One Year 29.6% 33.4%
Five Years 16.8% 20.2%
Since Inception (4/10/90) 15.2% 17.6%
Value of a hypothetical $10,000
investment made 4/10/90 $29,664 $34,972
The charts show the Equity 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. The inception figures are from the Portfolio's 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>
A Message From Kent Adams,
Portfolio Manager of Bond Portfolio
The AUL American 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 7.9% in 1997. This return represents
interest income and the price change of the fixed income securities held in the
portfolio. On average the Bond Fund holdings experienced price increases in 1997
due to declines in interest rates. The total return for the Lehman Brothers
Aggregate Bond Index (the "Index") was 9.7% in 1997.
At the beginning of 1997 the Bond Portfolio's average
duration was very close to the level of the Lehman Brothers Aggregate Index. 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. The duration of the portfolio was gradually shortened during
the remainder of the year as interest rates declined. At year-end the duration
of the portfolio closely matched the duration of the benchmark.
Approximately 35% of the portfolio was invested in U. S. Treasury and Agency
holdings at year-end 1997. The remainder of the portfolio was allocated to
corporate bonds (37%), high quality GNMA Pass-Through and asset-backed
securities (24%), and cash equivalents (4%).
Declining inflation, a shrinking budget deficit, and a relatively inactive
Federal Reserve resulted in falling interest rates and rising bond prices in the
second half of 1997. Although U.S. economic growth remains strong with low
unemployment, collapsing currencies and the potential for significant weakness
in Asian economies should result in some moderating of U.S. growth as well as
keeping a lid on import prices. Although treasury bond yields along the entire
yield curve have declined to below 6%, most analysts remain positive on the
near-term outlook for bonds.
The currency crisis in Asia during the second half of 1997 negatively affected
the performance of two of the bond portfolio's holdings, Korea Development Bank
and Petronas (Malaysia). Although prices for these two holdings declined
significantly in reaction to the negative news from Asia, these bonds are now
priced at levels that represent opportunity in 1998. The credit characteristics
and prices of these bond holdings are being closely monitored in anticipation of
taking advantage of any turnaround.
Beginning in 1997, the Portfolio will use the Lehman Brothers Aggregate Bond
Index as its benchmark instead of the Lehman Brothers Government/Corporate Bond
Index which has been used in the past. The Lehman Brothers Aggregate Bond Index
includes one-year and longer government, corporate, Yankee, and U.S. Agency
mortgage-backed bonds and has an average maturity of 81/2 years. This Index is a
better match to the Portfolio for comparative purposes because this Index
includes mortgage-backed securities, while the Lehman Brothers
Government/Corporate Index does not.
<PAGE>
AUL American Series Fund, Inc. Bond Portfolio
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIOD ENDED DECEMBER 31, 1997
Bond Lehman Brothers Lehman Brothers
Portfolio Govt./Corp. Index Aggregate Index
One Year 7.9% 9.8% 9.7%
Five Years 6.8% 7.6% 75.%
Since Inception (4/10/90) 8.6% 9.2% 9.1%
Value of a hypothetical $10,000
investment made 4/10/90 $18,841 $19,631 $19,514
The charts show the Bond Portfolio's total returns, which include changes in
share price and reinvestment of income and capital gains. Figures for the Lehman
Brothers Government/Corporate Bond Index and the Lehman Brothers Aggregate
Index, are unmanaged indices 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 the Portfolio's
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>
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.
Bond and stock investors enjoyed positive returns during 1997. Although bond
yields rose during the first quarter, rates eased during the remainder of the
year resulting in positive bond performance. The stock market began the year on
a strong note despite forecasts that stocks were overvalued. However, concern
began to mount in August in response to disappointing corporate earnings
announcements and turmoil in Southeast Asia. Large swings or point changes in
the major stock indices became almost a common occurrence by the end of the
year.
Although stocks achieved above average returns during 1995 and 1996, we believed
that the equity market would still offer superior returns to bonds and cash
during 1997. As a result, the Managed Portfolio continued to be overweighted in
stocks compared to bonds and cash. By the end of 1997, 54% of the Portfolio was
invested in stocks, while 41% was invested in bonds and 5% was invested in cash
equivalents. This can be compared to an asset allocation of 55% stocks, 42%
bonds and 3% cash equivalents at year-end 1996.
Bonds, especially issues with longer maturities, performed well in the second
half of 1997. Returns for the entire year, however, lagged well behind the
impressive performance of the stock market. Bond returns exceeded money market
returns by several percentage points in 1997.
Stocks held in the Managed Portfolio typically have a value orientation. During
1997, several of these undervalued stocks were "recognized" and were purchased
by competitors or were involved in share repurchase programs. These factors
enhanced the Portfolio's return. The Portfolio also benefitted from its holdings
in the technology, pharmaceutical and financial industries.
The Managed Portfolio finished 1997 with an investment return of 21.0% compared
to 9.6% for the Lehman Brothers Aggregate Bond Index and 33.4% for the S&P 500.
At the present time, most economists are still trying to gauge the impact that
Asia will have on our economy and markets. If the U.S. economy weakens and
interest rates decline, the bond market should have positive returns. However,
downward pressure on economic growth and corporate earnings will cause concern
among equity investors and increase overall volatility. As a result, the stock
market may face a more difficult road in 1998.
Beginning in 1997, the Managed Portfolio will use the Lehman Brothers Aggregate
Bond Index as its benchmark instead of the Lehman Brothers Government/Corporate
Bond Index which has been used in the past. The Lehman Brothers Aggregate Bond
Index includes one-year and longer government, corporate, Yankee, and U.S.
Agency mortgage-backed bonds and has an average maturity of 81/2 years. This
Index is a better match to the Managed Portfolio for comparative purposes
because this Index includes mortgage-backed securities, while the Lehman
Brothers Government/Corporate Index does not.
AUL American Series Fund, Inc. Managed Portfolio
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIOD ENDED DECEMBER 31, 1997
Managed S&P 500 Lehman Brothers Lehman Brothers
Portfolio Govt./Corp. Index Aggregate Index
One Year 21.0% 33.4% 9.8% 9.7%
Five Years 12.5% 20.2% 7.6% 7.5%
Since Inception (4/10/90) 12.1% 17.6% 9.2% 9.1%
Value of a hypothetical
$10,000 investment $24,083 $34,972 $19,631 $19,514
made 4/10/90
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 and
the Lehman Brothers Aggregate Index, unmanaged indices of government and
corporate bonds, which are broad measures of the performance of the U.S. bond
market, include reinvestment of income and capital gains. The inception figures
are from the Portfolio's commencement of operations.
Performance numbers for the Managed 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, 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>
A Message From John Riazzi,
Portfolio Manager of Tactical Asset Allocation Portfolio
Stock market returns remained strong in the past year, with a 33.4% increase for
the S&P 500 during the period. These returns were far higher than historical
averages, as many of the fundamentals that have driven the 7 year bull market
(e.g., favorable interest rate outlook, higher corporate productivity, mutual
fund inflows) have remained intact. At the same time, investors were faced with
record-breaking volatility. Fueled by news of an economic crisis in developing
Asian markets, investors pushed the DJIA 554 points lower on October 27, only to
turn around the next day and drive the DJIA 337 points higher. Clearly,
investors are trying to assess the potential impact of a recession in southeast
Asia, with a focus on the possibility of a deflationary economy (i.e., one in
which aggregate prices decline) and lower growth expectations. As the year drew
to a close, investor focus had shifted toward Asia and away from concerns over
higher interest rates. The possibility of an interest rate tightening by the
Federal Reserve - such a dominant theme earlier in the year in terms of
understanding market behavior - now appears remote. Indeed, bonds rallied
strongly in the latter half of the year, in part due to speculation that
interest rates were more likely to go down.
In our view, the current market environment is likely to remain positive for
bonds and for the more "interest-rate-sensitive" sectors of the stock market.
The valuations on many of these securities are quite compelling, and the
exposure to overseas uncertainties is limited. Finding a "safe harbor" for
assets during 1998 is likely to be a dominant theme in what we feel is a highly
uncertain, volatile stock market; one that is characterized by dampened growth
expectations and valuations well ahead of historical norms. Our top investment
objective is preservation of client capital. By investing in the fixed income
markets, and by maintaining a prominent exposure to high-yielding "defensive"
stocks such as REITs (real estate investment trusts), and electric utilities, we
are most likely to achieve this objective.
Our allocation to stocks was 59% at mid-year, which we consider a "neutral"
positioning. As the year progressed, our asset allocation models indicated an
even more cautious intermediate term outlook. By year end we reduced the equity
allocation in the portfolio to 51.6%. Some positions reached full valuations and
were sold, while others were reduced in line with the revised equity targets. We
also rotated our industry weightings to emphasize REIT's and electric utilities,
which provide greater price stability and a healthy dividend yield, and are more
likely to outperform in an uncertain market. At period end we had built our
total electric utility position to 1.4% of the portfolio, while REIT's comprised
2.6% of the fund. Meantime, the portfolio's exposure to technology stocks, and
companies that manufacture "commodity" products such as chemicals and metals,
was reduced. These firms are more vulnerable to deflation pressures, as well as
an economic recession in southeast Asia, factors which may lead to earnings
disappointments in the near term.
During 1997, the Tactical Asset portfolio provided a return of 15.5%, stronger
than the Lipper Analytical Services, Inc. index of similarly-managed mutual
funds, although lagging a 60/40 market index. Why have the majority of fund
managers trailed the market-wide index? The S&P 500 is weighted by market
capitalization, and its strong returns have largely been driven by a relatively
small number of "mega-cap" stocks - essentially, the largest companies with the
largest capitalizations and highest amount of market liquidity. A "price
momentum" philosophy would emphasize these "mega-caps," and thus would be
successful in this particular market environment. Our philosophy, on the other
hand, is to adhere to a value discipline. Companies will be scrutinized for
their growth potential, market positioning and strategic planning, but only
companies with lower and/or reasonable valuations (i.e., price to earnings,
prices to cash flow, price to book value) are candidates to be included in the
portfolio. Research suggests that, over the longer-term (i.e., over a series of
market environments), a disciplined approach that emphasizes value will be
competitive with other investment management philosophies. We are not critical
of high-flying "mega-cap" firms. They are often very well-managed, with
impressive strategics for further expansion. They are simply too expensive,
based on out criteria, to be appropriately included in this portfolio.
Our stock selection process and asset allocation models have provided long-term
clients with relatively stable returns that have been competitive with the
market indexes. Going forward, we expect our approach to continue to reward
investors with solid risk-adjusted returns, while providing downside protection
in times of market instability.
<PAGE>
AUL American Series Fund, Inc. Tactical Asset Allocation Portfolio
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIOD ENDED DECEMBER 31, 1997
Tactical Asset S&P 500 Lehman Brothers
Allocation Portfolio Inter. Govt. Index
One Year 15.5% 33.4% 7.7%
Since Inception (7/31/95) 15.7% 28.0% 6.9%
Value of a hypothetical $10,000
investment made 7/31/95 $14,228 $18,147 $11,757
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 & Poor's Corporation. Figures for the Lehman Brothers Intermediate
Government 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 the
Portfolio's 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, 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>
(This page is intentionally blank.)
<PAGE>
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, 1997, the related statements of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and financial highlights for
each of the periods presented. 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 held by the
custodian as of December 31, 1997, 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, 1997, the results of their operations for the year then ended,
the changes in their net assets for each of the two years in the period then
ended, and financial highlights for each of the periods presented, in conformity
with generally accepted accounting principles.
/s/ Coopers and Lybrand, L.L.P.
Indianapolis, Indiana
February 2, 1998
<PAGE>
(This page is intentionally blank.)
<PAGE>
AUL American Series Fund, Inc.
Statements of Net Assets
December 31, 1997
<TABLE>
<CAPTION>
Portfolio
-------------------------------------------------------------------------
Equity Money Market Bond Managed Tactical Asset
----------- ------------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments at value ............................. $80,751,960 $55,168,462 $33,560,233 $60,353,173 $ 4,429,945
(cost: $54,669,337 $55,168,462,
$32,943,514, $47,730,241, and
$4,066,700, respectively)
Receivable for shares sold, net .................. -- 536,493 -- -- --
Receivable for investment sold ................... -- -- 720,000 -- --
Dividends and interest receivable ................ 135,493 102,873 491,891 396,805 31,379
Prepaid expense .................................. 33 33 33 33 33
Deferred organization costs ...................... -- -- -- -- 4,165
----------- ---------- ---------- ---------- ---------
Total assets ..................................... 80,887,486 55,807,861 34,772,157 60,750,011 4,465,522
----------- ---------- ---------- ---------- ---------
Liabilities:
Payable for portfolio shares redeemed, net ....... 15,596 -- 24,231 33,647 3,536
Payable for investments purchased ................ 525,062 -- -- 183,567 --
Investment advisory fees payable ................. 38,742 26,598 16,999 29,451 1,921
Accrued expenses ................................. 32,130 24,321 13,007 26,336 3,000
Organization costs payable to AUL ................ -- -- -- -- 4,830
----------- ---------- ---------- ---------- ---------
Total liabilities ................................ 611,530 50,919 54,237 273,001 13,287
----------- ---------- ---------- ---------- ---------
Net Assets ....................................... $80,275,956 $55,756,942 $34,717,920 $60,477,010 $ 4,452,235
=========== =========== =========== =========== ===========
Shares outstanding ............................... 3,816,406 55,756,942 3,252,044 3,945,223 357,897
=========== =========== =========== =========== ===========
Net Asset Value per share ........................ $ 21.03 $ 1.00 $ 10.68 $ 15.33 $ 12.44
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
AUL American Series Fund, Inc.
Statements of Operations
For the year ended December 31, 1997
<TABLE>
<CAPTION>
Portfolio
---------------------------------------------------------------------
Equity Money Market Bond Managed Tactical Asset
------------ ------------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Investment Income:
Income:
Dividends ................................ $ 994,398 $ -- $ -- $ 436,958 $ 23,527
Interest ................................. 438,298 2,580,200 1,915,146 1,594,333 86,847
----------- ----------- ----------- ----------- -----------
1,432,696 2,580,200 1,915,146 2,031,291 110,374
----------- ----------- ----------- ----------- -----------
Expenses:
Investment advisory fee .................. 328,408 235,394 154,861 258,903 16,830
Custodian and service agent fees ......... 68,404 48,829 33,015 55,772 7,774
Professional fees ........................ 8,096 6,201 3,975 6,395 5,212
Amortization of deferred
organization costs ..................... -- -- -- -- 1,610
Director fees ............................ 6,552 4,755 3,163 5,220 332
Printing ................................. 13,913 10,098 6,719 11,087 702
Proxy .................................... 6,708 5,385 3,471 5,567 362
Other expenses ........................... 1,279 1,279 1,279 1,279 1,279
----------- ----------- ----------- ----------- -----------
433,360 311,941 206,483 344,223 34,101
----------- ----------- ----------- ----------- -----------
Net investment income .................... 999,336 2,268,259 1,708,663 1,687,068 76,273
----------- ----------- ----------- ----------- -----------
Gain (Loss) on Investments:
Net realized gain ........................ 1,058,100 -- 687,635 1,443,799 257,170
Net change in unrealized
gain (loss) .............................. 14,404,527 -- (27,147) 6,578,271 130,402
----------- ----------- ----------- ----------- -----------
Net gain ................................. 15,462,627 -- 660,488 8,022,070 387,572
----------- ----------- ----------- ----------- -----------
Net Increase in
Net Assets from Operations .......... $16,461,963 $ 2,268,259 $ 2,369,151 $ 9,709,138 $ 463,845
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
AUL American Series Fund, Inc.
Statements of Changes in Net Assets
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Portfolio
Equity Money Market
------------------------------- -----------------------------
1997 1996 1997 1996
-------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
Increase in Net Assets
from Operations:
Net investment income ........... $ 999,336 $ 769,850 $ 2,268,259 $ 1,544,419
Net realized gain (loss) ........ 1,058,100 (217,011) -- --
Net change in
unrealized gain (loss) .......... 14,404,527 6,974,701 -- --
------------ ----------- ------------ ------------
Increase in Net Assets
from Operations ................. 16,461,963 7,527,540 2,268,259 1,544,419
------------ ----------- ------------ ------------
Dividends and Distributions:
From net investment income ...... (1,011,139) (760,627) (2,268,259) (1,544,419)
From net realized gain .......... (841,088) -- -- --
------------ ----------- ----------- ------------
Decrease ........................ (1,852,227) (760,627) (2,268,259) (1,544,419)
------------ ----------- ------------ ------------
Shareholder Transactions:
Proceeds from shares sold ....... 23,646,772 14,831,799 89,738,967 82,650,126
Reinvested distributions ........ 1,693,617 677,401 2,268,259 1,544,419
Cost of shares redeemed ......... (10,326,275) (6,923,532) (76,477,759) (68,257,076)
------------ ----------- ------------ ------------
Increase ........................ 15,014,114 8,585,668 15,529,467 15,937,469
------------ ----------- ------------ ------------
Net increase .................... 29,623,850 15,352,581 15,529,467 15,937,469
Net Assets at beginning of year.. 50,652,106 35,299,525 40,227,475 24,290,006
------------ ----------- ------------ ------------
Net Assets at end of year ....... $ 80,275,956 $ 50,652,106 $ 55,756,942 $ 40,227,475
============ ============ ============ ============
Shares sold ..................... 1,225,237 965,142 89,738,967 82,650,126
Reinvested distributions ........ 83,382 43,359 2,268,259 1,544,419
Shares redeemed ................. (535,202) (449,474) (76,477,759) (68,257,076)
------------ ----------- ------------ ------------
Net Increase .................... 773,417 559,027 15,529,467 15,937,469
Shares outstanding at
beginning of year ............... 3,042,989 2,483,962 40,227,475 24,290,006
------------ ----------- ------------ ------------
Shares outstanding at end of year 3,816,406 3,042,989 55,756,942 40,227,475
============ =========== ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
AUL American Series Fund, Inc.
Statements of Changes in Net Assets (continued)
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Portfolio
---------------------------------------------------------------
Bond Managed
-------------------------------- -----------------------------
1997 1996 1997 1996
------------ --------------- ------------ ------------
<S> <C> <C> <C> <C>
Increase in Net Assets
from Operations:
Net investment income ................. $ 1,708,663 $ 1,609,109 $ 1,687,068 $ 1,271,092
Net realized gain ..................... 687,635 18,492 1,443,799 77,781
------------ ----------- ------------ ------------
Net change in
unrealized gain (loss) ................ (27,147) (1,021,212) 6,578,271 2,961,892
------------ ----------- ------------ ------------
Increase in Net Assets
from Operations ....................... 2,369,151 606,389 9,709,138 4,310,765
Dividends and Distributions:
From net investment income ............ (1,707,647) (1,616,520) (1,691,973) (1,269,322)
From net realized gain ................ (633,130) (18,491) (1,443,799) (77,781)
------------ ----------- ------------ ------------
Decrease .............................. (2,340,777) (1,635,011) (3,135,772) (1,347,103)
------------ ----------- ------------ ------------
Shareholder Transactions:
Proceeds from shares sold ............. 13,713,183 14,086,640 15,228,291 15,341,831
Reinvested distributions .............. 2,340,777 1,495,931 3,135,773 1,316,098
Cost of shares redeemed ............... (9,552,294) (11,795,234) (7,552,037) (7,374,576)
------------ ----------- ------------ ------------
Increase .............................. 6,501,666 3,787,337 10,812,027 9,283,353
------------ ----------- ------------ ------------
Net increase .......................... 6,530,040 2,758,715 17,385,393 12,247,015
Net Assets at beginning of year ....... 28,187,880 25,429,165 43,091,617 30,844,602
------------ ----------- ------------ ------------
Net Assets at end of year ............. $ 34,717,920 $ 28,187,880 $ 60,477,010 $ 43,091,617
============ ============ ============ ============
Shares sold ........................... 1,268,900 1,316,217 1,035,603 1,203,357
Reinvested distributions .............. 219,241 141,513 208,366 101,708
Shares redeemed ....................... (884,186) (1,108,222) (513,935) 573,913)
------------ ----------- ------------ ------------
Net Increase .......................... 603,955 349,508 730,034 731,152
Shares outstanding at beginning of year 2,648,089 2,298,581 3,215,189 2,484,037
------------ ----------- ------------ ------------
Shares outstanding at end of year ..... 3,252,044 2,648,089 3,945,223 3,215,189
============ =========== ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
AUL American Series Fund, Inc.
Statement of Changes in Net Assets (continued)
for the years ended December 31, 1997 and 1996
Portfolio
---------------------------
Tactical Asset
---------------------------
1997 1996
----------- -----------
Increase in Net Assets
from Operations:
Net investment income ........... $ 76,273 $ 43,086
Net realized gain ............... 257,170 26,150
Net change in
unrealized gain (loss) .......... 130,402 188,464
----------- -----------
Increase in Net Assets
from Operations ................. 463,845 257,700
----------- -----------
Dividends and Distributions:
From net investment income ...... (76,151) (42,732)
From net realized gain .......... (257,170) (26,150)
----------- -----------
Decrease ........................ (333,321) (68,882)
----------- -----------
Shareholder Transactions:
Proceeds from shares sold ....... 2,246,655 874,893
Reinvested distributions ........ 232,373 28,262
Cost of shares redeemed ......... (302,190) (86,556)
----------- -----------
Increase ........................ 2,176,838 816,599
----------- -----------
Net increase .................... 2,307,362 1,005,417
Net Assets at beginning of year.. 2,144,873 1,139,456
----------- -----------
Net Assets at end of year ....... $ 4,452,235 $ 2,144,873
=========== ===========
Shares sold ..................... 178,777 80,409
Reinvested distributions ........ 18,622 2,488
Shares redeemed ................. (23,548) (7,998)
----------- -----------
Net Increase .................... 173,851 74,899
Shares outstanding at
beginning of year ............... 184,046 109,147
----------- -----------
Shares outstanding at end of year 357,897 184,046
=========== ===========
The accompanying notes are an integral part of the financial statements.
<PAGE>
AUL American Series Fund, Inc.
Schedule of Investments
Equity portfolio
December 31, 1997
Market
Description Shares Value
--------------------------------------------- ---------- ---------
Common Stock (87.8%)
Aerospace (1.7%)
Boeing Co. ....................................... 15,300 $ 748,744
Precision Castparts Corp. ........................ 10,300 621,219
----------
1,369,963
----------
Auto and Auto Parts (4.7%)
Bandag, Inc. ..................................... 32,200 1,720,687
Ford Motor Co. ................................... 44,500 2,166,594
----------
3,887,281
----------
Banks & Financial (11.8%)
American Express Co. ............................. 22,200 1,981,350
Ohio Casualty Corp. .............................. 29,300 1,307,513
Banc One Corp. ................................... 36,330 1,973,173
Travelers Group, Inc. ............................ 43,900 2,365,113
Washington Mutual, Inc. .......................... 29,790 1,900,974
----------
9,528,123
----------
Broadcasting & Publishing (7.6%)
Chris-Craft Industries, Inc.* .................... 25,971 1,358,608
Deluxe Corp. ..................................... 32,500 1,121,250
Gibson Greetings, Inc. ........................... 39,500 864,062
Harland (John H.) Co. ............................ 34,600 726,600
Meredith Corp. ................................... 32,800 1,170,550
Moore Corp., Ltd. ................................ 58,000 877,250
----------
6,118,320
----------
Electrical Equipment & Electronics (7.6%)
Baldor Electric Co. .............................. 95,680 2,075,060
Dynatech Corp.* .................................. 64,200 3,009,375
General Electric Co. ............................. 13,800 1,012,575
----------
6,097,010
----------
Entertainment & Leisure (4.7%)
CPI Corp. ........................................ 56,200 1,271,525
Fleetwood Enterprises, Inc. ...................... 59,800 2,537,763
----------
3,809,288
----------
Furniture and Apparel (9.8%)
Hillenbrand Industries, Inc. ..................... 36,000 1,842,750
Kellwood Co. ..................................... 50,100 1,503,000
La Z Boy Chair Co. ............................... 53,800 2,320,125
Liz Claiborne, Inc. .............................. 33,000 1,379,813
Reebok International ............................. 29,300 844,206
----------
7,889,894
----------
Health Care (6.8%)
Acuson Corp. ..................................... 40,700 674,094
Guidant Corp. .................................... 6,800 423,300
Lilly (Eli) & Co. ................................ 13,540 942,723
Merck & Co. ...................................... 10,400 1,105,000
McKesson Corporation ............................. 21,800 2,358,487
----------
5,503,604
----------
Information Processing & Telecommunications (9.8%)
AT & T Corp. ..................................... 36,500 2,235,624
International Business ........................... 14,300 1,495,244
Machines Corp.
Novell, Inc.* .................................... 62,500 468,750
Sun Microsystems, Inc.* .......................... 50,300 2,005,713
Telxon Corp. ..................................... 70,900 1,692,738
----------
7,898,069
----------
Merchandising (5.2%)
Longs Drug Stores Corp. .......................... 66,700 2,142,737
Mercantile Stores Co. ............................ 20,800 1,266,200
Stanhome, Inc. ................................... 32,100 824,569
----------
4,233,506
----------
Metals & Mining (5.5%)
AK Steel Holding Corp. ........................... 48,900 864,918
Aluminum Company of .............................. 22,200 1,562,325
America
Cleveland-Cliffs, Inc. ........................... 27,100 1,241,519
Oregon Steel Mills, Inc. ......................... 35,900 765,119
----------
4,433,881
----------
Oil & Oil Services (4.1%)
Royal Dutch Petroleum Co. ........................ 29,400 1,593,112
Valero Energy Crop ............................... 55,000 1,729,063
----------
3,322,175
----------
Transportation (3.4%)
Alexander & Baldwin, Inc. ........................ 61,800 1,687,912
Norfolk Southern Corp. ........................... 34,200 1,053,788
----------
2,741,700
----------
*does not pay cash dividends
The accompanying notes are an integral part of the financial statements.
<PAGE>
AUL American Series Fund, Inc.
Schedule of Investments
Equity Portfolio (continued)
December 31, 1997
Market
Description Shares Value
--------------------------------------------- --------- ----------
Common Stock (87.8%), continued
Miscellaneous (5.1%)
Carlisle Companies, Inc. ........................ 18,500 $ 790,875
Kelly Services, Inc. ............................ 53,000 1,590,000
Michael Foods, Inc. ............................. 38,600 940,875
PG & E Corporation .............................. 25,594 779,017
----------
4,100,767
----------
Total common stock (cost: $44,851,191) 70,933,581
----------
Money Market Mutual Funds (3.5%)
Federated Investors Prime Obligation Account .... 2,856,287 2,856,287
----------
Total mutual funds (cost: $2,856,287) ........... 2,856,287
----------
Interest Maturity Principal Market
Rate Date Amount Value
--------- --------- ----------- ----------
Short-term Notes (5.6%)
Associates Corporation of
North America ............ 5.620% 01/09/98 $ 1,500,000 1,498,215
Beneficial Corporation ... 5.580% 01/06/98 1,000,000 999,310
GE Capital ............... 5.700% 01/13/98 2,000,000 1,996,260
----------
Total short-term notes (cost: $4,493,552) 4,493,785
----------
Cash and Cash Equivalent (3.1%)
BONY Cash Reserve 2,468,307
----------
Total Cash and Cash Equivalent (cost: $2,468,307) 2,468,307
----------
Total Investments (cost: $54,669,337) $80,751,960
-----------
*does not pay cash dividends
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
AUL American Series Fund, Inc.
Schedule of Investments
Money Market Portfolio
December 31, 1997
<CAPTION>
Interest Maturity Principal Market
Description Rate Date Amount Value
-------------------------------------- ---------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
Short-term Notes (86.4%)
U.S. Government & Agency Obligations (58.4%)
Federal Home Loan Bank Notes ........... 5.450% 01/09/98 $ 3,000,000 $ 2,996,367
Federal Home Loan Mortgage
Corporation Notes ...................... 5.500% 02/06/98 5,200,000 5,171,140
Federal Home Loan Mortgage
Corporation Notes ...................... 5.600% 02/20/98 6,000,000 5,953,333
Federal National Mortgage
Association Notes ...................... 5.450% 02/05/98 2,100,000 2,088,873
Federal National Mortgage
Association Notes ...................... 5.600% 01/21/98 4,000,000 3,987,556
Federal National Mortgage
Association Notes ...................... 5.500% 01/13/98 5,500,000 5,489,990
Federal National Mortgage
Association Notes ...................... 5.400% 01/12/98 6,500,000 6,489,275
-----------
32,176,534
Corporate Obligations (28.0%)
Automotive (3.6%)
Ford Motor Credit Corporation .......... 5.780% 01/09/98 2,000,000 2,000,000
-----------
2,000,000
Electrical Equipment (13.4%)
General Electric Company ............... 5.620% 01/23/98 2,400,000 2,400,000
General Electric Capital Corporation ... 5.900% 01/30/98 2,700,000 2,700,000
General Electric Capital Corporation ... 5.830% 01/09/98 2,300,000 2,300,000
-----------
7,400,000
Financial (6.5%)
Associates Corporation of North America 5.690% 01/20/98 1,800,000 1,800,000
Prudential Funding Corporation ......... 5.700% 01/16/98 1,800,000 1,800,000
-----------
3,600,000
Machinery (4.5%)
John Deere Capital Corporation ......... 5.820% 01/23/98 2,500,000 2,500,000
-----------
2,500,000
-----------
Total short-term notes (cost: $47,676,534) .. 47,676,534
-----------
Shares
------
Money Market Mutual Funds (8.9%)
Dreyfus Masternote Account ............. 2,892,040 2,892,040
Federated Investors Prime Obligation ............. 2,010,531 2,010,531
-----------
Total money market mutual funds (cost: $4,902,571) 4,902,571
-----------
Cash and Cash Equivalent (4.7%)
BONY Cash Reserve ................................ 2,589,357
-----------
Total cash and cash equivalent (cost: $2,589,357) 2,589,357
-----------
Total Investments (cost: $55,168,462) ............ $55,168,462
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
AUL American Series Fund, Inc.
Schedule of Investments
Bond Portfolio
December 31, 1997
<TABLE>
<CAPTION>
Interest Maturity Principal Market
Description Rate Date Amount Value
--------------------------- --------- ---------- ----------- --------------
Long-term Notes and Bonds (97.2%)
U.S. Government & Agency Obligations (35.7%)
<S> <C> <C> <C> <C>
Federal Home Loan Bank Notes 8.375% 10/25/99 $ 1,300,000 $ 1,355,300
Federal National Mortgage
Association Notes 6.640% 07/12/99 1,450,000 1,465,820
U.S. Treasury Bonds 6.625% 02/15/27 1,150,000 1,247,555
U.S. Treasury Bonds 8.000% 11/15/21 425,000 529,899
U.S. Treasury Notes 8.000% 05/15/01 1,950,000 2,082,444
U.S. Treasury Notes 6.250% 02/28/02 1,900,000 1,933,972
U.S. Treasury Notes 6.750% 04/30/00 3,300,000 3,374,151
----------
11,989,141
Collateralized Mortgage Obligations (24.0%)
American Southwest Financial
Corporation CMO 8.900% 03/01/18 180,200 188,110
Federal National Mortgage
Association Notes CMO 7.500% 12/25/09 600,000 621,438
Federal National Mortgage
Association Notes CMO 6.500% 05/25/08 800,000 810,624
GNMA Pass-Through 8.000% 07/15/27 660,188 684,417
GNMA Pass-Through 8.000% 07/15/27 332,136 344,319
GNMA Pass-Through 7.000% 05/15/26 247,185 249,180
GNMA Pass-Through 7.000% 01/15/27 2,908,199 2,931,726
GNMA Pass-Through 7.500% 01/15/27 693,001 710,056
Green Tree Manufactured Housing CMO 7.290% 03/15/28 1,200,000 1,240,332
Prudential -Bache Trust CMO 12D 5.350% 10/20/09 242,432 241,259
----------
8,021,461
Corporate Obligations (37.5%)
Associates Corporation of North
America Notes 5.600% 01/15/01 1,600,000 1,576,000
California Infrastructure Bonds 6.220% 03/25/04 400,000 399,788
California Infrastructure Bonds 6.320% 09/25/05 700,000 700,504
Carlisle Companies, Inc. 7.250% 01/15/07 950,000 992,750
El Paso Natural Gas Company Notes 7.750% 01/15/02 200,000 209,750
Enron Corporation 6.450% 11/15/01 400,000 401,500
General Electric Capital Corporation 8.850% 04/01/05 600,000 694,500
General Motors Acceptance
Corporation Notes 5.450% 03/01/99 1,000,000 993,750
Hydro-Quebec Debenture Bonds 8.050% 07/07/24 400,000 463,000
ICI Investments BV 6.750% 08/07/02 800,000 809,520
Korean Development Bank 7.375% 09/17/04 800,000 634,000
Eli Lilly & Company Notes 8.375% 12/01/06 850,000 971,125
Petroliam National Berhd. 7.125% 10/18/06 500,000 470,000
Salomon Smith Barney Holdings Notes 6.625% 11/15/03 900,000 906,750
Service Corporation 6.750% 06/01/01 900,000 913,500
U.S. West Capital Funding 7.900% 02/01/27 1,350,000 1,469,813
----------
12,606,250
----------
Total long-term notes and bonds (cost: $32,000,133) $ 32,616,852
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
AUL American Series Fund, Inc.
Schedule of Investments
Bond Portfolio (continued)
December 31, 1997
Principal Market
Description Amount Value
------------------------------------------------------------ ------------- -------------
<S> <C>
Money Market Mutual Funds (0.3%)
Federated Investors Prime Obligation $ 84,206
----------
Total mutual funds (cost: $84,206) 84,206
----------
Cash and Cash Equivalents (2.5%)
BONY Cash Reserve 859,175
----------
Total cash and cash equivalents (cost: $859,175) 859,175
----------
Total Investments (cost: $32,943,514) $ 33,560,233
============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AUL American Series Fund, Inc.
Schedule of Investments
managed portfolio
December 31, 1997
Market
Description Shares Value
----------------------------------------------- ------------ -------------
<S> <C> <C> <
Common Stock (53.5%)
Aerospace (1.0%)
Boeing Co. 6,900 $ 337,668
Precision Castparts Corp. 5,100 307,594
------------
645,262
------------
Auto and Auto Parts (2.9%)
Bandag, Inc. 13,700 732,094
Ford Motor Co. 20,300 988,356
------------
1,720,450
------------
Banks & Financial (7.1%)
American Express Co. 9,900 883,575
Banc One Corp. 16,350 888,009
Ohio Casualty Corp. 13,400 597,975
Travelers Group, Inc. 20,509 1,104,923
Washington Mutual, Inc. 13,070 834,029
------------
4,308,511
------------
Broadcasting & Publishing (4.8%)
Chris-Craft Industries, Inc.* 11,629 608,342
Deluxe Corp. 15,000 517,500
Gibson Greetings, Inc. 19,000 415,625
Harland (John H.) Co. 16,900 354,900
Meredith Corp. 14,900 531,744
Moore Corp., Ltd. 26,600 402,325
------------
2,830,436
------------
Electrical Equipment & Electronics (4.6%)
Baldor Electric Co. 43,400 941,238
Dynatech Corp.* 29,000 1,359,374
General Electric Co. 6,100 447,588
------------
2,748,200
------------
Entertainment & Leisure (3.0%)
CPI Corp. 27,300 617,663
Fleetwood Enterprises 28,100 1,192,493
------------
1,810,156
------------
Furniture and Apparel (5.9%)
Hillenbrand Industries, Inc. 15,700 803,644
Kellwood Co. 22,600 678,000
La Z Boy Chair Co. 24,500 1,056,563
Liz Claiborne, Inc. 15,100 631,369
Reebok International 13,400 386,087
------------
3,555,663
------------
Health Care (4.1%)
Acuson Corp.* 18,800 311,375
Guidant Corp. 3,400 211,650
Lilly (Eli) & Co. 5,904 411,066
Merck & Co. 4,900 520,625
McKesson Corporation 9,700 1,049,419
------------
2,504,135
------------
Information Processing & Telecommunications (5.9%)
AT & T Corporation 15,100 924,875
International Business 7,000 731,938
Machines Corp.
Novell, Inc.* 30,200 226,500
Sun Microsystems, Inc.* 22,600 901,175
Telxon Corp. 32,400 773,550
------------
3,558,038
------------
Merchandising (3.2%)
Longs Drug Stores Corp. 30,300 973,387
Mercantile Stores Co. 9,300 566,138
Stanhome, Inc. 14,500 372,469
------------
1,911,994
------------
Metals & Mining (3.3%)
AK Steel Holding Corp. 22,800 403,275
Aluminum Company of 10,000 703,750
America
Cleveland Cliffs, Inc. 12,200 558,913
Oregon Steel Mills, Inc. 15,900 338,868
------------
2,004,806
------------
Oil & Oil Services (2.5%)
Royal Dutch Petroleum Co. 13,400 726,113
Valero Energy Crop. 24,800 779,650
------------
1,505,763
------------
Transportation (2.1%)
Alexander & Baldwin, Inc. 27,200 742,900
Norfolk Southern Corp. 17,100 526,894
------------
1,269,794
------------
</TABLE>
*does not pay cash dividends
The accompanying notes are an integral part of the financial statements.
<PAGE>
AUL American Series Fund, Inc.
Schedule of Investments
Managed Portfolio (continued)
December 31, 1997
<TABLE>
<CAPTION>
Market
Description Shares Value
---------------------------------------------- ------------- -------------
<S> <C> <C>
Common Stock (53.5%), continued
Miscellaneous (3.1%)
Carlisle Companies, Inc. 9,000 $ 384,750
Kelly Services 24,100 723,000
Michael Foods, Inc. 16,900 411,938
PG & E Corporation 12,354 376,022
1,895,710
------------
Total common stock (cost: $20,053,029) 32,268,918
------------
Money Market Mutual Funds (1.7%)
Federated Investors Prime Obligation 1,023,272 1,023,272
------------
Total money market mutual funds (cost: $1,023,272) 1,023,272
------------
</TABLE>
<TABLE>
<CAPTION>
Interest Maturity Principal Market
Rate Date Amount Value
-------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Long-term Notes and Bonds (41.4%)
U.S. Government and Agency Obligations 16.3%)
Federal Home Loan Bank Bonds 8.600% 06/25/99 $ 500,000 519,500
Federal Home Loan Bank Bonds 8.375% 10/25/99 900,000 938,286
Federal National Mortgage
Association Bonds 8.350% 11/10/99 500,000 521,345
Federal National Mortgage
Association Bonds 6.640% 07/12/99 850,000 859,274
U.S. Treasury Bonds 8.000% 11/15/21 350,000 436,387
U.S. Treasury Bonds 6.625% 02/15/27 700,000 759,381
U.S. Treasury Notes 8.000% 05/15/01 2,400,000 2,563,008
U.S. Treasury Notes 6.250% 02/28/02 1,550,000 1,577,714
U.S. Treasury Notes 6.750% 04/30/00 1,700,000 1,738,199
------------
9,913,094
------------
Collateralized Mortgage Obligations (11.6%)
Federal National Mortgage
Association Notes CMO 6.500% 05/25/08 500,000 506,640
GNMA Pass-Through 6.500% 05/15/26 389,857 385,876
GNMA Pass-Through 6.500% 01/15/26 210,361 208,282
GNMA Pass-Through 6.500% 04/15/26 572,382 566,824
GNMA Pass-Through 6.500% 03/15/26 280,516 277,717
GNMA Pass-Through 7.000% 01/15/27 1,902,628 1,917,982
GNMA Pass-Through 7.500% 01/15/27 693,001 710,063
GNMA Pass-Through 7.500% 12/15/27 396,000 405,773
GNMA Pass-Through 8.000% 07/15/27 345,343 358,017
GNMA Pass-Through 8.000% 07/15/27 295,641 306,535
GNMA Pass-Through 7.000% 05/15/26 499,849 503,903
Green Tree Notes
Manufacturing Housing CMO 7.290% 03/15/28 800,000 826,889
------------
6,974,501
------------
</TABLE>
*does not pay cash dividends
The accompanying notes are an integral part of the financial statements.
<PAGE>
AUL American Series Fund, Inc.
Schedule of Investments
Managed Portfolio (continued)
December 31, 1997
<TABLE>
<CAPTION>
Interest Maturity Principal Market
Description Rate Date Amount Value
-------------------------------------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Corporate Obligations (13.5%)
Associates Corporation of
North America 5.600% 01/15/01 $ 400,000 $ 394,000
California Infrastructure 6.220% 03/25/04 300,000 299,841
California Infrastructure 6.320% 09/25/05 400,000 400,288
Carlisle Companies, Inc. 7.250% 01/15/07 550,000 574,750
El Paso Natural Gas Co. Notes 7.750% 01/15/02 100,000 104,875
Enron Corp. 6.450% 11/15/01 300,000 301,125
General Electric Capital
Corporation 8.850% 04/01/05 600,000 694,500
GMAC Notes 5.450% 03/01/99 800,000 795,000
Hydro-Quebec Debenture Bonds 8.050% 07/07/24 250,000 289,375
Korean Development Bank 7.375% 09/17/04 600,000 475,500
Eli Lilly & Co. Bonds 8.375% 12/01/06 450,000 514,125
ICI Investments BV 6.750% 08/07/02 600,000 607,140
Petroleum National Berhd. 7.375% 09/17/04 400,000 376,000
Service Company International Note 6.750% 06/01/01 700,000 710,500
Salomon Smith Barney Holding Note 6.625% 11/15/03 600,000 604,500
U.S. West Capital Funding 7.900% 02/01/27 900,000 979,875
------------
8,121,394
------------
Total long-term notes and bonds (cost: $24,602,056) 25,008,989
------------
Short-term Notes (1.6%)
Associates Corporation 8.450% 02/02/98 1,000,000 994,400
------------
Total short-term notes (cost: $994,290) 994,400
------------
Cash and Cash Equivalent (1.8%)
BONY Cash Reserve 1,057,594
------------
Total cash and cash equivalent (cost: $1,057,594) 1,057,594
------------
Total Investments (cost: $47,730,241) $ 60,353,173
============
</TABLE>
*does not pay cash dividends
The accompanying notes are an integral part of the financial statements.
<PAGE>
AUL American Series Fund, Inc.
Schedule of Investments
Tactical Asset Allocation Portfolio
December 31, 1997
<TABLE>
<CAPTION>
Market
Description Shares Value
<S> <C> <C>
Common Stock (50.7%)
Automotive (2.9%)
Chrysler Corp. 2,000 $ 70,375
Ford Motor Co. 1,200 58,425
---------
128,800
---------
Banks & Financial (18.3%)
AFLAC, Inc. 1,500 76,688
AMBAC, Inc. 2,000 92,000
American National Insurance 500 46,500
Chase Manhattan Corp. 300 32,850
Countrywide Credit Ind. 1,000 42,875
Fannie Mae 1,000 57,063
Frontier Insurance Group, Inc. 4,000 91,500
Green Tree Financial Corp. 3,500 91,656
Imperial Credit Commercial 5,000 73,125
Lawyers Title Corp. 1,000 31,436
Lehman Brothers Holding, Inc. 1,000 51,000
MGIC Investment Group 800 53,200
PMI Group, Inc. 1,000 72,313
---------
812,206
---------
Electric Utility (1.4%)
Illinova Corp 1,000 26,938
Nipsco 700 34,606
---------
61,544
---------
Information Processing & Telecommunications (11.5%)
360 Communications Company 4,000 80,750
Applied Materials, Inc. 3,000 90,375
Arrow Electronics, Inc. 1,000 32,438
Cabletron Systems, Inc. 2,500 37,500
Cox Communications, Inc. 1,500 60,093
ECI Telecommunications Limited Designs 2,000 51,000
Intel Corp. 800 56,200
MEMC Electronic Materials, Inc. 1,000 15,250
Seagate Technology, Inc. 2,000 38,500
Sprint Corp. 800 46,900
---------
509,006
---------
Manufactured Housing (2.4%)
Clayton Homes, Inc. 4,000 72,000
Oakwood Homes Corp. 1,000 33,188
---------
105,188
---------
Merchandising (2.6%)
Fingerhut Companies, Inc. 1,500 32,062
Payless Shoesource, Inc. 764 51,284
Toys R Us 1,000 31,438
---------
114,784
---------
Metals & Mining (3.1%)
Alumax, Inc. 700 23,800
Aluminum Co. of America 400 28,150
Potash Corp. of Saskatchewan 1,000 83,000
---------
134,950
---------
Real Estate (2.6%)
Simon Debartolo Group, Inc. 1,000 32,688
Storage USA 1,000 39,938
Trizec Hahn Corp 2,000 46,374
---------
119,000
---------
Miscellaneous (5.9%)
AGCo Corp. 2,000 58,500
Comair Holdings, Inc. 2,250 54,281
Dow Chemical Co. 400 40,600
Philip Morris Cos., Inc. 1,000 45,311
R.P. Scherer Corp. 1,000 61,000
---------
259,692
---------
Total common stock (cost: $1,894,616) 2,245,170
---------
Preferred Stock (0.9%)
News Corp LTD 2,000 39,750
---------
Total preferred stock (cost: $35,535) 39,750
---------
</TABLE>
*does not pay cash dividends
The accompanying notes are an integral part of the financial statements.
<PAGE>
AUL American Series Fund, Inc.
Schedule of Investments
Tactical Asset Allocation Portfolio (continued)
December 31, 1997
<TABLE>
<CAPTION>
Interest Maturity Principal Market
Description Rate Date Amount Value
<S> <C> <C> <C> <C>
Long Term Notes (31.9%)
U.S. Government and Agency Obligations 21.7%)
Federal Home Loan Bank Bonds 0.000% 01/21/03$ 100,000$ 70,940
Federal National Mortgage
Association Bonds 7.760% 08/02/06 100,000 102,568
U.S. Treasury Note 6.500% 05/15/05 100,000 104,198
U.S. Treasury Note 6.000% 10/15/99 100,000 100,593
U.S. Treasury Note 5.500% 04/15/00 100,000 99,629
U.S. Treasury Note 5.250% 07/31/98 100,000 99,847
U.S. Treasury Note 5.875% 02/15/04 150,000 151,313
U.S. Treasury Note 6.375% 01/15/00 100,000 101,429
U.S. Treasury Note 7.500% 11/15/01 125,000 132,478
---------
962,995
---------
Corporate Obligations (10.2%)
E.I. Dupont De Nemours 6.500% 09/01/02 150,000 152,063
Countrywide Funding Corporation 6.280% 01/15/03 150,000 149,812
Hilton Hotels 7.000% 01/15/04 150,000 150,000
---------
451,875
---------
Total long-term notes and bonds (cost: $1,407,077) 1,414,870
---------
Short Term Notes (11.5%)
GTE Funding 01/08/98 110,000 109,887
Industrial Funding 01/05/98 400,000 399,796
---------
Total short-term notes and bonds (cost: $509,563) 509,683
---------
Certificates of Deposit (3.4%)
Potomac Capital 09/12/01 150,000 150,563
---------
Total certificates of deposit (cost: $150,000) 150,563
---------
Cash and Cash Equivalents (1.6%)
BONY Cash Reserve 69,909 69,909
---------
Total cash and cash equivalent (cost: $69,909) 69,909
---------
Total Investments (cost: $4,066,700) $ 4,429,945
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
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, Tactical Asset Allocation
Portfolio (Tactical Asset), Conservative Investor Portfolio, Moderate Investor
Portfolio and Aggressive Investor Portfolio, hereinafter, referred to as
portfolios. Currently, the Fund offers shares only to separate accounts of
American United Life Insurance Company (AUL) to serve as an underlying
investment vehicle for variable annuity contracts. The Fund commenced operations
on April 10, 1990. The Conservative Investor Portfolio, Moderate Investor
Portfolio and Aggressive Investor Portfolio have not commenced operations as of
December 31, 1997 and as such are not included in the financial statements.
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,
short-term obligations maturing in 60 days or less, when purchased, 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
Advisor 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 the 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 of 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 and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of increases and decrease in net assets from operations
during the reporting period. Actual results could differ from those estimates.
<PAGE>
Notes to Financial Statements (continued)
2. Transactions with AUL
As of December 31, 1997. AUL's investment at value in the Fund is:
Equity Portfolio $ 6,511,077
Tactical Asset Portfolio 622,012
------------
$ 7,133,089
============
The Fund has an investment advisory agreement with AUL to act as its investment
advisor. AUL has a sub-advisory agreement with Dean Associates under which Dean
acts as the Sub-Advisor to the Tactical Asset Portfolio. For its services, AUL
receives a fee at an annual rate of .50% of the Portfolio's average daily net
assets, except for Tactical Asset where the fee is .80%. 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. As of
December 31, 1997, AUL's investment advisory fee was reduced for Tactical Asset.
To the extent that AUL has reduced its advisory fees to prevent the Portfolio's
aggregate ordinary operating expenses from exceeding 1% of average daily net
asset, 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.
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 years ended December 31, 1997 and
1996, were $994,396 and $712,483, respectively. Certain directors of the Fund
are officers of AUL.
3. Agreements with Banks
The Fund has agreements with The Bank of New York (Bank) whereby the Bank serves
as custodian of the securities and other assets of the Fund and as the fund's
accountant.
4. Investment Transactions
Purchases and sales of investment securities (excluding short-term securities
and money market mutual funds) during the year ended December 31, 1997, were:
<TABLE>
<CAPTION>
Portfolio
---------------------------------------------------------------
Equity Money Bond Managed Tactical
Market Asset
------------ -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Common Stock:
Purchases ......... $14,814,315 $ -- $ -- $ 4,751,130 $ 1,673,834
Proceeds from sales 5,191,117 -- -- 4,342,621 1,030,048
Corporate Bonds:
Purchases ......... -- -- 10,257,516 7,117,480 597,482
Proceeds from sales -- -- 6,452,612 1,959,972 --
Government Bonds:
Purchases ......... -- -- 25,687,099 20,905,139 868,166
Proceeds from sales -- -- 23,940,975 6,423,982 450,000
</TABLE>
5. Authorized Capital Shares
The Fund has 325,000,000 authorized shares of $.001 par value capital stock,
which includes 20,000,000 unallocated shares. The remaining shares are allocated
to each of the Fund's portfolios as follows:
Equity Portfolio 20,000,000
Money Market Portfolio 125,000,000
Bond Portfolio 20,000,000
Managed Portfolio 40,000,000
Tactical Asset 25,000,000
Conservative Investor Portfolio 25,000,000
Moderate Investor Portfolio 25,000,000
Aggressive Investor Portfolio 25,000,000
-----------
305,000,000
===========
<PAGE>
Notes to Financial Statements (continued)
6. Net Assets
Net Assets at December 31, 1997, are:
<TABLE>
<CAPTION>
Portfolio
---------------------------------------------------------------------------------
Equity Money Bond Managed Tactical
Market Asset
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Proceeds from shares sold
and reinvested distributions $ 80,202,566 $ 256,056,630 $ 66,042,092 $ 73,830,956 $ 4,488,240
Cost of shares redeemed .... (26,009,282) (200,299,688) (32,000,880) (25,980,770) (399,481)
Undistributed net investment
income .................... 49 -- 5,484 3,892 231
Undistributed net realized
gain (loss) ................ -- -- 54,505 -- --
Unrealized gain (loss) ..... 26,082,623 -- 616,719 12,622,932 363,245
------------- ------------- ------------- ------------- -------------
$ 80,275,956 $ 55,756,942 $ 34,717,920 $ 60,477,010 $ 4,452,235
</TABLE>
7. Unrealized Gain
Unrealized Gain (Loss) at December 31, 1997, is:
<TABLE>
<CAPTION>
Portfolio
--------------------------------------------------------------------------
Equity Money Bond Managed Tactical
Market Asset
------------- ------------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Common Stock:
Appreciation ... $ 26,760,626 $ -- $ -- $ 12,526,486 $ 506,592
Depreciation ... (678,236) -- -- (310,596) (151,822)
Notes and Bonds:
Appreciation ... 233 -- 825,719 564,361 9,987
Depreciation ... -- -- (209,000) (157,319) (1,512)
------------- ------------- ------------ ------------ ----------
$ 26,082,623 $ -- $ 616,719 $ 12,622 $ 363,245
============ ============= ============ ============ ==========
</TABLE>
8. Shares Outstanding
Shares Outstanding at December 31, 1997, are:
<TABLE>
<CAPTION>
Portfolio
--------------------------------------------------------------
Equity Money Bond Managed Tactical
Market Asset
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
AUL ........................ 309,609 -- -- -- 50,001
Dean Investments ........... -- -- -- -- 50,000
AUL American Unit Trust .... 1,614,297 7,349,731 795,328 1,550,349 9
AUL Group Retirement Annuity
Separate Account II ... 1,465,751 43,314,846 2,235,017 1,991,812 3,165
AUL American Individual
Unit Trust ............ 426,749 5,092,365 221,699 403,062 254,722
---------- ----------- ---------- ---------- --------
3,816,406 55,756,942 3,252,044 3,945,223 357,897
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
The per share amounts are based on average shares outstanding throughout the
year.
Equity Portfolio
------------------------------------------------------
1997 1996 1995 1994 1993
-------- ------- ------ ------ -------
Per Share Data:
Investment Income $ 0.42 $ 0.39 $ 0.37 $ 0.33 $ 0.28
Expense 0.13 0.11 0.09 0.09 0.10
Net investment income 0.29 0.28 0.28 0.24 0.18
Net gain (loss) on
investments 4.64 2.44 2.12 0.26 1.58
Shareholder distributions:
Net investment income (0.30) (0.28) (0.27) (0.24) (0.18)
Realized gain (0.25) (0.19) (0.67) (0.39)
Net increase (decrease) 4.38 2.44 1.94 (0.41) 1.19
Net asset value at
beginning of year 16.65 14.21 12.27 12.68 11.49
------- ------- ------- ------ -------
Net asset value at
end of year $ 21.03 $ 16.65 $ 14.21 $ 12.27 $ 12.68
======= ======= ======= ======= =======
Ratio to average net assets:
Expense 0.66% 0.70% 0.70% 0.73% 0.82%
Net investment income 1.52% 1.81% 2.08% 1.85% 1.46%
Total return 29.59% 19.17% 19.45% 2.64% 14.80%
Portfolio turnover rate 9% 11% 10% 20% 10%
Average commission
rate paid* $ 0.0719$ 0.0666 N/A N/A N/A
Shares outstanding 3,816,406 3,042,989 2,483,962 1,675,654 904,136
*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>
FINANCIAL HIGHLIGHTS (continued)
The per share amounts are based on average shares outstanding throughout the
year.
Money Market Portfolio
------------------------------------------------------
1997 1996 1995 1994 1993
-------- ------- ------ ------ -------
Per Share Data:
Investment Income $ 0.06 $ 0.06 $ 0.06 $ 0.05 $ 0.03
Expense 0.01 0.01 0.01 0.01 0.01
Net investment income 0.05 0.05 0.05 0.04 0.02
Net gain (loss) on
investments -- -- -- -- --
Shareholder distributions:
Net investment income (0.05) (0.05) (0.05) (0.04) (0.02)
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 0.66% 0.70% 0.73% 0.75% 0.84%
Net investment income 4.83% 4.64% 5.13% 3.71% 2.30%
Total return 4.85% 4.63% 5.09% 3.38% 2.33%
Portfolio turnover rate
Average commission
rate paid* N/A N/A N/A N/A N/A
Shares outstanding 55,756,942 40,227,475 24,290,006 15,495,643 6,153,301
*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>
FINANCIAL HIGHLIGHTS (continued)
The per share amounts are based on average shares outstanding throughout the
year.
Bond Portfolio
------------------------------------------------------
1997 1996 1995 1994 1993
-------- ------- ------ ------ -------
Per Share Data:
Investment Income $ 0.67 $ 0.70 $ 0.75 $ 0.72 $ 0.75
Expense 0.07 0.08 0.08 0.08 0.09
Net investment income 0.60 0.62 0.67 0.64 0.66
Net gain (loss)
on investments 0.25 (0.39) 1.07 (1.01) 0.49
Shareholder distributions:
Net investment income (0.59) (0.63) (0.66) (0.64) (0.66)
Realized gain (0.23) (0.01) (0.01) (0.14)
Net increase (decrease) 0.03 (0.41) 1.07 (1.01) 0.35
Net asset value at
beginning of year 10.65 11.06 9.99 11.00 10.65
-------- -------- -------- -------- --------
Net asset value at
end of year $ 10.68 $ 10.65 $ 11.06 $ 9.99 $ 11.00
======== ======== ======== ======== ========
Ratio to average net assets:
Expense 0.67% 0.71% 0.70% 0.73% 0.80%
Net investment income 5.53% 5.85% 6.28% 6.19% 5.95%
Total return 7.85% 2.23% 17.79% (3.56%) 10.69%
Portfolio turnover rate 107% 62% 55% 50% 29%
Average commission
rate paid* N/A N/A N/A N/A N/A
Shares outstanding 3,252,044 2,648,089 2,298,581 2,046,361 1,338,361
*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>
FINANCIAL HIGHLIGHTS (continued)
The per share amounts are based on average shares outstanding throughout the
year.
Managed Portfolio
------------------------------------------------------
1997 1996 1995 1994 1993
-------- ------- ------ ------ -------
Per Share Data:
Investment Income $ 0.58 $ 0.53 $ 0.54 $ 0.50 $ 0.49
Expense 0.10 0.09 0.08 0.08 0.09
Net investment income 0.48 0.44 0.46 0.42 0.40
Net gain (loss)
on investments 2.34 1.01 1.62 (0.45) 1.07
Shareholder distributions:
Net investment income (0.48) (0.44) (0.46) (0.42) (0.40)
Realized gain (0.41) (0.03) (0.20) (0.30) (0.24)
Net increase (decrease) 1.93 0.98 1.42 (0.75) 0.83
Net asset value at
beginning of year 13.40 12.42 11.00 11.75 10.92
-------- -------- -------- -------- --------
Net asset value at
end of year $ 15.33 $ 13.40 $ 12.42 $ 11.00 $ 11.75
======== ======== ======== ======== ========
Ratio to average net assets:
Expense 0.67% 0.70% 0.70% 0.73% 0.81%
Net investment income 3.27% 3.43% 3.86% 3.63% 3.49%
Total return 20.95% 11.79% 19.13% (0.92%) 12.98%
Portfolio turnover rate 27% 34% 35% 34% 9%
Average commission
rate paid* $ 0.0716$ 0.0668 N/A N/A N/A
Shares outstanding 3,945,223 3,215,189 2,484,037 2,233,298 1,197,065
*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>
FINANCIAL HIGHLIGHTS (continued)
The per share amounts are based on average shares outstanding throughout the
year.
Tactical Asset Allocation Portfolio
1997 1996 1995(1)
------ ------- --------
Per Share Data:
Investment Income $ 0.41 $ 0.39 $ 0.20
Expense 0.13 0.11 0.04
Net investment income 0.28 0.28 0.16
Net gain (loss)
on investments 1.75 1.38 0.49
Shareholder distributions:
Net investment income (0.28) (0.28) (0.16)
Realized gain (0.96) (0.17) (0.05)
Net increase (decrease) 0.79 1.21 0.44
Net asset value at
beginning of year 11.65 10.44 10.00
-------- -------- --------
Net asset value at
end of year $ 12.44 $ 11.65 $ 10.44
======== ======== ========
Ratio to average net assets:
Expense 1.00% 1.00% 1.00%
Net investment income 2.24% 2.62% 3.70%
Total return 15.48% 15.67% 6.49%
Portfolio turnover rate 52% 25% 4%
Average commission
rate paid* $ 0.0733 $ 0.0799 N/A
Shares outstanding 357,897 184,046 109,147
*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>
(This page is intentionally blank.)
<PAGE>
American United Life Insurance Company
P.O. Box 368
Indianapolis, Indiana 46206-0368
P-12757
1/98
- --------------------------------------------------------------------------------
EXHIBIT 16
COMPUTATION OF PERFORMANCE QUOTATIONS
- --------------------------------------------------------------------------------
These Performance Computations do not reflect a calculation of current
performance. These figures are only intended to demonstrate the method by which
performance is calculated. These computations were originally filed as Exhibit
16 in Post Effective Amendment No. 8, which was filed by the Registrant with the
Securities and Exchange Commission on April 30, 1996.
Computation of Performance Quotations
1.Current Yield for the Money Market Portfolio:
As stated in the Statement of Additional Information, 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 seven
day period ending December 31, 1994 [$26,268.67] less a pro rata share of
Portfolio expenses [$3,534.81] accrued over that period (the "base period")
[$22,733.86] and stated as a percentage of the investment at the start of the
base period (the "base period return") [$22,733.86/24,258,074.65 or
0.0009371667]. 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 [.0009371667 X 365/7 = 0.04886 or 4.88%].
2. 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" [$22,733.86] used in the
calculation of current yield in calculation 1 above, which is then annualized to
reflect weekly compounding pursuant to the following formula:
Effective Yield = [(Base Period Return + 1)365/7] -1
Effective Yield = [(.000937167 + 1)365/7] -1
Effective Yield = [(1.0009371667)365/7] -1
Effective Yield = 1.050028 - 1 = 0.050028 or 5.00%
3.Yield Calculations:
Yield is based on all investment income per share earned during a
particular 30 day period (including dividends and interest), less expenses
accrued during the period ["b" in the formula below] which equals "Net
Investment Income" or "a" in the formula below] divided by the maximum offering
price per share on the last day of the 30 day period ["d" in the formula below]
times the average daily number of shares outstanding during the period that were
entitled to receive dividends ["c"] according to the following formula:
Yield = 2[(a-b/cd +1)6 -1] where
"a" =net investment income earned during the period attributable to shares owned
by the Investment Account;
"b" =expenses accrued for the period (net of reimbursements);
"c" =the average daily number of shares outstanding during the period; and
"d" =the maximum offering price per share on December 31, 1995.
(a) For the Equity Investment Account:
According to the formula stated above, where:
"a" = $55,163.79; "b" = $19,568.81; "c" = 2,445,759.523; and "d" = $14.2109
Yield = 2[(35,594.98/34,756,444.01 + 1)6 -1]
Yield = 2[(1.00102412606)6 -1]
Yield = 2[..00616051036] = 0.012321 or 1.23%
(b) For the Bond Portfolio:
According to the formula stated in 3(a) above, where:
"a" = $130,854.19; "b" = $14,076.48; "c" = 2,303,240.657; and "d" = $11.0594
Yield = 2[(116,777.71/25,472,459.72 +1)6 -1]
Yield = 2[(1.00458446932)6 -1]
Yield = 2[.0.2782400999] = 0.55648 or 5.56%
<PAGE>
(c) For the Managed Portfolio:
According to the formula stated in 3(a) above, where:
"a" = $88,698.74; "b" = $16,845.67; "c" = 2,420,691.300; and "d" = $12.4154
Yield = 2[(71,853.07/30,053,850.77 + 1)6 -1]
Yield = 2[(1.00239081077)6 -1]
Yield = 2[0.01443087805] = 0.28862 or 2.89%
(c) For the Tactical Asset Allocation Portfolio:
According to the formula stated in 3(a) above, where:
"a" = $4,986.98; "b" = $240.79; "c" = 105,911.312; and "d" = $10.4425
Yield = 2[(4746.19/1,105,978.87 + 1)6 -1]
Yield = 2[(1.00429139302)6 -1]
Yield = 2[0.02602618461] = 0.052052 or 5.21%
4. 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 for periods of one, five, and ten years, or since
the Fund's inception, if less. The average annual total return for a Portfolio
will be calculated pursuant to the following formula: P (1 + T)n = ERV (where P
= a hypothetical initial payment of $1,000, T = the 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.) 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.
FOR THE PERIOD APRIL 10, 1990 THROUGH DECEMBER 31, 1995
(a) For the Equity Portfolio, according to the formula expressed above, where:
P = $1,000; ERV = $1,926; and n = 5.7250
ERV = $1,000 (1 + T)5.7250
T = 0.1213 or 12.13%
(b) For the Bond Portfolio, according to the formula expressed above, where:
P = $1,000; ERV = $1,711; and n = 5.7250
ERV = $1,000 (1 + T)5.7250
T = 0.0984 or 9.84%
(c) For the Money Market Portfolio, according to the formula expressed above,
where:
P = $1,000; ERV = $1,273; and n = 5.7250
ERV = $1,000 (1 + T)5.7250
T = 0.0431 or 4.31%
(d) For the Managed Portfolio, according to the formula expressed above, where:
P = $1,000; ERV = $1,784; and n = 5.7250
ERV = $1,000 (1 + T)5.7250
T = 0.1064 or 10.64%
<PAGE>
(e) For the Tactical Asset Allocation Portfolio, the data is not available due
to the fund's inception date occuring after the beginning of the time period
under consideration.
FOR THE YEAR ENDING DECEMBER 31, 1995
(a) For the Equity Portfolio, according to the formula expressed above, where:
P = $1,000; ERV = $1,195; and n = 1
ERV = $1,000 (1 + T)1
T = 0.1945 or 19.45%
(b) For the Bond Portfolio, according to the formula expressed above, where:
P = $1,000; ERV = $1,178 and n = 1
ERV = $1,000 (1 + T)1
T = 0.1779 or 17.79%
(c) For the Money Market Portfolio, according to the formula expressed above,
where:
P = $1,000; ERV = $1,051; and n = 1
ERV = $1,000 (1 + T)1
T = 0.0509 or 5.09%
(d) For the Managed Portfolio, according to the formula expressed above, where:
P = $1,000; ERV = $1,191; and n = 1
ERV = $1,000 (1 + T)1
T = 0.1913 or 19.13%
(e) For the Tactical Asset Allocation Portfolio, the data is not available due
to the fund's inception date occuring after the beginning of the time period
under consideration.
<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
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 54,669,337
<INVESTMENTS-AT-VALUE> 80,751,960
<RECEIVABLES> 135,493
<ASSETS-OTHER> 33
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 80,887,486
<PAYABLE-FOR-SECURITIES> 525,062
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 86,468
<TOTAL-LIABILITIES> 611,530
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 3,816,406
<SHARES-COMMON-PRIOR> 3,042,989
<ACCUMULATED-NII-CURRENT> 49
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 26,082,623
<NET-ASSETS> 80,275,956
<DIVIDEND-INCOME> 994,398
<INTEREST-INCOME> 438,298
<OTHER-INCOME> 0
<EXPENSES-NET> 433,360
<NET-INVESTMENT-INCOME> 999,336
<REALIZED-GAINS-CURRENT> 1,058,100
<APPREC-INCREASE-CURRENT> 14,404,527
<NET-CHANGE-FROM-OPS> 16,461,963
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,011,139
<DISTRIBUTIONS-OF-GAINS> 841,088
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,225,237
<NUMBER-OF-SHARES-REDEEMED> 535,202
<SHARES-REINVESTED> 83,382
<NET-CHANGE-IN-ASSETS> 29,623,850
<ACCUMULATED-NII-PRIOR> 11,852
<ACCUMULATED-GAINS-PRIOR> (217,011)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 328,408
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 433,360
<AVERAGE-NET-ASSETS> 65,566,569
<PER-SHARE-NAV-BEGIN> 16.65
<PER-SHARE-NII> 0.29
<PER-SHARE-GAIN-APPREC> 4.64
<PER-SHARE-DIVIDEND> 0.30
<PER-SHARE-DISTRIBUTIONS> 0.25
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.03
<EXPENSE-RATIO> 0.66
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000853618
<NAME> AUL AMERICAN SERIES FUND
<SERIES>
<NUMBER> 3
<NAME> BOND PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 32,943,514
<INVESTMENTS-AT-VALUE> 33,560,233
<RECEIVABLES> 1,211,891
<ASSETS-OTHER> 33
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 34,772,157
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 54,237
<TOTAL-LIABILITIES> 54,237
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 3,252,044
<SHARES-COMMON-PRIOR> 2,648,089
<ACCUMULATED-NII-CURRENT> 5,484
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 54,505
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 616,719
<NET-ASSETS> 34,717,920
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,915,416
<OTHER-INCOME> 0
<EXPENSES-NET> 206,483
<NET-INVESTMENT-INCOME> 1,708,663
<REALIZED-GAINS-CURRENT> 687,635
<APPREC-INCREASE-CURRENT> (27,147)
<NET-CHANGE-FROM-OPS> 2,369,151
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,707,647
<DISTRIBUTIONS-OF-GAINS> 633,130
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,268,900
<NUMBER-OF-SHARES-REDEEMED> 844,186
<SHARES-REINVESTED> 219,241
<NET-CHANGE-IN-ASSETS> 6,530,040
<ACCUMULATED-NII-PRIOR> 4,468
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 154,861
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 206,483
<AVERAGE-NET-ASSETS> 30,898,216
<PER-SHARE-NAV-BEGIN> 10.65
<PER-SHARE-NII> .60
<PER-SHARE-GAIN-APPREC> .25
<PER-SHARE-DIVIDEND> .59
<PER-SHARE-DISTRIBUTIONS> .23
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.68
<EXPENSE-RATIO> 0.67
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000853618
<NAME> AUL AMERICAN SERIES FUND
<SERIES>
<NUMBER> 4
<NAME> MANAGED PORTFOLIO
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 47,730,241
<INVESTMENTS-AT-VALUE> 60,353,173
<RECEIVABLES> 369,805
<ASSETS-OTHER> 33
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 60,750,011
<PAYABLE-FOR-SECURITIES> 183,567
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 89,434
<TOTAL-LIABILITIES> 273,001
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 3,945,223
<SHARES-COMMON-PRIOR> 3,215,189
<ACCUMULATED-NII-CURRENT> 3,892
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,622,932
<NET-ASSETS> 60,477,010
<DIVIDEND-INCOME> 436,958
<INTEREST-INCOME> 1,594,333
<OTHER-INCOME> 0
<EXPENSES-NET> 344,223
<NET-INVESTMENT-INCOME> 1,687,068
<REALIZED-GAINS-CURRENT> 1,443,799
<APPREC-INCREASE-CURRENT> 6,578,271
<NET-CHANGE-FROM-OPS> 9,709,138
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,691,973
<DISTRIBUTIONS-OF-GAINS> 1,443,799
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,035,603
<NUMBER-OF-SHARES-REDEEMED> 513,935
<SHARES-REINVESTED> 208,366
<NET-CHANGE-IN-ASSETS> 17,385,393
<ACCUMULATED-NII-PRIOR> 8,798
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
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