Securities Act File No. __________
As filed with the Securities and Exchange Commission on October 31, 2003
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ ]
Exact Names of Registrants as Specified in Charter:
AUL American Unit Trust OneAmerica Funds, Inc.
Exact Name of Depositor:
American United Life Insurance Company
Address of Principal Executive Offices:
One American Square
Indianapolis, Indiana 46282
Registrant's Area Code and Telephone Number:
317.285.1877
Name and Address of Agent for Service:
John C. Swhear, Esq.
American United Life Insurance Company
One American Square
Indianapolis, Indiana 46282
Copies to:
Keith T. Robinson
Dechert LLP
1775 I Street, N.W.
Washington, D.C. 20006-2401
Telephone: 202.261.3386
Title of Securities Being Registered: Units of interest in separate account
funding group variable annuity contracts; and shares of common stock.
Approximate Date of Proposed Public Offering: As soon as practicable after this
Registration Statement becomes effective.
It is proposed that this filing will become effective on November 30, 2003
pursuant to Rule 488 under the Securities Act of 1933.
American United Life Pooled Equity Fund B
One American Square
Indianapolis, Indiana 46282
(317) 285-1877
November 30, 2003
Dear Participant:
Enclosed you will find a Notice and Proxy Statement/Prospectus for a
special meeting of Participants of American United Life Pooled Equity Fund B
("Fund B") to be held on February 2, 2004. There is an important matter on which
you, as a Participant in Fund B, are being asked to vote -- approval of a
reorganization of Fund B into a sub-account of AUL American Unit Trust, a unit
investment trust. The sub-account will invest all of its assets in OneAmerica
Value Portfolio, a series of OneAmerica Funds, Inc. After reviewing this matter
carefully, the Board of Managers of Fund B unanimously recommends that you vote
FOR the proposal. Your vote is important regardless of the number of votes that
you hold. Please take a few minutes to review this material, cast your vote on
the enclosed proxy and return it in the enclosed postage-paid envelope. Your
prompt response is needed so that the necessary quorum and vote can be obtained.
It is important that your vote be received prior to the special meeting.
We appreciate your participation and prompt response in this matter, and
thank you for your continued support. Sincerely,
/s/ R. Stephen Radcliffe
Chairman of the Board of
Managers
American United Life Pooled Equity Fund B
One American Square
Indianapolis, Indiana 46282
(317) 285-1877
Notice of the Special Meeting of Participants
of American United Life Pooled Equity Fund B
to be held on February 2, 2004
To the Participants:
The Board of Managers of American United Life Pooled Equity Fund B ("Fund B")
hereby gives notice that it intends to hold a special meeting of Participants at
the home office of American United Life Insurance Company at One American
Square, Indianapolis, Indiana 46282, on February 2, 2004 at 10:00 a.m., Eastern
Standard Time, as adjourned from time to time. The special meeting is for the
purpose of considering and acting on the following matters, as described in the
accompanying Proxy Statement/Prospectus:
1. To approve an Agreement and Plan of Reorganization and related transactions
whereby Fund B will be reorganized into a new sub-account of AUL American
Unit Trust, a separate account registered under the Investment Company Act
of 1940 ("1940 Act") as a unit investment trust. The sub-account will
invest all of its assets in Class O shares of the OneAmerica Value
Portfolio, a series of OneAmerica Funds, Inc., a mutual fund registered
under the 1940 Act; and
2. To consider and act upon such other business as may properly come before
the special meeting or any adjournment(s) or postponement(s) thereof.
After careful consideration, the Board of Managers of Fund B unanimously
approved the proposals and recommends that Participants vote "FOR" the
proposals. The matters referred to above are discussed in detail in the Proxy
Statement/Prospectus attached to this Notice. The Board of Managers of Fund B
has fixed the close of business on November 7, 2003 as the record date for
determining Participants entitled to notice of and to vote at the special
meeting, and any adjournment thereof. Each Accumulation Unit of Fund B is
entitled to one vote, with fractional votes for fractional units. The enclosed
proxy is being solicited by the Board of Managers of Fund B.
You are cordially invited to attend the special meeting. Whether or not you plan
to attend the special meeting, please complete, sign, and return the enclosed
proxy promptly so that you will be represented at the special meeting. If you
have returned a proxy and are present at the special meeting, you may change the
vote specified in the proxy at that time. However, attendance at the special
meeting, by itself, will not revoke a previously tendered proxy.
By Order of the Board of Managers
/s/ John C. Swhear
Assistant Secretary to the Board
Indianapolis, Indiana
November 30, 2003
TABLE OF CONTENTS
INTRODUCTION...................................................................1
SUMMARY........................................................................3
The Proposed Reorganization.................................................3
Comparison of Investment Objectives, Strategies and Management..............4
Comparison of Principal Risk Factors........................................4
COMPARISON OF FUND B AND THE VALUE PORTFOLIO...................................6
Principal Investment Strategies.............................................6
Comparison of Portfolio Characteristics.....................................8
Comparison of Performance...................................................9
Comparison of Investment Restrictions.......................................9
Comparison OF Fees and Expenses...............................................12
Operating Expenses.........................................................12
Fee Table..................................................................12
Example....................................................................13
THE PROPOSED REORGANIZATION...................................................13
Description of the Reorganization..........................................13
Federal Tax Consequences of the Reorganization.............................14
Reasons for the Proposed Transactions......................................14
ADDITIONAL INFORMATION........................................................16
Value Portfolio Risk/Return Information....................................16
Management of Fund B and the Value Portfolio...............................17
Additional Information About OneAmerica Funds, Inc.........................18
Additional Information About Fund B........................................18
Additional Information About AUL and AUL American Unit Trust...............18
Actual and Pro Forma Capitalization........................................19
SUPPLEMENTARY FINANCIAL INFORMATION...........................................19
Financial Highlights for Fund B............................................19
Financial Highlights for the Value Portfolio...............................21
Financial Highlights for the New Account...................................22
GENERAL INFORMATION...........................................................22
Proxy Solicitation.........................................................22
Availability of Certain Other Information..................................23
Other Matters..............................................................23
Participant Proposals......................................................23
APPENDIX A...................................................................A-1
APPENDIX B...................................................................B-1
APPENDIX C...................................................................C-1
PART B.........................................................................I
PROXY OF PARTICIPANT..........................................................II
PROXY STATEMENT/PROSPECTUS
Proxy Statement of: Prospectus of:
American United Life Pooled Equity Fund B OneAmerica Funds, Inc.
One American Square and
Indianapolis, Indiana 46282 AUL American Unit Trust
(317) 285-1877 Indianapolis, Indiana 46282
(317) 285-1877
INTRODUCTION
The Board of Managers of American United Life Pooled Equity Fund B ("Fund B") is
furnishing this Proxy Statement/Prospectus to Participants in Fund B, to solicit
the enclosed proxies for use at the special meeting of Participants at the home
office of American United Life Insurance Company ("AUL") at One American Square,
Indianapolis, Indiana 46282, on February 2, 2004 at 10:00 a.m., Eastern Standard
Time, as adjourned from time to time (the "Meeting"). The Meeting is being held
for the purposes set forth in the accompanying Notice.
This Proxy Statement/Prospectus provides you with information about, and seeks
your approval of, a proposed reorganization of Fund B into a new sub-account
(the "New Account") of AUL American Unit Trust, a separate account registered as
a unit investment trust under the Investment Company Act of 1940, as amended
("1940 Act"). The New Account will invest all of its assets in Class O shares of
the OneAmerica Value Portfolio ("Value Portfolio"), a series of OneAmerica
Funds, Inc., an open-end management investment company (commonly referred to as
a "mutual fund") registered under the 1940 Act. If Participants approve the
reorganization, then immediately following the consummation of the
reorganization, each Participant will have an interest in the New Account equal
in value to that Participant's interest in Fund B immediately prior to the
reorganization. Following the reorganization, Fund B will liquidate and
terminate its existence.
This combined Proxy Statement/Prospectus concisely sets forth information about
the reorganization, and the proposed future operation of the New Account and the
Value Portfolio, that Participants should know before casting their votes. A
Statement of Additional Information dated November 30, 2003 relating to this
Proxy Statement/Prospectus is incorporated by reference into this Proxy
Statement/Prospectus. Please retain this Proxy Statement/Prospectus for future
reference. For more information about the investment objectives, strategies and
risks of the Value Portfolio, please refer to the prospectus for OneAmerica
Funds, Inc., which is attached hereto as Exhibit B and incorporated herein by
reference.
AUL will furnish, without charge, a copy of the Statement of Additional
Information relating to this Proxy Statement/Prospectus, as well as the Annual
Report dated December 31, 2002 and Semi-Annual Report dated June 30, 2003 of
Fund B or OneAmerica Funds, Inc., to a Participant upon request. The Annual and
Semi-Annual Reports were filed electronically with the Securities and Exchange
Commission and are incorporated by reference herein. Please direct such a
request to American United Life Insurance Company, One American Square,
Indianapolis, Indiana 46282, Attention: Linda Kientz (telephone 317-285-1877).
You may also obtain proxy materials, reports and other information filed by Fund
B, AUL American Unit Trust, or OneAmerica Funds, Inc. from the SEC's Public
Reference Section (1-202-942-8090) in Washington, D.C., or from the SEC's
internet website at www.sec.gov. Copies of materials may also be obtained, after
paying a duplication fee, by electronic request at the following e-mail address:
publicinfo@sec.gov, or by writing the SEC's Public Reference Branch, Office of
Consumer Affairs and Information Services, Securities and Exchange Commission,
Washington, D.C. 20549-0102.
The SEC has not approved or disapproved these securities, or determined that
this proxy statement/prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
Date: November 30, 2003
2
SUMMARY
You should read this entire Proxy Statement/Prospectus carefully. For additional
information, please consult the Agreement and Plan of Reorganization (the
"Reorganization Plan"), which is attached hereto as Appendix A, and the
prospectus of OneAmerica Funds, Inc. which is attached hereto as Appendix B and
incorporated herein by reference. This summary is qualified in its entirety by
reference to the additional information contained elsewhere in this Proxy
Statement/Prospectus and the Reorganization Plan.
The Proposed Reorganization
On September 22, 2003, the Board of Managers of Fund B and the Board of
Directors of OneAmerica Funds, Inc. approved the Reorganization Plan. Subject to
the approval of Participants, the Reorganization Plan provides for a transfer of
all assets and liabilities of Fund B to the New Account, which will
simultaneously use the net assets (as adjusted for liabilities relating to
insurance charges) to purchase Class O shares of the Value Portfolio.
Immediately after the reorganization, interests in the New Account will have a
value identical to the value of the Participants' interests in Fund B
immediately before the reorganization. Obligations under variable annuity
contracts ("Contracts") issued by AUL and currently supported by the assets of
Fund B will be supported by the assets of the New Account after the
reorganization. Please refer to Appendix C for additional information about the
Contracts.
The reorganization is intended to eliminate duplication of costs and other
inefficiencies arising from having two comparable investment vehicles offered by
AUL, as well as to assist in achieving economies of scale and increased
investment opportunities for Participants. Participants are also expected to
benefit from the larger asset base that will result from the reorganization.
After careful consideration, the Board of Managers unanimously approved the
proposed reorganization. The Board of Managers recommends that you vote "FOR"
the proposed reorganization.
In considering whether to approve the reorganization, you should note that:
o As described below, Fund B has investment objectives and policies that are
substantially similar to the investment objectives and policies of the
Value Portfolio;
o Fund B and the Value Portfolio have the same investment adviser and
portfolio manager;
o There will be no change in the value of your Contract and no change in your
benefits under the Contract as a result of the reorganization. The
reorganization also will not affect the features of the Contracts; and
o The reorganization should not result in adverse tax consequences to
Participants.
In the event that Participants do not approve the reorganization, Fund B will
continue to operate as a separate management investment company registered under
the 1940 Act, and its Board of Managers will determine what further action, if
any, to take.
3
Expenses Associated with the Reorganization
AUL will pay for the costs and expenses associated with effecting the
reorganization. The charges provided for in the Contracts will not increase as a
result of the reorganization. The current level of operating expenses for the
Value Portfolio are higher than the operating expenses (other than the mortality
and expense risk and other separate account and contract-related charges) of
Fund B. However, if the reorganization is approved, AUL will limit the New
Account's expenses to ensure that Participants do not incur post-reorganization
expenses that are higher than their pre-reorganization expenses. AUL will effect
this expense limitation by making any necessary adjustments so that the New
Account's total annual expenses (as a percentage of average net assets) will
never exceed Fund B's total annual expenses (as a percentage of average net
assets) for the year ended December 31, 2002. See "Comparison of Fees and
Expenses" and "Supplementary Financial Information" below.
Comparison of Investment Objectives, Strategies and Management
The following describes the investment objectives, principal investment
strategies, and management of Fund B and the Value Portfolio, each of which are
substantially similar. Further, there can be no assurance that either Fund B or
the Value Portfolio will achieve its stated investment objective.
Fund B Value Portfolio
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Investment Objective Long-term capital appreciation. Long-term capital appreciation.
A secondary investment objective The Value Portfolio seeks current
is the production of current investment income as a secondary
income. investment objective.
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Principal Investment Strategies Fund B invests primarily in The Value Portfolio invests
common stocks, but may also primarily in equity securities
include preferred stocks and selected on the basis of
debentures which may or may not fundamental investment research
be convertible into common stocks for their long-term growth
or be accompanied by warrants for prospects. Using a bottom-up
the purchase of common stock. approach, the portfolio
concentrates on companies which
appear undervalued compared to
the market and their own historic
valuation levels. Both
quantitative and qualitative
tools are utilized focusing on a
"value" based equity strategy.
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Investment Adviser American United Life Insurance American United Life Insurance
Company (R) Company (R)
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Portfolio Manager Kathryn Hudspeth, CFA Kathryn Hudspeth, CFA
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Comparison of Principal Risk Factors
The principal risk factors involved in investing in the New Account and,
therefore, indirectly in the Value Portfolio are substantially similar to the
principal risk factors currently associated with an investment in Fund B. Those
risk factors are that the investments made by the Value
4
Portfolio may not appreciate in value or will, in fact, lose value.
Specifically, an investment in the New Account and the Value Portfolio is
subject to the following types of investment risk, among others:
Market Risk. The Value Portfolio, which invests primarily in equities, may be
particularly subject to the potential risks (and rewards) and volatility of
investing in equities. Although equities historically have outperformed other
asset classes over the long-term, their prices tend to fluctuate more
dramatically over the shorter term. These movements may result from factors
affecting individual companies, or from broader influences like changes in
interest rates, market conditions, investor confidence or announcements of
economic, political or financial information. While potentially offering greater
opportunities for capital growth than larger, more established companies, the
equities of smaller companies may be particularly volatile, especially during
periods of economic uncertainty. These companies may face less certain growth
prospects, or depend heavily on a limited line of products and services or the
efforts of a small number of key management personnel.
The Value Portfolio may invest in equities issued by foreign companies. The
equities of foreign companies may pose risks in addition to, or to a greater
degree than, the risks described above. Foreign companies may be subject to
disclosure, accounting, auditing and financial reporting standards and practices
that are different from those to which U.S. issuers are subject. Accordingly,
the Value Portfolio may not have access to adequate or reliable company
information. In addition, political, economic and social developments in foreign
countries and fluctuations in current exchange rates may affect the operations
of foreign companies or the value of their securities. Risks posed by investing
in the equities of foreign issuers may be particularly acute with respect to
issuers located in lesser developed, emerging market countries.
Interest Rate Risk. The Value Portfolio may invest in fixed income securities.
Generally, the value of these securities will change inversely with changes in
interest rates, which currently are at or near historic lows. In addition,
changes in interest rates may affect the operations of the issuers of stocks or
other equity securities in which the portfolio invests. Rising interest rates,
which may be expected to lower the value of the fixed income instruments and
negatively impact the operations of issuers, generally exist during periods of
inflation or strong economic growth.
Credit Risk. Investments of the Value Portfolio, and particularly investments in
convertible securities and fixed income securities, may be affected by the
creditworthiness of issuers in which it invests. Changes in the financial
strength, or perceived financial strength, of a company may affect the value of
its securities and, therefore, impact the value of the Value Portfolio's shares
if it invests in the company's securities.
Derivatives Risk. The Value Portfolio may invest in "derivatives," which are
financial instruments whose value depends on, or is derived from, the value of
an underlying asset, reference rate or index, and may relate to stocks, bonds,
interest rates, currencies or currency exchange rates, commodities, or related
indexes. The Value Portfolio's use of derivative instruments may involve risks
different from, or greater than, the risks associated with investing directly in
securities or other traditional investments. Derivatives may be subject to
market risk, interest rate risk, and credit risk, as discussed above. Certain
derivatives may be illiquid, which may reduce the return of the Value Portfolio
if it cannot sell or terminate the derivative
5
instrument at an advantageous time or price. Some derivatives may involve the
risk of mispricing or improper valuation, or the risk that changes in the value
of the instrument may not correlate well with the underlying asset, rate or
index. The Value Portfolio could lose the entire amount of its investment in a
derivative and, in some cases, could lose more than the principal amount
invested. Also, suitable derivative instruments may not be available in all
circumstances, and there is no assurance that the Value Portfolio will be able
to engage in these transactions to reduce exposure to other risks.
Defensive Strategy. If AUL believes that economic or other market conditions,
such as excessive volatility or sharp market declines, requires taking a
defensive position to preserve or maintain the assets of the Value Portfolio,
then the Value Portfolio may purchase securities of a different type or types
than it ordinarily would purchase, even if such purchases are contrary to the
investment objective or objectives of the Value Portfolio. Taking such a
defensive position could prevent the Value Portfolio from attaining its
investment objectives, or cause it to miss out on some or all of an upswing in
the securities market.
Other Risks. In addition to these risks, by investing in the New Account and,
therefore, indirectly in the Value Portfolio, Participants will be exposed to
certain risk factors that currently are not associated with investing in Fund B.
For example, although unlikely, the Value Portfolio may fail to qualify as a
regulated investment company in any particular year and may thereby incur
federal tax liability on income and capital gains distributed to shareholders.
In that case, the Contracts would also fail to qualify as annuity contracts for
federal income tax purposes, resulting in the loss of their tax-favored status.
This would adversely affect the investment performance of the Value Portfolio
and, therefore, the investment experience of Participants.
COMPARISON OF FUND B AND THE VALUE PORTFOLIO
Principal Investment Strategies
The Board of Managers of Fund B believes that because the investment objectives,
strategies and risks of Fund B are substantially similar, but not identical, to
those of the Value Portfolio, Participants should find the Value Portfolio
attractive because the Value Portfolio is designed for investors who want to
keep expenses low while seeking long-term growth of capital through a portfolio
of equity securities.
Fund B
Fund B invests primarily in stocks. However, Fund B may also invest in preferred
stocks and debentures which may or may not be convertible into common stocks or
be accompanied by warrants for the purchase of common stocks. AUL may determine
that other types of investments are more advantageous due to general economic
conditions or for other reasons. In that event, Fund B may temporarily invest in
other types of investments, such as bonds, notes, or other evidences of
indebtedness, including U.S. Government securities, issued publicly, of a type
customarily purchased for investment by institutional investors.
Currently, Fund B's investment policy is to invest directly in individual
securities selected by AUL, the investment adviser of Fund B. It is currently a
fundamental investment restriction of
6
Fund B that Fund B may not invest more than 5% of its assets in any one issuer
(except obligations of the United States Government and instrumentalities
thereof). Up to 25% of Fund B's total assets may be invested without regard to
such 5% limitation. Investment in securities of other investment companies will
not be made with the exception of participation in a money market fund to
facilitate the management of Fund B liquidity. Such investments, together with
all other investments for which market disposition is not readily available,
will not exceed 10% of the value of Fund B, which is acceptable under current
federal securities laws. The Board of Managers of Fund B will deem approval of
the reorganization by Participants as approval to change these investment
policies and restrictions of Fund B to the extent necessary to effect the
reorganization.
Value Portfolio
The Value 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 Value Portfolio concentrates on companies which appear
undervalued compared to the market and their own historic valuation levels. Both
quantitative and qualitative tools are utilized focusing on a "value" based
equity strategy.
Important valuation criteria include price to sales, price to cash flow, price
to adjusted earnings, profitability, and growth potential. The Value Portfolio
also focuses on high quality companies that have been able to produce profits
for shareholders over the long term. Other important considerations include
management ability, insider ownership and industry position.
In addition to extensive fundamental analysis, AUL, the Value Portfolio's
investment adviser, also uses technical analysis. Its purpose is not to make
investment decisions, but rather to assist in the timing of trading decisions.
Normally, at least 65% of the portfolio's assets will be common stocks listed on
a national securities exchange or traded over-the-counter. The portfolio may
invest up to 35% of its assets in other instruments and investment techniques
such as American Depository Receipts, preferred stock, debentures that can be
converted to common stock or that have rights to buy common stock in the future,
nonconvertible debt securities, U.S. Government securities, commercial paper and
other money market instruments, repurchase agreements and reverse repurchase
agreements. When AUL believes that financial, economic, or market conditions
require a defensive strategy, the Value Portfolio may buy more nonconvertible
debt securities, U.S. Government securities, commercial paper and other money
market instruments, repurchase agreements and reverse repurchase agreements.
To meet its secondary objective of current income, the Value Portfolio may also
buy and sell options on securities and securities indices, although it will do
so only for purposes of trying to generate current income or to hedge portfolio
risks, and not for speculative purposes.
7
Comparison of Portfolio Characteristics
The following tables compare certain characteristics of Fund B and the Value
Portfolio as of December 31, 2002:
Fund B Value Portfolio
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Net Assets $3,623,281 $127,527,057
Number of Holdings 48 50
Portfolio Turnover Rate 16% 11%
Sector Diversification (as a percentage of net assets)
Common Stock
Aerospace 4.6% 4.4%
Apparel 10.6% 10.5%
Automotive & Auto Parts 8.4% 9.1%
Banks and Financial Services 7.8% 7.1%
Cement and Aggregates 2.4% 2.4%
Chemicals 1.7% 1.9%
Computer Hardware & Software 6.8% 6.8%
Electrical Equip & Electronics 6.2% 5.9%
Furniture 4.2% 4.1%
Health Care & Pharmaceuticals 3.7% 3.6%
Housing 2.6% 2.4%
Manufacturing 3.7% 3.7%
Metals & Mining 5.3% 5.3%
Oil & Oil Services 7.2% 7.0%
Paper & Forest Products 2.3% 2.3%
Restaurants 3.3% 3.2%
Retail 2.7% 2.6%
Telecommunications Services & Equipment 5.4% 5.1%
Transportation 3.9% 4.5%
Miscellaneous 1.8% 1.5%
Money Market Mutual Funds 5.4% 4.0%
Top 10 Holdings (as a % of net assets)
- ------------------------------------------------------------ ---------------------------------------------------------
Fund B Value Portfolio
TBC 3.8% TBC 3.3%
Carlisle 3.4% Carlisle 3.2%
Bank One 3.2% Reebok 3.2%
Reebok 3.1% Hewlett Packard 2.9%
Hewlett Packard 2.9% Autodesk 2.8%
Baldor Electric 2.9% Baldor Electric 2.7%
Autodesk 2.8% Alexander and Baldwin 2.7%
Liz Claiborne 2.8% Liz Claiborne 2.7%
Boeing 2.7% Washington Mutual 2.6%
Washington Mutual 2.6% Kellwood 2.6%
8
Comparison of Performance
The following table compares the historic performance of Fund B and the Class O
shares of the Value Portfolio for various periods ended December 31, 2002, as
well as the pro forma performance of the New Account for the same periods. The
pro forma performance figures are derived from the actual performance of the
Class O shares of the Value Portfolio as adjusted to reflect the mortality and
expense risk and other fees of the New Account, but do not reflect sales
charges, or surrender or deferred sales loads under the Contracts since these
charges will not be imposed under the Contracts by AUL or the New Account. Past
performance is no guarantee of future results.
Fund B Value Portfolio New Account
Average Annual Total Return (actual) Class O shares (pro forma)
(for periods ended December 31, 2002) (actual)
- ----------------------------------------------------- ---------------- -------------------- ------------------
One Year -9.60% -6.99% -7.58%
Five Years 3.80% 5.27% 4.67%
Ten Years 10.50% 10.88% 10.22%
Comparison of Investment Restrictions
The following table compares the fundamental investment restrictions of Fund B
to the fundamental investment restrictions of the Value Portfolio.
Fund B Value Portfolio
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Not more than 10% of the voting securities of any one The Value Portfolio may not invest in a security
issuer will be acquired. Fund B does not propose to if, with respect to 75% of its assets, it would
concentrate its investments in any particular hold more than 10% (taken at the time of such
industries. In no event will investments in any one investment) of the outstanding voting securities of
industry exceed 25% of the value of Fund B assets. any one issuer, except that this restriction does
not apply to U.S. Government securities.
- ------------------------------------------------------- -----------------------------------------------------
Income and realized capital gains will be retained. The Value Portfolio has no comparable fundamental
restriction.
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Fund B assets will be kept fully invested except for The Value Portfolio has no comparable fundamental
reasonable amounts held in cash or U.S. Government restriction.
securities to meet normal contract payments and held
for temporary periods pending investment or for
defensive purposes.
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With respect to 75% of the assets, not more than 5% The Value Portfolio may not invest in a security
of the value of Fund B assets will be invested in if, with respect to 75% of its total assets, more
securities of any one issuer, except obligations of than 5% of its total assets (taken at market value
the U.S. Government or instrumentalities thereof. 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.
- ------------------------------------------------------- -----------------------------------------------------
Borrowings will not be made except for temporary or The Value Portfolio may not borrow money or pledge,
9
emergency purposes in an amount not in excess of 5% mortgage, or hypothecate its assets, except that a
of the value of assets of Fund B, but not for portfolio may (a) borrow from banks for temporary
investment purposes. 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 the
portfolio's net assets; and (b) enter into reverse
repurchase agreements and transactions in options,
and interest rate futures contracts, stock index
futures contracts 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 arrangements with respect to
initial or variation margin and other deposits for
futures contracts, and options futures contracts,
will not be deemed to be pledges of the portfolio's
assets.
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Fund B will not act as an underwriter of securities The Value Portfolio may not act as an underwriter
of other issuers, except that Fund B may invest up to of securities of other issuers, except, when in
10% of the value of its assets (at the time of connection with the disposition of portfolio
investment) in portfolio securities which Fund B securities, a portfolio may be deemed to be an
might not be free to sell to the public without underwriter under the federal securities laws.
registration of such securities under the Securities
Act of 1933. If through the appreciation of
restricted securities or the depreciation of
unrestricted securities, Fund B should be in a
position where more than 10% of the value of its net
assets are invested in illiquid assets, including
restricted securities, and a question arises with
respect to liquidity, then Fund B will consider
appropriate steps to provide adequate flexibility.
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Real estate will not be purchased or sold as a The Value Portfolio may not purchase or sell real
principal activity. However, Fund B may invest up to estate, except that a portfolio may invest in
10% of its assets in real properties. 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.
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No purchase of commodities or commodity contracts The Value Portfolio may not purchase or sell
will be made. commodities or commodities contracts, except that
any portfolio may engage in transactions in
interest rates futures contracts, stock index
futures contracts, and other futures contracts
based on other financial instruments, and on
options on such futures contracts.
- ------------------------------------------------------- -----------------------------------------------------
Loans will not be made except through the acquisition The Value Portfolio has no comparable fundamental
of a portion of an issue of publicly distributed restriction.
bonds, debentures or other evidences of indebtedness
of a type customarily purchased by institutional
investors.
- ------------------------------------------------------- -----------------------------------------------------
Fund B has no comparable fundamental restriction. Purchase securities on margin (except for use of
10
short-term credit necessary for clearance of
purchase 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.
- ------------------------------------------------------- -----------------------------------------------------
Fund B has no comparable fundamental restriction. Issue senior securities, except insofar as the
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
arrangement with respect to margin or other
deposits respecting futures contracts, and related
options, are not deemed to be an issuance of a
senior security.
- ------------------------------------------------------- -----------------------------------------------------
Fund B has no comparable fundamental restriction. Make short sales of securities, except short sales
against the box.
- ------------------------------------------------------- -----------------------------------------------------
11
Comparison of Fees and Expenses
Operating Expenses
The current charges, deductions and expenses of Fund B and expenses of Value
Portfolio as of December 31, 2002, as well as the estimated pro forma charges,
deductions and expenses giving effect to the proposed reorganization are shown
in the table below. Pro forma charges, deductions and expenses show estimated
charges, deductions and expenses of the New Account and Value Portfolio after
giving effect to the proposed reorganization as of December 31, 2002. Pro forma
numbers are estimated in good faith and are hypothetical.
Fee Table
New Account and
Value Value Portfolio
(For the 12-month period ended December 31, 2002) Fund B Portfolio (pro forma)
- ------------------------------------------------------------------ ------------ ------------ ----------------------
Participant Transaction Expenses
Sales Load Imposed on Purchase (as a percentage of purchase 5%(1) --- ---
payments) 3%(2)
- ------------------------------------------------------------------ ------------ ------------ ----------------------
Administrative Fee (as a percentage of purchase payments) 1%(1) --- ---
1%(2)
- ------------------------------------------------------------------ ------------ ------------ ----------------------
Annual Expenses (as a percentage of average net assets)
Investment Management Fee 0.30% 0.50% 0.50%
- ------------------------------------------------------------------ ------------ ------------ ----------------------
Mortality and Expense Fee 0.90% --- 0.63%(3)
- ------------------------------------------------------------------ ------------ ------------ ----------------------
Other Expenses --- 0.07% 0.07%(3)
- ------------------------------------------------------------------ ------------ ------------ ----------------------
Total Annual Expense 3 1.20% 0.57% 1.20%
- ------------------------------------------------------------------ ------------ ------------ ----------------------
<FN>
(1) AUL receives the percentage amount of each payment made for or by a
Participant under all Contracts until payments totaling $5,000 have been
made for or by such Participant.
(2) AUL receives the percentage amount for each payment made in excess of
$5,000 for or by such a Participant.
(3) This fee will fluctuate depending upon the "Other Expenses" so that the
total is always 1.20%. The maximum fee is 0.70%, if "Other Expenses" were
0.00%.
</FN>
12
Example
The following example shows expenses that reflect the application of sales
charges and administrative fees that a Participant would pay. The pro forma
information for the New Account reflects application of the expense limitation
that AUL will implement if the reorganization is approved.
The purpose of these tables is to assist a Participant in understanding the
various costs and expenses that are paid, either directly or indirectly.
Depending on the state of residence of the Participant, there may be an
additional charge for premium taxes which AUL is required to withhold. The
examples below should not be considered as representations of past or future
expenses or returns. Actual expenses paid may be greater or less than those
shown.
Whether or not a Contract is annuitized or surrendered at the end of the
applicable time period, an investor would pay the following expenses on a
$10,000 investment, assuming a 5% annual return on assets:
Fund B (actual) Value Portfolio (actual)
1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
$123 $381 $659 $1,450 $59 $183 $318 $712
New Account (pro forma)
1 Year 3 Years 5 Years 10 Years
$123 $381 $659 $1,450
THE PROPOSED REORGANIZATION
Description of the Reorganization
To effect the reorganization, the assets and liabilities of Fund B will be the
initial assets and liabilities of the New Account. The assets and liabilities
received from Fund B (other than liabilities relating to insurance charges) will
be used by the New Account to purchase Class O shares of the Value Portfolio. If
Participants approve the reorganization, Fund B will no longer hold securities
and other instruments directly; instead, the New Account will hold similar
investments indirectly through the intermediate vehicle of the Value Portfolio.
Those investments will be managed by AUL, the current investment adviser of Fund
B.
The net asset value per share of the Value Portfolio will determine the value of
a unit in the New Account. The total value of the accumulation or annuity units
a Participant has in Fund B immediately prior to the reorganization will be the
same as the total value of the accumulation or annuity units the same
Participant will have in the New Account immediately after the reorganization.
More information on the reorganization is contained in the Reorganization Plan,
which qualifies in its entirety the foregoing summary of the Reorganization
Plan. Approval of the
13
reorganization by Participants is a prerequisite to the implementation of the
reorganization. The reorganization may be postponed or canceled for any reason
with the consent of the parties to the Reorganization Plan.
Federal Tax Consequences of the Reorganization
AUL does not believe that the proposed reorganization will result in the
realization of taxable income or loss to AUL, Fund B, the New Account, or
OneAmerica Funds, Inc. AUL also does not believe that the proposed
reorganization will result in tax consequences to Participants. The proposed
reorganization itself will not result in a distribution from Contracts currently
supported by Fund B that would give rise to taxable income to Participants. As a
condition to the closing of the reorganization, the parties to the
Reorganization Plan will receive an opinion from the law firm of Dechert LLP to
the effect that the reorganization should not result in the realization of
taxable income or loss to AUL, Fund B, the New Account, OneAmerica Funds, Inc.
or the Participants. The opinion will be based in part upon certain assumptions
and upon certain representations made by Fund B and OneAmerica Funds, Inc.
If a Participant wished to redeem his or her interests rather than be invested
in the Value Portfolio, such Participant could either surrender the Contract or
exchange the Contract for another policy issued by AUL or a different insurance
company. In general, the surrender of a Contract would result in taxation of any
gain accumulated under the Contract to Participants subject to tax, and, in
certain cases, in the imposition of an additional 10 percent tax on such gain.
If, however, a Contract were to be exchanged for another policy, a Participant
might not incur current tax with respect to the transaction if the transaction
qualified as a tax-exempt exchange under section 1035(a) of the Internal Revenue
Code. Participants considering such a transaction should consult a tax advisor.
Reasons for the Proposed Transactions
The following combination of circumstances led the Board of Managers of Fund B
to propose the reorganization:
o The asset base of Fund B will not increase substantially in the foreseeable
future because no new Contracts are being sold. As of May 1, 2000, AUL
stopped accepting contributions or transfers into Fund B.
o Administration costs for Fund B cannot benefit from economies of scale.
Based on these circumstances, the Board of Managers of Fund B decided to
reevaluate how Fund B should be managed. The Board of Managers determined that,
rather than continuing to operate Fund B as an actively managed portfolio, it
would be more effective to restructure Fund B into a sub-account of one of AUL's
existing separate accounts that invests in an actively managed investment
portfolio.
The reorganization should benefit Participants by enabling them to participate
in an investment portfolio with a substantially larger asset base than that
currently held by Fund B. As of December 31, 2002, the net assets of Fund B were
$3,623,281. By comparison, the net assets of the Value Portfolio as of that date
were $127,527,057. The Board of Managers of Fund B
14
anticipates that the larger asset base available through investments in the
Value Portfolio will increase investment opportunities, and broaden
diversification of the funding medium, for the Contracts.
Various practical difficulties make it infeasible to use Fund B, as currently
structured, as the funding vehicle for insurance products other than the
Contracts. The Value Portfolio, however, is and will continue to be used for
variable annuity contracts and variable life insurance policies issued by AUL,
and may in the future be offered to other insurance companies. Therefore, more
assets currently are available to be invested in the Value Portfolio than are
available to be invested in Fund B alone. The Board of Managers of Fund B
believe that this may result in economies of scale (particularly in view of the
declining assets of Fund B under the current circumstances in which no new
Contracts are being sold).
As a manager of investment portfolios significantly larger than Fund B, AUL may
be able to expend more resources in a cost-effective manner to attain higher
performance for the Value Portfolio than for Fund B (before giving effect to
contract and account-related fees and charges), although there is no guarantee
that higher performance will be achieved. The Board of Managers of Fund B also
considered the favorable investment performance of the Value Portfolio compared
to the investment performance of Fund B over the past several years. See
"Comparison of Performance," above.
In addition, the Board of Managers of Fund B believes that the interests of
Participants immediately following the reorganization will not materially differ
from their interests immediately prior to the reorganization. Participants will
still have an interest in a diversified portfolio of investments. The value of
Participants' interests will not be changed by the reorganization. Participants
will be subject to the same total expense, and the reorganization should not
have any direct or indirect adverse tax consequences for Participants.
Finally, using the Value Portfolio and New Account would facilitate the addition
of new investment options for the Contracts, if AUL should choose to do so in
the future. Although AUL does not intend to pursue this course of action at this
time, it would be administratively simpler and less costly to add and maintain
new investment options in the form of new (or currently-existing) unmanaged
sub-accounts of the AUL American Unit Trust investing in additional portfolios
of OneAmerica Funds, Inc., or portfolios of other mutual funds, than to add new
investment options in the form of new managed funds structured as management
separate accounts.
In summary, the Board of Managers of Fund B expects the reorganization to result
in increased investment opportunities and efficiencies which will benefit
Participants.
The Board of Managers of Fund B unanimously recommends that Participants approve
the reorganization.
15
ADDITIONAL INFORMATION
Value Portfolio Risk/Return Information
The chart and table below provide some indication of the risks of investing in
the Value Portfolio by showing changes in its performance from year to year and
by comparing its average annual returns for one, five, and ten years to a broad
measure of market performance. The chart and the information below it show
performance of the Value Portfolio's Class O shares. The information does not
reflect charges and fees associated with a separate account that invests in the
Value Portfolio or any insurance contract for which the portfolio is an
investment option. These charges and fees will reduce returns. How the Value
Portfolio has performed in the past is not an indication of its future
performance.
[Bar chart inserted with returns printed above each year's column.]
Numbers to be inserted are:
for 1993: 14.8%
for 1994: 2.6%
for 1995: 19.4%
for 1996: 19.2%
for 1997: 29.6%
for 1998: 7.1%
for 1999: -0.9%
for 2000: 17.7%
for 2001: 11.3%
for 2002: -7.0%
During this period, the portfolio's highest return for any quarter was 16.8%,
which occurred in the 4th quarter of 2001 and the lowest return for a quarter
was -19.2% in the 3rd quarter of 2002.
The following table demonstrates the average annual total return of the Class O
shares of the Value Portfolio as of December 31, 2002, compared to the Standard
& Poor's 500 Composite Stock Price Index (the "S&P 500 Index") for one, five,
and ten years. The S&P 500 Index is a market-value-weighted benchmark of common
stock performance, and includes 500 of the largest stocks (in terms of market
value) in the United States. Investors cannot directly invest in an index and,
unlike the portfolio, an index is unmanaged and does not incur transaction or
other expenses.
Average Annual Total Returns for:
One Year Five Years Ten Years
---------------------------- ---------------------------- ----------------------------
Value Portfolio -6.99% 5.27% 10.88%
S&P 500 Index -22.1% -0.6% 9.3%
16
Management of Fund B and the Value Portfolio
Fund B
Fund B is managed by a Board of Managers, consisting of five members. AUL is the
investment adviser for Fund B. Under the Investment Management Services
Agreement between AUL and Fund B, dated December 20, 1971, and most recently
renewed on September 22, 2003, AUL is obligated to provide investment management
services relative to the Group Contracts and to the assets of Fund B. Investment
management services include, but are not limited to, the management of assets,
investment analysis, preparation of investment programs for the approval or
rejection of the Board of Managers, placing of orders for the purchase and sale
of investments of all other matters normally associated with the investment
management activities of such a fund.
The agreement between Fund B and AUL provides that AUL will invest the assets of
Fund B in accordance with the investment objectives of Fund B. At least
quarterly, AUL reports its investment decisions and recommendations to the Board
of Managers to allow the Board to perform its responsibility to oversee AUL's
activity and conformity to the objectives and policies of Fund B. For its
services, AUL receives from Fund B a daily fee of 0.00082% of the value of Fund
B. This amounts to 0.30% on an annual basis.
Value Portfolio
OneAmerica Funds, Inc. is managed by a Board of Directors consisting of the same
five persons as Fund B's Board of Managers. Subject to overall supervision of
the Board of Directors, AUL exercises overall responsibility for the investment
and reinvestment of the Value Portfolio's assets. In so doing, AUL manages the
day-to-day investment operations and the composition of the investment portfolio
of the Value Portfolio. These duties include the purchase, retention, and
disposition of the investments, securities, and cash in accordance with the
Portfolio's investment objectives and policies as stated in its current
prospectus. The day-to-day management of the Value Portfolio is the
responsibility of Kathryn Hudspeth, CFA, Vice President, Equities. Ms. Hudspeth
has been the portfolio manager of the Value Portfolio since its inception and
has been with AUL since 1989.
Under an investment advisory agreement with respect to the Value Portfolio, AUL
is compensated for its services by a monthly fee based on an annual percentage
of 0.50% of the average daily net assets of the Value Portfolio. The agreement
with AUL, dated March 8, 1990, was originally approved by a majority of the
OneAmerica Fund, Inc.'s directors, including a majority of the directors who are
not parties to the agreement or interested persons of any such party (the
"Independent Directors"). Subsequently, on May 10, 1991, the agreement was
approved by a majority of the Value Portfolio's shareholders at a meeting called
for the purpose of voting on the approval of the agreement. The agreement will
continue in effect with respect to the Value Portfolio from year to year,
provided such continuance is approved at least annually by the Board of
Directors or by vote of a majority of the holders of the outstanding voting
securities of the Value Portfolio, and a majority of the Independent Directors
by votes cast in person at a meeting called for such purpose. The agreement will
terminate automatically in the event of its assignment, and it may be terminated
without penalty on sixty days' written notice by the Board
17
of Directors, or pursuant to the "vote of a majority of the outstanding voting
securities" of the Value Portfolio, in accordance with the 1940 Act. The Board
of Directors, including a majority of the Independent Directors, most recently
approved the agreement at a meeting held on March 21, 2003.
Additional Information About OneAmerica Funds, Inc.
OneAmerica Funds, Inc. (formerly, AUL American Series Fund, Inc.) is an open-end
management investment company consisting of four separate portfolios: OneAmerica
Value Portfolio (formerly the AUL American Equity Portfolio); OneAmerica
Investment Grade Bond Portfolio (formerly the AUL American Bond Portfolio);
OneAmerica Money Market Portfolio (formerly the AUL American Money Market
Portfolio); and OneAmerica Asset Director Portfolio (formerly the AUL American
Managed Portfolio). Shares of OneAmerica Funds, Inc. are offered only for
purchase by one or more separate accounts of AUL to serve as an investment
medium for insurance contracts issued by AUL. Shares of each portfolio managed
by AUL, including the Value Portfolio, my 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. Additional
information is contained in the prospectus for OneAmerica Funds, Inc., which is
incorporated herein by reference.
Additional Information About Fund B
AUL established Fund B as a "separate account" on November 20, 1967 by
resolutions pursuant to the provisions of Indiana state law.
Under the provisions of Indiana law, Fund B is not chargeable with any
liabilities except those arising under the Contracts. By law, any surplus or
deficit which may arise in Fund B by virtue of mortality experience contracted
for by AUL shall be adjusted by withdrawals from or additions to Fund B so that
the assets of Fund B shall always be equal to the assets required to satisfy all
liabilities arising under Contracts fundable by Fund B.
Fund B is registered with the Securities and Exchange Commission as an open-end,
diversified management investment company under the 1940 Act. The Contracts are
no longer being sold. As of May 1, 2000, AUL stopped accepting contributions or
transfers into Fund B. Additional information about Fund B is contained in Fund
B's prospectus dated May 1, 1999.
Additional Information About AUL and AUL American Unit Trust
AUL, located at One American Square, Indianapolis, Indiana 46282, is a stock
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 as a mutual insurance company
under the laws of the State of Indiana in 1933. On December 17, 2000, AUL
converted from a mutual life insurance company to a stock life insurance company
ultimately controlled by mutual holding company, American United Mutual
Insurance Holding Company ("MHC"). AUL conducts a conventional life insurance
and annuity business. At December 31, 2002, the OneAmerica Financial Partners,
Inc., in which AUL is a partner, had assets of $12,208,143,297 and had equity of
$1,100,282,506.
18
AUL American Unit Trust (the "Unit Trust") was established by AUL on August 17,
1989, under procedures established under Indiana law. The income, gains, or
losses of the Unit Trust are credited to or charged against the assets of the
Unit Trust without regard to other income, gains, or losses of AUL. AUL owns the
assets in the Unit Trust and is required to maintain sufficient assets in the
Unit Trust to meet all Unit Trust obligations under the Contracts. AUL may
transfer to its General Account assets that exceed anticipated obligations of
the Unit Trust. AUL may invest its own assets in the Unit Trust, and may
accumulate in the Unit Trust proceeds from Contract charges and investment
results applicable to those assets.
The Unit Trust is currently divided into sub-accounts. Each sub-account invests
exclusively in shares of a specific mutual fund (or series thereof). Not all of
the sub-accounts may be available under a particular contract and some of the
sub-accounts are not available for certain types of contracts. AUL may in the
future establish additional sub-accounts of the Unit Trust, which may invest in
other securities, mutual funds, or investment vehicles.
The Unit Trust is registered with the SEC as a unit investment trust under the
1940 Act. Registration with the SEC does not involve supervision by the SEC of
the administration or investment practices of the Unit Trust or of AUL.
There are no legal proceedings pending which would materially affect AUL or the
Unit Trust.
Actual and Pro Forma Capitalization
The following table shows the actual capitalization of Fund B and the Value
Portfolio on December 31, 2002, as well as the pro forma capitalization of the
New Account and the Value Portfolio as of that date after giving effect to the
reorganization.
CAPITALIZATION Fund B New Account Value Portfolio Value Portfolio
(as of Dec. 31, 2002) (actual) (pro forma) (actual) (pro forma)
- ---------------------------------------- ---------------- ----------------- ----------------- ----------------
Net Assets $3,623,281 $3,623,281 $127,527,057 $131,150,338
Accumulation Unit Value/Net Asset Value $18.43 $16.38 $16.38 $16.38
Units or Shares Outstanding 196,619 221,202 7,783,280 8,006,733
SUPPLEMENTARY FINANCIAL INFORMATION
Financial Highlights for Fund B
The financial highlights table is intended to help you understand the financial
performance of Fund B during the past five fiscal years. The total returns in
the table represent the rate that an investor would have earned (or lost) on an
investment in Fund B. This information has been derived from the financial
statements that have been audited by PricewaterhouseCoopers LLP, Fund B's
independent accountants, whose report, along with Fund B's financial statements,
are
19
included in the Annual Report as of December 31, 2002, which is available upon
request. The table also includes the financial highlights of Fund B during the
six-month period ending on June 30, 2003. The financial information for the
six-month period ended on June 30, 2003 is unaudited, and is included in Fund
B's Semi-Annual Report as of June 30, 2003, which is also available upon
request.
For Six
Months Ended Year Ended December 31
PER ACCUMULATION UNIT DATA: June 30, 2003 2002 2001 2000 1999 1998
(unaudited)
Net investment income $0.04 $0.07 $0.10 $0.23 $0.16 $0.14
Net realized and unrealized gain (loss) on 2.18 (2.03) 1.74 2.28 (0.44) 0.87
investments
Net increase (decrease) 2.22 (1.96) 1.84 2.51 (0.28) 1.01
Accumulation unit value:
Beginning of year 18.43 20.39 18.55 16.04 16.32 15.31
End of Year $20.65 $18.43 $20.39 $18.55 $16.04 $16.32
Total Return 12.0% (9.6%) 10.0% 15.6% (1.7%) 6.6%
Net Assets, end of period (in 000) $3,885 $3,623 $4,941 $6,673 $10,471 $13,733
Ratio to Average Net Assets:
Expenses 1.2% 1.2% 1.2% 1.2% 1.2% 1.2%
Net investment Income 0.47% 0.34% 0.54% 1.34% 0.97% 0.90%
Portfolio Turnover Rate 10% 16% 12% 19% 37% 29%
Units outstanding (in 000) 188 197 242 360 653 841
20
Financial Highlights for the Value Portfolio
The financial highlights table is intended to help you understand the financial
performance of the Value Portfolio during the past five fiscal years. The total
returns in the table represent the rate that an investor would have earned (or
lost) on an investment in the Value Portfolio. This information has been derived
from the financial statements that have been audited by PricewaterhouseCoopers
LLP, the OneAmerica Funds, Inc.'s independent accountants, whose report, along
with OneAmerica Funds, Inc.'s financial statements, are included in the Annual
Report as of December 31, 2002, which is available upon request. The table also
includes the financial highlights of the Value Portfolio during the six-month
period ending on June 30, 2003. The financial information for the six-month
period ended on June 30, 2003 is unaudited, and is included in OneAmerica Funds,
Inc.'s Semi-Annual Report as of June 30, 2003, which is also available upon
request.
For Six
Months Ended Year Ended December 31
PER SHARE DATA: June 30, 2003 2002 2001 2000 1999 1998
(unaudited)
Net investment income $0.09 $0.19 $0.24 $0.30 $0.32 $0.35
Net gain (loss) on investments 1.76 (1.47) 1.77 2.51 (0.55) 1.23
Total from Investment Operations 1.85 (1.28) 2.01 2.81 (0.23) 1.58
Shareholder Distributions:
Net investment income (0.04) (0.18) (0.23) (0.30) (0.32) (0.35)
Realized gain 0 (0.53) (0.96) (1.00) (3.66) (1.99)
Return of capital 0 (0.02) 0 0 0 0
Net increase (decrease) 1.81 (2.01) 0.82 1.51 (4.21) (0.76)
Net assets at beginning of period 16.38 18.39 17.57 16.06 20.27 21.03
Net asset value at end of period $18.19 $16.38 $18.39 $17.57 $16.06 $20.27
Total Return 11.3% (7.0%) 11.3% 17.7% (0.9%) 7.1%
Supplemental Data:
Net assets, end of period (in 000) $141,640 $127,527 $114,629 $92,089 $88,619 $95,486
Ratio to Average Net Assets:
Expenses 0.59% 0.57% 0.62% 0.64% 0.63% 0.62%
Net investment Income 1.06% 1.05% 1.26% 1.86% 1.54% 1.61%
Portfolio Turnover Rate 11% 11% 18% 19% 32% 23%
21
Financial Highlights for the New Account
No financial highlights exist for the New Account because the New Account was
organized for the purpose of the reorganization and has not yet commenced
operations.
GENERAL INFORMATION
Proxy Solicitation
The Board of Managers of Fund B is furnishing this Proxy Statement/Prospectus in
connection with the Board's solicitation of proxies for use at the Meeting. AUL
is bearing the cost of this proxy solicitation.
If you complete, sign, date and return the enclosed proxy, you may nevertheless
revoke it at any time before it is exercised by providing written notice to AUL
or by voting in person at the Meeting. However, attendance in person at the
Meeting, by itself, will not revoke a previously tendered proxy. Any later-dated
proxy that AUL receives will revoke a prior proxy. The proxy solicitation will
be done by mail but may also be done by telephone, telegram, facsimile or
personal interview conducted by AUL's personnel or outside contractors employed
to assist in the solicitation. The estimated expenses for the solicitation are
$1,800.
Participants as of November 7, 2003 (the "Record Date") are entitled to vote at
the Meeting. As of the Record Date, there were ____________ votes entitled to be
cast at the Meeting. The following individuals are entitled to cast 5% or more
of the total votes of Fund B and the percentage that individual is entitled to
vote:
Name and Address
of Contract Owner Number of Votes Percentage of Voting Power
- ---------------------------------------- -------------------------------------- --------------------------------------
Beng T. Ho
2615 South Glen Haven
Houston, Texas 77025 16,421.71747 8.81%
Linda J. Neudecker
1541 W. County Road 600 N.
Ridgeville, IN 47380 14,593.83935 7.83%
Ronald G. Nelson
29803 Fairview Road
Lebanon, OR 97355 12,322.76000 6.61%
The rules and regulations governing Fund B provide that the number of
Accumulation Units credited to a Participant will determine the number of votes
that may be cast with respect to a Contract. After annuity payments begin, a
Participant may cast the number of votes equal to the dollar amount of the
assets established in Fund B to meet the annuity obligations relating to such
Participant, divided by the Accumulation Unit value for Fund B, determined as of
the valuation date next preceding the Record Date. Fractional votes will be
counted.
22
Before annuity payments begin, Participants have the right to vote at the
Meeting. After annuity payments begin under a Contract, Annuitants continue to
have the right to vote on any issue which may be voted on by Participants.
The persons designated as proxies of Fund B will vote all proxies executed,
dated and returned to AUL prior to the beginning of the Meeting on February 2,
2004 in accordance with instructions marked thereon. If instructions are not
marked thereon, the persons designated as proxies will vote proxies "FOR" the
reorganization. Abstentions will be counted to determine whether a quorum is
present at the Meeting, and will have the effect of a vote "AGAINST" the
reorganization.
Approval of the reorganization will require the affirmative "vote of a majority
of the outstanding voting securities" entitled to vote on the proposal, which
means the affirmative vote of 67% or more of Fund B's Accumulation Units that
are present at the Meeting, if Participants entitled to vote more than 50% of
the outstanding Accumulation Units are present or represented by proxy, or the
vote of more than 50% of the outstanding Accumulation Units of Fund B, whichever
is less. To take action on the proposed reorganization, it is necessary that
Participants entitled to cast at least 50% of all votes eligible to be cast with
respect to Fund B be present in person or represented by proxy at the Meeting.
The Meeting may be adjourned for the purpose of further proxy solicitation if a
quorum is not present at the Meeting or if the vote necessary to approve the
reorganization has not been obtained. The persons designated as proxies will
vote proxies in favor of any adjournment unless you provide other instructions.
At any subsequent reconvening, the persons designated as proxies will vote
proxies in the same manner as the proxies would have been voted at the original
Meeting, unless you revoke the proxies before the Meeting is reconvened.
Availability of Certain Other Information
Fund B, the Unit Trust and OneAmerica Funds, Inc. are subject to various
reporting and filing requirements pursuant to statutes administered by the
Securities and Exchange Commission. You can inspect and copy the remainder of
this registration statement, of which this Proxy Statement/Prospectus forms a
part, as well as reports, proxy statements, and other information filed with the
Securities and Exchange Commission by Fund B, the Unit Trust or OneAmerica
Funds, Inc. at the public reference facilitates maintained by the Securities and
Exchange Commission at: 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549. You may obtain copies of such material from the Securities and Exchange
Commission at prescribed rates by writing to the Public Reference Branch, Office
of Consumer Affairs and Information Services, Securities and Exchange
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
Other Matters
The Board of Managers of Fund B knows of no other matters which are likely to be
brought before the Meeting. In the event any other matters do properly come
before the Meeting, however, the persons named in the enclosed proxy will vote
the proxies in accordance with their best judgment.
Participant Proposals
23
Fund B does not hold regular Participant meetings. Participants wishing to
submit proposals for inclusion in a proxy statement for a subsequent Participant
meeting (if any) should send their written proposals to the principal executive
offices of Fund B at the address set forth on the cover of this Proxy
Statement/Prospectus.
Proposals must be received a reasonable time prior to the date of a meeting of
Participants to be considered for inclusion in the proxy materials for a
meeting. Timely submission of a proposal does not, however, necessarily mean
that the proposal will be included. Persons named as proxies for any subsequent
Participant meeting will vote in their discretion with respect to proposals
submitted on an untimely basis.
24
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
FOR
AMERICAN UNITED LIFE POOLED EQUITY FUND B
OF
AMERICAN UNITED LIFE INSURANCE COMPANY
This Agreement and Plan of Reorganization (the "Agreement"), is entered into as
of the 22nd day of September, 2003, by and among American United Life Insurance
Company ("AUL"), a life insurance company organized and existing under the laws
of the State of Indiana, American United Life Pooled Equity Fund B ("Fund B"),
and OneAmerica Funds, Inc. ("OneAmerica Funds"). This Agreement is intended to
be and is adopted as a plan of reorganization and liquidation within the meaning
of Section 368(a)(1) of the United States Internal Revenue Code of 1986, as
amended.
WHEREAS, Fund B is a managed separate account established and existing under the
insurance laws of the State of Indiana, is registered with the Securities and
Exchange Commission (the "Commission") as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and is the funding vehicle for certain variable annuity contracts issued by AUL
(the "Contracts"); and
WHEREAS, Fund B invests primarily in common stocks to achieve the investment
objective of long-term capital appreciation; and
WHEREAS, AUL has established the AUL American Unit Trust (the "Unit Trust") as a
separate account existing under the insurance laws of the State of Indiana that
is registered with the Commission as a unit investment trust under the 1940 Act,
and which serves as the funding vehicle for the Contracts; and
WHEREAS, OneAmerica Funds, Inc. ("OneAmerica Funds") is an open-end management
investment company consisting of several separate portfolios, including the
OneAmerica Value Portfolio (the "Value Portfolio"), and is registered with the
Commission as an open-end management investment company under the 1940 Act; and
WHEREAS, the Value Portfolio seeks long-term capital appreciation primarily
through investment in equity securities selected on the basis of fundamental
investment research for their long-term growth prospects; and
WHEREAS, the Value Portfolio serves as the investment vehicle for variable
annuity contracts and variable life insurance policies issued by AUL; and
WHEREAS, the Board of Managers of Fund B and the Board of Directors of
OneAmerica Funds have determined that it is in the best interest of Fund B and
the Value Portfolio, respectively, to engage in the transactions contemplated by
this Agreement and that the interests of existing
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investors in Fund B and Value Portfolio, respectively, will not be diluted as a
result of these transactions; and
WHEREAS, the Board of Directors of AUL has considered and approved the actions
contemplated by this Agreement and has authorized AUL to enter into this
Agreement; and
NOW THEREFORE, in consideration of the mutual promises made herein, the parties
hereto agree as follows:
ARTICLE I: CLOSING DATE
Section 1.01. The reorganization contemplated by this Agreement shall be
effective on such date as may be mutually agreed upon by all parties to this
Agreement (the "Closing Date"). The time on the Closing Date as of which the
reorganization is consummated is referred to hereinafter as the "Effective
Time."
Section 1.02. The parties agree to use their best efforts to obtain all
regulatory approvals and approvals of persons entitled to vote with respect to
Fund B ("Voters"), and to perform all other acts necessary or desirable to
complete the reorganization as of the Closing Date.
ARTICLE II: TRANSACTIONS
Section 2.01. As of the Effective Time, all of the assets (including securities
and other investments held or in transit, receivables for sold investments,
dividends, interest receivable and any other assets) and liabilities of Fund B
will be transferred to a new sub-account ("New Account") of the Unit Trust.
Section 2.02. Simultaneously with the transaction contemplated in Section 2.01,
AUL, on behalf of the Unit Trust, will transfer the assets and liabilities
(other than liabilities relating to insurance charges) of New Account to the
Value Portfolio.
Section 2.03. In return for the assets received from New Account, AUL will
receive from the OneAmerica Funds, on behalf of New Account, Class O shares of
the Value Portfolio. The number of shares of the Value Portfolio to be received
shall be determined by dividing (1) the amount of net assets transferred on
behalf of New Account by (2) the per share net asset value of the Class O shares
of Value Portfolio computed in the manner set forth in the currently effective
registration statement of OneAmerica Funds as of the Closing Date or such other
date required by law.
Section 2.04. As of the Effective Time, AUL shall cause the shares of the Value
Portfolio it receives pursuant to Section 2.03 of this Agreement to be duly and
validly recorded and held on its records as assets of New Account such that the
interest of each record or beneficial owner of a Contract ("Participant") with
Contract value allocated to New Account after the Closing Date will then be
equivalent in value to that Participant's former interest in Fund B, and
Participants will continue to have the same aggregate Contract unit values in
the New Account as they had in Fund B prior to the reorganization. AUL shall
take all action necessary to ensure that such
A-2
interests in the New Account immediately following the Effective Time, are duly
and validly recorded on the Participant's individual account records.
Section 2.05. The Value Portfolio Class O shares to be issued hereunder shall be
issued in open account form by book entry without the issuance of certificates.
Section 2.06. If, at any time after the Closing Date, the parties to this
Agreement shall determine that any further action is necessary or desirable to
complete the reorganization contemplated by this Agreement, the appropriate
entity or entities shall take all such actions which are considered reasonable
and necessary to complete the reorganization.
Section 2.07. Following the Closing Date: (1) AUL will not provide investment
advisory services to New Account and, therefore, will not charge the New Account
for investment advisory services; and (2) AUL will continue to charge New
Account for mortality and expense risks assumed by AUL and for any premium taxes
or other charges currently charged with respect to the Contracts.
ARTICLE III: REPRESENTATIONS, WARRANTIES AND CONDITIONS
Section 3.01. AUL, OneAmerica Funds, and Fund B, as appropriate, make the
following representations and warranties, which shall survive the Closing Date
and bind their respective successors and assigns:
(a) AUL, OneAmerica Funds, and Fund B are duly and validly organized and
established, and in good standing under applicable laws, and are fully empowered
and qualified to carry out their business in all jurisdictions where they do so,
including to enter into this Agreement and to effect the reorganization
contemplated hereby (provided that all necessary approvals referred to in
Section 3.02 of this Agreement are obtained).
(b) Each of the Unit Trust, Fund B and OneAmerica Funds is duly registered
and in good standing as an investment company under the 1940 Act.
(c) The Contracts are validly issued, fully paid and non-assessable, and
all of the Contracts issued through Fund B have been offered and sold in
material compliance with applicable requirements of the federal securities laws.
(d) All corporate and other proceedings necessary and required to be taken
by or on the part of AUL, OneAmerica Funds, and Fund B to authorize and carry
out this Agreement and to effect the reorganization have been fully and properly
taken.
(e) There are no suits, actions, or proceedings pending or threatened
against any party to this Agreement which, to its knowledge, if adversely
determined, would materially and adversely affect its financial condition, the
conduct of its business, or its ability to carry out its obligations hereunder.
(f) There are no investigations or administrative proceedings by the
Commission or by any insurance or securities regulatory body of the United
States, any state or territory, or of
A-3
the District of Columbia pending against any party to this Agreement which, to
its knowledge, would lead to any suit, action, or proceeding that, if adversely
determined, would materially and adversely affect its financial condition, the
conduct of its business, or its ability to carry out its obligations hereunder.
(g) If any party to this Agreement becomes aware, prior to the Effective
Time, of any suit, action, or proceeding, of the types described in paragraphs
(e) or (f) above, instituted or commenced against it, such party shall
immediately notify and advise all other parties to this Agreement.
(h) Each party shall make available all information concerning itself which
may be required in any application, registration statement, or other filing with
a governmental body to be made by the parties to this Agreement, in connection
with any of the transactions contemplated by this Agreement and shall join in
all such applications or filings, subject to reasonable approval by its counsel.
Each party represents and warrants that, to its knowledge, all of such
information so furnished shall be correct in all material respects and that it
shall not omit any material fact required to be stated therein or necessary in
order to make the statements therein not misleading.
(i) From the date of this Agreement through the Closing Date, Fund B will
conduct its business in accordance with Fund B's governing Rules and Regulations
and in substantial compliance with the Indiana Insurance Laws and the terms of
the Contracts issued through Fund B, OneAmerica Funds will conduct its business
in accordance with its charter and bylaws and in substantial compliance with the
1940 Act, and AUL will conduct its business in accordance with its Bylaws and in
substantial compliance with the Indiana Insurance Laws.
(j) No party is engaged currently, and the execution, delivery and
performance of this Agreement by each party will not result, in a material
violation of any such party's charter, bylaws, or any material agreement,
indenture, instrument, contract, lease or other undertaking to which such party
is bound, and to such party's knowledge, the execution, delivery and performance
of this Agreement will not result in the acceleration of any obligation, or the
imposition of any penalty, under any material agreement, indenture, instrument,
contract, lease, judgment or decree to which any such party may be a party or to
which it is bound, except with respect to contracts entered into in connection
with the investment advisory and other services of Fund B which shall terminate
on or prior to the Closing Date.
(k) This Agreement is a valid obligation of each party and is legally
binding upon it in accordance with its terms.
Section 3.02. The obligations of the parties hereunder shall be subject to
reasonable satisfaction of each of the following conditions:
(a) The representations contained herein shall be true as of and at the
Effective Time with the same effect as though made at such time, and all parties
shall have performed all obligations required by this Agreement to be performed
by each of them prior to such time.
A-4
(b) The Commission shall not have issued an unfavorable advisory report
under Section 25(b) of the 1940 Act nor instituted any proceeding seeking to
enjoin consummation of the reorganization contemplated hereby.
(c) The appropriate parties shall have received orders from the Commission
providing such exemptions and approvals as they and their counsel reasonably
deem necessary, if any, and shall have made all necessary filings, if any, with,
and received all necessary approvals from, state securities or insurance
authorities.
(d) OneAmerica Funds and the Unit Trust shall have filed with the
Commission a registration statement on Form N-14 under the Securities Act of
1933, as amended (the "1933 Act"), and such pre-effective amendments thereto as
may be necessary or desirable to effect the purposes of the reorganization; and
the appropriate parties shall have taken all actions necessary for such filings
to become effective; and no reason shall be known by the parties which would
prevent the filings from becoming effective in a timely manner.
(e) This Agreement and the reorganization contemplated hereby, shall have
been approved by the requisite vote at a meeting of Voters called for such
purpose (or any adjournments thereof).
(f) Dechert LLP shall deliver an opinion substantially to the effect that,
based upon certain facts, assumptions, and representations, the transactions
contemplated by this Agreement should not result in the realization of taxable
income or gains to the Participants, unless, based on the circumstances existing
at the Effective Time, Dechert LLP determines that a transaction contemplated by
this Agreement does not qualify for such treatment. The delivery of such opinion
is conditioned upon receipt by Dechert LLP of representations it shall request
of the parties to this Agreement. Notwithstanding anything herein to the
contrary, no party to this agreement may waive the condition set forth in this
paragraph.
(g) Each party shall have furnished, as reasonably requested by any other
party, legal opinions, officers' certificates, certified copies of board and
committee resolutions, certificates of good standing or "all fees paid" or
similar certificates, and other closing documentation as may be appropriate for
a transaction of this type.
ARTICLE IV: COSTS
Section 4.01. AUL shall bear all expenses in connection with effecting the
reorganization contemplated by this Agreement
ARTICLE V: TERMINATION
Section 5.01. This Agreement may be terminated and the reorganization abandoned
at any time prior to the Effective Time, notwithstanding approval by Voters:
(a) by mutual consent of the parties hereto; or
A-5
(b) by any of the parties if any condition set forth in Section 3.02 of
this Agreement has not been fulfilled by any other party.
Section 5.02. At any time prior to the Effective Time, any of the terms or
conditions of this Agreement (other than Section 3.02(f)) may be waived by the
party or parties entitled to the benefit thereof if such waiver will not have a
material adverse effect on the interests of Participants.
ARTICLE VI: GENERAL
Section 6.01. This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which shall constitute one and
the same document.
Section 6.02. This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of Indiana, without regard to its principles of
conflicts of law.
Section 6.03. Notwithstanding anything herein to the contrary, except as
reasonably necessary to comply with applicable securities laws, each party (and
each employee, representative or other agent of each party) hereto may disclose
to any and all persons, without limitation of any kind, any information with
respect to the United States Federal income "tax treatment" and "tax structure"
(in each case, within the meaning of Treasury Regulation Section 1.6011-4) of
the transactions contemplated hereby and all materials of any kind (including
opinions or other tax analyses) that are provided to such parties (or their
representatives) relating to such tax treatment and tax structure. To the extent
not inconsistent with the immediately preceding sentence, this authorization
does not extend to disclosure of any other information, including without
limitation (a) the names and addresses of Participants, (b) all information
reasonably identified as confidential in writing by any party hereto, or (c) any
other term or detail, or portion of any documents or other materials, not
related to the tax treatment or tax structure of the potential transaction.
Except as permitted by this Agreement, each party hereto shall not disclose,
disseminate or utilize such names and addresses and other confidential
information without the express written consent of the affected party until such
time as such information has come into the public domain.
A-6
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
approved.
American United Life Insurance Company
By: ____________________________
Name:
Title:
American United Life Pooled Equity Fund B
By: ____________________________
Name:
Title:
OneAmerica Funds, Inc.
By: ____________________________
Name:
Title:
A-7
APPENDIX B
PROSPECTUS OF ONEAMERICA FUNDS, INC.
OneAmerica Funds, Inc.
Class O and Advisor Class Shares
One American Square
Indianapolis, Indiana 46282
(800) 249-6269
OneAmerica Funds, Inc. (the "fund") (formerly AUL American Series Fund, Inc.) is
an open-end management investment company consisting of four separate
portfolios:
OneAmerica Value portfolio (formerly the AUL American Equity portfolio)
OneAmerica Investment Grade Bond portfolio (formerly the AUL American Bond
portfolio)
OneAmerica Money Market portfolio (formerly the AUL American Money Market
portfolio)
OneAmerica Asset Director portfolio (formerly the AUL American Managed
portfolio)
Each portfolio has its own investment objectives and policies, which are
described later in this prospectus. This prospectus describes the Class O and
Advisor Class shares of common stock of the portfolios, which are sold only to
separate accounts of American United Life Insurance Company(R) (AUL) to fund
investments in variable life and variable annuity contracts issued by AUL. The
separate accounts of AUL buy and sell shares of the portfolios according to
instructions given by owners or participants in the contracts. The rights of
owners and participants are described in the contracts or the certificates for
those contracts and in the prospectus for the contracts.
This prospectus should be read in conjunction with the separate account's
prospectus describing the contracts. Please read both prospectuses and retain
them for future reference.
Neither the SEC nor any state securities commission has approved or disapproved
these securities or found that this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
May 1, 2003
B-1
TABLE OF CONTENTS
Description Page
The Portfolios.................................................................................................................. 3
Value Portfolio............................................................................................................... 3
Investment Grade Bond Portfolio............................................................................................... 4
Money Market Portfolio........................................................................................................ 6
Asset Director Portfolio...................................................................................................... 8
Financial highlights............................................................................................................10
General Information about the Fund..............................................................................................14
Management of the Fund..........................................................................................................14
The Investment Advisor--American United Life Insurance Company(R)...............................................................14
The Portfolio Managers..........................................................................................................14
Value Portfolio................................................................................................................14
Investment Grade Bond Portfolio................................................................................................14
Asset Director Portfolio.......................................................................................................14
Further Portfolio Information; Investments; Investment Strategies And Risks.....................................................15
Investments and Investment Strategies...........................................................................................15
Value Portfolio................................................................................................................15
Investment Grade Bond Portfolio................................................................................................15
Money Market Portfolio.........................................................................................................15
Asset Director Portfolio.......................................................................................................15
General Risks...................................................................................................................15
Market Risk....................................................................................................................15
Interest Rate Risk.............................................................................................................16
Credit Risk....................................................................................................................16
Derivatives Risk...............................................................................................................16
Defensive Strategy..............................................................................................................16
Purchase and Redemption of Shares...............................................................................................16
Net Asset Value.................................................................................................................17
Distribution and Servicing (12b-1) Plans........................................................................................17
Taxation........................................................................................................................17
Other Information...............................................................................................................18
B-2
The Portfolios
The Value Portfolio (formerly the Equity Portfolio)
The primary investment objective of the Value portfolio is long-term capital
appreciation. The portfolio seeks current investment income as a secondary
objective. To do this, the portfolio primarily invests in equity securities that
the advisor selects based on fundamental investment research for their long-term
growth prospects. The portfolio uses a value-driven approach in selecting
portfolio securities.
Normally, at least 65% of the portfolio's assets will be common stocks listed on
a national securities exchange or traded over-the-counter. The portfolio may
invest up to 35% of its assets in other instruments and investment techniques
such as American Depository Receipts, preferred stock, debentures that can be
converted to common stock or that have rights to buy common stock in the future,
nonconvertible debt securities, U.S. Government securities, commercial paper and
other money market instruments, repurchase agreements and reverse repurchase
agreements.
An investment in the portfolio involves investment risk, including possible loss
of the principal amount invested. The portfolio is subject to market risk, which
is the risk that the market value of a portfolio security may move up and down,
sometimes rapidly and unpredictably. This risk may be particularly acute for the
portfolio's investments in common stocks and other types of equity securities.
The portfolio is also subject to interest rate risk, which is the risk that
changes in interest rates will affect the value of its investments. In
particular, the portfolio's investments (if any) in fixed income securities
generally will change in value inversely with changes in interest rates. Also,
an investment by the portfolio in fixed income securities generally will expose
the portfolio to credit risk, which is the risk that the issuer of a security
will default or not be able to meet its financial obligations.
An investment in the portfolio is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
The chart and table below provide some indication of the risks of investing in
the Value portfolio by showing changes in its performance from year to year and
by comparing its average annual returns for one, five, and ten years to a broad
measure of market performance. The chart and the information below it show
performance of the fund's Class O shares only, because the fund did not offer
Advisor Class shares during the periods shown. Performance information shown in
the Average Annual Total Returns table for Advisor Class shares shows
performance for the fund's Class O shares, adjusted to reflect distribution
and/or service (12b-1) fees and other expenses paid by the Advisor Class shares.
Although Class O and the Advisor Class shares would have similar annual returns
(because all the fund's shares represent interests in the same portfolio of
securities), Advisor Class performance would be lower than Class O performance
because of the lower expenses paid by Class O shares. The information does not
reflect charges and fees associated with a separate account that invests in the
portfolio or any insurance contract for which the portfolio is an investment
option. These charges and fees will reduce returns. How the portfolio has
performed in the past is not an indication of its future performance.
[Bar chart inserted with returns printed above each year's column.]
Numbers to be inserted are: for 1993: 14.8% for 1998: 7.1%
for 1994: 2.6% for 1999: -0.9%
for 1995: 19.4% for 2000: 17.7%
for 1996: 19.2% for 2001: 11.3%
for 1997: 29.6% for 2002: -7.0%
During this period, the portfolio's highest return for any quarter was 16.8%,
which occurred in the 4th quarter of 2001 and the lowest return for a quarter
was -19.2% in the 3rd quarter of 2002.
The following table demonstrates the average annual total return of the
portfolio as of December 31, 2002, compared to the Standard & Poor's 500
Composite Stock Price Index (the "S&P 500") for one, five, and ten years. The
S&P 500 is a market-value-weighted benchmark of common stock performance. The
S&P 500 includes 500 of the largest stocks (in terms of market value) in the
United States. Investors cannot directly invest in an index and unlike the
portfolio, an index is unmanaged and does not incur transaction or other
expenses.
B-3
Average Annual Total Returns for:
One Year Five Years Ten Years
---------------------------- ---------------------------- ----------------------------
Value Class O -6.99% 5.27% 10.88%
Value Advisor Class -7.27% 4.96% 10.56%
S&P 500 -22.1% -0.6% 9.3%
Portfolio Expenses
The following expense table indicates the expenses that an investor will incur
as a shareholder of the portfolio during the current fiscal year. These expenses
are reflected in the share price of the portfolio. The table does not reflect
separate account or insurance contract fees and charges.
Class O Annual Portfolio Operating Expenses
(expenses that are deducted from fund assets)
Management Fees........................................................... 0.50%
Other Expenses*........................................................... 0.07%
Total Annual Portfolio Operating Expenses*................................ 0.57%
*For the current fiscal year, Other Expenses paid by the portfolio are expected
to be limited to 0.50%, and Total Annual Portfolio Operating Expenses, after fee
waivers and expense reimbursements, cannot exceed 1.00%. Any fee waiver or
expense reimbursement arrangement is voluntary and may be discontinued at any
time.
Advisor Class Annual Portfolio Operating Expenses
(expenses that are deducted from fund assets)
Management Fees........................................................... 0.50%
Distribution and/or Service (12b-1) Fees.................................. 0.30%
Other Expenses*........................................................... 0.07%
Total Annual Portfolio Operating Expenses*................................ 0.87%
*For the current fiscal year, Other Expenses paid by the portfolio are expected
to be limited to 0.50%, and Total Annual Portfolio Operating Expenses, after fee
waivers and expense reimbursements, cannot exceed 1.30%. Any fee waiver or
expense reimbursement arrangement is voluntary and may be discontinued at any
time.
Expense Example
Use the following table to compare fees and expenses of the portfolio to other
investment companies. It illustrates the amount of fees and expenses an investor
would pay assuming (1) a $10,000 investment, (2) 5% annual return, (3)
redemption at the end of each time period, and (4) no changes in the portfolio's
total operating expenses. It does not reflect separate account or insurance
contract fees and charges. If separate account and/or insurance contract fees
and charges were reflected, the cost would be higher. Therefore, an investor's
actual costs may be different than the costs reflected in the table.
Portfolio Share Class 1 Year 3 Years 5 Years 10 Years
Value Class O $59 $183 $318 $ 712
Value Advisor Class 89 277 481 1,069
The Investment Grade Bond Portfolio (formerly the Bond Portfolio)
The primary investment objective of the Investment Grade Bond portfolio is to
provide a high level of current income consistent with prudent investment risk.
A secondary investment objective is to provide capital appreciation to the
extent consistent with the primary objective. To do this, the portfolio
primarily invests in investment grade corporate bonds and other debt securities.
The portfolio may also buy U.S. Government securities, convertible bonds, and
mortgage-backed securities.
The portfolio may invest in bonds of any maturity. The average maturity and type
of bonds in the portfolio change based on the advisor's view of market
conditions and the chance for a change in the interest rates for the different
types of bonds the portfolio buys.
The advisor believes that having mostly investment grade bonds in the portfolio
protects investors from the risk of losing principal and interest. However, if
the advisor feels that it can take advantage of higher yields offered by bonds
that are not investment grade ("junk bonds"), the portfolio may invest up to 10%
of its assets in such bonds. Bonds that are not investment grade have a higher
risk of losing principal and interest than investment grade bonds.
An investment in the portfolio involves investment risk, including possible loss
of the principal amount invested. The
B-4
portfolio is subject to market risk, which is the risk that the market value of
a portfolio security may move up and down, sometimes rapidly and unpredictably.
The portfolio is also subject to interest rate risk, which is the risk that
changes in interest rates will affect the value of its investments. In
particular, the portfolio's investments in fixed income securities generally
will change in value inversely with changes in interest rates. Longer-term bonds
typically demonstrate the greatest changes in value in response to changes in
interest rates. Also, an investment by the portfolio in fixed income securities
generally will expose the portfolio to credit risk, which is the risk that the
issuer of a security will default or not be able to meet its financial
obligations. Investments in junk bonds are subject to credit risk to a greater
degree than more highly-rated, investment grade securities.
An investment in the portfolio is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
The chart and table below provide some indication of the risks of investing in
the Investment Grade Bond portfolio by showing changes in its performance from
year to year and by comparing its average annual returns for one, five, and ten
years to a broad measure of market performance. The chart and the information
below it show performance of the fund's Class O shares only, because the fund
did not offer Advisor Class shares during the periods shown. Performance
information shown in the Average Annual Total Returns table for Advisor Class
shares shows performance for the fund's Class O shares, adjusted to reflect
distribution and/or service (12b-1) fees and other expenses paid by the Advisor
Class shares. Although Class O and the Advisor Class shares would have similar
annual returns (because all the fund's shares represent interests in the same
portfolio of securities), Advisor Class performance would be lower than Class O
performance because of the lower expenses paid by Class O shares. The
information does not reflect charges and fees associated with a separate account
that invests in the portfolio or any insurance contract for which the portfolio
is an investment option. These charges and fees will reduce returns. How the
portfolio has performed in the past is not an indication of its future
performance.
[Bar chart inserted with returns printed above each year's column.]
Numbers to be inserted are:
for 1993: 10.7% for 1998: 8.8%
for 1994: -3.6% for 1999: -1.1%
for 1995: 17.8% for 2000: 10.8%
for 1996: 2.2% for 2001: 7.1%
for 1997: 7.9% for 2002: 7.9%
During this period, the portfolio's highest return for any quarter was 5.9%,
which occurred in the 2nd quarter of 1995 and the lowest return for a quarter
was -3.2% in the 1st quarter of 1994.
The following table demonstrates the average annual total return of the
portfolio as of December 31, 2002, compared to the Lehman Aggregate Index for
one, five, and ten years. The Lehman Aggregate Index is a broad
market-value-weighted benchmark of U.S. investment grade bond performance. The
Lehman Aggregate Index includes all investment grade U.S. bond issues
(government, corporate, mortgage-backed and asset-backed) with a minimum of $100
million par value and that have at least one year remaining to maturity.
Investors cannot directly invest in an index and unlike the portfolio, an index
is unmanaged and does not incur transaction or other expenses.
Average Annual Total Returns for:
One Year Five Years Ten Years
--------------------- ---------------------------- ----------------------------
Investment Grade Bond Class O 7.89% 6.61% 6.68%
Investment Grade Bond Advisor Class 7.58% 6.29% 6.36%
Lehman Aggregate Index 10.3% 7.6% 7.5%
B-5
Portfolio Expenses
The following expense table indicates the expenses that an investor will incur
as a shareholder of the portfolio during the current fiscal year. These expenses
are reflected in the share price of the portfolio. The table does not reflect
separate account or insurance contract fees and charges.
Class O Annual Portfolio Operating Expenses
(expenses that are deducted from fund assets)
Management Fees........................................................... 0.50%
Other Expenses*........................................................... 0.09%
Total Annual Portfolio Operating Expenses*................................ 0.59%
*For the current fiscal year, Other Expenses paid by the portfolio are expected
to be limited to 0.50%, and Total Annual Portfolio Operating Expenses, after fee
waivers and expense reimbursements, cannot exceed 1.00%. Any fee waiver or
expense reimbursement arrangement is voluntary and may be discontinued at any
time.
Advisor Class Annual Portfolio Operating Expenses
(expenses that are deducted from fund assets)
Management Fees........................................................... 0.50%
Distribution and/or Service (12b-1) Fees.................................. 0.30%
Other Expenses*........................................................... 0.09%
Total Annual Portfolio Operating Expenses*................................ 0.89%
*For the current fiscal year, Other Expenses paid by the portfolio are expected
to be limited to 0.50%, and Total Annual Portfolio Operating Expenses, after fee
waivers and expense reimbursements, cannot exceed 1.30%. Any fee waiver or
expense reimbursement arrangement is voluntary and may be discontinued at any
time.
Expense Example
Use the following table to compare fees and expenses of the portfolio to other
investment companies. It illustrates the amount of fees and expenses an investor
would pay assuming (1) a $10,000 investment, (2) 5% annual return, (3)
redemption at the end of each time period, and (4) no changes in the portfolio's
total operating expenses. It does not reflect separate account or insurance
contract fees and charges. If separate account and/or insurance contract fees
and charges were reflected, the cost would be higher. Therefore, an investor's
actual costs may be different than the costs reflected in the table.
Portfolio Share Class 1 Year 3 Years 5 Years 10 Years
Investment Grade Bond
Class O $61 $190 $330 $ 739
Investment Grade Bond
Advisor Class 91 284 493 1,095
The Money Market Portfolio
The investment objective of the Money Market portfolio is to provide current
income while preserving assets and maintaining liquidity and investment quality.
To do this, the portfolio invests in short-term money market instruments of the
highest quality that the advisor has determined present minimal credit risk. The
portfolio invests only in money market instruments denominated in U.S. dollars
that mature in 13 months or less from the date of purchase.
The portfolio is subject to interest rate risk, which is the risk that changes
in interest rates will affect the value of its investments. Investments in fixed
income securities generally will change in value inversely with changes in
interest rates. However, fixed income securities with shorter-terms to maturity,
like those in which the portfolio invests, typically demonstrate smaller changes
in value in response to changes in interest rates than do longer-term
securities. Also, an investment by the portfolio in money market instruments
will expose the portfolio to credit risk, which is the risk that the issuer of a
security will default or not be able to meet its financial obligations. However,
the portfolio invests only in high-quality instruments that the advisor has
determined present minimal credit risk.
An investment in this portfolio is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency. Although the portfolio seeks to preserve the value of its
investment at $1 per share, it is possible to lose money by investing in the
portfolio.
The chart and table below provide some indication of the risks of investing in
the Money Market portfolio by showing changes in its performance from year to
year and by comparing its average annual returns for one, five, and ten years to
a broad measure of market performance. The chart and the information below it
show performance of the fund's Class O shares only, because the fund did not
offer Advisor Class shares during the periods shown. Performance information
shown in
B-6
the Average Annual Total Returns table for Advisor Class shares shows
performance for the fund's Class O shares, adjusted to reflect distribution
and/or service (12b-1) fees and other expenses paid by the Advisor Class shares.
Although Class O and the Advisor Class shares would have similar annual returns
(because all the fund's shares represent interests in the same portfolio of
securities), Advisor Class performance would be lower than Class O performance
because of the lower expenses paid by Class O shares. The information does not
reflect charges and fees associated with a separate account that invests in the
portfolio or any insurance contract for which the portfolio is an investment
option. These charges and fees will reduce returns. How the portfolio has
performed in the past is not an indication of its future performance.
[Bar chart inserted with returns printed above each year's column.]
Numbers to be inserted are: for 1993: 2.3% for 1998: 4.9%
for 1994: 3.4% for 1999: 4.6%
for 1995: 5.1% for 2000: 5.9%
for 1996: 4.6% for 2001: 3.5%
for 1997: 4.9% for 2002: 1.2%
During this period, the portfolio's highest return for any quarter was 1.5%,
which occurred in the 4th quarter of 2000 and the lowest return for a quarter
was 0.3% in the 4th quarter of 2002.
The following table demonstrates the average annual total return of the
portfolio as of December 31, 2002, compared to the return on 90 Day Treasury
Bills for one, five, and ten years.
Average Annual Total Returns for:
One Year Five Years Ten Years
-------------------- ---------------------------- ----------------------------
Money Market Class O 1.23% 4.00% 4.03%
Money Market Advisor Class 0.91% 3.69% 3.71%
90 Day Treasury Bills 1.8% 4.5% 4.6%
For the seven day period ended December 31, 2002, the current yield for the
portfolio was 0.87% and the effective yield was 0.88%.
Portfolio Expenses
The following expense table indicates the expenses that an investor will incur
as a shareholder of the portfolio during the current fiscal year. These expenses
are reflected in the share price of the portfolio. The table does not reflect
separate account or insurance contract fees and charges.
Class O Annual Portfolio Operating Expenses
(expenses that are deducted from fund assets)
Management Fees........................................................... 0.40%
Other Expenses*........................................................... 0.08%
Total Annual Portfolio Operating Expenses*................................ 0.48%
*For the current fiscal year, Other Expenses paid by the portfolio are expected
to be limited to 0.60%, and Total Annual Portfolio Operating Expenses, after fee
waivers and expense reimbursements, cannot exceed 1.00%. Any fee waiver or
expense reimbursement arrangement is voluntary and may be discontinued at any
time.
Advisor Class Annual Portfolio Operating Expenses
(expenses that are deducted from fund assets)
Management Fees........................................................... 0.40%
Distribution and/or Service (12b-1) Fees.................................. 0.30%
Other Expenses*........................................................... 0.08%
Total Annual Portfolio Operating Expenses*................................ 0.78%
*For the current fiscal year, Other Expenses paid by the portfolio are expected
to be limited to 0.60%, and Total Annual Portfolio Operating Expenses, after fee
waivers and expense reimbursements, cannot exceed 1.30%. Any fee waiver or
expense reimbursement arrangement is voluntary and may be discontinued at any
time.
B-7
Expense Example
Use the following table to compare fees and expenses of the portfolio to other
investment companies. It illustrates the amount of fees and expenses an investor
would pay assuming (1) a $10,000 investment, (2) 5% annual return, (3)
redemption at the end of each time period, and (4) no changes in the portfolio's
total operating expenses. It does not reflect separate account or insurance
contract fees and charges. If separate account and/or insurance contract fees
and charges were reflected, the cost would be higher. Therefore, an investor's
actual costs may be different than the costs reflected in the table.
Portfolio Share Class 1 Year 3 Years 5 Years 10 Years
Money Market Class O $50 $155 $270 $606
Money Market Advisor Class 80 250 434 966
The Asset Director Portfolio (formerly the Managed Portfolio)
The investment objective of the Asset Director portfolio is to provide a high
total return consistent with prudent investment risk. The investments of the
portfolio are not limited to one type of investment as it purchases publicly
traded common stocks, fixed income securities, and money market instruments. The
makeup of the portfolio changes, based on the advisor's evaluation of economic
and market trends and the expected total return from a particular type of
security. Therefore, up to 100% of the portfolio may be invested in any one type
of investment such as common stocks, fixed income securities, or money market
instruments.
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, which may increase the portfolio's expenses.
The portfolio can invest up to 10% of its assets in fixed income securities that
are rated below investment grade ("junk bonds"). The portfolio also may buy high
quality money market instruments.
An investment in the portfolio involves investment risk, including possible loss
of the principal amount invested. The portfolio is subject to market risk, which
is the risk that the market value of a portfolio security may move up and down,
sometimes rapidly and unpredictably. This risk may be particularly acute for the
portfolio's investments in common stocks and other types of equity securities.
The portfolio also is subject to interest rate risk, which is the risk that
changes in interest rates will affect the value of its investments. In
particular, the portfolio's investments in fixed income securities generally
will change in value inversely with changes in interest rates. Longer-term bonds
typically demonstrate the greatest change in value in response to changes in
interest rates. Also, an investment by the portfolio in fixed income securities
generally will expose the portfolio to credit risk, which is the risk that the
issuer of a security will default or not be able to meet its financial
obligations. Investments in junk bonds are subject to credit risk to a greater
degree than more highly-rated, investment grade securities.
An investment in the portfolio is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
The chart and table below provide some indication of the risks of investing in
the Asset Director portfolio by showing changes in its performance from year to
year and by comparing its average annual returns for one, five, and ten years to
two broad measures of market performance. The chart and the information below it
show performance of the fund's Class O shares only, because the fund did not
offer Advisor Class shares during the periods shown. Performance information
shown in the Average Annual Total Returns table for Advisor Class shares shows
performance for the fund's Class O shares, adjusted to reflect distribution
and/or service (12b-1) fees and other expenses paid by the Advisor Class shares.
Although Class O and the Advisor Class shares would have similar annual returns
(because all the fund's shares represent interests in the same portfolio of
securities), Advisor Class performance would be lower than Class O performance
because of the lower expenses paid by Class O shares. The information does not
reflect charges and fees associated with a separate account that invests in the
portfolio or any insurance contract for which the portfolio is an investment
option. These charges and fees will reduce returns. How the portfolio has
performed in the past is not an indication of its future performance.
[Bar chart inserted with returns printed above each year's column.]
Numbers to be inserted are: for 1993: 13.0% for 1998: 8.3%
for 1994: -0.9% for 1999: -0.8%
for 1995: 19.1% for 2000: 15.7%
for 1996: 11.8% for 2001: 10.6%
for 1997: 21.0% for 2002: -2.6%
B-8
During this period, the portfolio's highest return for any quarter was 11.3%,
which occurred in the 4th quarter of 2001 and the lowest return for a quarter
was -12.9% in the 3rd quarter of 2002.
The following table demonstrates the average annual total return of the
portfolio as of December 31, 2002, compared to the S&P 500 and the Lehman
Aggregate Index for one, five, and ten years. Investors cannot directly invest
in an index and unlike the portfolio, an index is unmanaged and does not incur
transaction or other expenses.
Average Annual Total Returns for:
One Year Five Years Ten Years
------------------- ---------------------------- ----------------------------
Asset Director Class O -2.56% 6.01% 9.21%
Asset Director Advisor Class -2.85% 5.69% 8.89%
S&P 500 -22.1% -0.6% 9.3%
Lehman Aggregate Index 10.3% 7.6% 7.5%
Portfolio Expenses
The following expense table indicates the expenses that an investor will incur
as a shareholder of the portfolio during the current fiscal year. These expenses
are reflected in the share price of the portfolio. The table does not reflect
separate account or insurance contract fees and charges.
Class O Annual Portfolio Operating Expenses
(expenses that are deducted from fund assets)
Management Fees........................................................... 0.50%
Other Expenses*........................................................... 0.09%
Total Annual Portfolio Operating Expenses*................................ 0.59%
*For the current fiscal year, Other Expenses paid by the portfolio are expected
to be limited to 0.50%, and Total Annual Portfolio Operating Expenses, after fee
waivers and expense reimbursements, cannot exceed 1.00%. Any fee waiver or
expense reimbursement arrangement is voluntary and may be discontinued at any
time.
Advisor Class Annual Portfolio Operating Expenses
(expenses that are deducted from fund assets)
Management Fees........................................................... 0.50%
Distribution and/or Service (12b-1) Fees.................................. 0.30%
Other Expenses*........................................................... 0.09%
Total Annual Portfolio Operating Expenses*................................ 0.89%
*For the current fiscal year, Other Expenses paid by the portfolio are expected
to be limited to 0.50%, and Total Annual Portfolio Operating Expenses, after fee
waivers and expense reimbursements, cannot exceed 1.30%. Any fee waiver or
expense reimbursement arrangement is voluntary and may be discontinued at any
time.
Expense Example
Use the following table to compare fees and expenses of the portfolio to other
investment companies. It illustrates the amount of fees and expenses an investor
would pay assuming (1) a $10,000 investment, (2) 5% annual return, (3)
redemption at the end of each time period, and (4) no changes in the portfolio's
total operating expenses. It does not reflect separate account or insurance
contract fees and charges. If separate account and/or insurance contract fees
and charges were reflected, the cost would be higher. Therefore, an investor's
actual costs may be different than the costs reflected in the table.
Portfolio Share Class 1 Year 3 Years 5 Years 10 Years
Asset Director Class O $61 $190 $330 $ 739
Asset Director Advisor Class 91 284 493 1,095
B-9
Financial Highlights
Per Share Data and Ratios through the Year Ended December 31, 2002
The following information is intended to help investors understand the
portfolios' financial performance for the past five years (or since inception,
if shown). Per share amounts presented are based on a share outstanding for the
periods shown. The total returns in the tables represent an investor's gain (or
loss) on an investment in a portfolio (assuming reinvestment of all dividends
and distributions). The information in the tables has been audited by
PricewaterhouseCoopers LLP, the fund's independent accountants, whose report,
along with the fund's financial statements, are included in the fund's Annual
Report as of December 31, 2002. The Annual Report is available free of charge
upon request.
Value Portfolio
For years ended
Dec. 31, 2002 Dec. 31, 2001 Dec. 31, 2000 Dec. 31, 1999 Dec. 31, 1998
Per Share Operating
Performance:
Net investment income* $ 0.19 $ 0.24 $ 0.30 $ 0.32 $ 0.35
Net gain (loss) on investments (1.47) 1.77 2.51 (0.55) 1.23
Total from Investment
Ooperations (1.28) 2.01 2.81 (0.23) 1.58
Shareholder Distributions:
Net investment income (0.18) (0.23) (0.30) (0.32) (0.35)
Realized gain (0.53) (0.96) (1.00) (3.66) (1.99)
Return of capital (0.02) 0 0 0 0
Net increase (decrease) (2.01) 0.82 1.51 (4.21) (0.76)
Net asset value at
beginning of period 18.39 17.57 16.06 20.27 21.03
Net Asset Value at End of Period $ 16.38 $ 18.39 $ 17.57 $ 16.06 $ 20.27
Total Return (7.0%) 11.3% 17.7% (0.9%) 7.1%
Supplemental Data:
Net Assets, end of period (000) $ 127,527 $ 114,629 $ 92,089 $ 88,619 $ 95,486
Ratio to average net assets:
Expenses 0.57% 0.62% 0.64% 0.63% 0.62%
Net investment income 1.05% 1.26% 1.86% 1.54% 1.61%
Portfolio Turnover Rate 11% 18% 19% 32% 23%
*Net investment income is calculated based on average shares.
B-10
Money Market Portfolio
For years ended
Dec. 31, 2002 Dec. 31, 2001 Dec. 31, 2000 Dec. 31, 1999 Dec. 31, 1998
Per Share Operating
Performance:
Net investment income* $ 0.01 $ 0.03 $ 0.05 $ 0.05 $ 0.05
Net gain (loss) on investments 0 0 0 0 0
Total from Investment
Operations 0.01 0.03 0.05 0.05 0.05
Shareholder Distributions:
Net investment income (0.01) (0.03) (0.05) (0.05) (0.05)
Realized gain 0 0 0 0 0
Return of capital 0 0 0 0 0
Net increase (decrease) 0 0 0 0 0
Net asset value at
beginning of period 1.00 1.00 1.00 1.00 1.00
Net Asset Value at End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return 1.2% 3.5% 5.8% 4.6% 4.9%
Supplemental Data:
Net Assets, end of period (000) $ 244,933 $ 190,675 $ 140,622 $ 126,532 $ 82,055
Ratio to average net assets:
Expenses 0.48% 0.52% 0.53% 0.55% 0.61%
Net investment income 1.20% 3.41% 5.79% 4.60% 4.82%
Portfolio Turnover Rate 0% 0% 0% 0% 0%
*Net investment income is calculated based on average shares.
B-11
Investment Grade Bond Portfolio
For years ended
Dec. 31, 2002 Dec. 31, 2001 Dec. 31, 2000 Dec. 31, 1999 Dec. 31, 1998
Per Share Operating
Performance:
Net investment income* $ 0.56 $ 0.66 $ 0.68 $ 0.61 $ 0.60
Net gain (loss) on investments 0.29 0.17 0.44 (0.74) 0.36
Total from Investment
Operations 0.85 0.83 1.12 (0.13) 0.96
Shareholder Distributions:
Net investment income (0.49) (0.63) (0.71) (0.61) (0.60)
Realized gain (0.01) 0 0 0 (0.21)
Return of capital (0.01) 0 0 0 0
Net increase (decrease) 0.34 0.20 0.41 (0.74) 0.15
Net asset value at
beginning of period 10.70 10.50 10.09 10.83 10.68
Net Asset Value at End of Period $ 11.04 $ 10.70 $ 10.50 $ 10.09 $ 10.83
Total Return 7.9% 7.1% 10.8% (1.1%) 8.8%
Supplemental Data:
Net Assets, end of period (000) $ 118,958 $ 78,268 $ 54,947 $ 49,828 $ 50,090
Ratio to average net assets:
Expenses 0.59% 0.65% 0.65% 0.62% 0.62%
Net investment income 5.10% 5.96% 6.52% 5.68% 5.48%
Portfolio Turnover Rate 97% 95% 93% 93% 132%
*Net investment income is calculated based on average shares.
B-12
Asset Director Portfolio
For years ended
Dec. 31, 2002 Dec. 31, 2001 Dec. 31, 2000 Dec. 31, 1999 Dec. 31, 1998
Per Share Operating
Performance:
Net investment income* $ 0.35 $ 0.41 $ 0.49 $ 0.49 $ 0.51
Net gain (loss) on investments (0.72) 0.98 1.49 (0.71) 0.79
Total from Investment
Operations (0.37) 1.39 1.98 (0.22) 1.30
Shareholder Distributions:
Net investment income (0.33) (0.41) (0.49) (0.50) (0.51)
Realized gain (0.30) (0.41) (0.46) (1.60) (0.99)
Return of capital (0.01) 0 0 0 0
Net increase (decrease) (1.01) 0.57 1.03 (2.32) (0.20)
Net asset value at
beginning of period 14.41 13.84 12.81 15.13 15.33
Net Asset Value at End of Period $ 13.40 $ 14.41 $ 13.84 $ 12.81 $ 15.13
Total Return (2.6%) 10.6% 15.7% (0.8%) 8.3%
Supplemental Data:
Net Assets, end of period (000) $ 107,053 $ 91,096 $ 68,992 $ 68,816 $ 73,112
Ratio to average net assets:
Expenses 0.59% 0.64% 0.64% 0.62% 0.62%
Net investment income 2.47% 2.86% 3.72% 3.25% 3.27%
Portfolio Turnover Rate 33% 39% 43% 49% 63%
*Net investment income is calculated based on average shares.
B-13
General Information About the Fund
Management of the Fund
The business and affairs of the fund are managed under the direction of its
Board of Directors according to 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 statement of additional
information (SAI) under the heading "Management of the Fund."
The Investment Advisor--American United Life Insurance Company(R)
American United Life Insurance Company ("AUL") has its principal offices at One
American Square, Indianapolis, Indiana, 46282. AUL is a stock 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 as a mutual insurance company under the laws of
the State of Indiana in 1933. On December 17, 2000, AUL converted from a mutual
life insurance company to a stock life insurance company ultimately controlled
by a mutual holding company, American United Mutual Insurance Holding Company
("MHC").
After conversion, the insurance company issued voting stock to a newly-formed
stock holding company, OneAmerica Financial Partners, Inc. (the "Stock Holding
Company"). The Stock Holding Company may, at some future time, offer shares of
its stock publicly or privately; however, the MHC must always hold at least 51%
of the voting stock of the Stock Holding Company, which in turn owns 100% of the
voting stock of AUL. No plans have been formulated to issue any shares of
capital stock or debt securities of the Stock Holding Company at this time.
AUL conducts a conventional life insurance and annuity business. At December 31,
2002, the OneAmerica Financial Partners, Inc. enterprise, in which AUL is a
partner, had assets of $12,208,143,297 and had equity of $1,100,282,506.
Subject to overall supervision of the Board of Directors, the advisor exercises
overall responsibility for the investment and reinvestment of the fund's assets.
In so doing, the advisor manages the day-to-day investment operations and the
composition of each investment portfolio. These duties include the purchase,
retention, and disposition of the securities and cash in accordance with the
portfolios' investment objectives and policies as stated in the fund's current
prospectus.
Under the Investment Advisory agreement, the advisor is compensated for its
services by a monthly fee based on an annual percentage of the average daily net
assets of each portfolio. The annual fees paid by the fund to AUL (by portfolio)
are:
Value portfolio: .50%
Investment Grade Bond portfolio: .50%
Asset Director portfolio: .50%
Money Market portfolio: .40%
From the fees paid to AUL by the fund, AUL would pay any sub-advisor(s) for
their services. As of the date of this prospectus, there are no sub-advisors for
any of the portfolios.
The Portfolio Managers
The Value Portfolio
The day-to-day management of the Value portfolio is the responsibility of
Kathryn Hudspeth, CFA, Vice President, Equities. Ms. Hudspeth has been the
portfolio manager of the Value 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 Investment Grade Bond Portfolio
The day-to-day management of the Investment Grade Bond portfolio is the
responsibility of Kent Adams, CFA, Vice President, Fixed Income Securities. Mr.
Adams has been the portfolio manager of the Investment Grade Bond portfolio
since its inception and has been with AUL since 1977. Previously, Mr. Adams has
held positions with AUL which include Assistant Vice President, Investment
Officer, Securities, and Senior Securities Analyst.
The Asset Director Portfolio
The day-to-day management of the Asset Director portfolio is the joint
responsibility of Kathryn Hudspeth, Vice President, Equities, and Kent Adams,
Vice President, Fixed Income Securities, AUL.
B-14
Further Portfolio Information; Investments; Investment Strategies and Risks
Investments and Investment Strategies
Many of the investment strategies and techniques described in this prospectus
are discretionary, and portfolio managers can decide whether or not to use them
at any particular time. Other techniques, strategies and investments may be made
that are not part of a portfolio's principal investment strategy or strategies.
The investment objectives of a portfolio may not be changed without the approval
of the shareholders. However, a portfolio's investment policies may be changed
by the fund's Board of Directors. All of the portfolios are diversified and will
not concentrate their securities purchases in a particular industry or group of
industries.
The Value Portfolio
The Value 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. Both
quantitative and qualitative tools are utilized focusing on a "value" based
equity strategy.
Important valuation criteria include price to sales, price to cash flow, price
to adjusted earnings, profitability, capital adequacy and growth potential. The
portfolio also focuses on management ability, insider ownership, industry
position and liquidity of the underlying equity issues.
In addition to extensive fundamental analysis, the advisor also uses technical
analysis. Its purpose is not to make investment decisions, but rather to assist
in the timing of trading decisions.
When the advisor believes that financial, economic, or market conditions require
a defensive strategy, the portfolio may buy more nonconvertible debt securities,
U.S. Government securities, commercial paper and other money market instruments,
repurchase agreements and reverse repurchase agreements. The portfolio may also
buy and sell options on securities and securities indices, although it will do
so only for purposes of trying to generate current income or to hedge portfolio
risks, and not for speculative purposes.
The Investment Grade Bond Portfolio
The Investment Grade Bond portfolio may also invest in money market instruments
and repurchase and reverse repurchase agreements. Additionally, the portfolio
may invest in dollar-denominated foreign securities including corporate bonds or
other fixed income securities that satisfy the portfolio's standards for
quality.
The Money Market Portfolio
The advisor determines whether a money market instrument has the required
minimal credit risk under procedures adopted by the fund's Board of Directors.
An instrument is of the highest quality when:
*it is a U.S. Government security;
*it is a security issued by a registered investment company that is a money
market fund;
*it (or a similar short-term obligation from the same issuer) is rated in
the highest rating category by two nationally recognized statistical rating
organizations, or if rated by only one such organization, if the Board
ratifies or approves the purchase; or
*it is not rated, but the advisor has determined the security to be of
comparable quality and the purchase is approved or ratified by the Board.
If the rating of an instrument bought by the portfolio is lowered, the advisor
will follow procedures approved by the Board of Directors to determine if the
security still presents minimal credit risk. If it does not, it will be sold.
Examples of money market instruments that may be bought by the portfolio
include: U.S. Government securities, other money market funds, repurchase
agreements that mature 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 depositories, fixed
income securities, commercial paper, and variable amount floating rate notes and
master notes.
The Asset Director Portfolio
In pursuing its investment objective, the portfolio may engage in the writing of
covered call and secured put options on equity and fixed income securities, and
may purchase call options on equity and fixed income securities. The portfolio
may enter into repurchase agreements and reverse repurchase agreements.
General Risks
Each portfolio is, of course, subject to the general risk that its investment
objective or objectives will not be achieved, or that a portfolio manager will
make investment decisions or use strategies that do not accomplish their
intended goals. In addition, the portfolios' investment strategies may subject
them to a number of risks, including the following:
Market Risk
Although equities historically have outperformed other asset classes over the
long-term, their prices tend to fluctuate more dramatically over the shorter-
term. These movements may result from factors affecting individual companies, or
from broader influences like changes in interest rates, market conditions,
investor confidence or announcements of economic, political or financial
information. While potentially offering greater opportunities for capital growth
than larger, more established companies, the equities of smaller companies may
be particularly volatile, especially during periods of economic uncertainty.
These companies may face less certain growth prospects, or depend heavily on a
limited line of products and services or the efforts of a small number of key
management personnel. Portfolios that may invest
B-15
primarily in equities, such as the Value and Asset Director portfolios may be
particularly subject to the potential risks (and rewards) and volatility of
investing in equities.
Each portfolio may invest in equities issued by foreign companies. The equities
of foreign companies may pose risks in addition to, or to a greater degree than,
the risks described above. Foreign companies may be subject to disclosure,
accounting, auditing and financial reporting standards and practices that are
different from those to which U.S. issuers are subject. Accordingly, these
portfolios may not have access to adequate or reliable company information. In
addition, political, economic and social developments in foreign countries and
fluctuations in currency exchange rates may affect the operations of foreign
companies or the value of their securities. Risks posed by investing in the
equities of foreign issuers may be particularly acute with respect to issuers
located in lesser developed, emerging market countries.
Interest Rate Risk
Each portfolio may invest in fixed income securities. Generally, the value of
these securities will change inversely with changes in interest rates. In
addition, changes in interest rates may affect the operations of the issuers of
stocks or other equity securities in which the portfolios invest. Rising
interest rates, which may be expected to lower the value of fixed income
instruments and negatively impact the operations of many issuers, generally
exist during periods of inflation or strong economic growth.
Credit Risk
The portfolios' investments, and particularly investments in convertible
securities and fixed income securities, may be affected by the creditworthiness
of issuers in which the portfolios invest. Changes in the financial strength, or
perceived financial strength, of a company may affect the value of its
securities and, therefore, impact the value of a portfolio's shares if it
invests in the company's securities.
The portfolios may all invest in investment grade fixed income securities; but,
the Investment Grade Bond and Asset Director portfolios may also invest in fixed
income securities that are not "investment grade," which are commonly referred
to as "junk bonds." To a greater extent than more highly rated securities, lower
rated securities tend to reflect short-term corporate, economic and market
developments, as well as investor perceptions of the issuer's credit quality.
Lower rated securities may be especially susceptible to real or perceived
adverse economic and competitive industry conditions. In addition, lower rated
securities may be less liquid than higher quality investments. Reduced liquidity
may prevent a portfolio from selling a security at the time and price that would
be most beneficial to the portfolio.
The advisor attempts to reduce the credit risk associated with lower rated
securities through diversification of portfolio investments, credit analysis of
issuers in which the portfolios invest, and monitoring broad economic trends and
corporate and legislative developments. However, there is no assurance that it
will successfully or completely reduce credit risk.
Derivatives Risk
The Value, Investment Grade Bond and Asset Director portfolios' use of
derivative instruments may involve risks different from, or greater than, the
risks associated with investing directly in securities or other traditional
investments. Derivatives may be subject to market risk, interest rate risk, and
credit risk, as discussed above. Certain derivatives may be illiquid, which may
reduce the return of a portfolio if it cannot sell or terminate the derivative
instrument at an advantageous time or price. Some derivatives may involve the
risk of mispricing or improper valuation, or the risk that changes in the value
of the instrument may not correlate well with the underlying asset, rate or
index. A portfolio could lose the entire amount of its investment in a
derivative and, in some cases, could lose more than the principal amount
invested. Also, suitable derivative instruments may not be available in all
circumstances, and there is no assurance that a portfolio will be able to engage
in these transactions to reduce exposure to other risks.
Defensive Strategy
If the advisor believes that economic or other market conditions, such as
excessive volatility or sharp market declines, require taking a defensive
position to preserve or maintain the assets of a portfolio, then a portfolio may
purchase securities of a different type or types than it ordinarily would
purchase, even if such purchases are contrary to the investment objective or
objectives of a portfolio. Taking such a defensive position could prevent a
portfolio from attaining its investment objectives, or cause it to miss out on
some or all of an upswing in the securities market.
Please see the Statement of Additional Information for more detailed information
about the portfolios, their investment strategies, and their risks.
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. 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), 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 purchased or redeemed on any day that AUL is open
for business. Shares of each portfolio are sold at their respective net asset
values (without a sales charge)
B-16
next computed after receipt and acceptance of a purchase order by AUL at its
home office, on behalf of a separate account. The separate accounts invest in
shares of the fund in accordance with allocation instructions received from
owners and participants of the contracts offered by AUL. Each portfolio reserves
the right to reject or refuse, in its discretion, any order for the purchase of
shares, in whole or in part. Redemptions will be effected by the separate
accounts to meet obligations under the contracts. Redemptions are made 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 (1) when the New York Stock Exchange (the "NYSE") is closed (other than
customary weekend and holiday closings) or for any period during which trading
is restricted; (2) because an emergency exists, as determined by the SEC, making
disposal of portfolio securities or valuation of new assets not reasonably
practicable; and, (3) whenever the SEC has by order permitted such suspension or
postponement for the protection of shareholders.
Net Asset Value
The net asset value per share of each portfolio's Advisor Class and Class O
shares is determined by dividing the value of each portfolio's net assets
attributable to the class of shares by the number of class shares outstanding.
That determination is made once each business day, Monday through Friday, on
which the NYSE is open for trading as of the close of the NYSE (normally, 4
p.m., Eastern Standard Time (EST)). 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. The value of the assets of each
portfolio other than the Money Market portfolio is based on their market prices,
with special provisions for assets not having readily available market
quotations.
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 purchase
date 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 portfolios in connection with amortized cost
valuation.
Distribution and Servicing (12b-1) Plans
The fund may pay annual fees of up to .30% of each portfolio's average daily net
assets attributable to Advisor Class shares as compensation or reimbursement for
a variety of services and expenses in connection with the marketing, sale and
distribution of Advisor Class shares ("distribution fees") and in connection
with personal services rendered to investors ("servicing fees"). These payments
are made pursuant to Distribution and Servicing (12b-1) Plans adopted by the
fund with respect to the Advisor Class shares of each portfolio. The plan will
be operated as a compensation plan.
Because these fees are paid out of a portfolio's assets on an ongoing basis,
over time these fees will increase the cost of your investment and may cost you
more than other types of sales charges.
Taxation
Each portfolio intends to qualify and to elect to be taxed as a "regulated
investment company" under the provisions of Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"). If a portfolio qualifies as a "regulated
investment company" and complies with the appropriate provisions of the Code,
the portfolio will not be liable for federal income tax on income it
distributes.
Each portfolio intends to diversify its investments in a manner intended to
comply with tax requirements generally applicable to mutual funds. Because
interests in the portfolios will be held by insurance company separate accounts,
each portfolio will be required to diversify its investments so that on the last
day of each quarter of a calendar year, no more than 55% of the value of its
total assets is represented by any one investment, no more than 70% is
represented by any two investments, no more than 80% is represented by any three
investments, and no more than 90% is represented by any four investments. For
this purpose, securities of a single issuer are treated as one investment and
each U.S. Government agency or instrumentality is treated as a separate issuer.
Any security issued, guaranteed, or insured (to the extent so guaranteed or
insured) by the U.S. Government or an agency or instrumentality of the U.S.
Government is treated as a security issued by the U.S. Government or its agency
or instrumentality, whichever is applicable.
If a portfolio fails to meet this diversification requirement, income with
respect to variable insurance contracts invested in the portfolio at any time
during the calendar quarter in which the failure occurred could become currently
taxable to the owners of the contracts. Similarly, income for prior periods with
respect to such contracts also could be taxable, most likely in the year of the
failure to achieve the required diversification. Other adverse tax consequences
could also ensue.
Since the shareholders of the portfolio will be separate accounts, no discussion
is included here as to the federal income tax consequences at the shareholder
level. For information concerning the federal income tax consequences to
purchasers of the variable life insurance policies and variable annuity
contracts, see the prospectus for the relevant variable insurance contract. See
the Statement of Additional Information for more information on taxes.
B-17
Other Information
The Advisor Class shares of the portfolios do not have a full calendar year of
performance. Thus, no financial highlight information is included for the
portfolios.
We have not authorized anyone to provide you with information that is different
from the information in this prospectus. You should only rely on the information
in this prospectus or in other information provided to you by us. This
prospectus is not an offering by the fund in any jurisdiction in which such
offering may not be lawfully made.
There is a statement of additional information that has more information about
the fund. It is incorporated by reference and is legally considered a part of
this prospectus. The fund also files annual and semi-annual reports with the
SEC. These reports provide more information about the portfolios' investments.
The annual report also discusses market conditions and investment strategies
that significantly affected the portfolios' performance in 2002.
You may request a free copy of the statement of additional information or a copy
of the annual or semi-annual reports by writing to us at One American Square,
Indianapolis, Indiana 46282 or by calling us at (800) 249-6269. If you have
other questions, call or write us.
Information about the fund can also be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C., which may be contacted at 1-202-942-8090.
Reports and other information are also available on the SEC's Internet site at
http://www.sec.gov. Copies of this information can be ordered by writing the
Public Reference Section of the SEC, Washington, D.C. 20549-0102 or by e-mailing
your request to public.info@sec.gov. The SEC will charge a duplicating fee for
those services. Please reference the fund's Investment Company Act file number
in your correspondence.
The portfolios are not insured by the Federal Deposit Insurance Corporation; are
not deposits or other obligations of the financial institution and are not
guaranteed by the financial institution; and are subject to investment risks,
including possible loss of the principal invested.
B-18
PROSPECTUS
Dated: May 1, 2003
B-19
APPENDIX C
ADDITIONAL INFORMATION ABOUT
THE CONTRACTS
The following is a summary of certain important features of the Contracts,
including relevant tax information. The reorganization is not anticipated to
materially affect Contract features, other than to change the investments
supporting obligations under the Contracts from a pool of investments in Fund
B's portfolio to Class O shares of the Value Portfolio.
Definitions
ACCUMULATION PERIOD - The period before annuity payments begin.
ACCUMULATION UNIT - A unit of measure used to record amounts of increases to,
decreases from, and accumulations in the New Account during the Accumulation
Period.
ANNUITANT - The person or persons on whose life or lives annuity payments
depend.
ANNUITY - A series of payments made by AUL to an Annuitant or Beneficiary during
the period specified in the Annuity Option.
ANNUITY COMMENCEMENT DATE - The first day of any month in which an Annuity
begins under a Contract, which shall not be later than the required beginning
date under applicable federal requirements.
ANNUITY OPTIONS - Options under a Contract that prescribe the provisions under
which a series of annuity payments are made.
ANNUITY PERIOD - The period during which Annuity payments are made.
BENEFICIARY - The person having the right to the death benefit, if any, payable
during the Accumulation Period, and the person having the right to benefits, if
any, payable upon the death of an Annuitant during the Annuity Period.
COMPANION CONTRACT - A fixed dollar annuity group contract issued by AUL to a
Contractholder for the benefit of the same employees covered by the Contract of
such Contractholder.
CONTRACTHOLDER - A party to a Contract on behalf of itself as an employer or on
behalf of other employers.
EMPLOYEE BENEFIT PLAN - A pension or profit sharing plan established by an
Employer for the benefit of its employees and which is qualified under Section
401 of the Internal Revenue Code.
EMPLOYER - A tax-exempt or public school organization or other employer with
respect to which a Contract has been entered into for the benefit of its
employees. In some cases, a trustee
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or custodian may act as the Owner for Participants. In this case, rights usually
reserved to the Employer will be exercised either directly by the employees or
through such trustee or custodian, who will act as the agent of such employees.
EMPLOYER SPONSORED 403(b) PROGRAM - A 403(b) Program to which an Employer makes
contributions on behalf of its employees by means other than a salary reduction
arrangement or other 403(b) Program that is subject to the requirements of Title
I of the Employee Retirement Income Security Act of 1974, as amended.
GENERAL ACCOUNT - All assets of AUL other than those allocated to the Unit Trust
or to any other separate account of AUL.
HOME OFFICE - The Annuity Service Office at AUL's principal business office, One
American Square, Indianapolis, Indiana 46282.
HR-10 PLAN - An Employee Benefit Plan established by a self-employed person in
accordance with Section 401 of the Internal Revenue Code
OWNER - The employer, association, trust, or other entity entitled to the
ownership rights under the Contract and in whose name or names the Contract is
issued. A trustee, custodian, administrator, or other person performing similar
functions, may be designated to exercise an owner's rights and responsibilities
under certain Contracts. The term "Owner" shall include, where appropriate, such
a trustee, custodian, administrator, or other person.
PARTICIPANT - An eligible employee, member, or other person who is entitled to
benefits under the Plan as determined and reported to AUL by the Owner or other
duly authorized entity.
PARTICIPANT'S ACCOUNT - An account established for each Participant.
PLAN - The retirement plan or plans in connection with which the Contract is
issued and any subsequent amendment to such a plan.
403(b) PROGRAM - An arrangement by a public school organization or a charitable,
educational, or scientific organization that is described in Section 501(c)(3)
of the Internal Revenue Code under which employees are permitted to take
advantage of the federal income tax deferral benefits provided for in Section
403(b) of the Internal Revenue Code.
408 or 408A PROGRAM - A program of individual retirement accounts or annuities,
including a simplified employee pension, SIMPLE IRA, or Roth IRA established by
an employer, that meets the requirements of Section 408 or 408A of the Internal
Revenue Code.
457 PROGRAM - A plan established by a unit of a state or local government or a
tax-exempt organization under Section 457 of the Internal Revenue Code. Certain
457 plans that do not qualify for favorable tax treatment under Section 457,
such as Plans for highly compensated employees, may be referred to as
non-qualified 457 Plans.
C-2
Contractholders
AUL offers variable contracts to:
(1) employees of tax exempt or public school organizations with a 403(b)
Program ("tax deferred annuities");
(2) employees of employers with 401 Employee Benefit Plans or 408 Programs
("Individual Retirement Annuities"); and
(3) employers that are units of state or local government with 457
deferred compensation plans.
In order to fund such plans, the employer has entered into a Contract with AUL.
A Participant may purchase a variable annuity through employer payments under a
403(b), 408 or 457 Program. Alternatively, a Participant may purchase a variable
annuity by means of employee and employer payments under a 401 Employee Benefit
Plan or 408 Program.
Additional Information about Deductions and Expenses
Mortality and Expense Risk Charges. Although variable annuity payments will vary
with the investment performance of OneAmerica Funds Inc., payments will not be
affected by adverse mortality experience or when the actual expenses of AUL
exceed the fees charged by AUL under the Contracts. AUL has agreed to assume the
risk (except under the Fixed Period Option described under "Optional Variable
Annuity Settlements" where there is no such risk) that Annuitants, as a class,
may live longer than had been estimated. In this case, payments would continue
beyond the period estimated and AUL's expenses could exceed the fees received
from the New Account. For assuming these risks, AUL will receive from the New
Account a daily fee of 0.00164% of the value of the New Account for the
mortality risks and a daily fee of 0.00082% of the value of the New Account for
the expense risks. These two fees amount to approximately 0.90% on an annual
basis and continue to be charged during the annuity payout period under all of
the settlement options described on the pages below.
Deduction for Premium Taxes. When an annuity is effected (or at the time of
purchase if required by a particular state's law), any applicable premium taxes
will be deducted from the amount to be applied to purchase the annuity or from
the amount deposited and paid over immediately to the state. Presently, such
taxes range from 0% to 3.5%. In any given state, the rate may also vary
depending on the type of contract purchased. Since premium tax statutes can be
enacted, changed or repealed by a state's legislature at any time, and since the
imposition of a premium tax will usually be at the time the annuity is
commenced, the present tax rates may not be in effect when the actual premium
tax charge is imposed.
Participation
AUL is a stock life insurance company which is a subsidiary of a duly organized
mutual holding company. As such, its policyholders participate in the divisible
surplus of AUL, according to the annual determination by AUL of the portion, if
any, of the divisible surplus which has resulted from and accrued on such
Contracts. Any such portion determined to be payable will be applied
C-3
to the benefit of the Participants under such Contracts in one of the following
ways (as determined by AUL):
(a) a reduction in the sales and administrative service fee payable to AUL
in the next succeeding year, or
(b) a crediting of additional Accumulation or Annuity Units to the
Participant's accounts. (Such additional units shall be credited
without deductions for sales and administrative service charges.)
Although the Contracts so provide for participation, there has been no divisible
surplus to date and there can be no assurance that there will be any available
for payment or payable under such Contracts.
Amendments
AUL cannot amend or change any Contract to increase the amount of its charges or
to affect the annuity purchase rates as such charges and rates apply to existing
Accumulation and Annuity Units or to Accumulation and Annuity Units which may
thereafter be purchased for any existing Participant under a 403(b) or 408
contract except to the extent that payments for such Participant in any contract
year are in excess of the greater of either (a) $5,000 or (b) twice the average
of all payments for such Participant for the five contract years preceding the
change (or lesser period if the Participant has not completed five contract
years). Insofar as any payments for such a Participant are in excess of such
amount in any contract year following the change, such payments will be affected
by any amendments of the Contract by AUL, but subject to the further limitation
that, during the first five years of a Contract, no change or amendment of any
kind may be made by AUL in a Contract without the consent of the Contractholder
and, in addition, the consent of all Participants if the change would adversely
affect their rights under the Contract (except to conform the Contract to any
federal or state statute or rule or regulation of the U.S. Treasury Department).
By agreement and at any time, a 457 employer and AUL may, unless specifically
prohibited by state law, amend any Contract provision and such amendments shall
thereafter be binding on all affected Participants, Beneficiaries or contingent
Annuitants.
Voting and Other Rights Under the Variable Annuity Contracts
Generally, a Participant or the employer of a Participant, depending on the type
of Contract involved, has certain rights associated with the Contract. During
the Accumulation Period, these rights consist of the right to vote at any
meeting of Participants. A meeting of Participants will be held in any year when
any of the following matters are being considered:
(a) any change in the investment adviser;
(b) any change to any of fundamental investment objectives or in any of
the fundamental investment restrictions;
(c) any other action requiring Participant approval under the Investment
Company Act of 1940, as amended, or by the Rules and Regulations.
C-4
In addition to these rights, during accumulation, Participants have an ongoing
right to contribute to or withdraw funds from the account, the right to name and
change the Beneficiary, the right to select the annuity settlement option from
those described below, and the right to select the date that payments shall
commence. However, the section entitled "Federal Tax Status" should be reviewed
for the effect and requirements of current law on this election.
After a Participant's account has been annuitized, Annuitants continue to have
the right to vote on any issue which may be voted on by Participants, as listed
above. After the death of an Annuitant, the voting rights of a contingent payee
under a Survivorship Annuity are the same as the Annuitant had. Under some
annuity options, all rights under the Contract may terminate at the death of the
Annuitant.
Each Participant under a Contract may cast one vote for each Accumulation Unit
credited to his account or accounts under such Contract. Each variable Annuitant
who is receiving variable annuity payments under a Contract may cast that number
of votes equal to (1) the dollar amount of the assets established in the New
Account to meet the annuity obligation relating to such Annuitant divided by (2)
the value of one Accumulation Unit, determined in each case as of the valuation
date next preceding the Participant record date. Fractional votes shall be
counted.
During the annuity period, the number of votes will generally decrease. This
occurs because the Annuitant has voting interests attributable to the reserves
during the pay-out period.
The Board of Directors of AUL may fix a Participant record date, not more than
90 days before the date set for any meeting of Participants, for the purpose of
determining the Participants entitled to notice of and to vote at such meeting,
and the number of votes each Participant may cast. If the Board of Directors
does not fix a Participant record date, the record date shall be the 90th day
before the date of the meeting.
Annuity Period
Variable Retirement Annuity. Each Participant has an Annuity Commencement Date
(see Definitions) and selects a variable annuity settlement except that in a 457
Program the Employer shall make the election. Contracts provide the five
optional variable annuity settlements described hereinafter. Within limits,
other options may be mutually agreed to between the Participant and AUL. For
403(b), 408 and 457 Programs, the automatic option shall be an annuity payable
during the lifetime of the Annuitant with payments certain for 120 months. For
use with an Employee Benefit Plan, the automatic option shall be an annuity
payable during the lifetime of the Annuitant with payments certain for 120
months or, for a married Annuitant, a joint and survivor annuity. Once annuity
payments have commenced, a Participant cannot surrender his annuity and receive
a lump-sum settlement in lieu thereof. If, under any option, monthly payments
are less than $20 each, AUL has the right to make larger payments at quarterly
or semi-annual intervals. AUL will not allow annuitization of a Participant's
account if the total value is less than $2,000. Should this occur, a Participant
may elect either a lump-sum settlement or may choose to receive the account
balance in installments over a period of 36 months. Participants should
carefully review the following settlement options with their financial or tax
advisers since a settlement option cannot be changed after receipt of the first
payment under that option.
C-5
See "Amount of Variable Retirement Annuity" for a description of the method of
determining the amount of the payments under any available option.
Optional Variable Annuity Settlements
Option 1 - Life Annuity. An annuity payable monthly during the lifetime of the
Annuitant which ends with the last monthly payment before the death of the
Annuitant. This option offers the maximum level of monthly payments since there
is no guarantee of a minimum number of payments or provision for a death benefit
for Beneficiaries. However, under this option it is possible that the Annuitant
would receive only one annuity payment if he died prior to the due date of the
second annuity payment, two if he died prior to the third annuity payment, and
so forth.
Option 2 - Certain and Life Annuity. An annuity payable monthly during the
lifetime of the Annuitant with the promise that if, at the death of the
Annuitant, payments have been made for less than a stated period, which may be
five, ten, fifteen, or twenty years as elected, annuity payments will be
continued during the remainder of such period to the Beneficiary designated by
the Annuitant.
Option 3 - Survivorship Annuity. An annuity payable monthly during the lifetime
of the Annuitant and after the death of the Annuitant, an amount equal to 50%,
66 2/3% or 100% (as specified in the election) of such annuity will be paid to
the contingent Annuitant named in the election if and so long as such contingent
Annuitant lives. An election of this option is automatically cancelled if either
the Participant or the contingent Annuitant dies prior to the Annuity
Commencement Date.
Option 4 - Unit Refund Life Annuity. An annuity payable monthly during the
lifetime of the Annuitant, terminating with the last payment due prior to the
death of the Annuitant, provided that, at the death of the Annuitant, the
Beneficiary designated by the Annuitant will receive an additional payment of
the then dollar value of a number of Annuity Units (described below) equal to
the excess, if any, of (a) over (b) where (a) is the total amount applied under
the option divided by the Annuity Unit value at the date annuity payments
commence and (b) is the number of Annuity Units represented by each monthly
payment multiplied by the number of monthly payments made.
Option 5 - Fixed Periods. An annuity payable monthly for a fixed period (not to
exceed 30 years) as elected, with the guarantee that if, at the death of the
Annuitant, payments have been made for less than the fixed period, annuity
payments will be continued during the remainder of said period to the
Beneficiary designated by the Annuitant.
The Annuity Unit. The value of an Annuity Unit was established at $1 on April 3,
1969. The value of the Annuity Unit at the end of any current Valuation Period
is determined by multiplying the value of an Annuity Unit at the end of the next
preceding Valuation Period by the product of (a) the Net Investment Factor for
the current Valuation Period and (b) 0.9999058 for each calendar day in such
current Valuation Period. This daily factor neutralizes the assumed net
investment rate of 3 1/2% per annum built into the annuity tables contained in
the Contracts, which assumed rate is not applicable as actual net investment
result is credited instead.
C-6
The objective of a variable annuity contract is to provide level payments during
periods when the securities market is relatively stable and to reflect as
increased payments only investment results in excess of the 3 1/2% assumption.
The achievement of this objective will depend in part upon the validity of the 3
1/2% assumption. A higher assumption would mean a higher initial payment but a
more slowly rising series of subsequent payments (or a more rapidly falling
series of subsequent payments in a period when unit values are declining). A
lower assumption would have the opposite effect. If the actual net investment
rate is at the annual rate of 3 1/2%, the annuity payments will be level. There
can be no assurance that the net investment rate will be as high as 3 1/2%.
Amount of Variable Retirement Annuity. Except for certain Employee Benefit
Plans, the Contracts contain tables (1951 Group Annuity Table, projected to 1967
by scale C) indicating the dollar amount of the first monthly payment under each
optional annuity settlement for each $1,000 of value of the Participant's
Individual Account and the vested portion, if any, of the Employer's Participant
Account for such Participant applied under the option, less any applicable
premium taxes not previously deducted.
The first monthly payment varies according to the form of annuity selected (see
the descriptions above) and the adjusted age of the Annuitant. The amount of the
first monthly annuity payment is divided by the value of an Annuity Unit at the
valuation next following the eighteenth day of the month prior to the
Participant's Annuity Commencement Date to determine the number of Annuity Units
on which subsequent payments are based. The amount of each monthly payment after
the first will be equal to the number of Annuity Units multiplied by the value
of an Annuity Unit at the valuation next following the eighteenth day of the
month prior to the month in which the payment is due.
Return of Accumulated Value in the Event of Death
If the death of a Participant occurs prior to his Annuity Commencement Date, the
value as of the end of the Valuation Period in which due proof of death is
received by AUL will be paid to his designated Beneficiary. This amount will be
equal to (1) such Participant's Individual Account under the 403(b) Program, 408
Program or an HR-10 Plan, or (2) such Participant's Individual Account plus the
vested portion, if any, of the Employer's Participant Account for such
Participant under an Employee Benefit Plan other than an HR-10 Plan, or (3) the
sum of (1) and (2) if both are applicable. Such amount will be paid to the
Beneficiary in a single sum or under one of the Optional Variable Settlements,
as directed by the Participant or as elected by the Beneficiary.
Sale of Contracts
The Contracts described in this Proxy Statement/Prospectus were sold and
underwritten by AUL through life insurance salesmen who have been licensed by
the state insurance departments and through certain of its home office
employees. Where state law so requires, such persons are also licensed or
registered as securities salesmen. The Contracts are no longer being sold and
payments are no longer being accepted. AUL currently does not intend to issue
new Contracts following the consummation of the Reorganization.
C-7
Redemptions
Redemption (Withdrawal). During the Accumulation Period and in accordance with
the applicable provisions of the Employee Benefit Plan or 457 plan document, if
any, a Participant or 457 Employer may elect at any time to withdraw a portion
or all of his individual account, except as described below. If the amount of
any withdrawal by a Participant reduces his individual account below $500, his
entire account must be withdrawn. In such event, AUL shall have the right to
refuse to accept future payments by or for the benefit of such Participant,
unless an account is being maintained for such Participant under the Companion
Contract.
The amount received by a Participant upon withdrawal of his entire account may
be more or less than the original cost, depending on the value of the securities
in OneAmerica Funds, Inc. and other assets of the New Account at the time of the
withdrawal. Withdrawal is effected by sending a written application for
withdrawal to American United Life Insurance Company(R), P.O. Box 368,
Indianapolis, IN 46206-0368. The Participant's account will be valued on the
basis of the valuation of the New Account at the end of the Valuation Period
during which the request was received by AUL. AUL will pay in cash the portion
so requested to be withdrawn from the Participant's Individual Account. Payment
of the withdrawal value will be made within seven days after receipt of such
request, except that payment may be postponed whenever (1) the New York Stock
Exchange ("NYSE") is closed (other than customary weekend and holiday closings),
(2) the Securities and Exchange Commission permits postponement and so orders,
or (3) an emergency exists, or trading on the NYSE is restricted, as defined by
the Securities and Exchange Commission, so that the valuation of assets or
disposal of securities is not reasonably practicable. See Federal Tax Status for
a discussion of possible tax consequences on withdrawal.
Amounts withdrawn may not be reinvested without payment of a sales and
administrative service charge.
Constraints on Distributions from Section 403(b) Annuity Contracts. Section
403(b) of the Internal Revenue Code (the "Code") requires that distribution from
Section 403(b) tax-deferred annuities that are attributable to employee
contributions under a salary reduction agreement not begin before the employee
reaches age 59 1/2, separates from service, dies, becomes disabled, or incurs a
hardship. Furthermore, distributions of income attributable to such
contributions may not be made on account of hardship. Hardship, for this
purpose, is generally defined as an immediate and heavy financial need, such as
paying medical expenses, the purchase of a principal residence, or paying
certain tuition expenses.
Therefore, a Participant in an annuity purchased as a tax-deferred 403(b)
annuity contract will not be entitled to exercise the right of withdrawal in
order to receive the value of his account attributable to elective contributions
credited after December 31, 1988 or that portion of his account attributable to
increases in the value of the December 31, 1988 balance unless one of the
above-described conditions has been satisfied. A Participant's account may be
able to be transferred to certain other investment alternatives meeting the
requirements of Section 403(b) that are available under an employer's 403(b)
arrangement. See "Federal Tax Status," for a discussion of the tax consequences
of such distributions.
C-8
Texas Option Retirement Program. A Contract sold to a Participant of the Texas
Optional Retirement Program may not be redeemed except upon termination of
employment in all Texas public institutions of public education, retirement,
death or total disability of such Participant. However, if the termination
should occur before the commencement of a second year of employment, the
Participant would not receive that portion of his account attributable to
contributions made on his behalf by his employer other than under the terms of a
salary reduction agreement.
The tax consequences of redemptions and withdrawals should be carefully reviewed
by a Participant's tax adviser before such action is taken. The section entitled
"Federal Tax Status" below should also be reviewed. However, this does not
purport to be a complete treatment of the subject and is intended only to
highlight certain important features of the tax laws.
Federal Tax Status
Introduction. The Contracts are designed for use by Employer, association, and
other group retirement plans under the provisions of Sections 401, 403, 408, and
457 of the Code. The ultimate effect of Federal income taxes on values under a
Contract, the Participant's Account, on annuity payments, and on the economic
benefits to the Owner, the Participant, the Annuitant, and the Beneficiary or
other payee may depend upon the type of Plan for which the Contract is purchased
and a number of different factors. The discussion contained herein is general in
nature. It is based upon AUL's understanding of the present Federal income tax
laws as currently interpreted by the Internal Revenue Service ("IRS"), and is
not intended as tax advice. No representation is made regarding the likelihood
of continuation of the present Federal income tax laws or of the current
interpretations by the IRS. Moreover, no attempt is made to consider any
applicable state or other laws. Because of the inherent complexity of such laws
and the fact that tax results will vary according to the particular
circumstances of the Plan or individual involved, any person contemplating the
purchase of a Contract, or becoming a Participant under a Contract, or receiving
annuity payments under a Contract should consult a qualified tax adviser.
AUL DOES NOT MAKE ANY GUARANTEE REGARDING THE TAX STATUS, FEDERAL, STATE, OR
LOCAL, OF ANY CONTRACT OR PARTICIPANT'S ACCOUNT OR ANY TRANSACTION INVOLVING THE
CONTRACTS.
Tax Status of AUL and the Unit Trust. AUL is taxed as a life insurance company
under Part I, Subchapter L of the Code. Because the Unit Trust is not taxed as a
separate entity and its operations form a part of AUL, AUL will be responsible
for any federal income taxes that become payable with respect to the income of
the Unit Trust. However, each sub-account of the Unit Trust, including the New
Account, will bear its allocable share of such liabilities. Under current law,
no item of dividend income, interest income, or realized capital gain
attributable, at a minimum, to appreciation of the New Account will be taxed to
AUL to the extent it is applied to increase reserves under the Contracts.
OneAmerica Funds, Inc. has advised AUL that the Value Portfolio, in which the
Unit Trust invests, intends to qualify as a "regulated investment company" under
the Code. AUL does not guarantee that the Value Portfolio will so qualify. If
the requirements of the Code are met, the Value Portfolio will not be taxed on
amounts distributed on a timely basis to the Unit Trust.
C-9
Were the Value Portfolio not to so qualify, the tax status of the Contracts as
annuities might be lost, which could result in immediate taxation of amounts
earned under the Contracts (except those held in Employee Benefit Plans and 408
Programs).
Tax Treatment of Retirement Programs. The Contracts are offered for use with
several types of retirement programs as described above. The tax rules
applicable to Participants in such retirement programs vary according to the
type of retirement plan and its terms and conditions. Therefore, no attempt is
made herein to provide more than general information about the use of the
Contracts with the various types of retirement programs. Participants under such
programs, as well as Owners, Annuitants, Beneficiaries and other payees are
cautioned that the rights of any person to any benefits under these programs may
be subject to the terms and conditions of the Plans themselves, regardless of
the terms and conditions of the Contracts issued in connection therewith.
Generally, no taxes are imposed on the increases in the value of a Contract by
reason of investment experience until a distribution occurs, either as a
lump-sum payment or annuity payments under an elected Annuity Option or in the
form of cash withdrawals, surrenders, or other distributions prior to the
Annuity Commencement Date.
When annuity payments commence (as opposed to a lump-sum distribution), under
Section 72 of the Code, the portion of each payment attributable to
contributions that were taxable to the Participant in the year made, if any, is
excluded from gross income as a return of the Participant's investment. The
portion so excluded is determined at the time the payments commence by dividing
the Participant's investment in the Contract by the expected return. The
periodic payments in excess of this amount are taxable as ordinary income. Once
the Participant's investment has been recovered, the full annuity payment will
be taxable. If the annuity should stop before the investment has been received,
the unrecovered portion is deductible on the Annuitant's final return. If the
Participant made no contributions that were taxable to the Participant in the
year made there would be no portion excludable.
The amounts that may be contributed to the Plans are subject to limitations that
may vary depending on the type of Plan. In addition, early distributions from
most Plans may be subject to penalty taxes, or in the case of distributions of
amounts contributed under salary reduction agreements, could cause the Plan to
be disqualified. Furthermore, distributions from most Plans are subject to
certain minimum distribution rules. Failure to comply with these rules could
result in disqualification of the plan or subject the Participant to penalty
taxes. As a result, the minimum distribution rules could limit the availability
of certain Annuity Options to Participants and their Beneficiaries.
Below are brief descriptions of various types of retirement programs and the use
of the Contracts in connection therewith.
Employee Benefit Plans. Code Section 401 permits business employers and certain
associations to establish various types of retirement plans for employees. Such
retirement plans may permit the use of Contracts to provide benefits thereunder.
C-10
If a Participant under an Employee Benefit Plan receives a lump-sum
distribution, the portion of the distribution equal to any contribution that was
taxable to the Participant in the year when paid is received tax free. The
balance of the distribution will be treated as ordinary income. Special
five-year forward averaging provisions under Code Section 402 may be utilized on
any amount subject to ordinary income tax treatment, provided that the
Participant has reached age 59 1/2, has not previously elected forward averaging
for a distribution from any Employee Benefit Plan after reaching age 59 1/2, and
has not rolled over a partial distribution from a similar plan into an
individual retirement account or annuity. Special ten-year averaging and a
capital-gains election may be available to a Participant who reached age 50
before 1986.
403(b) Programs. Code Section 403(b) permits public school systems and certain
types of charitable, educational, and scientific organizations specified in Code
Section 501(c)(3) to purchase annuity contracts on behalf of their employees,
and, subject to certain limitations, allows employees of those organizations to
exclude the amount of contributions from gross income for Federal income tax
purposes.
If a Participant under a 403(b) Program makes a surrender or partial withdrawal
from the Participant's Account, the Participant will realize income taxable at
ordinary tax rates on the full amount received. Since, under a 403(b) Program,
contributions are excludable from the taxable income of the employee, the full
amount received will usually be taxable as ordinary income when annuity payments
commence.
408 Programs. Code Sections 219 and 408 permit eligible individuals to
contribute to an individual retirement program, including Simplified Employee
Pension Plans and Employer/Association Established Individual Retirement Account
Trusts, known as an Individual Retirement Account ("IRA"). These IRA accounts
are subject to limitations on the amount that may be contributed, the persons
who may be eligible, and on the time when distributions may commence. In
addition, certain distributions from some other types of retirement plans may be
placed on a tax-deferred basis in an IRA. Sale of the Contracts for use with
IRA's may be subject to special requirements imposed by the IRS. Purchasers of
the Contracts for such purposes will be provided with such supplementary
information as may be required by the IRS or other appropriate agency, and will
have the right to revoke the Contract under certain circumstances.
If a Participant under a 408 Program makes a surrender or partial withdrawal
from the Participant's Account, the Participant will realize income taxable at
ordinary tax rates on the full amount received. Since under a 408 Program,
contributions are deductible from the taxable income of the employee, the full
amount received will usually be taxable as ordinary income when annuity payments
commence.
457 Programs. Section 457 of the Code permits employees of state and local
governments and units and agencies of state and local governments as well as
tax-exempt organizations described in Section 501(c)(3) of the Code to defer a
portion of their compensation without paying current taxes. The employees must
be Participants in an eligible deferred compensation plan.
If the Employer sponsoring a 457 Program requests and receives a withdrawal for
an eligible employee in connection with a 457 Program, then the amount received
by the employee will be
C-11
taxed as ordinary income. Since under a 457 Program, contributions are
excludable from the taxable income of the employee, the full amount received
will be taxable when annuity payments commence or other distribution is made.
Tax Penalty. Any distribution made to a Participant from an Employee Benefit
Plan, a 408 Program or a 403(b) Program other than on account of one or more of
the following events will be subject to a 10% penalty tax on the amount
includible in gross income:
(a) the Participant has attained age 59 1/2;
(b) the Participant has died; or
(c) the Participant is disabled.
In addition, a distribution from an Employee Benefit Plan or 403(b) Program will
not be subject to a 10% excise tax on the amount distributed if the Participant
is 55 and has separated from service. Distributions that are made as a part of a
series of substantially equal periodic payments over the life of a Participant
where payment is made at least annually will not be subject to an excise tax.
Certain amounts paid for medial care also may not be subject to an excise tax.
Withholding. Distributions from an Employee Benefit Plan under Code Section
401(a) or a 403(b) Program to an employee, surviving spouse, or former spouse
who is an alternate payee under a qualified domestic relations order, in the
form of a lump-sum settlement or periodic annuity payments for a fixed period of
fewer than 10 years are subject to mandatory federal income tax withholding of
20% of the taxable amount of the distribution, unless the distributee directs
the transfer of such amounts to another Employee Benefit Plan or 403(b) Program
or to an Individual Retirement Account under Code Section 408. The taxable
amount is the amount of the distribution, less the amount allocable to after-tax
contributions.
All other types of distributions from Employee Benefit Plans and 403(b)
Programs, and all distributions from IRAs, are subject to Federal income tax
withholding on the taxable amount unless the distribute elects not to have the
withholding apply. The amount withheld is based on the type of distribution.
Federal tax will be withheld from annuity payments (other than those subject to
mandatory 20% withholding) pursuant to the recipient's withholding certificate.
If no withholding certificate is filed with AUL, tax will be withheld on the
basis that the payee is married with three withholding exemptions. Tax on all
surrenders and lump-sum distributions from IRAs will be withheld at a flat 10%
rate.
Withholding on annuity payments and other distributions from the Contract will
be made in accordance with regulations of the IRS.
C-12
PART B
Statement of Additional Information
November 30, 2003
Acquisition of Assets and Liabilities of By and in Exchange for Interests in
American United Life Pooled Equity Fund B OneAmerica Funds, Inc.
One American Square and
Indianapolis, Indiana 46282 AUL American Unit Trust
(317) 285-1877 Indianapolis, Indiana 46282
(317) 285-1877
This Statement of Additional Information is available to Participants with
interests in American United Life Pooled Equity Fund B ("Fund B") in connection
with a proposed transaction whereby all of the assets and liabilities of Fund B
will be transferred to a new sub-account (the "New Account") of AUL American
Unit Trust, that will invest all of its assets in Class O shares of the
OneAmerica Value Portfolio, a series of OneAmerica Funds, Inc. The audited
financial statements and related independent auditors' report for Fund B
contained in the Annual Report for the fiscal year ended December 31, 2002, are
hereby incorporated herein by reference, as are the unaudited financial
statements for Fund B contained in the Semi-Annual Report for the period ended
June 30, 2003. Copies of these documents are available upon request and without
charge by calling or writing AUL at the telephone number or address set forth
above.
This Statement of Additional Information of the OneAmerica Funds, Inc. consists
of this cover page and the following documents, each of which was filed
electronically with the Securities and Exchange Commission and is incorporated
by reference herein:
1. The Statement of Additional Information for OneAmerica Funds, Inc. dated
May 1, 2003; and
2. The Financial Statements of OneAmerica Value Portfolio as included in
OneAmerica Fund, Inc.'s Annual Report filed for the year ended December 31,
2002 and Semi-Annual Report filed for the six-month period ended June 30,
2003.
This Statement of Additional Information of AUL American Unit Trust consists of
this cover page and the Statement of Additional Information for AUL American
Unit Trust dated August 4, 2003, which was filed electronically with the
Securities and Exchange Commission and is incorporated by reference herein.
This Statement of Additional Information is not a prospectus. A Proxy
Statement/Prospectus dated November 30, 2003 relating to the reorganization may
be obtained, without charge, by writing to American United Life Insurance
Company at One American Square, Indianapolis, Indiana 46282 or calling (317)
285-1877. This Statement of Additional Information should be read in conjunction
with the Proxy Statement/Prospectus.
I
Part C: Other Information
- --------------------------------------------------------------------------------
ITEM 15: Indemnification
- --------------------------------------------------------------------------------
Article VII of the OneAmerica Funds, Inc.'s Articles of Incorporation provides
in relevant part as follows:
"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
Incorporation shall impair the rights of any person arising at any time with
respect to events occurring prior to such amendment."
Article XI of the OneAmerica Funds, Inc.'s By-laws provides in relevant part as
follows:
"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
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."
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 foregoing provisions, 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.
Article IX, Section 1 of AUL's Articles of Amendment to the Amended and Restated
Articles of Incorporation provides in relevant part as follows:
"The Corporation shall indemnify as a matter of right every person made a party
to a proceeding because such person (an 'Indemnitee') is or was: (i) a member of
the Board of Directors of the Corporation, (ii) an officer of the Corporation,
or (iii) while a director or officer of the Corporation, serving at the
Corporation's request as a director, officer, partner, trustee, member, manager,
employee, or agent of another foreign or domestic corporation, limited liability
company, partnership, joint venture, trust, employee benefit plan, or other
enterprise, whether for profit or not.
"Notwithstanding the foregoing, it must be determined in the specific case that
indemnification of the Indemnitee is permissible in the circumstances because
the Indemnitee has met the standard of conduct for indemnification specified in
Indiana Code 27-1-7.5-8 (or any successor provision). The Corporation shall pay
for or reimburse the reasonable expenses incurred by an Indemnitee in connection
with any such proceeding in advance of final disposition thereof in accordance
with the procedures and subject to the conditions specified in Indiana Code
27-1-7.5-10 (or any successor provision). The Corporation shall indemnify as a
matter of right an Indemnitee who is wholly successful, on the merits or
otherwise, in the defense of any such proceeding, against reasonable expenses
incurred by the Indemnitee in connection with the proceeding without the
requirement of a determination as set forth in the first sentence of this
paragraph."
- --------------------------------------------------------------------------------
ITEM 16: Exhibits
- --------------------------------------------------------------------------------
(1) (a) Articles of Incorporation of OneAmerica Funds, Inc. (1)
(b) Articles Supplementary of OneAmerica Funds, Inc. (1, 4, 5, 7)
(c) Form of Articles Supplementary of OneAmerica Funds, Inc. (6)
(d) Resolution of Executive Committee of American United Life
Insurance Company(R)("AUL") establishing AUL American Unit
Trust (8)
(2) By-laws of OneAmerica Funds, Inc. (1)
(3) Not applicable
(4) Form of Plan of Reorganization (3)
(5) Not applicable
(6) Investment Advisory Contract and Addenda to Agreement between
OneAmerica Funds, Inc. and AUL and the Expense Limitation Agreement
between OneAmerica Funds, Inc. and AUL (1, 2, 5, 7)
(7) Not applicable
(8) Not applicable
(9) Form of Custody Agreement between OneAmerica Funds, Inc. and Bank of
New York, Fee Schedule, and Amendment(s) (1)
(10) Not applicable.
2
(11) Opinion of Counsel (filed herewith)
(12) Opinion and Consent of Counsel supporting tax matters and
consequences *
(13) (a) Form of Fund Accounting Agreement between OneAmerica Funds, Inc.
and Bank of New York, Fee Schedule, and Amendment(s) (1, 7)
(b) Form of Administration Agreement between OneAmerica Funds, Inc.
and Bank of New York, Fee Schedule and Amendment(s) (7)
(14) Consent of Independent Auditors (filed herewith)
(15) Not applicable.
(16) Powers of attorney (6, 9, filed herewith)
(17) [Any Other Exhibits?]
- --------------------------------------------------------------------------------
* To be filed by post-effective amendment.
(1) Filed in OneAmerica Funds, Inc.'s Post-Effective Amendment No. 11, Form
N-1A, File No. 33-30156, on April 30, 1998.
(2) Filed in OneAmerica Funds, Inc.'s Post-Effective Amendment No. 13, Form
N-1A, File No. 33-30156, on April 30, 1999.
(3) See Appendix A to the Proxy Statement/Prospectus.
(4) Filed in OneAmerica Funds, Inc.'s Post-Effective Amendment No. 15, Form
N-1A, File No. 33-30156, on April 27, 2001.
(5) Filed in OneAmerica Funds, Inc.'s Post-Effective Amendment No. 16, Form
N-1A, File No. 33-30156, on May 1, 2002.
(6) Filed in OneAmerica Funds, Inc.'s Post-Effective Amendment No. 17, Form
N-1A, File No. 33-30156, on January 31, 2003.
(7) Filed in OneAmerica Funds, Inc.'s Post-Effective Amendment No. 18, Form
N-1A, File No. 33-30156, on March 28, 2003.
(8) Re-Filed in AUL American Unit Trust's Post-Effective Amendment No. 15, Form
N-4, File No. 33-31375, on April 30, 1998.
(9) Filed in AUL American Unit Trust's Post Effective Amendment No. 23, Form
N-4, File No. 33-31375, on April 30, 2003.
- --------------------------------------------------------------------------------
ITEM 17: Undertakings
- --------------------------------------------------------------------------------
1. The undersigned registrants agree that prior to any public reoffering of
the securities registered through the use of a prospectus which is a part
of this registration statement by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c) of the Securities Act 17
CFR 230.145(c), the reoffering prospectus will contain the information
called for by the applicable registration form for reofferings by persons
who may be deemed underwriters, in addition to the information called for
by the other items of the applicable form.
3
2. The undersigned registrants agree that every prospectus that is filed under
paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is
effective, and that, in determining any liability under the 1933 Act, each
post-effective amendment shall be deemed to be a new registration statement
for the securities offered therein, and the offering of the securities at
that time shall be deemed to be the initial bona fide offering of them.
3. The undersigned registrants undertake to file a post-effective amendment to
this registration statement upon the closing of the reorganization
described in this registration statement that contains an opinion of
counsel supporting the tax matters discussed in this registration
statement.
4. The undersigned registrants agree to deliver any Statement of Additional
Information and any financial statements required to be made available
under this Form promptly upon written or oral request.
4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrants have duly caused this Registration Statement on Form N-14 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Indianapolis and the State of Indiana on this 31 day of October, 2003.
OneAmerica Funds, Inc. AUL American Unit Trust
(Registrant)
- ----------------------------- -----------------------------
By: R. Stephen Radcliffe*, President By: R. Stephen Radcliffe**
President
AUL United Life Insurance Company(R)
(Depositor)
-----------------------------
By: R. Stephen Radcliffe**
President
*By: /s/ John C. Swhear
-----------------------
John C. Swhear as Attorney-in-fact, pursuant to powers of attorney filed in
OneAmerica Funds, Inc.'s Post Effective Amendment No. 17, Form N-1A, File
No. 33-30156, on January 31, 2003.
**By: /s/ John C. Swhear
-----------------------
John C. Swhear as Attorney-in-fact, pursuant to powers of attorney filed in
AUL American Unit Trust's Post Effective Amendment No. 23, Form N-4, File
No. 33-31375, on April 30, 2003.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below on behalf of OneAmerica Funds, Inc.
by the following persons in the capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
_________________________________ Director, Chairman of the October 31, 2003
R. Stephen Radcliffe* Board and President (Chief
Executive Officer)
_________________________________ Director October 31, 2003
Ronald D. Anderson*
_________________________________ Treasurer (Principal October 31, 2003
Constance E. Lund* Financial and Accounting
Officer)
_________________________________ Director October 31, 2003
James W. Murphy*
_________________________________ Director October 31, 2003
Donald J. Stuhldreher*
_________________________________ Director October 31, 2003
Jean L. Wojtowicz**
*By: /s/ John C. Swhear
___________________
John C. Swhear as Attorney-in-fact, pursuant to powers of attorney filed in
Registrant's Post Effective Amendment No. 17, Form N-1A, File No. 33-30156,
on January 31, 2003.
**By: /s/ John C. Swhear
___________________
John C. Swhear as Attorney-in-fact, pursuant to powers of attorney dated
September 9, 2003 and filed herewith.
Date: October 31, 2003
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below on behalf of AUL American Unit
Trust by the following persons in the capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
_______________________________ Director October 31, 2003
John R. Barton*
_______________________________ Director October 31, 2003
J. Scott Davison*
_______________________________ Director, Principal October 31, 2003
Constance E. Lund* Financial and Accounting
Officer
_______________________________ Director October 31, 2003
Dayton H. Molendorp*
_______________________________ Director October 31, 2003
R. Stephen Radcliffe*
_______________________________ Director October 31, 2003
Mark C. Roller*
_______________________________ Director October 31, 2003
G. David Sapp*
_______________________________ Director October 31, 2003
Jerry D. Semler*
_______________________________ Director October 31, 2003
William L. Tindall*
_______________________________ Director October 31, 2003
Steven A. Weber*
_______________________________ Director October 31, 2003
Thomas M. Zurek*
**By: /s/ John C. Swhear
_____________________
John C. Swhear as Attorney-in-fact, pursuant to powers of attorney filed in
AUL American Unit Trust's Post-Effective Amendment No. 23, Form N-4, File
No. 33-31375, on April 30, 2003.
Date: October 31, 2003
6
EXHIBIT LIST
Exhibit No.
in Form N-14 Exhibit
Item 16 Numbered As Name of Exhibit
- ------------ ----------- ---------------
(11) EX-99.11 Opinion of Counsel
(14) EX-99.14 Consent of Independent Auditors
(16) EX-99.16 Powers of Attorney
7
PROXY OF PARTICIPANT
American United Life Pooled Equity Fund B
PROXY SOLICITED BY THE BOARD OF MANAGERS FOR A SPECIAL MEETING OF PARTICIPANTS
OF American United Life Pooled Equity Fund B TO BE HELD ON FEBRUARY 2, 2004
[Participant] Proxy Number _____________
[Address] Contract Number: ___________
[City, State Zip Code] Units: _________
The undersigned Participant of American United Life Pooled Equity Fund B ("Fund
B"), having received Notice of the Special Meeting of Participants of Fund B and
the Proxy Statement/Prospectus accompanying such Notice, each dated November 30,
2003, hereby constitutes and appoints John C. Swhear and Richard M. Ellery, and
each of them, as proxies of the undersigned, with power of substitution, to
attend and to cast all votes entitled to be cast by the undersigned, for and in
the name, place and stead of the undersigned, at the Special Meeting of
Participants of Fund B on February 2, 2004 at 10:00 a.m., Eastern Standard Time,
at the home office of American United Life Insurance Company at One American
Square, Indianapolis, Indiana 46282, and at any and all adjournments thereof,
with all powers the undersigned would possess if personally present.
All previous proxies given with respect to all votes entitled to be cast by the
undersigned at the Special Meeting are hereby revoked. THE PROXIES WILL VOTE IN
THE MANNER DIRECTED HEREIN, OR, IF NO DIRECTION HAS BEEN INDICATED, "FOR" THE
PROPOSAL. The Board of Managers of Fund B recommends that this proxy be marked
FOR the proposal. This proxy may be revoked at any time prior to the Special
Meeting by executing a subsequent proxy, or by notifying the Assistant Secretary
of Fund B in writing, or by voting in person at the Special Meeting.
Please mark, sign, date and return all proxy forms promptly in the enclosed
envelope. Please sign exactly as your name appears on this form. To vote on the
proposal, use blue or black ink, indicate your choice by marking an "X" in the
appropriate box as follow: /X/
II
THE PROXY FORM MUST BE SIGNED AND DATED FOR YOUR VOTE TO BE COUNTED.
- ------------------------------------------------------------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
- ------------------------------------------------------------------------------------------------------------------------------------
1. To approve an Agreement and Plan of Reorganization and related transactions
whereby Fund B will be reorganized into a new sub-account of AUL American
Unit Trust, a separate account registered under the Investment Company Act
of 1940 ("1940 Act") as a unit investment trust. The sub-account will
invest all of its assets in Class O shares of the OneAmerica Value
Portfolio, a series of OneAmerica Funds, Inc., a mutual fund registered
under the 1940 Act.
- ------------------------------------------------------------------------------------------------------------------------------------
Signature: _____________________ Signature: _____________________
Dated: _______________________