Rider to
CUSTODIAL SERVICES AGREEMENT
(the "Agreement")
dated June 30, 1996 between
Citibank, N.A. as Custodian
and AAL VARIABLE PRODUCT SERIES FUND INC.
The parties to the Agreement agree, effective as of March 1, 1998, to the
modification and/or amendments to the Agreement as follows:
1. The Preamble to the Agreement is hereby amended by deleting in the fourth
line thereof the phrase "State of Delaware" and inserting in lieu thereof
the phrase "State of Maryland". The foregoing shall be effective as of June
30, 1996.
2. Section 4( c ) of the Agreement is hereby amended by adding in the first
line thereof before the term "Clearance Systems" the phrase "Foreign
Custodian (as defined below)".
3. Section 4( c ) of the Agreement is hereby further amended by adding in the
fourth line thereof before the term "Clearance Systems" the following:
"Foreign Custodians' shall mean the Bank's branches, or other Eligible
Foreign Custodian as set forth in Section 6A(A) hereof;"
4. Sections 5(B), 5(C ), 5(F)(ii) and 5(G) are hereby amended by in each such
section inserting after the phrase "Sections 6 or 7" the term "or 6A".
5. Sections 5(D) (ii) and 5(D)(vi)(1)(b) are hereby amended by in each section
deleting the phrase "Section 6 hereof" and replacing it with the phrase
"Sections 6 or 6A hereof."
6. Section 5(D) is hereby further amended by adding the following to the end
thereof:
"The Fund authorizes the Bank from time to time to cause its branch
located in London, England ("Citibank London") to establish a
multicurrency cash account reflecting cash received by any Foreign
Custodian on the Fund's behalf. Citibank London will maintain such cash
account in accordance with the requirements of Section 6A hereof
applicable to an entity.
7. The Custody Agreement is further amended by adding the following new Section
immediately following Section 6:
"6A. AUTHORIZED USE OF FOREIGN CUSTODIANS
(A) Authorization
In carrying out its duties with respect to non-U.S. Securities and foreign
currencies (foreign investments") the Bank shall place and maintain the Fund's
foreign investments with, and use the services of, (I) any branch of the Bank or
(ii) any other person that is an Eligible Foreign Custodian as defined in Rule
17f-5(a)(1) under the Investment Company Act of 1940 (the "1940 Act") selected
by the Bank as provided in Section 6A (collectively a "Foreign Custodian"). The
services of Foreign Custodians shall only be available in the locations listed
on Appendix A, as the same may be amended from time to time.
(B) Foreign Custody Manager
(i) The Fund's Board of Directors (hereinafter "Board") hereby delegates to the
Bank, and the Bank hereby accepts the delegation to it, of the obligation to
serve as the Fund's "Foreign Custody Manager" (as that term is defined in Rule
17f-5(a)(2), as amended from time to time, under the 1940 Act).
(ii) As Foreign Custody Manager, the Bank shall:
1) select Eligible Foreign Custodians as defined in Rule 17f-5(a)(1)
under the 1940 Act, to serve as Foreign Custodians and place and
maintain the Fund's foreign investments with such Foreign Custodians;
2) in selecting a Foreign Custodian, first determine that foreign
investments placed and maintained in the safekeeping of each Eligible
Foreign Custodian shall be subject to reasonable care, based on the
standards applicable to custodians in the relevant market, after having
considered all factors relevant to the safekeeping of such investments,
including, without limitation, those factors set forth in Rule 17f-5(c)
(1)(i)-(iv) under the 1940 Act;
3) enter into written agreements with each Eligible Foreign Custodian
selected by the Bank hereunder;
4) determine that the written contract with each Eligible Foreign
Custodian (or, in the case of an Eligible Foreign Custodian that is a
securities depository or clearing agency such contract [which may be
between the Bank and the securities depository or clearing agency or
between an Eligible Foreign Custodian selected by the Bank and the
securities depository or clearing agency], the rules or established
practices or procedures of the depository, or any combination of the
foregoing) requires that the Eligible Foreign Custodian will provide
reasonable care for the foreign investments, based on the standards
applicable to custodians in the relevant market, and that all such
contacts, rules, practices and procedures satisfy the requirements of
Rule 17f-5(c )(2) under the 1940 Act;
5) provide written reports (x) notifying the Board of the placement of
foreign investments with each Eligible Foreign Custodian, such reports
to be provided at such time as they deem reasonable and appropriate,
but not less than quarterly, and (y) promptly notifying the Board of
the occurrence of any material change in the arrangements with an
Eligible Foreign Custodian;
6) monitor the continued appropriateness of (x) maintaining the foreign
investments with Eligible Foreign Custodian selected hereunder and (y)
the governing contractual arrangements; it being understood, however,
that in the event the Bank shall determine that any Eligible Foreign
Custodian would no longer afford the foreign investments reasonable
care as required of Eligible Foreign Custodians by Rule 17f-5, the Bank
shall promptly so advise the Fund and shall then act in accordance with
the Instructions of the Fund with respect to the disposition of the
affected foreign investments; and
7) exercise such reasonable care, prudence and diligence in serving as
the Foreign Custody Manager as a person having responsibility for the
safekeeping of the Fund's assets would exercise.
(iii) Nothing in this paragraph shall relieve the Bank of any responsibility
otherwise provided in this Agreement for loss or damage suffered by the Fund
from an act of negligence or willful misconduct on the part of the Bank, or any
of its agents or any Foreign Custodian as provided in Section 4 of this
Agreement.
(iv) Nothing in this Agreement shall require the Bank to make any selection on
behalf of the Fund that would entail consideration of any factor reasonably
related to the systemic risk of holding assets in a particular country
including, but not limited to, such country's financial infrastructure and
prevailing settlement practices. The Bank agrees to provide to the Fund such
information relating to such risk as the Fund shall reasonably request from time
to time and such other information as the Bank generally makes available to
customers with regard to such countries and risk.
(C ) Compulsory Depositories
(i) Notwithstanding the provisions of Section 6A(B) above, the Bank shall not
serve as Foreign Custody Manager in respect of any Compulsory Depository, as
defined below. The Bank, through its branches or an Eligible Foreign Custodian
shall be entitled to deposit and maintain the foreign investments in Compulsory
Depositories as the Bank deems prudent and appropriate, unless otherwise
instructed by the Fund or its delegate.
(ii) Prior to depositing the foreign investments in any Compulsory Depository,
the Bank shall notify the Fund that such Depository will be used and provide the
Fund, in respect of such Depository, with current information of the type the
Bank provided to the Fund in the Bank's booklets entitled, "SEC Rule 17f-5
Package". The Bank, upon request, shall make its representatives available to
consult, in good faith, with such of the Fund's delegates as the Fund shall
designate regarding the advisability of depositing the Fund's foreign
investments with any Compulsory Depository.
(iii) The Bank shall provide the Fund with reports regarding Compulsory
Depositories as provided in Section 6A(B)(5) above, and shall provide the Fund
with such other information with regard to any Compulsory Depository as the Fund
shall reasonably request.
(iv) A "Compulsory Depository" shall mean a non-U.S. securities depository or
clearing agency the use of which is mandatory (x) by law or regulation (y)
because securities cannot be withdrawn from the depository or clearing agency or
(z) because maintaining securities outside the securities depository or cleaning
agency is not consistent with prevailing local custodial practices.
(D) Segregation and Identification of Assets
The Bank will deposit Property of the Fund with a Foreign Custodian or non-U.S.
depository or clearing agency only in an account which holds exclusively the
assets of customers of the Bank. In the event that the Bank authorizes a Foreign
Custodian to hold any foreign investments placed in its care in a non-U.S.
depository or clearing agency, the Bank will direct such Foreign Custodian to
identify on its books such foreign investments as being held for the account of
the Bank as custodian for its customers.
(E) Instructions to Foreign Custodians
Any Property in a Custody Account deposited by the Bank with a Foreign Custodian
or non-U.S. depository or clearing agency shall be subject only to the
instructions of the Bank or its agents; and any foreign investments held in a in
a non-U.S. depository or clearing agency for the account of a Foreign Custodian
shall be subject only to the instructions of such Foreign Custodian as
subcustodian for the Bank.
(F) Procedures of Foreign Custodians
In utilizing any Foreign Custodian, the Bank warrants that the established
procedures to be followed by each such Foreign Custodian holding Property
pursuant to this Agreement address relevant control issues for such Property and
provide internal controls and procedures that are adequate to provide reasonable
protection of the Property. In addition to, and not in amplification of, the
provisions of Section 4 and the last sentence of Section 6A(C ) of this
Agreement, in utilizing any non-U.S. depository or clearing agency, the Bank
complies with the guidelines of OCR Banking Circular BC - 235 with respect to
such non-U.S. depository or clearing agency and has in place and utilizes its
own internal controls and procedures to assess whether the non-U.S. depository
or clearing agency is appropriately safekeeping the Property.
(G) Applicable Laws
Upon transfer of any Property to a Foreign Custodian or Clearance System, such
Property shall be subject to the applicable laws, regulations, restrictions,
customs, procedures and market practices ("Laws") to which the Foreign Custodian
or Clearance System is subject and as exist in the country to which the Property
is transferred and held. In the event that the Laws change in a way that would
prevent or limit the performance of duties and obligations by a Foreign
Custodian or Clearance System, such duties and obligations shall be superseded,
provided that the Bank shall use its best efforts to provide prior notice
thereof to the Fund and to follow its instructions in connection therewith.
Neither the Bank nor its parent or any other of its branches, subsidiaries or
affiliates shall be liable therefor or for any damages in any way resulting from
the prevented or limited performance, except to the extent such damages arise in
connection with the negligence, willful misconduct or bad faith of the Bank, its
parent, or any other of its branches, subsidiaries or affiliates. The Fund
acknowledges that, as is normally the case with respect to deposits outside the
United States, deposits with Citibank London, and any other entity authorized to
hold Property outside the United States pursuant to this Custody Agreement, are
not insured by the Federal Deposit Insurance Corporation.
8. Section 7 of the Agreement is hereby amended by adding to the end thereof the
phrase "and Foreign Custodians".
All other terms of the Agreement shall remain the same.
CITIBANK, N.A. AAL VARIABLE PRODUCT SERIES FUND INC.
By:__________________________ By: ________________________________
Name:________________________ Name: ______________________________
Title: _________________________ Title: _______________________________
Attest: ________________________ Attest: ______________________________
Date: __________________________ Date: _______________________________
