<PAGE>
As filed with the Securities and Exchange Commission on April 30, 1999
Registration No. 333-32531
SECURITIES AND EXCHANGE COMMISSION
Washington. D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 3 TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
AUL AMERICAN INDIVIDUAL VARIABLE LIFE UNIT TRUST
AMERICAN UNITED LIFE INSURANCE COMPANY(R)
(Exact Name of Trust)
AMERICAN UNITED LIFE INSURANCE COMPANY(R)
(Name of Depositor)
One American Square
Indianapolis, Indiana 46282
(Address of Depositor's Principal Executive Office)
John C. Swhear, Esq.
Counsel
American United Life Insurance Company(R)
One American Square
Indianapolis, Indiana 46282
(Name and Address of Agent for Service of Process)
It is proposed that this filing will become effective (Check appropriate Space)
_____ immediately upon filing pursuant to paragraph (b) of Rule 485
X on May 1, 1999 pursuant to paragraph (b) of Rule 485
_____ --------------
_____ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
_____ on (date) pursuant to paragraph (a)(1) of Rule 485
_____ this post-effective amendment designates a new effective date for a
previously filed amendment.
<PAGE>
AUL American Individual Variable Life Unit Trust of
American United Life Insurance Company(R)
Flexible Premium Adjustable
Variable Life Insurance Policies
RECONCILIATION AND TIE
(Form N-8B-2 Items required by Instruction as
to the Prospectus in Form S-6)
<TABLE>
<S> <C> <C>
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
I. Organization and General Information
1. (a) Name of trust............................ Prospectus front cover
(b) Title of securities issued.............. Prospectus front cover
2. Name and address of each depositor.......... Prospectus front cover
3. Name and address of trustee................. N/A
4. Name and address of each principal
underwriter............................... Sale of the Policies
5. State of organization of trust.............. Separate Account
6. Execution and termination of trust
agreement................................. Separate Account
9. Litigation................................. Other Information About the
Policies and AUL - Litigation
II. General Description of the Trust
and Securities of the Trust
10. (a) Registered or bearer Summary and Diagram
securities........................ of the Policy
(b) Cumulative or distributive Summary and Diagram
securities......................... of the Policy
i
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(c) Withdrawal or Redemption............... Cash Benefits - Policy Loans; Cash
Benefits - Surrendering the Policy for
Net Cash Value
(d) Conversion, transfer, etc................ Premium Payments and Allocations -
Transfer Privilege; Premium Payments and Allocations
- Dollar Cost Averaging Program;
Premium Payments and Allocations -
Portfolio Rebalancing Program; Cash Benefits
- Policy Loans; Cash Benefits - Partial
Surrenders; Other Policy Benefits and
Provisions Exchange for Paid-Up Policy
(e) Lapse or Default.......................... Premium Payments and Allocations - Premium Payments to Prevent Lapse;
Other Policy Benefits and Provisions - Reinstatement
(f) Voting rights............................. Other Information About the Policies and AUL - Voting Rights
(g) Notice to security holders............... Other Policy Benefits and Provisions -
Changes in the Policy or Benefits;
Other Policy Benefits and Provisions
Reports to Policy Owners; Other
Information About the Policies and
AUL - Addition, Deletion or
Substitution of Investments
(h) Consents required........................ Other Information About the
Policies and AUL - Voting Rights;
Other Policy Benefits and Provisions
- Changes in the Policy or
Benefits; Other Information About
the Policies and AUL - Voting
Rights; Other Information About
the Policies and AUL - Addition,
Deletion or Substitution of Investments
ii
<PAGE>
(i) Other provisions......................... Premium Payments and Allocations; Charges and Deductions;
Death Benefits and Changes in Face Amount; Cash
Benefits; Summary and Diagram of the
Policy; Fixed Account
11. Type of securities comprising units........... Prospectus front cover; General
Information About AUL, the Separate
Account and the Funds
12. Certain information regarding periodic
payment plan certificates.................... General Information About AUL, the
Separate Account and the Funds- The Funds
13. (a) Load, fees, expenses, etc............. Charges and Deductions
(b) Certain information regarding
periodic payment plan
certificates........................ N/A
(c) Certain percentages................... Charges and Deductions
(d) Certain other fees, etc............... Charges and Deductions
(e) Certain other profits or benefits..... Premium Payments and Allocations
- Transfer Privilege; Fixed Account
Transfers from Fixed Account; Illustrations
of Account Values, Cash Values,
Death Benefits and Accumulated
Premium Payments
(f) Other benefits.......................... General Information About AUL, the
Separate Account and the Funds - The Funds
(g) Ratio of annual charges to
income.................................. N/A
iii
<PAGE>
14. Issuance of trust's securities................ Summary and Diagram of the Policy; Premium Payments
and Allocations
15. Receipt and handling of payments Premium Payments and
from purchasers............................. Allocations
16. Acquisition and disposition of General Information About AUL,
underlying securities ...................... the Separate Account and the Funds; Charges and
Deductions- Fund Expenses
17. Withdrawal or redemption...................... Premium Payments and Allocations-Transfer
Privilege; Fixed Account Transfers from
Fixed Account; Fixed Account - Payment
Deferral; Charges and Deductions -
Surrender Charge; Cash Benefits -
Surrendering the Policy for Net Cash Value;
Cash Benefits - Policy Loans; Cash Benefits
- Partial Surrenders; Cash Benefits -
Settlement Options; Other Information
About the Policies and AUL - Reinstatement
18. (a) Receipt, custody and General Information About AUL,
disposition of income ............... the Separate Account and the
Funds - Separate Account; Other
Policy Benefits and Provisions -
Dividends; Tax Considerations
(b) Reinvestment of
distributions...................... N/A
(c) Reserves or special funds............ N/A
(d) Schedule of distributions............ N/A
19. Records, accounts and reports................. Other Policy Benefits and Provisions - Reports to Policy Owners
iv
<PAGE>
20. Certain miscellaneous provisions
of trust agreement:
(a) Amendment............................ N/A
(b) Termination.......................... N/A
(c) and (d) Trustee, removal and
successor.......................... N/A
(e) and (f) Depositors, removal
and successor...................... N/A
21. Loans to security holders..................... Cash Benefits - Policy Loans
22. Limitations on liability...................... N/A
23. Bonding arrangements.......................... N/A
24. Other material provisions of
trust agreement.............................. Other Information About the
Policies and AUL
III. Organizations, Personnel and
Affiliated Persons of Depositor
25. Organization of depositor..................... AUL
26. Fees received by depositor
(a) Under the policies................... N/A
(b) From the Funds....................... General Information About AUL, the
Separate Account and the Funds - The Funds
27. Business of depositor......................... General Information About AUL, the
Separate Account and the Funds - AUL
28. Certain information as to officials
and affiliated persons of depositor.......... Other Information About the
Policies and AUL - AUL Directors and
Executive Officers
v
<PAGE>
29. Voting securities of depositor................ N/A
30. Persons controlling depositor................. N/A
31. Payments by depositor for certain
services rendered to trust.................. N/A
32. Payments by depositor for certain
other services rendered to
trust....................................... N/A
33. Remuneration of employees of
depositor for certain services
rendered to trust........................... N/A
34. Remuneration of other persons
for certain services rendered
to trust.................................... N/A
IV. Distribution and Redemption of Securities
35. Distribution of trust's securities
by states................................... N/A
37. Revocation of authority to
distribute.................................. N/A
38. (a) Method of distribution.................. Other Information About the Policies
and AUL - Sale of the Policies
(b) Underwriting agreements................. Other Information About the Policies
and AUL - Sale of the Policies
(c) Selling agreements...................... Other Information About the Policies
and AUL - Sale of the Policies
39. (a) Organization of principal
underwriters....................... See Item 25
vi
<PAGE>
(b) N.A.S.D. membership of
principal underwriters.............. Other Information About the Policies
and AUL - Sale of the Policies
40. Certain fees received by principal
underwriters................................ See Item 26
41. (a) Business of each principal
underwriter........................ See Item 27
42. Ownership of trust's securities
by certain persons.......................... N/A
43. Certain brokerage commissions
received by principal
underwriters................................ N/A
44. (a) Method of valuation.................. How Your Account Values Vary
(b) Schedule as to offering
price.............................. Charges and Deductions
(c) Variation in offering price
to certain persons................. Charges and Deductions
45. Suspension of redemption rights............... N/A
46. (a) Redemption Valuation..................... How Your Account Value Varies; Cash
Benefits - Surrender Charge
(b) Schedule as to redemption
price.................................... Cash Benefits - Surrender Charge
47. Maintenance of position in
underlying securities........................ General Information About AUL,
the Separate Account and the
Funds Separate Account; General
Information About AUL, the
Separate Account and the Funds
- The Funds; Premium Payments
and Allocations - Premium Allocations
and Crediting
vii
<PAGE>
V. Information Concerning the Trustee or Custodian
48. Organization and regulation of
trustee..................................... N/A
49. Fees and expenses of trustees................. N/A
50. Trustee's lien................................ N/A
VI. Information Concerning Insurance of
Holders of Securities
51. Insurance of holders of trust's Summary and Diagram of the
securities................................... Policy; General Information
About AUL, the Separate Account and the
Funds; Death Benefit and Changes in
Face Amount; Cash Benefits; Other
Policy Benefits and Provisions; Other
Information About the Policies and AUL;
Premium Payments and Allocations
VII. Policy of Registrant
52. (a) Provisions of trust agreement
with respect to selection or
elimination of underlying
securities......................... Other Information About the Policies
and AUL - Addition, Deletion or
Substitution of Investments; General
Information About AUL, the Separate
Account and the Funds
(b) Transactions involving elimination
of underlying securities........... N/A
(c) Policy regarding substitution
or elimination of under-
lying securities................... See Item 52(a)
(d) Fundamental policy not other-
wise covered....................... N/A
53. Tax status of trust........................... Tax Considerations
viii
<PAGE>
VIII. Financial and Statistical Information
54. Trust's securities during last
ten years................................... N/A
55. Trust's securities during last
ten years................................... N/A
</TABLE>
<PAGE>
PROSPECTUS
FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE POLICY
American United Life Insurance Company(R)
One American Square
Indianapolis, Indiana 46282
This Prospectus describes a flexible premium adjustable variable life insurance
policy (the "Policy") offered by American United Life Insurance Company(R)
("AUL," "we," "us" or "our"). AUL designed the Policy to provide insurance
protection on the Insured (or Insureds if you choose the Last Survivor Rider)
named in the Policy. The Policy also provides you with the flexibility to vary
the amount and timing of premium payments and to change the amount of death
benefits payable under the Policy. This flexibility allows you to provide for
your changing insurance needs under a single insurance Policy.
You also have the opportunity to allocate Net Premiums and Account Value to one
or more Investment Accounts of the AUL American Individual Variable Life Unit
Trust (the "Separate Account") and to AUL's general account (the "Fixed
Account"), within limits. This Prospectus generally describes only that portion
of the Account Value allocated to the Separate Account. For a brief summary of
the Fixed Account, see "Fixed Account." AUL invests the assets of each
Investment Account in a corresponding mutual fund portfolio (each, a
"Portfolio"). The investment advisers shown below manage each Fund and its
Portfolio(s).
<TABLE>
<S> <C>
Fund Investment Adviser
AUL American Series Fund, Inc. AUL
AUL American Equity Portfolio
AUL American Bond Portfolio
AUL American Money Market Portfolio
AUL American Managed Portfolio
Alger American Fund Fred Alger & Company
Alger American Growth Portfolio
American Century Variable Portfolios, Inc. American Century Investment Management, Inc.
American Century VP Capital Appreciation Portfolio
American Century VP Income & Growth Portfolio
American Century VP International Portfolio
Fidelity Variable Insurance Products Fund Fidelity Management & Research Company
VIP Equity-Income Portfolio
VIP Growth Portfolio
VIP High Income Portfolio
VIP Money Market Portfolio
VIP Overseas Portfolio
Fidelity Variable Insurance Products Fund II Fidelity Management & Research Company
VIP II Asset Manager Portfolio
VIP II Contrafund Portfolio
VIP II Index 500 Portfolio
Janus Aspen Series Janus Capital Corporation
Janus Flexible Income Portfolio
Janus Worldwide Growth Portfolio
SAFECO Resource Series Trust SAFECO Asset Management Company
SAFECO RST Equity Portfolio
SAFECO RST Growth Portfolio
T. Rowe Price Equity Series, Inc. T. Rowe Price Associates, Inc.
T. Rowe Price Equity Income Portfolio
</TABLE>
The prospectuses for the Funds describe their respective Portfolios, including
the risks of investing in the Portfolios, and provide other information on the
Funds. Not all funds are available with all contracts.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of the prospectus. Any representation to the contrary is a
criminal offense.
This prospectus should be accompanied by the current prospectuses for the fund
or funds being considered. Each of these prospectuses should be read carefully
and retained for future reference.
The Date of this Prospectus is May 1, 1999
2
<PAGE>
TABLE OF CONTENTS
Page
DEFINITIONS OF TERMS..........................................................3
SUMMARY AND DIAGRAM OF THE POLICY............................................ 4
GENERAL INFORMATION ABOUT AUL, THE SEPARATE ACCOUNT AND THE FUNDS............ 7
American United Life Insurance Company(R)........................... 7
Separate Account.................................................... 7
The Funds........................................................... 7
AUL American Series Fund, Inc....................................... 7
Alger American Fund................................................. 7
American Century Variable Portfolios, Inc........................... 7
Fidelity Variable Insurance Products Fund........................... 8
Fidelity Variable Insurance Products Fund II........................ 8
Janus Aspen Series.................................................. 9
SAFECO Resource Series Trust........................................ 9
T. Rowe Price Equity Series, Inc.................................... 9
FUND EXPENSE TABLE...........................................................10
PREMIUM PAYMENTS AND ALLOCATIONS.............................................11
Applying for a Policy...............................................11
Right to Examine Policy.............................................11
Premiums............................................................11
Premium Payments to Prevent Lapse...................................12
Premium Allocations and Crediting...................................12
Transfer Privilege..................................................13
Dollar Cost Averaging Program.......................................13
Portfolio Rebalancing Program.......................................13
FIXED ACCOUNT................................................................14
Minimum Guaranteed and Current Interest Rates.......................14
Calculation of the Fixed Account Value..............................14
Transfers from the Fixed Account....................................14
Payment Deferral....................................................14
CHARGES AND DEDUCTIONS.......................................................14
Premium Expense Charges.............................................14
Monthly Deduction...................................................14
Mortality and Expense Risk Charge...................................15
Surrender Charge....................................................15
Taxes...............................................................16
Special Uses........................................................16
Fund Expenses.......................................................16
HOW YOUR ACCOUNT VALUES VARY.................................................16
Determining the Account Value.......................................16
Cash Value and Net Cash Value.......................................17
DEATH BENEFIT AND CHANGES IN FACE AMOUNT.....................................17
Amount of Death Benefit Proceeds....................................17
Death Benefit Options...............................................18
Initial Face Amount and Death Benefit Option........................18
Changes in Death Benefit Option.....................................18
Changes in Face Amount..............................................18
Selecting and Changing the Beneficiary..............................19
CASH BENEFITS................................................................19
Policy Loans........................................................19
Surrendering the Policy for Net Cash Value..........................20
Partial Surrenders..................................................20
Settlement Options..................................................20
Specialized Uses of the Policy......................................20
Life Insurance Retirement Plans.....................................21
Risks of Life Insurance Retirement Plans............................21
ILLUSTRATIONS OF ACCOUNT VALUES, CASH VALUES, DEATH BENEFITS AND
ACCUMULATED PREMIUM PAYMENTS................................................22
OTHER POLICY BENEFITS AND PROVISIONS.........................................31
Limits on Rights to Contest the Policy..............................31
Changes in the Policy or Benefits...................................31
Change of Insured...................................................31
Exchange for Paid-Up Policy.........................................31
When Proceeds Are Paid..............................................31
Dividends...........................................................31
Reports to Policy Owners............................................31
Assignment..........................................................32
Reinstatement.......................................................32
Rider Benefits......................................................32
TAX CONSIDERATIONS...........................................................33
Tax Status of the Policy............................................33
Tax Treatment of Policy Benefits....................................34
Estate and Generation Skipping Taxes................................35
Life Insurance Purchased for Use in Split Dollar Arrangements.......35
Taxation under Section 403(b) Plans.................................36
Non-Individual Ownership of Contracts...............................36
Possible Charge for AUL's Taxes.....................................36
OTHER INFORMATION ABOUT THE POLICIES AND AUL.................................36
Policy Termination..................................................36
Resolving Material Conflicts........................................36
Addition, Deletion or Substitution of Investments...................37
Voting Rights.......................................................37
Sale of the Policies................................................38
AUL Directors and Executive Officers................................38
State Regulation....................................................40
Additional Information..............................................40
Independent Accountants.............................................40
Litigation..........................................................40
Legal Matters.......................................................40
Year 2000 Readiness Disclosure......................................40
Financial Statements................................................41
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, THE PROSPECTUSES OF THE FUNDS, OR THE STATEMENTS OF ADDITIONAL
INFORMATION OF THE FUNDS.
3
<PAGE>
DEFINITIONS OF TERMS
ACCOUNT VALUE
The Account Value is the sum of your interest in the Variable Account,
the Fixed Account, and the Loan Account.
AGE
Issue Age means the Insured's age as of the Contract Date. Attained Age
means the Issue Age increased by one for each complete Policy Year.
CASH VALUE
The Cash Value is the Account Value less the Surrender Charge.
CONTRACT DATE
The date from which Monthiversaries, Policy Years, and Policy
Anniversaries are measured. Suicide and incontestability periods are
measured from the Contract Date.
DEATH BENEFIT AND DEATH BENEFIT PROCEEDS
This Policy has two death benefit options. The Death Benefit Proceeds
are the Death Benefit less any outstanding loan and loan interest,
plus any benefits provided by rider.
FACE AMOUNT
The Face Amount shown on the Policy Data Page of the Policy, or as
subsequently changed.
FIXED ACCOUNT
An account which is part of our general account, and is not part of or
dependent on the investment performance of the Variable Account.
GUARANTEE PERIOD
The period shown on the Policy Data Page during which the Policy will
remain in force if cumulative premiums less any outstanding loan and
loan interest and Partial Surrenders equal or exceed the Required
Premium for the Guarantee Period. The Guarantee Period terminates on
any Monthiversary that this test fails.
HOME OFFICE
The Variable Products Service office at AUL's principal business office
One American Square, Indianapolis, Indiana 46282.
INSURED
The insured named on the Policy Data Page of the Policy. The Insured
may or may not be the Owner. An available rider provides for coverage
on the lives of two Insureds.
INVESTMENT ACCOUNTS
One or more of the subdivisions of the Separate Account. Each
Investment Account is invested in a corresponding Portfolio of a
particular mutual fund.
ISSUE DATE
The date the Policy is issued.
LOAN ACCOUNT
A portion of the Account Value which is collateral for loan amounts.
MINIMUM INSURANCE PERCENTAGE
The minimum percentage of insurance required to qualify the Policy as
life insurance under the Internal Revenue Internal Revenue Code. A
table of these amounts is on the Policy Data Page of your Policy.
MODIFIED ENDOWMENT
A classification of policies determined under the Internal Revenue
Internal Revenue Code to be modified endowment contracts which affects
the tax status of distributions from the Policy.
MONTHIVERSARY
The same date of each month as the Contract Date. If a Monthiversary
falls on a day which is not a Valuation Date, the processing of the
Monthiversary will be the next Valuation Date.
NET CASH VALUE
Cash Value less outstanding loans and loan interest.
NET PREMIUM
The total premium paid reduced by premium expense charges.
OWNER
The owner named in the application for a Policy, unless changed.
PARTIAL SURRENDER
A withdrawal of a portion of the Account Value.
POLICY ANNIVERSARY
The same date each year as the Contract Date.
POLICY DATA PAGE
The Policy Data Page in your Policy, or the supplemental Policy Data
Page most recently sent to you by us.
POLICY YEAR
One year from the Contract Date and from each Policy Anniversary.
PORTFOLIO
A separate investment fund in which the Separate Account invests.
PROPER NOTICE
Notice that is received at our Home Office in a form acceptable to us.
REQUIRED PREMIUM FOR THE GUARANTEE PERIOD
The amount that must be paid on a cumulative basis to keep this Policy
in force during the Guarantee Period.
RISK AMOUNT
The Death Benefit divided by 1.00246627 less the Account Value.
SEPARATE ACCOUNT
AUL American Individual Variable Life Unit Trust. The Separate Account
is segregated into several Investment Accounts each of which invests in
a corresponding mutual fund portfolio.
VALUATION DATE
Valuation Dates are the dates on which the Investment Accounts are
valued. A Valuation Date is any date on which the New York Stock
Exchange is open for trading and we are open for business.
Traditionally, in addition to federal holidays, AUL is not open for
business on the day after Thanksgiving and either the day before or
after Christmas or Independence Day.
VALUATION PERIOD
A Valuation Period begins at the close of one Valuation Date and ends
at the close of the next succeeding Valuation Date.
VARIABLE ACCOUNT
The Account Value of this Policy which is invested in one or more
Investment Accounts.
WE
"We", "us" or "our" means AUL.
YOU
"You" or "your" means the Owner of this Policy.
4
<PAGE>
SUMMARY AND DIAGRAM OF THE POLICY
The investor should read the following summary of Prospectus information and
diagram of the Policy in conjunction with the detailed information appearing
elsewhere in this Prospectus. Unless otherwise indicated, the description of the
Policy in this Prospectus assumes that the Policy is in force, that the Last
Survivor Rider is not in force, and that there are no outstanding loans and loan
interest.
The Policy is similar in many ways to fixed-benefit life insurance. As with
fixed-benefit life insurance, typically the Owner of a Policy pays premium
payments for insurance coverage on the Insured. Also, like fixed-benefit life
insurance, the Policy provides for accumulation of Net Premiums and a Net Cash
Value that is payable if the Owner surrenders the Policy during the Insured's
lifetime. As with fixed-benefit life insurance, the Net Cash Value during the
early Policy Years is likely to be lower than the premium payments paid.
However, the Policy differs from fixed-benefit life insurance in several
important respects. Unlike fixed-benefit life insurance, the Death Benefit may
and the Account Value will increase or decrease to reflect the investment
performance of the Investment Accounts to which Account Value is allocated.
Also, there is no guaranteed minimum Net Cash Value. Nonetheless, AUL guarantees
to keep the Policy in force during the Guarantee Period shown on the Policy Data
Page of your Policy if, on each Monthiversary, the sum of the premiums paid to
date, less any Partial Surrenders, loans and loan interest, equals or exceeds
the Required Premium for the Guarantee Period (shown on the Policy Data Page of
your Policy) multiplied by the number of Policy Months since the Policy Date.
Otherwise, if the Net Cash Value is insufficient to pay the Monthly Deduction,
the Policy will lapse without value after a grace period. See "Premium Payments
to Prevent Lapse." If a Policy lapses while loans are outstanding, adverse tax
consequences may result. See "Tax Considerations."
The diagram on the following pages summarizes the most important features of the
Policy, such as charges, cash surrender benefits, Death Benefits, and
calculation of Cash Values.
Purpose of the Policy. AUL designed the Policy to provide long-term insurance
benefits; and, it may also provide long-term accumulation of Cash Value. You
should evaluate the Policy in conjunction with other insurance policies that you
own, as well as the need for insurance and the Policy's long-term potential for
growth. It may not be advantageous to replace existing insurance coverage with
this Policy. In particular, you should carefully consider replacement if the
decision to replace existing coverage is based solely on a comparison of Policy
illustrations. See "Illustrations" and "Specialized Uses of the Policy."
Illustrations. Illustrations included in this Prospectus or used in
connection with the purchase of a Policy that illustrate Policy Cash Values and
Death Benefit Proceeds for prototype insureds are based on hypothetical rates of
return.
The illustrations show Policy values based on current charges and,
alternatively, guaranteed charges. See "Illustrations of Account Values, Cash
Values, Death Benefits and Accumulated Premium Payments."
Policy Tax Compliance. AUL intends for the Policy to satisfy the definition of a
life insurance policy under Section 7702 of the Internal Revenue Internal
Revenue Code of 1986, as amended (the "Internal Revenue Code"). Under certain
circumstances, the Internal Revenue Code will treat a Policy as a Modified
Endowment. AUL will monitor the Policies and will attempt to notify you on a
timely basis if your Policy ceases to satisfy the federal tax definition of life
insurance or becomes a Modified Endowment. However, we do not undertake to give
you such notice or to take corrective action. We reserve the right to refund any
premiums that may cause the Policy to become a Modified Endowment. For further
discussion of the tax status of a Policy and the tax consequences of being
treated as a life insurance contract or a Modified Endowment, see "Tax
Considerations."
Right to Examine Policy and Policy Exchange. For a limited time, you have
the right to cancel your Policy and receive a refund. See "Right to Examine
Policy." AUL generally allocates Net Premiums to the Fixed Account and
Investment Accounts on the later of the day the "right to examine" period
expires, or the date we receive the premium at our Home Office. See "Premium
Allocations and Crediting."
You may exchange the Policy for a paid-up whole life policy with a level face
amount, not greater than the Policy's Face Amount, that can be purchased by the
Policy's Net Cash Value. See "Exchange for Paid-Up Policy."
Owner Inquiries. If you have any questions, you may write or call our Home
Office at One American Square, P.O. Box 7127, Indianapolis, Indiana 46206-7127,
1-800-863-9354.
5
<PAGE>
Diagram of Contract
Premium Payments
You select a payment plan but are not required to pay premium payments according
to the plan. You can vary the amount and frequency.
The Policy's minimum initial premium payment depends on the Insured's age, sex
and risk class, Initial Face Amount selected, any supplemental and/or rider
benefits, and any planned periodic premiums.
The Owner may make unplanned premium payments, within limits.
Extra premium payments may be necessary to prevent lapse.
Deductions from Premium Payments
For state and local premium taxes (2.5% of premium payments).
For sales charges (3.5% of each premium paid during the first ten Policy Years;
1.5% of each premium paid thereafter).
Net Premium Payments
You direct the allocation of Net Premium payments among 20 Investment Accounts
of the Separate Account and the Fixed Account (effective May 1, 1999, the
American Century VP Capital Appreciation Portfolio is not available for new
money deposits or transfers). (See rules and limits on Net Premium payment
allocations.)
Each Investment Account invests in a corresponding portfolio of a mutual fund:
<TABLE>
<S> <C>
Mutual Fund Portfolio
AUL American Series Fund, Inc. Equity Portfolio
Bond Portfolio
Managed Portfolio
Money Market Portfolio
Alger American Fund Alger American Growth Portfolio
American Century Variable Portfolios, Inc. American Century VP Capital Appreciation Portfolio
American Century VP Income & Growth Portfolio
American Century VP International Portfolio
Fidelity Variable Insurance Products Fund VIP Equity-Income Portfolio
VIP Growth Portfolio
VIP High Income Portfolio
VIP Money Market Portfolio
VIP Overseas Portfolio
Fidelity Variable Insurance Products Fund II VIP II Asset Manager Portfolio
VIP II Contrafund Portfolio
VIP II Index 500 Portfolio
Janus Aspen Series Janus Flexible Income Portfolio
Janus Worldwide Growth Portfolio
SAFECO Resource Series Trust RST Equity Portfolio
RST Growth Portfolio
T. Rowe Price Equity Series, Inc. T. Rowe Price Equity Income Portfolio
</TABLE>
Not all funds are available with all contracts.
AUL credits interest on amounts allocated to the Fixed Account at a minimum
guaranteed rate of 3%. (See rules and limits on transfers from the Fixed Account
allocations).
6
<PAGE>
Deductions
From Mutual Fund Portfolios
The Investment Advisors of the underlying mutual fund portfolios deduct
Management or Advisory fees and other operating expenses from the assets of each
of the individual mutual fund portfolios. These fees and expenses range from
.30% to 1.50% of the portfolios' net assets. These fees are not deducted under
the contract. They are reflected in the portfolios' net asset values.
From Account Value
Monthly deduction for cost of insurance, administration fees and charges for any
supplemental and/or rider benefits. Administration fees are currently $30.00 per
month for the first Policy Year and $5.00 per month thereafter.
From Investment Accounts
Monthly charge at a guaranteed annual rate of 0.75% from the Investment Accounts
during the first 10 Policy Years and 0.25% thereafter. This charge is not
deducted from the Fixed Account value.
Account Value
Account Value is equal to Net Premiums, as adjusted each Valuation Date to
reflect Investment Account investment experience, interest credited on Fixed
Account value, charges deducted and other Policy transactions (such as
transfers, loans and surrenders).
Varies from day to day. There is no minimum guaranteed Account Value. The Policy
may lapse if the Net Cash Value is insufficient to cover a Monthly Deduction
due.
Can be transferred among the Investment Account and Fixed Account. A transfer
fee of $25.00 may apply if more than 12 transfers are made in a Policy Year.
Is the starting point for calculating certain values under a Policy, such as the
Cash Value, Net Cash Value and the Death Benefit used to determine Death Benefit
Proceeds.
<TABLE>
<S> <C>
Cash Benefits Death Benefits
Loans may be taken for amounts up to 90% of the Income tax free to beneficiary.
Account Value, less loan interest due on the next
Policy Anniversary and any surrender charges. Available as lump sum or under a variety of
settlement options.
Partial Surrenders generally can be made provided
there is sufficient remaining Net Cash Value. For all policies, the minimum Face Amount of $50,000.
The policy may be surrendered in full at any time Two death benefit options available: Option 1, equal to
for its Net Cash Value. A surrender charge will the Face Amount, and Option 2, equal to the Face Amount
apply during the first fifteen Policy Years. plus Account Value.
Flexibility to change the death benefit option and
Settlement options are available. Face Amount.
Loans, Partial Surrenders, and Full Surrenders Any outstanding loan and loan interest is deducted
may have adverse tax consequences. from the amount payable.
Supplemental and/or rider benefits may be available.
</TABLE>
7
<PAGE>
GENERAL INFORMATION ABOUT AUL, THE SEPARATE ACCOUNT
AND THE FUNDS
AUL
The Policies are issued by AUL which is a mutual life insurance company
organized under the laws of the State of Indiana. It was originally incorporated
as a fraternal society in 1877 under the laws of the federal government, and
reincorporated under the laws of the State of Indiana in 1933. AUL is currently
licensed to transact life insurance business in 48 states and the District of
Columbia. AUL conducts a conventional life insurance, reinsurance, and annuity
business. At December 31, 1998, AUL had admitted assets of $9,336,325,097 and a
policy owners' surplus of $734,099,854.
AUL is subject to regulation by the Department of Insurance of the State of
Indiana as well as by the insurance departments of all other states and
jurisdictions in which it does business. We submit annual statements on our
operations and finances to insurance officials in such states and jurisdictions.
The forms for the Policy described in this Prospectus are filed with and (where
required) approved by insurance officials in each state and jurisdiction in
which Policies are sold. State specific policy forms may reflect some variances
in the provisions outlined in this prospectus.
Separate Account
The Separate Account was established as a segregated investment account under
Indiana law on July 10, 1997. It is used to support the Policies and may be used
to support other variable life insurance contracts, and for other purposes
permitted by law. The Separate Account is registered with the Securities and
Exchange Commission ("SEC") as a unit investment trust under the Investment
Company Act of 1940 (the "1940 Act"). AUL has established other segregated
investment accounts, some of which also are registered with the SEC.
The Separate Account is divided into Investment Accounts. The Investment
Accounts available under the Policies invest in shares of Portfolios of the
Funds. The Separate Account may include other Investment Accounts that are not
available under the Policies and are not otherwise discussed in this Prospectus.
The assets in the Separate Account are owned by AUL.
Income, gains and losses, realized or unrealized, of an Investment Account are
credited to or charged against the Investment Account without regard to any
other income, gains or losses of AUL. Applicable insurance law provides that
assets equal to the reserves and other contract liabilities of the Separate
Account are not chargeable with liabilities arising out of any other business of
AUL. AUL is obligated to pay all benefits provided under the Policies.
The Funds
Each Fund is registered with the SEC as a diversified, open-end management
investment company under the 1940 Act, although the SEC does not supervise their
management or investment practices and policies. Each of the Funds comprises one
or more of the Portfolios and other series that may not be available under the
Policies. The investment objectives of each of the Portfolios is described
below.
AUL AMERICAN SERIES FUND, INC.
AUL AMERICAN EQUITY PORTFOLIO
The primary investment objective of the AUL American Equity Portfolio is
long-term capital appreciation. The Fund seeks current investment income as a
secondary objective. The Fund attempts to achieve these objectives by investing
primarily in equity securities selected on the basis of fundamental investment
research for their long-term growth prospects.
AUL AMERICAN BOND PORTFOLIO
The primary investment objective of the AUL American Bond Portfolio is to
provide a high level of income consistent with prudent investment risk. As a
secondary objective, the Fund seeks to provide capital appreciation to the
extent consistent with the primary objective. The Fund attempts to achieve these
objectives by investing primarily in corporate bonds and other debt securities.
AUL AMERICAN MANAGED PORTFOLIO
The investment objective of the AUL American Managed Portfolio is to
provide a high total return consistent with prudent investment risk. The Fund
attempts to achieve this objective through a fully managed investment policy
utilizing publicly traded common stock, debt securities (including convertible
debentures), and money market securities.
AUL AMERICAN MONEY MARKET PORTFOLIO
The investment objective of the AUL American Money Market Portfolio is to
provide a high level of current income while preserving assets and maintaining
liquidity and investment quality. The Fund attempts to achieve this objective by
investing in short-term money market instruments that are of the highest
quality.
FOR ADDITIONAL INFORMATION CONCERNING AUL AMERICAN SERIES FUND, INC. AND ITS
PORTFOLIOS, PLEASE SEE THE AUL AMERICAN SERIES FUND, INC. PROSPECTUS, WHICH
SHOULD BE READ CAREFULLY BEFORE INVESTING.
ALGER AMERICAN FUND
ALGER AMERICAN GROWTH PORTFOLIO
The Alger American Growth Portfolio is a growth portfolio that seeks to
obtain long-term capital appreciation by investing in a diversified, actively
managed portfolio of equity securities. Except during temporary defensive
periods, the Portfolio invests at least 65% of its total assets in equity
securities of companies that, at the time of purchase, have a total market
capitalization of one billion dollars or greater.
FOR ADDITIONAL INFORMATION CONCERNING THE ALGER AMERICAN FUND AND ITS PORTFOLIO,
PLEASE SEE THE ALGER AMERICAN FUND PROSPECTUS, WHICH SHOULD BE READ CAREFULLY
BEFORE INVESTING.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
AMERICAN CENTURY VP CAPITAL APPRECIATION
The VP Capital Appreciation Portfolio seeks capital growth by investing
primarily in common stocks (including securities convertible into common stocks
and other equity equivalents) and other securities that meet certain fundamental
and technical standards of selection and have, in the opinion of the Fund's
investment manager, better than average potential for appreciation. The Fund
tries to stay fully invested in such securities, regardless of the movement of
prices generally.
NOTE: Effective May 1, 1999, the American Century VP Capital Appreciation
Portfolio is no longer available for new contracts. Effective July 1, 1999, the
American Century VP Capital Appreciation Portfolio is no longer available for
new money deposits and transfers on existing contracts.
AMERICAN CENTURY VP INCOME & GROWTH
The American Century VP Income & Growth Portfolio seeks dividend growth,
current income and capital appreciation by investing in a diversified portfolio
of U.S. stocks. The fund employs a quantitative management approach with the
goal of producing a total return that exceeds its benchmark, the S&P 500. The
fund's management team also targets a dividend yield that is 30% higher than the
yield of the S&P 500. The fund invests mainly in large-company stocks, such as
those in the S&P 500, but it also may invest in the stocks of small- and
medium-sized companies. The management team strives to outperform the S&P 500
over time while matching the risk characteristics of the index.
AMERICAN CENTURY VP INTERNATIONAL
The American Century VP International Portfolio seeks to achieve its
investment objective of capital growth by investing primarily in securities of
foreign companies that meet certain fundamental and technical standards of
selection and have, in the opinion of the investment manager, potential for
appreciation. The Fund will invest primarily in common stocks (defined to
include depository receipts for common stocks and other equity equivalents) of
companies located in developed markets. Investment in securities of foreign
issuers typically involves greater risks than investment in domestic securities,
including currency fluctuations and political instability.
FOR ADDITIONAL INFORMATION CONCERNING AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
AND ITS PORTFOLIOS, PLEASE SEE THE AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
PROSPECTUS, WHICH SHOULD BE READ CAREFULLY BEFORE INVESTING.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
VIP EQUITY-INCOME PORTFOLIO
The VIP Equity-Income Portfolio seeks reasonable income. The fund will also
consider the potential for capital appreciation. The fund seeks a yield which
exceeds the composite yield on the securities comprising the S&P 500. The
Adviser normally invests at least 65% of the fund's total assets in
income-producing equity securities. The Adviser may also invest the fund's
assets in other types of equity securities and debt securities, including
lower-quality debt securities. The Adviser may also invest in securities of
foreign issuers in addition to securities of domestic issuers.
VIP GROWTH PORTFOLIO
The VIP Growth Portfolio seeks capital appreciation. The Adviser normally
invests the fund's assets primarily in common stocks. The Adviser invests the
fund's assets in companies that it believes have above-average growth potential.
Growth may be measured by factors such as earnings or revenue. The Adviser may
invest the fund's assets in securities of foreign issuers in addition to
securities of domestic issuers.
VIP HIGH INCOME PORTFOLIO
The VIP High Income Portfolio seeks to obtain a high level of current
income while also considering growth of capital. The Adviser normally invests at
least 65% of the fund's total assets in income-producing debt securities,
preferred stocks and convertible securities, with an emphasis on lower-quality
debt securities. Many lower-quality debt securities are subject to legal or
contractual restrictions limiting the Adviser's ability to resell the securities
to the general public. The Adviser may also invest the fund's assets in
non-income producing securities, including defaulted securities and common
stocks. The Adviser intends to limit common stocks to 10% of the fund's total
assets. The Adviser may invest in companies whose financial condition is
troubled or uncertain and that may be involved in bankruptcy proceedings,
reorganization or financial restructurings.
VIP MONEY MARKET PORTFOLIO
The VIP Money Market Porfolio seeks as high a level of current income as is
consistent with the preservation of capital and liquidity. The Adviser invests
the fund's assets in U.S. dollar-denominated money market securities of domestic
and foreign issuers, including U.S. Government securities and repurchase
agreements. The Adviser also may enter into reverse repurchase agreements for
the Fund.
VIP OVERSEAS PORTFOLIO
The VIP Overseas Portfolio seeks long-term growth of capital. The Adviser
normally invests at least 65% of the fund's total assets in foreign securities.
The Adviser normally invests the fund's assets primarily in stocks. The adviser
normally diversifies the fund's investments across different countries and
regions. In allocating the fund's investments across countries and regions, the
Adviser will consider the size of the market in each country and region relative
to the size of the international market as a whole.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
VIP II ASSET MANAGER PORTFOLIO
The VIP II Asset Manager Portfolio seeks high total return with reduced
risk over the long-term by allocating its assets among domestic and foreign
stocks, bonds and short-term instruments. The Adviser allocates the fund's
assets among the following classes, or types, of investments. The stock class
includes equity securities of all types. The bond class includes all varieties
of fixed-income securities, including lower-quality debt securities, maturing in
more than one year. The short-term/money market class includes all types of
short-term and money market instruments.
VIP II CONTRAFUND
The VIP II Contrafund Portfolio seeks long-term capital appreciation. The
Adviser normally invests the fund's assets primarily in common stocks. The
Adviser invests the fund's assets in securities of companies whose value the
Adviser believes is not fully recognized by the public. The types of companies
in which the fund may invest include companies experiencing positive fundamental
change such as a new management team or product launch, a significant
cost-cutting initiative, a merger or acquisition, or a reduction in industry
capacity that should lead to improved pricing; companies whose earnings
potential has increased or is expected to increase more than generally
perceived; companies that have enjoyed recent market popularity but which appear
to have temporarily fallen out of favor for reasons that are considered
non-recurring or short-term; and companies that are undervalued in relation to
securities of other companies in the same industry.
VIP II INDEX 500 PORTFOLIO
The VIP II Index 500 Portfolio seeks investment results that correspond to
the total return of common stocks publicly traded in the United States, as
represented by the S&P 500. The Adviser's principal investment strategies
include investing at least 80% of assets in common stocks included in the S&P
500 and lending securities to earn income for the fund.
14
<PAGE>
FOR ADDITIONAL INFORMATION CONCERNING FIDELITY'S VARIABLE INSURANCE PRODUCTS
FUND ("VIP") AND VARIABLE INSURANCE PRODUCTS FUND II ("VIP II") AND THEIR
PORTFOLIOS, PLEASE SEE THE VIP AND VIP II PROSPECTUS, WHICH SHOULD BE READ
CAREFULLY BEFORE INVESTING.
JANUS ASPEN SERIES
FLEXIBLE INCOME PORTFOLIO
The Flexible Income Portfolio is a diversified portfolio that seeks to
maximize total return from a combination of income and capital appreciation by
investing primarily in income-producing securities. This Portfolio may have
substantial holdings of lower rated debt securities or "junk" bonds.
WORLDWIDE GROWTH PORTFOLIO
The Worldwide Growth Portfolio is a diversified portfolio that seeks
long-term growth of capital by investing primarily in common stocks of foreign
and domestic issuers.
FOR ADDITIONAL INFORMATION CONCERNING JANUS ASPEN SERIES FUND AND ITS
PORTFOLIOS, PLEASE SEE THE JANUS ASPEN SERIES FUND PROSPECTUS, WHICH SHOULD BE
READ CAREFULLY BEFORE INVESTING
SAFECO RESOURCE SERIES TRUST
RST EQUITY PORTFOLIO
The RST Equity Portfolio has as its investment objective to seek long-term
capital and reasonable current income. The Equity Portfolio ordinarily invests
principally in common stocks selected for long-term appreciation and/or dividend
potential.
RST GROWTH PORTFOLIO
The RST Growth Portfolio has as its investment objective to seek growth of
capital and the increased income that ordinarily follows from such growth. The
Growth Portfolio ordinarily invests a preponderance of its assets in common
stocks selected for potential appreciation.
FOR ADDITIONAL INFORMATION CONCERNING SAFECO RESOURCE SERIES TRUST AND ITS
PORTFOLIOS, PLEASE SEE THE SAFECO RESOURCE SERIES TRUST PROSPECTUS, WHICH SHOULD
BE READ CAREFULLY BEFORE INVESTING.
T. ROWE PRICE EQUITY SERIES, INC.
T. ROWE PRICE EQUITY INCOME PORTFOLIO
The T. Rowe Price Equity Income Portfolio seeks to provide substantial
dividend income as well as long-term capital appreciation through investments in
common stocks of established companies.
FOR ADDITIONAL INFORMATION CONCERNING T. ROWE PRICE EQUITY SERIES, INC. AND ITS
PORTFOLIO, PLEASE SEE THE T. ROWE PRICE EQUITY SERIES, INC. PROSPECTUS, WHICH
SHOULD BE READ CAREFULLY BEFORE INVESTING.
THERE IS NO ASSURANCE THAT THE STATED OBJECTIVES AND POLICIES OF ANY OF THE
FUNDS WILL BE ACHIEVED.
9
<PAGE>
FUND EXPENSE TABLE
The purpose of the following table is to assist investors in understanding the
various costs and expenses that Owners bear indirectly. The table reflects
expenses of the Funds for the fiscal year ended December 31, 1998. Expenses of
the Funds as shown under "Fund Annual Expenses" are not fixed or specified under
the terms of the Policy and may vary from year to year. The fees in this expense
table have been provided by the Funds and have not been independently verified
by AUL. The information contained in the table is not generally applicable to
amounts allocated to the Fixed Account or to payments under Settlement Option.
Fund Annual Expenses (as a percentage of net assets of each Fund)
<TABLE>
<S> <C> <C> <C>
Management/ Total Fund
Portfolio Advisory Fee Other Expenses Annual Expenses
AUL American Series Fund, In.
American Equity Portfolio 0.50%(1) 0.12% 0.62%
American Bond Portfolio 0.50%(1) 0.12% 0.62%
American Managed Portfolio 0.50%(1) 0.12% 0.62%
American Money Market Portfolio 0.40%(1) 0.11% 0.51%
Alger American Fund
Alger American Growth Portfolio 0.75% 0.04% 0.79%
American Century Variable Portfolios, Inc.
American Century VP Capital Appreciation Portfolio 1.00% 0.00% 1.00%(2)
American Century VP Income & Growth 0.70% 0.00% 0.70%
American Century VP International Portfolio 1.50% 0.00% 1.50%(2)
Fidelity Variable Insurance Products Fund
VIP Equity-Income Portfolio 0.49% 0.09% 0.58%(3)
VIP Growth Portfolio 0.59% 0.09% 0.68%(3)
VIP High Income Portfolio 0.58% 0.12% 0.70%
VIP Money Market Portfolio 0.20% 0.10% 0.30%
VIP Overseas Portfolio 0.74% 0.17% 0.91%(3)
Fidelity Variable Insurance Products Fund II
VIP II Asset Manager Portfolio 0.54% 0.10% 0.64%(3)
VIP II Contrafund Portfolio 0.59% 0.11% 0.70%(3)
VIP II Index 500 Portfolio 0.24% 0.11% 0.35%(3)
Janus Aspen Series
Flexible Income Portfolio 0.65% 0.08% 0.73%(4)
Worldwide Growth Portfolio 0.65% 0.07% 0.72%(4)
SAFECO Resource Series Trust
RST Equity 0.74% 0.04% 0.78%
RST Growth 0.74% 0.06% 0.80%
T. Rowe Price Equity Series, Inc.
T. Rowe Price Equity Income Portfolio 0.85% 0.00% 0.85%(5)
<FN>
(1)AUL has currently agreed to waive its advisory fee if the ordinary
expenses of a Portfolio exceed 1% and, to the extent necessary, assume any
expenses in excess of its advisory fee so that the expenses of each Portfolio,
including the advisory fee but excluding extraordinary expenses, will not exceed
1% of the Portfolio's average daily net asset value per year. The Adviser may
terminate the policy of reducing its fee and/or assuming Fund expenses upon 30
days written notice to the Fund and such policy will be terminated automatically
by the termination of the Investment Advisory Agreement.
(2)American Century VP International fees are 1.50% on the first
$250,000,000 of average net assets; 1.20% on the next $250,000,000 of average
net assets; and, 1.10% thereafter. American Century VP Capital Appreciation fees
are 1.00% on the first $500,000,000 of net assets; 0.95% on the next
$500,000,000; and, 0.90% thereafter.
(3) A portion of the brokerage commissions that certain funds pay was used
to reduce fund expenses. In addition, certain funds, or FMR on behalf of certain
funds, have entered into arrangements with their custodian whereby credits
realized as a result of uninvested cash balances were used to reduce custodian
expenses. Including these reductions, the total operating expenses, after
reimbursement for Index 500 Portfolio, presented in the table would have been:
Equity-Income Portfolio .57%; Growth Portfolio .66%; Overseas Portfolio .89%;
Asset Manager Portfolio .63%; Index 500 Portfolio .28%; and, Contrafund
Portfolio .66%.
(4) All expenses are stated with contractual waivers and fee reductions by
Janus Capital. Fee reductions for the Worldwide Growth reduce the Management Fee
to the level of the corresponding Janus retail fund. Other waivers, if
applicable, are first applied against the Management Fee and then against Other
Expenses. Janus Capital has agreed to continue the other waivers and fee
reductions until at least the next annual renewal of the advisory agreement.
(5) This is an annual all-inclusive fee paid to the advisor.
</FN>
</TABLE>
More detailed information concerning the investment objectives, policies, and
restrictions pertaining to the Funds and Portfolios and their expenses,
investment advisory services and charges and the risks involved with investing
in the Portfolios and other aspects of their operations can be found in the
current prospectus for each Fund or Portfolio and the current Statement of
Additional Information for each Fund or Portfolio. The prospectuses for the
Funds or Portfolios should be read carefully before any decision is made
concerning the allocation of Net Premium payments or transfers among the
Investment Accounts.
AUL has entered into agreements with the Distributors/Advisers of Alger
Management, Inc., American Century Variable Portfolios, Inc., Fidelity
Investments, Janus Capital Corporation, SAFECO Asset Management Company, and T.
Rowe Price Equity Series, Inc., under which AUL has agreed to render certain
services and to provide information about these Funds to Owners who invest in
these Funds. Under these agreements and for providing these services, AUL
receives compensation from the Distributor/Advisor of these Funds ranging from
zero basis points until a certain level of Fund assets have been purchased to 25
basis points on the net average aggregate deposits made.
AUL cannot guarantee that each Fund or Portfolio will always be available for
the Policies; but, in the event that a Fund or Portfolio is not available, AUL
will take reasonable steps to secure the availability of a comparable fund.
Shares of each Portfolio are purchased and redeemed at net asset value, without
a sales charge.
10
<PAGE>
PREMIUM PAYMENTS AND ALLOCATIONS
Applying for a Policy
AUL requires satisfactory evidence of the proposed Insured's insurability, which
may include a medical examination of the proposed Insured. The available Issue
Ages are 0 through 85 on a standard basis, and 20 through 85 on a preferred
non-tobacco user and tobacco user basis. Issue Age is determined based on the
Insured's age as of the Contract Date. Acceptance of an application depends on
AUL's underwriting rules, and AUL reserves the right to reject an application.
Coverage under the Policy is effective as of the later of the date the initial
premium is paid or the Issue Date.
As the Owner of the Policy, you may exercise all rights provided under the
Policy while the Insured is living, subject to the interests of any assignee or
irrevocable beneficiary. The Insured is the Owner, unless a different Owner is
named in the application. In accordance with the terms of the Policy, the Owner
may in the application or by Proper Notice name a contingent Owner or a new
Owner while the Insured is living. The Policy may be jointly owned by more than
one Owner. The consent of all joint Owners is required for all transactions
except when proper forms have been executed to allow one Owner to make changes.
Unless a contingent Owner has been named, on the death of the last surviving
Owner, ownership of the Policy passes to the estate of the last surviving Owner,
which then will become the Owner. A change in Owner may have tax consequences.
See "Tax Considerations."
Right to Examine Policy
You may cancel your Policy for a refund during your "right to examine" period.
This period expires 10 days after you receive your Policy (or a longer period if
required by law). We assume you receive your Policy within 5 days after the
Issue Date. If you decide to cancel the Policy, you must return it by mail or
other delivery method to the Home Office or to the authorized AUL representative
who sold it. Immediately after mailing or delivery of the Policy to AUL, the
Policy will be deemed void from the beginning. Within seven calendar days after
AUL receives the returned Policy, AUL will refund the greater of premiums paid
or the Account Value.
Premiums
The minimum initial premium payment required depends on a number of factors,
such as the Age, sex and risk class of the proposed Insured, the initial Face
Amount, any supplemental and/or rider benefits and the planned premium payments
you propose to make. Consult your AUL representative for information about the
initial premium required for the coverage you desire.
The initial premium is due on or before delivery of the Policy. There will be no
coverage until this premium is paid or until the Issue Date, whichever is later.
You may make other premium payments at any time and in any amount, subject to
the limits described in this section. The actual amount of premium payments will
affect the Account Value and the period of time the Policy remains in force.
Premium payments after the initial payment must be made to our Home Office. Each
payment must be at least equal to the minimum payment shown on the Policy Data
Page in your Policy. All premiums combined may not be more than $1,000,000,
unless a higher amount is agreed to by us.
The planned premium is the amount for which we will bill you or, in the case of
our automatic premium plan (which deducts the planned premium from your checking
account), the amount for which we will charge your account. The amount and
frequency of the planned premium are shown on the Policy Data Page in your
Policy. You may change the amount and the frequency of the planned premium by
Proper Notice. We reserve the right to change the planned premium to comply with
our rules for billing amount and frequency.
Unless otherwise indicated, premiums received in excess of planned premium will
be applied first to any loan interest due; next, to any outstanding loan
balance; and last, as additional premium.
If the payment of any premium would cause an increase in Risk Amount because of
the Minimum Insurance Percentage, we may require satisfactory evidence of
insurability before accepting it. If we accept the premium, we will allocate the
Net Premium to your Account Value on the date of our acceptance. If we do not
accept the premium, we will refund it to you.
If the payment of any premium would cause this Policy to fail to meet the
federal tax definition of a life insurance contract in accordance with the
Internal Revenue Code, we reserve the right to refund the amount to you with
interest no later than 60 days after the end of the Policy Year when we receive
the premium, but we assume no obligation to do so.
If the payment of any premium would cause the Policy to become a Modified
Endowment, we will attempt to so notify you upon allocating the premium, but we
assume no obligation to do so. In the event that we notify you, consistent with
the terms of the notice you may choose whether you want the premium refunded to
you. We reserve the right to refund any premiums that cause the Policy to become
a Modified Endowment. Upon request, we will refund the premium, with interest,
to you no later than 60 days after the end of the Policy Year in which we
receive the premium.
Planned Premiums. When applying for a Policy, you may select a plan for
paying level premium payments semi-annually or annually. If you elect, AUL will
also arrange for payment of planned premiums on a monthly basis under a
pre-authorized payment arrangement. You are not required to pay premium payments
in accordance with these plans; rather, you can pay more or less than planned,
or skip a planned premium entirely. (See, however, "Premium Payments to Prevent
Lapse" and "Guarantee Period and Required Premium for the Guarantee Period."
Each premium after the initial premium must be at least $50. AUL may increase
this minimum 90 days after we send you a written notice of such increase.
Subject to the limits described above, you can change the amount and frequency
of planned premiums whenever you want by sending Proper Notice to the Home
Office. However AUL reserves the right to limit the amount of a premium payment
or the total premium payments paid.
Premium Payments to Prevent Lapse
Failure to pay planned premiums will not necessarily cause a
11
<PAGE>
Policy to lapse. Conversely, paying all planned premiums will not guarantee that
a Policy will not lapse. The conditions that will result in your Policy lapsing
will vary depending on whether a Guarantee Period is in effect, as follows:
Grace Period. The Policy goes into default at the start of the grace
period, which is a period to make a premium payment sufficient to prevent lapse.
A Grace Period starts if the Net Cash Value on a Monthiversary will not cover
the Monthly Deduction. AUL will send notice of the grace period and the amount
required to be paid during the grace period to your last known address. The
grace period shall terminate as of the date indicated in the notice, which shall
comply with any applicable state law. Your Policy will remain in force during
the grace period. If the Insured should die during the grace period, the Death
Benefit proceeds will still be payable to the beneficiary, although the amount
paid will be equal to the Death Benefit immediately prior to the start of the
grace period, plus any benefits provided by rider, and less any outstanding loan
and loan interest and overdue Monthly Deductions and mortality and expense risk
charges as of the date of death. See "Amount of Death Benefit Proceeds." If the
grace period premium payment has not been paid before the grace period ends,
your Policy will lapse. It will have no value, and no benefits will be payable.
See "Reinstatement."
A grace period also may begin if any outstanding loan and loan interest becomes
excessive. See "Policy Loans."
Guarantee Period and Required Premium for the Guarantee Period. The
Guarantee Period is the period shown in the Policy during which the Policy will
remain in force and will not begin the grace period, if on each Monthiversary,
the sum of the premiums paid to date, less any Partial Surrenders, loans and
loan interest, equals or exceeds the Required Premium for the Guarantee Period
multiplied by the number of Policy Months since the Contract Date. If this test
fails on any Monthiversary, the continuation of insurance guarantee terminates.
The guarantee will not be reinstated.
The Required Premium for the Guarantee Period is shown on the Policy Data Page.
If you make changes to the Policy after issue, the Required Premium for
subsequent months may change. We will send you notice of the new Required
Premium. The Required Premium per $1,000 factors for the Face Amount vary by
risk class, Issue Age, and sex. Additional premiums for substandard ratings and
rider benefits are included in the Required Premium.
After the Guarantee Period. A grace period starts if the Net Cash Value
on a Monthiversary will not cover the Monthly Deduction. A premium sufficient to
keep the Contract in force must be submitted during the grace period.
Premium Allocations and Crediting
In the Policy application, you specify the percentage of a Net Premium to be
allocated to the Investment Accounts and to the Fixed Account. The sum of your
allocations must equal 100%, with at least 1% of the Net Premium payment
allocated to each account selected by you. All Net Premium allocations must be
in whole percentages. AUL reserves the right to limit the number of Investment
Accounts to which premiums may be allocated. You can change the allocation
percentages at any time, subject to these rules, by sending Proper Notice to the
Home Office, or by telephone if written authorization is on file with us. The
change will apply to the premium payments received with or after receipt of your
notice.
The initial Net Premium generally is allocated to the Fixed Account and the
Investment Accounts in accordance with your allocation instructions on the later
of the day the "right to examine" period expires, or the date we receive the
premium at our Home Office. Subsequent Net Premiums are allocated as of the end
of the Valuation Period during which we receive the premium at our Home Office.
We generally allocate all Net Premiums received prior to the Issue Date to our
general account prior to the end of the "right to examine" period. We will
credit interest daily on Net Premiums so allocated. However, we reserve the
right to allocate Net Premiums to the Fixed Account and the Investment Accounts
of the Separate Account in accordance with your allocation instructions prior to
the expiration of the "right to examine" period. If you exercise your right to
examine the Policy and cancel it by returning it to us, we will refund to you
the greater of any premiums paid or the Account Value. At the end of the "right
to examine" period, we transfer the Net Premium and interest to the Fixed
Account and the Investment Accounts of the Separate Account based on the
percentages you have selected in the application. For purposes of determining
the end of the "right to examine" period, solely as it applies to this transfer,
we assume that receipt of this Policy occurs 5 days after the Issue Date.
Premium payments requiring satisfactory evidence of insurability will not be
credited to the Policy until underwriting has been completed and the premium
payment has been accepted. If the additional premium payment is rejected, AUL
will return the premium payment immediately, without any adjustment for
investment experience.
Transfer Privilege
You may transfer amounts between the Fixed Account and Investment Accounts or
among Investment Accounts at any time after the "right to examine" period.
There currently is no minimum transfer amount, although we reserve the right to
require a $100 minimum transfer. You must transfer the minimum amount, or, if
less, the entire amount in the account from which you are transferring each time
a transfer is made. If after the transfer the amount remaining in any account is
less than $25, we have the right to transfer the entire amount. Any applicable
transfer charge will be assessed. The charge will be deducted from the
account(s) from which the transfer is made on a prorata basis.
Transfers are made such that the Account Value on the date of transfer will not
be affected by the transfer, except for the deduction of any transfer charge.
Currently, all transfers are free. On a guaranteed basis, we reserve the right
to limit the number of transfers to 12 per year, or to restrict transfers from
being made on consecutive Valuation Dates.
If we determine that the transfers made by or on behalf of one or more Owners
are to the disadvantage of other Owners, we may restrict the rights of certain
Owners. We also reserve the right to limit the size of transfers and remaining
balances, to limit the number and frequency of transfers, and to discontinue
telephone transfers.
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<PAGE>
The first 12 transfers during each Policy Year are free. Any unused free
transfers do not carry over to the next Policy Year. We reserve the right to
assess a $25 charge for the thirteenth and each subsequent transfer during a
Policy Year. For the purpose of assessing the charge, each request (or telephone
request described below) is considered to be one transfer, regardless of the
number of Investment Accounts or the Fixed Account affected by the transfer. The
charge will be deducted from the Investment Account(s) from which the transfers
are made.
Unless AUL restricts the right of an Owner to transfer funds as stated above,
there is no limit on the number of transfers that can be made between Investment
Accounts or to the Fixed Account. There is a limit on the amount transferred
from the Fixed Account each Policy Year. See "Transfers from Fixed Account" for
restrictions.
Telephone Transfers. Telephone transfers will be based upon
instructions given by telephone, provided the appropriate election has been made
at the time of application or proper authorization has been provided to us. We
reserve the right to suspend telephone transfer privileges at any time, for any
reason, if we deem such suspension to be in the best interests of Owners.
We will employ reasonable procedures to confirm that instructions communicated
by telephone are genuine, and if we follow those procedures, we will not be
liable for any losses due to unauthorized or fraudulent instructions. We may be
liable for such losses if we do not follow those reasonable procedures. The
procedures we will follow for telephone transfers include requiring some form of
personal identification prior to acting on instructions received by telephone,
providing written confirmation of the transaction, and making a tape recording
of the instructions given by telephone.
Dollar Cost Averaging Program
The Dollar Cost Averaging Program, if elected, enables you to transfer
systematically and automatically, on a monthly basis, specified dollar amounts
from the AUL American Money Market Investment Account to other Investment
Accounts. By allocating on a regularly scheduled basis, as opposed to allocating
the total amount at one particular time, you may be less susceptible to the
impact of market fluctuations. However, participation in the Dollar Cost
Averaging Program does not assure a Contract Owner of greater profits from the
purchases under the Program, nor will it prevent or necessarily alleviate losses
in a declining market.
You specify the fixed dollar amount to be transferred automatically from the AUL
American Money Market Investment Account. At the time that you elect the Dollar
Cost Averaging Program, the Account Value in the AUL American Money Market
account from which transfers will be made must be at least $2,000.
You may elect this Program at the time of application by completing the
authorization on the application or at any time after the Policy is issued by
properly completing and returning the election form. Transfers made under the
Dollar Cost Averaging Program will commence on the Monthiversary on or next
following the election.
Once elected, transfers from the AUL American Money Market Investment Account
will be processed until the value of the Investment Account is completely
depleted, or you send us Proper Notice instructing us to cancel the transfers.
Currently, transfers made under the Dollar Cost Averaging Program will not be
subject to any transfer charge and will not count against the number of free
transfers permitted in a Policy Year. We reserve the right to impose a $25
transfer charge for each transfer effected under a Dollar Cost Averaging
Program. We also reserve the right to alter the terms or suspend or eliminate
the availability of the Dollar Cost Averaging Program at any time.
Portfolio Rebalancing Program
You may elect to have the accumulated balance of each Investment Account
redistributed to equal a specified percentage of the Variable Account. This will
be done on a quarterly or annual basis from the Monthiversary on which the
Portfolio Rebalancing Program commences. If elected, this plan automatically
adjusts your Portfolio mix to be consistent with the allocation most recently
requested. The redistribution will not count toward the 12 free transfers
permitted each Policy Year. If the Dollar Cost Averaging Program has been
elected, the Portfolio Rebalancing Program will not commence until the
Monthiversary following the termination of the Dollar Cost Averaging Program.
You may elect this plan at the time of application by completing the
authorization on the application or at any time after the Policy is issued by
properly completing the election form and returning it to us. Portfolio
rebalancing will terminate when you request any transfer or the day we receive
Proper Notice instructing us to cancel the Portfolio Rebalancing Program. We do
not currently charge for this program. We reserve the right to alter the terms
or suspend or eliminate the availability of portfolio rebalancing at any time.
FIXED ACCOUNT
Because of exemptive and exclusionary provisions, interests in the Fixed Account
have not been registered under the Securities Act of 1933, nor has the Fixed
Account been registered as an investment company under the 1940 Act.
Accordingly, neither the Fixed Account nor any interests therein are subject to
the provisions of these Acts and, as a result, the staff of the SEC has not
reviewed the disclosure in this Prospectus relating to the Fixed Account. The
disclosure regarding the Fixed Account, may, however, be subject to certain
generally applicable provisions of the federal securities laws relating to the
accuracy and completeness of statements made in prospectuses.
You may allocate some or all of the Net Premiums and transfer some or all of the
Variable Account value to the Fixed Account, which is part of our general
account and pays interest at declared rates (subject to a minimum
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<PAGE>
interest rate we guarantee to be 3%). Our general account supports our insurance
and annuity obligations.
The portion of the Account Value allocated to the Fixed Account will be credited
with rates of interest, as described below. Since the Fixed Account is part of
our general account, we benefit from investment gain and assume the risk of
investment loss on this amount. All assets in the general account are subject to
our general liabilities from business operations.
Minimum Guaranteed and Current Interest Rates
The Account Value in the Fixed Account earns interest at one or more interest
rates determined by AUL at its discretion and declared in advance ("Current
Rate"), which are guaranteed by AUL to be at least an annual effective rate of
3% ("Guaranteed Rate"). AUL will determine a Current Rate from time to time and,
generally, any Current Rate that exceeds the Guaranteed Rate will be effective
for the Policies for a period of at least one year. We reserve the right to
change the method of crediting from time to time, provided that such changes do
not have the effect of reducing the guaranteed rate of interest. AUL bears the
investment risk for Owner's Fixed Account values and for paying interest at the
Current Rate on amounts allocated to the Fixed Account.
Calculation of the Fixed Account Value
Fixed Account value at any time is equal to amounts allocated or transferred to
the Fixed Account, plus interest credited minus amounts deducted, transferred,
or surrendered from the Fixed Account.
Transfers from the Fixed Account
The amount transferred from the Fixed Account in any Policy Year may not exceed
20% of the amount in the Fixed Account at the beginning of the Policy Year, less
any Partial Surrenders made from the Fixed Account since that date, unless the
balance after the transfer is less than $25, in which case we reserve the right
to transfer the entire amount.
Payment Deferral
We reserve the right to defer payment of any surrender, Partial Surrender, or
transfer from the Fixed Account for up to six months from the date of receipt of
the Proper Notice for the partial or full surrender or transfer. In this case,
interest on Fixed Account assets will continue to accrue at the then-current
rates of interest.
CHARGES AND DEDUCTIONS
Premium Expense Charges
Premium Tax Charge. A 2.5% charge for state and local premium taxes and
related administrative expenses is deducted from each premium payment. The state
and local premium tax charge reimburses AUL for premium taxes and related
administrative expenses associated with the Policies. AUL expects to pay an
average state and local premium tax rate (including related administrative
expenses) of approximately 2.5% of premium payments for all states, although
such tax rates range from 0% to 4%. This charge may be more or less than the
amount actually assessed by the state in which a particular Owner lives.
Sales Charge. AUL deducts a sales charge from each premium payment. The
sales charge is 3.5% of each premium paid during the first 10 Policy Years, and
1.5% of each premium paid thereafter.
Monthly Deduction
AUL will deduct Monthly Deductions on the Contract Date and on each
Monthiversary. Monthly Deductions due on the Contract Date and any
Monthiversaries prior to the Issue Date are deducted on the Issue Date. Your
Contract Date is the date used to determine your Monthiversary. The Monthly
Deduction consists of (1) cost of insurance charge, (2) monthly administrative
charge, and (3) any charges for rider benefits, as described below. The Monthly
Deduction is deducted from the Variable Account (and each Investment Account)
and Fixed Account prorata on the basis of the portion of Account Value in each
account.
Cost of Insurance Charge. This charge compensates AUL for the expense
of providing insurance coverage. The charge depends on a number of variables and
therefore will vary between Policies and from Monthiversary to Monthiversary.
The Policy contains guaranteed cost of insurance rates that may not be
increased. The guaranteed rates are no greater than the 1980 Commissioners
Standard Ordinary Non-Smoker and Smoker Mortality Tables (the "1980 CSO Tables")
(and where unisex cost of insurance rates apply, the 1980 CSO-C Tables). The
guaranteed rates for substandard classes are based on multiples of or additives
to the 1980 CSO Tables. These rates are based on the Attained Age and
underwriting class of the Insured. They are also based on the sex of the
Insured, except that unisex rates are used where appropriate under applicable
law, including in the state of Montana, and in Policies purchased by employers
and employee organizations in connection with employment-related insurance or
benefit programs. The cost of insurance rate generally increases with the
Attained Age of the Insured. As of the date of this Prospectus, we charge
"current rates" that are generally lower (i.e., less expensive) than the
guaranteed rates, and we may also charge current rates in the future. The
current rates may also vary with the Attained Age, gender, where permissible,
duration of each Face Amount segment, policy size and underwriting class of the
Insured. For any Policy, the cost of insurance on a Monthiversary is calculated
by multiplying the current cost of insurance rate for the Insured by the Risk
Amount for that Monthiversary. The Risk Amount on a Monthiversary is the
difference between the Death Benefit divided by 1.00246627 and the Account
Value. The Account Value will first be considered part of the initial Face
Amount, then part of any additional Face Amounts in the order of the increases.
The cost of insurance charge for each Face Amount segment will be determined on
each Monthiversary. AUL currently places Insureds in the following classes,
based on underwriting: Standard Tobacco User, Standard Non-Tobacco User,
Preferred Tobacco User, Preferred Non-Tobacco User. An Insured may be placed in
a substandard risk class, which involves a higher mortality risk than the
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<PAGE>
Standard Tobacco User or Standard Non-Tobacco User classes. Standard Non-Tobacco
User rates are available for Issue Ages 0-85. Preferred Non-Tobacco and
Preferred Tobacco User rates are available for Issue Ages 20-85. The guaranteed
maximum cost of insurance rate is set forth on the Policy Data Page of your
Policy.
AUL places the Insured in a risk class when the Policy is given underwriting
approval, based on AUL's underwriting of the application. When an increase in
Face Amount is requested, AUL conducts underwriting before approving the
increase (except as noted below), and a separate risk class may apply to the
increase. If the risk class for the increase has higher guaranteed cost of
insurance rates than the existing class, the higher guaranteed rates will apply
only to the increase in Face Amount, and the existing risk class will continue
to apply to the existing Face Amount. If the risk class for the increase has
lower guaranteed cost of insurance rates than the existing class, the lower
guaranteed rates will apply to both the increase and the existing Face Amount.
Monthly Administrative Charge. The monthly administrative charge is a
level monthly charge, currently $30 during the first Policy Year, and $5
thereafter, which applies in all years. It is guaranteed not to exceed $10 after
the first Policy Year. This charge reimburses AUL for expenses incurred in the
administration of the Policies and the Separate Account. Such expenses include,
but are not limited to: underwriting and issuing the Policy, confirmations,
annual reports and account statements, maintenance of Policy records,
maintenance of Separate Account records, administrative personnel costs, mailing
costs, data processing costs, legal fees, accounting fees, filing fees, the
costs of other services necessary for Owner servicing and all accounting,
valuation, regulatory and updating requirements.
Cost of Additional Benefits Provided by Riders. The cost of additional
benefits provided by riders is charged to the Account Value on the
Monthiversary.
Mortality and Expense Risk Charge
AUL deducts this monthly charge from the Investment Accounts prorata based on
your amounts in each account. The current charge is at an annual rate of 0.75%
of Variable Account value during the first 10 Policy Years, and 0.25%
thereafter, and is guaranteed not to increase for the duration of a Policy. AUL
may realize a profit from this charge.
The mortality risk assumed is that Insureds, as a group, may live for a shorter
period of time than estimated and, therefore, the cost of insurance charges
specified in the Policy will be insufficient to meet actual claims. AUL also
assumes the mortality risk associated with guaranteeing the Death Benefit during
the Guarantee Period. The expense risk AUL assumes is that expenses incurred in
issuing and administering the Policies and the Separate Account will exceed the
amounts realized from the monthly administrative charges assessed against the
Policies.
Surrender Charge
During the first fifteen Policy Years, a surrender charge will be deducted from
the Account Value if the Policy is completely surrendered for cash. The total
surrender charge will not exceed the maximum surrender charge set forth in the
Policy. The surrender charge is equivalent to 100% of the base coverage target
premium for Policy Years 1 through 5, reducing thereafter by 10% annually
through Policy Year 15. The "base coverage target premium" is the target premium
associated with the base coverage of the policy only, not including any riders
or benefits.
Partial Surrenders are limited to the Cash Value of the Policy; therefore, there
is no surrender charge assessed on Partial Surrenders. Any surrender in excess
of Cash Value will constitute a complete surrender and the above surrender
charge will apply.
The surrender charge for a reinstated Policy will be based on the number of
Policy Years from the original Contract Date. For purposes of determining the
surrender charge on any date after reinstatement, the period the Policy was
lapsed will be credited to the total Policy period.
The table below shows the surrender charge (which is a percentage of target
premium) deducted if the Policy is completely surrendered during the first
fifteen Policy Years.
Table of Surrender Charges
Policy Year Surrender Charge
1 100%
2 100%
3 100%
4 100%
5 100%
6 90%
7 80%
8 70%
9 60%
10 50%
11 40%
12 30%
13 20%
14 10%
15 0%
Taxes
AUL does not currently assess a charge for any taxes other than state premium
taxes incurred as a result of the establishment, maintenance, or operation of
the Investment Accounts of the Separate Account. We reserve the right, however,
to assess a charge for such taxes against the Investment Accounts if we
determine that such taxes will be incurred.
Special Uses
We may agree to reduce or waive the surrender charge or the Monthly Deduction,
or credit additional amounts under the Policies in situations where selling
and/or maintenance costs associated with the Policies are reduced, such as the
sale of several Policies to the same Owner(s), sales of large Policies, sales of
Policies in connection with a group or sponsored arrangement or mass
transactions over multiple Policies.
In addition, we may agree to reduce or waive some or all of these charges and/or
credit additional amounts under the Policies for those Policies sold to persons
who meet criteria established by us, who may include current and retired
officers, directors and employees of us and our affiliates. We may also agree to
waive minimum premium requirements for such persons.
We will only reduce or waive such charges or credit additional amounts on any
Policies where expenses associated with the sale of the Policy and/or costs
associated with administering and maintaining the Policy are reduced. We reserve
the right to terminate waiver/reduced charge and crediting programs at any time,
including those for previously issued Policies.
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Fund Expenses
Each Investment Account of the Separate Account purchases shares at the net
asset value of the corresponding Portfolio. The net asset value reflects the
investment advisory fee and other expenses that are deducted from the assets of
the Portfolio. The advisory fees and other expenses are not fixed or specified
under the terms of the Policy and are described in the Funds' prospectuses.
HOW YOUR ACCOUNT VALUES VARY
There is no minimum guaranteed Account Value, Cash Value or Net Cash Value.
These values will vary with the investment performance of the Investment
Accounts and/or the crediting of interest in the Fixed Account, and will depend
on the allocation of Account Value. If the Net Cash Value on a Monthiversary is
less than the amount of the Monthly Deduction to be deducted on that date and
the Guarantee Period is not then in effect, the Policy will be in default and a
grace period will begin. See "Premium Payments to Prevent Lapse."
Determining the Account Value
On the Contract Date, the Account Value is equal to the initial Net
Premium less the Monthly Deductions deducted as of the Contract Date. On each
Valuation Day thereafter, the Account Value is the aggregate of the Variable
Account value, the Fixed Account value, and the Loan Account value. Account
Value may be significantly affected on days when the New York Stock Exchange is
open for trading but we are closed for business, and you will not have access to
Cash Value on those days. The Account Value will vary to reflect the performance
of the Investment Accounts to which amounts have been allocated, interest
credited on amounts allocated to the Fixed Account, interest credited on amounts
in the Loan Account, charges, transfers, Partial Surrenders, loans and loan
repayments.
Variable Account Value. When you allocate an amount to an Investment
Account, either by Net Premium payment allocation or by transfer, your Policy is
credited with accumulation units in that Investment Account. The number of
accumulation units credited is determined by dividing the amount allocated to
the Investment Account by the Investment Account's accumulation unit value at
the end of the Valuation Period during which the allocation is effected. The
Variable Account value of the Policy equals the sum, for all Investment
Accounts, of the accumulation units credited to an Investment Account multiplied
by that Investment Account's accumulation unit value.
The number of Investment Account accumulation units credited to your Policy will
increase when Net Premium payments are allocated to the Investment Account and
when amounts are transferred to the Investment Account. The number of Investment
Account accumulation units credited to a Policy will decrease when the allocated
portion of the Monthly Deduction and mortality and expense charge are taken from
the Investment Account, a loan is made, an amount is transferred from the
Investment Account, or a Partial Surrender is taken from the Investment Account.
Accumulation Unit Values. An Investment Account's accumulation unit
value is determined on each Valuation Date and varies to reflect the investment
experience of the underlying Portfolio. It may increase, decrease, or remain the
same from Valuation Period to Valuation Period. The accumulation unit value for
the Money Market Investment Accounts were initially set at $1, and the
accumulation unit value for each of the other Investment Accounts was
arbitrarily set at $5 when each Investment Account was established. For each
Valuation Period after the date of establishment, the accumulation unit value is
determined by multiplying the value of an accumulation unit for an Investment
Account for the prior Valuation Period by the net investment factor for the
Investment Account for the current Valuation Period.
Net Investment Factor. The net investment factor is used to measure the
investment performance of an Investment Account from one Valuation Period to the
next. For any Investment Account, the net investment factor for a Valuation
Period is determined by dividing (a) by (b), where:
(a) is equal to:
1. the net asset value per share of the Portfolio held in the
Investment Account determined at the end of the current Valuation
Period; plus
2. the per share amount of any dividend or capital gain distribution
paid by the Portfolio during the Valuation Period; plus
3. the per share credit or charge with respect to taxes, if any,
paid or reserved for by AUL during the Valuation Period that are
determined by AUL to be attributable to the operation of the
Investment Account; and
(b) is equal to:
1. the net asset value per share of the Portfolio held in the
Investment Account determined at the end of the preceding
Valuation Period; plus
2. the per share credit or charge for any taxes reserved for the
immediately preceding Valuation Period.
Fixed Account Value. On any Valuation Date, the Fixed Account value of
a Policy is the total of all Net Premium payments allocated to the Fixed
Account, plus any amounts transferred to the Fixed Account, plus interest
credited on such Net Premium payments and amounts transferred, less the amount
of any transfers from the Fixed Account, less the amount of any Partial
Surrenders taken from the Fixed Account, and less the prorata portion of the
Monthly Deduction charged against the Fixed Account.
Loan Account Value. On any Valuation Date, if there have been any
Policy loans, the Loan Account value is equal to amounts transferred to the Loan
Account from the Investment Accounts and from the Fixed Account as collateral
for Policy loans and for due and unpaid loan interest, less amounts transferred
from the Loan Account to the Investment Accounts and the Fixed Account as
outstanding loans and loan interest are repaid, and plus interest credited to
the Loan Account.
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Cash Value and Net Cash Value
The Cash Value on a Valuation Date is the Account Value less any applicable
surrender charges. The Net Cash Value on a Valuation Date is the Cash Value
reduced by any outstanding loans and loan interest. Net Cash Value is used to
determine whether a grace period starts. See "Premium Payments to Prevent
Lapse." It is also the amount that is available upon full surrender of the
Policy. See "Surrendering the Policy for Net Cash Value."
DEATH BENEFIT AND CHANGES IN FACE AMOUNT
As long as the Policy remains in force, AUL will pay the Death Benefit Proceeds
upon receipt at the Home Office of satisfactory proof of the Insured's death.
AUL may require return of the Policy. The Death Benefit Proceeds may be paid in
a lump sum, generally within seven calendar days of receipt of satisfactory
proof (see "When Proceeds Are Paid"), or in any other way agreeable to you and
us. Before the Insured dies, you may choose how the proceeds are to be paid. If
you have not made a choice before the Insured dies, the beneficiary may choose
how the proceeds are paid. The Death Benefit Proceeds will be paid to the
beneficiary. See "Selecting and Changing the Beneficiary."
Amount of Death Benefit Proceeds
The Death Benefit Proceeds are equal to the sum of the Death Benefit in force as
of the end of the Valuation Period during which death occurs, plus any rider
benefits, minus any outstanding loan and loan interest on that date. If the date
of death occurs during a grace period, the Death Benefit will still be payable
to the beneficiary, although the amount will be equal to the Death Benefit
immediately prior to the start of the grace period, plus any benefits provided
by rider, and less any outstanding loan and loan interest and overdue Monthly
Deductions and mortality and expense risk charges as of the date of death. Under
certain circumstances, the amount of the Death Benefit may be further adjusted.
See "Limits on Rights to Contest the Policy" and "Changes in the Policy or
Benefits."
If part or all of the Death Benefit Proceeds is paid in one sum, AUL will pay
interest on this sum if required by applicable state law from the date of the
Insured's death to the date of payment.
Death Benefit Options
The Owner may choose one of two Death Benefit options. Under Option 1, the Death
Benefit is the greater of the Face Amount or the Applicable Percentage (as
described below) of Account Value on the date of the Insured's death. Under
Option 2, the Death Benefit is the greater of the Face Amount plus the Account
Value on the date of death, or the Applicable Percentage of the Account Value on
the date of the Insured's death.
If investment performance is favorable, the amount of the Death Benefit may
increase. However, under Option 1, the Death Benefit ordinarily will not change
for several years to reflect any favorable investment performance and may not
change at all. Under Option 2, the Death Benefit will vary directly with the
investment performance of the Account Value. To see how and when investment
performance may begin to affect the Death Benefit, see "Illustrations of Account
Values, Cash Values, Death Benefits and Accumulated Premium Payments."
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Applicable Percentages of Account Value
Attained Age Percentage Attained Age Percentage Attained Age Percentage Attained Age Percentage
0-40 250% 50 185% 60 130% 70 115%
41 243 51 178 61 128 71 113
42 236 52 171 62 126 72 111
43 229 53 164 63 124 73 109
44 222 54 157 64 122 74 107
45 215 55 150 65 120 75-90 105
46 209 56 146 66 119 91 104
47 203 57 142 67 118 92 103
48 197 58 138 68 117 93 102
49 191 59 134 69 116 94 101
95+ 100
</TABLE>
Initial Face Amount and Death Benefit Option
The initial Face Amount is set at the time the Policy is issued. You may change
the Face Amount from time to time, as discussed below. You select the Death
Benefit option when you apply for the Policy. You also may change the Death
Benefit option, as discussed below. We reserve the right, however, to decline
any change which might disqualify the Policy as life insurance under federal tax
law.
Changes in Death Benefit Option
Beginning one year after the Contract Date, as long as the Policy is not in the
grace period, you may change the Death Benefit option on your Policy subject to
the following rules. If you request a change from Death Benefit Option 2 to
Death Benefit Option 1, the Face Amount will be increased by the amount of the
Account Value on the date of change. The change will be effective on the
Monthiversary following our receipt of Proper Notice.
If you request a change from Death Benefit Option 1 to Death Benefit Option 2,
the Face Amount will be decreased by the amount of the Account Value on the date
of change. We may require satisfactory evidence of insurability. The change will
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<PAGE>
be effective on the Monthiversary following our approval of the change. We will
not permit a change which would decrease the Face Amount below $50,000.
Changes in Face Amount
Beginning one year after the Contract Date, as long as the Policy is not in the
grace period, you may request a change in the Face Amount. If a change in the
Face Amount would result in total premiums paid exceeding the premium
limitations prescribed under current tax law to qualify your Policy as a life
insurance contract, AUL will refund, after the next Monthiversary, the amount of
such excess above the premium limitations. Changes in Face Amount may cause the
Policy to be treated as a Modified Endowment for federal tax purposes.
AUL reserves the right to decline a requested decrease in the Face Amount if
compliance with the guideline premium limitations under current tax law would
result in immediate termination of the Policy, payments would have to be made
from the Cash Value for compliance with the guideline premium limitations, and
the amount of such payments would exceed the Net Cash Value under the Policy.
The Face Amount after any decrease must be at least $50,000. A decrease in Face
Amount will become effective on the Monthiversary that next follows receipt of
Proper Notice of a request.
Decreasing the Face Amount of the Policy may have the effect of decreasing
monthly cost of insurance charges. If you have made any increases to the Face
Amount, the decrease will first be applied to reduce those increases, starting
with the most recent increase. The decrease will not cause a decrease in either
the Required Premium for the Guarantee Period or the surrender charge.
Any increase in the Face Amount must be at least $5,000 (unless otherwise
provided by rider), and an application must be submitted. AUL reserves the right
to require satisfactory evidence of insurability. In addition, the Insured's
Attained Age must be less than the current maximum Issue Age for the Policies,
as determined by AUL from time to time. A change in planned premiums may be
advisable. See "Premiums." The increase in Face Amount will become effective on
the Monthiversary on or next following our approval of the increase.
For purposes of calculating cost of insurance charges, any Face Amount decrease
will be used to reduce any previous Face Amount increase then in effect,
starting with the latest increase and continuing in the reverse order in which
the increases were made. If any portion of the decrease is left after all Face
Amount increases have been reduced, it will be used to reduce the initial Face
Amount.
Selecting and Changing the Beneficiary
You select the beneficiary in your application. You may select more than one
beneficiary. You may later change the beneficiary in accordance with the terms
of the Policy. The primary beneficiary, or, if the primary beneficiary is not
living, the contingent beneficiary, is the person entitled to receive the Death
Benefit Proceeds under the Policy. If the Insured dies and there is no surviving
beneficiary, the Owner (or the Owner's estate if the Owner is the Insured) will
be the beneficiary. If a beneficiary is designated as irrevocable, then the
beneficiary's written consent must be obtained to change the beneficiary.
CASH BENEFITS
Policy Loans
Prior to the death of the Insured, you may borrow against your Policy by
submitting Proper Notice to the Home Office at any time after the end of the
"right to examine" period while the Policy is not in the grace period. The
Policy is assigned to us as the sole security for the loan. The minimum amount
of a new loan is $500. The maximum amount of a new loan is:
1. 90% of the Account Value; less
2. any loan interest due on the next Policy Anniversary; less
3. any applicable surrender charges; less
4. any existing loans and accrued loan interest.
Outstanding loans reduce the amount available for new loans. Policy loans will
be processed as of the date your written request is received and approved. Loan
proceeds generally will be sent to you within seven calendar days. See "When
Proceeds Are Paid."
Interest. AUL will charge interest on any outstanding loan at an annual
rate of 6.0%. Interest is due and payable on each Policy Anniversary while a
loan is outstanding. If interest is not paid when due, the amount of the
interest is added to the loan and becomes part of the loan.
Loan Collateral. When a Policy loan is made, an amount sufficient to
secure the loan is transferred out of the Investment Accounts and the Fixed
Account and into the Policy's Loan Account. Thus, a loan will have no immediate
effect on the Account Value, but the Net Cash Value will be reduced immediately
by the amount transferred to the Loan Account. The Owner can specify the
Investment Accounts from which collateral will be transferred. If no allocation
is specified, collateral will be transferred from each Investment Account and
from the Fixed Account in the same proportion that the Account Value in each
Investment Account and the Fixed Account bears to the total Account Value in
those accounts on the date that the loan is made. Due and unpaid interest will
be transferred each Policy Anniversary from each Investment Account and the
Fixed Account to the Loan Account in the same proportion that each Investment
Account value and the Fixed Account bears to the total unloaned Account Value.
The amount we transfer will be the amount by which the interest due exceeds the
interest which has been credited on the Loan Account.
The Loan Account will be credited with interest daily at an effective annual
rate of not less than 4.0%. Thus, the maximum net cost of a loan is 2.0% per
year (the net cost of a loan is the difference between the rate of interest
charged on indebtedness and the amount credited to the Loan Account).
18
<PAGE>
Beginning in the eleventh Policy Year, the amount in the Loan Account securing
the loan will be credited with interest at an effective annual rate in excess of
the minimum guaranteed rate (currently, 5.0%). Thus, the current net cost of the
loan is 1.0% per year. Any interest credited in excess of the minimum guaranteed
rate is not guaranteed.
Loan Repayment; Effect if Not Repaid. You may repay all or part of your
loan at any time while the Insured is living and the Policy is in force. Loan
repayments must be sent to the Home Office and will be credited as of the date
received. A loan repayment must be clearly marked as "loan repayment" or it will
be credited as a premium, unless the premium would cause the Policy to fail to
meet the federal tax definition of a life insurance contract in accordance with
the Internal Revenue Code. Loan repayments, unlike premium payments, are not
subject to premium expense charges. When a loan repayment is made, Account Value
in the Loan Account in an amount equivalent to the repayment is transferred from
the Loan Account to the Investment Accounts and the Fixed Account. Thus, a loan
repayment will have no immediate effect on the Account Value, but the Net Cash
Value will be increased immediately by the amount of the loan repayment. Loan
repayment amounts will be transferred to the Investment Accounts and the Fixed
Account according to the premium allocation instructions in effect at that time.
If the Death Benefit becomes payable while a loan is outstanding, any
outstanding loan and loan interest will be deducted in calculating the Death
Benefit Proceeds. See "Amount of Death Benefit Proceeds."
If the Monthly Deduction exceeds the Net Cash Value on any Monthiversary when
the Guarantee Period is not in force, the Policy will be in default. You will be
sent notice of the default. You will have a grace period within which you may
submit a sufficient payment to avoid termination of coverage under the Policy.
The notice will specify the amount that must be repaid to prevent termination.
See "Premium Payments to Prevent Lapse."
Effect of Policy Loan. A loan, whether or not repaid, will have a
permanent effect on the Death Benefit and Policy values because the investment
results of the Investment Accounts of the Separate Account and current interest
rates credited on Account Value in the Fixed Account will apply only to the
non-loaned portion of the Account Value. The longer the loan is outstanding, the
greater the effect is likely to be. Depending on the investment results of the
Investment Accounts while the loan is outstanding, the effect could be favorable
or unfavorable. Policy loans may increase the potential for lapse if investment
results of the Investment Accounts are less than anticipated. Also, loans could,
particularly if not repaid, make it more likely than otherwise for a Policy to
terminate. See "Tax Considerations" for a discussion of the tax treatment of
Policy loans, and the adverse tax consequences if a Policy lapses with loans
outstanding. In particular, if your Policy is a Modified Endowment, loans may be
currently taxable and subject to a 10% penalty tax.
Surrendering the Policy for Net Cash Value
You may surrender your Policy at any time for its Net Cash Value by submitting
Proper Notice to us. AUL may require return of the Policy. A surrender charge
may apply. See "Surrender Charge." A surrender request will be processed as of
the date your written request and all required documents are received. Payment
will generally be made within seven calendar days. See "When Proceeds are Paid."
The Net Cash Value may be taken in one lump sum or it may be applied to a
settlement option. See "Settlement Options." The Policy will terminate and cease
to be in force if it is surrendered for one lump sum or applied to a settlement
option. It cannot later be reinstated. Surrenders may have adverse tax
consequences. See "Tax Considerations."
Partial Surrenders
You may make Partial Surrenders under your Policy of at least $500 at any time
after the end of the "right to examine" period by submitting Proper Notice to
us. As of the date AUL receives Proper Notice for a Partial Surrender, the
Account Value and, therefore, the Cash Value will be reduced by the Partial
Surrender.
When you request a Partial Surrender, you can direct how the Partial Surrender
will be deducted from the Investment Accounts. If you provide no directions, the
Partial Surrender will be deducted from your Account Value in the Investment
Accounts and Fixed Account on a prorata basis. Partial Surrenders may have
adverse tax consequences. See "Tax Considerations."
AUL will reduce the Face Amount by an amount equal to the Partial Surrender. AUL
will reject a Partial Surrender request if the Partial Surrender would reduce
the Face Amount below $50,000, or if the Partial Surrender would cause the
Policy to fail to qualify as a life insurance contract under applicable tax
laws, as interpreted by AUL.
Partial Surrender requests will be processed as of the date your written request
is received, and generally will be paid within seven calendar days. See "When
Proceeds Are Paid."
Settlement Options
At the time of surrender or death, the Policy offers various options of
receiving proceeds payable under the Policy. These settlement options are
summarized below. All of these options are forms of fixed-benefit annuities
which do not vary with the investment performance of a separate account. Any
representative authorized to sell this Policy can further explain these options
upon request.
You may apply proceeds of $2,000 or more which are payable under this Policy to
any of the following options:
Option 1 - Income for a Fixed Period. Proceeds are payable in equal
monthly installments for a specified number of years, not to exceed 20.
Option 2 - Life Annuity. Proceeds are paid in equal monthly
installments for as long as the payee lives. A number of payments can be
guaranteed, such as 120, or the number of payments required to refund the
proceeds applied.
Option 3 - Survivorship Annuity. Proceeds are paid in monthly
installments for as long as either the first payee or surviving payee lives. A
number of payments equal to the initial payment can be guaranteed, such as 120.
A different monthly installment payable to the surviving payee can be
19
<PAGE>
specified. Any other method or frequency of payment we agree to may be used to
pay the proceeds of this Policy.
Policy proceeds payable in one sum will accumulate at interest from the date of
death or surrender to the payment date at the rate of interest then paid by us
or at the rate specified by statute, whichever is greater. Based on the
settlement option selected, we will determine the amount payable. The minimum
interest rate used in computing payments under all options will be 3% per year.
You may select or change an option by giving Proper Notice prior to the
settlement date. If no option is in effect on the settlement date, the payee may
select an option. If this Policy is assigned or if the payee is a corporation,
association, partnership, trustee or estate, a settlement option will be
available only with our consent.
If a payee dies while a settlement option is in effect, and there is no
surviving payee, we will pay a single sum to such payee's estate. The final
payment will be the commuted value of any remaining guaranteed payments.
Settlement option payments will be exempt from the claims of creditors to the
maximum extent permitted by law.
Minimum Amounts. AUL reserves the right to pay the total amount of the
Policy in one lump sum, if less than $2,000. If monthly payments are less than
$100, payments may be made less frequently at AUL's option.
The proceeds of this Policy may be paid in any other method or frequency of
payment acceptable to us.
Specialized Uses of the Policy
Because the Policy provides for an accumulation of Cash Value as well as a Death
Benefit, the Policy can be used for various individual and business financial
planning purposes. Purchasing the Policy in part for such purposes entails
certain risks. For example, if the investment performance of Investment Accounts
to which Variable Account value is allocated is poorer than expected or if
sufficient premiums are not paid, the Policy may lapse or may not accumulate
sufficient Variable Account value to fund the purpose for which the Policy was
purchased. Partial Surrenders and Policy loans may significantly affect current
and future Account Value, Net Cash Value, or Death Benefit Proceeds. Depending
upon Investment Account investment performance and the amount of a Policy loan,
the loan may cause a Policy to lapse. Because the Policy is designed to provide
benefits on a long-term basis, before purchasing a Policy for a specialized
purpose a purchaser should consider whether the long-term nature of the Policy
is consistent with the purpose for which it is being considered. Using a Policy
for a specialized purpose may have tax consequences. See "Tax Considerations."
Life Insurance Retirement Plans
Any Owners or applicants who wish to consider using the Policy as a funding
vehicle for (non-qualified) retirement purposes may obtain additional
information from us. An Owner could pay premiums under a Policy for a number of
years, and upon retirement, could utilize a Policy's loan and partial withdrawal
features to access Account Value as a source of retirement income for a period
of time. This use of a Policy does not alter an Owner's rights or our
obligations under a Policy; the Policy would remain a life insurance contract
that, so long as it remains in force, provides for a Death Benefit payable when
the Insured dies.
Illustrations are available upon request that portray how the Policy can be used
as a funding vehicle for (non-qualified) retirement plans, referred to herein as
"life insurance retirement plans," for individuals. Illustrations provided upon
request show the effect on Account Value, Cash Value, and the net Death Benefit
of premiums paid under a Policy and partial withdrawals and loans taken for
retirement income; or reflecting allocation of premiums to specified Investment
Accounts. This information will be portrayed at hypothetical rates of return
that are requested. Charts and graphs presenting the results of the
illustrations or a comparison of retirement strategies will also be furnished
upon request. Any graphic presentations and retirement strategy charts must be
accompanied by a corresponding illustration; illustrations must always include
or be accompanied by comparable information that is based on guaranteed cost of
insurance rates and that presents a hypothetical gross rate of return of 0%.
Retirement illustrations will not be furnished with a hypothetical gross rate of
return in excess of 12%.
The hypothetical rates of return in illustrations are illustrative only and
should not be interpreted as a representation of past or future investment
results. Policy values and benefits shown in the illustrations would be
different if the gross annual investment rates of return were different from the
hypothetical rates portrayed, if premiums were not paid when due, and whether
loan interest was paid when due. Withdrawals or loans may have an adverse effect
on Policy benefits.
Risks of Life Insurance Retirement Plans
Using your Policy as a funding vehicle for retirement income purposes presents
several risks, including the risk that if your Policy is insufficiently funded
in relation to the income stream expected from your Policy, your Policy can
lapse prematurely and result in significant income tax liability to you in the
year in which the lapse occurs. Other risks associated with borrowing from your
Policy also apply. Loans will be automatically repaid from the gross Death
Benefit at the death of the Insured, resulting in the estimated payment to the
beneficiary of the net Death Benefit, which will be less than the gross Death
Benefit and may be less than the Face Amount. Upon surrender, the loan will be
automatically repaid, resulting in the payment to you of the Net Cash Value.
Similarly, upon lapse, the loan will be automatically repaid, and the Policy
will terminate without value. Upon surrender, the loan will be automatically
repaid. The automatic repayment of the loan upon lapse or surrender will cause
the recognition of taxable income to the extent that Net Cash Value plus the
amount of the repaid loan exceeds your basis in the Policy. Thus, under certain
circumstances, surrender or lapse of your Policy could result in tax liability
to you. In addition, to reinstate a lapsed Policy, you would be required to make
certain payments. Thus, you should be careful to design a life insurance
retirement plan so that your Policy will not lapse prematurely under various
market scenarios as a result of withdrawals and loans taken from your Policy.
20
<PAGE>
To avoid lapse of your Policy, it is important to design a payment stream that
does not leave your Policy with insufficient Net Cash Value. Determinations as
to the amount to withdraw or borrow each year warrant careful consideration.
Careful consideration should also be given to any assumptions respecting the
hypothetical rate of return, to the duration of withdrawals and loans, and to
the amount of Account Value that should remain in your Policy upon its maturity.
Poor investment performance can contribute to the risk that your Policy may
lapse. In addition, the cost of insurance generally increases with the age of
the Insured, which can further erode existing Net Cash Value and contribute to
the risk of lapse.
Further, interest on a Policy loan is due to us for any Policy Year on the
Policy Anniversary. If this interest is not paid when due, it is added to the
amount of the outstanding loans and loan interest, and interest will begin
accruing thereon from that date. This can have a compounding effect, and to the
extent that the outstanding loan balance exceeds your basis in the Policy, the
amounts attributable to interest due on the loans can add to your federal (and
possibly state) income tax liability.
You should consult with your financial and tax advisers in designing a life
insurance retirement plan that is suitable for your particular needs. Further,
you should continue to monitor the Net Cash Value remaining in a Policy to
assure that the Policy is sufficiently funded to continue to support the desired
income stream and so that it will not lapse. In this regard, you should consult
your periodic statements to determine the amount of the remaining Net Cash
Value. Illustrations showing the effect of charges under the Policy upon
existing Account Value or the effect of future withdrawals or loans upon the
Policy's Account Value and Death Benefit are available from your representative.
Consideration should be given periodically to whether the Policy is sufficiently
funded so that it will not lapse prematurely.
Because of the potential risks associated with borrowing from a Policy, use of
the Policy in connection with a life insurance retirement plan may not be
suitable for all Owners. These risks should be carefully considered before
borrowing from the Policy to provide an income stream.
ILLUSTRATIONS OF ACCOUNT VALUES, CASH VALUES, DEATH BENEFITS
AND ACCUMULATED PREMIUM PAYMENTS
The following tables have been prepared to illustrate hypothetically how certain
values under a Policy change with investment performance over an extended period
of time. The tables illustrate how Account Values, Cash Values and Death
Benefits under a Policy covering an Insured of a given age on the Policy Date
would vary over time if planned premium payments were paid annually and the
return on the assets in each of the Funds were an assumed uniform gross annual
rate of 0%, 6% and 12%. The values would be different from those shown if the
returns averaged 0%, 6% or 12% but fluctuated over and under those averages
throughout the years shown. The tables also show planned premiums accumulated at
5% interest compounded annually. The hypothetical investment rates of return are
illustrative only and should not be deemed a representation of past or future
investment rates of return. The tables may be deemed to be "forward looking
statements," and are based on certain assumptions. Actual performance under the
Policy may differ materially from performance described in the tables. Actual
rates of return for a particular Policy may be more or less than the
hypothetical investment rates of return and will depend on a number of factors,
including the investment allocations made by an Owner. These illustrations
assume that Net Premiums are allocated equally among the 20 Investment Accounts
available under the Policy, and that no amounts are allocated to the Fixed
Account. These illustrations also assume that no Policy loans have been made and
that the premium is paid at the beginning of each Policy Year. Values would be
different if the premiums are paid with a different frequency or in different
amounts.
The illustrations reflect the fact that the net investment return on the assets
held in the Investment Accounts is lower than the gross return of the selected
Portfolios. The tables assume an average annual expense ratio of approximately
0.72% of the average daily net assets of the Portfolios available under the
Policies. This average annual expense ratio is based on the expense ratios of
each of the Portfolios for the last fiscal year, adjusted, as appropriate, for
any material changes in expenses effective for the current fiscal year of a
Portfolio. Effective May 1, 1999, the American Century VP Capital Appreciation
Portfolio is no longer available for new contracts; therefore, the Portfolio's
expenses are not included in the above average. For information on the
Portfolios' expenses, see the prospectuses for the Funds and Portfolios.
The illustrations also reflect the deduction of the premium expense charge, the
Monthly Deduction and the mortality and expense risk charge. AUL has the
contractual right to charge the guaranteed maximum charges. The current charges
and, alternatively, the guaranteed charges are reflected in separate
illustrations on each of the following pages. All the illustrations reflect the
fact that no tax charges other than the premium tax charge are currently made
against the Separate Account and assume no indebtedness or charges for rider
benefits.
The illustrations are based on AUL's sex distinct rates. Upon request, an Owner
will be furnished with a comparable illustration based upon the proposed
Insured's individual circumstances. Such illustrations may assume different
hypothetical rates of return than those illustrated in the following tables, and
also may reflect allocation of premiums to specified Investment Accounts. Such
illustrations will reflect the expenses of the Portfolios in which such
Investment Accounts invest. We may make a reasonable charge to provide such
illustrations.
21
<PAGE>
AMERICAN UNITED LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM ADJUSTABLE
VARIABLE LIFE INSURANCE
<TABLE>
<S> <C> <C> <C> <C>
MALE ISSUE AGE: 40 $500,000 FACE AMOUNT
PREFERRED, NON-TOBACCO USER DEATH BENEFIT OPTION 1
VARIABLE INVESTMENT $6,000 ANNUAL PREMIUM USING CURRENT CHARGES
DEATH BENEFIT ACCOUNT VALUE CASH VALUE
Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical
PREMIUMS Gross Annual Gross Annual Gross Annual
ACCUM. Investment Return of Investment Return of Investment Return of
END AT 5% ________________________________ ________________________________ ________________________________
OF INTEREST
YEAR PER YEAR 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
- ------------ --------------- ---------------------------------- ----------------------------------- --------------------------------
1 6,300 500,000 500,000 500,000 4,298 4,594 4,890 0 0 0
2 12,915 500,000 500,000 500,000 8,783 9,653 10,559 3,873 4,743 5,649
3 19,861 500,000 500,000 500,000 13,153 14,890 16,771 8,243 9,980 11,861
4 27,154 500,000 500,000 500,000 17,405 20,308 23,581 12,495 15,398 18,671
5 34,811 500,000 500,000 500,000 21,535 25,913 31,047 16,625 21,003 26,137
6 42,852 500,000 500,000 500,000 25,538 31,706 39,234 21,119 27,287 34,815
7 51,295 500,000 500,000 500,000 29,412 37,692 48,216 25,484 33,764 44,288
8 60,159 500,000 500,000 500,000 33,155 43,879 58,079 29,718 40,442 54,642
9 69,467 500,000 500,000 500,000 36,762 50,270 68,912 33,816 47,324 65,966
10 79,241 500,000 500,000 500,000 40,228 56,870 80,818 37,773 54,415 78,363
11 89,503 500,000 500,000 500,000 43,885 64,128 94,510 41,921 62,164 92,546
12 100,278 500,000 500,000 500,000 47,393 71,654 109,645 45,920 70,181 108,172
13 111,592 500,000 500,000 500,000 50,736 79,446 126,379 49,754 78,464 125,397
14 123,471 500,000 500,000 500,000 53,897 87,507 144,890 53,406 87,016 144,399
15 135,945 500,000 500,000 500,000 56,861 95,840 165,383 56,861 95,840 165,383
16 149,042 500,000 500,000 500,000 59,613 104,449 188,089 59,613 104,449 188,089
17 162,794 500,000 500,000 500,000 62,141 113,344 213,275 62,141 113,344 213,275
18 177,234 500,000 500,000 500,000 64,438 122,541 241,251 64,438 122,541 241,251
19 192,396 500,000 500,000 500,000 66,484 132,046 272,359 66,484 132,046 272,359
20 208,316 500,000 500,000 500,000 68,254 141,864 306,992 68,254 141,864 306,992
21 225,031 500,000 500,000 500,000 69,575 151,876 345,538 69,575 151,876 345,538
22 242,583 500,000 500,000 500,000 70,550 162,199 388,584 70,550 162,199 388,584
23 261,012 500,000 500,000 550,001 71,132 172,829 436,509 71,132 172,829 436,509
24 280,363 500,000 500,000 607,041 71,270 183,765 489,549 71,270 183,765 489,549
25 300,681 500,000 500,000 668,870 70,919 195,017 548,254 70,919 195,017 548,254
26 322,015 500,000 500,000 735,894 70,034 206,600 613,245 70,034 206,600 613,245
27 344,415 500,000 500,000 815,285 68,571 218,539 685,114 68,571 218,539 685,114
28 367,936 500,000 500,000 902,212 66,487 230,867 764,587 66,487 230,867 764,587
29 392,633 500,000 500,000 997,388 63,722 243,617 852,468 63,722 243,617 852,468
30 418,565 500,000 500,000 1,101,585 60,194 256,818 949,642 60,194 256,818 949,642
</TABLE>
(1) Assumes that no Policy loans have been made.
(2) Values reflect applicable premium expenses charges, current cost of
insurance rates, a monthly administrative charge of $30.00 per month in
year 1 and $5.00 per month thereafter, and a mortality and expense risk
charge of 0.75% of assets during the first ten Policy Years, and 0.25%
thereafter.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the Prospectus.
(4) Assumes that the planned periodic premium is paid at the beginning of each
Policy Year. Values would be different if the premiums are paid with a
different frequency or in different amounts.
(5) The illustrated gross annual investment rates of return of 0%, 6%, and 12%
would correspond to approximate net annual rate of -1.46%, 4.50%, and
10.46% respectively, during the first ten Policy Years, and -0.97%, 5.02%,
and 11.00% respectively thereafter.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAT THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND PREVAILING RATES. THE DEATH BENEFIT
AND ACCOUNT VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
RATES OF RETURN AVERAGED 0%, 6%, OR 12% OVER A PERIOD OF YEARS BUT ALSO
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATION CAN BE MADE BY THE COMPANY OR THE PORTFOLIOS THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
22
<PAGE>
AMERICAN UNITED LIFE INSURANCE COMPANY
VARIABLE UNIVERSAL LIFE INSURANCE
<TABLE>
<S> <C> <C> <C>
MALE ISSUE AGE: 40 $500,000 FACE AMOUNT
PREFERRED, NON-TOBACCO USER DEATH BENEFIT OPTION 1
VARIABLE INVESTMENT $6,000 ANNUAL PREMIUM USING GUARANTEED CHARGES
DEATH BENEFIT ACCOUNT VALUE CASH VALUE
Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical
PREMIUMS Gross Annual Gross Annual Gross Annual
ACCUM. Investment Return of Investment Return of Investment Return of
END AT 5% ________________________________ ________________________________ ________________________________
OF INTEREST
YEAR PER YEAR 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
- ------------ --------------- ---------------------------------- ----------------------------------- --------------------------------
1 6,300 500,000 500,000 500,000 4,034 4,321 4,609 0 0 0
2 12,915 500,000 500,000 500,000 8,170 9,004 9,873 3,260 4,094 4,963
3 19,861 500,000 500,000 500,000 12,164 13,815 15,606 7,254 8,905 10,696
4 27,154 500,000 500,000 500,000 16,010 18,753 21,849 11,100 13,843 16,939
5 34,811 500,000 500,000 500,000 19,701 23,816 28,651 14,791 18,906 23,741
6 42,852 500,000 500,000 500,000 23,228 28,998 36,060 18,809 24,579 31,641
7 51,295 500,000 500,000 500,000 26,584 34,299 44,138 22,656 30,371 40,210
8 60,159 500,000 500,000 500,000 29,764 39,718 52,951 26,327 36,281 49,514
9 69,467 500,000 500,000 500,000 32,757 45,250 62,572 29,811 42,304 59,626
10 79,241 500,000 500,000 500,000 35,555 50,890 73,082 33,100 48,435 70,627
11 89,503 500,000 500,000 500,000 38,455 57,041 85,125 36,491 55,077 83,161
12 100,278 500,000 500,000 500,000 41,127 63,324 98,361 39,654 61,851 96,888
13 111,592 500,000 500,000 500,000 43,545 69,720 112,912 42,563 68,738 111,930
14 123,471 500,000 500,000 500,000 45,675 76,209 128,916 45,184 75,718 128,425
15 135,945 500,000 500,000 500,000 47,489 82,773 146,539 47,489 82,773 146,539
16 149,042 500,000 500,000 500,000 48,955 89,393 165,970 48,955 89,393 165,970
17 162,794 500,000 500,000 500,000 50,045 96,054 187,430 50,045 96,054 187,430
18 177,234 500,000 500,000 500,000 50,739 102,748 211,187 50,739 102,748 211,187
19 192,396 500,000 500,000 500,000 50,992 109,451 237,535 50,992 109,451 237,535
20 208,316 500,000 500,000 500,000 50,752 116,128 266,815 50,752 116,128 266,815
21 225,031 500,000 500,000 500,000 49,959 122,743 299,427 49,959 122,743 299,427
22 242,583 500,000 500,000 500,000 48,547 129,256 335,847 48,547 129,256 335,847
23 261,012 500,000 500,000 500,000 46,415 135,599 376,632 46,415 135,599 376,632
24 280,363 500,000 500,000 523,743 43,456 141,704 422,374 43,456 141,704 422,374
25 300,681 500,000 500,000 577,129 39,561 147,505 473,056 39,561 147,505 473,056
26 322,015 500,000 500,000 634,866 34,618 152,935 529,055 34,618 152,935 529,055
27 344,415 500,000 500,000 703,068 28,509 157,929 590,814 28,509 157,929 590,814
28 367,936 500,000 500,000 777,524 21,106 162,419 658,919 21,106 162,419 658,919
29 392,633 500,000 500,000 858,798 12,242 166,312 734,015 12,242 166,312 734,015
30 418,565 500,000 500,000 947,501 1,691 169,480 816,811 1,691 169,480 816,811
</TABLE>
(1) Assumes that no Policy loans have been made.
(2) Values reflect applicable premium expenses charges, guaranteed cost of
insurance rates, a monthly administrative charge of $30.00 per month in
year 1 and $10.00 per month thereafter, and a mortality and expense risk
charge of 0.75% of assets during the first ten Policy Years, and 0.25%
thereafter.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the Prospectus.
(4) Assumes that the planned periodic premium is paid at the beginning of each
Policy Year. Values would be different if the premiums are paid with a
different frequency or in different amounts.
(5) The illustrated gross annual investment rates of return of 0%, 6%, and 12%
would correspond to approximate net annual rate of -1.46%, 4.50%, and
10.46% respectively, during the first ten Policy Years, and -0.97%, 5.02%,
and 11.00% respectively thereafter.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAT THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND PREVAILING RATES. THE DEATH BENEFIT
AND ACCOUNT VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
RATES OF RETURN AVERAGED 0%, 6%, OR 12% OVER A PERIOD OF YEARS BUT ALSO
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATION CAN BE MADE BY THE COMPANY OR THE PORTFOLIOS THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
23
<PAGE>
AMERICAN UNITED LIFE INSURANCE COMPANY
VARIABLE UNIVERSAL LIFE INSURANCE
<TABLE>
<S> <C> <C> <C> <C>
MALE ISSUE AGE: 40 $500,000 FACE AMOUNT
PREFERRED, NON-TOBACCO USER DEATH BENEFIT OPTION 2
VARIABLE INVESTMENT $6,000 ANNUAL PREMIUM USING CURRENT CHARGES
DEATH BENEFIT ACCOUNT VALUE CASH VALUE
Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical
PREMIUMS Gross Annual Gross Annual Gross Annual
ACCUM. Investment Return of Investment Return of Investment Return of
END AT 5% ________________________________ ________________________________ ________________________________
OF INTEREST
YEAR PER YEAR 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
- ------------ --------------- ---------------------------------- ----------------------------------- --------------------------------
1 6,300 504,289 504,584 504,880 4,289 4,584 4,880 0 0 0
2 12,915 508,756 509,623 510,526 8,756 9,623 10,526 3,846 4,713 5,616
3 19,861 513,098 514,826 516,699 13,098 14,826 16,699 8,188 9,916 11,789
4 27,154 517,311 520,196 523,447 17,311 20,196 23,447 12,401 15,286 18,537
5 34,811 521,390 525,733 530,825 21,390 25,733 30,825 16,480 20,823 25,915
6 42,852 525,330 531,437 538,888 25,330 31,437 38,888 20,911 27,018 34,469
7 51,295 529,126 537,308 547,703 29,126 37,308 47,703 25,198 33,380 43,775
8 60,159 532,775 543,349 557,343 32,775 43,349 57,343 29,338 39,912 53,906
9 69,467 536,272 549,560 567,886 36,272 49,560 67,886 33,326 46,614 64,940
10 79,241 539,611 555,938 579,416 39,611 55,938 79,416 37,156 53,483 76,961
11 89,503 543,116 562,920 592,617 43,116 62,920 92,617 41,152 60,956 90,653
12 100,278 546,447 570,108 607,122 46,447 70,108 107,122 44,974 68,635 105,649
13 111,592 549,585 577,490 623,052 49,585 77,490 123,052 48,603 76,508 122,070
14 123,471 552,508 585,053 640,540 52,508 85,053 140,540 52,017 84,562 140,049
15 135,945 555,201 592,787 659,736 55,201 92,787 159,736 55,201 92,787 159,736
16 149,042 557,642 600,676 680,805 57,642 100,676 180,805 57,642 100,676 180,805
17 162,794 559,817 608,710 703,935 59,817 108,710 203,935 59,817 108,710 203,935
18 177,234 561,716 616,885 729,340 61,716 116,885 229,340 61,716 116,885 229,340
19 192,396 563,316 625,180 757,243 63,316 125,180 257,243 63,316 125,180 257,243
20 208,316 564,587 633,569 787,883 64,587 133,569 287,883 64,587 133,569 287,883
21 225,031 565,326 641,842 821,344 65,326 141,842 321,344 65,326 141,842 321,344
22 242,583 565,658 650,118 858,061 65,658 150,118 358,061 65,658 150,118 358,061
23 261,012 565,526 658,334 898,332 65,526 158,334 398,332 65,526 158,334 398,332
24 280,363 564,877 666,428 942,484 64,877 166,428 442,484 64,877 166,428 442,484
25 300,681 563,662 674,337 990,888 63,662 174,337 490,888 63,662 174,337 490,888
26 322,015 561,838 682,003 1,043,961 61,838 182,003 543,961 61,838 182,003 543,961
27 344,415 559,363 689,365 1,102,168 59,363 189,365 602,168 59,363 189,365 602,168
28 367,936 556,203 696,364 1,166,029 56,203 196,364 666,029 56,203 196,364 666,029
29 392,633 552,308 702,926 1,236,110 52,308 202,926 736,110 52,308 202,926 736,110
30 418,565 547,606 708,947 1,313,010 47,606 208,947 813,010 47,606 208,947 813,010
</TABLE>
(1) Assumes that no Policy loans have been made.
(2) Values reflect applicable premium expenses charges, current cost of
insurance rates, a monthly administrative charge of $30.00 per month in
year 1 and $5.00 per month thereafter, and a mortality and expense risk
charge of 0.75% of assets during the first ten Policy Years, and 0.25%
thereafter.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the Prospectus.
(4) Assumes that the planned periodic premium is paid at the beginning of each
Policy Year. Values would be different if the premiums are paid with a
different frequency or in different amounts.
(5) The illustrated gross annual investment rates of return of 0%, 6%, and 12%
would correspond to approximate net annual rate of -1.46%, 4.50%, and
10.46% respectively, during the first ten Policy Years, and -0.97%, 5.02%,
and 11.00% respectively thereafter.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAT THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND PREVAILING RATES. THE DEATH BENEFIT
AND ACCOUNT VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
RATES OF RETURN AVERAGED 0%, 6%, OR 12% OVER A PERIOD OF YEARS BUT ALSO
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATION CAN BE MADE BY THE COMPANY OR THE PORTFOLIOS THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
24
<PAGE>
AMERICAN UNITED LIFE INSURANCE COMPANY
VARIABLE UNIVERSAL LIFE INSURANCE
<TABLE>
<S> <C> <C> <C>
MALE ISSUE AGE: 40 $500,000 FACE AMOUNT
PREFERRED, NON-TOBACCO USER DEATH BENEFIT OPTION 2
VARIABLE INVESTMENT $6,000 ANNUAL PREMIUM USING GUARANTEED CHARGES
DEATH BENEFIT ACCOUNT VALUE CASH VALUE
Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical
PREMIUMS Gross Annual Gross Annual Gross Annual
ACCUM. Investment Return of Investment Return of Investment Return of
END AT 5% ________________________________ ________________________________ ________________________________
OF INTEREST
YEAR PER YEAR 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
- ------------ --------------- ---------------------------------- ----------------------------------- --------------------------------
1 6,300 504,023 504,309 504,596 4,023 4,309 4,596 0 0 0
2 12,915 508,136 508,966 509,832 8,136 8,966 9,832 3,226 4,056 4,922
3 19,861 512,095 513,735 515,515 12,095 13,735 15,515 7,185 8,825 10,605
4 27,154 515,892 518,612 521,681 15,892 18,612 21,681 10,982 13,702 16,771
5 34,811 519,520 523,590 528,372 19,520 23,590 28,372 14,609 18,680 23,462
6 42,852 522,966 528,659 535,625 22,966 28,659 35,625 18,547 24,240 31,206
7 51,295 526,223 533,813 543,488 26,223 33,813 43,488 22,295 29,885 39,560
8 60,159 529,284 539,046 552,016 29,284 39,046 52,016 25,847 35,609 48,579
9 69,467 532,137 544,346 561,263 32,137 44,346 61,263 29,191 41,400 58,317
10 79,241 534,771 549,700 571,286 34,771 49,700 71,286 32,316 47,245 68,831
11 89,503 537,474 555,493 582,690 37,474 55,493 82,690 35,510 53,529 80,726
12 100,278 539,919 561,336 595,101 39,919 61,336 95,101 38,446 59,863 93,628
13 111,592 542,072 567,196 608,592 42,072 67,196 108,592 41,090 66,214 107,610
14 123,471 543,896 573,033 623,242 43,896 73,033 123,242 43,405 72,542 122,751
15 135,945 545,361 578,810 639,140 45,361 78,810 139,140 45,361 78,810 139,140
16 149,042 546,429 584,482 656,381 46,429 84,482 156,381 46,429 84,482 156,381
17 162,794 547,071 590,009 675,077 47,071 90,009 175,077 47,071 90,009 175,077
18 177,234 547,265 595,358 695,361 47,265 95,358 195,361 47,265 95,358 195,361
19 192,396 546,966 600,469 717,356 46,966 100,469 217,356 46,966 100,469 217,356
20 208,316 546,119 605,268 741,186 46,119 105,268 241,186 46,119 105,268 241,186
21 225,031 544,666 609,673 766,985 44,666 109,673 266,985 44,666 109,673 266,985
22 242,583 542,541 613,592 794,897 42,541 113,592 294,897 42,541 113,592 294,897
23 261,012 539,649 616,895 825,044 39,649 116,895 325,044 39,649 116,895 325,044
24 280,363 535,892 619,442 857,560 35,891 119,442 357,560 35,891 119,442 357,560
25 300,681 531,178 621,094 892,602 31,178 121,094 392,602 31,178 121,094 392,602
26 322,015 525,424 621,707 930,348 25,424 121,707 430,348 25,424 121,707 430,348
27 344,415 518,549 621,137 971,001 18,549 121,137 471,001 18,549 121,137 471,001
28 367,936 510,480 619,239 1,014,793 10,480 119,239 514,793 10,480 119,239 514,793
29 392,633 501,119 615,832 1,061,954 1,119 115,832 561,954 1,119 115,832 561,954
30 418,565 0 610,688 1,112,697 0 110,688 612,697 0 110,688 612,697
</TABLE>
(1) Assumes that no Policy loans have been made.
(2) Values reflect applicable premium expenses charges, guaranteed cost of
insurance rates, a monthly administrative charge of $30.00 per month in
year 1 and $10.00 per month thereafter, and a mortality and expense risk
charge of 0.75% of assets during the first ten Policy Years, and 0.25%
thereafter.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the Prospectus.
(4) Assumes that the planned periodic premium is paid at the beginning of each
Policy Year. Values would be different if the premiums are paid with a
different frequency or in different amounts.
(5) The illustrated gross annual investment rates of return of 0%, 6%, and 12%
would correspond to approximate net annual rate of -1.46%, 4.50%, and
10.46% respectively, during the first ten Policy Years, and -0.97%, 5.02%,
and 11.00% respectively thereafter.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAT THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND PREVAILING RATES. THE DEATH BENEFIT
AND ACCOUNT VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
RATES OF RETURN AVERAGED 0%, 6%, OR 12% OVER A PERIOD OF YEARS BUT ALSO
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATION CAN BE MADE BY THE COMPANY OR THE PORTFOLIOS THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
25
<PAGE>
AMERICAN UNITED LIFE INSURANCE COMPANY
VARIABLE UNIVERSAL LIFE INSURANCE
<TABLE>
<S> <C> <C> <C> <C>
MALE ISSUE AGE: 55 $500,000 FACE AMOUNT
PREFERRED, NON-TOBACCO USER DEATH BENEFIT OPTION 1
VARIABLE INVESTMENT $13,000 ANNUAL PREMIUM USING CURRENT CHARGES
DEATH BENEFIT ACCOUNT VALUE CASH VALUE
Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical
PREMIUMS Gross Annual Gross Annual Gross Annual
ACCUM. Investment Return of Investment Return of Investment Return of
END AT 5% ________________________________ ________________________________ ________________________________
OF INTEREST
YEAR PER YEAR 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
- ------------ --------------- ---------------------------------- ----------------------------------- --------------------------------
1 13,650 500,000 500,000 500,000 8,943 9,572 10,204 0 0 0
2 27,983 500,000 500,000 500,000 17,856 19,686 21,594 6,466 8,296 10,204
3 43,032 500,000 500,000 500,000 26,439 30,058 33,986 15,049 18,668 22,596
4 58,833 500,000 500,000 500,000 34,678 40,688 47,479 23,288 29,298 36,089
5 75,425 500,000 500,000 500,000 42,553 51,570 62,181 31,163 40,180 50,791
6 92,846 500,000 500,000 500,000 50,045 62,700 78,217 39,794 52,449 67,966
7 111,138 500,000 500,000 500,000 57,133 74,074 95,731 48,021 64,962 86,619
8 130,345 500,000 500,000 500,000 63,777 85,671 114,873 55,804 77,698 106,900
9 150,513 500,000 500,000 500,000 69,941 97,479 135,824 63,107 90,645 128,990
10 171,688 500,000 500,000 500,000 75,593 109,490 158,803 69,898 103,795 153,108
11 193,923 500,000 500,000 500,000 81,389 122,606 185,298 76,833 118,050 180,742
12 217,269 500,000 500,000 500,000 86,649 136,060 214,693 83,232 132,643 211,276
13 241,782 500,000 500,000 500,000 91,349 149,881 247,422 89,071 147,603 245,144
14 267,521 500,000 500,000 500,000 95,453 164,095 283,984 94,314 162,956 282,845
15 294,547 500,000 500,000 500,000 98,904 178,721 324,973 98,904 178,721 324,973
16 322,925 500,000 500,000 500,000 101,619 193,770 371,091 101,619 193,770 371,091
17 352,721 500,000 500,000 500,000 103,494 209,254 423,195 103,494 209,254 423,195
18 384,007 500,000 500,000 535,085 104,392 225,178 482,058 104,392 225,178 482,058
19 416,857 500,000 500,000 596,740 104,171 241,575 547,468 104,171 241,575 547,468
20 451,350 500,000 500,000 663,531 102,702 258,512 620,122 102,702 258,512 620,122
21 487,568 500,000 500,000 735,937 99,267 275,745 700,892 99,267 275,745 700,892
22 525,596 500,000 500,000 829,764 94,258 293,737 790,251 94,258 293,737 790,251
23 565,526 500,000 500,000 933,540 87,528 312,672 889,086 87,528 312,672 889,086
24 607,452 500,000 500,000 1,048,290 78,892 332,764 998,371 78,892 332,764 998,371
25 651,475 500,000 500,000 1,175,128 68,073 354,255 1,119,170 68,073 354,255 1,119,170
26 697,699 500,000 500,000 1,315,256 54,592 377,401 1,252,625 54,592 377,401 1,252,625
27 746,234 500,000 500,000 1,469,980 37,879 402,563 1,399,981 37,879 402,563 1,399,981
28 797,195 500,000 500,000 1,640,714 17,221 430,223 1,562,585 17,221 430,223 1,562,585
29 850,705 0 500,000 1,828,991 0 461,033 1,741,896 0 461,033 1,741,896
30 906,890 0 519,939 2,036,486 0 495,180 1,939,511 0 495,180 1,939,511
</TABLE>
(1) Assumes that no Policy loans have been made.
(2) Values reflect applicable premium expenses charges, current cost of
insurance rates, a monthly administrative charge of $30.00 per month in
year 1 and $5.00 per month thereafter, and a mortality and expense risk
charge of 0.75% of assets during the first ten Policy Years, and 0.25%
thereafter.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the Prospectus.
(4) Assumes that the planned periodic premium is paid at the beginning of each
Policy Year. Values would be different if the premiums are paid with a
different frequency or in different amounts.
(5) The illustrated gross annual investment rates of return of 0%, 6%, and 12%
would correspond to approximate net annual rate of -1.46%, 4.50%, and
10.46% respectively, during the first ten Policy Years, and -0.97%, 5.02%,
and 11.00% respectively thereafter.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAT THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND PREVAILING RATES. THE DEATH BENEFIT
AND ACCOUNT VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
RATES OF RETURN AVERAGED 0%, 6%, OR 12% OVER A PERIOD OF YEARS BUT ALSO
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATION CAN BE MADE BY THE COMPANY OR THE PORTFOLIOS THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
26
<PAGE>
AMERICAN UNITED LIFE INSURANCE COMPANY
VARIABLE UNIVERSAL LIFE INSURANCE
<TABLE>
<S> <C> <C> <C> <C>
MALE ISSUE AGE: 55 $500,000 FACE AMOUNT
PREFERRED, NON-TOBACCO USER DEATH BENEFIT OPTION 1
VARIABLE INVESTMENT $13,000 ANNUAL PREMIUM USING GUARANTEED CHARGES
DEATH BENEFIT ACCOUNT VALUE CASH VALUE
Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical
PREMIUMS Gross Annual Gross Annual Gross Annual
ACCUM. Investment Return of Investment Return of Investment Return of
END AT 5% ________________________________ ________________________________ ________________________________
OF INTEREST
YEAR PER YEAR 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
- ------------ --------------- ---------------------------------- ----------------------------------- --------------------------------
1 13,650 500,000 500,000 500,000 7,699 8,290 8,882 0 0 0
2 27,983 500,000 500,000 500,000 15,186 16,856 18,602 3,796 5,466 7,212
3 43,032 500,000 500,000 500,000 22,209 25,457 28,994 10,819 14,067 17,604
4 58,833 500,000 500,000 500,000 28,739 34,064 40,106 17,349 22,674 28,716
5 75,425 500,000 500,000 500,000 34,734 42,638 51,988 23,344 31,248 40,598
6 92,846 500,000 500,000 500,000 40,150 51,136 64,700 29,899 40,885 54,449
7 111,138 500,000 500,000 500,000 44,939 59,514 78,311 35,827 50,402 69,199
8 130,345 500,000 500,000 500,000 49,020 67,695 92,879 41,047 59,722 84,906
9 150,513 500,000 500,000 500,000 52,313 75,602 108,483 45,479 68,768 101,649
10 171,688 500,000 500,000 500,000 54,739 83,162 125,232 49,044 77,467 119,537
11 193,923 500,000 500,000 500,000 56,792 91,060 144,302 52,236 86,504 139,746
12 217,269 500,000 500,000 500,000 57,835 98,564 165,090 54,418 95,147 161,673
13 241,782 500,000 500,000 500,000 57,784 105,611 187,878 55,506 103,333 185,600
14 267,521 500,000 500,000 500,000 56,524 112,115 213,003 55,385 110,976 211,864
15 294,547 500,000 500,000 500,000 53,891 117,951 240,863 53,891 117,951 240,863
16 322,925 500,000 500,000 500,000 49,659 122,944 271,942 49,659 122,944 271,942
17 352,721 500,000 500,000 500,000 43,534 126,867 306,848 43,534 126,867 306,848
18 384,007 500,000 500,000 500,000 35,129 129,420 346,365 35,129 129,420 346,365
19 416,857 500,000 500,000 500,000 24,004 130,266 391,543 24,004 130,266 391,543
20 451,350 500,000 500,000 500,000 9,683 129,042 443,786 9,683 129,042 443,786
21 487,568 0 500,000 529,724 0 125,356 504,499 0 125,356 504,499
22 525,596 0 500,000 600,483 0 118,741 571,889 0 118,741 571,889
23 565,526 0 500,000 678,560 0 108,628 646,248 0 108,628 646,248
24 607,452 0 500,000 764,667 0 94,277 728,255 0 94,277 728,255
25 651,475 0 500,000 859,570 0 74,644 818,638 0 74,644 818,638
26 697,699 0 500,000 964,088 0 48,267 918,179 0 48,267 918,179
27 746,234 0 500,000 1,079,091 0 13,111 1,027,706 0 13,111 1,027,706
28 797,195 0 0 1,205,497 0 0 1,148,092 0 0 1,148,092
29 850,705 0 0 1,344,283 0 0 1,280,270 0 0 1,280,270
30 906,890 0 0 1,496,501 0 0 1,425,239 0 0 1,425,239
</TABLE>
(1) Assumes that no Policy loans have been made.
(2) Values reflect applicable premium expenses charges, guaranteed cost of
insurance rates, a monthly administrative charge of $30.00 per month in
year 1 and $10.00 per month thereafter, and a mortality and expense risk
charge of 0.75% of assets during the first ten Policy Years, and 0.25%
thereafter.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the Prospectus.
(4) Assumes that the planned periodic premium is paid at the beginning of each
Policy Year. Values would be different if the premiums are paid with a
different frequency or in different amounts.
(5) The illustrated gross annual investment rates of return of 0%, 6%, and 12%
would correspond to approximate net annual rate of -1.46%, 4.50%, and
10.46% respectively, during the first ten Policy Years, and -0.97%, 5.02%,
and 11.00% respectively thereafter.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAT THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND PREVAILING RATES. THE DEATH BENEFIT
AND ACCOUNT VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
RATES OF RETURN AVERAGED 0%, 6%, OR 12% OVER A PERIOD OF YEARS BUT ALSO
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATION CAN BE MADE BY THE COMPANY OR THE PORTFOLIOS THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
27
<PAGE>
AMERICAN UNITED LIFE INSURANCE COMPANY
VARIABLE UNIVERSAL LIFE INSURANCE
<TABLE>
<S> <C> <C> <C> <C>
MALE ISSUE AGE: 55 $250,000 FACE AMOUNT
PREFERRED, NON-TOBACCO USER DEATH BENEFIT OPTION 2
VARIABLE INVESTMENT $12,000 ANNUAL PREMIUM USING CURRENT CHARGES
DEATH BENEFIT ACCOUNT VALUE CASH VALUE
Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical
PREMIUMS Gross Annual Gross Annual Gross Annual
ACCUM. Investment Return of Investment Return of Investment Return of
END AT 5% ________________________________ ________________________________ ________________________________
OF INTEREST
YEAR PER YEAR 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
- ------------ --------------- ---------------------------------- ----------------------------------- --------------------------------
1 12,600 259,357 259,973 260,589 9,357 9,973 10,589 3,662 4,278 4,894
2 25,830 268,747 270,568 272,465 18,747 20,568 22,465 13,052 14,873 16,770
3 39,722 277,866 281,502 285,440 27,866 31,502 35,440 22,171 25,807 29,745
4 54,308 286,702 292,775 299,614 36,702 42,775 49,614 31,007 37,080 43,919
5 69,623 295,244 304,383 315,093 45,244 54,383 65,093 39,549 48,688 59,398
6 85,704 303,477 316,324 331,996 53,477 66,324 81,996 48,352 61,198 76,871
7 102,589 311,387 328,592 350,450 61,387 78,592 100,450 56,831 74,036 95,894
8 120,319 318,947 341,171 370,585 68,947 91,171 120,585 64,961 87,184 116,599
9 138,935 326,134 354,043 392,546 76,134 104,043 142,546 72,717 100,626 139,129
10 158,481 332,925 367,196 416,495 82,925 117,196 166,495 80,078 114,348 163,647
11 179,006 339,996 381,527 443,845 89,996 131,527 193,845 87,718 129,249 191,567
12 200,556 346,658 396,226 473,845 96,658 146,226 223,845 94,949 144,518 222,136
13 223,184 352,894 411,291 506,762 102,894 161,291 256,762 101,755 160,152 255,623
14 246,943 358,680 426,710 542,889 108,680 176,710 292,889 108,110 176,140 292,320
15 271,890 363,979 442,459 582,536 113,979 192,459 332,536 113,979 192,459 332,536
16 298,084 368,741 458,497 626,031 118,741 208,497 376,031 118,741 208,497 376,031
17 325,589 372,904 474,771 673,729 122,904 224,771 423,729 122,904 224,771 423,729
18 354,468 376,389 491,205 726,002 126,389 241,205 476,002 126,389 241,205 476,002
19 384,791 379,121 507,722 783,268 129,121 257,722 533,268 129,121 257,722 533,268
20 416,631 381,040 524,259 846,006 131,040 274,259 596,006 131,040 274,259 596,006
21 450,063 381,728 540,377 914,371 131,728 290,377 664,371 131,728 290,377 664,371
22 485,166 381,495 556,363 989,298 131,495 306,363 739,298 131,495 306,363 739,298
23 522,024 380,314 572,173 1,071,473 130,314 322,173 821,473 130,314 322,173 821,473
24 560,725 378,151 587,755 1,161,653 128,151 337,755 911,653 128,151 337,755 911,653
25 601,361 374,940 603,021 1,260,641 124,940 353,021 1,010,641 124,940 353,021 1,010,641
26 644,030 370,529 617,788 1,369,239 120,529 367,788 1,119,239 120,529 367,788 1,119,239
27 688,831 364,768 631,864 1,488,338 114,768 381,864 1,238,338 114,768 381,864 1,238,338
28 735,873 357,489 645,030 1,618,911 107,489 395,030 1,368,911 107,489 395,030 1,368,911
29 785,266 348,537 657,066 1,762,048 98,537 407,066 1,512,048 98,537 407,066 1,512,048
30 837,129 337,791 667,773 1,918,996 87,791 417,773 1,668,996 87,791 417,773 1,668,996
</TABLE>
(1) Assumes that no Policy loans have been made.
(2) Values reflect applicable premium expenses charges, current cost of
insurance rates, a monthly administrative charge of $30.00 per month in
year 1 and $5.00 per month thereafter, and a mortality and expense risk
charge of 0.75% of assets during the first ten Policy Years, and 0.25%
thereafter.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the Prospectus.
(4) Assumes that the planned periodic premium is paid at the beginning of each
Policy Year. Values would be different if the premiums are paid with a
different frequency or in different amounts.
(5) The illustrated gross annual investment rates of return of 0%, 6%, and 12%
would correspond to approximate net annual rate of -1.46%, 4.50%, and
10.46% respectively, during the first ten Policy Years, and -0.97%, 5.02%,
and 11.00% respectively thereafter.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAT THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND PREVAILING RATES. THE DEATH BENEFIT
AND ACCOUNT VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
RATES OF RETURN AVERAGED 0%, 6%, OR 12% OVER A PERIOD OF YEARS BUT ALSO
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATION CAN BE MADE BY THE COMPANY OR THE PORTFOLIOS THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
28
<PAGE>
AMERICAN UNITED LIFE INSURANCE COMPANY
VARIABLE UNIVERSAL LIFE INSURANCE
<TABLE>
<S> <C> <C> <C> <C>
MALE ISSUE AGE: 55 $250,000 FACE AMOUNT
PREFERRED, NON-TOBACCO USER DEATH BENEFIT OPTION 2
VARIABLE INVESTMENT $12,000 ANNUAL PREMIUM USING GUARANTEED CHARGES
DEATH BENEFIT ACCOUNT VALUE CASH VALUE
Assuming Hypothetical Assuming Hypothetical Assuming Hypothetical
PREMIUMS Gross Annual Gross Annual Gross Annual
ACCUM. Investment Return of Investment Return of Investment Return of
END AT 5% ________________________________ ________________________________ ________________________________
OF INTEREST
YEAR PER YEAR 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
- ------------ --------------- ---------------------------------- ----------------------------------- --------------------------------
1 12,600 258,724 259,319 259,915 8,724 9,319 9,915 3,029 3,624 4,220
2 25,830 267,352 269,089 270,900 17,352 19,089 20,900 11,657 13,394 15,205
3 39,722 275,633 279,071 282,798 25,633 29,071 32,798 19,938 23,376 27,103
4 54,308 283,548 289,249 295,681 33,548 39,249 45,681 27,853 33,554 39,986
5 69,623 291,074 299,602 309,619 41,074 49,602 59,619 35,379 43,907 53,924
6 85,704 298,183 310,104 324,688 48,183 60,104 74,688 43,057 54,979 69,562
7 102,589 304,847 320,727 340,970 54,847 70,727 90,970 50,291 66,171 86,414
8 120,319 311,020 331,422 358,537 61,020 81,422 108,537 57,034 77,435 104,551
9 138,935 316,659 342,138 377,468 66,659 92,138 127,468 63,242 88,721 124,051
10 158,481 321,721 352,827 397,854 71,721 102,827 147,854 68,873 99,980 145,006
11 179,006 326,801 364,271 420,920 76,800 114,271 170,920 74,522 111,993 168,642
12 200,556 331,244 375,683 445,902 81,244 125,683 195,902 79,535 123,974 194,193
13 223,184 335,015 387,018 472,965 85,015 137,018 222,965 83,876 135,879 221,826
14 246,943 338,066 398,218 502,281 88,066 148,218 252,281 87,496 147,649 251,712
15 271,890 340,329 409,198 534,021 90,329 159,198 284,021 90,329 159,198 284,021
16 298,084 341,713 419,846 568,345 91,713 169,846 318,345 91,713 169,846 318,345
17 325,589 342,105 430,019 605,410 92,105 180,019 355,410 92,105 180,019 355,410
18 354,468 341,362 439,538 645,359 91,362 189,538 395,359 91,362 189,538 395,359
19 384,791 339,348 448,216 688,352 89,348 198,216 438,352 89,348 198,216 438,352
20 416,631 335,948 455,882 734,592 85,948 205,882 484,592 85,948 205,882 484,592
21 450,063 331,078 462,385 784,336 81,078 212,385 534,336 81,078 212,385 534,336
22 485,166 324,668 467,580 837,881 74,668 217,580 587,881 74,668 217,580 587,881
23 522,024 316,660 471,327 895,574 66,660 221,327 645,574 66,660 221,327 645,574
24 560,725 306,988 473,468 957,786 56,988 223,468 707,786 56,988 223,468 707,786
25 601,361 295,531 473,783 1,024,874 45,531 223,783 774,874 45,531 223,783 774,874
26 644,030 282,109 471,977 1,097,171 32,109 221,977 847,171 32,109 221,977 847,171
27 688,831 266,489 467,686 1,174,992 16,489 217,686 924,992 16,489 217,686 924,992
28 735,873 0 460,476 1,258,634 0 210,476 1,008,634 0 210,476 1,008,634
29 785,266 0 449,906 1,348,445 0 199,906 1,098,445 0 199,906 1,098,445
30 837,129 0 435,571 1,444,872 0 185,571 1,194,872 0 185,571 1,194,872
</TABLE>
(1) Assumes that no Policy loans have been made.
(2) Values reflect applicable premium expenses charges, guaranteed cost of
insurance rates, a monthly administrative charge of $30.00 per month in
year 1 and $10.00 per month thereafter, and a mortality and expense risk
charge of 0.75% of assets during the first ten Policy Years, and 0.25%
thereafter.
(3) Net investment returns are calculated as the hypothetical gross investment
returns less all charges and deductions shown in the Prospectus.
(4) Assumes that the planned periodic premium is paid at the beginning of each
Policy Year. Values would be different if the premiums are paid with a
different frequency or in different amounts.
(5) The illustrated gross annual investment rates of return of 0%, 6%, and 12%
would correspond to approximate net annual rate of -1.46%, 4.50%, and
10.46% respectively, during the first ten Policy Years, and -0.97%, 5.02%,
and 11.00% respectively thereafter.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAT THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND PREVAILING RATES. THE DEATH BENEFIT
AND ACCOUNT VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL
RATES OF RETURN AVERAGED 0%, 6%, OR 12% OVER A PERIOD OF YEARS BUT ALSO
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO
REPRESENTATION CAN BE MADE BY THE COMPANY OR THE PORTFOLIOS THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
29
<PAGE>
OTHER POLICY BENEFITS AND PROVISIONS
Limits on Rights to Contest the Policy
Incontestability. In the absence of fraud, after the Policy has been in
force during the Insured's lifetime for two years from the Contract Date, AUL
may not contest the Contract. Any increase in the Face Amount will not be
contested after the increase has been in force during the Insured's lifetime for
two years following the effective date of the increase. If you did not request
the Face Amount increase or if evidence of insurability was not required, we
will not contest the increase.
If a Policy lapses and it is reinstated, we can contest the reinstated Policy
during the first two years after the effective date of the reinstatement, but
only for statements made in the application for reinstatement.
Suicide Exclusion. If the Insured dies by suicide, while sane or
insane, within two years of the Contract Date or the effective date of any
reinstatement (or less if required by state law), the amount payable by AUL will
be equal to the premiums paid less any loan, loan interest, and any Partial
Surrender.
If the Insured dies by suicide, while sane or insane, within two years after the
effective date of any increase in the Face Amount (or less if required by state
law), the amount payable by AUL on such increase will be limited to the Monthly
Deduction associated with the increase.
Changes in the Policy or Benefits
Misstatement of Age or Sex. If it is determined the age or sex of the
Insured as stated in the Policy is not correct, the Death Benefit will be the
greater of: (1) the amount which would have been purchased at the Insured's
correct age and sex by the most recent cost of insurance charge assessed prior
to the date we receive proof of death; or (2) the Account Value as of the date
we receive proof of death, multiplied by the Minimum Insurance Percentage for
the correct age.
Other Changes. Upon notice, AUL may modify the Policy, but only if such
modification is necessary to: (1) make the Policy or the Separate Account comply
with any applicable law or regulation issued by a governmental agency to which
AUL is subject; (2) assure continued qualification of the Policy under the
Internal Revenue Code or other federal or state laws relating to variable life
contracts; (3) reflect a change in the operation of the Separate Account; or (4)
provide different Separate Account and/or Fixed Account accumulation options.
AUL reserves the right to modify the Policy as necessary to attempt to prevent
the Owner from being considered the owner of the assets of the Separate Account.
In the event of any such modification, AUL will issue an appropriate endorsement
to the Policy, if required. AUL will exercise these rights in accordance with
applicable law, including approval of Owners, if required.
Any change of the Policy must be approved by AUL's President, Vice President or
Secretary. No representative is authorized to change or waive any provision of
the Policy.
Change of Insured
While the Policy is in force, it may be exchanged for a new Policy on the life
of a substitute Insured. The exercise of this exchange is subject to
satisfactory evidence of insurability for the substitute Insured. The Contract
Date of the new Policy will generally be the same as the Contract Date of the
exchanged Policy. The Issue Date of the new Policy will be the date of the
exchange. The initial Cash Value of the new Policy will be the same as the Cash
Value of the exchanged Policy on the date of the exchange. Exercise of the
Change of Insured provision will result in a taxable exchange.
Exchange for Paid-Up Policy
You may exchange the Policy for a paid-up whole life policy by Proper Notice and
upon returning the Policy to the Home Office. The new policy will be for the
level face amount, not greater than the Policy's Face Amount, which can be
purchased by the Policy's Net Cash Value. The new policy will be purchased using
the continuous net single premium for the Insured's age upon the Insured's last
birthday at the time of the exchange. We will pay you any remaining Net Cash
Value that was not used to purchase the new policy.
At any time after this option is elected, the cash value of the new policy will
be its net single premium at the Insured's then attained age. All net single
premiums will be based on 3% interest and the guaranteed cost of insurance rates
of the Policy. No riders may be attached to the new policy.
When Proceeds Are Paid
AUL will ordinarily pay any Death Benefit Proceeds, loan proceeds, Partial
Surrender proceeds, or Full Surrender proceeds within seven calendar days after
receipt at the Home Office of all the documents required for such a payment.
Other than the Death Benefit, which is determined as of the date of death, the
amount will be determined as of the date of receipt of required documents.
However, AUL may delay making a payment or processing a transfer request if (1)
the New York Stock Exchange is closed for other than a regular holiday or
weekend, trading is restricted by the SEC, or the SEC declares that an emergency
exists as a result of which the disposal or valuation of Separate Account assets
is not reasonably practicable; or (2) the SEC by order permits postponement of
payment to protect Owners.
Dividends
You will receive any dividends declared by us as long as the Policy is in force.
Dividend payments will be applied to increase the Account Value in the
Investment Accounts and Fixed Account on a prorata basis unless you request cash
payment. We do not anticipate declaring any dividends.
Reports to Policy Owners
At least once a year, you will be sent a report at your last known address
showing, as of the end of the current report period: Account Value, Cash Value,
Death Benefit, amount of interest credited to amounts in the Fixed Account,
change in value of amounts in the Separate Account, premiums paid, loans,
Partial Surrenders, expense charges, and cost of insurance charges since the
prior report. You will also be sent an annual and a semi-annual report for each
Fund or Portfolio underlying an Investment Account to which you have allocated
Account
30
<PAGE>
Value, including a list of the securities held in each Fund, as required by the
1940 Act. In addition, when you pay premiums (except for premiums deducted
automatically), or if you take out a loan, transfer amounts among the Investment
Accounts and Fixed Account or take surrenders, you will receive a written
confirmation of these transactions.
Assignment
The Policy may be assigned in accordance with its terms. In order for any
assignment to be binding upon AUL, it must be in writing and filed at the Home
Office. Once AUL has received a signed copy of the assignment, the Owner's
rights and the interest of any beneficiary (or any other person) will be subject
to the assignment. If there are any irrevocable beneficiaries, you must obtain
their written consent before assigning the Policy. AUL assumes no responsibility
for the validity or sufficiency of any assignment. An assignment is subject to
any loan on the Policy.
Reinstatement
The Policy may be reinstated within five years (or such longer period if
required by state law) after lapse, subject to compliance with certain
conditions, including the payment of a necessary premium and submission of
satisfactory evidence of insurability. See your Policy for further information.
Rider Benefits
The following rider benefits are available and may be added to your Policy. If
applicable, monthly charges for these riders will be deducted from your Account
Value as part of the Monthly Deduction. All of these riders may not be available
in all states.
Waiver of Monthly Deduction Disability (WMDD)
Issue Ages: 0-55
This rider waives the Monthly Deduction during a period of total disability.
WMDD cannot be attached to Policies with Face Amounts in excess of
$3,000,000 or rated higher than Table H.
Monthly Deductions are waived for total disability following a six month
waiting period. Monthly Deductions made during this waiting period are
re-credited to the Account Value upon the actual waiver of the Monthly
Deductions. If disability occurs before age 60, Monthly Deductions are
waived as long as total disability continues. If disability occurs between
ages 60-65, Monthly Deductions are waived as long as the Insured remains
totally disabled but not beyond age 65.
Guaranteed Insurance Option (GIO)
Issue ages: 0-39 (standard risks only)
This rider allows the Face Amount of the Policy to be increased by the
option amount or less, without evidence of insurability on the Insured.
These increases may occur on regular option dates or alternate option dates.
See the rider contract for the specific dates.
Children's Benefit Rider (CBR)
Issue Ages: 14 Days - 20 Years (Children's ages)
This rider provides level term insurance on each child of the Insured. At
issue, each child must be at least 14 days old and less than 20 years of
age, and the Insured must be less than 56 years old and not have a
substandard rating greater than table H. Once CBR is in force, children born
to the Insured are covered automatically after they are 14 days old.
Children are covered under CBR until they reach age 22, when they may
purchase, without evidence of insurability, a separate policy with up to
five times the expiring face amount of the rider's coverage.
Other Insured Rider (OIR)
Issue Ages: 0-85 (Other Insured's age)
The Other Insured Rider is level term life insurance on someone other than
the Insured. The minimum issue amount is $10,000; the maximum issue amount
is equal to three times the Face Amount. A maximum of two OIRs may be added
to the Policy. The OIR amount of coverage may be changed in the future, but
increases are subject to evidence of insurability.
Prior to the Other Insured's age 70, the OIR may be converted to a permanent
individual policy without evidence of insurability. The OIR may be converted
to permanent coverage on the Monthiversary following the date of the
Insured's death.
Same Insured Rider (SIR)
Issue Ages: 0-85
This rider provides level term life insurance on the Insured. The minimum
issue amount is $10,000; the maximum issue is equal to three times the Face
Amount of the Policy. Only one SIR may be added to the Policy. The SIR face
amount may be changed (increases are subject to evidence of insurability).
Prior to age 70 (55 for substandard risks), the Insured may convert the SIR
to permanent coverage without evidence of insurability.
Waiver of Premium Disability (WPD)
Issue Ages: 0-55
This rider pays a designated premium into the Account Value during a period
of total disability. The minimum designated premium is $100. WPD may not be
added to a policy unless WMDD is already added. If disability occurs before
age 60, the designated premium benefit is paid as long as total disability
continues. If disability occurs between ages 60-65, the designated premium
benefit is paid as long as the Insured remains totally disabled but not
beyond age 65.
Last Survivor Rider (LS)
Issue Ages: 20-85
This rider modifies the terms of the Policy to provide insurance on the
lives of two Insureds rather than one. When the Last Survivor Rider is
attached, the Death Benefit Proceeds are paid to the beneficiary upon the
death of the last surviving Insured. The cost of insurance charges reflect
the anticipated mortality of the two Insureds and the fact that the Death
Benefit is not paid until the death of the surviving Insured. For a Policy
containing the LS Rider to be reinstated, either both Insureds must be
alive on the date of the reinstatement, or the surviving Insured must be
alive and the lapse occurred after the death of the first
31
<PAGE>
Insured. The Incontestability, Suicide, and Misstatement of Age or Sex
provisions of the Policy apply to either Insured.
LS Rider also provides a Policy Split Option, allowing the Policy on two
Insureds to be split into two separate Policies, one on the life of each
Insured. The LS Rider also includes an Estate Preservation Benefit which
increases the Face Amount of the Policy under certain conditions. The Estate
Preservation Benefit is only available to standard risks.
Automatic Increase Rider (AIR)
Issue Ages: 0-55 (standard risks only)
This rider increases the Insured's base coverage by 5% each year, without
evidence of insurability. The 5% increase is compounded annually and is
based on the base coverage Face Amount on Policy Anniversaries. No increases
are made during any period in which the Monthly Deduction is being waived.
Insured's initial base coverage must be at least $100,000.
AIR terminates on the earliest of the following dates: the date an
automatic increase is rejected, the date the Face Amount is decreased, the
date requested in writing by the Owner, the date of Policy termination, or
the anniversary date 20 years after issue of this rider. There is no charge
for AIR. New coverage generated by the rider results in an increase in the
target premium. All charges for any new coverage are based on the Insured's
nearest age at the time of increase.
Guaranteed Minimum Death Benefit Rider (GMDB)
This rider extends the Guarantee Period as listed on the Policy Data Page.
While the GMDB rider is in force, the Policy will remain in force and will
not begin the grace period if on each Monthiversary, the sum of the
premiums paid to date, less any Partial Surrenders, any outstanding loan
and loan interest, equals or exceeds the required premium for the
Guaranteed Minimum Death Benefit multiplied by the number of Policy months
since the Contract Date. The guarantee provided by this rider terminates if
this test is failed on any Monthiversary. The guarantee will not be
reinstated.
Accelerated Death Benefit Rider (ABR)
This rider allows for a prepayment of a portion of the Policy's Death
Benefit while the Insured is still alive, if the Insured has been diagnosed
as terminally ill, and has 12 months or less to live. The minimum amount
available is $5,000. The maximum benefit payable (in most states) is the
lesser of $500,000 or 50% of the Face Amount. ABR may be added to the Policy
at any time while it is still in force. There is no charge for ABR.
TAX CONSIDERATIONS
The following summary provides a general description of the federal income tax
considerations associated with the Policy and does not purport to be complete or
to cover all situations. This discussion is not intended as tax advice. Counsel
or other competent tax advisers should be consulted for more complete
information. This discussion is based upon AUL's understanding of the present
federal tax laws as they currently are interpreted by the Internal Revenue
Service (the "IRS").
Tax Status of the Policy
In order to attain the tax benefits normally associated with life insurance, the
Policy must be classified for federal income tax purposes as a life insurance
contract. Section 7702 of the Internal Revenue Code sets forth a definition of a
life insurance contract for federal income tax purposes. The U.S. Treasury
Department (the "Treasury") is authorized to prescribe regulations implementing
Section 7702. While proposed regulations and other interim guidance has been
issued, final regulations have not been adopted. In short, guidance as to how
Section 7702 is to be applied is limited. If a Policy were determined not to be
a life insurance contract for purposes of Section 7702, such Policy would not
provide the tax advantages normally provided by a life insurance contract.
With respect to a Policy issued on a standard basis, AUL believes that such a
Policy should meet the Section 7702 definition of a life insurance contract.
With respect to a Policy that is issued on a substandard basis (i.e., a premium
class with extra rating involving higher than standard mortality risk) or one
involving joint insureds, there is less guidance, in particular as to how the
mortality and other expense requirements of Section 7702 are to be applied in
determining whether such a Policy meets the Section 7702 definition of a life
insurance contract. If the requirements of Section 7702 were deemed not to have
been met, the Policy would not provide the tax benefits normally associated with
life insurance and the tax status of all contracts invested in the Investment
Account to which premiums were allocated under the non-qualifying contract might
be affected.
If it is subsequently determined that a Policy does not satisfy Section 7702,
AUL may take whatever steps are appropriate and reasonable to attempt to cause
such a Policy to comply with Section 7702. For these reasons, AUL reserves the
right to modify the Policy as it deems necessary in its sole discretion to
attempt to qualify it as a life insurance contract under Section 7702.
Section 817(h) of the Internal Revenue Code requires that the investments of
each of the Investment Accounts must be "adequately diversified" in accordance
with Treasury regulations in order for the Policy to qualify as a life insurance
contract under Section 7702 of the Internal Revenue Code. The Investment
Accounts, through the Portfolios, intend to comply with the diversification
requirements prescribed in Treas. Reg. Section 1.817-5, which affect how the
Portfolio's assets are to be invested. AUL believes that the Investment Accounts
will meet the diversification requirements, and AUL will monitor continued
compliance with this requirement.
In certain circumstances, owners of variable life insurance contracts may be
considered the owners, for federal income tax purposes, of the assets of the
investment accounts used to support their contracts. In those circumstances,
income and gains from the investment account assets would be includable
32
<PAGE>
in the variable contract owner's gross income. The IRS has stated in published
rulings that a variable contract owner will be considered the owner of
investment account assets if the contract owner possesses incidents of ownership
in those assets, such as the ability to exercise investment control over the
assets. The Treasury has also announced, in connection with the issuance of
regulations concerning diversification, that those regulations "do not provide
guidance concerning the circumstances in which investor control of the
investments of a segregated asset account may cause the investor (i.e., the
Owner), rather than the insurance company, to be treated as the owner of the
assets in the account." This announcement also stated that guidance would be
issued by way of regulations or rulings on the "extent to which contract holders
may direct their investments to particular investment accounts without being
treated as owners of the underlying assets."
The ownership rights under the Policy are similar to, but different in certain
respects from, those described by the IRS in rulings in which it was determined
that contract owners were not owners of investment account assets. For example,
an Owner has additional flexibility in allocating Net Premium payments and
Account Value. These differences could result in an Owner being treated as the
owner of a prorata portion of the assets of the Investment Accounts. In
addition, AUL does not know what standards will be set forth, if any, in the
regulations or rulings which the Treasury has stated it expects to issue. AUL
therefore reserves the right to modify the Policy as necessary to attempt to
prevent an Owner from being considered the Owner of a prorata share of the
assets of the Investment Accounts.
The following discussion assumes that the Policy will qualify as a life
insurance contract for federal income tax purposes.
Tax Treatment of Policy Benefits
In General. AUL believes that the proceeds and Account Value increases
of a Policy should be treated in a manner consistent with a fixed-benefit life
insurance contract for federal income tax purposes. Thus, the Death Benefit
under the Policy should be excludable from the gross income of the beneficiary
under Section 101(a)(1) of the Internal Revenue Code. However, if you elect a
settlement option for a Death Benefit other than in a lump sum, a portion of the
payment made to you may be taxable.
Depending on the circumstances, the exchange of a Policy, a change in the
Policy's Death Benefit option, a Policy loan, a Partial Surrender, a surrender,
a change in ownership, or an assignment of the Policy may have federal income
tax consequences. In addition, federal, state and local transfer, and other tax
consequences of ownership or receipt of Policy proceeds depends on the
circumstances of each Owner or beneficiary.
The Policy may also be used in various arrangements, including nonqualified
deferred compensation or salary continuation plans, split dollar insurance
plans, executive bonus plans, retiree medical benefit plans and others. The tax
consequences of such plans may vary depending on the particular facts and
circumstances of each individual arrangement. Therefore, if you are
contemplating the use of a Policy in any arrangement the value of which depends
in part on its tax consequences, you should consult a qualified tax adviser
regarding the tax attributes of the particular arrangement.
Generally, the Owner will not be deemed to be in constructive receipt of the
Account Value, including increments thereof, until there is a distribution. The
tax consequences of distributions from, and loans taken from or secured by, a
Policy depend on whether the Policy is classified as a Modified Endowment. Upon
a complete surrender or lapse of a Policy, whether or not a Modified Endowment,
the excess of the amount received plus the amount of any outstanding loans and
loan interest over the total investment in the Policy will generally be treated
as ordinary income subject to tax.
Modified Endowments. Section 7702A establishes a class of life
insurance Policies designated as "Modified Endowment Contracts." The rules
relating to whether a Policy will be treated as a Modified Endowment are
extremely complex and cannot be adequately described in the limited confines of
this summary. In general, a Policy will be a Modified Endowment if the
accumulated premiums paid at any time during the first seven Policy Years exceed
the sum of the net level premiums which would have been paid on or before such
time if the Policy provided for paid-up future benefits after the payment of
seven level annual premiums. A Policy may also become a Modified Endowment after
a material change. The determination of whether a Policy will be a Modified
Endowment after a material change generally depends upon the relationship of the
Death Benefit and Account Value at the time of such change and the additional
premiums paid in the seven years following the material change.
Due to the Policy's flexibility, classification as a Modified Endowment will
depend on the individual circumstances of each Policy. In view of the foregoing,
a current or prospective Owner should consult with a tax adviser to determine
whether a Policy transaction will cause the Policy to be treated as a Modified
Endowment. However, at the time a premium is credited which in AUL's view would
cause the Policy to become a Modified Endowment, AUL will attempt to notify the
Owner that unless a refund of the excess premium (with any appropriate interest)
is requested by the Owner, the Policy will become a Modified Endowment. However,
we do not undertake to provide such notice. The Owner will have 30 days after
receiving such notification to request the refund.
Policies classified as Modified Endowments will be subject to the following:
First, all distributions, including distributions upon surrender and Partial
Surrender, from such a Policy are treated as ordinary income subject to tax up
to the amount equal to the excess (if any) of the Account Value immediately
before the distribution over the investment in the Policy (described below) at
such time. Second, loans taken from or secured by such a Policy, are treated as
distributions from the Policy and taxed accordingly. Past due loan interest that
is added to the loan amount will be treated as a loan. Third, a 10 percent
additional income tax is imposed on the portion of any distribution from, or
loan taken from or secured by, such a Policy that is included in income except
where the distribution or loan is made on or after the Owner attains age 59 1/2,
is attributable to the Owner's becoming disabled, or is part of a series of
substantially equal periodic payments for the life (or life expectancy) of the
Owner or the joint lives (or joint life expectancies) of the Owner and the
Owner's beneficiary.
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If a Policy becomes a Modified Endowment after it is issued, distributions made
during the Policy Year in which it becomes a Modified Endowment, distributions
in any subsequent Policy Year and distributions within two years before the
Policy becomes a Modified Endowment will be subject to the tax treatment
described above. This means that a distribution from a Policy that is not a
Modified Endowment could later become taxable as a distribution from a Modified
Endowment.
All Modified Endowments that are issued by AUL (or its affiliates) to the same
Owner during any calendar year are treated as one Modified Endowment for
purposes of determining the amount includable in an Owner's gross income under
Section 72(e) of the Internal Revenue Code.
Distributions from a Policy that is not a Modified Endowment are generally
treated as first recovering the investment in the Policy (described below) and
then, only after the return of all such investment in the Policy, as
distributing taxable income. An exception to this general rule occurs in the
case of a decrease in the Policy's Death Benefit or any other change that
reduces benefits under the Policy in the first 15 years after the Policy is
issued and that results in a cash distribution to the Owner in order for the
Policy to continue complying with the Section 7702 definitional limits. Such a
cash distribution will be taxed in whole or in part as ordinary income (to the
extent of any gain in the Policy) under rules prescribed in Section 7702.
Loans from, or secured by, a Policy that is not a Modified Endowment are not
treated as distributions. Instead, such loans are treated as indebtedness of the
Owner.
Finally, neither distributions (including distributions upon surrender) nor
loans from, or secured by, a Policy that is not a Modified Endowment are subject
to the 10 percent additional income tax.
Policy Loan Interest. Generally, consumer interest paid on any loan
under a Policy which is owned by an individual is not deductible for federal or
state income tax purposes. The deduction of other forms of interest paid on
Policy loans may also be subject to other restrictions under the Internal
Revenue Code. A qualified tax adviser should be consulted before deducting any
Policy loan interest.
Investment in the Policy. Investment in the Policy means: (1) the aggregate
amount of any premiums or other consideration paid for a Policy, minus (2) the
aggregate amount received under the Policy which is excluded from gross income
of the Owner (except that the amount of any loan from, or secured by, a Policy
that is a Modified Endowment, to the extent such amount is excluded from gross
income, will be disregarded), plus (3) the amount of any loan from, or secured
by, a Policy that is a Modified Endowment to the extent that such amount is
included in the gross income of the Owner.
Estate and Generation Skipping Taxes
When the Insured dies, the Death Benefits will generally be includable in the
Owner's estate for purposes of federal estate tax if the Insured owned the
Policy. If the Owner was not the Insured, the fair market value of the Policy
would be included in the Owner's estate upon the Owner's death. Nothing would be
includable in the Insured's estate if he or she neither retained incidents of
ownership at death nor had given up ownership within three years before death.
Federal estate tax is integrated with federal gift tax under a unified rate
schedule. An unlimited marital deduction may be available for federal estate and
gift tax purposes. The unlimited marital deduction permits the deferral of taxes
until the death of the surviving spouse.
If the Owner (whether or not he or she is the Insured) transfers ownership of
the Policy to someone two or more generations younger, the transfer may be
subject to the generation-skipping transfer tax with the taxable amount being
the value of the Policy. The generation-skipping transfer tax provisions
generally apply to transfers which would be subject to the gift and estate tax
rules. Because these rules are complex, the Owner should consult with a
qualified tax adviser for specific information if ownership is passing to
younger generations.
Life Insurance Purchased for Use in Split Dollar Arrangements
On January 26, 1996, the IRS released a technical advice memorandum ("TAM") on
the taxability of life insurance policies used in certain split dollar
arrangements. A TAM, issued by the National Office of the IRS, provides advice
as to the internal revenue laws, regulations, and related statutes with respect
to a specific set of facts and a specific taxpayer. In the TAM, among other
things, the IRS concluded that an employee was subject to current taxation on
the excess of the cash surrender value of the policy over the premiums to be
returned to the employer. Purchasers of life insurance policies to be used in
split dollar arrangements are strongly advised to consult with a qualified tax
adviser to determine the tax treatment resulting from such an arrangement.
Taxation Under Section 403(b) Plans
Purchase Payments. Under Section 403(b) of the Code, payments made by certain
employers (i.e., tax-exempt organizations meeting the requirements of Section
501(c)(3) of the Code, or public educational institutions) to purchase Policies
for their employees are excludible from the gross income of employees to the
extent that such aggregate purchase payments do not exceed certain limitations
prescribed by the Code. This is the case whether the purchase payments are a
result of voluntary salary reduction amounts or employer contributions. Salary
reduction payments, however, subject to FICA (social security) taxes.
Taxation of Distributions. Distributions from a Section 403(b) Policy are taxed
as ordinary income to the recipient. Taxable distributions received before the
employee attains Age 59 1/2 generally are subject to 10% penalty tax in addition
to regular income tax. Certain distributions are excepted from this penalty tax
including distributions following the employee's death, disability, separation
from service after age 55, separation from service at any age if the
distribution is in the form of an annuity for the life (or life expectancy) of
the employee (or the employee and Beneficiary) and distributions not in excess
of deductible medical expenses. In addition, no distributions of voluntary
salary reduction amounts made for years after December 31, 1988 (plus earnings
thereon and earnings on Policy Values as of December 31, 1988) will be permitted
prior to one of the following events: attainment of age 59 1/2 by the employee
or the employee's separation from service, death, disability or hardship.
(Hardship distributions
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will be limited to the lesser of the amount of the hardship or the amount of
salary reduction contributions, exclusive of earnings thereon.)
Required Distributions. At the time of retirement, the Policy must be: (1)
transferred to a non-life insurance 403(b) contract which complies with the
distribution requirements of the Internal Revenue Code; or (2) surrendered; or
(3) distributed and will continue in force, subject to the payment of any
required premium, and the provisions of the 403(b) policy endorsement will no
longer apply to the policy.
If the insured dies after the commencement of payments under a settlement
option, other than an interest option, any remaining portion of such interest
will be distributed at least as rapidly as under the method of distribution
being used on the date of such death. If the insured dies before commencement of
payments under a settlement option, or after payments commenced under the
interest option, the entire interest in the Policy will be distributed (1)
within 5 years after such death, or (2) as annuity payments which will begin
within one year of such death and which will be made over the life of the
designated beneficiary (who must be a natural person under this option) or over
a period not extending beyond the life expectancy of that beneficiary. However,
if the beneficiary is the insured's surviving spouse, the surviving spouse may
elect an option with payments extending more than five years after the insured's
death (but not to exceed the beneficiary's life or life expectancy) at any time
until the later of (1) the end of the calendar year following the year of the
insured's death, or (2) the end of the calendar year in which the insured would
have attained the age of 70 1/2.
Non-Individual Ownership of Contracts
If the Owner of a Policy is an entity rather than an individual, the tax
treatment may differ from that described above. Accordingly, prospective Owners
that are entities should consult a qualified tax advisor.
Possible Charge for AUL's Taxes
At the present time, AUL makes no charge for any federal, state or local taxes
(other than the charge for state and local premium taxes) that it incurs that
may be attributable to the Investment Accounts or to the Policies. However, AUL
reserves the right to make additional charges for any such tax or other economic
burden resulting from the application of the tax laws that it determines to be
properly attributable to the Investment Accounts or to the Policies.
OTHER INFORMATION ABOUT THE POLICIES AND AUL
Policy Termination
The Policy will terminate, and insurance coverage will cease, as of: (1) the end
of the Valuation Period during which we receive Proper Notice to surrender the
Policy; (2) the expiration of a grace period; or (3) the death of the Insured.
See "Surrendering the Policy for Net Cash Value," "Premium Payments to Prevent
Lapse," and "Death Benefit and Changes in Face Amount."
Resolving Material Conflicts
The Funds presently serve as the investment medium for the Separate Account and,
therefore, indirectly for the Policies. In addition, the Funds have advised us
that they are available to registered separate accounts of insurance companies,
other than AUL, offering variable annuity and variable life insurance policies.
We do not currently foresee any disadvantages to you resulting from the Funds
selling shares as an investment medium for products other than the Policies.
However, there is a theoretical possibility that a material conflict of interest
may arise between Owners whose Cash Values are allocated to the Separate Account
and the owners of variable life insurance policies and variable annuity
contracts issued by other companies whose values are allocated to one or more
other separate accounts investing in any one of the Funds. Shares of some of the
Funds may also be sold to certain qualified pension and retirement plans
qualifying under Section 401 of the Internal Revenue Code. As a result, there is
a possibility that a material conflict may arise between the interests of Owners
or owners of other contracts (including contracts issued by other companies),
and such retirement plans or participants in such retirement plans. In the event
of a material conflict, we will take any necessary steps, including removing the
Separate Account from that Fund, to resolve the matter. The Board of
Directors/Trustees of each Fund will monitor events in order to identify any
material conflicts that may arise and determine what action, if any, should be
taken in response to those events or conflicts.
Addition, Deletion or Substitution of Investments
We reserve the right, subject to applicable law, to make additions to, deletions
from, or substitutions for the shares that are held in the Separate Account or
that the Separate Account may purchase. If the shares of a Portfolio are no
longer available for investment or if, in our judgment, further investment in
any Portfolio should become inappropriate in view of the purposes of the
Separate Account, we may redeem the shares, if any, of that Portfolio and
substitute shares of another registered open-end management investment company.
We will not substitute any shares attributable to a Policy's interest in an
Investment Account of the Separate Account without notice to you and prior
approval of the SEC and state insurance authorities, to the extent required by
the 1940 Act or other applicable law.
We also reserve the right to establish additional Investment Accounts of the
Separate Account, each of which would invest in shares corresponding to a
Portfolio of a Fund or in shares of another investment company having a
specified investment objective. Any new Investment Accounts may be made
available to existing Owners on a basis to be determined by AUL. Subject to
applicable law and any required SEC approval, we may, in our sole discretion,
eliminate one or more Investment Accounts if marketing needs, tax considerations
or investment conditions warrant.
If any of these substitutions or changes are made, we may, by appropriate
endorsement, change the Policy to reflect the substitution or change.
If we deem it to be in the best interests of persons having voting rights under
the Policies (subject to any approvals that
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may be required under applicable law), the Separate Account may be operated as a
management investment company under the 1940 Act, it may be de-registered under
that Act if registration is no longer required, or it may be combined with other
AUL separate accounts.
Voting Rights
AUL is the legal owner of the shares of the Portfolios held by the Investment
Accounts of the Separate Account. In accordance with its view of present
applicable law, AUL will exercise voting rights attributable to the shares of
each Portfolio held in the Investment Accounts at any regular and special
meetings of the shareholders of the Funds or Portfolios on matters requiring
shareholder voting under the 1940 Act. AUL will exercise these voting rights
based on instructions received from persons having the voting interest in
corresponding Investment Accounts of the Separate Account and consistent with
any requirements imposed on AUL under contracts with any of the Funds, or under
applicable law. However, if the 1940 Act or any regulations thereunder should be
amended, or if the present interpretation thereof should change, and as a result
AUL determines that it is permitted to vote the shares of the Portfolios in its
own right, it may elect to do so.
The person having the voting interest under a Policy is the Owner. AUL or the
pertinent Fund shall send to each Owner a Fund's proxy materials and forms of
instruction by means of which instructions may be given to AUL on how to
exercise voting rights attributable to the Portfolio's shares.
Unless otherwise required by applicable law or under a contract with any of the
Funds, with respect to each of the Portfolios, the number of Portfolio shares as
to which voting instructions may be given to AUL is determined by dividing the
value of all of the Accumulation Units of the corresponding Investment Account
attributable to a Policy on a particular date by the net asset value per share
of that Portfolio as of the same date. Fractional votes will be counted. The
number of votes as to which voting instructions may be given will be determined
as of the date coincident with the date established by a Fund for determining
shareholders eligible to vote at the meeting of the Fund or Portfolio. If
required by the SEC or under a contract with any of the Funds, AUL reserves the
right to determine in a different fashion the voting rights attributable to the
shares of the Portfolio. Voting instructions may be cast in person or by proxy.
Voting rights attributable to the Policies for which no timely voting
instructions are received will be voted by AUL in the same proportion as the
voting instructions which are received in a timely manner for all Policies
participating in that Investment Account. AUL will vote shares of any Investment
Account, if any, that it owns beneficially in its own discretion, except that if
a Fund offers its shares to any insurance company separate account that funds
variable annuity contracts or if otherwise required by applicable law or
contract, AUL will vote its own shares in the same proportion as the voting
instructions that are received in timely manner for Policies participating in
the Investment Account.
Neither the Separate Account nor AUL is under any duty to inquire as to the
instructions received or the authority of Owners or others to instruct the
voting of shares of any of the Portfolios.
If required by state insurance officials, AUL may disregard Owner voting
instructions if such instructions would require shares to be voted so as to
cause a change in sub-classification or investment objectives of one or more of
the Portfolios, or to approve or disapprove an investment advisory agreement. In
addition, AUL may under certain circumstances disregard voting instructions that
would require changes in the investment advisory contract or investment adviser
of one or more of the Portfolios, provided that AUL reasonably disapproves of
such changes in accordance with applicable federal regulations. If AUL ever
disregards voting instructions, Owners will be advised of that action and of the
reasons for such action in the next semiannual report. Finally, AUL reserves the
right to modify the manner in which the weight to be given to pass-through
voting instructions is calculated when such a change is necessary to comply with
current federal regulations or the current interpretation thereof.
Sale of the Policies
The Policies will be offered to the public on a continuous basis, and we do not
anticipate discontinuing the offering of the Policies. However, we reserve the
right to discontinue the offering. Applications for Policies are solicited by
representatives who are licensed by applicable state insurance authorities to
sell our variable life contracts and who are also registered representatives of
AUL. AUL is registered with the SEC under the Securities Exchange Act of 1934 as
a broker-dealer and is a member of the National Association of Securities
Dealers, Inc.
AUL acts as the "principal underwriter," as defined in the 1940 Act, of the
Policies for the Separate Account. We are not obligated to sell any specific
number of Policies.
Registered representatives may be paid commissions on Policies they sell.
Representatives generally will be paid 50% of planned premiums paid in the first
year for premiums up to target premium. For planned premiums paid in excess of
target premium, registered representatives will also receive 3% of that excess.
Additional commissions may be paid in certain circumstances. Other allowances
and overrides also may be paid.
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AUL Directors and Executive Officers
The following table sets forth the name and principal occupations during the
past ten years of each of AUL's directors and executive officers. Unless
otherwise indicated, the address of each of the following individuals is One
American Square, P.O. Box 368, Indianapolis, Indiana 46206-0368, and the
indicated position is with AUL.
<TABLE>
<S> <C>
Name Principal Occupation During Past Five Years
Jerry D. Semler President and Chief Operating Officer, 1980-1989;
President & Chief Exec. Officer, 1989-8/91; Chairman of
the Board, Pres. & CEO, 9/91-present; Chairman of the AUL
Acquisition Committee; Mental Health Board, State of Indiana,
10/87-10/91; Dir. Jenn Foundation Board, 5/92-present; IWC Resources
Corp., 4/96-present
John H. Barbre Sr. Vice Pres., Individual Div., 5/80-present
John R. Barton Sr. Vice Pres., Group Life & Health Div., 1/99-present; VP Group
Operations, WAUSAU Insurance Co., 5/98-1/99; Consultant, Heron
Managment Group, 4/97-5/98; President & CEO, The Epoch Group, L.C.,
1/96-4/97; President BMA-Select HMO, Sr. VP Employment, Business
Mens Insurance Co. of America, 1/89-1/94
William R. Brown General Counsel & Secretary, 1/85-present; Dir., Health &
Hospital Corp. of Marion County Board, 1/84-1/92; Member,
Metro Development Com. of Indpls., 1/92-10/93; Dir.,
NOLHGA Board, 1/95-present
Charles D. Lineback Sr. Vice Pres., Reinsurance Div., 12/87-present
James W. Murphy Sr. Vice Pres., Corporate Finance, 8/69-present
Jerry L. Plummer Sr. Vice Pres., Human Resources, 1/93-present; V.P.
Human Res., 1/81-1/93
R. Stephen Radcliffe Executive Vice Pres., 8/94-present; Sr. V.P., Chief
Actuary, 5/83-8/94; Director, 2/91-present
G. David Sapp Sr. Vice Pres., Investments, 1/92-present; V.P.,
Securities, 8/75-1/92
William L. Tindall Sr. Vice Pres., Pension Div., 8/97 - present; Sr. Vice
Pres., Massachusetts Mutual Life Insurance Co.,
1993-1997; Vice President Pension Marketing,
Massachusetts Mutual Life Insurance Co., 1987-1993.
Catherine B. Husman V.P. and Chief Actuary, 7/97-present; V.P. and Corporate
Actuary, 1/84-7/97
Scott A. Kincaid Sr. V.P. & Chief Information Officer, 3/98-present; V.P. & Chief
Information Officer 1/95-3/98; V.P. Data Center, 9/91-1/95
Steven C. Beering, M.D. Director, 2/90-present; Director, NIPSCO Industries, Inc.
575 McCormick Rd. 2/86-present; Director, Arvin Industries, Inc.,
West Lafayette, IN 47906 11/83-present; Director, Eli Lilly, 4/83-present;
President, Purdue University, 2/83-present; Director,
Guidant Corp., 12/94-8/95; Dir., State Life Ins. Co.,
11/94-present
Arthur L. Bryant Director, 11/94-present; President, The State Life
11817 Sand Dollar Ct. Insurance Company, 9/83-present; Chairman of Board, The
Indianapolis, IN 46256 State Life Ins., 2/85-11/94
James M. Cornelius Director, 2/96-present; V.P. & CEO, Eli Lilly & Co.,
1055 Park Place 1/83-1995; Chairman, Guidant Corp., 10/95-present; Dir.
Zoinsville, IN 46077 State Life Ins. Co., 11/94-present, Dir., National Bank
of Indpls., 11/93-present; Dir. Lilly Industries, Inc.,
4/96-present
James A. Dora Director, 2/89-present; Chairman/CEO and Owner, General
5121 Green Braes, E. Dr. Hotels Corp., 1/90-present; President and Owner, General
Indianapolis, IN 46234 Hotels Corp., 1967-1989; Dir., Indiana National Bank,
4/83-10/93; Dir., NBD Bank, N.A. (formerly Indiana
National Bank), 10/93-present; Dir., State Life,
11/94-present
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Otto N. Frenzel Director, 2/71-present (Chairman of Audit Comm.);
11330 Templin Rd. Chairman, Executive Comm., National City Bank Indiana,
Zionsville, IN 46077 1/96-present; Chrmn. National City Bank Indiana,
10/92-1/96; Dir., National City Corp., 10/92-present;
Chairman, Merchants National Corp., 4/79-1/93; Vice
Chrmn, Merchants National Bank & Trust Co. of Indpls.,
4/86-10/92; Director, Indpls. Water Co., 4/63-present;
Dir., Indian Gas Co., Inc. 1/67-present; Dir. Indpls.
Power & Light Corp. 4/77-present; Dir. Baldwin & Lyons,
Inc., 5/79-present; Dir. IPALCO Enterprises, Inc.,
9/83-present; Dir., IWC Resources Corp., 3/86-present;
Dir. Indiana Energy, Inc., 10/85-present; Dir., State
Life Ins. Co., 11/94-present
David W. Goodrich Director, 2/95-present; Exec. Vice Pres., F.C. Tucker
6060 Sunset Ln. Co., 1/86-present; Chrmn., Methodist Hosp. of Indiana
Indianapolis, IN 46228 1/93-6/96; Director, The State Life Ins. Co.,
7/90-present; Director, Irwin Financial Corp.,
1/88-present; Director, Citizens Gas & Coke Utility,
9/94-present; Vice Chairman, Clarian Health Partners,
6/96-present
William P. Johnson Director, 7/78-present; Chairman of the Board & CEO,
19448 Rio Verde Dr. Goshen Rubber Co., 7/91-present, Pres. & Treas., Goshen
Goshen, IN 46526 Rubber Co., 9/76-7/91; Pres. & Dir., GNC Corp.,
9/76-7/91; Pres. & Dir., GSH Corp., 7/91-present; Pres. &
Dir. GRN Corp., 9/76-7/91; Chrmn., GRN Corp.,
7/91-present; Pres. & Dir., Goshen Rubber of Canada,
Ltd., 9/76-7/91; Chrmn., Goshen Rubber of Canada, Ltd.,
7/91-present; Dir., Society Bank Ind. (formerly Trustcorp
Inc.) Co. Bend, IN, 2/88-12/95; Member of Advisory Comm.,
Society Bank Ind. Goshen, IN, 2/88-12/95; Dir., Coachman
Industries, 1978-present; Chrmn. & CEO, Syracuse Rubber
Co., 1981-present; Chrmn. & CEO, Bond-Flex Rubber Co.,
4/86-present; Dir., Peetro Go, Inc., 4/86-5/96; Dir.,
Flair Inc., 3/86-present; Dir., Lightfoot Enterprises,
4/86-present; Chrmn., Palmer Plastics, 10/87-present;
Chrmn., Dayton Polymrics, 10/89-present; Chrmn. GR
Plastics, 10/89-present; Chrmn. & CEO, ETI Inc.,
9/92-present; Chrmn. & CEO, GKI Inc., 7/91-present;
Chrmn. & CEO, Prolon, Inc., 10/92-present; Chrmn. & CEO,
Yeasel, Inc., 1/90-present; Chrmn. & CEO, Bower Mfg.,
7/91-present; Dir., State Life Ins. Co., 11/94-present
James T. Morris Director, 2/87-present (Chairman of the Salary and Nominiating Comm.);
8191 N. Pennsylvania Chairman & CEO, Indianapolis Water Co., 1/92-present;
Indianapolis, IN 46240 Pres., Indianapolis Water Co., 1/89-1/92; Pres., Chrmn. & CEO,
IWC Resources Corp., 1/89-present; Director, MSA Realty Corp.,
11/84-9/94; Dir., National City Bank Corp., 7/89-present; Advisor,
Logo 7, Inc., 9/90-12/91; Dir., Paul Harris,
12/96-present; Dir., State Life Ins. Co., 11/94-present
Thomas E. Reilly, Jr. Director, 2/90-present; Chairman, Reilly Industries,
8877 Pickwick Dr. Inc., 1/90-present; President, Reilly Indus., 1963-1/90;
Indianapolis, IN 46260 Director, Lilly Indus. Inc., 4/81-present; Director, INB
National Bank, 4/84-10/93; Dir. NBD Indiana, subsid. of
NBD Bancorp, 4/84-1994; Dir., NBD Bancorp, 3/94-2/95;
Dir., First Chicago NBD Corp., 2/95-present; Dir.,
Herff Jones Corp., 10/95-present; Dir., State Life Ins. Co.,
11/94-present
William R. Riggs Director, 2/92-present; Attorney (Partner), Ice Miller
7614 Silver Pine Ct. Donadio & Ryan, 6/63-present; Dir., State Life Ins. Co.,
Indianapolis, IN 46250 11/94-present
John C. Scully Director, 11/97-present; President and CEO, LIMRA International
2636 Ocean Dr., # 505 (6/92-11/97); Director, State Life Ins. Co.
Vero Beach, Florida
Yvonne H. Shaheen Director, 8/93-present; Utility Pres., & CEO, Bright
11808 Rolling Springs Dr. Sheet Metal, 2/87-1/95; Pres., & CEO, Long Elec. Co.,
Carmel, IN 46032 2/87-present; Dir., Corporate Community Council,
1/93-1/95; Director, Community Hospital Foundation,
1/92-2/96; Dir., Junior Achievement, 4/90-present; Dir.,
National Elec., Contractors Assoc., 1/91-present; Dir.,
Boy Scouts of America, 10/91-present, Director, State
Life Ins. Co., 11/94-present
Frank D. Walker Director, 11/94-present; Chairman of the Board & CEO,
3613 Bay Rd. N. Dr. Walker Information, Inc., 6/60-present; Managing Partner,
Indianapolis, IN 46240 W.R. Properties, 6/84-present; Dir., Citizens Gas & Coke
Utility, 10/87-present; Dir., NBD Bank N.A. Indiana,
4/88-present; Advisor, Wild Birds Unlimited, Inc.,
8/95-present
</TABLE>
38
<PAGE>
State Regulation
AUL is subject to regulation by the Department of Insurance of the State of
Indiana, which periodically examines the financial condition and operations of
AUL. AUL is also subject to the insurance laws and regulations of all
jurisdictions where it does business. The Policy described in this Prospectus
has been filed with and, where required, approved by, insurance officials in
those jurisdictions where it is sold.
AUL is required to submit annual statements of operations, including financial
statements, to the insurance departments of the various jurisdictions where it
does business to determine solvency and compliance with applicable insurance
laws and regulations.
Additional Information
A registration statement under the Securities Act of 1933 has been filed with
the SEC relating to the offering described in this Prospectus. This Prospectus
does not include all the information set forth in the registration statement.
The omitted information may be obtained at the SEC's principal office in
Washington, D.C. by paying the SEC's prescribed fees.
Independent Accountants
The consolidated balance sheets for AUL at December 31, 1998 and the related
consolidated statements of income, stockholders' equity and cash flows for the
year ended December 31, 1998 appearing herein have been audited by
PricewaterhouseCoopers LLP, independent accountants, as set forth in their
report thereon appearing elsewhere herein, and are included herein in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
Actuarial matters included in this prospectus have been examined by Stephen J.
Pearson, FSA, MAAA, Assistant Vice President and Individual Product Actuary of
AUL.
Litigation
The Separate Account is not a party to any litigation. Its depositor, AUL, as an
insurance company, ordinarily is involved in litigation. AUL is of the opinion
that at present, such litigation is not material to the Owners of the Policies.
Legal Matters
Dechert Price & Rhoads of Washington, D.C. has provided advice on certain
matters relating to the federal securities laws. Matters of Indiana law
pertaining to the Policies, including AUL's right to issue the Policies and its
qualification to do so under applicable laws and regulations issued thereunder,
have been passed upon by Richard A. Wacker, Associate General Counsel of AUL.
YEAR 2000 READINESS DISCLOSURE
In recent years, the Year 2000 problem has received extensive publicity.
The problem arises because most computer systems and programs were written with
dates expressed as a 2 digit code. Unless steps are taken many systems may
interpret the year "2000" as "1900," and date-related computations either would
not be processed or would be processed incorrectly. This could have a material
and adverse effect on financial institutions such as banks and insurance
companies like AUL. To prevent this, AUL began assessing the potential impact in
early 1996 and adopted a detailed written work plan in June, 1997 to deal with
Year 2000 issues.
Due to the complexity of this issue and the ever-increasing
interrelationships of computer systems in the United States it would be
extremely difficult for any company to state that it has or will achieve
complete Year 2000 compliance or guarantee that its systems will not be affected
in any way on January 1, 2000. However, AUL currently believes that all critical
computer systems and software (those systems or software which would cause
great disruption to the Company if they were inoperable for any length of time
or if they were to generate erroneous data) are, as of April 1, 1999, Year 2000
compliant. Although AUL has no reason to believe that these steps will not be
sufficient to avoid any material adverse impact from Year 2000 issues and is
addressing Year 2000 issues by using both internal staff and external
consultants, by replacing or upgrading hardware, operating systems and
application software, by remediating current application software and by testing
software and hardware in future dated scenarios, there can be no assurance that
the Company's efforts will be sufficient to avoid any adverse impact. The total
effort for all activities to make AUL systems ready for the year 2000 is
currently expected to amount to more than 250 person years of labor at a cost of
approximately $19,000,000 which has been or will be expensed against current
operating funds. As of December 1998, $13,000,000 of this cost was already
incurred.
As a part of its plan, the company has surveyed its primary business
partners to be sure that they have taken steps to address Year 2000 issues. AUL
will continue to monitor the status of all business partners' Year 2000 efforts.
Additionally, a contingency planning effort is underway to identify means by
which the risk associated with potential internal or external failures can be
reduced. Year 2000 contingency planning also includes development of a mechanism
to identify and respond to problems that could develop and to define steps to be
taken should problems arise.
Financial Statements
AUL's financial statements as of December 31, 1998, are included in this
Prospectus. The financial statements of AUL should be distinguished from
financial statements of the Separate Account and should be considered only as
bearing upon AUL's ability to meet its obligations under the Policies. They
should not be considered as bearing on the investment performance of the assets
held in the Separate Account.
39
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
American United Life Insurance Company(R)
Indianapolis, Indiana
In our opinion, the accompanying combined balance sheet and the related combined
statements of operations, policyholders' surplus, and cash flows present fairly,
in all material respects, the financial position of American United Life
Insurance Company(R) and affiliates (the "Company") at December 31, 1998 and
1997, and the results of their operations and their cash flows for years then
ended, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Indianapolis, Indiana
February 26, 1999
<TABLE>
<CAPTION>
Combined Balance Sheet
December 31 1998 (in millions) 1997
- --------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C>
Investments:
Fixed Maturities:
Available for sale at fair value $ 1,695.4 $ 1,653.8
Held to maturity at amortized cost 2,536.2 2,902.2
Equity securities at fair value 75.1 18.6
Mortgage loans 1,128.5 1,120.4
Real estate 46.6 52.1
Policy loans 144.4 143.1
Short term and other invested assets 64.9 102.0
Cash and cash equivalents 95.7 41.2
- --------------------------------------------------------------------------------------------------------
Total investments 5,786.8 6,033.4
- --------------------------------------------------------------------------------------------------------
Accrued investment income 73.0 79.3
Reinsurance receivables 290.6 244.3
Deferred acquisition costs 451.7 421.2
Property and equipment 56.8 55.5
Insurance premiums in course of collection 66.7 72.9
Other assets 16.1 17.2
Assets held in separate accounts 2,594.6 1,674.0
- --------------------------------------------------------------------------------------------------------
Total assets $9,336.3 $8,597.8
- --------------------------------------------------------------------------------------------------------
Liabilities and policyholders' surplus
Liabilities
Policy reserves $5,339.1 $5,642.9
Other policyholder funds 203.9 177.1
Pending policyholder claims 209.2 164.3
Surplus notes 75.0 75.0
Other liabilities and accrued expenses 180.4 199.9
Liabilities related to separate accounts 2,594.6 1,674.0
- --------------------------------------------------------------------------------------------------------
Total liabilities 8,602.2 7,933.2
- --------------------------------------------------------------------------------------------------------
Unrealized appreciation of securities,
net of deferred income tax 39.5 36.5
Policyholders' surplus 694.6 628.1
- --------------------------------------------------------------------------------------------------------
Total policyholders' surplus 734.1 664.6
- --------------------------------------------------------------------------------------------------------
Total liabilities and policyholders' surplus $9,336.3 $8,597.8
- --------------------------------------------------------------------------------------------------------
Combined Statement of Policyholders' Surplus
Policyholders' surplus at beginning of year $664.6 $572.8
Net income 66.5 74.3
Change in unrealized appreciation (depreciation)
of securities, net 3.0 17.5
- --------------------------------------------------------------------------------------------------------
Policyholders' surplus at end of year $734.1 $664.6
- --------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
Combined Statement of Operations
Year ended December 31 1998 (in millions) 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Insurance premiums and other considerations $478.5 $413.9
Policy and contract charges 87.7 69.3
Net investment income 452.1 469.5
Realized investment gains 15.8 13.7
Other income 8.9 5.9
- --------------------------------------------------------------------------------------------------------
Total revenues 1,043.0 972.3
- --------------------------------------------------------------------------------------------------------
Benefits and expenses:
Policy benefits $462.4 $386.2
Interest expense on annuities and financial products 231.9 257.3
Underwriting, acquisition and insurance expenses 157.8 131.2
Amortization of deferred acquisition costs 59.7 53.2
Dividends to policyholders 26.4 25.0
Interest expense on surplus notes 5.8 5.8
Other operating expenses 10.2 9.5
- --------------------------------------------------------------------------------------------------------
Total benefits and expenses 954.2 868.2
- --------------------------------------------------------------------------------------------------------
Income before income tax expense 88.8 104.1
Income tax expense 22.3 29.8
- --------------------------------------------------------------------------------------------------------
Net income $ 66.5 $ 74.3
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Combined Statement of Cash Flows
Year ended December 31 1998 (in millions) 1997
- --------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Income $ 66.5 $ 74.3
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of deferred acquisition costs 59.7 53.2
Depreciation 11.2 10.1
Deferred taxes 8.1 7.3
Realized investment gains (15.8) (13.7)
Policy acquisition costs capitalized (94.2) (90.8)
Interest credited to deposit liabilities 225.7 252.1
Fees charged to deposit liabilities (32.7) (32.9)
Amortization and accrual of investment income (10.8) (8.2)
Increase in insurance liabilities 169.6 140.2
Increase in noninvested assets (45.5) (66.3)
Increase in other liabilities (1.8) 35.1
- --------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 340.0 360.4
- --------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases:
Fixed maturities, Held to Maturity (18.7) (120.8)
Fixed maturities, Available for Sale (473.8) (348.3)
Equity securities (63.7) (9.4)
Mortgage loans (183.2) (155.4)
Real estate (4.9) (1.9)
Short term and other invested assets (2.7) (43.3)
Proceeds from sales, calls or maturities:
Fixed maturities, Held to Maturity 388.9 241.2
Fixed maturities, Available for Sale 461.6 335.1
Equity securities 8.1 7.2
Mortgage loans 179.2 149.7
Real estate 4.0 4.3
Short term and other invested assets 39.9 1.6
- --------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 334.7 60.0
- --------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Deposits to insurance liabilities 846.6 713.6
Withdrawals from insurance liabilities (1,467.0) (1,112.5)
Other .2 (.5)
- --------------------------------------------------------------------------------------------------------
Net cash used by financing activities (620.2) (399.4)
- --------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 54.5 21.0
- --------------------------------------------------------------------------------------------------------
Cash and cash equivalents beginning of year 41.2 20.2
- --------------------------------------------------------------------------------------------------------
Cash and cash equivalents end of year $ 95.7 $ 41.2
- --------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Notes to Financial Statements
1. Significant Accounting Policies
- ----------------------------------
Nature of Operations and Basis of Presentation
American United Life Insurance Company(R) (AUL) is an Indiana-domiciled mutual
life insurance company with headquarters in Indianapolis. AUL is licensed to do
business in 48 states and the District of Columbia and is an authorized
reinsurer in all states. AUL offers individual life and annuity products through
its career agent distribution system. AUL's qualified group retirement plans,
tax deferred annuities and other non-medical group products are marketed through
independent agents and brokers, as well as career agents who are supported by 37
regional sales offices located throughout the country. Life and pooled
reinsurance is marketed directly to other insurance companies. In 1998, AUL
International began operations to develop reinsurance partners in Central and
South America. The combined Company financial statements include the accounts of
AUL and its affiliate, The State Life Insurance Company (State Life), and its
subsidiary, Equity Sales Corporation. Significant intercompany transactions have
been excluded.
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles (GAAP). AUL and State Life file
separate financial statements with insurance regulatory authorities which are
prepared on the basis of statutory accounting practices which are significantly
different from financial statements prepared in accordance with GAAP. These
differences are described in detail in Note 9 - Statutory Information.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Investments
- ------------
Fixed maturity securities which may be sold to meet liquidity and other needs of
the Company are categorized as available for sale and are stated at fair value.
Fixed maturity securities which the Company has the positive intent and ability
to hold to maturity are categorized as held-to-maturity and are stated at
amortized cost. Equity securities are stated at fair value. Mortgage loans on
real estate are carried at amortized cost less an impairment allowance for
estimated uncollectible amounts. Real estate is reported at cost less allowances
for depreciation. Depreciation is provided (straight line) over the estimated
useful lives of the related assets. Investment real estate is net of accumulated
depreciation of $31.7 million at December 31, 1998 and 1997. Depreciation
expense for investment real estate amounted to $2.4 million and $2.5 million for
1998 and 1997, respectively. Policy loans are carried at their unpaid balance.
Other invested assets are reported at cost plus the Company's equity in
undistributed net equity since acquisition. Short term investments include
investments with maturities of one-year or less and are carried at cost which
approximates market. Short term certificates of deposit and savings certificates
are considered to be cash equivalents. The carrying amount for cash and cash
equivalents approximates market.
Realized gains and losses on sale or maturity of investments are based upon
specific identification of the investments sold and do not include amounts
allocable to separate accounts. At the time a decline in value of an investment
is determined to be other than temporary, a provision for loss is recorded which
is included in realized investment gains and losses. Unrealized gains and
losses, resulting from carrying available-for-sale securities at fair value, are
reported in policyholders' surplus, net of deferred taxes.
Deferred Policy Acquisition Costs
- ---------------------------------
Those costs of acquiring new business, which vary with and are primarily related
to the production of new business, have been deferred to the extent that such
costs are deemed recoverable. Such costs include commissions, certain costs of
policy underwriting and issue and certain variable agency expenses. These costs
are amortized with interest as follows:
For participating whole life insurance products, over the lesser of 30
years or the lifetime of the policy in relation to the present value of
estimated gross margins from expenses, investments and mortality,
discounted using the expected investment yield.
For universal life-type policies and investment contracts, over the lesser
of the lifetime of the policy or 30 years for life policies or 20 years for
other policies in relation to the present value of estimated gross profits
from surrender charges and investment, mortality and expense margins,
discounted using the interest rate credited to the policy.
For term life insurance products and life reinsurance policies, over the
lesser of the benefit period or 30 years for term life or 20 years for life
reinsurance policies in relation to the ratio of anticipated annual premium
revenue to the anticipated total premium revenue, using the same
assumptions used in calculating policy benefits.
For miscellaneous group life and individual and group health policies,
straight line over the expected life of the policy.
For credit insurance policies, the deferred acquisition cost balance is
primarily equal to the unearned premium reserve multiplied by the ratio of
deferrable commissions to premiums written.
Recoverability of the unamortized balance of deferred policy acquisition costs
is evaluated regularly. For universal life-type contracts, investment contracts
and participating whole life policies, the accumulated amortization is adjusted
(increased or decreased) whenever there is a material change in the estimated
gross profits or gross margins expected over the life of a block of business in
order to maintain a constant relationship between cumulative amortization and
the present value of gross profits or gross margins. For most other contracts,
the unamortized asset balance is reduced by a charge to income only when the
present value of future cash flows, net of the policy liabilities, is not
sufficient to cover such asset balance.
<PAGE>
Notes to Financial Statements
Assets Held in Separate Accounts
- --------------------------------
Separate accounts are funds on which investment income and gains or losses
accrue directly to certain policies, primarily variable annuity contracts,
equity-based pension and profit sharing plans and variable universal life
policies. The assets of these accounts are legally segregated, and are valued at
fair value. The related liabilities are recorded at amounts equal to the
underlying assets; the fair value of these liabilities is equal to their
carrying amount.
Property and Equipment
- ----------------------
Property and equipment includes real estate owned and occupied by the Company.
Property and equipment is carried at cost, net of accumulated depreciation of
$47.1 million and $41.6 million as of December 31, 1998 and 1997, respectively.
The Company provides for depreciation of property and equipment using the
straight-line method over its estimated useful life. Depreciation expense for
1998 and 1997 was $8.8 million and $7.6 million, respectively.
Premium Revenue and Benefits to Policyholders
- ---------------------------------------------
The premiums and benefits for whole life and term insurance products and certain
annuities with life contingencies (immediate annuities) are fixed and
guaranteed. Such premiums are recognized as premium revenue when due. Group
insurance premiums are recognized as premium revenue over the time period to
which the premiums relate. Benefits and expenses are associated with earned
premiums so as to result in recognition of profits over the life of the
contracts. This association is accomplished by means of the provision for
liabilities for future policy benefits and the amortization of deferred policy
acquisition costs.
Universal life policies and investment contracts are policies with terms that
are not fixed and guaranteed. The terms that may be changed could include one or
more of the amounts assessed the policyholder, premiums paid by the policyholder
or interest accrued to policyholder balances. The amounts collected from
policyholders for these policies are considered deposits, and only the
deductions during the period for cost of insurance, policy administration and
surrenders are included in revenue. Policy benefits and claims that are charged
to expense include interest credited to contracts and benefit claims incurred in
the period in excess of related policy account balances.
Reserves for Future Policy and Contract Benefits
- ------------------------------------------------
Liabilities for future policy benefits for participating whole life policies are
calculated using the net level premium method and assumptions as to interest and
mortality. The interest rate is the dividend fund interest rate and the
mortality rates are those guaranteed in the calculation of cash surrender values
described in the contract. Liabilities for future policy benefits for term life
insurance and life reinsurance policies are calculated using the net level
premium method and assumptions as to investment yields, mortality and
withdrawals. The assumptions are based on projections of past experience and
include provisions for possible unfavorable deviation. These assumptions are
made at the time the contract is issued. Liabilities for future policy benefits
on universal life and investment contracts consist principally of policy account
values plus certain deferred policy fees which are amortized using the same
assumptions and factors used to amortize the deferred policy acquisition costs.
If the future benefits on investment contracts are guaranteed (immediate
annuities with benefits paid for a period certain) the liability for future
benefits is the present value of such guaranteed benefits. Claim liabilities
include provisions for reported claims and estimates based on historical
experience for claims incurred but not reported.
Income Taxes
- ------------
The provision for income taxes includes amounts currently payable and deferred
income taxes resulting from the temporary differences in the assets and
liabilities determined on a tax and financial reporting basis.
<PAGE>
Notes to Financial Statements
2. Investments:
- ---------------
<TABLE>
<CAPTION>
The book value and fair value of investments in fixed maturity securities by type of
investment were as follows:
December 31, 1998
- --------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------------------
Available for sale: (in millions)
<S> <C> <C> <C> <C>
Obligations of U.S. government, states,
...political subdivisions and foreign governments. $ 42.7 $ 5.4 $0.0 $ 48.1
Corporate securities 1,119.7 65.5 4.3 1,180.9
Mortgage-backed securities 440.7 26.0 0.3 466.4
- --------------------------------------------------------------------------------------------------------------------
$ 1,603.1 $ 96.9 $4.6 $ 1,695.4
- --------------------------------------------------------------------------------------------------------------------
Held to maturity:
Obligations of U.S. government, states,
...political subdivisions and foreign governments $ 108.8 $ 7.6 $0.0 $ 116.4
Corporate securities. 1,656.4 141.0 2.9 1,794.5
Mortgage-backed securities. 771.0 50.3 0.3 821.0
- --------------------------------------------------------------------------------------------------------------------
$ 2,536.2 $ 198.9 $3.2 $ 2,731.9
- --------------------------------------------------------------------------------------------------------------------
December 31, 1997
- --------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------------------
Available for sale: (in millions)
Available for sale:
Obligations of U.S. government, states,
...political subdivisions and foreign governments $ 47.8 $ 4.0 $0.0 $ 51.8
Corporate securities. 1,064.1 55.5 1.8 1,117.8
Mortgage-backed securities. 456.8 27.6 0.2 484.2
- --------------------------------------------------------------------------------------------------------------------
$ 1,568.7 $ 87.1 $2.0 $1,653.8
- --------------------------------------------------------------------------------------------------------------------
Held to maturity:
Obligations of U.S. government, states,
...political subdivisions and foreign governments $ 124.2 $ 6.2 $0.3 $ 130.1
Corporate securities. 1,854.4 123.4 3.6 1,974.2
Mortgage-backed securities 923.6 55.5 0.2 978.9
- --------------------------------------------------------------------------------------------------------------------
$ 2,902.2 $ 185.1 $4.1 $ 3,083.2
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Notes to Financial Statements
The amortized cost and fair value of fixed maturity securities at December 31,
1998, by contractual average maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Available for Sale Held to Maturity Total
Amortized Fair Amortized Fair Amortized Fair
(in millions) Cost Value Cost Value Cost Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Due in one year
or less $ 40.7 $ 40.9 $ 72.9 $ 73.9 $ 113.6 $ 114.8
Due after one year
through five years 392.8 404.1 753.4 790.5 1,146.2 1,194.6
Due after five years
through ten years 363.9 383.1 577.7 639.3 941.6 1,022.4
Due after ten years 365.0 400.9 361.2 407.2 726.2 808.1
- --------------------------------------------------------------------------------------------------------------------
1,162.4 1,229.0 1,765.2 1,910.9 2,927.6 3,139.9
Mortgage-backed securities 440.7 466.4 771.0 821.0 1,211.7 1,287.4
- --------------------------------------------------------------------------------------------------------------------
$1,603.1 $1,695.4 $2,536.2 $2,731.9 $4,139.3 $4,427.3
</TABLE>
Net investment income consisted of the following:
for years ended December 31 1998 (in millions) 1997
- -------------------------------------------------------------------------
Fixed maturity securities $341.0 $359.4
Equity securities 2.3 2.5
Mortgage loans 98.5 100.9
Real estate 10.7 11.2
Policy loans 8.8 8.8
Other 10.0 7.3
- -------------------------------------------------------------------------
Gross investment income 471.3 490.1
Investment expenses 19.2 20.6
- -------------------------------------------------------------------------
Net investment income $452.1 $469.5
- -------------------------------------------------------------------------
Net realized investment gains and (losses) include write downs and changes in
the reserve for losses on mortgage loans and foreclosed real estate of $(.1)
million and $(1.3) million for 1998 and 1997, respectively. Proceeds from the
sales, maturities or calls of investments in fixed maturities during 1998 and
1997 were approximately $850.5 million and $576.3 million, respectively. Gross
gains of $14.9 million and $11.6 million, and gross losses of $.6 million and
$1.3 million were realized in 1998 and 1997, respectively. The changes in
unrealized appreciation of fixed maturities amounted to approximately $7.2
million and $39.9 million in 1998 and 1997, respectively.
At December 31, 1998, the unrealized appreciation on equity securities of
approximately $2.3 million is comprised of $3.8 million in unrealized gains and
$1.5 million of unrealized losses and has been reflected directly in
policyholders' surplus. The change in the unrealized appreciation of equity
securities amounted to approximately $.1 million and $.9 million in 1998 and
1997, respectively.
<PAGE>
The Company maintains a diversified mortgage loan portfolio and exercises
internal limits on concentrations of loans by geographic area, industry, use and
individual mortgagor. At December 31, 1998, the largest geographic concentration
of commercial mortgage loans was in Indiana, California and Florida where
approximately 31% of the portfolio was invested. A total of 40% of the mortgage
loans have been issued on retail properties, primarily backed by long term
leases or guarantees from strong credits.
The Company has outstanding mortgage loan commitments at December 31, 1998, of
approximately $100.3 million. As of December 31, 1998, the carrying value of
investments that produced no income for the previous twelve month period was $.2
million.
<PAGE>
Notes to Financial Statements
3. Insurance Liabilities:
- -------------------------
Insurance liabilities consisted of the following:
<TABLE>
<CAPTION>
(in millions)
- -------------------------------------------------------------------------------------------------------------------------
Withdrawal Mortality or morbidity Interest rate December 31,
assumption assumption assumption 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
Future policy benefits:
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Participating whole life contracts Company Company 2.5% to 6.0% $ 632.7 $ 594.5
experience experience
Universal life-type contracts n/a n/a n/a 381.2 376.4
Other individual life contracts Company Company 2.5% to 8.0% 271.1 216.4
experience experience
Accident and health n/a n/a n/a 55.2 51.0
Annuity products n/a n/a n/a 3,803.7 4,213.6
Group life and health n/a n/a n/a 195.2 191.0
Other policyholder funds n/a n/a n/a 203.9 177.1
Pending policyholder claims n/a n/a n/a 209.2 164.3
- -------------------------------------------------------------------------------------------------------------------------
Total insurance liabilities $5,752.2 $5,984.3
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Participating life insurance policies under generally accepted accounting
principles represent approximately 7% and 9% of the total individual life
insurance in force at December 31, 1998 and 1997, respectively. Participating
policies represented approximately 34% and 39% of life premium income for 1998
and 1997, respectively. The amount of dividends to be paid is determined
annually by the Board of Directors.
4. Employees' and Agents' Benefit Plans:
- ----------------------------------------
The Company has a noncontributory defined benefit pension plan covering
substantially all employees. Company contributions to the employee plan are made
periodically in an amount between the minimum ERISA required contribution and
the maximum tax-deductible contribution. Such amounts are expensed as
contributed. Contributions made to the Plan were $2.1 million in 1998 and $2.8
million in 1997.
The following benefit information for the employees' defined benefit plan was
determined by independent actuaries as of January 1, 1998 and 1997,
respectively, the most recent actuarial valuation dates:
1998 (in millions) 1997
- --------------------------------------------------------------------------------
Actuarial present value of
accumulated benefits for the
employees' defined benefit plan $33.6 $28.1
Fair value of plan assets 49.6 39.7
- --------------------------------------------------------------------------------
Funded status $16.0 $11.6
- --------------------------------------------------------------------------------
Net periodic pension cost $ 2.1 $ 2.0
- --------------------------------------------------------------------------------
The assumed discount rate was 7.17% and 7.36% for 1998 and 1997, respectively.
For both 1998 and 1997, the expected return on plan assets was 8.0% and the rate
of compensation increase assumed was 6%. Benefits paid out of the Plan were
approximately $3.1 million in 1998 and $2.6 million in 1997.
The Company has a defined contribution plan and a 401(k) salary
reduction/savings plan for employees. Quarterly contributions covering employees
who have completed one full calendar year of service are made by the Company in
amounts based upon the Company's financial results. Company contributions to the
plan during 1998 and 1997 were $1.7 million and $1.5 million, respectively.
<PAGE>
Notes to Financial Statements
The Company has a defined contribution pension plan and a 401(k) plan covering
substantially all of the agents, except general agents. Contributions of 3% to
4 1/2% of defined commissions (plus 3% to 41/2% for commissions over the Social
Security wage base) are made to the pension plan. An additional contribution of
3% of defined commissions is made to a 401(k) plan. Company contributions
expensed for these plans for 1998 and 1997 were $257,000 and $268,000,
respectively.
The funds for all plans are held by the Company under deposit administration and
group annuity contracts.
The Company also provides certain health care and life insurance benefits
(postretirement benefits) for retired employees and certain agents (retirees).
Employees and agents with at least 10 years of plan participation may become
eligible for such benefits if they reach retirement age while working for the
Company.
Accrued postretirement benefits as of December 31: 1998 (in millions) 1997
================================================================================
Accumulated postretirement benefit obligation $9.5 $9.3
Net postretirement benefit cost 1.2 1.0
Company contributions .7 .7
- --------------------------------------------------------------------------------
There are no specific plan assets for this postretirement liablility as of
December 31, 1998 and 1997. Claims incurred for benefits were funded by company
contributions.
The assumed discount rate used in determining the accumulated postretirement
benefit was 7.00% and the assumed health care cost trend rate was 10% graded to
5% until 2004. Compensation rates were assumed to increase 6% at each year end.
The health coverage for retirees 65 and over is capped in the year 2000. The
health care cost trend rate assumption has an effect on the amounts reported. An
increase in the assumed health care cost trend rates by one percentage point
would increase the accumulated postretirement benefit obligation as of December
31, 1998, by $152,000 and increase the accumulated postretirement benefit cost
for 1998 by $16,000.
5. Federal Income Taxes:
- ------------------------
A reconciliation of the income tax attributable to continuing operations
computed at U.S. federal statutory tax rates to the income tax expense included
in the statement of operations follows:
for years ended December 31 1998 (in millions) 1997
- ------------------------------------------------------------------------------
Income tax computed at statutory tax rate $31.0 $36.3
Tax exempt income (2.0) (1.5)
Mutual company differential earnings amount 4.3 6.1
Prior year differential earnings amount (10.2) (3.7)
Other (0.8) (7.4)
- ------------------------------------------------------------------------------
Federal income tax $22.3 $29.8
- ------------------------------------------------------------------------------
The components of the provision for income taxes on earnings included current
tax provisions of $14.2 million and $22.5 million for the years ended December
31, 1998 and 1997, respectively, and deferred tax expense of $8.1 million and
$7.3 million for the years ended December 31, 1998 and 1997, respectively.
<PAGE>
Notes to Financial Statements
Deferred income tax assets (liabilities)
- --------------------------------------------------------------------------------
as of December 31: 1998 1997
- --------------------------------------------------------------------------------
Deferred policy acquisition costs $(148.8) $(137.0)
Investments (11.1) (12.0)
Insurance liabilities 158.9 154.7
Unrealized appreciation of securities (23.6) (21.9)
Other (6.1) (4.7)
- --------------------------------------------------------------------------------
Deferred income tax assets (liabilities) $ (30.7) $ (20.9)
- --------------------------------------------------------------------------------
Federal income taxes paid were $10.6 million and $28.6 million for 1998 and
1997, respectively.
6. Reinsurance:
- ---------------
The Company is a party to various reinsurance contracts under which it receives
premiums as a reinsurer and reimburses the ceding companies for portions of the
claims incurred. At December 31, 1998 and 1997, life reinsurance assumed was
approximately 74% and 71%, respectively, of life insurance in force.
For individual life policies, the Company cedes the portion of the total risk in
excess of $1,500,000. For other policies, the Company has established various
limits of coverage it will retain on any one policyholder and cedes the
remainder of such coverage.
Certain statistical data with respect to reinsurance follows:
for years ended December 31 1998 1997
- --------------------------------------------------------------------------------
Direct statutory premiums $374.1 $369.4
Reinsurance assumed 329.7 253.9
Reinsurance ceded 150.2 132.3
- --------------------------------------------------------------------------------
Net premiums 553.6 491.0
- --------------------------------------------------------------------------------
Reinsurance recoveries $146.4 $ 103.4
The Company accounts for all reinsurance agreements as transfers of risk. If
companies to which reinsurance has been ceded are unable to meet obligations
under the reinsurance agreements, the Company would remain liable. Six
reinsurers account for approximately 66% of the Company's December 31, 1998,
ceded reserves for life and accident and health insurance. The remainder of such
ceded reserves is spread among numerous reinsurers.
7. Surplus Notes and Lines of Credit:
- -------------------------------------
On February 16, 1996, the Company issued $75 million of Surplus Notes, due March
30, 2026. Interest is payable semi-annually on March 30, and September 30 at a
7.75% annual rate. Any payment of interest on or principal of the Notes may be
made only with the prior approval of the Commissioner of the Indiana Department
of Insurance. The Surplus Notes may not be redeemed at the option of AUL or any
holder of the Surplus Notes. Interest paid during 1998 was $5.8 million. The
Company has available a $125 million committed credit facility. No amounts have
been drawn as of December 31, 1998.
8. Commitments and Contingencies:
- ---------------------------------
Various lawsuits have arisen in the ordinary course of the Company's business.
In each of the matters, the Company believes the ultimate resolution of such
litigation will not result in any material adverse impact to operations or
financial condition of the Company.
In 1997, AUL signed an investment agreement with Indianapolis Life Insurance
Company (Indianapolis Life) and Indianapolis Life Group of Companies (ILGroup),
a downstream holding company of Indianapolis Life, with a purpose of creating an
affiliation under a mutual holding company structure. At December 31, 1998, AUL
has invested $49.5 million in ILGroup in exchange for a 33.2% ownership. In
1998, AUL signed an affiliation agreement with Pioneer Mutual Life Insurance
Company, who joined with AUL, Indianapolis Life and State Life contemplating
future integration of the companies in a mutual holding company structure.
<PAGE>
Notes to Financial Statements
9. Statutory Information:
- ----------------------------
AUL and State Life prepare statutory financial statements in accordance with
accounting principles and practices prescribed or permitted by the Indiana
Department of Insurance. Prescribed statutory accounting practices (SAP)
currently include state laws, regulations and general administrative rules
applicable to all insurance enterprises domiciled in a particular state, as well
as practices described in National Association of Insurance Commissioners'
(NAIC) publications.
A reconciliation of SAP surplus to GAAP surplus at December 31 follows:
- --------------------------------------------------------------------------------
for years ended December 31 1998 (in millions) 1997
- --------------------------------------------------------------------------------
SAP surplus $496.5 $464.2
Deferred policy acquisition costs 481.8 447.4
Adjustments to policy reserves (306.0) (303.1)
Asset valuation and interest maintenance reserves 88.9 86.1
Unrealized gain on invested assets, net 39.5 36.5
Surplus notes (75.0) (75.0)
Deferred income taxes (6.7) 1.0
Other, net 15.1 7.5
- --------------------------------------------------------------------------------
GAAP surplus $734.1 $664.6
- --------------------------------------------------------------------------------
A reconciliation of SAP net income to GAAP net income for the years ended
December 31 follows:
- --------------------------------------------------------------------------------
for years ended December 31 1998 (in millions) 1997
- --------------------------------------------------------------------------------
SAP income $33.5 $41.8
Deferred policy acquisition costs 34.5 37.6
Adjustments to policy reserves (3.7) (9.2)
Deferred income taxes (8.1) (7.3)
Other, net 10.3 11.4
- --------------------------------------------------------------------------------
GAAP net income $66.5 $74.3
- --------------------------------------------------------------------------------
Life insurance companies are required to maintain certain amounts of assets on
deposit with state regulatory authorities. Such assets had an aggregate carrying
value of $4.9 million at December 31, 1998.
10. Fair Value of Financial Instruments:
- ----------------------------------------
The disclosure of fair value information about certain financial instruments is
based primarily on quoted market prices. The fair values of short-term
investments and policy loans approximate the carrying amounts reported in the
balance sheets. Fair values for fixed maturity and equity securities, and
surplus notes are based on quoted market prices where available. For fixed
maturity securities not actively traded, fair values are estimated using values
obtained from independent pricing services, or in the case of private
placements, are estimated by discounting expected future cash flows using a
current market rate applicable to the yield, credit quality and maturity of the
investments.
The fair value of the aggregate mortgage loan portfolio was estimated by
discounting the future cash flows using current rates at which similar loans
would be made to borrowers with similar credit ratings for similar maturities.
The estimated fair values of the liabilities for policyholder funds approximate
the statement values because interest rates credited to account balances
approximate current rates paid on similar funds and are not generally guaranteed
beyond one year. Fair values for other insurance reserves are not required to be
disclosed. However, the estimated fair values for all insurance liabilities are
taken into consideration in the Company's overall management of interest rate
risk, which minimizes exposure to changing interest rates through the matching
of investment maturities with amounts due under insurance contracts. The fair
values of certain financial instruments along with their corresponding carrying
values at December 31, 1998 and 1997 follow.
1998 (in millions) 1997
- --------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amounts Value Amounts Value
- --------------------------------------------------------------------------------
Fixed maturity securities:
Available for sale $1,695.4 $1,695.4 $1,653.8 $1,653.8
Held to Maturity 2,536.2 2,731.9 2,902.2 3,083.2
Equity securities 75.1 75.1 18.6 18.6
Mortgage loans 1,128.5 1,202.1 1,120.4 1,201.0
Policy loans 144.4 144.4 143.1 143.1
Surplus notes 75.0 80.5 75.0 79.5
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
No dealer, salesman or any other person is authorized by the AUL
American Individual Variable Life Unit Trust or by AUL to give any
information or to make any representation other than as contained in
this Prospectus in connection with the offering described herein.
AUL has filed a Registration Statement with the Securities and
Exchange Commission, Washington, D.C. For further information
regarding the AUL American Individual Variable Life Unit Trust, AUL
and its variable products, please reference the Registration statement
and the exhibits filed with it or incorporated into it. All contracts
referred to in this prospectus are also included in that filing.
================================================================================
FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE
Sold By
AMERICAN UNITED
LIFE INSURANCE COMPANY(R)
One American Square
Indianapolis, Indiana 46282
PROSPECTUS
Dated: May 1, 1999
================================================================================
51
<PAGE>
PART II
Undertaking to File Reports
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any regulation of
the Commission heretofore or hereafter duly adopted pursuant to authority
conferred in that section.
Rule 484 Undertaking
Article IX, Section 1 of the by-laws of American United Life Insurance
Company(R) ("AUL") provides as follows:
The corporation shall indemnify any director or officer or former
director or officer of the corporation against expenses actually and
reasonably incurred by him (and for which he is not covered by
insurance) in connection with the defense of any action, suit or
proceeding (unless such action, suit or proceeding is settled) in which
he is made a party by reason of being or having been such director or
officer, except in relation to matters as to which he shall be adjudged
in such action, suit or proceeding, to be liable for negligence or
misconduct in the performance of his duties. The corporation may also
reimburse any director or officer or former director or officer of the
corporation for the reasonable costs of settlement of any such action,
suit or proceeding, if it shall be found by a majority of the directors
not involved in the matter in controversy (whether or not a quorum)
that it was to the interest of the corporation that such settlement be
made and that such director or officer was not guilty of negligence or
misconduct. Such rights of indemnification and reimbursement shall not
be exclusive of any other rights to which such director or officer may
be entitled under any By-law, agreement, vote of members or otherwise.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Depositor pursuant to the foregoing provisions, or otherwise, the Depositor has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Depositor of expenses incurred
or paid by a director, officer or controlling person of the Depositor in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Depositor 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 issue.
Section 26(e)(2) Representation
AUL, the sponsoring insurance company of the AUL American Individual
Variable Life Unit Trust, hereby represents that the fees and charges deducted
under the Policies are reasonable in relation to the services rendered, the
expenses expected to be incurred and the risks assumed by AUL.
Rule 6e-3(T) Representation
This filing is made pursuant to Rule 6e-3(T) and Rule 6c-3 under the
Investment Company Act of 1940.
<PAGE>
Contents of Registration Statement
This Post-Effective Amendment to the Registration Statement on Form S-6
comprises the following papers and documents:
The facing sheet.
Reconciliation and tie.
The Prospectus (including illustrations).
The undertaking to file reports.
The undertaking pursuant to Rule 484.
The representation pursuant to Section 26(e)(2).
The Rule 6e-3(T) representation.
The signatures.
Written consent of the following persons (included
in the exhibits shown below):
Independent Public Accountants
Dechert Price & Rhoads
Actuary
The following exhibits:
1. (1) Resolution of the Board of Directors of the Depositor
dated July 10, 1997 concerning AUL American
Individual Variable Life Unit Trust(1)
(2) Inapplicable
(3) (a) Inapplicable
(b) Inapplicable
(c) Schedule of Sales Commissions(2)
(4) Inapplicable
(5) (a) Form of Modified Single Premium Variable Life
Insurance Policy(1)
(b) Form of Last Survivor Rider(1)
(c) Form of Waiver of Monthly Deduction Disability(1)
(d) Form of Guaranteed Insurance Option(1)
2
<PAGE>
(e) Form of Children's Benefit Rider(1)
(f) Form of Other Insured/Same Insured Rider(1)
(g) Form of Waiver of Premium Disability(1)
(h) Form of Automatic Increase Rider(1)
(i) Form of Guaranteed Minimum Death Benefit Rider(1)
(j) Form of Accelerated Death Benefit Rider(1)
(k) Form of Joint First-to-Die Level Term Insurance
Rider(1)
(6) (a) Certification of Articles of Merger between
American Central Life Insurance Company
and United Mutual Life Insurance Company (2)
(b) Articles of Merger between
American Central Life Insurance Company
and United Mutual Life Insurance Company (2)
(b) By-laws of American United Life Insurance
Company(R) (2)
(7) Inapplicable
(8) (a) Form of Participation Agreement between American
United Life Insurance Company(R) and Alger
American Fund (2)
(b) Form of Participation Agreement between American
United Life Insurance Company(R) and American
Century Variable Portfolios, Inc. (2)
(c) Form of Participation Agreement between American
United Life Insurance Company(R) and Fidelity
Variable Insurance Products Fund (2)
(d) Form of Participation Agreement between American
United Life Insurance Company(R) and Fidelity
Variable Insurance Products Fund II (2)
(e) Form of Participation Agreement between American
United Life Insurance Company(R) and T. Rowe
Price Equity Series, Inc. (2)
(9) Inapplicable
(10) Form of Application for Flexible Premium
Adjustable Variable Life Insurance Policy(3)
3
<PAGE>
2. Opinion and consent of legal officer of American United Life
Insurance Company(R) as to legality of Policies being
registered(1)
3. Inapplicable
4. Inapplicable
5. Inapplicable
6. Consent of Independent Accountants(4)
7. Consent of Dechert Price & Rhoads(1)
8. Opinion of Actuary(1)
9. Memorandum Describing Issuance, Transfer, and Redemption
Procedures(1)
10. Powers of Attorney(2)
- ---------------
(1) Filed with the Registrant's initial registration statement on Form S-6
(File No. 333-32531) on July 31, 1997.
(2) Filed with the Registrant's Post-Effective Amendment No. 1 to the
Registration Statement on Form S-6 (File No. 333-32531) on April 30,
1998.
(3) Incorporated herein by reference to the Post Effective Amendment No. 2
to the Registration Statement for the Modified Single Premium Variable
Life Insurance Policy also funded by the Registrant (File No.
333-32553) filed with the Securities and Exchange Commission on May
1, 1999.
(4) Filed with the Registrant's Post-effective Amendment No. 3 (File
333-32531) on April 30, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it meets all of the requirements for effectiveness of this Post
Effective Amendment to the Registration Statement pursuant to rule 485(b) under
the Securities Act of 1933 and has duly caused this Post-Effective Amendment to
the Registration Statement (Form S-6) to be signed on its behalf by the
undersigned, thereunto duly authorized, and its seal to be hereunto affixed and
attested, all in the City of Indianapolis, and the State of Indiana, on the 30th
day of April, 1999.
AUL AMERICAN INDIVIDUAL VARIABLE LIFE UNIT TRUST
(Registrant)
By: American United Life Insurance Company
By: __________________________________________
Name: Jerry D. Semler*
Title: Chairman of the Board, President,
and Chief Executive Officer
* By: /s/ Richard A. Wacker
__________________________________________
Richard A. Wacker as attorney-in-fact
Date: April 30, 1999
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
_______________________________ Director April 30, 1999
Steven C. Beering M.D.*
_______________________________ Director April 30, 1999
Arthur L. Bryant*
_______________________________ Director April 30, 1999
James M. Cornelius*
_______________________________ Director April 30, 1999
James E. Dora*
_______________________________ Director April 30, 1999
Otto N. Frenzel III*
_______________________________ Director April 30, 1999
David W. Goodrich*
_______________________________ Director April 30, 1999
William P. Johnson*
_______________________________ Director April 30, 1999
James T. Morris*
<PAGE>
Signature Title Date
- --------- ----- ----
______________________________ Principal Financial April 30, 1999
James W. Murphy* and Accounting Officer
______________________________ Director April 30, 1999
R. Stephen Radcliffe*
______________________________ Director April 30, 1999
Thomas E. Reilly Jr*
______________________________ Director April 30, 1999
William R. Riggs*
______________________________ Director April 30, 1999
John C. Scully*
______________________________ Director April 30, 1999
Yvonne H. Shaheen*
______________________________ Director April 30, 1999
Frank D. Walker*
/s/ Richard A. Wacker
___________________________________________
*By: Richard A. Wacker as Attorney-in-fact
Date: April 30, 1999
<PAGE>
EXHIBITS FILED WITH
FORM S-6
For Registration Under the Securities Act of 1933
of Securities of Unit Investment Trust
Registered on Form N-8B-2
AUL AMERICAN INDIVIDUAL VARIABLE LIFE UNIT TRUST
OF AMERICAN UNITED LIFE INSURANCE COMPANY(R)
<TABLE>
<S> <C>
Exhibit Exhibit
Number in Form Numbering
N-4, Item 24(b) Value Name of Exhibit
- ---------------- --------- ---------------
6 EX-99.6 Consent of Independent Accountants
</TABLE>
- --------------------------------------------------------------------------------
EXHIBIT 6
CONSENT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
Consent of Independent Accountants
We consent to the inclusion in this prospectus for the "AUL Individual Variable
Life Unit Trust," the Flexible Premium Adjustable Variable Life Insurance Policy
of our report dated February 26, 1999, on our audits of the combined financial
statements of American United Life Insurance Company. We also consent to the
reference to our firm under the caption "Independent Accountants."
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
April 30, 1999
