<PAGE>
As filed with the Securities and Exchange Commission on April 26, 2000
Registration No. 333-32553
SECURITIES AND EXCHANGE COMMISSION
Washington. D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 4 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, 2000 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)
Modified Single Premium Variable
Life Insurance Policies
RECONCILIATION AND TIE
(Form N-8B-2 Items required by Instruction as
to the Prospectus in Form S-6)
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
<PAGE>
(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; Cash
Benefits;
Summary and Diagram
of the Policy
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;
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
underlying securities........................... about AUL, the
Separate Account and
the Funds; Charges
and Deductions - Fund
Expenses
17. Withdrawal or redemption.........................Premium Payments and
Allocations -Transfer
Privilege; 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
disposition of income ................. About AUL,
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
securities.................................... of the Policy;
General Information
About AUL, the
Separate Account and
the Funds; Death
Benefits; 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
ix
<PAGE>
PROSPECTUS
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
American United Life Insurance Company(R)
One American Square
Indianapolis, Indiana 46282
This Prospectus describes a modified single premium 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 gives you the opportunity to allocate premiums and Account Value to
one or more Investment Accounts of the AUL American Individual Variable Life
Unit Trust (the "Separate 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 Management, Inc.
Alger American Growth Portfolio
Alger American Small Capitalization 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
PBHG Insurance Series Fund, Inc. Pilgrim Baxter & Associates, Ltd.
PBHG Growth II
PBHG Technology & Communications
SAFECO Resource Series Trust SAFECO Asset Management Company
SAFECO RST Equity Portfolio
SAFECO RST Growth Opportunities Portfolio
T. Rowe Price Equity Series, Inc. T. Rowe Price Associates, Inc.
T. Rowe Price Equity Income Portfolio
T. Rowe Price Mid-Cap Growth Portfolio
T. Rowe Price Fixed Income Series, Inc. T. Rowe Price Associates, Inc.
T. Rowe Price Limited-Term Bond 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
<PAGE>
TABLE CONTENTS
Page
DEFINITIONS OF TERMS.....................................................3
SUMMARY AND DIAGRAM OF THE POLICY........................................4
DIAGRAM OF CONTRACT....................................................5,6
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............................................ 8
American Century Variable Portfolios, Inc...................... 8
Fidelity Variable Insurance Products Fund...................... 8
Fidelity Variable Insurance Products Fund II................... 9
Janus Aspen Series............................................. 9
PBHG Insurance Series Fund, Inc................................ 9
SAFECO Resource Series Trust...................................10
T. Rowe Price Equity Series, Inc...............................10
T. Rowe Price Fixed Income Series, Inc.........................10
FUND EXPENSE TABLE......................................................11
PREMIUM PAYMENTS AND ALLOCATIONS........................................12
Applying for a Policy..........................................12
Right to Examine Policy........................................12
Premiums.......................................................12
Premium Payments to Prevent Lapse..............................13
Premium Allocations and Crediting..............................13
Transfer Privilege.............................................13
Initial Dollar Cost Averaging Program..........................14
Ongoing Dollar Cost Averaging Program .........................14
Portfolio Rebalancing Program..................................14
FIXED ACCOUNT...........................................................14
Summary of the Fixed Account...................................14
Minimum Guaranteed and Current Interest Rates .................15
Enhanced Averaging Fixed Account ..............................15
Calculation of the Fixed Account Value ........................15
Transfers from the Fixed Account ..............................15
Payment Deferral ..............................................15
CHARGES AND DEDUCTIONS..................................................15
Monthly Deduction..............................................15
Annual Contract Charge.........................................16
Surrender Charge...............................................16
Taxes..........................................................17
Special Uses...................................................17
Fund Expenses..................................................17
HOW YOUR ACCOUNT VALUES VARY............................................17
Determining the Account Value..................................17
Cash Value and Net Cash Value..................................18
DEATH BENEFIT...........................................................18
Amount of Death Benefit Proceeds...............................18
Death Benefit..................................................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.................................21
Life Insurance Retirement Plans................................21
Risks of Life Insurance Retirement Plans.......................21
ILLUSTRATIONS OF ACCOUNT VALUES, CASH VALUES, DEATH BENEFITS
AND ACCUMULATED PREMIUM PAYMENTS........................... 22-31
OTHER POLICY BENEFITS AND PROVISIONS....................................32
Limits on Rights to Contest the Policy.........................32
Changes in the Policy or Benefits..............................32
Exchange for Paid-Up Policy....................................32
When Proceeds Are Paid.........................................32
Dividends......................................................32
Reports to Policy Owners.......................................32
Assignment.....................................................32
Reinstatement..................................................32
Rider Benefits.................................................33
TAX CONSIDERATIONS......................................................34
Tax Status of the Policy.......................................34
Tax Treatment of Policy Benefits...............................35
Estate and Generation Skipping Taxes...........................36
Life Insurance Purchased for Use in Split Dollar Arrangements..36
Taxation Under Section 403(b) Plans............................37
Non-Individual Ownership of Contracts..........................37
Possible Charge for AUL's Taxes................................37
OTHER INFORMATION ABOUT THE POLICIES AND AUL............................37
Policy Termination.............................................37
Resolving Material Conflicts...................................37
Addition, Deletion or Substitution of Investments..............38
Voting Rights..................................................38
Sale of the Policies...........................................39
AUL Directors and Executive Officers........................39-41
State Regulation...............................................41
Additional Information.........................................41
Independent Accountants........................................41
Litigation.....................................................41
Legal Matters..................................................41
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 STATEMENT OF ADDITIONAL INFORMATION, THE PROSPECTUSES OF
THE FUNDS, OR THE STATEMENTS OF ADDITIONAL INFORMATION OF THE FUNDS.
2
<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 a death benefit that is described herein. 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 under the Partial Surrender provision.
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.
GENERAL ACCOUNT
All assets of AUL other than those allocated to the Variable Account
or to any other separate account of AUL.
HOME OFFICE
The Variable Products Service office at AUL's principal business
office, One American Square, Indianapolis, Indiana 46282.
INITIAL MAXIMUM PREMIUM
An amount set to be less than or equal to the initial premium limit
required to qualify the Policy as life insurance under the Internal
Revenue Code.
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 Code. A table of these
amounts is on the Policy Data Page of your 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.
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.
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.
3
<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
interests.
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 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. 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 Benefit, 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" below 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, based on guaranteed charges. See "Illustrations of Account
Values, Net 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 Code of 1986,
as amended (the "Internal Revenue Code"). It is expected that most Policies will
be treated as modified endowment contracts ("Modified Endowments") under federal
tax law. 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. 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 Premiums to the 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.
4
<PAGE>
Diagram of Contract
Premium Payments
You may elect to pay an initial premium payment that is equivalent to 80%, 90%
or 100% of the Initial Maximum Premium.
The Policy's maximum initial premium payment depends on the Insured's age, sex
and risk class, initial Face Amount selected, and any supplemental and/or rider
benefits.
Extra premium payments may be necessary to prevent lapse.
Premium Payments
You direct the allocation of Net Premium payments among the 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 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
Alger American Small Capitalization 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
PBHG Insurance Series Fund, Inc. PBHG Growth II
PBHG Technology & Communications
SAFECO Resource Series Trust RST Equity Portfolio
RST Growth Opportunities Portfolio
T. Rowe Price Equity Series, Inc. T. Rowe Price Equity Income Portfolio
T. Rowe Price Mid-Cap Growth Portfolio
T. Rowe Price Fixed Income Series, Inc. T. Rowe Price Limited-Term Bond Portfolio
</TABLE>
Not all funds are available with all contracts.
5
<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
.28% 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, state and Federal
taxes and charges for any supplemental and/or rider benefits. Administration
fees are currently 1/12 of 0.40% of Account Value per month. An annual contract
fee of $30 will be deducted on a monthly basis if Account Value is less than
$50,000.
From Investment Accounts
Monthly charge at a guaranteed annual rate of 0.90% from the Variable Account
value during the first 10 Policy Years and 0.80% thereafter for mortality and
expense risks.
Account Value
Contract Value is equal to 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 Accounts. 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 For all policies, Face Amount generated by the
there is sufficient remaining Net Cash Value. the selection of the initial premium amount.
Partial Surrenders reduce the Face Amount
proportionately. A surrender charge may apply.
The Policy may be surrendered in full at any time Death Benefit equal to the specified amount.
for its Net Cash Value. A surrender charge will
apply during the first ten Policy Years after
issue. Supplemental and/or rider benefits may be available.
Settlement options are available.
Loans, Partial Surrenders, and Full Surrenders
may have adverse tax consequences.
</TABLE>
6
<PAGE>
GENERAL INFORMATION ABOUT AUL, THE SEPARATE ACCOUNT AND THE FUNDS
AMERICAN UNITED LIFE INSURANCE COMPANY(R)
AUL is a legal reserve mutual life insurance company existing under the laws of
the State of Indiana. It was originally incorporated as a fraternal society on
November 7, 1877, under the laws of the Federal government, and reincorporated
under the laws of the State of Indiana in 1933. It is qualified to do business
in 49 states and the District of Columbia. AUL has its principal business office
located at One American Square, Indianapolis, Indiana 46282.
At a meeting of the AUL Board of Directors held on February 17, 2000, the Board
approved the concept of changing the corporate structure of AUL. During the
second quarter of 2000, the Board of Directors of AUL is expected to formally
approve a plan of conversion ("Plan") under which AUL will convert from a mutual
life insurance company to a stock life insurance company ultimately controlled
by a mutual holding company ("Mutual Holding Company"). This transaction is
intended to result in a corporate structure that provides, among other things,
better access to external sources of capital. Under the Plan, upon the
conversion, the insurance company would issue voting stock to a newly-formed
stock holding company ("Stock Holding Company"). It is anticipated that the
Stock Holding Company could, subsequent to the conversion, offer shares of its
stock publicly or privately; however, the Mutual Holding Company must always
hold at least 51% of the voting stock of the Stock Holding Company. The Stock
Holding Company would always own 100% of the voting stock of AUL. No plans have
been formulated to issue any shares of capital stock or debt securities of the
Stock Holding Company at this time.
Since AUL currently is a mutual life insurance company, owners ("policyholders")
of AUL's annuity contracts and life insurance policies ("policies") have certain
membership interests in AUL consisting principally of the right to vote on the
election of the Board of Directors and on other matters and certain rights upon
liquidation or dissolution of AUL. Under the Plan, policyholders continue to be
policyholders in the same insurance company, but would no longer have a
membership interest in the insurance company; rather, policyholders would have
membership interests in the Mutual Holding Company. These interests in the
Mutual Holding Company would be substantially the same as the membership
interests that policyholders have in AUL prior to the conversion, consisting
principally of the right to vote on the election of the Board of Directors and
on other matters and certain rights upon liquidation or dissolution of the
Mutual Holding Company. After the conversion, persons who acquire policies from
AUL would automatically be members in the Mutual Holding Company. The conversion
will not, in any way, increase premium payments or reduce policy benefits,
values, guarantees or other policy obligations to policyholders. The Plan is
subject to the approval by AUL policyholders and the consent of the Insurance
Commissioner of Indiana, among other approvals and conditions. If the necessary
approvals are obtained and conditions met, the conversion could occur in 2000.
Under the Plan, the insurance company name will not change.
AUL conducts a conventional life insurance, reinsurance, and annuity business.
At December 31, 1999, AUL had assets of $10,577,535,000 and a policyholders'
surplus of $739,224,931.
The principal underwriter for the Contracts is AUL, which is registered with the
SEC as a broker-dealer.
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
7
<PAGE>
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 seeks long term capital appreciation.
It focuses on growing companies that generally have broad product lines,
markets, financial resources and depth of management. Under normal
circumstances, the Portfolio invests primarily in the equity securities of large
companies. The Portfolio considers a large company to have a market
capitalization of $1 billion or greater.
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO
The Alger American Small Capitalization Portfolio seeks long-term capital
appreciation. It focuses on small, fast-growing companies that offer innovative
products, services or technologies to a rapidly expanding marketplace. Under
normal circumstances, the portfolio invests primarily in the equity securities
of small capitalization companies. A small capitalization company is one that
has a market capitalization within the range of the Russell 2000 Growth Index or
the S&P MidCap 400 Index.
FOR ADDITIONAL INFORMATION CONCERNING THE ALGER AMERICAN FUND AND ITS
PORTFOLIOS, 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 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, selecting
from a universe of the 1,500 largest publicly traded stocks, with the goal of
producing a total return that exceeds its benchmark, the S&P 500, without taking
on significant additional risk. The fund's management team also targets a
dividend yield that is higher than the yield of the S&P 500.
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 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's goal is to achieve a
yield which exceeds the composite yield on the securities comprising the S&P
500. Fidelity Management & Research Company (FMR) normally invests at least 65%
of the fund's total assets in income-producing equity securities. FMR 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 to achieve capital appreciation. FMR invests
the fund's assets in
8
<PAGE>
companies that it believes have above-average growth potential. Growth may be
measured by factors such as earnings or revenue. FMR 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 a high level of current income while
also considering growth of capital. FMR 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 FMR's ability to resell the securities to the general public. FMR may
also invest the fund's assets in non-income producing securities, including
defaulted securities and common stocks. FMR intends to limit common stocks to
10% of the fund's total assets. FMR 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. FMR 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.
FMR also may enter into reverse repurchase agreements for the Fund.
VIP OVERSEAS PORTFOLIO
The VIP Overseas Portfolio seeks long-term growth of capital. FMR normally
invests at least 65% of the fund's total assets in foreign securities. FMR
normally invests the fund's assets primarily in stocks. FMR normally diversifies
the fund's investments across different countries and regions. In allocating the
fund's investments across countries and regions, FMR 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 to obtain high total return with
reduced risk over the long-term by allocating its assets among domestic and
foreign stocks, bonds and short-term instruments. FMR 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(R) PORTFOLIO
The VIP II Contrafund(R) Portfolio seeks long-term capital appreciation.
FMR normally invests the fund's assets primarily in common stocks. FMR invests
the fund's assets in securities of companies whose value FMR 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. Banker's Trust normally invests at least 80% of
assets in common stocks included in the S&P 500.
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
PBHG INSURANCE SERIES FUNDS, INC.
PBHG GROWTH II PORTFOLIO
The investment objective of the PBHG Growth II Portfolio is capital
appreciation. The Portfolio will normally invest in growth securities of small
and medium-sized companies with market capitalizations or annual revenues
between $500 million and $10 billion. The growth securities in the Portfolio are
primarily common stocks that the Adviser believes have strong business momentum,
earnings growth and capital appreciation potential. The PBHG Growth II Portfolio
is managed by Jeffrey A. Wrona, CFA, who is responsible for managing other
mid-cap institutional accounts and the PBHG Technology & Communications Fund of
The PBHG Funds, Inc.
PBHG TECHNOLOGY & COMMUNICATIONS PORTFOLIO
The primary objective of the PBHG Technology & Communications Portfolio is
long-term growth of capital. Current income is incidental to the Portfolio's
objective. The Portfolio will normally invest in common stocks of companies
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<PAGE>
doing business in the technology and communications sectors of the market. The
Portfolio will invest 25% of its assets in one or more of the industries within
these sectors, which may include computer software and hardware, network and
cable broadcasting, semiconductors, defense and data storage and retrieval and
biotechnology. The Portfolio is managed by Jeffrey A. Wrona, CFA, who also
manages the PBHG Technology & Communications Fund of The PBHG Funds, Inc.
FOR MORE COMPLETE INFORMATION, INCLUDING INFORMATION ON CHARGES AND EXPENSES,
CONCERNING THE PBHG INSURANCE SERIES FUND, INC. PLEASE CALL (800) 433-0051 OR
WRITE THE PBHG INSURANCE SERIES FUND, INC. FOR A 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
growth of capital and reasonable current income. The RST Equity Portfolio
ordinarily invests principally in common stocks selected for long-term
appreciation and/or dividend potential.
RST GROWTH OPPORTUNITIES PORTFOLIO
The RST Growth Opportunities Portfolio has as its investment objective to
seek growth of capital and the increased income that ordinarily follows from
such growth. The RST Growth Opportunities 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 growth of capital through investments in
the common stocks of established companies.
T. ROWE PRICE MID-CAP GROWTH PORTFOLIO
The T. Rowe Price Mid-Cap Growth Portfolio seeks long-term growth of
capital by investing in mid-cap stocks with potential for above-average earnings
growth.
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. ROWE PRICE LIMITED-TERM BOND PORTFOLIO
The T. Rowe Price Limited-Term Bond Portfolio seeks a high level of income
consistent with moderate fluctuations in principal value. The Portfolio invests
primarily in investment grade short- and intermediate-term bonds. While there
are no maturity limitations on individual securities purchased, the portfolio's
dollar-weighted average effective maturity will not exceed five years.
FOR ADDITIONAL INFORMATION CONCERNING T. ROWE PRICE EQUITY SERIES, INC. AND T.
ROWE PRICE FIXED INCOME SERIES, INC. AND THEIR PORTFOLIOS, PLEASE SEE THE T.
ROWE PRICE EQUITY SERIES, INC. AND THE T. ROWE PRICE FIXED INCOME SERIES, INC.
PROSPECTUSES, WHICH SHOULD BE READ CAREFULLY BEFORE INVESTING.
10
<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, 1999. 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 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) 0.13% 0.63%
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) 0.15% 0.55%
Alger American Fund
Alger American Growth Portfolio 0.75% 0.04% 0.79%
Alger American Small Capitalization 0.85% 0.05% 0.90%
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 0.50% 0.08% 0.58%(3)
VIP Growth Portfolio 0.60% 0.09% 0.69%(3)
VIP High Income Portfolio 0.59% 0.12% 0.71%(3)
VIP Money Market Portfolio 0.21% 0.10% 0.31%
VIP Overseas Portfolio 0.75% 0.17% 0.92%(3)
Fidelity Variable Insurance Products Fund II
VIP II Asset Manager Portfolio 0.55% 0.10% 0.65%(3)
VIP II Contrafund Portfolio 0.60% 0.11% 0.71%(3)
VIP II Index 500 Portfolio 0.24% 0.04% 0.28%(4)
Janus Aspen Series
Flexible Income Portfolio 0.65% 0.07% 0.72%
Worldwide Growth Portfolio 0.65% 0.05% 0.70%(5)
PBHG Insurance Series Fund, Inc.
PBHG Growth II 0.75% 0.42% 1.17%(6)
PBHG Technology & Communications 0.85% 0.24% 1.09%(6)
SAFECO Resource Series Trust
RST Equity 0.74% 0.02% 0.76%
RST Growth Opportunities 0.74% 0.05% 0.79%
T. Rowe Price Equity Series, Inc.
T. Rowe Price Equity Income Portfolio 0.85% 0.00% 0.85%(7)
T. Rowe Price Mid-Cap Growth 0.85% 0.00% 0.85%(7)
T. Rowe Price Fixed Income Series, Inc.
T. Rowe Price Limited-Term Bond 0.70% 0.00% 0.70%(7)
<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. During 1999, expenses
did not exceed 1% of the average daily net asset value.
(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 have entered into
arrangements with their custodian and transfer agent whereby interst earned on
uninvested cash balances was used to reduce custodian expenses. Including these
reductions, the total operating expenses presented in the table would have been
.57% for Equity-Income Portfolio, .67% for Growth Portfolio, .90% for Overseas
Portfolio, .64% for Asset Manager Portfolio, .68% for Contrafund Portfolio and
.71% for High Income Portfolio.
(4) FMR agreed to reimburse a portion of Index 500 Portfolio's expenses
during the period. Without this reimbursement, the fund's management fee, other
expenses and total expenses would have been .27%, .13% and .40%, respectively.
(5) Expenses are based upon expenses for the fiscal year ended December 31,
1999, restated to reflect a reduction in the management fee for the Worldwide
Growth Portfolio. Expenses are stated without waivers by Janus Capital. Waivers,
if applicable, are first applied against the management fee and then against
other expenses, and will continue at least until the next annual renewal of the
advisory agreement. All expenses are shown without the effect of expense offset
arrangements.
(6) You should know that because Pilgrim Baxter has contractually agreed to
waive that portion, if any, of the annual management fees payable by the
Portfolio and to pay certain expenses of the Portfolio to the extent necessary
to ensure that the total annual fund operating expenses do not exceed 1.20%. You
should also know that in any fiscal year in which the Portfolio's assets are
greater than $75 million and its total annual fund operating expenses are less
than 1.20%, the Portfolio's Board of Directors may elect to reimburse Pilgrim
Baxter for any fees it waived or expenses it reimbursed on the Portfolio's
behalf during the previous two fiscal years. In 1999, the Board elected to
reimburse $31,616 in waived fees for the Growth II Portfolio and $93,603 in
waived fees for the Technology & Communications Portfolio.
(7) Management fee includes operating expenses.
</FN>
</TABLE>
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<PAGE>
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, Pilgrim Baxter & Associates, SAFECO
Asset Management Company, T. Rowe Price Equity Series, Inc. and T. Rowe Price
Fixed Income 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 unlikely 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.
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. 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 calendar days after you receive your Policy (or a longer
period if required by law). We assume you receive your Policy 5 calendar 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 Policy permits the Owner to pay a large single premium and, subject to
restrictions, additional 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 premium payments you propose to make. You may elect the initial
premium to be 80%, 90% or 100% of the Initial Maximum Premium. The Initial
Maximum Premium is less than or equal to the maximum premium that can be paid
for a given Face Amount in order for an insurance policy to qualify as a life
insurance contract for tax purposes. 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.
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
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
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the right to refund the amount to you with interest no later than 60 days after
the end of the Policy Year which we receive the premium, but we assume no
obligation to do so.
Each premium after the initial premium must be at least $1,000. AUL may increase
this minimum 90 days after we send you a written notice of such increase.
However AUL reserves the right to limit the amount of a premium payment or the
total premium payments paid.
PREMIUM PAYMENTS TO PREVENT LAPSE
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. The grace period starts
if the Net Cash Value on a Monthiversary will not cover the Monthly Deduction. A
premium sufficient to keep the Policy in force must be submitted during the
grace period.
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 reflect
a reduction for the Monthly Deductions due on or before the date of the
Insured's death (and for any outstanding loan and loan interest). 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."
PREMIUM ALLOCATIONS AND CREDITING
In the Policy application, you specify the percentage of a premium to be
allocated to each Investment Account. The sum of your allocations must equal
100%, with at least 1% of the premium payment allocated to each Investment
Account selected by you. All 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 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 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 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 premiums so allocated. However, we reserve the right to
allocate 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 premium and interest to 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 calendar 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 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.
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 affected by the transfer. The charge will be
deducted from Investment Account(s) from which the transfer are made.
TELEPHONE TRANSFERS. Telephone transfers will be based upon instructions given
by telephone, provided the
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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.
INITIAL DOLLAR COST AVERAGING PROGRAM
After July 1, 2000, at issue, owners who wish to purchase units of an
Investment Account over a six month or one year period may do so through the
Initial Dollar Cost Averaging ("Initial DCA") Program. Under the Initial DCA
Program, the Contract Owner authorizes AUL to allocate initial and subsequent
premiums received in the first 6 or 12 months after the contract issue date into
the Enhanced Averaging Fixed Account. An amount is transferred from the Enhanced
Averaging Fixed Account into one or more other Investment Accounts. AUL
recalculates the transfer amount each month to ensure that the entire balance of
the Enhanced Averaging Fixed Account is transferred within six months or one
year after the initial premium is received. The unit values are determined on
the dates of the transfers. These transfers will continue automatically over a 6
or 12 month period. To participate in the Program, AUL requires a minimum
deposit of $10,000 into the Enhanced Averaging Fixed Account.
ONGOING DOLLAR COST AVERAGING PROGRAM
The Ongoing 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 Ongoing 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 Ongoing
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
Ongoing 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 Ongoing 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 Ongoing Dollar Cost Averaging
Program. We also reserve the right to alter the terms or suspend or eliminate
the availability of the Ongoing 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 program 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 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 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
Summary of the 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
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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 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.
Enhanced Averaging Fixed Account
A Contract Owner may allocate initial and subsequent premiums in the first
Contract Year to the Enhanced Averaging Fixed Account. The Enhanced Averaging
Fixed Account may only be requested at issue and requires an initial deposit of
$10,000 therein. Within six months or one year after the initial deposit into
the Enhanced Averaging Fixed Account, a Contract Owner must transfer these
allocations to other Investment Accounts. AUL will recalculate, each month, the
amounts it will transfer out of the Enhanced Averaging Fixed Account. This
procedure ensures that the entire balance of the Enhanced Averaging Fixed
Account will be transferred within six months or one year after the initial
deposit. Amounts allocated to the Enhanced Averaging Fixed Account earn interest
at rates periodically determined by AUL. AUL guarantees these rates to be at
least an effective annual rate of 3%.
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
MONTHLY DEDUCTION
AUL will deduct Monthly Deductions for the Contract Date and 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, (3) mortality and expense
risk charge, (4) tax charges, and (5) any charges for rider benefits, as
described below. All Monthly Deductions except the Mortality and Expense Risk
Charge are deducted from the Account Value pro rata on the basis of the portion
of Account Value in each account. The Mortality and Expense Risk Charge is
deducted from the Variable Account value pro rata on the basis of the portion of
the Variable Account value in each Investment 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 may vary 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
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future. The current rates may also vary with the Attained Age, gender, where
permissible, duration, policy size and underwriting class of the Insured, or,
alternatively, may be a charge against Account Value that does not vary with
Attained Age or gender, and may vary with underwriting class. For any Policy,
the current cost of insurance on a Monthiversary is calculated in one of two
ways: (1) if the Initial Maximum Premium is paid, the cost of insurance equals
the lesser of an amount equal, on an annual basis, to a percentage multiplied by
the Account Value or an amount equal to the Risk Amount multiplied by the
guaranteed maximum cost of insurance rate set forth in the Policy; or (2) if
less than the Initial Maximum Premium is paid, the cost of insurance is
calculated by multiplying the current cost of insurance rate for the Insured by
the Risk Amount for that Monthiversary. We reserve the right to change the
current cost of insurance rates, and, in the case of payment of the Initial
Maximum Premium, to assess a cost of insurance charge calculated solely by
multiplying the current cost of insurance rate for the Insured by the Risk
Amount for a Monthiversary, in the same manner as the cost of insurance charge
currently is calculated when less than the Initial Maximum Premium is paid. The
Risk Amount on a Monthiversary is the difference between the Death Benefit
divided by 1.00246627 and the Account Value.
AUL places the Insured in a risk class when the Policy is given underwriting
approval, based on AUL's underwriting of the application. AUL currently places
Insureds in a standard class based on underwriting. An Insured may be placed in
a substandard risk class, which involves a higher mortality risk than the
standard classes. Standard rates are available for Issue Ages 0-89. The
guaranteed maximum cost of insurance rate is set forth on the Policy Data Page
of your Policy.
MONTHLY ADMINISTRATIVE CHARGE. The monthly administrative charge is a level
monthly charge that is guaranteed not to exceed, on an annual basis, a rate of
0.40% of Account Value. We reserve the right to charge a lower current rate.
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.
MORTALITY AND EXPENSE RISK CHARGE. AUL deducts a monthly charge from the
Variable Account value pro rata based on your amounts in each account. The
current charge is at an annual rate of 0.90% of Variable Account value during
the first 10 Policy Years, and 0.80% 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. 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.
PREMIUM TAX CHARGE. AUL deducts a monthly charge at an annual rate equal to .25%
of Account Value during the first 10 Policy Years for state and local premium
taxes and related administrative expenses. 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.
FEDERAL TAX CHARGE. AUL also deducts a federal tax charge at an annual rate
equal to 0.15% of Account Value during the first 10 Policy Years.
COST OF ADDITIONAL BENEFITS PROVIDED BY RIDERS. The cost of additional benefits
provided by riders is charged to the Account Value on the Monthiversary.
ANNUAL CONTRACT CHARGE
AUL deducts an annual contract charge from the Account Value equal to $30 on
each Policy Anniversary in which the Account Value is less than $50,000. This
charge is deducted prorata from each Investment Account to which you have
allocated Account Value.
SURRENDER CHARGE
During the first 10 Policy Years, a surrender charge calculated based on the
percentage of first year premium surrendered will be deducted from the Account
Value if the Policy is completely surrendered for cash or if you make a Partial
Surrender. Twelve percent of the amount of first year premium not previously
withdrawn, known as the "remaining withdrawal amount," may be withdrawn without
incurring a withdrawal charge. A withdrawal charge will be assessed upon any
amounts withdrawn in excess of this amount. The "remaining withdrawal amount,"
which is initially the first year premium, will then be reduced by the full
amount of the withdrawal. Future free withdrawal amounts will be calculated
based on the remaining withdrawal amount. A withdrawal charge will not be
assessed on amounts withdrawn in excess of the first year premium. The total
surrender charge will not exceed the maximum surrender charge set forth in your
Policy.
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 deducted if the Policy is completely
surrendered during the first 10 Policy Years.
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Table of Surrender Charges
Policy Year Percentage of Premium
1 10%
2 9%
3 8%
4 7%
5 6%
6 5%
7 4%
8 3%
9 2%
10 1%
TAXES
AUL does not currently assess a charge for any taxes other than the state
premium tax charge and federal tax charge. We reserve the right, however, to
assess a charge for such taxes, or taxes resulting from the performance of the
Separate Account, against the Separate Account 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.
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, 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 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, premium payments since the prior Valuation Date, charges,
transfers, Partial Surrenders and surrender charges since the prior Valuation
Date, loans and loan repayments.
VARIABLE ACCOUNT VALUE. When you allocate an amount to an Investment Account,
either by 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 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 is 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 Account was 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
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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 as collateral for Policy loans and for due and unpaid
loan interest, less amounts transferred from the Loan Account to the Investment
Accounts as outstanding loans and loan interest are repaid, and plus interest
credited to the Loan Account.
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
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 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
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. If
investment performance is favorable, the amount of the Death Benefit may
increase. However, the Death Benefit ordinarily will not change for several
years to reflect any favorable investment performance and may not change at all.
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."
18
<PAGE>
<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>
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 Variable 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 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 to the Loan Account in the same
proportion that each Investment Account and 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 at an effective annual rate of
not less than 5.0%. Thus, the maximum net cost of a loan is 1.0% per year (the
net cost of a loan is the difference between the rate of interest charged on
outstanding loans and loan interests and the amount credited to the Loan
Account). On each Monthiversary, the interest earned on the Loan Account since
the previous Monthiversary will be transferred to the Loan Account.
PREFERRED LOAN PROVISION. A preferred loan may be made available by AUL. The
amount available for a preferred loan is the amount by which the Account Value
exceeds total premiums paid. The maximum amount available for a preferred loan
may not exceed the maximum loan amount. The preferred loan amount will be
credited with an effective annual rate of interest (currently, 6.0%). Thus, the
current net cost of the preferred loan is 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. When a loan repayment is made, Account Value in the Loan
Account in an amount equivalent to the
19
<PAGE>
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 loans 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, 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. Loans may be currently taxable and subject to a 10% penalty tax. 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.
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
payment 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. A Partial Surrender exceeding, in any Policy Year, 12% of the total first
year premium not previously withdrawn may be subject to a surrender charge. See
"Surrender Charge." As of the date AUL receives a written request 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 and/or the Fixed Account. If you
provide no directions, the Partial Surrender will be deducted from your Account
Value in the Investment Accounts and/or the Fixed Account on a prorata basis.
Partial Surrenders may have adverse tax consequences. See "Tax Considerations."
AUL will reduce the Face Amount in proportion to the reduction in the Account
Value resulting from the Partial Surrender. AUL will reject a Partial Surrender
request if the Partial Surrender would reduce the Account Value below the
minimum Account Value on the Policy Data Page, 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 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.
20
<PAGE>
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. 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.
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
21
<PAGE>
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 their 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 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 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 premiums are allocated equally among the
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.
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
0.75% 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 Monthly Deduction. AUL has
the contractual right to charge the guaranteed maximum charges. The current
charges and, alternatively, the guaranteed charges are reflected in separate
illustrations that follow. All the illustrations reflect the fact that no tax
charges other than the premium tax charge and federal tax charge are currently
made against the Separate Account and assume no outstanding loans and loan
interest 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
0nsured'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.
22
<PAGE>
American United Life Insurance Company(R)
Modified Single Premium Variable Life Insurance
SINGLE LIFE OPTION
$100,000 INITIAL PREMIUM
ISSUE AGE 50 MALE
INITIAL FACE AMOUNT $357,859
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 0%
(APPROXIMATE NET OF -1.64% DURING FIRST 10 POLICY YEARS, -1.54% THEREAFTER)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
End of Premiums CURRENT CHARGES* GUARANTEED CHARGES**
Contract Year Accumulated at
5% Interest Per Account Cash Death Account Cash Death
Year Value Value Benefit Value Value Benefits
- -------------- ---------------- ------------- ---------- --------- ---------- ------ ---------
1 105,000 96,943 88,143 357,859 95,786 86,986 357,859
2 110,250 93,980 86,060 357,859 91,482 83,562 357,859
3 115,763 91,107 84,067 357,859 87,063 80,023 357,859
4 121,551 88,322 82,162 357,859 82,501 76,341 357,859
5 127,628 85,623 80,343 357,859 77,766 72,486 357,859
6 134,010 83,005 78,605 357,859 72,835 68,435 357,859
7 140,710 80,468 76,948 357,859 67,683 64,163 357,859
8 147,746 78,008 75,368 357,859 62,285 59,645 357,859
9 155,133 75,624 73,864 357,859 56,612 54,852 357,859
10 162,889 73,312 72,432 357,859 50,624 49,744 357,859
11 171,034 71,428 71,428 357,859 44,503 44,503 357,859
12 179,586 69,592 69,592 357,859 37,908 37,908 357,859
13 188,565 67,803 67,803 357,859 30,755 30,755 357,859
14 197,993 66,060 66,060 357,859 22,949 22,949 357,859
15 207,893 64,361 64,361 357,859 14,386 14,386 357,859
16 218,287 62,707 62,707 357,859 4,966 4,966 357,859
17 229,202 61,095 61,095 357,859 0 0 0
18 240,662 59,524 59,524 357,859 0 0 0
19 252,695 57,994 57,994 357,859 0 0 0
20 265,330 56,503 56,503 357,859 0 0 0
21 278,596 55,051 55,051 357,859 0 0 0
22 292,526 53,636 53,636 357,859 0 0 0
23 307,152 52,257 52,257 357,859 0 0 0
24 322,510 50,914 50,914 357,859 0 0 0
25 338,635 49,605 49,605 357,859 0 0 0
26 355,567 48,330 48,330 357,859 0 0 0
27 373,346 47,087 47,087 357,859 0 0 0
28 392,013 45,877 45,877 357,859 0 0 0
29 411,614 44,698 44,698 357,859 0 0 0
30 432,194 43,549 43,549 357,859 0 0 0
</TABLE>
*These values reflect investment results using current cost of insurance rates,
administrative fees, and mortality and expense risk rates.
**These values reflect investment results using guaranteed cost of insurance
rates, administrative fees, and mortality and expense risk rates.
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN
THOSE SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE AND CASH VALUE FOR A POLICY WOULD
BE DIFFERENT FROM THOSE SHOWN IF ACTUAL INVESTMENT RETURN APPLICABLE TO THE
POLICY AVERAGED 0% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW
THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT, ACCOUNT VALUE AND
CASH VALUE FOR A POLICY WOULD ALSO BE DIFFERENT FROM THOSE SHOWN, DEPENDING ON
THE INVESTMENT ALLOCATIONS MADE TO THE INVESTMENT ACCOUNTS AND THE RATES OF
RETURN OF THE SEPARATE ACCOUNT IF THE ACTUAL RATES OF INVESTMENT RETURN
APPLICABLE TO THE POLICY AVERAGED 0%, BUT VARIED ABOVE OR BELOW THAT AVERAGE FOR
THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT THIS HYPOTHETICAL RATE
OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
23
<PAGE>
American United Life Insurance Company(R)
Modified Single Premium Variable Life Insurance
SINGLE LIFE OPTION
$100,000 INITIAL PREMIUM
ISSUE AGE 50 MALE
INITIAL FACE AMOUNT $357,859
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 6%
(APPROXIMATE NET OF 4.31% DURING FIRST 10 POLICY YEARS, 4.41% THEREAFTER)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
End of Premiums CURRENT CHARGES* GUARANTEED CHARGES**
Contract Year Accumulated at
5% Interest Per Account Cash Death Account Cash Death
Year Value Value Benefit Value Value Benefits
- -------------- ---------------- ------------- ---------- --------- ---------- ------ ---------
1 105,000 102,808 94,008 357,859 101,651 92,851 357,859
2 110,250 105,695 97,775 357,859 103,207 95,287 357,859
3 115,763 108,663 101,623 357,859 104,648 97,608 357,859
4 121,551 111,714 105,554 357,859 105,945 99,785 357,859
5 127,628 114,851 109,571 357,859 107,075 101,795 357,859
6 134,010 118,076 113,676 357,859 108,013 103,613 357,859
7 140,710 121,392 117,872 357,859 108,736 105,216 357,859
8 147,746 124,800 122,160 357,859 109,222 106,582 357,859
9 155,133 128,305 126,545 357,859 109,442 107,682 357,859
10 162,889 131,907 131,027 357,859 109,358 108,478 357,859
11 171,034 136,291 136,291 357,859 109,479 109,479 357,859
12 179,586 140,820 140,820 357,859 109,210 109,210 357,859
13 188,565 145,499 145,499 357,859 108,474 108,474 357,859
14 197,993 150,334 150,334 357,859 107,188 107,188 357,859
15 207,893 155,329 155,329 357,859 105,255 105,255 357,859
16 218,287 160,491 160,491 357,859 102,583 102,583 357,859
17 229,202 165,824 165,824 357,859 99,063 99,063 357,859
18 240,662 171,334 171,334 357,859 94,579 94,579 357,859
19 252,695 177,028 177,028 357,859 88,980 88,980 357,859
20 265,330 182,910 182,910 357,859 82,062 82,062 357,859
21 278,596 188,988 188,988 357,859 73,559 73,559 357,859
22 292,526 195,268 195,268 357,859 63,125 63,125 357,859
23 307,152 201,757 201,757 357,859 50,317 50,317 357,859
24 322,510 208,461 208,461 357,859 34,589 34,589 357,859
25 338,635 215,388 215,388 357,859 15,305 15,305 357,859
26 355,567 222,546 222,546 357,859 0 0 0
27 373,346 229,941 229,941 357,859 0 0 0
28 392,013 237,582 237,582 357,859 0 0 0
29 411,614 245,476 245,476 357,859 0 0 0
30 432,194 253,634 253,634 357,859 0 0 0
</TABLE>
*These values reflect investment results using current cost of insurance rates,
administrative fees, and mortality and expense risk rates.
**These values reflect investment results using guaranteed cost of insurance
rates, administrative fees, and mortality and expense risk rates.
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN
THOSE SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE AND CASH VALUE FOR A POLICY WOULD
BE DIFFERENT FROM THOSE SHOWN IF ACTUAL INVESTMENT RETURN APPLICABLE TO THE
POLICY AVERAGED 6% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW
THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT, ACCOUNT VALUE AND
CASH VALUE FOR A POLICY WOULD ALSO BE DIFFERENT FROM THOSE SHOWN, DEPENDING ON
THE INVESTMENT ALLOCATIONS MADE TO THE INVESTMENT ACCOUNTS AND THE RATES OF
RETURN OF THE SEPARATE ACCOUNT IF THE ACTUAL RATES OF INVESTMENT RETURN
APPLICABLE TO THE POLICY AVERAGED 6%, BUT VARIED ABOVE OR BELOW THAT AVERAGE FOR
THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT THIS HYPOTHETICAL RATE
OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
24
<PAGE>
American United Life Insurance Company(R)
Modified Single Premium Variable Life Insurance
SINGLE LIFE OPTION
$100,000 INITIAL PREMIUM
ISSUE AGE 50 MALE
INITIAL FACE AMOUNT $357,859
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 12%
(APPROXIMATE NET OF 10.26% DURING FIRST 10 POLICY YEARS, 10.37% THEREAFTER)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
End of Premiums CURRENT CHARGES* GUARANTEED CHARGES**
Contract Year Accumulated at
5% Interest Per Account Cash Death Account Cash Death
Year Value Value Benefit Value Value Benefits
- -------------- ---------------- ------------- ---------- --------- ---------- ------ ---------
1 105,000 108,674 99,874 357,859 107,517 98,717 357,859
2 110,250 118,100 110,180 357,859 115,635 107,715 357,859
3 115,763 128,344 121,304 357,859 124,406 117,366 357,859
4 121,551 139,476 133,316 357,859 133,888 127,728 357,859
5 127,628 151,574 146,294 357,859 144,152 138,872 357,859
6 134,010 164,721 160,321 357,859 155,284 150,884 357,859
7 140,710 179,009 175,489 357,859 167,385 163,865 357,859
8 147,746 194,536 191,896 357,859 180,573 177,933 357,859
9 155,133 211,409 209,649 357,859 194,983 193,223 357,859
10 162,889 229,746 228,866 357,859 210,767 209,887 357,859
11 171,034 250,924 250,924 357,859 229,253 229,253 357,859
12 179,586 274,100 274,100 357,859 249,723 249,723 357,859
13 188,565 299,698 299,698 377,620 272,461 272,461 357,859
14 197,993 327,738 327,738 406,395 297,777 297,777 369,243
15 207,893 358,390 358,390 437,236 325,626 325,626 397,264
16 218,287 391,917 391,917 470,300 356,088 356,088 427,306
17 229,202 428,493 428,493 509,907 389,321 389,321 463,292
18 240,662 468,398 468,398 552,709 425,577 425,577 502,181
19 252,695 511,936 511,936 598,965 465,136 465,136 544,209
20 265,330 559,437 559,437 648,947 508,294 508,294 589,621
21 278,596 611,256 611,256 702,944 555,376 555,376 638,682
22 292,526 668,081 668,081 754,931 607,006 607,006 685,917
23 307,152 730,487 730,487 810,840 663,706 663,706 736,714
24 322,510 799,153 799,153 871,077 726,096 726,096 791,444
25 338,635 874,901 874,901 936,144 794,919 794,919 850,563
26 355,567 958,718 958,718 1,006,654 871,073 871,073 914,627
27 373,346 1,050,243 1,050,243 1,102,756 954,232 954,232 1,001,943
28 392,013 1,150,142 1,150,142 1,207,649 1,044,998 1,044,998 1,097,248
29 411,614 1,259,128 1,259,128 1,322,085 1,144,021 1,144,021 1,201,222
30 432,194 1,377,955 1,377,955 1,446,853 1,251,984 1,251,984 1,314,584
</TABLE>
*These values reflect investment results using current cost of insurance rates,
administrative fees, and mortality and expense risk rates.
**These values reflect investment results using guaranteed cost of insurance
rates, administrative fees, and mortality and expense risk rates.
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN
THOSE SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE AND CASH VALUE FOR A POLICY WOULD
BE DIFFERENT FROM THOSE SHOWN IF ACTUAL INVESTMENT RETURN APPLICABLE TO THE
POLICY AVERAGED 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW
THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT, ACCOUNT VALUE AND
CASH VALUE FOR A POLICY WOULD ALSO BE DIFFERENT FROM THOSE SHOWN, DEPENDING ON
THE INVESTMENT ALLOCATIONS MADE TO THE INVESTMENT ACCOUNTS AND THE RATES OF
RETURN OF THE SEPARATE ACCOUNT IF THE ACTUAL RATES OF INVESTMENT RETURN
APPLICABLE TO THE POLICY AVERAGED 12%, BUT VARIED ABOVE OR BELOW THAT AVERAGE
FOR THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT THIS HYPOTHETICAL
RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF
TIME.
25
<PAGE>
American United Life Insurance Company(R)
Modified Single Premium Variable Life Insurance
SINGLE LIFE OPTION
$100,000 INITIAL PREMIUM
ISSUE AGE 60 MALE
INITIAL FACE AMOUNT $244,010
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 0%
(APPROXIMATE NET OF -1.64% DURING FIRST 10 POLICY YEARS, -1.54% THEREAFTER)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
End of Premiums CURRENT CHARGES* GUARANTEED CHARGES**
Contract Year Accumulated at
5% Interest Per Account Cash Death Account Cash Death
Year Value Value Benefit Value Value Benefits
- -------------- ---------------- ------------- ---------- --------- ---------- ------ ---------
1 105,000 96,943 88,143 244,010 95,160 86,360 244,010
2 110,250 93,980 86,060 244,010 90,123 82,203 244,010
3 115,763 91,107 84,067 244,010 84,845 77,805 244,010
4 121,551 88,322 82,162 244,010 79,274 73,114 244,010
5 127,628 85,623 80,343 244,010 73,353 68,073 244,010
6 134,010 83,005 78,605 244,010 67,028 62,628 244,010
7 140,710 80,468 76,948 244,010 60,240 56,720 244,010
8 147,746 78,008 75,368 244,010 52,924 50,284 244,010
9 155,133 75,624 73,864 244,010 44,999 43,239 244,010
10 162,889 73,312 72,432 244,010 36,352 35,472 244,010
11 171,034 71,428 71,428 244,010 26,994 26,994 244,010
12 179,586 69,592 69,592 244,010 16,525 16,525 244,010
13 188,565 67,803 67,803 244,010 4,690 4,690 244,010
14 197,993 66,060 66,060 244,010 0 0 0
15 207,893 64,361 64,361 244,010 0 0 0
16 218,287 62,707 62,707 244,010 0 0 0
17 229,202 61,095 61,095 244,010 0 0 0
18 240,662 59,524 59,524 244,010 0 0 0
19 252,695 57,994 57,994 244,010 0 0 0
20 265,330 56,503 56,503 244,010 0 0 0
21 278,596 55,051 55,051 244,010 0 0 0
22 292,526 53,636 53,636 244,010 0 0 0
23 307,152 52,257 52,257 244,010 0 0 0
24 322,510 50,914 50,914 244,010 0 0 0
25 338,635 49,605 49,605 244,010 0 0 0
26 355,567 48,330 48,330 244,010 0 0 0
27 373,346 47,087 47,087 244,010 0 0 0
28 392,013 45,877 45,877 244,010 0 0 0
29 411,614 44,698 44,698 244,010 0 0 0
30 432,194 43,549 43,549 244,010 0 0 0
</TABLE>
*These values reflect investment results using current cost of insurance rates,
administrative fees, and mortality and expense risk rates.
**These values reflect investment results using guaranteed cost of insurance
rates, administrative fees, and mortality and expense risk rates.
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN
THOSE SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE AND CASH VALUE FOR A POLICY WOULD
BE DIFFERENT FROM THOSE SHOWN IF ACTUAL INVESTMENT RETURN APPLICABLE TO THE
POLICY AVERAGED 0% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW
THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT, ACCOUNT VALUE AND
CASH VALUE FOR A POLICY WOULD ALSO BE DIFFERENT FROM THOSE SHOWN, DEPENDING ON
THE INVESTMENT ALLOCATIONS MADE TO THE INVESTMENT ACCOUNTS AND THE RATES OF
RETURN OF THE SEPARATE ACCOUNT IF THE ACTUAL RATES OF INVESTMENT RETURN
APPLICABLE TO THE POLICY AVERAGED 0%, BUT VARIED ABOVE OR BELOW THAT AVERAGE FOR
THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT THIS HYPOTHETICAL RATE
OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
26
<PAGE>
American United Life Insurance Company(R)
Modified Single Premium Variable Life Insurance
SINGLE LIFE OPTION
$100,0000 INITIAL PREMIUM
ISSUE AGE 60 MALE
INITIAL FACE AMOUNT $244,010
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 6%
(APPROXIMATE NET OF 4.31% DURING FIRST 10 POLICY YEARS, 4.41% THEREAFTER)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
End of Premiums CURRENT CHARGES* GUARANTEED CHARGES**
Contract Year Accumulated at
5% Interest Per Account Cash Death Account Cash Death
Year Value Value Benefit Value Value Benefits
- -------------- ---------------- ------------- ---------- --------- ---------- ------ ---------
1 105,000 102,808 94,008 244,010 101,031 92,231 244,010
2 110,250 105,695 97,775 244,010 101,888 93,968 244,010
3 115,763 108,663 101,623 244,010 102,536 95,496 244,010
4 121,551 111,714 105,554 244,010 102,935 96,775 244,010
5 127,628 114,851 109,571 244,010 103,042 97,762 244,010
6 134,010 118,076 113,676 244,010 102,815 98,415 244,010
7 140,710 121,392 117,872 244,010 102,209 98,689 244,010
8 147,746 124,800 122,160 244,010 101,174 98,534 244,010
9 155,133 128,305 126,545 244,010 99,645 97,885 244,010
10 162,889 131,907 131,027 244,010 97,534 96,654 244,010
11 171,034 136,291 136,291 244,010 95,222 95,222 244,010
12 179,586 140,820 140,820 244,010 92,084 92,084 244,010
13 188,565 145,499 145,499 244,010 87,925 87,925 244,010
14 197,993 150,334 150,334 244,010 82,510 82,510 244,010
15 207,893 155,329 155,329 244,010 75,568 75,568 244,010
16 218,287 160,491 160,491 244,010 66,786 66,786 244,010
17 229,202 165,824 165,824 244,010 55,784 55,784 244,010
18 240,662 171,334 171,334 244,010 42,104 42,104 244,010
19 252,695 177,028 177,028 244,010 25,153 25,153 244,010
20 265,330 182,910 182,910 244,010 4,119 4,119 244,010
21 278,596 188,988 188,988 244,010 0 0 0
22 292,526 195,268 195,268 244,010 0 0 0
23 307,152 201,757 201,757 244,010 0 0 0
24 322,510 208,461 208,461 244,010 0 0 0
25 338,635 215,388 215,388 244,010 0 0 0
26 355,567 222,546 222,546 244,010 0 0 0
27 373,346 229,941 229,941 244,010 0 0 0
28 392,013 237,582 237,582 249,461 0 0 0
29 411,614 245,476 245,476 257,750 0 0 0
30 432,194 253,634 253,634 266,315 0 0 0
</TABLE>
*These values reflect investment results using current cost of insurance rates,
administrative fees, and mortality and expense risk rates.
**These values reflect investment results using guaranteed cost of insurance
rates, administrative fees, and mortality and expense risk rates.
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN
THOSE SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE AND CASH VALUE FOR A POLICY WOULD
BE DIFFERENT FROM THOSE SHOWN IF ACTUAL INVESTMENT RETURN APPLICABLE TO THE
POLICY AVERAGED 6% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW
THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT, ACCOUNT VALUE AND
CASH VALUE FOR A POLICY WOULD ALSO BE DIFFERENT FROM THOSE SHOWN, DEPENDING ON
THE INVESTMENT ALLOCATIONS MADE TO THE INVESTMENT ACCOUNTS AND THE RATES OF
RETURN OF THE SEPARATE ACCOUNT IF THE ACTUAL RATES OF INVESTMENT RETURN
APPLICABLE TO THE POLICY AVERAGED 6%, BUT VARIED ABOVE OR BELOW THAT AVERAGE FOR
THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT THIS HYPOTHETICAL RATE
OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
27
<PAGE>
American United Life Insurance Company(R)
Modified Single Premium Variable Life Insurance
SINGLE LIFE OPTION
$100,000 INITIAL PREMIUM
ISSUE AGE 60 MALE
INITIAL FACE AMOUNT $244,010
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 12%
(APPROXIMATE NET OF 10.26% DURING FIRST 10 POLICY YEARS, 10.37% THEREAFTER)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
End of Premiums CURRENT CHARGES* GUARANTEED CHARGES**
Contract Year Accumulated at
5% Interest Per Account Cash Death Account Cash Death
Year Value Value Benefit Value Value Benefits
- -------------- ---------------- ------------- ---------- --------- ---------- ------ ---------
1 105,000 108,674 99,874 244,010 106,905 98,105 244,010
2 110,250 118,100 110,180 244,010 114,366 106,446 244,010
3 115,763 128,344 121,304 244,010 122,445 115,405 244,010
4 121,551 139,476 133,316 244,010 131,216 125,056 244,010
5 127,628 151,574 146,294 244,010 140,774 135,494 244,010
6 134,010 164,721 160,321 244,010 151,242 146,842 244,010
7 140,710 179,009 175,489 244,010 162,767 159,247 244,010
8 147,746 194,536 191,896 244,010 175,534 172,894 244,010
9 155,133 211,444 209,684 247,389 189,761 188,001 244,010
10 162,889 229,912 229,032 266,698 205,715 204,835 244,010
11 171,034 251,208 251,208 288,890 224,696 224,696 258,400
12 179,586 274,562 274,562 310,255 245,584 245,584 277,510
13 188,565 300,209 300,209 333,232 268,524 268,524 298,062
14 197,993 328,429 328,429 357,987 293,766 293,766 320,205
15 207,893 359,559 359,559 384,728 321,611 321,611 344,123
16 218,287 394,005 394,005 413,705 352,421 352,421 370,042
17 229,202 431,619 431,619 453,200 386,066 386,066 405,369
18 240,662 472,675 472,675 496,309 422,788 422,788 443,928
19 252,695 517,465 517,465 543,338 462,851 462,851 485,994
20 265,330 566,299 566,299 594,614 506,532 506,532 531,858
21 278,596 619,502 619,502 650,477 554,119 554,119 581,825
22 292,526 677,408 677,408 711,279 605,914 605,914 636,210
23 307,152 740,365 740,365 777,383 662,226 662,226 695,337
24 322,510 808,733 808,733 849,170 723,379 723,379 759,548
25 338,635 883,280 883,280 927,444 789,719 789,719 829,205
26 355,567 964,697 964,697 1,012,932 861,616 861,616 904,697
27 373,346 1,053,620 1,053,620 1,106,301 939,470 939,470 986,443
28 392,013 1,150,739 1,150,739 1,208,276 1,023,700 1,023,700 1,074,885
29 411,614 1,256,810 1,256,810 1,319,651 1,114,753 1,114,753 1,170,490
30 432,194 1,372,658 1,372,658 1,441,291 1,213,088 1,213,088 1,273,742
</TABLE>
*These values reflect investment results using current cost of insurance rates,
administrative fees, and mortality and expense risk rates.
**These values reflect investment results using guaranteed cost of insurance
rates, administrative fees, and mortality and expense risk rates.
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN
THOSE SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE AND CASH VALUE FOR A POLICY WOULD
BE DIFFERENT FROM THOSE SHOWN IF ACTUAL INVESTMENT RETURN APPLICABLE TO THE
POLICY AVERAGED 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW
THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT, ACCOUNT VALUE AND
CASH VALUE FOR A POLICY WOULD ALSO BE DIFFERENT FROM THOSE SHOWN, DEPENDING ON
THE INVESTMENT ALLOCATIONS MADE TO THE INVESTMENT ACCOUNTS AND THE RATES OF
RETURN OF THE SEPARATE ACCOUNT IF THE ACTUAL RATES OF INVESTMENT RETURN
APPLICABLE TO THE POLICY AVERAGED 12%, BUT VARIED ABOVE OR BELOW THAT AVERAGE
FOR THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT THIS HYPOTHETICAL
RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF
TIME.
28
<PAGE>
American United Life Insurance Company(R)
Modified Single Premium Variable Life Insurance
LAST SURVIVOR
$100,000 INITIAL PREMIUM
ISSUE AGE: 60 MALE \ 60 FEMALE
INITIAL FACE AMOUNT $381,680
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 0%
(APPROXIMATE NET OF -1.64% DURING FIRST 10 POLICY YEARS, -1.54% THEREAFTER)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
End of Premiums CURRENT CHARGES* GUARANTEED CHARGES**
Contract Year Accumulated at
5% Interest Per Account Cash Death Account Cash Death
Year Value Value Benefit Value Value Benefits
- -------------- ---------------- ------------- ---------- --------- ---------- ------ ---------
1 105,000 97,531 88,731 379,162 97,531 88,731 379,162
2 110,250 95,016 87,096 379,162 95,016 87,096 379,162
3 115,763 92,435 85,395 379,162 92,431 85,391 379,162
4 121,551 89,924 83,764 379,162 89,742 83,582 379,162
5 127,628 87,481 82,201 379,162 86,912 81,632 379,162
6 134,010 85,105 80,705 379,162 83,898 79,498 379,162
7 140,710 82,793 79,273 379,162 80,652 77,132 379,162
8 147,746 80,544 77,904 379,162 77,128 74,488 379,162
9 155,133 78,356 76,596 379,162 73,271 71,511 379,162
10 162,889 76,228 75,348 379,162 69,010 68,130 379,162
11 171,034 74,529 74,529 379,162 64,582 64,582 379,162
12 179,586 72,868 72,868 379,162 59,502 59,502 379,162
13 188,565 71,243 71,243 379,162 53,596 53,596 379,162
14 197,993 69,656 69,656 379,162 46,651 46,651 379,162
15 207,893 68,103 68,103 379,162 38,422 38,422 379,162
16 218,287 66,585 66,585 379,162 28,632 28,632 379,162
17 229,202 65,101 65,101 379,162 16,973 16,973 379,162
18 240,662 63,650 63,650 379,162 3,092 3,092 379,162
19 252,695 62,232 62,232 379,162 0 0 0
20 265,330 60,845 60,845 379,162 0 0 0
21 278,596 59,488 59,488 379,162 0 0 0
22 292,526 58,163 58,163 379,162 0 0 0
23 307,152 56,866 56,866 379,162 0 0 0
24 322,510 55,599 55,599 379,162 0 0 0
25 338,635 54,360 54,360 379,162 0 0 0
26 355,567 53,148 53,148 379,162 0 0 0
27 373,346 51,963 51,963 379,162 0 0 0
28 392,013 50,805 50,805 379,162 0 0 0
29 411,614 49,673 49,673 379,162 0 0 0
30 432,194 48,566 48,566 379,162 0 0 0
</TABLE>
*These values reflect investment results using current cost of insurance rates,
administrative fees, and mortality and expense risk rates.
**These values reflect investment results using guaranteed cost of insurance
rates, administrative fees, and mortality and expense risk rates.
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN
THOSE SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE AND CASH VALUE FOR A POLICY WOULD
BE DIFFERENT FROM THOSE SHOWN IF ACTUAL INVESTMENT RETURN APPLICABLE TO THE
POLICY AVERAGED 0% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW
THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT, ACCOUNT VALUE AND
CASH VALUE FOR A POLICY WOULD ALSO BE DIFFERENT FROM THOSE SHOWN, DEPENDING ON
THE INVESTMENT ALLOCATIONS MADE TO THE INVESTMENT ACCOUNTS AND THE RATES OF
RETURN OF THE SEPARATE ACCOUNT IF THE ACTUAL RATES OF INVESTMENT RETURN
APPLICABLE TO THE POLICY AVERAGED 0%, BUT VARIED ABOVE OR BELOW THAT AVERAGE FOR
THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT THIS HYPOTHETICAL RATE
OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
29
<PAGE>
American United Life Insurance Company(R)
Modified Single Premium Variable Life Insurance
LAST SURVIVOR
$100,000 INITIAL PREMIUM
ISSUE AGE: 60 MALE \ 60 FEMALE
INITIAL FACE AMOUNT $381,680
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 6%
(APPROXIMATE NET OF 4.31% DURING FIRST 10 POLICY YEARS, 4.41% THEREAFTER)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
End of Premiums CURRENT CHARGES* GUARANTEED CHARGES**
Contract Year Accumulated at
5% Interest Per Account Cash Death Account Cash Death
Year Value Value Benefit Value Value Benefits
- -------------- ---------------- ------------- ---------- --------- ---------- ------ ---------
1 105,000 103,433 94,633 379,162 103,433 94,633 379,162
2 110,250 106,881 98,961 379,162 106,881 98,961 379,162
3 115,763 110,323 103,283 379,162 110,323 103,283 379,162
4 121,551 113,819 107,659 379,162 113,732 107,572 379,162
5 127,628 117,425 112,145 379,162 117,075 111,795 379,162
6 134,010 121,146 116,746 379,162 120,317 115,917 379,162
7 140,710 124,985 121,465 379,162 123,418 119,898 379,162
8 147,746 128,946 126,306 379,162 126,339 123,699 379,162
9 155,133 133,032 131,272 379,162 129,036 127,276 379,162
10 162,889 137,248 136,368 379,162 131,452 130,572 379,162
11 171,034 142,306 142,306 379,162 134,188 134,188 379,162
12 179,586 147,551 147,551 379,162 136,510 136,510 379,162
13 188,565 152,989 152,989 379,162 138,288 138,288 379,162
14 197,993 158,627 158,627 379,162 139,360 139,360 379,162
15 207,893 164,473 164,473 379,162 139,545 139,545 379,162
16 218,287 170,535 170,535 379,162 138,638 138,638 379,162
17 229,202 176,820 176,820 379,162 136,408 136,408 379,162
18 240,662 183,336 183,336 379,162 132,593 132,593 379,162
19 252,695 190,093 190,093 379,162 126,863 126,863 379,162
20 265,330 197,099 197,099 379,162 118,783 118,783 379,162
21 278,596 204,363 204,363 379,162 107,754 107,754 379,162
22 292,526 211,895 211,895 379,162 92,955 92,955 379,162
23 307,152 219,705 219,705 379,162 73,262 73,262 379,162
24 322,510 227,802 227,802 379,162 47,173 47,173 379,162
25 338,635 236,197 236,197 379,162 12,708 12,708 379,162
26 355,567 244,902 244,902 379,162 0 0 0
27 373,346 253,928 253,928 379,162 0 0 0
28 392,013 263,287 263,287 379,162 0 0 0
29 411,614 272,990 272,990 379,162 0 0 0
30 432,194 283,051 283,051 379,162 0 0 0
</TABLE>
*These values reflect investment results using current cost of insurance rates,
administrative fees, and mortality and expense risk rates.
**These values reflect investment results using guaranteed cost of insurance
rates, administrative fees, and mortality and expense risk rates.
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN
THOSE SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE AND CASH VALUE FOR A POLICY WOULD
BE DIFFERENT FROM THOSE SHOWN IF ACTUAL INVESTMENT RETURN APPLICABLE TO THE
POLICY AVERAGED 6% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW
THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT, ACCOUNT VALUE AND
CASH VALUE FOR A POLICY WOULD ALSO BE DIFFERENT FROM THOSE SHOWN, DEPENDING ON
THE INVESTMENT ALLOCATIONS MADE TO THE INVESTMENT ACCOUNTS AND THE RATES OF
RETURN OF THE SEPARATE ACCOUNT IF THE ACTUAL RATES OF INVESTMENT RETURN
APPLICABLE TO THE POLICY AVERAGED 6%, BUT VARIED ABOVE OR BELOW THAT AVERAGE FOR
THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT THIS HYPOTHETICAL RATE
OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
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American United Life Insurance Company(R)
Modified Single Premium Variable Life Insurance
LAST SURVIVOR OPTION
$100,000 INITIAL PREMIUM
ISSUE AGE: 60 MALE \ 60 FEMALE
INITIAL FACE AMOUNT $381,680
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 12%
(APPROXIMATE NET OF 10.26% DURING FIRST 10 POLICY YEARS, 10.37 THEREAFTER)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
End of Premiums CURRENT CHARGES* GUARANTEED CHARGES**
Contract Year Accumulated at
5% Interest Per Account Cash Death Account Cash Death
Year Value Value Benefit Value Value Benefits
- -------------- ---------------- ------------- ---------- --------- ---------- ------ ---------
1 105,000 109,336 100,536 379,162 109,336 100,536 379,162
2 110,250 119,445 111,525 379,162 119,445 111,525 379,162
3 115,763 130,384 123,344 379,162 130,384 123,344 379,162
4 121,551 142,216 136,056 379,162 142,216 136,056 379,162
5 127,628 155,094 149,814 379,162 155,006 149,726 379,162
6 134,010 169,138 164,738 379,162 168,834 164,434 379,162
7 140,710 184,454 180,934 379,162 183,792 180,272 379,162
8 147,746 201,156 198,516 379,162 199,992 197,352 379,162
9 155,133 219,371 217,611 379,162 217,567 215,807 379,162
10 162,889 239,236 238,356 379,162 236,671 235,791 379,162
11 171,034 262,205 262,205 379,162 258,780 258,780 379,162
12 179,586 287,379 287,379 379,162 283,075 283,075 379,162
13 188,565 314,969 314,969 379,162 309,873 309,873 379,162
14 197,993 345,338 345,338 379,162 339,585 339,585 379,162
15 207,893 379,024 379,024 405,556 372,648 372,648 398,733
16 218,287 416,138 416,138 436,945 409,138 409,138 429,594
17 229,202 456,777 456,777 479,616 449,092 449,092 471,547
18 240,662 501,250 501,250 526,312 492,817 492,817 517,458
19 252,695 549,890 549,890 577,385 540,639 540,639 567,671
20 265,330 603,050 603,050 633,203 592,905 592,905 622,550
21 278,596 661,101 661,101 694,156 649,979 649,979 682,478
22 292,526 724,572 724,572 760,801 712,241 712,241 747,853
23 307,152 794,138 794,138 833,845 780,080 780,080 819,084
24 322,510 870,382 870,382 913,901 853,903 853,903 896,598
25 338,635 953,946 953,946 1,001,643 934,135 934,135 980,842
26 355,567 1,045,533 1,045,533 1,097,810 1,021,224 1,021,224 1,072,286
27 373,346 1,145,913 1,145,913 1,203,209 1,115,642 1,115,642 1,171,424
28 392,013 1,255,931 1,255,931 1,318,728 1,217,882 1,217,882 1,278,776
29 411,614 1,376,511 1,376,511 1,445,337 1,328,456 1,328,456 1,394,879
30 432,194 1,508,669 1,508,669 1,584,102 1,447,889 1,447,889 1,520,283
</TABLE>
*These values reflect investment results using current cost of insurance rates,
administrative fees, and mortality and expense risk rates.
**These values reflect investment results using guaranteed cost of insurance
rates, administrative fees, and mortality and expense risk rates.
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS PROSPECTUS
ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN
THOSE SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE AND CASH VALUE FOR A POLICY WOULD
BE DIFFERENT FROM THOSE SHOWN IF ACTUAL INVESTMENT RETURN APPLICABLE TO THE
POLICY AVERAGED 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW
THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT, ACCOUNT VALUE AND
CASH VALUE FOR A POLICY WOULD ALSO BE DIFFERENT FROM THOSE SHOWN, DEPENDING ON
THE INVESTMENT ALLOCATIONS MADE TO THE INVESTMENT ACCOUNTS AND THE RATES OF
RETURN OF THE SEPARATE ACCOUNT IF THE ACTUAL RATES OF INVESTMENT RETURN
APPLICABLE TO THE POLICY AVERAGED 12%, BUT VARIED ABOVE OR BELOW THAT AVERAGE
FOR THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT THIS HYPOTHETICAL
RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF
TIME.
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<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 Policy.
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.
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 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.
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 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, 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 Value, including a list of the securities held in each Fund,
as required by the 1940 Act. In addition, when you pay premiums, or if you take
out a loan, transfer amounts among the Investment Accounts 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 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
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<PAGE>
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, excluding the mortality and
expense risk charge, during a period of total disability. WMDD cannot be
attached to Policies with Face Amounts in excess of $3,000,000, policies
with a Long-Term Care Accelerated Death Benefit Rider or policies 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.
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 LS 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 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 and
preferred risks.
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.
This rider is not available if the Last Survivor Rider is issued. The
Accelerated Death Benefit Rider cannot be exercised if Long Term Care
Accelerated Death Benefits are paid.
LONG-TERM CARE ACCELERATED DEATH BENEFIT RIDER
Applicants residing in states that have approved the Long-Term Care
Accelerated Death Benefit Rider (the "ADBR") may elect to add it to their
Policy at issue, subject to AUL receiving satisfactory additional evidence
of insurability. This rider may be attached along with a Last Survivor
Rider. The ADBR is not yet available in all states and the form and/or
terms under which it is available may vary from state to state. The ADBR
permits the Owner to receive, at his or her request and upon approval by
AUL in accordance with the terms of the ADBR, an accelerated payment of
part of the Policy's Death Benefit (an "Accelerated Death Benefit") and an
additional extended long-term care benefit when one of the following three
events occurs:
1. Confinement to a Long-Term Care Facility. An Insured is determined
to be Chronically Ill (as defined below) and has been confined to a
Long-Term Care Facility for at least 90 days during a period of 270
consecutive days.
2. Home Health Care. An Insured is determined to be Chronically Ill
(as defined below) and has been receiving home health care (as defined
in the rider) for at least 90 days during a period of 270 consecutive
days.
3. Adult Day Care. An Insured is determined to be Chronically Ill (as
defined below) and has been receiving adult day care (as defined in
the rider) for at least 90 days during a period of 270 consecutive
days.
Chronically Ill means that an Insured has been certified (within the
preceding 12-month period) by a licensed health care practitioner as (1)
being expected to be unable to perform (without substantial assistance from
another individual) at least two activities of daily living, including
bathing, continence, dressing, eating, toileting, and transferring, during
a period of at least 90 days; or (2) requiring substantial supervision to
protect the Insured from threats to health and safety due to severe
cognitive impairment (as such terms are more fully described in the ADBR).
A charge for this rider will be deducted from the Account Value as part of
the monthly deductions.
Tax Consequences of the ADBR. Subject to certain limitations, the benefits
payable under the ADBR will generally be excludible from income for Federal
income tax purposes. See "Tax Considerations."
Amount of the Accelerated Death Benefit. The ADBR provides for monthly
payments subject to a long-term care benefit balance not to exceed the
current policy Death Benefit less any outstanding policy loans and loan
interest, and additional long-term care benefit payments equal to
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<PAGE>
twelve monthly payments. Subject to a maximum monthly benefit of $10,000,
the monthly benefits under the ADBR will be the actual cost of long-term
care expenses up to a maximum of 1/36th of the Death Benefit for care in a
long-term care facility or home health care; or the actual expenses up to a
maximum of 1/72nd of the Death Benefit for adult day care.
Conditions for Receipt of Long-Term Care Accelerated Death Benefit Rider.
In order to receive benefits from this rider, the Policy and rider must be
in force and an Owner must submit Proper Notice of the claim to us at our
Home Office. Proper Notice means notice that is received at our Home Office
in a form acceptable to us.
We may request additional medical information from the Insured's physician
and/or may require an independent physical examination (at our expense)
before approving the claim for payment of benefits. We will not approve any
benefits under the rider for a claim which is the result of intentionally
self-inflicted injury or participation in a felony or if the benefits are
payable under Medicare or services are provided outside of the United
States. Any additional exclusions may be noted in the ADBR.
Effect on Existing Policy. The Death Benefit Proceeds otherwise payable
under a Policy at the time of an Insured's death will be reduced by the
amount of the payments. If the Owner makes a request for a long-term care
accelerated death benefit payment, the Policy's Net Cash Value will be
reduced proportionally. Therefore, depending upon the number and amount of
payments, this may result in the Net Cash Value being reduced to zero.
Your determination as to how to purchase a desired level of insurance coverage
should be based on specific insurance needs. Consult your sales representative
for further information.
Additional rules and limits apply to these rider benefits. Not all such benefits
may be available at any time, and rider benefits in addition to those listed
above may be made available. Please ask your AUL representative for further
information, or contact the Home Office.
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), 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 it deems in its sole discretion as necessary 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 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
34
<PAGE>
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 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 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 any of outstanding loans and
loan interests 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.
It is expected that most Policies will be Modified Endowments. 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.
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.
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
35
<PAGE>
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.
TAX TREATMENT OF LONG-TERM CARE ACCELERATED DEATH BENEFIT RIDER. It is intended
that the Long-Term Care Accelerated Death Benefit Rider benefits provided by
this policy qualify as tax-free benefits under section 7702B(b) and/or section
101(g) of the Internal Revenue Code. Benefit amounts from this policy plus any
per diem long-term care insurance benefits will be includible in income if they
exceed the limits set in section 7702B(b).
Charges for this rider may be treated as a taxable distribution from the policy
(and might also be subject to the 10% penalty tax if the Policy is a Modified
Endowment Contract as discussed previously). The Long-Term Care Accelerated
Death Benefit Rider may be issued in certain States as a "non-qualified" rider;
i.e., it would not constitute qualified long-term care insurance under section
7702B(b) of the Code. Tax treatment of non-qualified benefits is uncertain at
this time.
The tax comments in this section reflect our understanding of the current
federal tax laws as they relate to the Long-Term Care Accelerated Death Benefit
Rider. Since these laws are subject to interpretation and change, we recommend
you seek individual advice from your tax advisor.
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 (when the Death Benefits would be
available to pay taxes due and other expenses incurred).
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.
36
<PAGE>
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 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 premium tax charge and federal tax charge) 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."
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
37
<PAGE>
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 may be required under applicable
law), the Separate Account may be operated as a management investment company
under the 1940 Act, it may be deregistered 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.
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<PAGE>
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 will generally be paid 4% of the initial premium.
Representatives will generally be paid 4% of the initial premium. Additional
commissions may be paid in certain circumstances. Other allowances and overrides
also may be paid.
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.
<PAGE>
<TABLE>
<S> <C>
Name Principal Occupation During Past Five Years
Jerry D. Semler Chairman of the Board, Pres. & CEO, 9/91-present; Chairman of the AUL
Acquisition Committee; Chairman of the Board & CEO, The State Life
Insurance company, 11/94-present; Jenn Foundation Board, 5/92-present;
IWC Resources Corp., 4/96-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
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
William R. Brown General Counsel & Secretary, 1/85-present; Dir., NOLHGA Board,
1/95-present
Arthur L. Bryant Director, 11/94-present; President, The State Life
11817 Sand Dollar Ct. Insurance Company, 9/83-present
Indianapolis, IN 46256
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
Christel DeHaan Director, 1/00-present; President & Founder, DeHaan Family Foundation,
6330 Mayfield Ln. 1996-present; President, Resort Condiminiums Int'l, 1974-1996
Zionsville, IN 46077
James A. Dora Director, 2/89-present; Chairman/CEO and Owner, General
5121 Green Braes, E. Dr. Hotels Corp., 1/90-present; Dir., NBD Bank, N.A. (formerly Indiana
Indianapolis, IN 46234 National Bank), 10/93-present; Dir., State Life,
11/94-present
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;
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
39
<PAGE>
AUL DIRECTORS AND EXECUTIVE OFFICERS (continued
Name Principal Occupation During Past Five Years
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
Catherine B. Husman V.P. and Chief Actuary, 7/97-present; V.P. and Corporate
William P. Johnson Director, 7/78-present; Chairman of the Board & CEO,
19448 Rio Verde Dr. Goshen Rubber Co., 7/91-present; Pres. & Dir., GSH Corp., 7/91-present;
Goshen, IN 46526 Chrmn., GRN Corp., 7/91-present; 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
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
Charles D. Lineback Sr. Vice Pres., Reinsurance Div., 12/87-present; President & CEO, AUL
RMS, 10/99-present
Constance E. Lund Sr. Vice Pres., Corporate Finance, 1/00-present; V.P., Reporting and
Research, 1/99-1/00; AVP Reporting & Research, 5/95-1/99
Dayton H. Molendorp Sr. Vice Pres., Individual Division, 9/99-present; V.P., Individual
Div., 11/98-9/99; V.P. Marketing, Individual Division, 6/92-9/98
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., Chrmn. & CEO, IWC Resources Corp., 1/89-present; Dir., National
City Bank Corp., 7/89-present; Dir., Paul Harris, 12/96-present;
Dir., State Life Ins. Co., 11/94-present
Jerry L. Plummer Sr. Vice Pres., Human Resources, 1/93-present
R. Stephen Radcliffe Executive Vice Pres., 8/94-present; Director, 2/91-present
Thomas E. Reilly, Jr. Director, 2/90-present; Chairman, Reilly Industries,
8877 Pickwick Dr. Inc., 1/90-present; Director, Lilly Indus. Inc., 4/81-present;
Indianapolis, IN 46260 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
G. David Sapp Sr. Vice Pres., Investments, 1/92-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., 11/97-present
Vero Beach, Florida
40
<PAGE>
AUL DIRECTORS AND EXECUTIVE OFFICERS (continued
Name Principal Occupation During Past Five Years
Yvonne H. Shaheen Director, 8/93-present; Pres., & CEO, Long Elec. Co.,
11808 Rolling Springs Dr. 2/87-present; Dir., Community Hospital Foundation,
Carmel, IN 46032 1/92-2/96; Dir., Junior Achievement, 4/90-present; Dir.,
National Elec., Contractors Assoc., 1/91-present; Dir., EFS,
1/96-present; Board of Advisors, Bank One Indiana, 1/96-present;
Dir., Boy Scouts of America, 10/91-present, Director, State
Life Ins. Co., 11/94-present
William L. Tindall Sr. Vice Pres., Pension Div., 8/97 - present; Sr. Vice
Pres., Massachusetts Mutual Life Insurance Co.,
1993-1997
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>
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 combined balance sheets for AUL at December 31, 1999 and 1998 and the
related combined statements of income, policyholders' surplus and cash flows for
the years then ended, 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.
FINANCIAL STATEMENTS
AUL's financial statements as of December 31, 1999 and 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.
41
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Report of Independent Accountants
To the Board of Directors
American United Life Insurance Company (R)
In our opinion, the accompanying combined balance sheet and the related combined
statements of operations and comprehensive income, policyholder's surplus and
cash flows present fairly, in all materials respects, the financial position of
American United Life Insurance Company (R) and affiliates (the "Company") at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for years then ended, in conformity with accounting principles generally
accepted in the United States. 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 auditing standards generally accepted in
the United States 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
_________________________________
PricewaterhouseCoopers LLP
Indianapolis, IN
March 17, 2000
<TABLE>
<CAPTION>
<PAGE>
42
<PAGE>
Combined Balance Sheet
December 31 , 1999 and 1998 1999 (in millions) 1998
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<S> <C> <C>
Assets
Investments:
Fixed maturities:
Available for sale at fair value $ 1,859.6 $ 1,695.4
Held to maturity at amortized cost 2,151.9 2,536.2
Equity securities at fair value 82.2 75.1
Mortgage loans 1,157.8 1,128.5
Real Estate 44.3 46.6
Policy loans 149.3 144.4
Short term and other invested assets 112.8 64.9
Cash and cash equivalents 62.3 95.7
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Total investments 5,620.2 5,786.8
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Accrued investment income 72.5 73.0
Reinsurance receivables 432.7 290.6
Deferred acquisition costs 550.7 451.7
Property and equipment 66.9 56.8
Insurance premiums in course of collection 67.3 66.7
Other assets 48.9 16.1
Assets held in separate accounts 3,718.3 2,594.6
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets $10,577.5 $ 9,336.3
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Liabilities and policyholders' surplus
Liabilities
Policy reserves $ 5,347.7 $ 5,399.1
Other policyholder funds 158.6 203.9
Pending policyholder claims 292.2 209.2
Surplus notes 75.0 75.0
Other liabilities and accrued expenses 246.5 180.4
Liabilities related to separate accounts 3,718.3 2,594.6
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 9,838.3 8,602.2
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Accumulated other comprehensive income:
Unrealized appreciation (depreciation) of securities,
net of deferred tax (23.6) 39.5
Policyholders' surplus 762.8 694.6
- ----------------------------------------------------------------------------------------------------------------------------------
Total policyholders' surplus 739.2 734.1
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Total liabilities and policyholders' surplus $10,577.5 $ 9,336.3
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The accompanying notes are an integral part of the financial statements.
<PAGE>
43
<PAGE>
Combined Statement of Operations and Comprehensive Income
Year ended December 31 1999 (in millions) 1998
- ----------------------------------------------------------------------------------------------------------------------------------
Revenues:
Insurance premiums and other considerations $ 538.2 $ 478.5
Policy and contract charges 89.0 87.7
Net investment income 431.0 452.1
Realized investment gains .6 15.8
Other income 10.9 8.9
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Total revenues 1,069.7 1,043.0
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Benefits and expenses:
Policy benefits $ 482.8 $ 462.4
Interest expense on annuities and financial products 206.9 231.9
Underwriting, acquisition and insurance expenses 177.3 157.8
Amortization of deferred acquisition costs 51.5 59.7
Dividends to policyholders 25.9 26.4
Interest expense on surplus notes 5.8 5.8
Other operating expenses 13.1 10.2
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Total benefits and expenses 963.3 954.2
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Income before income tax expense 106.4 88.8
Income tax expense 38.2 22.3
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $ 68.2 $ 66.5
- ----------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period $ (63.4) $ 4.7
Less: reclassification adjustment for gains (losses)
included in net income (0.3) 1.7
- ----------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss), net of tax (63.1) 3.0
- ----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income $ 5.1 $ 69.5
- ----------------------------------------------------------------------------------------------------------------------------------
Combined Statement of Policyholders' Surplus
December 31, 1999 and 1998 1999 (in millions) 1998
- ----------------------------------------------------------------------------------------------------------------------------------
Policyholders' surplus at beginning of year $ 734.1 $ 664.6
Net income 68.2 66.5
Change in accumulated other comprehensive
income (63.1) 3.0
- ----------------------------------------------------------------------------------------------------------------------------------
Policyholders' surplus at end of year $ 739.2 $ 734.1
- ----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
44
<PAGE>
Combined Statement of Cash Flows
For years ended December 31, 1999 and 1998 1999 (in millions) 1998
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income $ 68.2 $ 66.5
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of deferred acquisition costs 51.5 59.7
Depreciation 12.0 11.2
Deferred taxes 22.0 8.1
Realized investment gains (.6) (15.8)
Policy acquisition costs capitalized (105.4) (94.2)
Interest credited to deposit liabilities 200.3 225.7
Fees charged to deposit liabilities (32.2) (32.7)
Amortization and accrual of investment income (2.5) (10.8)
Increase in insurance liabilities 241.7 169.6
Increase in other assets (168.2) (45.5)
Increase (decrease) in other liabilities 36.1 (1.8)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 322.9 340.0
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases:
Fixed maturities, held to maturity (.3) (18.7)
Fixed maturities, available for sale (650.3) (473.8)
Equity securities (6.2) (63.7)
Mortgage loans (185.1) (183.2)
Real estate (10.5) (4.9)
Short-term and other invested assets (77.2) (2.7)
Proceeds from sales, calls or maturities:
Fixed maturities, held to maturity 369.0 388.9
Fixed maturities, available for sale 331.3 461.6
Equity securities 1.6 8.1
Mortgage loans 157.0 179.2
Real estate 2.1 4.0
Short-term and other invested assets 34.1 39.9
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities (34.5) 334.7
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Deposits to insurance liabilities 937.0 846.6
Withdrawals from insurance liabilities (1,255.9) (1,467.0)
Other (2.9) .2
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (321.8) (620.2)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (33.4) 54.5
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents beginning of year 95.7 41.2
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents end of year $ 62.3 $ 95.7
- ----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
</TABLE>
45
<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 49 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 32
regional sales offices located throughout the country. Life and pooled
reinsurance is marketed directly to other insurance companies in both the
domestic and international markets. The combined company financial statements
include the accounts of AUL, The State Life Insurance Company (State Life), AUL
Equity Sales Corporation, and AUL Reinsurance Management Services, LLC.
Significant intercompany transactions have been excluded.
The accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United States (GAAP). AUL and
State Life file separate financial statements with insurance regulatory
authorities, which are prepared on the basis of statutory accounting practices
that are significantly different from financial statements prepared in
accordance with GAAP. These differences are described in detail in Note 10
- -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.
Unrealized gains and losses, resulting from carrying available-for-sale
securities at fair value, are reported in policyholders' surplus, net of
deferred taxes. Fixed maturity securities that 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 $30.9 million and $31.7 million at December 31,
1999 and 1998, respectively. Depreciation expense for investment real estate
amounted to $2.3 million and $2.4 million for 1999 and 1998, 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.
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 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.
46
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
1. Significant Accounting Policies (continued)
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
$54.2 million and $47.1 million as of December 31, 1999 and 1998, respectively.
The Company provides for depreciation of property and equipment using the
straight-line method over its estimated useful life. Depreciation expense for
1999 and 1998 was $9.6 million and $8.8 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.
Comprehensive Income
Comprehensive income is the change in policyholder surplus of the Company that
results from recognized transactions and other economic events of the period
other than transactions with the policyholders. Comprehensive income includes
net income and net unrealized gains (losses) on securities.
47
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
2. Investments:
The book value and fair value of investments in fixed maturity securities by
type of investment were as follows:
<TABLE>
<CAPTION>
December 31, 1999
- ----------------------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale: (in millions)
Obligations of U.S. government, states,
political subdivisions and
foreign governments $ 39.7 $ 1.0 $ 1.6 $ 39.1
Corporate securities 1,318.7 8.2 57.1 1,269.8
Mortgage-backed securities 556.5 7.4 13.2 550.7
- ----------------------------------------------------------------------------------------------------------------------------------
$ 1,914.9 $ 16.6 $ 71.9 $ 1,859.6
- ----------------------------------------------------------------------------------------------------------------------------------
Held to maturity:
Obligations of U.S. government, states,
political subdivisions and
foreign governments $ 90.7 $ 1.3 $ 1.2 $ 90.8
Corporate securities 1,448.1 34.1 35.5 1,446.7
Mortgage-backed securities 613.1 14.1 6.9 620.3
- ----------------------------------------------------------------------------------------------------------------------------------
$ 2,151.9 $ 49.5 $ 43.6 $ 2,157.8
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
- ----------------------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale: (in millions)
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, stats,
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
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and fair value of fixed maturity securities at December 31,
1999, 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 $ 58.2 $ 58.2 $ 111.0 $ 111.2 $ 169.2 $ 169.4
Due after one year
through five years 408.2 401.8 668.0 664.6 1,076.2 1,066.4
Due after five years
through 10 years 438.3 417.6 439.0 447.3 877.3 864.9
Due after 10 years 453.7 431.3 320.8 314.4 774.5 745.7
- ----------------------------------------------------------------------------------------------------------------------------------
1,358.4 1,308.9 1,538.8 1,537.5 2,897.2 2,846.4
Mortgage-backed securities 556.5 550.7 613.1 620.3 1,169.6 1,171.0
- ----------------------------------------------------------------------------------------------------------------------------------
$ 1,914.9 $ 1,859.6 $2,151.9 $2,157.8 $ 4,066.8 $ 4,018.4
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
48
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
2. Investments (continued)
Net investment income consisted of the following:
for years ended December 31 1999 (in millions) 1998
- --------------------------------------------------------------------------------
Fixed maturity securities $318.0 $341.0
Equity securities 4.3 2.3
Mortgage loans 99.9 98.5
Real estate 11.3 10.7
Policy loans 9.0 8.8
Other 8.5 10.0
- --------------------------------------------------------------------------------
Gross investment income 451.0 471.3
Investment expenses 20.0 19.2
- --------------------------------------------------------------------------------
Net investment income $431.0 $452.1
- --------------------------------------------------------------------------------
Proceeds from the sales, maturities or calls of Investments In fixed maturities
during 1999 and 1998 were approximately $700.3 million and $850.5 million,
respectively. Gross gains of $4.4 million and $14.9 million, and gross losses of
$3.0 million and $0.6 million were realized in 1999 and 1998, respectively. The
change in unralized appreciation (depreciation) of fixed maturities amounted to
approximately $(147.6) million and $7.2 million in 1999 and 1998, respectively.
Accumulated comprehensive income consisted of the following:
for years ended December 31 1999 (in millions) 1998
- --------------------------------------------------------------------------------
Unrealized appreciation (depreciation):
Fixed income securities $(55.3) $ 92.3
Equity securities 2.6 2.3
Valuation allowancec 15.5 (30.1)
Deferred taxes 13.6 (25.0)
- --------------------------------------------------------------------------------
Accumulated other comprehensive income $(23.6) 39.5
- --------------------------------------------------------------------------------
At December 31, 1999, the unrealized appreciation on equity securities of
approximately $2.6 million is comprised of $2.7 million in unrealized gains and
$.1 million of unrealized losses and has been reflected directly in
policyholders' surplus. The change in the unrealized appreciation of equity
securities amounted to approximately $.3 million and $.l million in 1999 and
1998, respectively.
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, 1999, the largest geographic concentration
of commercial mortgage loans was in Indiana, California and Florida, where
approximately 29 percent of the portfolio was invested. A total of 36 percent 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, 1999, of
approximately $91.5 million.
As of December 31, 1999, there were no investments that were non-income
producing for the previous 12-month period.
49
<PAGE>
NOTES TO FINANCIAL STATEMENT (Continued)
3. Insurance Liabilities:
Insurance liabilities consisted of the following:
<TABLE>
<CAPTION>
(in millions)
___________________________________________________________________________________________________________________________
Mortality or
Withdrawal Morbidity Interest Rate December 31,
Assumption Assumption Assumption 1999 1998
___________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Future policy benefits:
Participating whole life Companys Company 2.5% to 6.0% $ 672.4 $ 632.7
experience experience
Universal life-type contracts n/a n/a 384.6 381.2
Other individual life contracts Company Company 2.5% to 8.0% 305.4 271.1
experience experience
Accident and health n/a n/a n/a 138.2 55.2
Annuity products n/a n/a n/a 3,670.1 3,803.7
Group life and health n/a n/a n/a 177.0 195.2
Other policyholder funds n/a n/a n/a 158.6 203.9
Pending policyholder claims n/a n/a n/a 292.2 209.2
___________________________________________________________________________________________________________________________
Total insurance liabilities $5,798.5 $5,752.2
___________________________________________________________________________________________________________________________
</TABLE>
Participating life insurance policies under generally accepted accounting
principles represent approximately 5 percent and 7 percent of the total
individual life insurance in force at December 31, 1999 and 1998, respectively.
Participating policies represented approximately 29 percent and 34 percent of
life premium income for 1999 and 1998, 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 $1.6 million in 1999 and $2.1
million in 1998. The following benefit information for the employees' defined
benefit plan was determined by independent actuaries as of January 1, 1999 and
1998, respectively, the most recent actuarial valuation dates:
1999 (in millions) 1998
________________________________________________________________________________
Actuarial present value of accumulated benefits
for the employees' defined benefit plan $37.1 $33.6
Fair value of plan assets 57.2 49.6
________________________________________________________________________________
Funded status $20.1 $16.0
________________________________________________________________________________
Net periodic pension cost $ 2.3 $ 2.1
________________________________________________________________________________
The assumed discount rate was 6.6 percent and 7.2 percent for 1999 and 1998,
respectively. For both 1999 and 1998, the expected return on plan assets was 8.0
percent and the rate of compensation increase assumed was 6.0 percent. Benefits
paid out of the plan were approximately $5.1 million in 1999 and $3.1 million in
1998.
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 1999 and 1998 were $2.2 million and $1.7 million, respectively.
The Company has a defined contribution pension plan and a 401(k) plan covering
substantially all agents, except general agents. Contributions of 4.5 percent of
defined commissions (plus 4.5 percent for commissions over the Social Security
wage base) are made to the pension plan. An additional contribution of 3.0
percent of defined commissions is made to a 401(k) plan. Company contributions
expensed for these plans for 1999 and 1998 were $.3 million.
The funds for all plans are held by the Company under deposit administration and
group annuity contracts.
50
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
4. Employees' and Agent's Benefit Plans: (continued)
AUL has entered into deferred compensation agreements with some employees,
agents and general agents. These deferred amounts are payable according to the
terms and subject to the conditions of said agreements. Annual costs of the
agreements are not material to AUL.
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: 1999(in millions)1998
________________________________________________________________________________
Accumulated postretirement benefit obligation $11.5 $11.0
Net postretirement benefit cost 1.3 1.3
Company contributions .8 .8
________________________________________________________________________________
There are no specific plan assets for this postretirement liability as of
December 31, 1999 and 1998. Claims incurred for benefits were funded by company
contributions.
The assumed discount rate used in determining the accumulated postretirement
benefit was 7.0 percent and the assumed health care cost trend rate was 10.0
percent graded to 5.0 percent until 2004. Compensation rates were assumed to
increase 6.0 percent at each year end. The health coverage for retirees 65 and
over is capped in the year 2000 and for all future years. The health care cost
trend rate assumption has no effect on the amounts reported for 1999. An
increase in the assumed health care cost trend rates by one percentage point
would not affect the accumulated postretirement benefit obligation as of
December 31, 1999, and would increase the accumulated postretirement benefit
cost for 1998 by $.2 million.
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 1999(in millions) 1998
________________________________________________________________________________
Income tax computed at statutory tax rate $37.2 $31.0
Tax-exempt income (1.5) (2.0)
Mutual company differential earnings amount 6.7 4.3
Prior year differential earnings amount (4.2) (10.2)
Other (0.0) (0.8)
________________________________________________________________________________
Income tax expense $38.2 $22.3
________________________________________________________________________________
The components of the provision for income taxes on earnings included current
tax provisions of $16.2 million and $14.2 million for the years ended December
31, 1999 and 1998, respectively, and deferred tax expense of $22.0 million and
$8.1 million for the years ended December 31, 1999 and 1998, respectively.
<TABLE>
<CAPTION>
Deferred income tax assets (liabilities) as of December 31 1999 (in millions) 1998
_______________________________________________________________________________________
<S> <C> <C>
Deferred policy acquisition costs $(170.5) $(148.8)
Investments (5.4) (11.1)
Insurance liabilities 149.3 158.9
Unrealized depreciation (appreciation) of securities 12.9 (23.6)
Other (2.6) (6.1)
________________________________________________________________________________________
Deferred income tax assets (liabilities) $ (16.3) $ (30.7)
________________________________________________________________________________________
</TABLE>
Federal income taxes paid were $10.6 million for both 1999 and 1998.
51
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
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, 1999 and 1998, life reinsurance assumed was
approximately 78 percent and 74 percent, 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 1999 (in millions)1998
_________________________________________________________________________
Direct statutory premiums $399.8 $374.1
Reinsurance assumed 385.4 329.7
Reinsurance ceded (166.2) (150.2)
_________________________________________________________________________
Net premiums 619.0 553.6
_________________________________________________________________________
Reinsurance recoveries $158.8 $146.4
_________________________________________________________________________
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 64 percent of the Company's December 31,
1999, 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 percent 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 1999 was $5.8
million.
The Company has available a $125 million credit facility. No amounts have been
drawn as of December 31, 1999.
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.
9. Acquisitions:
During 1999, AUL entered into an agreement to purchase certain assets and
business operations of the North American accident and long-term care
reinsurance divisions of UnumProvident Corporation for approximately $39
million. AUL Reinsurance Management Services, LLC (AUL RMS), a newly formed
subsidiary of AUL as a result of this transaction, will continue the reinsurance
management activities of this business.
In a separate transaction, AUL assumed certain reinsurance liabilities related
to the participation in reinsurance pools from UnumProvident Corporation
amounting to approximately $117 million.
52
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
10. 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 1999 (in millions) 1998
_______________________________________________________________________________
SAP surplus $497.4 $496.5
Deferred policy acquisition costs 535.7 481.8
Adjustments to policy reserves (290.9) (306.0)
Asset valuation and interest maintenance reserves 85.8 88.9
Unrealized gain on invested assets, net (23.6) 39.5
Surplus notes (75.0) (75.0)
Deferred income taxes (27.5) (6.7)
Other, net 37.3 15.1
_______________________________________________________________________________
GAAP surplus $739.2 $734.1
_______________________________________________________________________________
A reconciliation of SAP net income to GAAP net income for the years ended
December 31 follows:
for years ended December 31 1999 ( in millions) 1998
________________________________________________________________________________
SAP income $27.9 $33.5
Deferred policy acquisition costs 53.7 34.5
Adjustments to policy reserves (7.4) (3.7)
Deferred income taxes (22.0) (8.1)
Other, net 16.0 10.3
_______________________________________________________________________________
GAAP net income $68.2 $66.5
_______________________________________________________________________________
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, 1999.
11. 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 interest-bearing 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, 1999 and 1998 follow.
53
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
11. Fair Value of Financial Instruments: (continued)
________________________________________________________________________________
1999 (in millions) 1998
Carrying Fair Carrying Fair
Amount Value Amount Value
________________________________________________________________________________
Fixed maturity securities:
Available for sale $1,859.6 $1,859.6 $1,695.4 $1,695.4
Held to maturity 2,151.9 2,157.8 2,536.2 2,731.9
Equity securities 82.2 82.2 75.1 75.1
Mortgage loans 1,157.8 1,160.4 1,128.5 1,202.1
Policy loans 149.3 149.3 144.4 144.4
Surplus notes 75.0 70.2 75.0 80.5
_______________________________________________________________________________
12. Subsequent Events:
At December 31, 1999, the Company had invested $54.0 million with a carrying
value of $59.0 million in Indianapolis Life Group of Companies with the purpose
of creating an affiliation under a mutual holding structure. Subsequent to year
end, the Company redeemed the investment for $64.6 million and ended the
affiliation.
54
<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 Modified Single Premium Variable Life policies, 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.
================================================================================
MODIFIED SINGLE PREMIUM VARIABLE LIFE
Sold By
AMERICAN UNITED
LIFE INSURANCE COMPANY(R)
One American Square
Indianapolis, Indiana 46282
PROSPECTUS
Dated: May 1, 2000
================================================================================
55
<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(3)
(4) Inapplicable
(5) (a) Form of Modified Single Premium Variable Life
Insurance Policy(2)
(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)
(l) Form of Long Term Care Accelerated Death Benefit
Rider(4)
(m) Form of Long Term Care Joint First-to-Die
Accelerated Death Benefit Rider(4)
(6) (a) Certification of Articles of Merger of American
Central Life Insurance Company and United Mutual
Life Insurance Company (3)
(b) Articles of Merger of American Central Life
Insurance Company and United Mutual Life
Insurance Company (3)
(c) By-laws of American United Life Insurance
Company(R) (3)
(7) Inapplicable
(8) (a) Form of Participation Agreement between American
United Life Insurance Company(R) and Alger
American Fund (3)
(b) Form of Participation Agreement between American
United Life Insurance Company(R) and American
Century Variable Portfolios, Inc. (3)
(c) Form of Participation Agreement between American
United Life Insurance Company(R) and Fidelity
Variable Insurance Products Fund (3)
(d) Form of Participation Agreement between American
United Life Insurance Company(R) and Fidelity
Variable Insurance Products Fund II (3)
(e) Form of Participation Agreement between American
United Life Insurance Company(R) and T. Rowe
Price Equity Series, Inc. (3)
(9) Inapplicable
(10) Form of Application for Variable Universal Life
Insurance Policy(4)
3
<PAGE>
2. Opinion and consent of legal officer of American United Life
Insurance Company(R) as to legality of Policies being
registered(2)
3. Inapplicable
4. Inapplicable
5. Inapplicable
6. Consent of Independent Accountants(6)
7. Consent of Dechert Price & Rhoads(2)
8. Opinion of Actuary(2)
9. Memorandum Describing Issuance, Transfer, and Redemption
Procedures(2)
10. Powers of Attorney(3)(6)
- ---------------
(1) Incorporated herein by reference to the Registration Statement for the
Flexible Premium Adjustable Variable Life Insurance Policy funded by
AUL American Individual Variable Life Unit Trust (File No. 333-32531)
filed with the Securities and Exchange Commission on July 31, 1997.
(2) Filed with the Registrant's initial registration statement on Form
S-6 (File No. 333-32531) on July 31, 1997.
(3) Filed with the Registrant's Post-Effective Amendment No. 1 to the
Registration Statement on Form S-6 (File No. 333-32553) on
April 30, 1998.
(4) Filed with the Registrant's Post-Effective Amendment No. 2 to the
Registration Statement on Form S-6 (File No. 333-32553) on May 1, 1999.
(5) Filed with the Registrant's Post-effective Amendment No. 3 (File
333-32553) on April 30, 1999.
(6) Filed with the Registrant's Post-effective Amendment No. 4 (File
333-32553) on April 26, 2000.
<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 26th
day of April, 2000.
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 26, 2000
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
_______________________________ Director April 26, 2000
Steven C. Beering M.D.*
_______________________________ Director April 26, 2000
Arthur L. Bryant*
_______________________________ Director April 26, 2000
James M. Cornelius*
_______________________________ Director April 26, 2000
Christel DeHaan*
_______________________________ Director April 26, 2000
James E. Dora*
_______________________________ Director April 26, 2000
Otto N. Frenzel III*
_______________________________ Director April 26, 2000
David W. Goodrich*
_______________________________ Director April 26, 2000
William P. Johnson*
______________________________ Principal Financial April 26, 2000
Constance E. Lund* and Accounting Officer
<PAGE>
Signature Title Date
- --------- ----- ----
_______________________________ Director April 26, 2000
James T. Morris*
______________________________ Director April 26, 2000
R. Stephen Radcliffe*
______________________________ Director April 26, 2000
Thomas E. Reilly Jr*
______________________________ Director April 26, 2000
William R. Riggs*
______________________________ Director April 26, 2000
John C. Scully*
______________________________ Director April 26, 2000
Yvonne H. Shaheen*
______________________________ Director April 26, 2000
Frank D. Walker*
/s/ Richard A. Wacker
___________________________________________
*By: Richard A. Wacker as Attorney-in-fact
Date: April 26, 2000
<PAGE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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
S-6, Item 24(b) Value Name of Exhibit
- ---------------- --------- ---------------
6 EX-99.6 Consent of Independent Accountants
10 EX-99.10 Powers of Attorney
</TABLE>
- --------------------------------------------------------------------------------
EXHIBIT 6
CONSENT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
Consent of Independent Accountants
We consent to the inclusion in Post-Effective Amendment No. 4 to the
Registration Statement of "AUL American Individual Variable Life Unit Trust,"
the Modified Single Premium Variable Life Insurance Policy, on Form S-6 (File
No. 333-32553) of our report dated March 17, 2000, 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 L.L.P.
April 26, 2000
- --------------------------------------------------------------------------------
EXHIBIT 10
POWERS OF ATTORNEY
- --------------------------------------------------------------------------------
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Richard A. Wacker and William R. Brown, and each of them her true
and lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution for her in her name, place and stead to sign any and all
Registration Statements (including Registration Statements or any Amendments
thereto arising from any reorganization of a Separate Account with any other
Separate Account) applicable to Separate Accounts established for funding
variable annuity and variable life contracts of American United Life Insurance
Company(R) and any Amendments or supplements thereto, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as she
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
Dated: 1/06/2000
--------------------------------
/s/ Christel DeHann
--------------------------------
Christel DeHann
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Richard A. Wacker and William R. Brown, and each of them her true
and lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution for her in her name, place and stead to sign any and all
Registration Statements (including Registration Statements or any Amendments
thereto arising from any reorganization of a Separate Account with any other
Separate Account) applicable to Separate Accounts established for funding
variable annuity and variable life contracts of American United Life Insurance
Company(R) and any Amendments or supplements thereto, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as she
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof
Dated: 4/13/2000
--------------------------------
/s/ Constance E. Lund
--------------------------------
Constance E. Lund
