As filed with the Securities and Exchange Commission on April 1, 1999
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File No. 333-70049
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE
[X] SECURITIES ACT OF 1933
[X] Pre-Effective Amendment No. 1
[ ] Post-Effective Amendment No.
and/or
REGISTRATION STATEMENT UNDER THE
[X] INVESTMENT COMPANY ACT OF 1940
[X] Amendment No. 1
(Check appropriate box or boxes)
AUL AMERICAN INDIVIDUAL VARIABLE ANNUITY UNIT TRUST
(Exact Name of Registrant)
AMERICAN UNITED LIFE INSURANCE COMPANY(R)
(Name of Depositor)
One American Square, Indianapolis, Indiana 46282
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number: (317) 285-1877
Richard A. Wacker, One American Square, Indianapolis, Indiana 46282
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (Check appropriate Space)
_____ immediately upon filing pursuant to paragraph (b) of Rule 485
_____ on ____________ 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
If appropriate, check the following box:
_____ this post-effective amendment designates a new effective date for a
previously filed amendment.
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CROSS REFERENCE SHEET
Pursuant to Rule 495
Showing Location in Part A (Prospectus) and Part B (Statement of Additional Information)
of Registration Statement of Information Required by Form N-4
PART A - PROSPECTUS
Item of Form N-4 Prospectus Caption
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1. Cover Page ........................... Cover Page
2. Definitions .......................... Definitions
3. Synopsis ............................. Summary; Expense Table
4. Condensed Financial Information ...... Not Applicable
5. General Description of Registrant,
Depositor, and Portfolio Companies.... Information About AUL, The Variable
Account, and the Funds; Voting of
Shares of the Funds
6. Deductions and Expenses .............. Charges and Deductions
7. General Description of Variable
Annuity Contracts .................... The Contracts; Premiums and Contract
Values During the Accumulation
Period; Distributions; Summary
8. Annuity Period ....................... Distributions
9. Death Benefit ........................ Distributions
10. Purchases and Contract Values ........ Premiums and Contract Values During
the Accumulation Period
11. Redemptions .......................... Distributions
12. Taxes ................................ Federal Tax Matters
13. Legal Proceedings .................... Other Information
14. Table of Contents for the Statement
of Additional Information ............ Statement of Additional Information
Table of Contents
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PART B - STATEMENT OF ADDITIONAL INFORMATION
Statement of Additional Information Statement of Additional Information
Item of Form N-4 Caption
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15. Cover Page ........................... Cover Page
16. Table of Contents .................... Table of Contents
17. General Information and History ...... General Information and History
18. Services ............................. Custody of Assets; Independent
Accountants
19. Purchase of Securities Being Offered . Distribution of Contracts;
(Prospectus) Charges and Deductions
20. Underwriters ......................... Distribution of Contracts
21. Calculation of Performance Data ...... Performance Information
22. Annuity Payments ..................... (Prospectus) Distributions
23. Financial Statements ................. Financial Statements
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PART C - OTHER INFORMATION
Item of Form N-4 Part C Caption
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24. Financial Statements and Exhibits .... (Statement of Additional
Information) Financial Statements
and Exhibits
25. Directors and Officers of the
Depositor............................. Directors and Officers of AUL
26. Persons Controlled By or Under
Common Control with the Depositor or
Registrant............................ Persons Controlled By or Under
Common Control of Depositor or
Registrant
27. Number of Contractowners ............. Number of Contractholders
28. Indemnification ...................... Indemnification
29. Principal Underwriters ............... Principal Underwriters
30. Location of Accounts and Records ..... Location of Accounts and Records
31. Management Services .................. Management Services
32. Undertakings.......................... Undertakings
Signatures ......................... Signatures
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PROSPECTUS
for
Individual Flexible Premium Deferred Variable Annuity
Dated May 1, 1999
Sponsored by:
American United Life Insurance Company(R)
P.O. Box 7127
Indianapolis, Indiana 46209-7127
AUL
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Prospectus
Individual Flexible Premium Variable Deferred Annuity
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
Offered By
American United Life Insurance Company(R)
One American Square
Indianapolis, Indiana 46282
(317) 285-1877
Variable Products Service Office:
P.O. Box 7127, Indianapolis, Indiana 46209-7127
(800) 863-9354
This Prospectus describes individual variable annuity contracts (the
"Contracts") offered by American United Life Insurance Company(R) ("AUL" or the
"Company"). AUL designed the Contracts for use in connection with retirement
plans and deferred compensation plans for individuals. Contract Owners may use
the Contracts in connection with retirement plans that meet the requirements of
Sections 401(a), 403(b), 408, 408A or 457 of the Internal Revenue Code.
This Prospectus describes two types of Contracts: Contracts for which
premiums may vary in amount and frequency, subject to certain limitations
("Flexible Premium Contracts"), and Contracts for which premiums may vary in
amount and frequency, only in the first Contract Year ("One Year Flexible
Premium Contracts"). Both Contracts provide for the accumulation of values on
either a variable basis, a fixed basis, or both. The Contracts also provide
several options for fixed and variable annuity payments to begin on a future
date.
A Contract Owner may allocate premiums designated to accumulate on a
variable basis to one or more of the Investment Accounts of a separate account
of AUL. The separate account is named the AUL American Individual Variable
Annuity Unit Trust (the "Variable Account"). Each Investment Account invests
exclusively in shares of one of the following Mutual Fund Portfolios:
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AUL American Series Fund Inc. Portfolios Fidelity Variable Insurance Products Fund II
Equity Portfolio Fidelity Asset Manager
Bond Portfolio Fidelity Contrafund
Managed Portfolio Fidelity Index 500
Money Market Portfolio Janus Aspen Series
Alger American Fund, Inc. Janus Flexible Income
Alger American Growth Janus Worldwide Growth
American Century Variable Portfolios, Inc. PBHG Insurance Series Fund, Inc.
American Century VP Income & Growth PBHG Growth II
American Century VP International PBHG Technology & Communications
Calvert Variable Series SAFECO Resource Series Trust
Calvert Social Mid Cap Growth SAFECO RST Equity
Fidelity Variable Insurance Products Fund SAFECO RST Growth
Fidelity Equity-Income T. Rowe Price Equity Series, Inc.
Fidelity Growth T. Rowe Price Equity Income
Fidelity High Income
Fidelity Overseas
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Premiums allocated to an Investment Account of the Variable Account will
increase or decrease in dollar value depending on the investment performance of
the corresponding mutual fund portfolios in which the Investment Account
invests. These amounts are not guaranteed. In the alternative, a Contract Owner
may allocate premiums to AUL's Fixed Account. Such allocations will earn
interest at rates that are paid by AUL as described in "The Fixed Account."
This Prospectus concisely sets forth information about the Contracts and
the Variable Account that a prospective investor should know before investing.
Certain additional information is contained in a "Statement of Additional
Information," dated May 1, 1999, which has been filed with the Securities and
Exchange Commission (the "SEC"). The Statement of Additional Information is
incorporated by reference into this Prospectus. A prospective investor may
obtain a copy of the Statement of Additional Information without charge by
calling or writing to AUL at the telephone number or address indicated above.
The table of contents of the Statement of Additional Information is located at
the end of this Prospectus.
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 represention 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.
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TABLE OF CONTENTS
Description Page
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DEFINITIONS............................................. 3-4
SUMMARY................................................. 5-7
Purpose of the Contracts.............................. 5
Types of Contracts.................................... 5
The Variable Account and the Funds.................... 5
Summary of the Fixed Account.......................... 6
Market Value Adjusted Fixed Acount................... 6
Non-Market Value Adjusted Fixed Account.............. 6
Enhanced Averaging Fixed Account..................... 6
Premiums.............................................. 6
Right to Examine...................................... 6
Transfers............................................. 6
Charges............................................... 6
Distributions......................................... 6
Withdrawals.......................................... 7
Loan Privileges...................................... 7
The Death Benefit.................................... 7
Initial Dollar Cost Averaging Program................. 7
Ongoing Dollar Cost Averaging Program................. 7
Portfolio Rebalancing................................. 7
Contacting AUL........................................ 7
EXPENSE TABLE........................................... 7-10
PERFORMANCE OF THE INVESTMENT
ACCOUNTS................................................ 11-12
INFORMATION ABOUT AUL, THE VARIABLE
ACCOUNT, AND THE FUNDS.................................. 12-15
American United Life Insurance Company(R)............. 12
Variable Account...................................... 12
The Funds............................................. 12
AUL American Series Fund, Inc......................... 13
AUL American Equity Portfolio........................ 13
AUL American Bond Portfolio.......................... 13
AUL American Money Market Portfolio.................. 13
AUL American Managed Portfolio....................... 13
Alger American Fund................................... 13
Alger American Growth Portfolio...................... 13
American Century Variable Portfolios, Inc............. 13
VP Income & Growth................................... 13
VP International Portfolio........................... 13
Calvert Variable Series............................... 14
Calvert Social Mid Cap Growth Fund .................. 14
Fidelity Variable Insurance Products Fund............. 14
Equity-Income Portfolio.............................. 14
Growth Portfolio..................................... 14
High Income Portfolio................................ 14
Overseas Portfolio................................... 14
Fidelity Variable Insurance Products Fund II.......... 14
Asset Manager Portfolio.............................. 14
Contrafund Portfolio................................. 14
Index 500 Portfolio.................................. 14
Janus Aspen Series.................................... 14
Flexible Income...................................... 14
Worldwide Growth..................................... 14
PBHG Insurance Series Fund, Inc....................... 14
Growth II Portfolio.................................. 14
Technology & Communications Portfolio................ 14
SAFECO Resource Series Trust.......................... 15
RST Equity........................................... 15
RST Growth........................................... 15
T. Rowe Price Equity Series, Inc...................... 15
T. Rowe Price Equity Income.......................... 15
THE CONTRACTS........................................... 15
General............................................... 15
PREMIUMS AND CONTRACT VALUES
DURING THE ACCUMULATION PERIOD.......................... 15-18
Application for a Contract............................ 15
Premiums under the Contracts.......................... 15
Right to Examine...................................... 16
Allocation of Premiums................................ 16
Transfers of Account Value............................ 16
Dollar Cost Averaging Program......................... 16
Initial Dollar Cost Averaging Program................ 17
Ongoing Dollar Cost Averaging Program................ 17
Portfolio Rebalancing................................. 17
Contract Owner's Variable Account Value............... 17
Accumulation Units................................... 17
Accumulation Unit Value.............................. 18
Net Investment Factor................................ 18
CHARGES AND DEDUCTIONS.................................. 18-22
Premium Tax Charge.................................... 18
Withdrawal Charge..................................... 18
Mortality and Expense Risk Charge..................... 18
Administrative Fee.................................... 19
Rider Charges......................................... 19
Other Charges......................................... 19
Variations in Charges................................. 19
Guarantee of Certain Charges.......................... 19
Expenses of the Funds................................. 19
DISTRIBUTIONS........................................... 19-22
Cash Withdrawals...................................... 19
Loan Privileges....................................... 20
Death Proceeds Payment Provisions..................... 20
Death of the Owner................................... 21
Death of the Annuitant............................... 21
Payments from the Variable Account.................... 21
Annuity Period........................................ 21
General.............................................. 21
Fixed Payment Annuity................................ 22
Variable Payment Annuity............................. 22
Payment Options...................................... 22
Selection of an Option............................... 22
THE FIXED ACCOUNT....................................... 22-24
Summary of the Fixed Account.......................... 22
Non-Market Value Adjusted Fixed Account.............. 23
Market Value Adjusted Fixed Account.................. 23
Enhanced Averaging Fixed Account..................... 23
Withdrawals........................................... 23
Transfers............................................. 23
Contract Charges...................................... 24
Payments from the Fixed Account(s).................... 24
MORE ABOUT THE CONTRACTS................................ 24-25
Designation and Change of Beneficiary................. 24
Assignability......................................... 24
Proof of Age and Survival............................. 24
Misstatements......................................... 24
Acceptance of New Premiums............................ 24
Optional Benefits..................................... 24
FEDERAL TAX MATTERS..................................... 25-28
Introduction.......................................... 25
Diversification Standards............................. 25
Taxation of Annuities in General-
Non-Qualified Plans.................................. 25
Additional Considerations............................. 26
Qualified Plans....................................... 27
Qualified Plan Federal Taxation Summary............... 28
403(b) Programs-Constraints on Withdrawals............ 28
403(b) Programs-Loan Privileges....................... 28
OTHER INFORMATION....................................... 28-30
Voting of Shares of the Funds......................... 28
Substitution of Investments........................... 29
Changes to Comply with Law and Amendments............. 29
Reservation of Rights................................. 29
Periodic Reports...................................... 29
Legal Proceedings..................................... 30
Legal Matters......................................... 30
Financial Statements.................................. 30
YEAR 2000 READINESS DISCLOSURE.......................... 30
PERFORMANCE INFORMATION ................................ 30
STATEMENT OF ADDITIONAL
INFORMATION TABLE OF CONTENTS........................... 31
2
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DEFINITIONS
Various terms commonly used in this Prospectus are defined as follows:
403(b) PLAN - An arrangement by a public school organization or an organization
that is described in Section 501(c)(3) of the Internal Revenue Code, including
certain charitable, educational and scientific organizations, under which
employees are permitted to take advantage of the Federal income tax deferral
benefits provided for in Section 403(b) of the Internal Revenue Code.
408 or 408A PLAN - A plan of individual retirement accounts or annuities,
including a simplified employee pension plan, SIMPLE IRA or Roth IRA plan
established by an employer, that meets the requirements of Section 408 or 408A
of the Internal Revenue Code.
457 PLAN - A plan established by a unit of a state or local government or a
tax-exempt organization under Section 457 of the Internal Revenue Code.
ACCOUNT VALUE - The total sum of a Contract Owner's interest in the Variable
Account, the Fixed Account(s) and the Loan Account. Initially, it is equal to
the initial premium less any applicable premium tax and thereafter reflects the
net result of premiums, investment experience, charges deducted, and any partial
withdrawals taken.
ACCUMULATION PERIOD - The period starting on the Contract Date and ending when
the Contract is terminated, either through surrender, withdrawal(s),
annuitization, payment of charges, payment of the death benefit, or a
combination thereof.
ACCUMULATION UNIT - A unit of measure used to record amounts of increases to,
decreases from, and accumulations in the Investment Accounts of the Variable
Account during the Accumulation Period.
ANNUITANT - The person or persons on whose life annuity payments depend.
ANNUITY - A series of payments made by AUL to an Annuitant or Beneficiary during
the period specified in the Annuity Option.
ANNUITY DATE - The first day of any month in which an annuity begins under a
Contract, which shall not be later than the required beginning date under
applicable federal requirements.
ANNUITY OPTIONS - Options under a Contract that prescribe the provisions under
which a series of annuity payments are made to an Annuitant, contingent
Annuitant, or Beneficiary.
ANNUITY PERIOD - The period during which annuity payments are made.
ASSUMED INTEREST RATE (AIR) - The investment rate built into the Variable
Payment Annuity table used to determine the first annuity payment.
AUL - American United Life Insurance Company(R).
BENEFICIARY - The person having the right to receive the death proceeds, if any,
payable upon the death of the Contract Owner during the Accumulation Period, and
the person having the right to benefits, if any, payable upon the death of an
Annuitant during the Annuity Period under any Annuity Option other than a
survivorship option (i.e., Option 3-under which the contingent Annuitant has the
right to benefits payable upon the death of an Annuitant).
BUSINESS DAY - A day on which AUL's Home Office is customarily 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.
CASH VALUE - An Owner's Account Value minus the applicable withdrawal charge
plus or minus any applicable Market VAlue Adjustment.
CONTRACT ANNIVERSARY - The yearly anniversary of the Contract Date.
CONTRACT DATE - The date shown as the Contract Date in a Contract. It will not
be later than the date the initial premium is accepted under a Contract, and it
is the date used to determine Contract Months, Contract Years, and Contract
Anniversaries.
CONTRACT OWNER OR OWNER - The person entitled to the ownership rights under the
Contract and in whose name the Contract is issued. A trustee or custodian may be
designated to exercise an Owner's rights and responsibilities under a Contract
in connection with a retirement plan that meets the requirements of Section 401
or 408 of the Internal Revenue Code. An administrator, custodian, or other
person performing similar functions may be designated to exercise an Owner's
responsibilities under a Contract in connection with a 403(b) or 457 Program.
The term "Owner," as used in this Prospectus, shall include, where appropriate,
such a trustee, custodian, or administrator.
CONTRACT YEAR - A period beginning with one Contract Anniversary, or, in the
case of the first Contract Year, beginning on the Contract Date, and ending the
day before the next Contract Anniversary.
DEATH PROCEEDS - The amount payable to the Beneficiary by reason of the death of
the Annuitant or Owner during the Accumulation Period in accordance with the
terms of the Contract.
EMPLOYEE BENEFIT PLAN - A pension or profit sharing plan established by an
Employer for the benefit of its employees and which is qualified under Section
401 of the Internal Revenue Code.
FIXED ACCOUNT - An account that is part of our General Account, and is not part
of or dependent on the investment performance of the Variable Account.
FIXED ACCOUNT VALUE - The total value under a Contract allocated to any of the
Fixed Account(s).
FREE WITHDRAWAL AMOUNT - The amount that may be withdrawn without incurring
withdrawal charges, which is 12% of the account as of the most recent conract
anniversary.
3
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FUNDS - AUL American Series Fund, Inc., which offers the Equity, Bond, Money
Market, Managed, and Tactical Asset Allocation Portfolios; Calvert Variable
Series, which offers the Calvert Social Mid Cap Growth Fund; Alger American
Fund, which offers the Alger American Growth Portfolio; American Century
Variable Portfolios, Inc. which offers the VP Capital Appreciation and VP
International Portfolios; Fidelity Variable Insurance Products Fund ("VIP"),
which offers the Equity-Income, Growth, High Income and Overseas Portfolios;
Fidelity Variable Insurance Products Fund II ("VIP II"), which offers the Asset
Manager, Contrafund, and Index 500 Portfolios; Janus Aspen Series which offers
the Flexible Income and Worldwide Growth Portfolios; PBHG Insurance Series Fund,
Inc., which offers the Growth II and the Technology & Communications Portfolios;
SAFECO Resource Series Trust which offers the RST Equity and RST Growth
Portfolios; and T. Rowe Price Equity Series, Inc., which offers the T. Rowe
Price Equity Income Portfolio. Each of the Funds is a diversified, open-end
management investment company commonly referred to as a mutual fund, or a
portfolio thereof.
GENERAL ACCOUNT - All assets of AUL other than those allocated to the Variable
Account or to any other separate account of AUL.
GUARANTEED PERIOD - The period of time in years that the interest rate on an MVA
Fixed Account is guaranteed. Guaranteed Periods may be 1, 3, 5, 7, or 10 years
in length or other duration offered from time to time by AUL.
HOME OFFICE - The Variable Products Service Office at AUL's principal business
office, One American Square, Indianapolis, Indiana 46282.
HR-10 PLAN - An Employee Benefit Plan established by a self-employed person in
accordance with Section 401 of the Internal Revenue Code.
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.
LOAN ACCOUNT - A portion of the Account Value which is collateral for loan
amounts.
MARKET VALUE ADJUSTMENT - An upward or downward adjustment in the value of an
MVA Fixed Account if withdrawals or transfers are made prior to the expiration
of the Guaranteed Period.
MVA FIXED ACCOUNT - A subaccount of the Fixed Account, having a particular
Guaranteed Period, and subject to a Market Value Adjustment.
NET CASH VALUE - Cash Value less outstanding loans and loan interest.
NET PURCHASE PAYMENTS - The premiums paid less any applicable premium tax.
PREMIUMS - The amounts paid to AUL as consideration for the Contract. In those
states that require the payment of premium tax upon receipt of a premium by AUL,
the term "premium" shall refer to the amount received by AUL net of the amount
deducted for premium tax.
PROPER NOTICE - Notice that is received at our Home Office in a form that is
acceptable to Us.
SEPARATE ACCOUNT - AUL American Individual Variable Annuity 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 - The Valuation Period begins at the close of one Valuation
Date and ends at the close of the next succeeding Valuation Date. Generally, the
Valuation Date is "closed" at or about 4:00 P.M. eastern standard time, on each
day the NYSE is open for trading. The Valuation Date may close earlier than 4:00
P.M. EST if the NYSE closes earlier than 4:00 P.M. and it is possible to
determine the net asset value at that time.
VARIABLE ACCOUNT - The Separate Account.
VARIABLE ACCOUNT VALUE - The Account Value of this Contract which is invested in
one or more Investment Accounts.
4
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SUMMARY
This summary is intended to provide a brief overview of the more
significant aspects of the Contracts. Later sections of this Prospectus, the
Statement of Additional Information, and the Contracts provide further detail.
Unless the context indicates otherwise, the discussion in this summary and the
remainder of the Prospectus relates to the portion of the Contracts involving
the Variable Account. The pertinent Contract and "The Fixed Account" section of
this Prospectus briefly describe the Fixed Account.
PURPOSE OF THE CONTRACTS
AUL offers the individual variable annuity contracts ("Contracts")
described in this Prospectus for use in connection with taxable contribution
retirement plans and deferred compensation plans for individuals (collectively
"non-Qualified Plans"). AUL also offers the Contracts for use by individuals in
connection with retirement plans that meet the requirements of Sections 401,
403(b), 457, 408 or 408A of the Internal Revenue Code, allowing for pre-tax
contributions (collectively "Qualified Plans"). A Contract presents a dynamic
concept in retirement planning designed to give Contract Owners flexibility in
attaining investment goals. A Contract provides for the accumulation of values
on a variable basis, a fixed basis, or both, and provides several options for
fixed and variable annuity payments. During the Accumulation Period, a Contract
Owner can allocate premiums to the various Investment Accounts of the Variable
Account or to the Fixed Account. See "The Contracts."
Investors should carefully consider the tax benefits and disadvantages of a
Contract, and should consult a tax advisor. The tax benefits can be important
for investors seeking retirement income. The Contract may be disadvantageous for
those who do not plan to use the Contract as a source of retirement income. The
tax treatment may not be important for investors using the Contract in
connection with certain Qualified Plans. Investors should also consider the
investment and annuity benefits offered by the Contracts.
TYPES OF CONTRACTS
AUL offers two variations of contracts that are described in this
Prospectus. With Flexible Premium Contracts, premium payments may vary in amount
and frequency, subject to the limitations described below. With One Year
Flexible Premium Contracts, premium payments may vary in amount and frequency
only during the first Contract Year. Premiums payments may not be made after the
first Contract Year.
THE VARIABLE ACCOUNT AND THE FUNDS
AUL will allocate premiums designated to accumulate on a variable basis to
the Variable Account. See "Variable Account." The Variable Account is currently
divided into subaccounts referred to as Investment Accounts. Each Investment
Account invests exclusively in shares of one of the portfolios of the following
mutual funds:
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Investment Account and Mutual Fund Investment Adviser
Corresponding Mutual Fund Portfolio
AUL American Equity AUL American Series Fund, Inc. American United Life Insurance Company(R)
AUL American Bond AUL American Series Fund, Inc. American United Life Insurance Company(R)
AUL American Managed AUL American Series Fund, Inc. American United Life Insurance Company(R)
AUL American Money Market AUL American Series Fund, Inc. American United Life Insurance Company(R)
Alger American Growth Alger American Fund Fred Alger & Company
American Century VP Income & Growth American Century Variable Portfolios, Inc. American Century Investment Management, Inc.
American Century VP International American Century Variable Portfolios, Inc. American Century Investment Management, Inc.
Fidelity Asset Manager Fidelity Variable Insurance Products Fund II Fidelity Management & Research Company
Fidelity Contrafund Fidelity Variable Insurance Products Fund II Fidelity Management & Research Company
Fidelity Equity-Income Fidelity Variable Insurance Products Fund Fidelity Management & Research Company
Fidelity Growth Fidelity Variable Insurance Products Fund Fidelity Management & Research Company
Fidelity High Income Fidelity Variable Insurance Products Fund Fidelity Management & Research Company
Fidelity Index 500 Fidelity Variable Insurance Products Fund II Fidelity Management & Research Company
Fidelity Overseas Fidelity Variable Insurance Products Fund Fidelity Management & Research Company
Janus Aspen Series Flexible Income Janus Aspen Series Fund, Inc. Janus Capital Corporation
Janus Aspen Series Worldwide Growth Janus Aspen Series Fund, Inc. Janus Capital Corporation
PBHG Growth II PBHG Insurance Series Fund, Inc. Pilgrim Baxter & Associates, Ltd.
PBHG Technology & Growth PBHG Insurance Series Fund, Inc. Pilgrim Baxter & Associates, Ltd.
SAFECO RST Equity SAFECO Resource Series Trust SAFECO Asset Management Company
SAFECO RST Growth SAFECO Resource Series Trust SAFECO Asset Management Company
T. Rowe Price Equity Income T. Rowe Price Equity Series, Inc. T. Rowe Price Associates, Inc.
</TABLE>
Each of the Funds has a different investment objective. A Contract Owner
may allocate premiums to one or more of the Investment Accounts available under
a Contract. Premiums allocated to a particular Investment Account will increase
or decrease in dollar value depending upon the investment performance of the
corresponding mutual fund portfolio in which the Investment Account invests.
These amounts are not guaranteed. The Contract Owner bears the investment risk
for amounts allocated to an Investment Account of the Variable Account.
SUMMARY OF FIXED ACCOUNT
A Contract Owner may allocate premiums to one of several fixed accounts
which are part of AUL's General Account. The Contracts will offer either Market
Value Adjusted (MVA) Fixed Accounts or a non-MVA Fixed Account. The MVA Fixed
Account(s) may not be available in all states. The Contracts will also offer an
Enhanced Averaging Fixed Account in all states as a part of the dollar cost
averaging program.
Market Value Adjusted Fixed Account
Market Value Adjusted Fixed Accounts provide a guaranteed rate of interest
over five different maturity durations: one (1), three (3), five (5), seven (7)
or ten (10) years. AUL will credit the Fixed Account the declared interest rate
for the duration selected unless a distribution from the Market Value Adjusted
Fixed Account occurs for any reason. If such a distribution occurs, AUL will
subject the proceeds to a market value adjustment, resulting in either an
increase or decrease in the value of the distributed proceeds, depending on
interest rate fluctuations. No market value adjustment will be applied to a
Market Value Adjusted Fixed Account if the allocations are held until maturity.
In that case, the Market Value Adjusted Fixed Account will be credited the
declared rate for the duration selected. A Contract Owner must allocate a
minimum amount of $1,000 to a Market Value Adjusted Fixed Account. MARKET VALUE
ADJUSTED FIXED ACCOUNTS ARE NOT AVAILABLE IN ALL STATES.
Non-Market Value Adjusted Fixed Accounts
A Contract Owner may allocate premiums to the non-Market Value Adjusted
(non-MVA) Fixed Account only where MVA Fixed Accounts are not available. The
non-MVA Fixed Account is part of AUL's General Account. Amounts allocated to the
non-MVA Fixed Account earn interest at rates periodically determined by AUL.
Generally, any current rate that exceeds the guaranteed rate will be effective
for the Contract for a period of at least one year. These rates are guaranteed
to be at least an effective annual rate of 3%.
Enhanced Averaging Fixed Account
A Contract Owner may allocate premiums in the first Contract Year to the
Enhanced Averaging Fixed Account. Within one year after deposit, 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 the one year period.
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%. The Enhanced Averaging Fixed Account is only
available in the first Contract Year and requires an initial deposit of $10,000
therein.
PREMIUMS
For Flexible Premium Contracts, the Contract Owner may vary premiums in
amount and frequency. The minimum premium payment is $50. For One Year Flexible
Premium Contracts, the Contract Owner may pay premiums only during the first
Contract Year. The minimum premium is $500 with a minimum total first year
premium of $5,000. See "Premiums under the Contracts."
Right to Examine
The Contract Owner has the right to return the Contract for any reason
within ten days of receipt (or a longer period if required by state law). If the
Contract Owner exercises this right, AUL will treat the Contract as void from
its inception. AUL will refund to the Contract Owner the Account Value plus any
amounts deducted for premium taxes and other expenses. The Contract Owner bears
all of the investment risk prior to the Company's receipt of request for
cancellation. AUL will refund the premium paid in those states where required by
law and for all individual retirement annuities.
TRANSFERS
A Contract Owner may transfer his or her Variable Account Value among the
available Investment Accounts or to any of the available Fixed Accounts at any
time during the Accumulation Period. The Contract Owner may transfer part of his
or her Fixed Account Value to one or more of the available Investment Accounts
during the Accumulation Period, subject to certain restrictions. The minimum
transfer amount from any one Investment Account or from the Fixed Account is
$500. If the Account
5
<PAGE>
Value in an Investment Account or the Fixed Account prior to a transfer is less
than $500, then the minimum transfer amount is the Contract Owner's remaining
Account Value in that account. If, after any transfer, the remaining Account
Value in an Investment Account or in the Fixed Account would be less than $500,
then AUL will treat that request as a request for a transfer of the entire
Account Value.
Amounts transferred from the Non-MVA Fixed Account to an Investment Account
cannot exceed 20% of the Owner's Non-MVA Fixed Account Value as of the beginning
of that Contract Year. See "Transfers of Account Value."
CHARGES
AUL will deduct certain charges in connection with the operation of the
Contracts and the Variable Account. These charges include a withdrawal charge
assessed upon partial withdrawal or surrender, a mortality and expense risk
charge, a premium tax charge, and an annual contract fee. In addition, the Funds
pay investment advisory fees and other expenses. For further information on
these charges and expenses, see "Charges and Deductions."
Distributions
Withdrawals
The Contract Owner may surrender or take a partial withdrawal from the
Account Value at any time before the Annuity Date. Withdrawals and surrender are
subject to the limitations under any applicable Qualified Plan and applicable
law. The minimum withdrawal amount is $200 for Flexible Premium Contracts and
$500 for One Year Flexible Premium Contracts.
Certain retirement programs, such as 403(b) Programs, are subject to
constraints on withdrawals and full surrenders. See "403(b) Programs-Constraints
on Withdrawals." See "Cash Withdrawals" for more information, including the
possible charges and tax consequences of full and partial withdrawals.
Loan Privileges
Prior to the annuity date, the owner of a contract qualified under Section
403(b) may take a loan from the Account Value subject to the terms of the
Contract. The Plan and the Internal Revenue Code may impose restrictions on
loans.
THE DEATH BENEFIT
If a Contract Owner dies during the Accumulation Period, AUL will pay a
death benefit to the Beneficiary. The amount of the death benefit is equal to
the Death Proceeds. A death benefit will not be payable if the Contract Owner
dies on or after the Annuity Date, except as may be provided under the Annuity
Option elected. See "The Death Proceeds" and "Annuity Options."
Initial Dollar Cost Averaging Program
Beginning within the first contract year, owners who wish to purchase units
of an Investment Account over a 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 transfer an amount 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 the one year
timeframe. The unit values are determined on the dates of the transfers. These
transfers will continue automatically over a 12 month period. To participate in
the Program, AUL requires a minimum deposit of $10,000 into the Enhanced
Averaging Fixed Account. For further information, see the explanation under
"Dollar Cost Averaging Program."
Ongoing Dollar Cost Averaging Program
At any time, the Contract Owner may purchase units of an Investment Account
over a period of time through the Ongoing Dollar Cost Averaging (Ongoing DCA)
Program. Under the Ongoing DCA Program, the Contract Owner authorizes AUL to
transfer a specific dollar amount from the AUL American Money Market Investment
Account into one or more other Investment Accounts at the unit values determined
on the dates of the transfers. These transfers will continue automatically until
AUL receives notice to discontinue the Program, or until there is not enough
money in the AUL Money Market Investment Account to continue the Program. To
participate in the Program, AUL requires a minimum deposit of $10,000 into the
AUL Money Market Investment Account. For further information, see the
explanation under "Dollar Cost Averaging Program."
Portfolio Rebalancing Program
The Contract Owner may elect to automatically adjust his or her investment
account balances consistent with the allocation most recently requested. AUL can
do this on a quarterly or annual basis from the date on which the Portfolio
Rebalancing Program commences.
CONTACTING AUL
Individuals should direct all written requests, notices, and forms required
under these Contracts, and any questions or inquiries to AUL's Variable Products
Office at the address and phone number shown on the front of this Prospectus.
EXPENSE TABLE
The purpose of the following table is to assist investors in understanding
the various costs and expenses that Contract Owners bear directly and
indirectly. The table reflects expenses of the Variable Account as well as the
Funds. Expenses of the Variable Account shown under "Contract Owner Transaction
Expenses" (including the withdrawal charge and annual contract fee) and
"Variable Account Annual Expenses" are fixed and specified under the terms of
the Contract. Expenses of the Funds as shown under "Fund Annual Expenses" are
not fixed or specified under the terms of the Contract, 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 table does not reflect AUL's charges
for premium taxes that may be imposed by various jurisdictions. See "Premium Tax
Charge." The information contained in the table is not generally applicable to
amounts allocated to the Fixed Account(s) or to annuity payments under an
Annuity Option.
6
<PAGE>
EXPENSE TABLE (continued)
For a complete description of a Contract's costs and expenses, see "Charges
and Deductions." For a more complete description of the Funds' costs and
expenses, see the Funds' Prospectuses.
<TABLE>
<CAPTION>
CONTRACT OWNER TRANSACTION EXPENSES
DEFFERED SALES LOAD (as a percentage of amount surrendered; ALSO REFERRED TO AS A "WITHDRAWAL CHARGE")(1)
Charge on Withdrawal Exceeding 12% Free Withdrawal Amount(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Contract Year 1 2 3 4 5 6 7 8 9 10 11 or more
- ------------- - - - - - - - - - -- ----------
Flexible Premium 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0%
Contracts
One Year Flexible 7% 6% 5% 4% 3% 2% 1% 0% 0% 0%
Premium Contracts
ANNUAL CONTRACT FEE
Maximum administrative fee (per year)(2) .....................................................................$30
SEPARATE ACCOUNT ANNUAL EXPENSES (as a percentage of annual account value)(3)
Standard Individual Deferred Variable Annuity(4)
Mortality and expense risk fee..........................................................1.00% yrs 1 - 10
..........................................................90% yrs 11+
Enhanced Individual Deferred Variable Annuity(4)
Mortality and expense risk fee..........................................................1.15% yrs 1 - 10
........................................................1.05% yrs 11+
Optional Rider Expenses (as an equivalent annual percentage of average account value)(4)
Enhanced Death Benefit Rider Option....................................................................0.15%
Enhanced Death Benefit and Guaranteed Minimum Income Benefit Rider Option..............................0.35%
Enhanced Death Benefit, Guaranteed Minimum Income Benefit, and
Guaranteed Minimum Account Value Rider Option ...................................................1.50%
FUND ANNUAL EXPENSES (as a percentage of net assets of each Fund)
<S> <C> <C> <C>
Management/ Other Total Fund
Portfolio Advisory Fee Expenses Annual Expenses
- --------- ------------ -------- ---------------
AUL American Series Fund, Inc.
Equity Portfolio 0.50%(5) 0.12% 0.62%
Bond Portfolio 0.50%(5) 0.12% 0.62%
Managed Portfolio 0.50%(5) 0.12% 0.62%
Money Market Portfolio 0.40%(5) 0.11% 0.51%
Alger American Fund
Alger American Growth Portfolio 0.75% 0.04% 0.79%
American Century Variable Portfolios, Inc.
American Century VP Income & Growth 0.70% 0.00% 0.70%
American Century VP International 1.50%(6) 0.00% 1.50%
Calvert Variable Series
Calvert Social Mid Cap Growth Portfolio 0.90%(7) 0.16% 1.06%
Fidelity Variable Insurance Products Fund
Equity-Income Portfolio 0.49% 0.09% 0.58%(8)
Growth Portfolio 0.59% 0.09% 0.68%(8)
High Income Portfolio 0.58% 0.12% 0.70%
Overseas Portfolio 0.74% 0.17% 0.91%(8)
Fidelity Variable Insurance Products Fund II
Asset Manager Portfolio 0.54% 0.10% 0.64%(8)
Contrafund Portfolio 0.59% 0.11% 0.70%(8)
Index 500 Portfolio 0.24% 0.11% 0.35%(8)
Janus Aspen Series
Flexible Income Portfolio 0.65% 0.08% 0.73%(9)
Worldwide Growth Portfolio 0.65% 0.07% 0.72%(9)
PBHG Insurance Series Fund, Inc.
Growth II Portfolio 0.51% 0.69% 1.20%(10)
Technology & Communications Portfolio 0.49% 0.71% 1.20%(10)
SAFECO Resource Series Trust
RST Equity 0.74% 0.04% 0.78%
RST Growth 0.74% 0.06% 0.80%
T. Rowe Price Equity Series, Inc.
T. Rowe Price Equity Income 0.85% 0.00% 0.85%(11)
<FN>
(1) An amount withdrawn during a Contract Year referred to as the Free
Withdrawal Amount will not be subject to a withdrawal charge. The Free
Withdrawal Amount is 12% of the beginning of the year Account Value at the time
of the first withdrawal in any Contract Year in which the withdrawal is made.
See "Withdrawal Charge."
(2)The Annual Contract Fee may be less than $30.00 per year, based on the
Owner's Account Value. The maximum charge imposed will be the lesser of 2% of
the Owner's Account Value or $30.00 per year. The Annual Contract Fee is waived
if the Account Value equals or exceeds $50,000 on a Contract Anniversary.
(3)The Variable Account expenses set forth apply exclusively to allocations
made to the Investment Account(s) of the Variable Account. Such charges do not
apply to, and will not be assessed against, allocations made to the Fixed
Account(s). The total Variable Account expenses shown include the Standard
Contractual Death Benefit (See Death Proceeds Payment Provisions). The Variable
Account expenses are deducted from the Account Value on a monthly basis.
(4) The Standard Individual Deferred Variable Annuity Contract excludes a
Free Withdrawal Amount and the Long Term Care Facility and Terminal Illness
Benefit Rider. The Enhanced Individual Deferred Variable Annuity Contract
includes a Free Withdrawal Amount and the Long Term Care Facility and Terminal
Illness Benefit Rider. At the time of application, the applicant may also choose
any of the optional benefit riders which may be attached to the Enhanced
Individual Deferred Variable Annuity. Should the applicant choose an Optional
Rider, the Company will deduct the appropriate rider charge from the Account
Value on a monthly basis.
(5)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.
(6)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.
(7) The figures above are based on expenses for fiscal year 1998, and have
been restated to reflect the elimination of the performance adjustment in CVS
Mid Cap Portfolios. The restatement includes the addition of 0.01%.
(8) A portion of the brokerage commissions that certain funds pay was used
to reduce fund expenses. In addition, certain funds, or FMR on behalf of certain
funds, have entered into arrangements with their custodian whereby credits
realized as a result of uninvested cash balances were used to reduce custodian
expenses. Including these reductions, the total operating expenses, after
reimbursement for Index 500 Portfolio, presented in the table would have been:
Equity-Income Portfolio .57%; Growth Portfolio .66%; Overseas Portfolio .89%;
Asset Manager Portfolio .63%; Index 500 Portfolio .28%; and, Contrafund
Portfolio .66%.
(9) All expenses are stated with contractual waivers and fee reductions by
Janus Capital. Fee reductions for the Worldwide Growth reduce the Management Fee
to the level of the corresponding Janus retail fund. Other waivers, if
applicable, are first applied against the Management Fee and then against Other
Expenses. Janus Capital has agreed to continue the other waivers and fee
reductions until at least the next annual renewal of the advisory agreement.
(10) The Investment Adviser agreed to reimburse a portion of the funds'
expenses during the period. Without this reimbursement, the funds' management
fee, other expenses and total expenses would have been 0.85%, 0.69% and 1.54%
respectively, for the PBHG Growth II Portfolio and 0.85%, 0.71% and 1.56%
respectively, for the PBHG Technology and Communications Portfolio.
(11) This is an annual all-inclusive fee paid to the advisor.
</FN>
</TABLE>
7
<PAGE>
EXAMPLES (for any Investment Account)
The following examples show expenses that a Contract Owner would pay at the
end of one, three, five, or ten years if at the end of those time periods, the
Contract is (1) surrendered, (2) annuitized, or (3) not surrendered or
annuitized. The information below represents expenses on a $1,000 premium and
assumes a 5% return per year. For a Contract that is surrendered, and for a
Contract that is annuitized, the example shows expenses for Flexible Premium
Contracts and One Year Flexible Premium Contracts. Expenses will be the same for
both Contracts if not surrendered or annuitized. Column (2) reflects an
assumption that a life annuity or survivorship annuity is elected. Under certain
circumstances, a withdrawal charge may apply upon annuitization. See "Withdrawal
Charge." These examples should not be considered a representation of past or
future expenses. Because Fund expenses may vary, actual expenses may be greater
or less than those shown. The assumed 5% return is hypothetical and should not
be considered a representation of past or future returns, which may be greater
or less than the assumed amount.
<TABLE>
<CAPTION>
(1) If Your Contract (2) If your Contract (3) If your Contract
is Surrendered is Annuitized is not Surrendered or
Annuitized
<S> <C> <C> <C> <C> <C>
Flexible Premium One Year Flexible Flexible One Year Flexible
Contracts Premium Contracts Premium Contracts Premium Contracts All Contracts
----------------- ----------------- ----------------- ----------------- -------------
Investment Account
- ------------------
AUL American Equity
1 year $105.98 $ 84.34 $105.98 $ 20.98 $ 20.98
3 years 141.13 112.39 141.13 64.50 64.50
AUL American Bond
1 year 105.98 84.34 105.98 20.98 20.98
3 years 141.13 112.39 141.13 64.50 64.50
AUL American Managed
1 year 105.98 84.34 105.98 20.98 20.98
3 years 141.13 112.39 141.13 64.50 64.50
AUL American Money Market
1 year 104.88 83.31 104.88 19.88 19.88
3 years 138.03 109.20 138.03 61.15 61.15
Alger American Growth
1 year 107.71 85.96 107.71 22.71 22.71
3 years 145.95 117.36 145.95 69.72 69.72
American Century VP Income & Growth
1 year 106.79 85.10 106.79 21.79 21.79
3 years 143.39 114.72 143.39 66.94 66.94
American Century VP International
1 year 114.80 92.60 114.80 29.80 29.80
3 years 165.59 137.61 165.59 90.97 90.97
Calvert Social Mid Cap Growth
1 year 110.38 88.46 110.38 25.38 25.38
3 years 153.39 125.03 153.39 77.77 77.77
8
<PAGE>
Examples (for any Investment Account) (continued)
<CAPTION>
(1) If Your Contract (2) If your Contract (3) If your Contract
is Surrendered is Annuitized is not Surrendered or
Annuitized
<S> <C> <C> <C> <C> <C>
Flexible Premium One Year Flexible Flexible One Year Flexible
Contracts Premium Contracts Premium Contracts Premium Contracts All Contracts
----------------- ----------------- ----------------- ----------------- -------------
Investment Account
- ------------------
Fidelity VIP Equity-Income
1 year $105.58 $ 83.96 $105.58 $ 20.58 $ 20.58
3 years 139.99 111.22 139.99 63.27 63.27
Fidelity VIP Growth
1 year 106.57 84.89 106.57 21.57 21.57
3 years 142.77 114.09 142.77 66.28 66.28
Fidelity VIP High Income
1 year 106.79 85.10 106.79 21.79 21.79
3 years 143.39 114.72 143.39 66.94 66.94
Fidelity VIP Overseas
1 year 108.88 87.06 108.88 23.88 23.88
3 years 149.22 120.73 149.22 73.25 73.25
Fidelity VIP II Asset Manager
1 year 106.16 84.51 106.16 21.16 21.16
3 years 141.64 112.92 141.64 65.05 65.05
Fidelity VIP II Contrafund
1 year 106.79 85.10 106.79 21.79 21.79
3 years 143.39 114.72 143.39 66.94 66.94
Fidelity VIP II Index 500
1 year 103.26 81.79 103.26 18.26 18.26
3 years 133.48 104.51 133.48 56.22 56.22
Janus Flexible Income
1 year 107.08 85.37 107.08 22.08 22.08
3 years 144.21 115.57 144.21 67.83 67.83
Janus Worldwide Growth
1 year 106.97 85.27 106.97 21.97 21.97
3 years 143.90 115.25 143.90 67.50 67.50
PBHG Growth II
1 year 111.80 89.80 111.80 26.80 26.80
3 years 157.34 129.10 157.34 82.04 82.04
PBHG Technology & Communications
1 year 111.80 89.80 111.80 26.80 26.80
3 years 157.34 129.10 157.34 82.04 82.04
SAFECO RST Equity
1 year 107.60 85.85 107.60 22.60 22.60
3 years 145.64 117.05 145.64 69.38 69.38
SAFECO RST Growth
1 year 107.78 86.03 107.78 22.78 22.78
3 years 146.15 117.57 146.15 69.94 69.94
T. Rowe Price Equity Income
1 year 108.29 86.51 108.29 23.29 23.29
3 years 147.59 119.05 147.59 71.49 71.49
</TABLE>
9
<PAGE>
PERFORMANCE OF THE INVESTMENT ACCOUNTS
The following tables present the return on investment for each of the
Investment Accounts. Though the Contracts were not offered prior to the date of
this prospectus, the tables present hypothetical information of the results,
based on the performance of the Funds, that would have been achieved if the
Contracts had been held for the periods presented. The return on investment
represents a change in a hypothetical Accumulation Unit allocated to an
Investment Account and takes into account Variable Account charges such as the
mortality and expense risk charges and a pro rata portion of the Annual Contract
Fee. The return on investment figures in the first table (excluding charges) do
not reflect the deduction of the withdrawal charge. The return on investment
figures in the second and third tables (including charges) reflect the deduction
of the withdrawal charge. All tables include a deduction for the Mortality and
Expense Risk Charge and a pro rata portion of the Annual Contract Fee.
<TABLE>
<CAPTION>
Performance (excluding charges) for All Contracts
Average Average Average Average
Annual Annual Annual Annual Cumulative
Return on Return on Return on Return on Return on
Inception Inception Investment Investment Investment Investment Investment for
Date of Date of for Year for 3 Years for 5 Years for lesser of lesser of 10
Mutual Investment ending ending ending 10 Years or Years or Since
Investment Account Fund Account 12/31/98 12/31/98 12/31/98 Since Inception Inception
- ------------------ ---- ------- -------- -------- -------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
AUL American Equity 4/10/90 04/30/99 5.78% 16.64% 13.57% 12.58% 181.46%
AUL American Bond 4/10/90 04/30/99 7.18% 4.70% 4.83% 7.08% 81.67%
AUL American Managed 4/10/90 04/30/99 6.80% 11.94% 9.97% 10.07% 131.12%
AUL American Money Market 4/10/90 04/30/99 5.60% 5.57% 5.38% 5.38% 57.96%
Alger American Growth 1/09/89 04/30/99 45.94% 26.43% 22.12% 20.06% 520.10%
American Century VP Income &
Growth 10/30/97 05/01/99 25.07% n.a. n.a. 28.82% 34.48%
American Century VP
International 5/01/94 04/30/99 17.05% 15.56% n.a. 10.66% 60.51%
Calvert Social Mid Cap Growth 7/16/91 04/30/99 27.92% 18.16% 15.03% 13.53% 157.95%
Fidelity VIP Equity-Income 10/09/86 04/30/99 10.02% 16.10% 17.07% 13.96% 269.81%
Fidelity VIP Growth 10/09/86 04/30/99 37.48% 23.67% 20.04% 17.70% 410.58%
Fidelity VIP High Income 9/19/85 04/30/99 (5.71%) 7.12% 7.25% 9.49% 147.71%
Fidelity VIP Overseas 1/28/87 04/30/99 11.12% 10.88% 8.15% 8.50% 126.17%
Fidelity VIP II Asset Manager 9/06/89 04/30/99 13.39% 15.05% 10.18% 11.45% 174.78%
Fidelity VIP II Contrafund 1/03/95 04/30/99 28.11% 23.29% n.a. 27.82% 166.55%
Fidelity VIP II Index 500 8/27/92 04/30/99 26.48% 26.05% 21.83% 19.50% 209.82%
Janus Flexible Income 9/13/93 04/30/99 7.80% 8.43% 8.74% 8.24% 52.17%
Janus Worldwide Growth 9/13/93 04/30/99 26.91% 24.85% 19.58% 22.22% 189.75%
PBHG Growth II 5/01/97 04/30/99 6.63% n.a. n.a. 7.84% 13.42%
PBHG Technology
& Communications 5/01/97 04/30/99 30.30% n.a. n.a. 19.30% 34.24%
SAFECO RST Equity 11/06/86 04/30/99 23.09% 23.05% 20.47% 17.43% 399.06%
SAFECO RST Growth 1/07/93 04/30/99 0.11% 22.91% 25.05% 25.10% 281.82%
T. Rowe Price Equity Income 3/31/94 04/30/99 7.50% 17.18% n.a. 18.76% 126.53%
11
<PAGE>
<CAPTION>
PERFORMANCE OF THE INVESTMENT ACCOUNTS (continued)
Performance (including charges) for Flexible Premium Contracts
Average Average Average Average
Annual Annual Annual Annual Cumulative
Return on Return on Return on Return on Return on
Inception Inception Investment Investment Investment Investment Investment for
Date of Date of for Year for 3 Years for 5 Years for lesser of lesser of 10
Mutual Investment ending ending ending 10 Years or Years or Since
Investment Account Fund Account 12/31/98 12/31/98 12/31/98 Since Inception Inception
- ------------------ ---- ------- -------- -------- -------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
AUL American Equity 4/10/90 04/30/99 (4.79%) 13.44% 12.18% 12.32% 175.83%
AUL American Bond 4/10/90 04/30/99 (3.53%) 1.83% 3.55% 6.83% 78.00%
AUL American Managed 4/10/90 04/30/99 (3.88%) 8.87% 8.61% 9.81% 126.39%
AUL American Money Market 4/10/90 04/30/99 (6.91%) 0.53% 1.91% 2.79% 27.19%
Alger American Growth 1/09/89 04/30/99 31.34% 22.95% 20.62% 19.94% 513.93%
American Century VP Income &
Growth 10/30/97 04/30/99 12.57% n.a. n.a. 17.91% 21.26%
American Century VP
International 5/01/94 04/30/99 5.35% 13.20% n.a. 9.20% 50.84%
Calvert Social Mid Cap Growth 7/16/91 04/30/99 15.13% 14.91% 13.62% 13.06% 150.08%
Fidelity VIP Equity-Income 10/09/86 04/30/99 (0.98%) 12.91% 15.63% 13.85% 266.25%
Fidelity VIP Growth 10/09/86 04/30/99 23.73% 20.28% 18.56% 17.58% 405.39%
Fidelity VIP High Income 9/19/85 04/30/99 (15.14%) 4.17% 5.93% 9.38% 145.22%
Fidelity VIP Overseas 1/28/87 04/30/99 0.01% 7.85% 6.82% 8.39% 123.88%
Fidelity VIP II Asset Manager 9/06/89 04/30/99 2.05% 11.90% 8.83% 11.33% 172.03%
Fidelity VIP II Contrafund 1/03/95 04/30/99 15.30% 19.91% n.a. 25.48% 147.57%
Fidelity VIP II Index 500 8/27/92 04/30/99 13.83% 22.58% 20.07% 18.64% 195.92%
Janus Flexible Income 9/13/93 04/30/99 (2.98%) 5.46% 7.40% 7.05% 43.49%
Janus Worldwide Growth 9/13/93 04/30/99 14.21% 21.43% 18.11% 20.88% 173.23%
PBHG Growth II 5/01/97 04/30/99 (4.03%) n.a. n.a. 2.27% 3.82%
PBHG Technology
& Communications 5/01/97 04/30/99 17.27% n.a. n.a. 13.14% 22.88%
SAFECO RST Equity 11/06/86 04/30/99 10.78% 19.68% 18.98% 17.31% 394.07%
SAFECO RST Growth 1/07/93 04/30/99 (9.90%) 19.54% 23.51% 24.02% 262.67%
T. Rowe Price Equity Income 3/31/94 04/30/99 7.82% 17.53% n.a. 19.10% 129.63%
<CAPTION>
Performance (including charges) for One Year Flexible Premium Contracts
Average Average Average Average
Annual Annual Annual Annual Cumulative
Return on Return on Return on Return on Return on
Inception Inception Investment Investment Investment Investment Investment for
Date of Date of for Year for 3 Years for 5 Years for lesser of lesser of 10
Mutual Investment ending ending ending 10 Years or Years or Since
Investment Account Fund Account 12/31/98 12/31/98 12/31/98 Since Inception Inception
- ------------------ ---- ------- -------- -------- -------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
AUL American Equity 4/10/90 04/30/99 (1.62%) 14.66% 12.88% 12.58% 181.46%
AUL American Bond 4/10/90 04/30/99 (0.32%) 2.93% 4.20% 7.08% 81.67%
AUL American Managed 4/10/90 04/30/99 (0.68%) 10.04% 9.30% 10.07% 131.12%
AUL American Money Market 4/10/90 04/30/99 (3.80%) 1.61% 2.55% 3.03% 29.81%
Alger American Growth 1/09/89 04/30/99 35.73% 24.28% 21.38% 20.06% 520.10%
American Century VP Income &
Growth 10/30/97 05/01/99 16.32% n.a. n.a. 21.26% 25.30%
American Century VP
International 5/01/94 04/30/99 8.86% 14.39% n.a. 9.94% 55.68%
Calvert Social Mid Cap Growth 7/16/91 04/30/99 18.96% 16.16% 14.33% 13.53% 157.95%
Fidelity VIP Equity-Income 10/09/86 04/30/99 2.31% 14.12% 16.35% 13.96% 269.81%
Fidelity VIP Growth 10/09/86 04/30/99 27.86% 21.57% 19.31% 17.70% 410.58%
Fidelity VIP High Income 9/19/85 04/30/99 (12.31%) 5.30% 6.60% 9.49% 147.71%
Fidelity VIP Overseas 1/28/87 04/30/99 3.34% 9.01% 7.49% 8.50% 126.17%
Fidelity VIP II Asset Manager 9/06/89 04/30/99 5.46% 13.10% 9.51% 11.45% 174.78%
Fidelity VIP II Contrafund 1/03/95 04/30/99 19.14% 21.20% n.a. 26.50% 155.71%
Fidelity VIP II Index 500 8/27/92 04/30/99 17.63% 23.90% 20.84% 19.21% 205.08%
Janus Flexible Income 9/13/93 04/30/99 0.26% 6.59% 8.08% 7.68% 48.06%
Janus Worldwide Growth 9/13/93 04/30/99 18.02% 22.73% 18.85% 21.59% 181.93%
PBHG Growth II 5/01/97 04/30/99 (0.84%) n.a. n.a. 3.95% 6.68%
PBHG Technology
& Communications 5/01/97 04/30/99 21.17% n.a. n.a. 15.00% 26.27%
SAFECO RST Equity 11/06/99 04/30/99 14.48% 20.97% 19.73% 17.66% 409.05%
SAFECO RST Growth 1/07/93 04/30/99 (6.90%) 20.83% 24.29% 24.67% 274.12%
T. Rowe Price Equity Income 3/31/94 04/30/99 (0.03%) 14.78% n.a. 18.00% 119.71%
</TABLE>
INFORMATION ABOUT AUL, THE VARIABLE 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 48 states and the District of Columbia. AUL has its principal
business office located at One American Square, Indianapolis, Indiana 46282.
AUL conducts a conventional life insurance, reinsurance, and annuity
business. At December 31, 1998, AUL had total assets of $9,336,325,097 and a
policy owners' surplus of $734,099,854.
The principal underwriter for the Contracts is AUL, which is registered
with the SEC as a broker-dealer.
VARIABLE ACCOUNT
AUL American Individual Variable Annuity Unit Trust was established by AUL
on November 11, 1998, under procedures established under Indiana law. The
income, gains, or losses of the Variable Account are credited to or charged
against the assets of the Variable Account without regard to other income,
gains, or losses of
12
<PAGE>
AUL. Assets in the Variable Account attributable to the reserves and other
liabilities under the Contracts are not chargeable with liabilities arising from
any other business that AUL conducts. AUL owns the assets in the Variable
Account and is required to maintain sufficient assets in the Variable Account to
meet all Variable Account obligations under the Contracts. AUL may transfer to
its General Account assets that exceed anticipated obligations of the Variable
Account. All obligations arising under the Contracts are general corporate
obligations of AUL. AUL may invest its own assets in the Variable Account, and
may accumulate in the Variable Account proceeds from Contract charges and
investment results applicable to those assets.
The Variable Account is currently divided into sub-accounts referred to as
Investment Accounts. Each Investment Account invests exclusively in shares of
one of the Funds. Premiums may be allocated to one or more Investment Accounts
available under a Contract. AUL may in the future establish additional
Investment Accounts of the Variable Account, which may invest in other
securities, mutual funds, or investment vehicles.
The Variable Account is registered with the SEC as a unit investment trust
under the Investment Company Act of 1940 (the "1940 Act"). Registration with the
SEC does not involve supervision by the SEC of the administration or investment
practices of the Variable Account or of AUL.
THE FUNDS
Each of the Funds is a diversified, open-end management investment company
commonly referred to as a mutual fund, or a portfolio thereof. Each of the Funds
is registered with the SEC under the 1940 Act. Such registration does not
involve supervision by the SEC of the investments or investment policies or
practices of the Fund. Each Fund has its own investment objective or objectives
and policies. The shares of a Fund are purchased by AUL for the corresponding
Investment Account at the Fund's net asset value per share, i.e., without any
sales load. All dividends and capital gain distributions received from a Fund
are automatically reinvested in such Fund at net asset value, unless otherwise
instructed by AUL. AUL has entered into agreements with the
Distributors/Advisers of American Century Variable Portfolios, Inc., Calvert
Variable Series, Fidelity Investments, Janus Capital Corporation, Pilgrim Baxter
& Associates, SAFECO Asset Management Company and T. Rowe Price Equity Series,
Inc. under which AUL has agreed to render certain services and to provide
information about these funds to its Contract Owners and/or Participants 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.
The investment advisers of the Funds are identified on page 5. All of the
investment advisers are registered with the SEC as investment advisers. The
Funds offer their shares as investment vehicles to support variable annuity
contracts. The advisers or distributors to certain of the Funds may advise and
distribute other investment companies that offer their shares directly to the
public, some of which have names similar to the names of the Funds in which the
Investment Accounts invest. These investment companies offered to the public
should not be confused with the Funds in which the Investment Accounts invest.
the Funds are described in their prospectuses, which accompany this prospectus.
A summary of the investment objective or objectives of each Fund is
provided below. There can be no assurance that any Fund will achieve its
objective or objectives. More detailed information is contained in the
Prospectus for the Funds, including information on the risks associated with the
investments and investment techniques of each Fund.
AUL AMERICAN SERIES FUND, INC.
AUL AMERICAN EQUITY PORTFOLIO
The primary investment objective of the AUL American Equity Portfolio is
long-term capital appreciation. The Fund seeks current investment income as a
secondary objective. The Fund attempts to achieve these objectives by investing
primarily in equity securities selected on the basis of fundamental investment
research for their long-term growth prospects.
AUL AMERICAN BOND PORTFOLIO
The primary investment objective of the AUL American Bond Portfolio is to
provide a high level of income consistent with prudent investment risk. As a
secondary objective, the Fund seeks to provide capital appreciation to the
extent consistent with the primary objective. The Fund attempts to achieve these
objectives by investing primarily in corporate bonds and other debt securities.
AUL AMERICAN MANAGED PORTFOLIO
The investment objective of the AUL American Managed Portfolio is to
provide a high total return consistent with prudent investment risk. The Fund
attempts to achieve this objective through a fully managed investment policy
utilizing publicly traded common stock, debt securities (including convertible
debentures), and money market securities.
AUL AMERICAN MONEY MARKET PORTFOLIO
The investment objective of the AUL American Money Market Portfolio is to
provide a high level of current income while preserving assets and maintaining
liquidity and investment quality. The Fund attempts to achieve this objective by
investing in short-term money market instruments that are of the highest
quality.
FOR ADDITIONAL INFORMATION CONCERNING AUL AMERICAN SERIES FUND, INC. AND ITS
PORTFOLIOS, PLEASE SEE THE AUL AMERICAN SERIES FUND, INC. PROSPECTUS, WHICH
SHOULD BE READ CAREFULLY BEFORE INVESTING.
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<PAGE>
ALGER AMERICAN FUND
ALGER AMERICAN GROWTH PORTFOLIO
The Alger American Growth Portfolio is a growth portfolio that seeks to
obtain long-term capital appreciation by investing in a diversified, actively
managed portfolio of equity securities. Except during temporary defensive
periods, the Portfolio invests at least 65% of its total assets in equity
securities of companies that, at the time of purchase, have a total market
capitalization of one billion dollars or greater.
FOR ADDITIONAL INFORMATION CONCERNING THE ALGER AMERICAN FUND AND ITS PORTFOLIO,
PLEASE SEE THE ALGER AMERICAN FUND PROSPECTUS, WHICH SHOULD BE READ CAREFULLY
BEFORE INVESTING.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
AMERICAN CENTURY VP INCOME & GROWTH
The American Century VP Income & Growth Portfolio seeks dividend growth,
current income and capital appreciation by investing in a diversified portfolio
of U.S. stocks. The fund employs a quantitative management approach with the
goal of producing a total return that exceeds its benchmark, the S&P 500. The
fund's management team also targets a dividend yield that is 30% higher than the
yield of the S&P 500. The fund invests mainly in large-company stocks, such as
those in the S&P 500, but it also may invest in the stocks of small- and
medium-sized companies. The management team strives to outperform the S&P 500
over time while matching the risk characteristics of the index.
AMERICAN CENTURY VP INTERNATIONAL
The American Century VP International Portfolio seeks to achieve its
investment objective of capital growth by investing primarily in securities of
foreign companies that meet certain fundamental and technical standards of
selection and have, in the opinion of the investment manager, potential for
appreciation. The Fund will invest primarily in common stocks (defined to
include depository receipts for common stocks and other equity equivalents) of
companies located in developed markets. Investment in securities of foreign
issuers typically involves greater risks than investment in domestic securities,
including currency fluctuations and political instability.
FOR ADDITIONAL INFORMATION CONCERNING AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
AND ITS PORTFOLIOS, PLEASE SEE THE AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
PROSPECTUS, WHICH SHOULD BE READ CAREFULLY BEFORE INVESTING.
CALVERT VARIABLE SERIES
CALVERT SOCIAL MID CAP GROWTH
The Calvert Social Mid Cap Growth Portfolio is a socially responsible
growth Portfolio that seeks long-term capital appreciation by investing
primarily in the stock of medium sized companies. To the extent possible,
investments are made in enterprises that make a significant contribution to
society through their products and services and through the way they do
business.
FOR ADDITIONAL INFORMATION CONCERNING CALVERT VARIABLE SERIES AND THE CALVERT
SOCIAL MID CAP GROWTH PORTFOLIO, PLEASE SEE THE CALVERT VARIABLE SERIES
PROSPECTUS, WHICH SHOULD BE READ CAREFULLY BEFORE INVESTING.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
VIP EQUITY-INCOME PORTFOLIO
The VIP Equity-Income Portfolio seeks reasonable income. The fund will also
consider the potential for capital appreciation. The fund seeks a yield which
exceeds the composite yield on the securities comprising the S&P 500. The
Adviser normally invests at least 65% of the fund's total assets in
income-producing equity securities. The Adviser may also invest the fund's
assets in other types of equity securities and debt securities, including
lower-quality debt securities. The Adviser may also invest in securities of
foreign issuers in addition to securities of domestic issuers.
VIP GROWTH PORTFOLIO
The VIP Growth Portfolio seeks capital appreciation. The Adviser normally
invests the fund's assets primarily in common stocks. The Adviser invests the
fund's assets in companies that it believes have above-average growth potential.
Growth may be measured by factors such as earnings or revenue. The Adviser may
invest the fund's assets in securities of foreign issuers in addition to
securities of domestic issuers.
VIP HIGH INCOME PORTFOLIO
The VIP High Income Portfolio seeks to obtain a high level of current
income while also considering growth of capital. The Adviser normally invests at
least 65% of the fund's total assets in income-producing debt securities,
preferred stocks and convertible securities, with an emphasis on lower-quality
debt securities. Many lower-quality debt securities are subject to legal or
contractual restrictions limiting the Adviser's ability to resell the securities
to the general public. The Adviser may also invest the fund's assets in
non-income producing securities, including defaulted securities and common
stocks. The Adviser intends to limit common stocks to 10% of the fund's total
assets. The Adviser may invest in companies whose financial condition is
troubled or uncertain and that may be involved in bankruptcy proceedings,
reorganization or financial restructurings.
VIP OVERSEAS PORTFOLIO
The VIP Overseas Portfolio seeks long-term growth of capital. The Adviser
normally invests at least 65% of the fund's total assets in foreign securities.
The Adviser normally invests the fund's assets primarily in stocks. The adviser
normally diversifies the fund's investments across different countries and
regions. In allocating the fund's investments across countries and regions, the
Adviser will consider the size of the market in each country and region relative
to the size of the international market as a whole.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
VIP II ASSET MANAGER PORTFOLIO
The VIP II Asset Manager Portfolio seeks high total return with reduced
risk over the long-term by allocating its assets among domestic and foreign
stocks, bonds and short-term instruments. The Adviser allocates the fund's
assets among the following classes, or types, of investments. The stock class
includes equity securities of all types. The bond class includes all varieties
of fixed-income securities, including lower-quality debt securities, maturing in
more than one year. The short-term/money market class includes all types of
short-term and money market instruments.
VIP II CONTRAFUND
The VIP II Contrafund Portfolio seeks long-term capital appreciation. The
Adviser normally invests the fund's assets primarily in common stocks. The
Adviser invests the fund's assets in securities of companies whose value the
Adviser believes is not fully recognized by the public. The types of companies
in which the fund may invest include companies experiencing positive fundamental
change such as a new management team or product launch, a significant
cost-cutting intiative, a merger or acquisition, or a reduction in industry
capacity that should lead to improved pricing; companies whose earnings
potential has increased or is expected to increase more than generally
perceived; companies that have enjoyed recent market popularity but which appear
to have temporarily fallen out of favor for reasons that are considered
non-recurring or short-term; and companies that are undervalued in relation to
securities of other companies in the same industry.
VIP II INDEX 500 PORTFOLIO
The VIP II Index 500 Portfolio seeks investment results that correspond to
the total return of common stocks publicly traded in the United States, as
represented by the S&P 500. The Adviser's principal investment strategies
include investing at least 80% of assets in common stocks included in the S&P
500 and lending securities to earn income for the fund.
14
<PAGE>
FOR ADDITIONAL INFORMATION CONCERNING FIDELITY'S VARIABLE INSURANCE PRODUCTS
FUND ("VIP") AND VARIABLE INSURANCE PRODUCTS FUND II ("VIP II") AND THEIR
PORTFOLIOS, PLEASE SEE THE VIP AND VIP II PROSPECTUS, WHICH SHOULD BE READ
CAREFULLY BEFORE INVESTING.
JANUS ASPEN SERIES
FLEXIBLE INCOME PORTFOLIO
The Flexible Income Portfolio is a diversified portfolio that seeks to
maximize total return from a combination of income and capital appreciation by
investing primarily in income-producing securities. This Portfolio may have
substantial holdings of lower rated debt securities or "junk" bonds.
WORLDWIDE GROWTH PORTFOLIO
The Worldwide Growth Portfolio is a diversified portfolio that seeks
long-term growth of capital by investing primarily in common stocks of foreign
and domestic issuers.
FOR ADDITIONAL INFORMATION CONCERNING JANUS ASPEN SERIES FUND AND ITS
PORTFOLIOS, PLEASE SEE THE JANUS ASPEN SERIES FUND PROSPECTUS, WHICH SHOULD BE
READ CAREFULLY BEFORE INVESTING
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 earnings growth
and capital appreciation potential. The PBHG Growth II Portfolio is managed by
Jeffrey A. Wrona.
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
which (1) rely extensively on technology or communications in their product
development or operations; (2) are experiencing exceptional growth in sales and
earnings driven by technology or communications-related products and services;
and (3) are expected to benefit from technological advances and improvement. The
Portfolio is co-managed by Jeffrey Wrona, CFA and Michael S. Hahn, CFA.
FOR ADDITIONAL INFORMATION CONCERNING THE PBHG INSURANCE SERIES FUND, INC. AND
ITS PORTFOLIOS, PLEASE SEE THE PBHG INSURANCE SERIES FUND, INC. PROSPECTUS,
WHICH SHOULD BE READ CAREFULLY BEFORE INVESTING.
SAFECO RESOURCE SERIES TRUST
RST EQUITY PORTFOLIO
The RST Equity Portfolio has as its investment objective to seek long-term
capital and reasonable current income. The Equity Portfolio ordinarily invests
principally in common stocks selected for long-term appreciation and/or dividend
potential.
RST GROWTH PORTFOLIO
The RST Growth Portfolio has as its investment objective to seek growth of
capital and the increased income that ordinarily follows from such growth. The
Growth Portfolio ordinarily invests a preponderance of its assets in common
stocks selected for potential appreciation.
FOR ADDITIONAL INFORMATION CONCERNING SAFECO RESOURCE SERIES TRUST AND ITS
PORTFOLIOS, PLEASE SEE THE SAFECO RESOURCE SERIES TRUST PROSPECTUS, WHICH SHOULD
BE READ CAREFULLY BEFORE INVESTING.
T. ROWE PRICE EQUITY SERIES, INC.
T. ROWE PRICE EQUITY INCOME PORTFOLIO
The T. Rowe Price Equity Income Portfolio seeks to provide substantial
dividend income as well as long-term capital appreciation through investments in
common stocks of established companies.
FOR ADDITIONAL INFORMATION CONCERNING T. ROWE PRICE EQUITY SERIES, INC. AND ITS
PORTFOLIO, PLEASE SEE THE T. ROWE PRICE EQUITY SERIES, INC. PROSPECTUS, WHICH
SHOULD BE READ CAREFULLY BEFORE INVESTING.
THE CONTRACTS
GENERAL
The Contracts are offered for use in connection with non-tax qualified
retirement plans by an individual. The Contracts are also eligible for use in
connection with certain tax qualified retirement plans that meet the
requirements of Sections 401, 403(b), 408 or 408A of the Internal Revenue Code.
Certain Federal tax advantages are currently available to retirement plans that
qualify as (1) self-employed individuals' retirement plans under Section 401,
such as HR-10 Plans, (2) pension or profit-sharing plans established by an
employer for the benefit of its employees under Section 401, (3) Section 403(b)
annuity purchase plans for employees of public schools or a charitable,
educational, or scientific organization described under Section 501(c)(3), and
(4) individual retirement accounts or annuities, including those established by
an employer as a simplified employee pension plan or SIMPLE IRA plan under
Section 408, Roth IRA plan under Section 408A or (5) deferred compensation plans
for employees established by a unit of a state or local government or by a
tax-exempt organization under Section 457
PREMIUMS AND ACCOUNT VALUES DURING THE ACCUMULATION PERIOD
APPLICATION FOR A CONTRACT
Any person or, in the case of Qualified Plans, any qualified organization,
wishing to purchase a Contract must submit an application and an initial premium
to AUL, and provide any other form or information that AUL may require. AUL
reserves the right to reject an application or premium for any reason, subject
to AUL's underwriting standards and guidelines.
PREMIUMS UNDER THE CONTRACTS
Premiums under Flexible Premium Contracts may be made at any time during
the Contract Owner's life and before the Contract's Annuity Date. Premiums for
Flexible Premium Contracts may vary in amount and frequency but each premium
payment must be at least $50. Premiums may not total more than $1 million in
each of the first two contract years. In subsequent Contract Years, premiums may
not exceed $15,000 for non-Qualified contracts or $30,000 for Qualfied
contracts, unless otherwise agreed to by AUL.
For One Year Flexible Premium Contracts, premiums may vary in amount and
frequency except that additional premiums will only be accepted during the first
Contract Year. Each such premium payment must be at least $500; premiums must
total at least $5,000 in the first Contract Year for non-qualified plans and
$2,000 in the first Contract Year for qualified plans, and all premiums combined
may not exceed $1,000,000 unless otherwise agreed to by AUL.
If the minimum premium amounts under Flexible Premium or One Year Flexible
Premium Contracts are not met, AUL may, after 60 days notice, terminate the
Contract and pay an amount equal to the Account Value as of the close of
business on the effective date of termination. AUL may change the
15
<PAGE>
minimum premiums permitted under a Contract, and may waive any minimum required
premium at its discretion.
Annual premiums under any Contract purchased in connection with a Qualified
Plan will be subject to maximum limits imposed by the Internal Revenue Code and
possibly by the terms of the Qualified Plan. See the Statement of Additional
Information for a discussion of these limits or consult the pertinent Qualified
Plan document. Such limits may change without notice.
Initial premiums must be credited to a Contract no later than the end of
the second Business Day after it is received by AUL at its Home Office if it is
preceded or accompanied by a completed application that contains all the
information necessary for issuing the Contract and properly crediting the
premium. If AUL does not receive a complete application, AUL will notify the
applicant that AUL does not have the necessary information to issue a Contract.
If the necessary information is not provided to AUL within five Business Days
after the Business Day on which AUL first receives an initial premium or if AUL
determines it cannot otherwise issue a Contract, AUL will return the initial
premium to the applicant, unless consent is received to retain the initial
premium until the application is made complete.
Subsequent premiums (other than initial premiums) are credited as of the
end of the Valuation Period in which they are received by AUL at its Home
Office.
RIGHT TO EXAMINE PERIOD
The Owner has the right to return the Contract for any reason within the
Right to Examine Period which is a ten day period beginning when the Owner
receives the Contract. If a particular state requires a longer Right to Examine
Period, then eligible Owners in that state will be allowed the longer statutory
period in which to return the Contract. The returned Contract will be deemed
void and AUL will refund the Account Value as of the end of the Valuation Period
in which AUL receives the Contract plus any amounts deducted for premium taxes
and contract expenses. The Contract Owner bears the investment risk during the
period prior to the Company's receipt of request for cancellation. AUL will
refund the premium paid in those states where required by law and for individual
retirement annuities (if returned within seven days of receipt).
ALLOCATION OF PREMIUMS
In the Policy application, you specify the percentage of a Premium to be
allocated to the investment accounts and to the Fixed Account(s). The sum of
your allocations must equal 100%, with at least 1% of each Premium payment
allocated to each 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 available Fixed
Account(s) and the Investment Accounts in accordance with your allocation
instructions on 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.
In those states that require the refund of the greater of premiums paid or
Account Value, we generally allocate all premiums received 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 available Fixed Account(s) and the Investment Accounts
of the Separate Account in accordance with your allocation instructions prior to
the expiration of the "right to examine" period. At the end of the Right to
Examine period, we transfer the Net Premium and interest to the Fixed Account(s)
and the Investment Accounts based on the percentages you have selected in the
application. For purposes of determining the end of the right to examine period,
solely as it applies to this transfer, we assume that receipt of this Policy
occurs 5 days after the Contract Date.
TRANSFERS OF ACCOUNT VALUE
All or part of an Owner's Account Value may be transferred among the
Investment Accounts of the Variable Account or to the Fixed Account at any time
during the Accumulation Period upon receipt of Proper Notice by AUL at its Home
Office. Transfers may be made by telephone if a Telephone Authorization Form has
been properly completed and received by AUL at its Home Office. The minimum
amount that may be transferred from any one Investment Account is $500 or, if
less than $500, the Owner's remaining Account Value in the Investment Account,
provided however, that amounts transferred from the Fixed Account to an
Investment Account during any given Contract Year cannot exceed 20% of the
Owner's Fixed Account Value as of the beginning of that Contract Year. If, after
any transfer, the Owner's remaining Account Value in an Investment Account or in
the Fixed Account would be less than $500, then such request will be treated as
a request for a transfer of the entire Account Value. Currently, there are no
limitations on the number of transfers between Investment Accounts available
under a Contract or the Fixed Account. In addition, no charges are currently
imposed upon transfers. AUL reserves the right, however, at a future date, to
change the limitation on the minimum transfer, to assess transfer charges, to
change the limit on remaining balances, to limit the number and frequency of
transfers, and to suspend the transfer privilege or the telephone transfer
authorization. Any transfer from an Investment Account of the Variable Account
shall be effected as of the end of the Valuation Date in which AUL receives the
request in proper form. AUL has established procedures to confirm that
instructions communicated by telephone are genuine, which include the use of
personal identification numbers and recorded telephone calls. Neither AUL nor
its agents, will be liable for acting upon instructions believed by AUL or its
agents to be genuine, provided AUL has complied with its procedures.
Part of a Contract Owner's Fixed Account Value may be transferred to one or
more Investment Accounts of the Variable Account during the Accumulation Period
subject to certain limitations as described in "The Fixed Account."
DOLLAR COST AVERAGING PROGRAM
Owners who wish to purchase units of an Investment Account over a period of
time may do so through the Dollar Cost Averaging ("DCA") Program. The theory of
dollar cost averaging is that greater numbers of Accumulation Units are
purchased at times when the unit prices are relatively low than are purchased
when the prices are higher. This has the effect, when purchases are made at
different prices, of reducing the aggregate average cost per Accumulation Unit
to less than the average of the Accumulation Unit prices on the same purchase
dates. However, participation in the Dollar Cost Averaging Program does not
assure a Contract Owner of greater profits from the purchases under the Program,
nor will it prevent or necessarily alleviate losses in a declining market.
For example, assume that a Contract Owner requests that $1,000 per month be
transferred from the Money Market Investment Account to the AUL American Equity
Investment
16
<PAGE>
Account. The following table illustrates the effect of dollar cost averaging
over a six month period.
<TABLE>
<CAPTION>
Transfer Unit Units
Month Amount Value Purchased
----- ------ ----- ---------
<S> <C> <C> <C>
1 $1,000 $20 50
2 $1,000 $25 40
3 $1,000 $30 33.333
4 $1,000 $40 25
5 $1,000 $35 28.571
6 $1,000 $30 33.333
</TABLE>
The average price per unit for these purchases is the sum of the prices ($180)
divided by the number of monthly transfers (6) or $30. The average cost per
Accumulation Unit for these purchases is the total amount transferred ($6,000)
divided by the total number of Accumulation Units purchased (210.237) or $28.54.
THIS TABLE IS FOR ILLUSTRATIVE PURPOSES ONLY AND IS NOT REPRESENTATIVE OF FUTURE
RESULTS.
Initial Dollar Cost Averaging Program
Under the Initial DCA Program, the owner deposits premiums into the
Enhanced Averaging Fixed Account and authorizes AUL to transfer an amount that
is recalculated on a monthly basis from the Enhanced Averaging Fixed Account
into one or more Investment Accounts. These transfers will continue
automatically over a 12 month period. To participate in the Program, a minimum
deposit of $10,000 into the Enhanced Averaging Fixed Account is required.
Transfers to any of the Fixed Account(s) are not permitted under the
Initial Dollar Cost Averaging Program. AUL offers the Initial Dollar Cost
Averaging Program to Contract Owners at no charge, and the Company reserves the
right to temporarily discontinue, terminate, or change the Program at any time.
Contract Owners may discontinue participation in the Program at any time by
providing Proper Notice to AUL. AUL must receive Proper Notice of such a change
at least five days before a previously scheduled transfer is to occur.
Contract Owners may only elect to participate in the Initial DCA Program
within the first contract year. The Program will take effect on the first
monthly transfer date following the premium receipt by AUL at its Home Office.
The Contract Owner may select the particular day of the month that the transfers
are to be made. Transfers will be performed on such day, provided that such day
is a Valuation Date. If the date selected is not a Valuation Date, then the
transfer will be made on the next Valuation Date.
Ongoing Dollar Cost Averaging (DCA) Program
Under the Ongoing DCA Program, the owner deposits premiums into the AUL
American Money Market Investment Account and then authorizes AUL to transfer a
specific dollar amount from the Money Market Investment Account into one or more
other Investment Accounts at the unit values determined on the dates of the
transfers. This may be done monthly, quarterly, semi-annually, or annually.
These transfers will continue automatically until AUL receives notice to
discontinue the Program, or until there is not enough money in the Money Market
Investment Account to continue the Program, whichever occurs first.
Currently, the minimum required amount of each transfer is $500, although
AUL reserves the right to change this minimum transfer amount in the future.
Transfers to any of the Fixed Accounts are not permitted under the Ongoing DCA
Program. At least ten days advance written notice to AUL is required before the
date of the first proposed transfer under the Ongoing DCA Program. AUL offers
the Ongoing Dollar Cost Averaging Program to Contract Owners at no charge and
the Company reserves the right to temporarily discontinue, terminate, or change
the Program at any time. Contract Owners may change the frequency of scheduled
transfers, or may increase or decrease the amount of scheduled transfers, or may
discontinue participation in the Program at any time by providing written notice
to AUL, provided that AUL must receive written notice of such a change at least
five days before a previously scheduled transfer is to occur.
Contract Owners may initially elect to participate in the Ongoing DCA
Program, and if this election is made at the time the Contract is applied for,
the Program will take effect on the first monthly, quarterly, semi-annual, or
annual transfer date following the premium receipt by AUL at its Home Office.
The Contract Owner may select the particular date of the month, quarter, or year
that the transfers are to be made and such transfers will automatically be
performed on such date, provided that such date selected is a day that AUL is
open for business and provided further that such date is a Valuation Date. If
the date selected is not a Business Day or is not a Valuation Date, then the
transfer will be made on the next succeeding Valuation Date.
Portfolio Rebalancing Program
You may elect to automatically adjust your Investment Account balances to
be consistent with the allocation most recently requested. This will be done on
a monthly, quarterly or annual basis from the date on which the Portfolio
Rebalancing Program commences. If the Dollar Cost Averaging program has been
elected, the Portfolio Rebalancing Program will not commence until the date
following the termination of the Dollar Cost Averaging Program.
You may elect this plan at any time. 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.
CONTRACT OWNER'S VARIABLE ACCOUNT VALUE
ACCUMULATION UNITS
Premiums allocated to the Investment Accounts available under a Contract
are credited to the Contract in the form of Accumulation Units. The number of
Accumulation Units to be credited is determined by dividing the dollar amount
allocated to the particular Investment Account by the Accumulation Unit value
for the particular Investment Account as of the end of the Valuation Period in
which the premium is credited. The number of Accumulation Units so credited to
the Contract shall not be changed by a subsequent change in the value of an
Accumulation Unit, but the dollar value of an Accumulation Unit may vary from
Valuation Date to Valuation Date depending upon the investment experience of the
Investment Account and charges against the Investment Account.
Accumulation Unit Value
AUL determines the Accumulation Unit value for each Investment Account of
the Variable Account on each Valuation Date. The Accumulation Unit value for
each Investment Account was initially set at one dollar $1 for the Money Market
Investment Account and $5 for all other Investment Accounts. Subsequently, on
each Valuation Date, the Accumulation Unit value for each Investment Account is
determined by multiplying the Net Investment Factor determined as of the end of
the Valuation Date for the particular Investment Account by the Accumulation
Unit value for the Investment Account as of the immediately preceding Valuation
Period. The Accumulation Unit value for each Investment Account may increase,
decrease, or remain the same from Valuation Period to Valuation Period in
accordance with the Net Investment Factor.
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 for a Valuation Period,
the Net Investment Factor is determined by dividing (a) by (b) where:
(a) is equal to:
(1) the net asset value per share of the Fund in which the Investment
Account invests, determined as of the end of the Valuation Period, plus
(2) the per share amount of any dividend or other distribution, if any,
paid by the Fund during the Valuation Period, plus or minus
(3) a credit or charge with respect to taxes if any, paid or reserved for
AUL during the Valuation Period that are determined by AUL to be attributable to
the operation of the Investment Account (although no Federal income taxes are
applicable under present law and no such charge is currently assessed);
(b) is the net asset value per share of the Fund determined as of the end
of the preceding Valuation Period.
17
<PAGE>
CHARGES AND DEDUCTIONS
Premium Tax Charge
Various states and municipalities impose a tax on premiums received by
insurance companies. Whether or not a premium tax is imposed will depend upon,
among other things, the Owner's state of residence, the Annuitant's state of
residence, the insurance tax laws, and AUL's status in a particular state. AUL
assesses a premium tax charge to reimburse itself for premium taxes that it
incurs. This charge will be deducted as premium taxes are incurred by AUL, which
is usually when an annuity is effected. Premium tax rates currently range from
0% to 3.5%, but are subject to change.
Withdrawal Charge
No deduction for sales charges is made from premiums for a Contract.
However, if a cash withdrawal is made or the Contract is surrendered by the
Owner, then depending on the type of Contract, a withdrawal charge (which may
also be referred to as a contingent deferred sales charge), may be assessed by
AUL on the amount withdrawn if the Contract is within the withdrawal charge
period. The withdrawal charge period varies depending upon whether the Contract
is a Flexible Premium Contract or a One Year Flexible Premium Contract. An
amount withdrawn during a Contract Year referred to as the Free Withdrawal
Amount will not be subject to an otherwise applicable withdrawal charge. The
Free Withdrawal Amount is 12% of Account Value at the beginning of the Contract
Year in which the withdrawal is being made. Any transfer of Account Value from
the non-MVA Fixed Account to the Variable Account will reduce the Free
Withdrawal Amount by the amount transferred.
The chart below illustrates the amount of the withdrawal charge that
applies to the Contracts based on the number of years that the Contract has been
in existence.
<TABLE>
<CAPTION>
Charge on Withdrawal Exceeding 12% Free Withdrawal Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<C> <C>
Contract Year 1 2 3 4 5 6 7 8 9
10 11 or more
Flexible Premium
Contracts 10% 9% 8% 7% 6% 5% 4% 3% 2%
1% 0%
One Year Flexible
Premium Contracts 7% 6% 5% 4% 3% 2% 1% 0% 0%
0% 0%
</TABLE>
<PAGE>
20
In no event will the amount of any withdrawal charge, when added to any
withdrawal charges previously assessed against any amount withdrawn from a
Contract, exceed 8.5% of the total premiums paid on a Flexible Premium Contract
or 8% of the total premiums paid on a One Year Flexible Premium Contract. In
addition, no withdrawal charge will be imposed upon payment of Death Proceeds
under the Contract.
A withdrawal charge may be assessed upon annuitization of a Contract. No
withdrawal charge will apply if a life annuity or survivorship annuity option is
selected or if the Contract is in its fifth Contract Year or later and a fixed
income option for a period of 10 or more years is chosen. Otherwise the
withdrawal charge will apply. A withdrawal may result in taxable income to the j
Contract Owner.
The withdrawal charge will be used to recover certain expenses relating to
sales of the Contracts, including commissions paid to sales personnel and other
promotional costs. AUL reserves the right to increase or decrease the withdrawal
charge for any Contracts established on or after the effective date of the
change, but the withdrawal charge will not exceed 8.5% of the total premiums
paid on a Flexible Premium Contract or 8% of the total premiums paid on a One
Year Flexible Premium Contract.
Mortality and Expense Risk Charge
AUL deducts a monthly charge from the Investment Accounts pro rata based on
your amounts in each account. Refer to the Expense Table for current charges.
This amount is intended to compensate AUL for certain mortality and expense
risks AUL assumes in offering and administering the Contracts and in operating
the Variable Account.
The expense risk is the risk that AUL's actual expenses in issuing and
administering the Contracts and operating the Variable Account will be more than
the charges assessed for such expenses. The mortality risk borne by AUL is the
risk that the Annuitants, as a group, will live longer than the AUL's actuarial
tables predict. AUL may ultimately realize a profit from this charge to the
extent it is not needed to address mortality and administrative expenses, but
AUL may realize a loss to the extent the charge is not sufficient. AUL may use
any profit derived from this charge for any lawful purpose, including any
distribution expenses not covered by the withdrawal charge.
Annual Contract Fee
AUL deducts an annual contract fee from each Owner's Account Value equal to
the lesser of 2.0% of the Account Value or $30 a year. The fee is assessed every
year on a Contract if the Contract is in effect on the Contract Anniversary, and
is assessed only during the Accumulation Period. The Annual Contract Fee is
waived on each Contract Anniversary when the Account Value, at the time the
charge would otherwise have been imposed, exceeds $50,000. When a Contract Owner
annuitizes or surrenders on any day other than a Contract Anniversary, a pro
rata portion of the charge for that portion of the year will not be assessed.
The charge is deducted proportionately from the Account Value allocated among
the Investment Accounts and the Fixed Account(s). The purpose of this fee is to
reimburse AUL for the expenses associated with administration of the Contracts
and operation of the Variable Account. AUL does not expect to profit from this
fee.
Rider Charges
The addition of any riders will result in additional charges which will be
deducted proportionately from the Account Value allocated among the Investment
Accounts and the Fixed Account(s).
Other Charges
AUL may charge the Investment Accounts of the Variable Account for the
federal, state, or local income taxes incurred by AUL that are attributable to
the Variable Account and its Investment Accounts. No such charge is currently
assessed.
Variations in Charges
AUL may reduce or waive the amount of the withdrawal charge and annual
contract fee for a Contract where the expenses associated with the sale of the
Contract or the administrative costs associated with the Contract are reduced.
For example, the withdrawal and/or annual contract fee may be reduced in
connection with acquisition of the Contract in exchange for another annuity
contract issued by AUL. AUL may also reduce or waive the withdrawal charge and
annual contract fee on Contracts sold to the directors or employees of AUL or
any of its affiliates or to directors or any employees of any of the Funds.
Guarantee of Certain Charges
AUL guarantees that the mortality and expense risk charge shall not
increase.
Expenses of the Funds
Each Investment Account of the Variable Account purchases shares at the net
asset value of the corresponding Fund. The net asset value reflects the
investment advisory fee and other expenses that are deducted from the assets of
the Fund. The advisory fees and other expenses are not fixed or specified under
the terms of the Contract and are described in the Funds' Prospectuses.
DISTRIBUTIONS
Cash Withdrawals
During the lifetime of the Annuitant, at any time before the Annuity Date
and subject to the limitations under any applicable Qualified Plan and
applicable law, a Contract may be surrendered or a partial withdrawal may be
taken from a Contract. A surrender or withdrawal request will be effective as of
the end of the Valuation Date that a Proper Notice is received by AUL at its
Home Office.
If we receive a full surrender request, we will pay the Owner' Account
Value as of the end of the Valuation Period, plus any positive or negative
market value adjustment on the amounts allocated to the MVA Fixed Accounts minus
any applicable withdrawal charge.
A partial withdrawal may be requested for a specified percentage or dollar
amount of an Owner's Account Value. Upon payment, the Owner's Account Value will
be reduced by an amount equal to the payment, plus any positive or negative
market value adjustment on the amounts withdrawn from the MVA Fixed Accounts,
and any applicable withdrawal charge. We reserve the right to treat requests for
a partial withdrawal that would leave an Account Value of less than $5,000 as a
request for a full surrender. AUL may change or waive this provision at its
discretion. The minimum amount that may be withdrawn from a Contract Owner's
Account Value is $200 for Flexible Premium Contracts and $500 for One Year
Flexible Premium Contracts. In addition, Contracts issued in connection with
certain retirement programs may be subject to constraints on withdrawals and
full surrenders.
The amount of a partial withdrawal will be taken from the Investment
Accounts and the Fixed Account(s) as instructed. If the Owner does not specify,
withdrawals will be made in proportion to the Owner's Account Value in the
various Investment Accounts and the Fixed Account(s). A partial withdrawal will
not be effected until Proper Notice is received by AUL at its Home Office.
In addition to any withdrawal charges or applicable market value
adjustments, a surrender or a partial withdrawal may be subject to a premium tax
charge for any tax on premiums that may be imposed by various states and
municipalities. See "Premium Tax Charge." A surrender or withdrawal may result
in taxable income and in some cases a tax penalty. See "Tax Penalty." Owners of
Contracts used in connection with a Qualified Plan should refer to the terms of
the applicable Qualified Plan for any limitations or restrictions on cash
withdrawals. The tax consequences of a surrender or withdrawal under the
Contracts should be carefully considered. See "Federal Tax Matters."
Loan Privileges
Loan privileges are only available on Contracts qualified under 403(b).
Prior to the Annuitization Date, the Owner of a Contract qualified under 403(b)
may receive a loan from the Account Value subject to the terms of the Contract,
the specific 403(b) plan, and the Internal Revenue Code, which may impose
restrictions on loans.
Loans from a 403(b) qualified Contract are available beginning 30 days
after the Issue Date. The Contract Owner may borrow a minimum of $1,000. Loans
may only be secured by the Account Value. In non-ERISA plans, for Account Values
up to $20,000, the maximum loan balance which may be outstanding at any time is
80% of the Account Value, but not more than $10,000. If the Account Value is
$20,000 or more, the maximum loan balance which may be outstanding at any time
is 40% of the Account Value, but not more than $50,000. For ERISA plans, the
maximum loan balance which may be outstanding at any time is 50% of the Account
Value, but not more than $50,000. The $50,000 limit will be reduced by the
highest loan balances owed during the prior one-year period. Additional loans
are subject to the contract minimum amount. The aggregate of all loans may not
exceed the Account Value limitations stated above.
All loans are made from the Loan Account. An amount equal to the principal
amount of the loan will be 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(s) (subject to any applicable market value
adjustment) in the same proportion that the Account Value in each Investment
Account and the Fixed Account(s) bears to the total Account Value in those
accounts on the date the loan is made.
AUL will charge interest on any outstanding loan at an annual rate of 5%.
Interest is due and payable on each Contract 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. Due and unpaid interest will be
transferred each Contract Anniversary from each Investment Account and the Fixed
Account(s) to the Loan Account in the same proportion that each Investment
Account value and the Fixed Account(s) bears to the total unloaned Account
Value. The amount we transfer will be the amount by which the interest due
exceeds the interest which has been credited on the Loan Account.
The Loan Account will be credited with interest daily at an effective
annual rate of not less than 3.0%. Thus the maximum net cost of a loan is 2.0%
per year (the net cost of a loan is the difference between the rate of interest
charged on indebtedness and the amount credited to the Loan Account). Beginning
in the eleventh Policy Year, the amount in the Loan Account securing the loan
will be credited with interest at an effective annual rate in excess of the
minimum guaranteed rate of 3.0% (currently 4.0%). Thus, the current net cost of
the loan would be 1.0% per year. Any interest credited in excess of the minimum
guaranteed rate is not guaranteed.
Loans must be repaid in substantially level payments, not less frequently
than quarterly, within five years. Loans used to purchase the principal
residence of the Contract Owner may be repaid within 15 years. Loan repayments
will be processed in the same manner as a Premium Payment. A loan repayment must
be clearly marked as "loan repayment" or it will be credited as a premium.
If the Contract is surrendered while the loan is outstanding, the Cash
Value will be reduced by the amount of the loan outstanding plus accrued
interest. If the Contract Owner/Annuitant dies while the loan is outstanding,
the Death Benefit will be reduced by the amount of the outstanding loan plus
accrued interest. If annuity payments start while the loan is outstanding, the
Account Value will be reduced by the amount of the outstanding loan plus accrued
interest. Until the loan is repaid, the Company reserves the right to restrict
any transfer of the Contract which would otherwise qualify as a transfer as
permitted in the Internal Revenue Code.
If a loan payment is not made when due, interest will continue to accrue.
If a loan payment is not made when due, the entire loan will be treated as a
deemed Distribution, may be taxable to the borrower, and may be subject to a tax
penalty. Interest which subsequently accrues on defaulted amounts may also be
treated as additional deemed Distributions each year. Any defaulted amounts,
plus accrued interest, will be deducted from the Contract when the participant
becomes eligible for a Distribution of at least that amount, and this amount may
again be treated as a Distribution where required by law. Additional loans may
not be available while a previous loan remains in default.
The Company reserves the right to modify the term or procedures if there is
a change in applicable law. The Company also reserves the right to assess a loan
processing fee.
Loans may also be subject to additional limitations or restrictions under
the terms of the employer's plan. Loans permitted under this Contract may still
be taxable in whole or part if the participant has additional loans from other
plans or contracts.
Death Proceeds Payment Provisions
The value of the Death Proceeds will be determined as of the end of the
Valuation Period in which due proof of death and instructions regarding payment
are received by AUL at its Home Office.
At the time of application, Contract Owners may select one of two death
benefits available under the Contract as listed below (the enhanced death
benefit option rider may not be available in all states at the time of
application)
If no selection is made at the time of application, the Death Benefit will
be the Standard Contractual Death Benefit.
Standard Contractual Death Benefit
The Death Proceeds under the Standard Contractual Death Benefit are equal
to the greater of:
1) the Account Value less any outstanding loan and accrued interest
2) the total of all Premiums paid less an adjustment for amounts previously
surrendered and less any outstanding loan and accrued interest.
Enhanced One Year Step Up Death Benefit Rider
The Death Proceeds under the Enhanced One Year Step Up Death Benefit Rider
are equal to the greatest of:
1) the Account Value less any outstanding loan and accrued interest
2) the total of all Premiums paid less an adjustment for amounts previously
surrendered and less any outstanding loan and accrued interest.
3) the highest Account Value on any Contract Anniversary before the
Annuitant's 86th birthday, less an adjustment for amounts previously
surrendered, plus Premiums paid less any outstanding loan and accrued interest
after the last Contract Anniversary.
Death of the Owner
If the Contract Owner dies before the Annuity Date and the Beneficiary is
not the Contract Owner's surviving spouse, the Death Proceeds will be paid to
the Beneficiary. Such Death Proceeds will be paid in a lump-sum, unless the
Beneficiary elects to have this value applied under a settlement option. If a
settlement option is elected, the Beneficiary must be named the Annuitant and
payments must begin within one year of the Contract Owner's death. The option
also must have payments which are payable over the life of the Beneficiary or
over a period which does not extend beyond the life expectancy of the
Beneficiary.
<PAGE>
19
If the Contract Owner dies before the Annuity Date and the Beneficiary is
the Contract Owner's surviving spouse, the surviving spouse will become the new
Contract Owner. The Contract will continue with its terms unchanged and the
Contract Owner's spouse will assume all rights as Contract Owner. Within 120
days of the original Contract Owner's death, the Contract Owner's spouse may
elect to receive the Death Proceeds or withdraw any of the Account Value
without any early withdrawal charge. However, depending upon the circumstances,
a tax penalty may be imposed upon such a withdrawal.
Any amount payable under a Contract will not be less than the minimum
required by the law of the state where the Contract is delivered.
Death of the Annuitant
If the Annuitant dies before the Annuity Date and the Annuitant is not also
the Contract Owner, then: (1) if the Contract Owner is not an individual, the
Death Proceeds will be paid to the Contract Owner in a lump-sum; or (2) if the
Contract Owner is an individual, a new Annuitant may be named and the Contract
will continue. If a new Annuitant is not named within 120 days of the
Annuitant's death, the Account Value, less any withdrawal charges, will be paid
to the Contract Owner in a lump-sum.
The death benefit will be paid to the Beneficiary or Contract Owner, as
appropriate, in a single sum or under one of the Annuity Options, as directed by
the Contract Owner or as elected by the Beneficiary. If the Beneficiary is to
receive annuity payments under an Annuity Option, there may be limits under
applicable law on the amount and duration of payments that the Beneficiary may
receive, and requirements respecting timing of payments. A tax adviser should be
consulted in considering payout options.
Payments from the Variable Account
Payment of an amount from the Variable Account resulting from a surrender,
partial withdrawal, transfer from an Owner's Account Value allocated to the
Variable Account, or payment of the Death Proceeds, normally will be made within
seven days from the date Proper Notice is received at AUL's Home Office.
However, AUL can postpone the calculation or payment of such an amount to the
extent permitted under applicable law, which is currently permissible for any
period: (a) during which the New York Stock Exchange is closed other than
customary weekend and holiday closings; (b) during which trading on the New York
Stock Exchange is restricted, as determined by the SEC; (c) during which an
emergency, as determined by the SEC, exists as a result of which (i) disposal of
securities held by the Variable Account is not reasonably practicable, or (ii)
it is not reasonably practicable to determine the value of the assets of the
Variable Account; or (d) for such other periods as the SEC may by order permit
for the protection of investors. For information concerning payment of an amount
from the Fixed Account(s), see "The Fixed Account(s)."
Annuity Period
General
On the Annuity Date, the adjusted value of the Owner's Account Value may be
applied to provide an annuity option on a fixed or variable basis, or a
combination thereof. No withdrawal charge will apply if a life annuity or
survivorship annuity option is selected or if the Contract is in its fifth
Contract Year or later and a fixed income option for a period of 10 or more
years is chosen. Otherwise, Contract Proceeds are equal to the Account Value
less any applicable early withdrawal penalty.
The Annuity Date is the date chosen for annuity payments to begin. Such
date will be the first day of a calendar month unless otherwise agreed upon by
us. During the Accumulation Period, the Contract Owner may change the Annuity
Date subject to approval by us.
Annuitization is irrevocable once payments have begun. When you annuitize,
you must choose:
1. An annuity payout option, and
2. Either a fixed payment annuity, variable payment annuity, or any
available combination.
A Contract Owner may designate an Annuity Date, Annuity Option, contingent
Annuitant, and Beneficiary on an Annuity Election Form that must be received by
AUL at its Home Office prior to the Annuity Date. AUL may also require
additional information before annuity payments commence. If the Contract Owner
is an individual, the Annuitant may be changed at any time prior to the Annuity
Date. The Annuitant must also be an individual and must be the Contract Owner,
or someone chosen from among the Contract Owner's spouse, parents, brothers,
sisters, and children. Any other choice requires AUL's consent. If the Contract
Owner is not an individual, a change in the Annuitant will not be permitted
without AUL's consent. The Beneficiary, if any, may be changed at any time and
the Annuity Date and the Annuity Option may also be changed at any time prior to
the Annuity Date. For Contracts used in connection with a Qualified Plan,
reference should be made to the terms of the Qualified Plan for pertinent
limitations regarding annuity dates and options.
Fixed Payment Annuity
The payment amount under a Fixed Payment Annuity option will be determined
by applying the selected portion of the Contract Proceeds to the Fixed Payment
Annuity table then in effect, after deducting applicable premium taxes. The
annuity payments are based upon annuity rates that vary with the Annuity Option
selected and the age of the Annuitant, except that in the case of Option 1,
Income for a Fixed Period, age is not a consideration. Payments under the Fixed
Payment Annuity are guaranteed as to dollar amount for the duration of the
Annuity Period.
Variable Payment Annuity
The first payment amount under a Variable Payment Annuity option is set at
the first valuation date after the Annuity Date by applying the selected portion
of the Contract Proceeds to the Variable Payment Annuity table you select, after
deducting applicable premium taxes. Payments under the Variable Payment Annuity
option will vary depending on the performance of the underlying Investment
Accounts. The dollar amount of each variable payment may be higher or lower than
the previous payment.
1. Annuity Units and Payment Amount - The dollar amount of the first
payment is divided by the value of an Annuity Unit as of the Annuity Date
to establish the number of Annuity Units representing each annuity payment.
The number of Annuity Units established remains fixed during the annuity
payment period. The dollar amount of subsequent annuity payments is
determined by multiplying the fixed number of Annuity Units by the Annuity
Unit Value for the Valuation Period in which the payment is due.
2. Assumed Investment Rate - The Assumed Investment Rate (AIR) is the
investment rate built into the Variable Payment Annuity table used to
determine your first annuity payment. You may select an AIR from 3%, 4% or
5% when you annuitize. A higher AIR means you would receive a higher
initial payment, but subsequent payments would rise more slowly or fall
more rapidly. A lower AIR has the opposite effect. If actual investment
experience equals the AIR you choose, annuity payments will remain level.
3. Value of an Annuity Unit - The value of an Annuity Unit for an
Investment Account for any subsequent Valuation Period is determined by
multiplying the Annuity Unit Value for the immediately preceding Valuation
Period by the Net Investment Factor for the Valuation Period for which the
Annuity Unit Value is being calculated, and multiplying the result by an
interest factor to neutralize the AIR built into the Variable Payment
Annuity table which you selected.
4. Transfers - During the Annuity Period, transfers between Investment
Accounts must be made in writing. We reserve the right to restrict
transfers to no more frequently than once a year. Currently, there are no
restrictions. Transfers will take place on the anniversary of the Annuity
Date unless otherwise agreed to by us.
Payment Options
All or any part of the proceeds paid at death or upon full surrender of
this Contract may be paid in one sum or according to one of the following
options:
1. Income for a Fixed Period. Proceeds are payable in monthly installments
for a specified number of years, not to exceed 20.
2. Life Annuity. Proceeds are payable in 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.
3. Survivorship Annuity. Proceeds are payable in monthly installments for
as long as either the first payee or surviving payee lives.
The Contract Proceeds may be paid in any other method or frequency of
payment acceptable by us.
Contract 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.
Selection of an Option
Contract Owners should carefully review the Annuity Options with their
financial or tax advisers. For Contracts used in connection with a Qualified
Plan, the terms of the applicable Qualified Plan should be referenced for
pertinent limitations respecting the form of annuity payments, the commencement
of distributions, and other matters. For instance, annuity payments under a
Qualified Plan generally must begin no later than April 1 of the calendar year
following the calendar year in which the Contract Owner reaches age 70 1/2 if
the Par-
<PAGE>
22
ticipant is no longer employed. For Option 1, Income for a Fixed Period,
the period elected for receipt of annuity payments under the terms of the
Annuity Option generally may be no longer than the joint life expectancy of the
Annuitant and Beneficiary in the year that the Annuitant reaches age 70 1/2 and
must be shorter than such joint life expectancy if the Beneficiary is not the
Annuitant's spouse and is more than 10 years younger than the Annuitant. Under
Option 3, Survivorship Annuity, if the contingent Annuitant is not the
Annuitant's spouse and is more than 10 years younger than the Annuitant, the
100% election specified above may not be available.
THE FIXED ACCOUNT(S)
Summary of Fixed Accounts
Premiums designated to accumulate on a fixed basis may be allocated to one
of several Fixed Accounts which are part of AUL's General Account. Either Market
Value Adjusted (MVA) Fixed Account(s) or a non-MVA fixed account will be
available under the contract. The MVA Fixed Account(s) may not be available in
all states. An Enhanced Averaging Fixed Account will be available in all states
in conjunction with the Dollar Cost Averaging program.
Contributions or transfers to the Fixed Account(s) become part of AUL's
General Account. The General Account is subject to regulation and supervision by
the Indiana Insurance Department as well as the insurance laws and regulations
of other jurisdictions in which the Contracts are distributed. In reliance on
certain exemptive and exclusionary provisions, interests in the Fixed Account(s)
have not been registered as securities under the Securities Act of 1933 (the
"1933 Act") and the Fixed Account(s) has not been registered as an investment
company under the 1940 Act. Accordingly, neither the Fixed Account(s) nor any
interests therein are generally subject to the provisions of the 1933 Act or the
1940 Act. AUL has been advised that the staff of the SEC has not reviewed the
disclosure in this Prospectus relating to the Fixed Account(s). This disclosure,
however, may be subject to certain generally applicable provisions of the
federal securities laws relating to the accuracy and completeness of statements
made in the Prospectus. This Prospectus is generally intended to serve as a
disclosure document only for aspects of a Contract involving the Variable
Account and contains only selected information regarding the Fixed Account(s).
For more information regarding the Fixed Account(s), see the Contract itself.
Non-Market Value Adjusted Fixed Account
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 Contract 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 non-MVA Fixed Account(s) values and for
paying interest at the Current Rate on amounts allocated to the non-MVA Fixed
Account(s).
Market Value Adjusted Fixed Account
Market Value Adjusted Fixed Accounts provide a guaranteed rate of interest
over five different Guaranteed Periods: one (1), three (3), five (5), seven (7)
or ten (10) years. A guaranteed interest rate, determined and declared by the
Company for any Guaranteed Period selected, will be credited unless a
distribution from the Market Value Adjusted Fixed Account occurs for any reason.
The minimum amount of any allocation made to a Market Value Adjusted Fixed
Account must be $1,000. MARKET VALUE ADJUSTED FIXED ACCOUNTS MAY NOT BE
AVAILABLE IN EVERY STATE JURISDICTION.
Generally, the market value adjustment will increase or decrease the value
of distributed proceeds depending on how prevailing interest rates compare to
the market value adjusted option rates in effect. When prevailing rates are
lower than the market value adjusted option rate in effect for the Guarantee
Period elected, distribution proceeds will increase in value. Conversely, when
prevailing rates are higher than the Market Value Adjusted option rate in effect
for the Guaranteed Period elected, distribution proceeds will decrease in value.
In no event will the adjustment reduce the Cash Value attributable to that MVA
Fixed Account below that necessary to satisfy statutory nonforfeiture
requirements.The effect of a market value adjustment should be carefully
considered before electing to surrender allocations in a Market Value Adjusted
Fixed Account.
During the MVA Free Window, you may transfer or withdraw amounts from MVA
Fixed Accounts with expiring Guarantee Periods without Market Value Adjustment.
The MVA Free Window is currently set at 30 days prior to the end of the maturity
duration selected. We reserve the right to change the MVA Free Window. Such
amounts may be transferred to the Investment Accounts or reinvested in different
MVA Fixed Accounts for different Guarantee Periods. If you take no such action,
the amount available at the end of the Guarantee Period will be remain in the
MVA Fixed Account and a new Guarantee Period will apply. We will notify you of
the interest rate declared on any such reinvestment.
Market Value Adjusted Fixed Accounts are available during the accumulation
phase of a Contract only and are not available as fixed accounts during the
annuitization phase of a Contract. In addition, Market Value Adjusted Fixed
Accounts are not available for use in conjunction with Contract Owner services
such as dollar cost averaging and portfolio rebalancing.
Enhanced Averaging Fixed Account
Initial and subsequent premiums in the first year may be allocated to the
Enhanced Averaging Fixed Account. Premiums deposited into this account must be
transferred to other Investment Accounts within one year after the deposit.
Amounts transferred out of the Enhanced Averaging Fixed Account will be
recalculated each month to assure account depletion within one year. Amounts
allocated to the Enhanced Averaging Fixed Account earn interest at rates
periodically determined by AUL that are guaranteed to be at least an effective
annual rate of 3%. Any current rate that exceeds the guaranteed rate will be
effective for the contract for a period of at least one year. The Enhanced
Averaging Fixed Account is only available at issue and requires an initial
deposit of $10,000 therein.
Withdrawals
A Contract Owner may make a full surrender or a partial withdrawal from his
or her Fixed Account Value subject to the provisions of the Contract. A full
surrender of a Contract Owner's Fixed Account Value will result in a withdrawal
payment equal to the value of the Contract Owner's Fixed Account Value as of the
day the surrender is effected, minus any applicable withdrawal charge and
applicable market value adjustment. A partial withdrawal may be requested for a
specified percentage or dollar amount of the Contract Owner's Fixed Account
Value. For a further discussion of surrenders and partial withdrawals as
generally applicable to a Contract Owner's Variable Account Value and Fixed
Account Value, see "Cash Withdrawals."
Transfers
The Contract Owner's Fixed Account Values may be transferred from the Fixed
Account(s) to the Variable Account subject to certain limitations. The minimum
amount that may be transferred from a Fixed Account is $500 or, if that Fixed
Account Value is less than $500 after the transfer, the Contract Owner's
remaining Account Value in that Fixed Account. If the amount remaining in a
Fixed Account after a transfer would be less than $500, the remaining amount
will be transferred with the amount that has been requested.
The maximum amount that may be transferred in any one Contract Year from a
non-MVA Fixed Account is the lesser of 20% of that non-MVA Fixed Account Value
as of the last Contract Anniversary or the entire non-MVA Fixed Account Value if
it would be less than $500 after the transfer. Any transfer of Account Value
from the non-MVA Fixed Account to the Variable Account will reduce the Free
Withdrawal Amount by the amount transferred. Transfers and withdrawals of a
Contract Owner's non-MVA Fixed Account Value will be effected on a last-in
first-out basis.
Transfers from MVA Fixed Accounts may be subject to market value
adjustment. Transfers from MVA Fixed Accounts to the Variable Account are not
subject to the 20% Fixed Account transfer limitation and do not reduce the Free
Withdrawal Amount. Transfers and withdrawals of a Contract Owner's MVA Fixed
Account Value will be made from the Guarantee Periods you have indicated.
For a discussion of transfers as generally applicable to a Contract Owner's
Variable Account Value and Fixed Account Value, see "Transfers of Account
Value."
Contract Charges
The withdrawal charge will be the same for amounts surrendered or withdrawn
from a Contract Owner's Fixed Account Values as for amounts surrendered or
withdrawn from a Contract Owner's Variable Account Value. In addition, the
annual contract fee will be the same whether or not a Owner's Contract Value is
allocated to the Variable Account or the Fixed Account(s). The charge for
mortality and expense risks will not
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23
be assessed against the Fixed Account(s), and any amounts that AUL pays for
income taxes allocable to the Variable Account will not be charged against the
Fixed Account(s). In addition, the investment advisory fees and operating
expenses paid by the Funds will not be paid directly or indirectly by Contract
Owners to the extent the Account Value is allocated to the Fixed Account(s);
however, such Contract Owners will not participate in the investment experience
of the Variable Account. See "Charges and Deductions."
Payments from the Fixed Account(s)
Surrenders, cash withdrawals, and transfers from the Fixed Account(s) and
payment of Death Proceeds based upon a Contract Owner's Fixed Account Values may
be delayed for up to six months after a written request in proper form is
received by AUL at its Home Office. During the period of deferral, interest at
the applicable interest rate or rates will continue to be credited to the
Contract Owner's Fixed Account Values.
MORE ABOUT THE CONTRACTS
Designation and Change of Beneficiary
The Beneficiary designation contained in an application for the Contracts
will remain in effect until changed. The interests of a Beneficiary who dies
before the Contract Owner will pass to any surviving Beneficiary, unless the
Contract Owner specifies otherwise. Unless otherwise provided, if no designated
Beneficiary is living upon the death of the Contract Owner prior to the Annuity
Date, the Contract Owner's estate is the Beneficiary. Unless otherwise provided,
if no designated Beneficiary under an Annuity Option is living after the Annuity
Date, upon the death of the Annuitant, the Owner is the Beneficiary. If the
Contract Owner is not an individual, the Contract Owner will be the Beneficiary.
Subject to the rights of an irrevocably designated Beneficiary, the
designation of a Beneficiary may be changed or revoked at any time while the
Contract Owner is living by filing with AUL a written beneficiary designation or
revocation in such form as AUL may require. The change or revocation will not be
binding upon AUL until it is received by AUL at its Home Office. When it is so
received, the change or revocation will be effective as of the date on which the
beneficiary designation or revocation was signed, but the change or revocation
will be without prejudice to AUL if any payment has been made or any action has
been taken by AUL prior to receiving the change or revocation.
For Contracts issued in connection with Qualified Plans, reference should
be made to the terms of the particular Qualified Plan, if any, and any
applicable law for any restrictions on the beneficiary designation. For
instance, under an Employee Benefit Plan, the Beneficiary must be the Contract
Owner's spouse if the Contract Owner is married, unless the spouse properly
consents to the designation of a Beneficiary (or contingent Annuitant) other
than the spouse.
Assignability
A Contract Owner may assign a Contract, but the rights of the Contract
Owner and any Beneficiary will be secondary to the interests of the assignee.
AUL assumes no responsibility for the validity of an assignment. Any assignment
will not be binding upon AUL until received in writing at its Home Office.
Because an assignment may be a taxable event, Contract Owners should consult a
tax advisor as to the tax consequences resulting from such an assignment.
Proof of Age and Survival
AUL may require proof of age, sex, or survival of any person on whose life
annuity payments depend.
Misstatements
If the age or sex of any Annuitant has been misstated, the correct amount
paid or payable by AUL shall be such as the Contract would have provided for the
correct age and sex.
Acceptance of New Premiums
AUL reserves the right to refuse to accept new premiums for a Contract at
any time.
Optional Benefits
There are several riders available at time of application which are
described below. These riders carry their own charges which are described in the
Expense Table in this Prospectus.
Guaranteed Minimum Account Value Rider
For those contracts which have elected the Guaranteed Minimum Account Value
rider at the time of application, the following provisions apply. If your
Contract is still in force at the end of the tenth, twentieth, and thirtieth
Contract Years, your Account Value will be adjusted to be the greater of:
1. The Account Value on that Contract Anniversary, or
2. The Premiums paid under the Contract multiplied by the appropriate factor
shown on the Policy Data Page, less an adjustment for amounts previously
withdrawn.
Any transfer of Account Value to any Investment Account not listed on the
Policy Data Page as approved for use with this benefit will terminate the rider.
The Guaranteed Minimum Account Value rider is only available on One Year
Flexible Premium Deferred Variable Annuity contracts.
Guaranteed Minimum Income Benefit Rider
For those contracts which have elected the Guaranteed Minimum Income
Benefit Rider at the time of application, the following provisions apply. If
your Contract is annuitized at any time after the tenth Contract Anniversary,
the amount applied to the annuity table then current will be the greater of:
1. The Contract Proceeds at that time, or
2. The total of all Premiums paid with interest credited at the rate shown on
the Policy Data Page, less an adjustment for amounts previously withdrawn.
Any transfer of Account Value to any Investment Account not listed on the
Policy Data Page as approved for use with this benefit will terminate the rider.
Long Term Care Facility and Terminal Illness Benefit Rider
For those Contracts which have elected a Long Term Care Facility and
Terminal Illness rider at the time of application, the following provisions
apply. Surrender charges on withdrawals will not apply if a Contract Owner is
confined for a continuous 90 day period to a Long Term Care Facility or a 30 day
period to a hospital, as defined by the rider provisions. In addition, upon
receipt of a physician's letter at the Company's Home Office, no surrender
charges will be deducted upon withdrawals if the Contract Owner has been
diagnosed by that physician to have a terminal illness as defined by the rider
provisions.
The Contract Owner may be subject to income tax on all or a portion of any
such withdrawals and to a tax penalty if the Contract Owner takes withdrawals
prior to age 591/2 (see "Federal Tax Matters, Additional Considerations,
Contracts Owned by Non-Natural Persons")
FEDERAL TAX MATTERS
INTRODUCTION
The Contracts described in this Prospectus are designed for use in
connection with non-tax qualified retirement plans for individuals and for use
by individuals in connection with retirement plans under the provisions of
Sections 401(a), 403(b), 457, 408 or 408A of the Internal Revenue Code ("Code").
The ultimate effect of Federal income taxes on values under a Contract, on
annuity payments, and on the economic benefits to the Owner, the Annuitant, and
the Beneficiary or other payee, may depend upon the type of plan for which the
Contract is purchased and a number of different factors. The discussion
contained herein and in the Statement of Additional Information is general in
nature. It is based upon AUL's understanding of the present Federal income tax
laws as currently interpreted by the Internal Revenue Service ("IRS"), and is
not intended as tax advice. No representation is made regarding the likelihood
of continuation of the present Federal income tax laws or of the current
interpretations by the IRS. Future legislation may affect annuity contracts
adversely. Moreover, no attempt is made to consider any applicable state or
other laws. Because of the inherent complexity of such laws and the fact that
tax results will vary according to the terms of the plan and the particular
circumstances of the individual involved, any person contemplating the purchase
of a Contract, or receiving annuity payments under a Contract, should consult a
tax adviser.
AUL DOES NOT MAKE ANY GUARANTEE REGARDING THE TAX STATUS OF ANY CONTRACT OR ANY
TRANSACTION INVOLVING THE CONTRACTS. CONSULT YOUR TAX ADVISOR.
DIVERSIFICATION STANDARDS
Treasury Department regulations under Section 817(h) of the Code prescribe
asset diversification requirements which are expected to be met by the
investment companies whose shares are sold to the Investment Accounts. Failure
to meet these requirements would jeopardize the tax status of the Contracts. See
the Statement of Additional Information for additional details.
In connection with the issuance of the regulations governing
diversification under Section 817(h) of the Code, the Treasury Department
announced that it would issue future regulations or rulings addressing the
circumstances in which a variable contract owner's control of the investments of
a separate account may cause the contract owner, rather than the insurance
company, to be treated as the owner of the assets held by the separate account.
If the variable contract owner is considered the owner of the securities
underlying the separate account, income and gains produced by those securities
would be included currently in a contract owner's gross income. It is not clear,
at present, what these regulations or rulings may provide. It is possible that
when the regulations or rulings are issued, the Contracts may need to be
modified in order to remain in compliance. AUL intends to make reasonable
efforts to comply with any such regulations or rulings so that the Contracts
will be treated as annuity contracts for Federal income tax purposes and
reserves the right to make such changes as it deems appropriate for that
purpose.
TAXATION OF ANNUITIES IN GENERAL - NON-QUALIFIED PLANS
Section 72 of the Code governs taxation of annuities. In general, a
Contract Owner is not taxed on increases in value under an annuity contract
until some form of distribution is made under the contract. However, the
increase in value may be subject to tax currently under certain circumstances.
See "Contracts Owned by Non-Natural Persons" below and "Diversification
Standards" above.
1. Surrenders or Withdrawals Prior to the Annuity Date
Code Section 72 provides that amounts received upon a total or partial
surrender or withdrawal from a contract prior to the annuity date generally will
be treated as gross income to the extent that the cash value of the contract
(determined without regard to any surrender charge in the case of a partial
withdrawal) exceeds the "investment in the contract." In general, the
"investment in the contract" is that portion, if any, of premiums paid under a
contract less any distributions received previously under the contract that are
excluded from the recipient's gross income. The taxable portion is taxed at
ordinary income tax rates. For purposes of this rule, a pledge or assignment of
a contract is treated as a payment received on account of a partial withdrawal
of a contract. Similarly, loans under a
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contract generally are treated as distributions under the contract.
2. Surrenders or Withdrawals on or after the Annuity Date
Upon receipt of a lump-sum payment, the recipient is taxed if the cash
value of the contract exceeds the investment in the contract.
3. Amounts received as an Annuity
For amounts received as an Annuity, the taxable portion of each payment is
determined by using a formula known as the "exclusion ratio," which establishes
the ratio that the investment in the contract bears to the total expected amount
of annuity payments for the term of the contract. That ratio is then applied to
each payment to determine the non-taxable portion of the payment. That remaining
portion of each payment is taxed at ordinary income rates. Once the excludable
portion of annuity payments to date equals the investment in the contract, the
balance of the annuity payments will be fully taxable.
Withholding of Federal income taxes on all distributions may be required
unless a recipient who is eligible elects not to have any amounts withheld and
properly notifies AUL of that election. Special rules apply to withholding on
distributions from Employee Benefit Plans that are qualified under Section
401(a) of the Internal Revenue Code.
4. Penalty Tax on Certain Surrenders and Withdrawals
With respect to amounts withdrawn or distributed before the recipient
reaches age 59 1/2, a penalty tax is imposed equal to 10% of the portion of such
amount which is includable in gross income. However, the penalty tax is not
applicable to withdrawals: (i) made on or after the death of the owner (or where
the owner is not an individual, the death of the "primary annuitant," who is
defined as the individual the events in whose life are of primary importance in
affecting the timing and amount of the payout under the contract); (ii)
attributable to the recipient's becoming totally disabled within the meaning of
Code Section 72(m)(7); or (iii) which are part of a series of substantially
equal periodic payments (not less frequently than annually) made for the life
(or life expectancy) of the recipient, or the joint lives (or joint life
expectancies) of the recipient and his beneficiary. The 10% penalty also does
not apply in certain other circumstances described in Code Section 72.
If the penalty tax does not apply to a surrender or withdrawal as a result
of the application of item (iii) above, and the series of payments are
subsequently modified (other than by reason of death or disability), the tax for
the first year in which the modification occurs will be increased by an amount
(determined in accordance with IRS regulations) equal to the tax that would have
been imposed but for item (iii) above, plus interest for the deferral period, if
the modification takes place (a) before the close of the period which is five
years from the date of the first payment and after the recipient attains age 59
1/2, or (b) before the recipient reaches age 59 1/2.
ADDITIONAL CONSIDERATIONS
1. Distribution-at-Death Rules
In order to be treated as an annuity contract, a contract must provide the
following two distribution rules: (a) if the owner dies on or after the Annuity
Commencement Date, and before the entire interest in the contract has been
distributed, the remaining interest must be distributed at least as quickly as
the method in effect on the owner's death; and (b) if the owner dies before the
Annuity Date, the entire interest in the contract must generally be distributed
within five years after the date of death, or, if payable to a designated
beneficiary, must be annuitized over the life of that designated beneficiary or
over a period not extending beyond the life expectancy of that beneficiary,
commencing within one year after the date of death of the owner. If the
designated beneficiary is the spouse of the owner, the contract may be continued
in the name of the spouse as owner.
For purposes of determining the timing of distributions under the foregoing
rules, where the owner is not an individual, the primary annuitant is considered
the owner. In that case, a change in the primary annuitant will be treated as
the death of the owner. Finally, in the case of joint owners, the
distribution-at-death rules will be applied by treating the death of the first
owner as the one to be taken into account in determining how generally
distributions must commence, unless the sole surviving owner is the deceased
owner's spouse.
2. Gift of Annuity Contracts
Generally, a donor must recognize income tax on the gain of the Contract if
he makes a gift of the Contract before the Annuity Date. The donee's basis in
the Contract is increased by the amount included in the donor's income. This
provision does not apply to certain transfers incident to a divorce. The 10%
penalty tax on pre-age 59 1/2 withdrawals and distributions and gift tax also
may be applicable.
3. Contracts Owned by Non-Natural Persons
If the contract is held by a non-natural person (for example, a corporation
in connection with its non-tax qualified deferred compensation plan) the income
on that contract (generally the net surrender value less the premium payments
and amounts includable in gross income for prior taxable years with respect to
the contract) is includable in taxable income each year. Other taxes (such as
the alternative minimum tax and the environmental tax imposed under Code Section
59A) may also apply. The rule does not apply where the contract is acquired by
the estate of a decedent, where the contract is held by certain types of
retirement plans, where the contract is a qualified funding asset for structured
settlements, where the contract is purchased on behalf of an employee upon
termination of an Employee Benefit Plan, and in the case of a so-called
immediate annuity. Code Section 457 (deferred compensation) plans for employees
of state and local governments and tax-exempt organizations are not within the
purview of the exceptions. However, the income of state and local governments
and tax-exempt organizations generally is exempt from federal income tax.
4. Multiple Contract Rule
For purposes of determining the amount of any distribution under Code
Section 72(e) (amounts not received as annuities) that is includable in gross
income, all annuity contracts issued by the same insurer to the same contract
owner during any cal-
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endar year must be aggregated and treated as one contract. Thus, any amount
received under any such contract prior to the contract's Annuity Commencement
Date, such as a partial surrender, dividend, or loan, will be taxable (and
possibly subject to the 10% penalty tax) to the extent of the combined income in
all such contracts. In addition, the Treasury Department has broad regulatory
authority in applying this provision to prevent avoidance of the purposes of
this rule.
QUALIFIED PLANS
The Contract may be used with certain types of Qualified Plans as described
under "The Contracts." The tax rules applicable to participants in such
Qualified Plans vary according to the type of plan and the terms and conditions
of the plan itself. No attempt is made herein to provide more than general
information about the use of the Contract with the various types of Qualified
Plans. Contract Owners, Annuitants, and Beneficiaries, are cautioned that the
rights of any person to any benefits under such Qualified Plans will be subject
to the terms and conditions of the plans themselves and may be limited by
applicable law, regardless of the terms and conditions of the Contract issued in
connection therewith. For example, AUL may accept beneficiary designations and
payment instructions under the terms of the Contract without regard to any
spousal consents that may be required under the Code or the Employee Retirement
Income Security Act of 1974 ("ERISA"). Consequently, a Contract Owner's
Beneficiary designation or elected payment option may not be enforceable.
The following are brief descriptions of the various types of Qualified
Plans and the use of the Contract therewith:
1. Individual Retirement Annuities
Code Section 408 permits an eligible individual to contribute to an
individual retirement program through the purchase of Individual Retirement
Annuities ("IRAs"). The Contract may be purchased as an IRA. IRAs are subject to
limitations on the amount that may be contributed, the persons who may be
eligible, and the time when distributions must commence. Depending upon the
circumstances of the individual, contributions to an IRA may be made on a
deductible or non-deductible basis. IRAs may not be transferred, sold, assigned,
discounted, or pledged as collateral for a loan or other obligation. The annual
premium for an IRA may not exceed $2,000, reduced by any contribution to that
individual's Roth IRA. In addition, distributions from certain other types of
Qualified Plans may be placed on a tax-deferred basis into an IRA.
2. Roth IRA
Effective January 1, 1998, a Roth IRA under Code Section 408A is available
for retirement savings for individuals with earned income. The Contract may be
purchased as a Roth IRA. Roth IRA allows an individual to contribute
non-deductible contributions for retirement purposes, with the earnings income
tax-deferred, and the potential ability to withdraw the money income tax-free
under certain circumstances. Roth IRAs are subject to limitations on the amount
that may be contributed, the persons who may be eligible, and the time when
distributions must commence. Roth IRAs may not be transferred, sold, assigned,
discounted, or pledged as collateral for a loan or other obligation. The annual
premium for a Roth IRA may not exceed $2,000, reduced by any contribution to
that individual's IRA. In addition, a taxpayer may elect to convert an IRA to a
Roth IRA, accelerating deferred income taxes on previous earnings in the IRA to
a current year.
3. Corporate Pension and Profit Sharing Plans
Code Section 401(a) permits employers to establish various types of
retirement plans for their employees. For this purpose, self-employed
individuals (proprietors or partners operating a trade or business) are treated
as employees eligible to participate in such plans. Such retirement plans may
permit the purchase of Contracts to provide benefits thereunder.
In order for a retirement plan to be "qualified" under Code Section 401(a),
it must: (i) meet certain minimum standards with respect to participation,
coverage and vesting; (ii) not discriminate in favor of "highly compensated"
employees; (iii) provide contributions or benefits that do not exceed certain
limitations; (iv) prohibit the use of plan assets for purposes other than the
exclusive benefit of the employees and their beneficiaries covered by the plan;
(v) provide for distributions that comply with certain minimum distribution
requirements; (vi) provide for certain spousal survivor benefits; and (vii)
comply with numerous other qualification requirements.
A retirement plan qualified under Code Section 401(a) may be funded by
employer contributions, employee contributions or a combination of both. Plan
participants are not subject to tax on employer contributions until such amounts
are actually distributed from the plan. Depending upon the terms of the
particular plan, employee contributions may be made on a pre-tax or after-tax
basis. In addition, plan participants are not taxed on plan earnings derived
from either employer or employee contributions until such earnings are
distributed.
4. Tax-Deferred Annuities
Section 403(b) of the Code permits the purchase of "tax-deferred annuities"
by public schools and organizations described in Section 501(c)(3) of the Code,
including certain charitable, educational and scientific organizations. These
qualifying employers may pay premiums under the Contracts for the benefit of
their employees. Such premiums are not includable in the gross income of the
employee until the employee receives distributions from the Contract. The amount
of premiums to the tax-deferred annuity is limited to certain maximums imposed
by the Code. Furthermore, the Code sets forth additional restrictions governing
such items as transferability, distributions, nondiscrimination and withdrawals.
Any employee should obtain competent tax advice as to the tax treatment and
suitability of such an investment.
5. Deferred Compensation Plans
Section 457 of the Code permits employees of state and local governments
and units and agencies of state and local governments as well as tax-exempt
organizations described in Section 501(c)(3) of the Code to defer a portion of
their compensation without paying current taxes. Distributions received by an
employee from a 457 Plan will be taxed as ordinary income.
Qualifed Plan Federal Taxation Summary
The above description of the Federal income tax consequences of the
different types of Qualified Plans which may be funded by the Contract offered
by this Prospectus is only a brief summary and is not intended as tax advice.
The rules governing the provisions of Qualified Plans are extremely complex and
often difficult to comprehend. Anything less than full compliance with the
applicable rules, all of which are subject to change, may have adverse tax
consequences. A prospective Contract Owner considering adoption of a Qualified
Plan and purchase of a Contract in connection therewith should first consult a
qualified and competent tax adviser with regard to the suitability of the
Contract as an investment vehicle for the Qualified Plan.
Periodic distributions (e.g., annuities and installment payments) from a
Qualified Plan (other than a 457 program) that will last for a period of ten or
more years are generally subject to voluntary income tax withholding. The amount
withheld on such periodic distributions is determined at the rate applicable to
wages. The recipient of a periodic distribution may generally elect not to have
withholding apply.
Nonperiodic distributions (e.g., lump-sums and annuities or installment
payments of less than 10 years) from a Qualified
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Plan (other than a 457 program or an IRA) are generally subject to mandatory 20%
income tax withholding. However, no withholding is imposed if the distribution
is transferred directly to another eligible Qualified Plan or IRA. Nonperiodic
distributions from an IRA are subject to income tax withholding at a flat 10%
rate. The recipient of such a distribution may elect not to have withholding
apply.
Distributions from a 457 program are subject to the normal wage withholding
rules.
403(b) PROGRAMS - CONSTRAINTS ON WITHDRAWALS
Section 403(b) of the Internal Revenue Code permits public school employees
and employees of organizations specified in Section 501(c)(3) of the Internal
Revenue Code, such as certain types of charitable, educational, and scientific
organizations, to purchase annuity contracts, and subject to certain
limitations, to exclude the amount of purchase payments from gross income for
federal tax purposes. Section 403(b) imposes restrictions on certain
distributions from tax-sheltered annuity contracts meeting the requirements of
Section 403(b) that apply to tax years beginning on or after January 1, 1989.
Section 403(b) requires that distributions from Section 403(b)
tax-sheltered annuities that are attributable to employee contributions made
after December 31, 1988 under a salary reduction agreement not begin before the
employee reaches age 59 1/2, separates from service, dies, becomes disabled, or
incurs a hardship. Furthermore, distributions of income or gains attributable to
such contributions accrued after December 31, 1988 may not be made on account of
hardship. Hardship, for this purpose, is generally defined as an immediate and
heavy financial need, such as paying for medical expenses, the purchase of a
principal residence, or paying certain tuition expenses.
An Owner of a Contract purchased as a tax-deferred Section 403(b) annuity
contract will not, therefore, be entitled to exercise the right of surrender or
withdrawal, as described in this Prospectus, in order to receive his or her
Contract Value attributable to premiums paid under a salary reduction agreement
or any income or gains credited to such Contract Owner under the Contract unless
one of the above-described conditions has been satisfied, or unless the
withdrawal is otherwise permitted under applicable federal tax law. In the case
of transfers of amounts accumulated in a different Section 403(b) contract to
this Contract under a Section 403(b) Program, the withdrawal constraints
described above would not apply to the amount transferred to the Contract
attributable to a Contract Owner's December 31, 1988 account balance under the
old contract, provided that the amounts transferred between contracts meets
certain conditions. An Owner's Contract may be able to be transferred to certain
other investment or funding alternatives meeting the requirements of Section
403(b) that are available under an employer's Section 403(b) arrangement.
403(b) PROGRAMS - LOAN PRIVILEGES
Generally, loans are non-taxable. However, loans under a 403(b) contract
are taxable in the event that the loan is in default. Please consult your tax
adviser for more details.
OTHER INFORMATION
VOTING OF SHARES OF THE FUNDS
AUL is the legal owner of the shares of the Portfolios of the Funds held by
the Investment Accounts of the Variable Account. In accordance with its view of
present applicable law, AUL will exercise voting rights attributable to the
shares of the Funds held in the Investment Accounts at any regular and special
meetings of the shareholders of the Funds 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 Variable 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 Funds in its own right, it may
elect to do so.
The person having the voting interest under a Contract is the Contract
Owner. AUL or the pertinent Fund shall send to each Contract 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 Fund's shares.
Unless otherwise required by applicable law or under a contract with any of
the Funds, with respect to each of the Funds, the number of Fund 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 Contract on a particular date by the net asset value per share
of that Fund as of the same date. After the Annuity Date, the number of Fund
shares as to which voting instructions may be given to AUL is determined by
dividing the value of all of the Annuity Units by the net asset value per share
of that Fund 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. 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 Fund.
Voting instructions may be cast in person or by proxy.
Voting rights attributable to the Contracts 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 Contracts
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 it shares to any insurance company separate account that funds
variable life insurance 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 a timely manner for Contracts participating in
the Investment Account.
Neither the Variable 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 Funds.
SUBSTITUTION OF INVESTMENTS
AUL reserves the right, subject to compliance with the law as then in
effect, to make additions to, deletions from, substitutions for, or combinations
of the securities that are held by
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<PAGE>
the Variable Account or any Investment Account or that the Variable Account or
any Investment Account may purchase. If shares of any or all of the Funds should
no longer be available for investment, or if, in the judgment of AUL's
management, further investment in shares of any or all of the Funds should
become inappropriate in view of the purposes of the Contracts, AUL may
substitute shares of another fund for shares already purchased, or to be
purchased in the future under the Contracts. AUL may also purchase, through the
Variable Account, other securities for other classes of contracts, or permit a
conversion between classes of contracts on the basis of requests made by
Contract Owners or as permitted by Federal law.
Where required under applicable law, AUL will not substitute any shares
attributable to a Contract Owner's interest in an Investment Account or the
Variable Account without notice, Contract Owner approval, or prior approval of
the SEC or a state insurance commissioner, and without following the filing or
other procedures established by applicable state insurance regulators.
AUL also reserves the right to establish additional Investment Accounts of
the Variable Account that would invest in another investment company, a series
thereof, or other suitable investment vehicle. New Investment Accounts may be
established in the sole discretion of AUL, and any new Investment Account will
be made available to existing Contract Owners on a basis to be determined by
AUL. AUL may also eliminate or combine one or more Investment Accounts or cease
permitting new allocations to an Investment Account if, in its sole discretion,
marketing, tax, or investment conditions so warrant.
Subject to any required regulatory approvals, AUL reserves the right to
transfer assets of any Investment Account of the Variable Account to another
separate account or Investment Account.
In the event of any such substitution or change, AUL may, by appropriate
endorsement, make such changes in these and other Contracts as may be necessary
or appropriate to reflect such substitution or change. AUL reserves the right to
operate the Variable Account as a management investment company under the 1940
Act or any other form permitted by law, an Investment Account may be
deregistered under that Act in the event such registration is no longer
required, or it may be combined with other separate accounts of AUL or an
affiliate thereof. Subject to compliance with applicable law, AUL also may
combine one or more Investment Accounts and may establish a committee, board, or
other group to manage one or more aspects of the operation of the Variable
Account.
CHANGES TO COMPLY WITH LAW AND AMENDMENTS
AUL reserves the right, without the consent of Contract Owners, to make any
change to the provisions of the Contracts to comply with, or to give Contract
Owners the benefit of, any Federal or state statute, rule, or regulation,
including, but not limited to, requirements for annuity contracts and retirement
plans under the Internal Revenue Code and regulations thereunder or any state
statute or regulation.
RESERVATION OF RIGHTS
AUL reserves the right to refuse to accept new premiums under a Contract
and to refuse to accept any application for a Contract.
PERIODIC REPORTS
AUL will send quarterly statements showing the number, type, and value of
Accumulation Units credited to the Contract. AUL will also send statements
reflecting transactions in a Contract Owner's Account as required by applicable
law. In addition, every person having voting rights will receive such reports or
Prospectuses concerning the Variable Account and the Funds as may be required by
the 1940 Act and the 1933 Act.
LEGAL PROCEEDINGS
There are no legal proceedings pending to which the Variable Account or the
Variable Account's principal underwriter or depositor (or any subsidiary) is a
party, or which would materially affect the Variable Account.
LEGAL MATTERS
Legal matters in connection with the issue and sale of the Contracts
described in this Prospectus and the organization of AUL, its authority to issue
the Contracts under Indiana law, and the validity of the forms of the Contracts
under Indiana law have been passed upon by the Associate General Counsel of AUL.
Legal matters relating to the Federal securities and Federal income tax
laws have been passed upon by Dechert Price & Rhoads, Washington, D.C.
FINANCIAL STATEMENTS
Financial statements of AUL as of December 31, 1998, are included in the
Statement of Additional Information.
YEAR 2000 READINESS DISCLOSURE
In recent years, the Year 2000 problem has received extensive publicity.
The problem arises because most computer systems and programs were written with
dates expressed as a 2 digit code. Unless steps are taken many systems may
interpret the year "2000" as "1900," and date-related computations either would
not be processed or would be processed incorrectly. This could have a material
and adverse effect on financial institutions such as banks and insurance
companies like AUL. To prevent this, AUL began assessing the potential impact in
early 1996 and adopted a detailed written work plan in June, 1997 to deal with
Year 2000 issues.
Due to the complexity of this issue and the ever-increasing
interrelationships of computer systems in the United States it would be
extremely difficult for any company to state that it has or will achieve
complete Year 2000 compliance or guarantee that its systems will not be affected
in any way on January 1, 2000. However, AUL currently believes that all critical
computer systems and software (those systems or software which would cause
great disruption to the Company if they were inoperable for any length of time
or if they were to generate erroneous data) are, as of April 1, 1999, Year 2000
27
<PAGE>
compliant. Although AUL has no reason to believe that these steps will not be
sufficient to avoid any material adverse impact from Year 2000 issues and is
addressing Year 2000 issues by using both internal staff and external
consultants, by replacing or upgrading hardware, operating systems and
application software, by remediating current application software and by testing
software and hardware in future dated scenarios, there can be no assurance that
the Company's efforts will be sufficient to avoid any adverse impact. The total
effort for all activities to make AUL systems ready for the year 2000 is
currently expected to amount to more than 250 person years of labor at a cost of
approximately $19,000,000 which has been or will be expensed against current
operating funds. As of December 1998, $13,000,000 of this cost was already
incurred.
As a part of its plan, the company has surveyed its primary business
partners to be sure that they have taken steps to address Year 2000 issues. AUL
will continue to monitor the status of all business partners' Year 2000 efforts.
Additionally, a contingency planning effort is underway to identify means by
which the risk associated with potential internal or external failures can be
reduced. Year 2000 contingency planning also includes development of a mechanism
to identify and respond to problems that could develop and to define steps to be
taken should problems arise.
PERFORMANCE INFORMATION
Performance information for the Investment Accounts is shown under
"Performance of the Investment Accounts." Performance information for the
Investment Accounts may also appear in promotional reports and sales literature
to current or prospective Contract Owners in the manner described in this
section. Performance information in promotional reports and literature may
include the yield and effective yield of the Investment Account investing in the
Money Market Investment Account, the yield of the remaining Investment Accounts,
the average annual total return and the total return of all Investment Accounts.
For information on the calculation of current yield and effective yield, see the
Statement of Additional Information.
Quotations of average annual total return for any Investment Account will
be expressed in terms of the average annual compounded rate of return on a
hypothetical investment in a Contract over a period of one, five and ten years
(or, if less, up to the life of the Investment Account), and will reflect the
deduction of the applicable withdrawal charge, the mortality and expense risk
charge, and if applicable, the administrative charge. Hypothetical quotations of
average annual total return may also be shown for an Investment Account for
periods prior to the time that the Investment Account commenced operations based
upon the performance of the mutual fund portfolio in which that Investment
Account invests, and will reflect the deduction of the applicable withdrawal
charge, the administrative charge, and the mortality and expense risk charge as
if, and to the extent, that such charges had been applicable. Quotations of
total return, actual and hypothetical, may simultaneously be shown that do not
take into account certain contractual charges such as the withdrawal charge and
the administrative charge and may be shown for different periods.
Performance information for any Investment Account reflects only the
performance of a hypothetical Contract under which Contract Value is allocated
to an Investment Account during a particular time period on which the
calculations are based. Performance information should be considered in light of
the investment objectives and policies, characteristics, and quality of the Fund
in which the Investment Account invests, and the market conditions during the
given time period, and should not be considered as representation of what may be
achieved in the future. For a description of the methods used to determine yield
and total return in promotional reports and literature for the Investment
Accounts, information on possible uses for performance, and other information,
see the Statement of Additional Information.
STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information contains more specific information
and financial statements relating to AUL. The Table of Contents of the Statement
of Additional Information is set forth below:
<TABLE>
<S> <C>
GENERAL INFORMATION AND HISTORY.................................................................. 3
DISTRIBUTION OF CONTRACTS........................................................................ 3
CUSTODY OF ASSETS................................................................................ 3
TAX STATUS OF AUL AND THE VARIABLE ACCOUNT....................................................... 3
TAX TREATMENT OF AND LIMITS ON PREMIUMS UNDER RETIREMENT PLANS................................... 3-6
403(b) Programs................................................................................ 4
408 and 408A Programs.......................................................................... 4
457 Programs...................................................................................
Employee Benefit Plans......................................................................... 5
Tax Penalty for All Annuity Contracts.......................................................... 5
Withholding for Employee Benefit Plans and Tax-Deferred Annuities.............................. 5
INDEPENDENT ACCOUNTANTS.......................................................................... 6
PERFORMANCE INFORMATION.......................................................................... 6-7
FINANCIAL STATEMENTS............................................................................. 8-19
</TABLE>
A Statement of Additional Information may be obtained without charge by calling
or writing to AUL at the telephone number and address set forth in the front of
this Prospectus.
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<PAGE>
================================================================================
No dealer, salesman or any other person is authorized by the AUL
American Individual 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.
There has been filed with the Securities and Exchange Commission,
Washington, D.C., a Registration Statement under the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as amended,
with respect to the offering herein described. For further information
with respect to the AUL American Individual Unit Trust, AUL and its
variable annuities, reference is made thereto and the exhibits filed
therewith or incorporated therein, which include all contracts or
documents referred to herein.
================================================================================
INDIVIDUAL FLEXIBLE PREMIUM VARIABLE DEFERRED ANNUITY
Individual Variable Annuity Contracts
Sold By
AMERICAN UNITED
LIFE INSURANCE COMPANY(R)
One American Square
Indianapolis, Indiana 46282
PROSPECTUS
Dated: May 1, 1999
================================================================================
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<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1998
INDIVIDUAL FLEXIBLE PREMIUM VARIABLE DEFERRED ANNUITY
Individual Variable Annuity Contracts
Offered By
American United Life Insurance Company(R)
One American Square
Indianapolis, Indiana 46282
(317) 285-1877
Individual Annuity Service Office Mail Address:
P.O. Box 7127, Indianapolis, Indiana 46206-7127
(800) 863-9354
This Statement of Additional Information is not a prospectus and
should be read in conjunction with the current Prospectus for AUL
Individual Flexible Premium Variable Deferred Annuity, dated May 1,
1999.
A Prospectus is available without charge by calling the number listed
above or by mailing the Business Reply Mail card included in this
Statement of Additional Information to American United Life Insurance
Company(R) ("AUL") at the address listed above.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Description Page
<S> <C>
GENERAL INFORMATION AND HISTORY................................................................. 3
DISTRIBUTION OF CONTRACTS....................................................................... 3
CUSTODY OF ASSETS............................................................................... 3
TAX STATUS OF AUL AND THE VARIABLE ACCOUNT...................................................... 3
TAX TREATMENT OF AND LIMITS ON PREMIUMS UNDER RETIREMENT PROGRAMS............................... 3-6
403(b) Programs............................................................................... 4
408 and 408A Programs......................................................................... 4
457 Programs..................................................................................
Employee Benefit Plans........................................................................ 5
Tax Penalty for All Annuity Contracts......................................................... 5
Withholding for Employee Benefit Plans and Tax-Deferred Annuities............................. 5
INDEPENDENT ACCOUNTANTS......................................................................... 6
PERFORMANCE INFORMATION......................................................................... 6-7
FINANCIAL STATEMENTS............................................................................ 8-19
</TABLE>
2
<PAGE>
GENERAL INFORMATION AND HISTORY
For a general description of AUL and the AUL American Individual Variable
Annuity Unit Trust (the "Variable Account"), see the section entitled
"Information about AUL, The Variable Account, and The Funds" in the Prospectus.
Defined terms used in this Statement of Additional Information have the same
meaning as terms defined in the Prospectus.
DISTRIBUTION OF CONTRACTS
AUL is the Principal Underwriter for the variable annuity contracts (the
"Contracts") described in the Prospectus and in this Statement of Additional
Information. AUL is registered with the Securities and Exchange Commission (the
"SEC") as a broker-dealer. The Contracts are currently being sold in a
continuous offering. While AUL does not anticipate discontinuing the offering of
the Contracts, it reserves the right to do so. The Contracts are sold by
registered representatives of AUL who are also licensed insurance agents.
AUL also has sales agreements with various broker-dealers under which the
Contracts will be sold by registered representatives of the broker-dealers. The
registered representatives are required to be authorized under applicable state
regulations to sell variable annuity contracts. The broker-dealers are required
to be registered with the SEC and members of the National Association of
Securities Dealers, Inc.
AUL serves as the Principal Underwriter without compensation from the
Variable Account.
CUSTODY OF ASSETS
The assets of the Variable Account are held by AUL. The assets are
maintained separate and apart from the assets of other separate accounts of AUL
and from AUL's General Account assets. AUL maintains records of all purchases
and redemptions of shares of the Funds.
TAX STATUS OF AUL AND THE VARIABLE ACCOUNT
The operations of the Variable Account form a part of AUL, so AUL will be
responsible for any Federal income and other taxes that become payable with
respect to the income of the Variable Account. Each Investment Account will bear
its allocable share of such liabilities, but under current law, no dividend,
interest income, or realized capital gain attributable, at a minimum, to
appreciation of the Investment Accounts will be taxed to AUL to the extent it is
applied to increase reserves under the Contracts.
Each of the Funds in which the Variable Account invests has advised AUL
that it intends to qualify as a "regulated investment company" under the Code.
AUL does not guarantee that any Fund will so qualify. If the requirements of the
Code are met, a Fund will not be taxed on amounts distributed on a timely basis
to the Variable Account. Were such a Fund not to so qualify, the tax status of
the Contracts as annuities might be lost, which could result in immediate
taxation of amounts earned under the Contracts (except those held in Employee
Benefit Plans and 408 Programs).
Under regulations promulgated under Code Section 817(h), each Investment
Account must meet certain diversification standards. Generally, compliance with
these standards is determined by taking into account an Investment Account's
share of assets of the appropriate underlying Fund. To meet this test, on the
last day of each calendar quarter, no more than 55% of the total assets of a
Fund may be represented by any one investment, no more than 70% may be
represented by any two investments, no more than 80% may be represented by any
three investments, and no more than 90% may be represented by any four
investments. For the purposes of Section 817(h), securities of a single issuer
generally are treated as one investment, but obligations of the U.S. Treasury
and each U.S. Governmental agency or instrumentality generally are treated as
securities of separate issuers.
TAX TREATMENT OF AND LIMITS ON PREMIUMS UNDER RETIREMENT PROGRAMS
The Contracts may be offered for use with several types of qualified or
non-qualified retirement programs as described in the Prospectus. The tax rules
applicable to Owners of Contracts used in connection with qualified retirement
programs vary according to the type of retirement plan and its terms and
conditions. Therefore, no attempt is made herein to provide more than general
information about the use of the Contracts with the various types of qualified
retirement programs.
Owners, Annuitants, Beneficiaries and other payees are cautioned that the
rights of any person to any benefits under these programs may be subject to the
terms and conditions of the Qualified Plans themselves, regardless of the terms
and conditions of the Contracts issued in connection therewith.
Generally, no taxes are imposed on the increases in the value of a Contract
by reason of investment experience or employer contributions until a
distribution occurs, either as a lump-sum
3
<PAGE>
payment or annuity payments under an elected Annuity Option or in the form of
cash withdrawals, surrenders, or other distributions prior to the Annuity Date.
The amount of premiums that may be paid under a Contract issued in
connection with a Qualified Plan are subject to limitations that may vary
depending on the type of Qualified Plan. In addition, early distributions from
most Qualified Plans may be subject to penalty taxes, or in the case of
distributions of amounts contributed under salary reduction agreements, could
cause the Qualified Plan to be disqualified. Furthermore, distributions from
most Qualified Plans are subject to certain minimum distribution rules. Failure
to comply with these rules could result in disqualification of the Qualified
Plan or subject the Annuitant to penalty taxes. As a result, the minimum
distribution rules could limit the availability of certain Annuity Options to
Contract Owners and their Beneficiaries.
Below are brief descriptions of various types of qualified retirement
programs and the use of the Contracts in connection therewith. Unless otherwise
indicated in the context of the description, these descriptions reflect the
assumption that the Contract Owner is a participant in the retirement program.
For Employee Benefit Plans that are defined benefit plans, a Contract generally
would be purchased by a Participant, but owned by the plan itself.
403(b) PROGRAMS
Premiums paid pursuant to a 403(b) Program are excludable from a Contract
Owner's gross income if they do not exceed the smallest of the limits calculated
under Sections 402(g), 403(b)(2), and 415 of the Internal Revenue Code. Section
402(g) generally limits a Contract Owner's salary reduction premiums to a 403(b)
Program to $10,000 a year. The $10,000 limit may be reduced by salary reduction
premiums to another type of retirement plan. A Contract Owner with at least 15
years of service for a "qualified employer" (i.e., an educational organization,
hospital, home health service agency, health and welfare service agency, church
or convention or association of churches) generally may exceed the $10,000 limit
by $3,000 per year, subject to an aggregate limit of $15,000 for all years.
Section 403(b)(2) provides an overall limit on employer and Contract Owner
salary reduction premiums that may be made to a 403(b) Program. Section
403(b)(2) generally provides that the maximum amount of premiums a Contract
Owner may exclude from his gross income in any taxable year is equal to the
excess, if any, of:
(a) the amount determined by multiplying 20% of his includable compensation
by the number of his years of service with his employer, over
(b) the total amount contributed to retirement plans sponsored by his
employer, including the Section 403(b) Program, that were excludable from his
gross income in prior years.
Contract Owners employed by "qualified employers" may elect to have certain
alternative limitations apply.
Section 415(c) also provides an overall limit on the amount of employer and
Contract Owner's salary reduction premiums to a Section 403(b) Program that will
be excludable from an employee's gross income in a given year. The Section
415(c) limit is the lesser of (a) $30,000, or (b) 25% of the Contract Owner's
annual compensation (reduced by his salary reduction premiums to the 403(b)
Program and certain other employee plans). This limit will be reduced if a
Contract Owner also participates in an Employee Benefit Plan maintained by a
business that he or she controls.
The limits described above do not apply to amounts "rolled over" from
another Section 403(b) Program. A Contract Owner who receives an "eligible
rollover distribution" will be permitted either to roll over such amount to
another Section 403(b) Program or an IRA within 60 days of receipt or to make a
direct rollover to another Section 403(b) Program or an IRA without recognition
of income. An "eligible rollover distribution" means any distribution to a
Contract Owner of all or any taxable portion of the balance of his credit under
a Section 403(b) Program, other than a required minimum distribution to a
Contract Owner who has reached age 70 1/2 and excluding any distribution which
is one of a series of substantially equal payments made (1) over the life
expectancy of the Contract Owner or the joint life expectancy of the Contract
Owner and his beneficiary or (2) over a specified period of 10 years or more.
Provisions of the Internal Revenue Code require that 20% of every eligible
rollover distribution that is not directly rolled over be withheld by the payor
for federal income taxes.
408 AND 408A PROGRAMS
Code Sections 219, 408 and 408A permit eligible individuals to contribute
to an individual retirement program, including a Simplified Employee Pension
Plan, an Employer Association Established Individual Retirement Account Trust,
known as an Individual Retirement Account ("IRA"), and a Roth IRA. These IRA
accounts are subject to limitations on the amount that may be contributed, the
persons who may be eligible, and on the time when distributions may commence. In
addition, certain distributions from some other types of retirement plans may be
placed on a tax-deferred basis in an IRA. Sale of the Contracts for use with
IRAs may be subject to special requirements imposed by the Internal Revenue
Service. Purchasers of the Contracts for such purposes will be provided with
such supplementary information as may be required by the Internal Revenue
Service or other appropriate agency, and will have the right to revoke the
Contract under certain circumstances.
If an Owner of a Contract issued in connection with a 408 Program
surrenders the Contract or makes a partial withdrawal, the Contract Owner will
realize income taxable at ordinary tax rates on the amount received to the
extent that amount exceeds the 408 premiums that were not excludable from the
taxable income of the employee when paid.
Premiums paid to the individual retirement account of a Contract Owner
under a 408 Program that is described in Section 408(c) of the Internal Revenue
Code are subject to the
4
<PAGE>
limits on premiums paid to individual retirement accounts under Section 219(b)
of the Internal Revenue Code. Under Section 219(b) of the Code, premiums paid to
an individual retirement account are limited to the lesser of $2,000 per year or
the Contract Owner's annual compensation. For tax years beginning after 1996, if
a married couple files a joint return, each spouse may, in the great majority of
cases, make contributions to his or her IRA up to the $2,000 limit. The extent
to which a Contract Owner may deduct premiums paid in connection with this type
of 408 Program depends on his and his spouse's gross income for the year and
whether either participate in another employer-sponsored retirement plan.
Premiums paid in connection with a 408 Program that is a simplified
employee pension plan are subject to limits under Section 402(h) of the Internal
Revenue Code. Section 402(h) currently limits premiums paid in connection with a
simplified employee pension plan to the lesser of (a) 15% of the Contract
Owner's compensation, or (b) $30,000. Premiums paid through salary reduction are
subject to additional annual limits.
Withdrawals from Roth IRAs may be made tax-free under certain
circumstances. Please consult your tax adviser for more details.
457 PROGRAMS
Deferrals by an eligible individual to a 457 Program generally are limited
under Section 457(b) of the Internal Revenue Code to the lesser of (a) $7,500 or
(b) 33 1/3% of the Contract Owner's includable compensation. If the Contract
Owner participates in more than one 457 Program, the $7,500 limit applies to
contributions to all such programs. The $7,500 limit is reduced by the amount of
any salary reduction contribution the Contract Owner makes to a 403(b) Program,
a 408 Program, or an Employee Benefit Program. The Section 457(b) limit is
increased during the last three years ending before the Contract Owner reaches
his normal retirement age under the 457 Program. Effective 1/1/97 the $7,500
limit on deferrals is indexed in $500 increments.
EMPLOYEE BENEFIT PLANS
Code Section 401 permits business employers and certain associations to
establish various types of retirement plans for employees. Such retirement plans
may permit the purchase of Contracts to provide benefits thereunder.
If an Owner of a Contract issued in connection with an Employee Benefit
Plan who is a participant in the Plan receives a lump-sum distribution, the
portion of the distribution equal to any premiums that were taxable to the
Contract Owner in the year when paid is generally received tax free. The balance
of the distribution will generally be treated as ordinary income. Special
five-year forward averaging provisions under Code Section 402 may be utilized on
the amount subject to ordinary income tax treatment, provided that the Contract
Owner has reached age 59 1/2, has not previously elected forward averaging for a
distribution from any Employee Benefit Plan after reaching age 59 1/2, and has
not rolled over a distribution from the Employee Benefit Plan or a similar plan
into another Employee Benefit Plan or an individual retirement account or
annuity. Special ten-year averaging and a capital-gains election may be
available to a Contract Owner who reached age 50 before 1986.
Under an Employee Benefit Plan under Section 401 of the Code, when annuity
payments commence (as opposed to a lump-sum distribution), under Section 72 of
the Code, the portion of each payment attributable to premiums that were taxable
to the participant in the year made, if any, is excluded from gross income as a
return of the participant's investment. The portion so excluded is determined at
the time the payments commence by dividing the participant's investment in the
Contract by the expected return. The periodic payments in excess of this amount
are taxable as ordinary income. Once the participant's investment has been
recovered, the full annuity payment will be taxable. If the annuity should stop
before the investment has been received, the unrecovered portion is deductible
on the Annuitant's final return. If the Contract Owner paid no premiums that
were taxable to the Contract Owner in the year made, there would be no portion
excludable.
The applicable annual limits on premiums paid in connection with an
Employee Benefit Plan depend upon the type of plan. Total premiums paid on
behalf of a Contract Owner who is a participant to all defined contribution
plans maintained by an Employer are limited under Section 415(c) of the Internal
Revenue Code to the lesser of (a) $30,000, or (b) 25% of a participant's annual
compensation. Premiums paid through salary reduction to a cash-or-deferred
arrangement under a profit sharing plan are subject to additional annual limits.
Premiums paid to a defined benefit pension plan are actuarially determined based
upon the amount of benefits the participant will receive under the plan formula.
The maximum annual benefit any participant may receive under an Employer's
defined benefit plan is limited under Section 415(b) of the Internal Revenue
Code. The limits determined under Section 415(b) and (c) of the Internal Revenue
Code are further reduced for a participant who participates in a defined
contribution plan and a defined benefit plan maintained by the same employer.
TAX PENALTY FOR ALL ANNUITY CONTRACTS
Any distribution made to a Contract Owner who is a participant from an
Employee Benefit Plan or a 408 Program other than on account of one or more of
the following events will be subject to a 10% penalty tax on the amount
distributed:
(a) the Contract Owner has attained age 59 1/2;
(b) the Contract Owner has died; or
(c) the Contract Owner is disabled.
In addition, a distribution from an Employee Benefit Plan will not be
subject to a 10% excise tax on the amount distributed if the Contract Owner is
55 and has separated from service. Distributions received at least annually as
part of a series of substantially equal periodic payments made for the life of
the Participant will not be subject to an excise tax. Certain amounts paid for
medical care also may not be subject to an excise tax.
WITHHOLDING FOR EMPLOYEE BENEFIT PLANS AND
TAX-DEFERRED ANNUITIES
Distributions from an Employee Benefit Plan to an employee, surviving
spouse, or former spouse who is an alternate payee under a qualified domestic
relations order, in the form a lump-sum settlement or periodic annuity payments
for a fixed period of fewer than 10 years are subject to mandatory federal
income tax withholding of 20% of the taxable amount of the distribution, unless
the distributee directs the transfer of such amounts to another Employee Benefit
Plan or to an Individual Retirement Account under Code Section 408. The taxable
amount is the amount of the distribution, less the amount allocable to after-tax
premiums.
5
<PAGE>
All other types of distributions from Employee Benefit Plans and all
distributions from Individual Retirement Accounts, are subject to federal income
tax withholding on the taxable amount unless the distributee elects not to have
the withholding apply. The amount withheld is based on the type of distribution.
Federal tax will be withheld from annuity payments (other than those subject to
mandatory 20% withholding) pursuant to the recipient's withholding certificate.
If no withholding certificate is filed with AUL, tax will be withheld on the
basis that the payee is married with three withholding exemptions. Tax on all
surrenders and lump-sum distributions from Individual Retirement Accounts will
be withheld at a flat 10% rate.
Withholding on annuity payments and other distributions from the Contract
will be made in accordance with regulations of the Internal Revenue Service.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, independent accountants, performs certain
auditing services for AUL and performs similar services for the Variable
Account. The AUL financial statements included in this Statement of Additional
Information have been audited to the extent and for the periods indicated in
their report thereon.
PERFORMANCE INFORMATION
Performance information for the Investment Accounts is shown in the
prospectus under "Performance of the Investment Accounts." Performance
information for the Investment Accounts may also appear in promotional reports
and literature to current or prospective Contract Owners in the manner described
in this section. Performance information in promotional reports and literature
may include the yield and effective yield of the Investment Account investing in
the AUL American Money Market Portfolio ("Money Market Investment Account"), the
yield of the remaining Investment Accounts, the average annual total return and
the total return of all Investment Accounts.
Current yield for the Money Market Investment Account will be based on the
change in the value of a hypothetical investment (exclusive of capital changes)
over a particular 7-day period, less a pro rata share of the Investment
Account's expenses accrued over that period (the "base period"), and stated as a
percentage of the investment at the start of the base period (the "base period
return"). The base period return is then annualized by multiplying by 365/7,
with the resulting yield figures carried to at least the nearest hundredth of
one percent.
Calculation of "effective yield" begins with the same "base period return"
used in the calculation of yield, which is then annualized to reflect weekly
compounding pursuant to the following formula:
Effective Yield = [(Base Period Return + 1)**365/7] - 1
Quotations of yield for the remaining Investment Accounts will be based on all
investment income per Accumulation Unit earned during a particular 30-day
period, less expenses accrued during the period ("net investment income"), and
will be computed by dividing net investment income by the value of the
Accumulation Unit on the last day of the period, according to the following
formula:
YIELD = 2[(a-b/cd + 1)**6 - 1]
where a = net investment income earned during the period by the Portfolio
attributable to shares owned by the Investment Account
b = expenses accrued for the period (net of reimbursements),
c = the average daily number of Accumulation Units outstanding during
the period that were entitled to receive dividends, and
d = the value (maximum offering period) per Accumulation Unit on the
last day of the period.
Quotations of average annual total return for any Investment Account will
be expressed in terms of the average annual compounded rate of return of a
hypothetical investment in a Contract over a period of one, five, and ten years
(or, if less, up to the life of the Investment Account), calculated pursuant to
the following formula: P(1 + T)**n = ERV (where P = a hypothetical initial
payment of $1,000, T = the average annual total return, n = the number of years,
and ERV = the ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the period). Hypothetical quotations of average total return
may also be shown for an Investment Account for periods prior to the time that
the Investment Account commenced operations based upon the performance of the
mutual fund portfolio in which that Investment Account invests, as adjusted for
applicable charges. All total return figures reflect the deduction of the
applicable withdrawal charge, the administrative charge, and the mortality and
expense risk charge. Quotations of total return, actual and hypothetical, may
simultaneously be shown that do not take into account certain contractual
charges such as the withdrawal charge and the administrative charge and
quotations of total return may reflect other periods of time.
The average annual return that the Investment Accounts achieved for the one
year, three year, five year, and the lesser of ten years or since inception for
the periods ending
6
<PAGE>
December 31, 1998 under a Flexible Premium Contract and a One Year Flexible
Premium Contract (assuming the withdrawal charge is taken into account in
computing the ending redeemable value) and all Contracts (assuming the
withdrawal charge is not taken into account in computing the ending redeemable
value) may be found in the Prospectus.
Performance information for an Investment Account may be compared, in
promotional reports and literature, to: (i) the Standard & Poor's 500 Composite
Index ("S&P 500"), Dow Jones Industrial Average ("DJIA"), Donoghue Money Market
Institutional Averages, or other indices that measure performance of a pertinent
group of securities so that investors may compare an Investment Account's
results with those of a group of securities widely regarded by investors as
representative of the securities markets in general; (ii) other groups of
variable annuity separate accounts or other investment products tracked by
Lipper Analytical Services, a widely used independent research firm which ranks
mutual funds and other investment companies by overall performance, investment
objectives, and assets, or tracked by other services, companies, publications,
or persons who rank such investment companies on overall performance or other
criteria; and (iii) the Consumer Price Index (measure for inflation) to assess
the real rate of return from an investment in the Contract. Unmanaged indices
may assume the reinvestment of dividends but generally do not reflect deductions
for administrative and management costs and expenses.
Performance information for any Investment Account reflects only the
performance of a hypothetical Contract under which an Owner's Account Value is
allocated to an Investment Account during a particular time period on which the
calculations are based. Performance information should be considered in light of
the investment objectives and policies, characteristics and quality of the Funds
in which the Investment Account invests, and the market conditions during the
given time period, and should not be considered as a representation of what may
be achieved in the future.
Promotional reports and literature may also contain other information
including (i) the ranking of any Investment Account derived from rankings of
variable annuity separate accounts or other investment products tracked by
Lipper Analytical Services or by other rating services, companies, publications,
or other persons who rank separate accounts or other investment products on
overall performance or other criteria; (ii) the effect of tax-deferred
compounding on an Investment Account's investment returns, or returns in
general, which may include a comparison, at various points in time, of the
return from an investment in a Contract (or returns in general) on a
tax-deferred basis; (assuming one or more tax rates) with the return on a
taxable basis; and (iii) AUL's rating or a rating of AUL's claim-paying ability
by firms that analyze and rate insurance companies and by nationally recognized
statistical rating organizations.
7
<PAGE>
FINANCIAL STATEMENTS
The financial statements of AUL, which are included in this Statement of
Additional Information, should be considered only as bearing on the ability of
AUL to meet its obligations under the Contracts. They should not be considered
as bearing on the investment performance of the assets held in the Variable
Account.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
American United Life Insurance Company(R)
Indianapolis, Indiana
In our opinion, the accompanying combined balance sheet and the related combined
statements of operations, policyholders' surplus, and cash flows present fairly,
in all material respects, the financial position of American United Life
Insurance Company(R) and affiliates (the "Company") at December 31, 1998 and
1997, and the results of their operations and their cash flows for years then
ended, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Indianapolis, Indiana
February 26, 1999
<TABLE>
<CAPTION>
Combined Balance Sheet
December 31 1998 (in millions) 1997
- --------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C>
Investments:
Fixed Maturities:
Available for sale at fair value $ 1,695.4 $ 1,653.8
Held to maturity at amortized cost 2,536.2 2,902.2
Equity securities at fair value 75.1 18.6
Mortgage loans 1,128.5 1,120.4
Real estate 46.6 52.1
Policy loans 144.4 143.1
Short term and other invested assets 64.9 102.0
Cash and cash equivalents 95.7 41.2
- --------------------------------------------------------------------------------------------------------
Total investments 5,786.8 6,033.4
- --------------------------------------------------------------------------------------------------------
Accrued investment income 73.0 79.3
Reinsurance receivables 290.6 244.3
Deferred acquisition costs 451.7 421.2
Property and equipment 56.8 55.5
Insurance premiums in course of collection 66.7 72.9
Other assets 16.1 17.2
Assets held in separate accounts 2,594.6 1,674.0
- --------------------------------------------------------------------------------------------------------
Total assets $9,336.3 $8,597.8
- --------------------------------------------------------------------------------------------------------
Liabilities and policyholders' surplus
Liabilities
Policy reserves $5,339.1 $5,642.9
Other policyholder funds 203.9 177.1
Pending policyholder claims 209.2 164.3
Surplus notes 75.0 75.0
Other liabilities and accrued expenses 180.4 199.9
Liabilities related to separate accounts 2,594.6 1,674.0
- --------------------------------------------------------------------------------------------------------
Total liabilities 8,602.2 7,933.2
- --------------------------------------------------------------------------------------------------------
Unrealized appreciation of securities,
net of deferred income tax 39.5 36.5
Policyholders' surplus 694.6 628.1
- --------------------------------------------------------------------------------------------------------
Total policyholders' surplus 734.1 664.6
- --------------------------------------------------------------------------------------------------------
Total liabilities and policyholders' surplus $9,336.3 $8,597.8
- --------------------------------------------------------------------------------------------------------
Combined Statement of Policyholders' Surplus
Policyholders' surplus at beginning of year $664.6 $572.8
Net income 66.5 74.3
Change in unrealized appreciation (depreciation)
of securities, net 3.0 17.5
- --------------------------------------------------------------------------------------------------------
Policyholders' surplus at end of year $734.1 $664.6
- --------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
Combined Statement of Operations
Year ended December 31 1998 (in millions) 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Insurance premiums and other considerations $478.5 $413.9
Policy and contract charges 87.7 69.3
Net investment income 452.1 469.5
Realized investment gains 15.8 13.7
Other income 8.9 5.9
- --------------------------------------------------------------------------------------------------------
Total revenues 1,043.0 972.3
- --------------------------------------------------------------------------------------------------------
Benefits and expenses:
Policy benefits $462.4 $386.2
Interest expense on annuities and financial products 231.9 257.3
Underwriting, acquisition and insurance expenses 157.8 131.2
Amortization of deferred acquisition costs 59.7 53.2
Dividends to policyholders 26.4 25.0
Interest expense on surplus notes 5.8 5.8
Other operating expenses 10.2 9.5
- --------------------------------------------------------------------------------------------------------
Total benefits and expenses 954.2 868.2
- --------------------------------------------------------------------------------------------------------
Income before income tax expense 88.8 104.1
Income tax expense 22.3 29.8
- --------------------------------------------------------------------------------------------------------
Net income $ 66.5 $ 74.3
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Combined Statement of Cash Flows
Year ended December 31 1998 (in millions) 1997
- --------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Income $ 66.5 $ 74.3
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of deferred acquisition costs 59.7 53.2
Depreciation 11.2 10.1
Deferred taxes 8.1 7.3
Realized investment gains (15.8) (13.7)
Policy acquisition costs capitalized (94.2) (90.8)
Interest credited to deposit liabilities 225.7 252.1
Fees charged to deposit liabilities (32.7) (32.9)
Amortization and accrual of investment income (10.8) (8.2)
Increase in insurance liabilities 169.6 140.2
Increase in noninvested assets (45.5) (66.3)
Increase in other liabilities (1.8) 35.1
- --------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 340.0 360.4
- --------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases:
Fixed maturities, Held to Maturity (18.7) (120.8)
Fixed maturities, Available for Sale (473.8) (348.3)
Equity securities (63.7) (9.4)
Mortgage loans (183.2) (155.4)
Real estate (4.9) (1.9)
Short term and other invested assets (2.7) (43.3)
Proceeds from sales, calls or maturities:
Fixed maturities, Held to Maturity 388.9 241.2
Fixed maturities, Available for Sale 461.6 335.1
Equity securities 8.1 7.2
Mortgage loans 179.2 149.7
Real estate 4.0 4.3
Short term and other invested assets 39.9 1.6
- --------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 334.7 60.0
- --------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Deposits to insurance liabilities 846.6 713.6
Withdrawals from insurance liabilities (1,467.0) (1,112.5)
Other .2 (.5)
- --------------------------------------------------------------------------------------------------------
Net cash used by financing activities (620.2) (399.4)
- --------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 54.5 21.0
- --------------------------------------------------------------------------------------------------------
Cash and cash equivalents beginning of year 41.2 20.2
- --------------------------------------------------------------------------------------------------------
Cash and cash equivalents end of year $ 95.7 $ 41.2
- --------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Notes to Financial Statements
1. Significant Accounting Policies
- ----------------------------------
Nature of Operations and Basis of Presentation
American United Life Insurance Company(R) (AUL) is an Indiana-domiciled mutual
life insurance company with headquarters in Indianapolis. AUL is licensed to do
business in 48 states and the District of Columbia and is an authorized
reinsurer in all states. AUL offers individual life and annuity products through
its career agent distribution system. AUL's qualified group retirement plans,
tax deferred annuities and other non-medical group products are marketed through
independent agents and brokers, as well as career agents who are supported by 37
regional sales offices located throughout the country. Life and pooled
reinsurance is marketed directly to other insurance companies. In 1998, AUL
International began operations to develop reinsurance partners in Central and
South America. The combined Company financial statements include the accounts of
AUL and its affiliate, The State Life Insurance Company (State Life), and its
subsidiary, Equity Sales Corporation. Significant intercompany transactions have
been excluded.
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles (GAAP). AUL and State Life file
separate financial statements with insurance regulatory authorities which are
prepared on the basis of statutory accounting practices which are significantly
different from financial statements prepared in accordance with GAAP. These
differences are described in detail in Note 9 - Statutory Information.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Investments
- ------------
Fixed maturity securities which may be sold to meet liquidity and other needs of
the Company are categorized as available for sale and are stated at fair value.
Fixed maturity securities which the Company has the positive intent and ability
to hold to maturity are categorized as held-to-maturity and are stated at
amortized cost. Equity securities are stated at fair value. Mortgage loans on
real estate are carried at amortized cost less an impairment allowance for
estimated uncollectible amounts. Real estate is reported at cost less allowances
for depreciation. Depreciation is provided (straight line) over the estimated
useful lives of the related assets. Investment real estate is net of accumulated
depreciation of $31.7 million at December 31, 1998 and 1997. Depreciation
expense for investment real estate amounted to $2.4 million and $2.5 million for
1998 and 1997, respectively. Policy loans are carried at their unpaid balance.
Other invested assets are reported at cost plus the Company's equity in
undistributed net equity since acquisition. Short term investments include
investments with maturities of one-year or less and are carried at cost which
approximates market. Short term certificates of deposit and savings certificates
are considered to be cash equivalents. The carrying amount for cash and cash
equivalents approximates market.
Realized gains and losses on sale or maturity of investments are based upon
specific identification of the investments sold and do not include amounts
allocable to separate accounts. At the time a decline in value of an investment
is determined to be other than temporary, a provision for loss is recorded which
is included in realized investment gains and losses. Unrealized gains and
losses, resulting from carrying available-for-sale securities at fair value, are
reported in policyholders' surplus, net of deferred taxes.
Deferred Policy Acquisition Costs
- ---------------------------------
Those costs of acquiring new business, which vary with and are primarily related
to the production of new business, have been deferred to the extent that such
costs are deemed recoverable. Such costs include commissions, certain costs of
policy underwriting and issue and certain variable agency expenses. These costs
are amortized with interest as follows:
For participating whole life insurance products, over the lesser of 30
years or the lifetime of the policy in relation to the present value of
estimated gross margins from expenses, investments and mortality,
discounted using the expected investment yield.
For universal life-type policies and investment contracts, over the lesser
of the lifetime of the policy or 30 years for life policies or 20 years for
other policies in relation to the present value of estimated gross profits
from surrender charges and investment, mortality and expense margins,
discounted using the interest rate credited to the policy.
For term life insurance products and life reinsurance policies, over the
lesser of the benefit period or 30 years for term life or 20 years for life
reinsurance policies in relation to the ratio of anticipated annual premium
revenue to the anticipated total premium revenue, using the same
assumptions used in calculating policy benefits.
For miscellaneous group life and individual and group health policies,
straight line over the expected life of the policy.
For credit insurance policies, the deferred acquisition cost balance is
primarily equal to the unearned premium reserve multiplied by the ratio of
deferrable commissions to premiums written.
Recoverability of the unamortized balance of deferred policy acquisition costs
is evaluated regularly. For universal life-type contracts, investment contracts
and participating whole life policies, the accumulated amortization is adjusted
(increased or decreased) whenever there is a material change in the estimated
gross profits or gross margins expected over the life of a block of business in
order to maintain a constant relationship between cumulative amortization and
the present value of gross profits or gross margins. For most other contracts,
the unamortized asset balance is reduced by a charge to income only when the
present value of future cash flows, net of the policy liabilities, is not
sufficient to cover such asset balance.
<PAGE>
Notes to Financial Statements
Assets Held in Separate Accounts
- --------------------------------
Separate accounts are funds on which investment income and gains or losses
accrue directly to certain policies, primarily variable annuity contracts,
equity-based pension and profit sharing plans and variable universal life
policies. The assets of these accounts are legally segregated, and are valued at
fair value. The related liabilities are recorded at amounts equal to the
underlying assets; the fair value of these liabilities is equal to their
carrying amount.
Property and Equipment
- ----------------------
Property and equipment includes real estate owned and occupied by the Company.
Property and equipment is carried at cost, net of accumulated depreciation of
$47.1 million and $41.6 million as of December 31, 1998 and 1997, respectively.
The Company provides for depreciation of property and equipment using the
straight-line method over its estimated useful life. Depreciation expense for
1998 and 1997 was $8.8 million and $7.6 million, respectively.
Premium Revenue and Benefits to Policyholders
- ---------------------------------------------
The premiums and benefits for whole life and term insurance products and certain
annuities with life contingencies (immediate annuities) are fixed and
guaranteed. Such premiums are recognized as premium revenue when due. Group
insurance premiums are recognized as premium revenue over the time period to
which the premiums relate. Benefits and expenses are associated with earned
premiums so as to result in recognition of profits over the life of the
contracts. This association is accomplished by means of the provision for
liabilities for future policy benefits and the amortization of deferred policy
acquisition costs.
Universal life policies and investment contracts are policies with terms that
are not fixed and guaranteed. The terms that may be changed could include one or
more of the amounts assessed the policyholder, premiums paid by the policyholder
or interest accrued to policyholder balances. The amounts collected from
policyholders for these policies are considered deposits, and only the
deductions during the period for cost of insurance, policy administration and
surrenders are included in revenue. Policy benefits and claims that are charged
to expense include interest credited to contracts and benefit claims incurred in
the period in excess of related policy account balances.
Reserves for Future Policy and Contract Benefits
- ------------------------------------------------
Liabilities for future policy benefits for participating whole life policies are
calculated using the net level premium method and assumptions as to interest and
mortality. The interest rate is the dividend fund interest rate and the
mortality rates are those guaranteed in the calculation of cash surrender values
described in the contract. Liabilities for future policy benefits for term life
insurance and life reinsurance policies are calculated using the net level
premium method and assumptions as to investment yields, mortality and
withdrawals. The assumptions are based on projections of past experience and
include provisions for possible unfavorable deviation. These assumptions are
made at the time the contract is issued. Liabilities for future policy benefits
on universal life and investment contracts consist principally of policy account
values plus certain deferred policy fees which are amortized using the same
assumptions and factors used to amortize the deferred policy acquisition costs.
If the future benefits on investment contracts are guaranteed (immediate
annuities with benefits paid for a period certain) the liability for future
benefits is the present value of such guaranteed benefits. Claim liabilities
include provisions for reported claims and estimates based on historical
experience for claims incurred but not reported.
Income Taxes
- ------------
The provision for income taxes includes amounts currently payable and deferred
income taxes resulting from the temporary differences in the assets and
liabilities determined on a tax and financial reporting basis.
<PAGE>
Notes to Financial Statements
2. Investments:
- ---------------
<TABLE>
<CAPTION>
The book value and fair value of investments in fixed maturity securities by type of
investment were as follows:
December 31, 1998
- --------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------------------
Available for sale: (in millions)
<S> <C> <C> <C> <C>
Obligations of U.S. government, states,
...political subdivisions and foreign governments. $ 42.7 $ 5.4 $0.0 $ 48.1
Corporate securities 1,119.7 65.5 4.3 1,180.9
Mortgage-backed securities 440.7 26.0 0.3 466.4
- --------------------------------------------------------------------------------------------------------------------
$ 1,603.1 $ 96.9 $4.6 $ 1,695.4
- --------------------------------------------------------------------------------------------------------------------
Held to maturity:
Obligations of U.S. government, states,
...political subdivisions and foreign governments $ 108.8 $ 7.6 $0.0 $ 116.4
Corporate securities. 1,656.4 141.0 2.9 1,794.5
Mortgage-backed securities. 771.0 50.3 0.3 821.0
- --------------------------------------------------------------------------------------------------------------------
$ 2,536.2 $ 198.9 $3.2 $ 2,731.9
- --------------------------------------------------------------------------------------------------------------------
December 31, 1997
- --------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------------------
Available for sale: (in millions)
Available for sale:
Obligations of U.S. government, states,
...political subdivisions and foreign governments $ 47.8 $ 4.0 $0.0 $ 51.8
Corporate securities. 1,064.1 55.5 1.8 1,117.8
Mortgage-backed securities. 456.8 27.6 0.2 484.2
- --------------------------------------------------------------------------------------------------------------------
$ 1,568.7 $ 87.1 $2.0 $1,653.8
- --------------------------------------------------------------------------------------------------------------------
Held to maturity:
Obligations of U.S. government, states,
...political subdivisions and foreign governments $ 124.2 $ 6.2 $0.3 $ 130.1
Corporate securities. 1,854.4 123.4 3.6 1,974.2
Mortgage-backed securities 923.6 55.5 0.2 978.9
- --------------------------------------------------------------------------------------------------------------------
$ 2,902.2 $ 185.1 $4.1 $ 3,083.2
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Notes to Financial Statements
The amortized cost and fair value of fixed maturity securities at December 31,
1998, by contractual average maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Available for Sale Held to Maturity Total
Amortized Fair Amortized Fair Amortized Fair
(in millions) Cost Value Cost Value Cost Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Due in one year
or less $ 40.7 $ 40.9 $ 72.9 $ 73.9 $ 113.6 $ 114.8
Due after one year
through five years 392.8 404.1 753.4 790.5 1,146.2 1,194.6
Due after five years
through ten years 363.9 383.1 577.7 639.3 941.6 1,022.4
Due after ten years 365.0 400.9 361.2 407.2 726.2 808.1
- --------------------------------------------------------------------------------------------------------------------
1,162.4 1,229.0 1,765.2 1,910.9 2,927.6 3,139.9
Mortgage-backed securities 440.7 466.4 771.0 821.0 1,211.7 1,287.4
- --------------------------------------------------------------------------------------------------------------------
$1,603.1 $1,695.4 $2,536.2 $2,731.9 $4,139.3 $4,427.3
</TABLE>
Net investment income consisted of the following:
for years ended December 31 1998 (in millions) 1997
- -------------------------------------------------------------------------
Fixed maturity securities $341.0 $359.4
Equity securities 2.3 2.5
Mortgage loans 98.5 100.9
Real estate 10.7 11.2
Policy loans 8.8 8.8
Other 10.0 7.3
- -------------------------------------------------------------------------
Gross investment income 471.3 490.1
Investment expenses 19.2 20.6
- -------------------------------------------------------------------------
Net investment income $452.1 $469.5
- -------------------------------------------------------------------------
Net realized investment gains and (losses) include write downs and changes in
the reserve for losses on mortgage loans and foreclosed real estate of $(.1)
million and $(1.3) million for 1998 and 1997, respectively. Proceeds from the
sales, maturities or calls of investments in fixed maturities during 1998 and
1997 were approximately $850.5 million and $576.3 million, respectively. Gross
gains of $14.9 million and $11.6 million, and gross losses of $.6 million and
$1.3 million were realized in 1998 and 1997, respectively. The changes in
unrealized appreciation of fixed maturities amounted to approximately $7.2
million and $39.9 million in 1998 and 1997, respectively.
At December 31, 1998, the unrealized appreciation on equity securities of
approximately $2.3 million is comprised of $3.8 million in unrealized gains and
$1.5 million of unrealized losses and has been reflected directly in
policyholders' surplus. The change in the unrealized appreciation of equity
securities amounted to approximately $.1 million and $.9 million in 1998 and
1997, respectively.
<PAGE>
The Company maintains a diversified mortgage loan portfolio and exercises
internal limits on concentrations of loans by geographic area, industry, use and
individual mortgagor. At December 31, 1998, the largest geographic concentration
of commercial mortgage loans was in Indiana, California and Florida where
approximately 31% of the portfolio was invested. A total of 40% of the mortgage
loans have been issued on retail properties, primarily backed by long term
leases or guarantees from strong credits.
The Company has outstanding mortgage loan commitments at December 31, 1998, of
approximately $100.3 million. As of December 31, 1998, the carrying value of
investments that produced no income for the previous twelve month period was $.2
million.
<PAGE>
Notes to Financial Statements
3. Insurance Liabilities:
- -------------------------
Insurance liabilities consisted of the following:
<TABLE>
<CAPTION>
(in millions)
- -------------------------------------------------------------------------------------------------------------------------
Withdrawal Mortality or morbidity Interest rate December 31,
assumption assumption assumption 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
Future policy benefits:
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Participating whole life contracts Company Company 2.5% to 6.0% $ 632.7 $ 594.5
experience experience
Universal life-type contracts n/a n/a n/a 381.2 376.4
Other individual life contracts Company Company 2.5% to 8.0% 271.1 216.4
experience experience
Accident and health n/a n/a n/a 55.2 51.0
Annuity products n/a n/a n/a 3,803.7 4,213.6
Group life and health n/a n/a n/a 195.2 191.0
Other policyholder funds n/a n/a n/a 203.9 177.1
Pending policyholder claims n/a n/a n/a 209.2 164.3
- -------------------------------------------------------------------------------------------------------------------------
Total insurance liabilities $5,752.2 $5,984.3
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Participating life insurance policies under generally accepted accounting
principles represent approximately 7% and 9% of the total individual life
insurance in force at December 31, 1998 and 1997, respectively. Participating
policies represented approximately 34% and 39% of life premium income for 1998
and 1997, respectively. The amount of dividends to be paid is determined
annually by the Board of Directors.
4. Employees' and Agents' Benefit Plans:
- ----------------------------------------
The Company has a noncontributory defined benefit pension plan covering
substantially all employees. Company contributions to the employee plan are made
periodically in an amount between the minimum ERISA required contribution and
the maximum tax-deductible contribution. Such amounts are expensed as
contributed. Contributions made to the Plan were $2.1 million in 1998 and $2.8
million in 1997.
The following benefit information for the employees' defined benefit plan was
determined by independent actuaries as of January 1, 1998 and 1997,
respectively, the most recent actuarial valuation dates:
1998 (in millions) 1997
- --------------------------------------------------------------------------------
Actuarial present value of
accumulated benefits for the
employees' defined benefit plan $33.6 $28.1
Fair value of plan assets 49.6 39.7
- --------------------------------------------------------------------------------
Funded status $16.0 $11.6
- --------------------------------------------------------------------------------
Net periodic pension cost $ 2.1 $ 2.0
- --------------------------------------------------------------------------------
The assumed discount rate was 7.17% and 7.36% for 1998 and 1997, respectively.
For both 1998 and 1997, the expected return on plan assets was 8.0% and the rate
of compensation increase assumed was 6%. Benefits paid out of the Plan were
approximately $3.1 million in 1998 and $2.6 million in 1997.
The Company has a defined contribution plan and a 401(k) salary
reduction/savings plan for employees. Quarterly contributions covering employees
who have completed one full calendar year of service are made by the Company in
amounts based upon the Company's financial results. Company contributions to the
plan during 1998 and 1997 were $1.7 million and $1.5 million, respectively.
<PAGE>
Notes to Financial Statements
The Company has a defined contribution pension plan and a 401(k) plan covering
substantially all of the agents, except general agents. Contributions of 3% to
4 1/2% of defined commissions (plus 3% to 41/2% for commissions over the Social
Security wage base) are made to the pension plan. An additional contribution of
3% of defined commissions is made to a 401(k) plan. Company contributions
expensed for these plans for 1998 and 1997 were $257,000 and $268,000,
respectively.
The funds for all plans are held by the Company under deposit administration and
group annuity contracts.
The Company also provides certain health care and life insurance benefits
(postretirement benefits) for retired employees and certain agents (retirees).
Employees and agents with at least 10 years of plan participation may become
eligible for such benefits if they reach retirement age while working for the
Company.
Accrued postretirement benefits as of December 31: 1998 (in millions) 1997
================================================================================
Accumulated postretirement benefit obligation $9.5 $9.3
Net postretirement benefit cost 1.2 1.0
Company contributions .7 .7
- --------------------------------------------------------------------------------
There are no specific plan assets for this postretirement liablility as of
December 31, 1998 and 1997. Claims incurred for benefits were funded by company
contributions.
The assumed discount rate used in determining the accumulated postretirement
benefit was 7.00% and the assumed health care cost trend rate was 10% graded to
5% until 2004. Compensation rates were assumed to increase 6% at each year end.
The health coverage for retirees 65 and over is capped in the year 2000. The
health care cost trend rate assumption has an effect on the amounts reported. An
increase in the assumed health care cost trend rates by one percentage point
would increase the accumulated postretirement benefit obligation as of December
31, 1998, by $152,000 and increase the accumulated postretirement benefit cost
for 1998 by $16,000.
5. Federal Income Taxes:
- ------------------------
A reconciliation of the income tax attributable to continuing operations
computed at U.S. federal statutory tax rates to the income tax expense included
in the statement of operations follows:
for years ended December 31 1998 (in millions) 1997
- ------------------------------------------------------------------------------
Income tax computed at statutory tax rate $31.0 $36.3
Tax exempt income (2.0) (1.5)
Mutual company differential earnings amount 4.3 6.1
Prior year differential earnings amount (10.2) (3.7)
Other (0.8) (7.4)
- ------------------------------------------------------------------------------
Federal income tax $22.3 $29.8
- ------------------------------------------------------------------------------
The components of the provision for income taxes on earnings included current
tax provisions of $14.2 million and $22.5 million for the years ended December
31, 1998 and 1997, respectively, and deferred tax expense of $8.1 million and
$7.3 million for the years ended December 31, 1998 and 1997, respectively.
<PAGE>
Notes to Financial Statements
Deferred income tax assets (liabilities)
- --------------------------------------------------------------------------------
as of December 31: 1998 1997
- --------------------------------------------------------------------------------
Deferred policy acquisition costs $(148.8) $(137.0)
Investments (11.1) (12.0)
Insurance liabilities 158.9 154.7
Unrealized appreciation of securities (23.6) (21.9)
Other (6.1) (4.7)
- --------------------------------------------------------------------------------
Deferred income tax assets (liabilities) $ (30.7) $ (20.9)
- --------------------------------------------------------------------------------
Federal income taxes paid were $10.6 million and $28.6 million for 1998 and
1997, respectively.
6. Reinsurance:
- ---------------
The Company is a party to various reinsurance contracts under which it receives
premiums as a reinsurer and reimburses the ceding companies for portions of the
claims incurred. At December 31, 1998 and 1997, life reinsurance assumed was
approximately 74% and 71%, respectively, of life insurance in force.
For individual life policies, the Company cedes the portion of the total risk in
excess of $1,500,000. For other policies, the Company has established various
limits of coverage it will retain on any one policyholder and cedes the
remainder of such coverage.
Certain statistical data with respect to reinsurance follows:
for years ended December 31 1998 1997
- --------------------------------------------------------------------------------
Direct statutory premiums $374.1 $369.4
Reinsurance assumed 329.7 253.9
Reinsurance ceded 150.2 132.3
- --------------------------------------------------------------------------------
Net premiums 553.6 491.0
- --------------------------------------------------------------------------------
Reinsurance recoveries $146.4 $ 103.4
The Company accounts for all reinsurance agreements as transfers of risk. If
companies to which reinsurance has been ceded are unable to meet obligations
under the reinsurance agreements, the Company would remain liable. Six
reinsurers account for approximately 66% of the Company's December 31, 1998,
ceded reserves for life and accident and health insurance. The remainder of such
ceded reserves is spread among numerous reinsurers.
7. Surplus Notes and Lines of Credit:
- -------------------------------------
On February 16, 1996, the Company issued $75 million of Surplus Notes, due March
30, 2026. Interest is payable semi-annually on March 30, and September 30 at a
7.75% annual rate. Any payment of interest on or principal of the Notes may be
made only with the prior approval of the Commissioner of the Indiana Department
of Insurance. The Surplus Notes may not be redeemed at the option of AUL or any
holder of the Surplus Notes. Interest paid during 1998 was $5.8 million. The
Company has available a $125 million committed credit facility. No amounts have
been drawn as of December 31, 1998.
8. Commitments and Contingencies:
- ---------------------------------
Various lawsuits have arisen in the ordinary course of the Company's business.
In each of the matters, the Company believes the ultimate resolution of such
litigation will not result in any material adverse impact to operations or
financial condition of the Company.
In 1997, AUL signed an investment agreement with Indianapolis Life Insurance
Company (Indianapolis Life) and Indianapolis Life Group of Companies (ILGroup),
a downstream holding company of Indianapolis Life, with a purpose of creating an
affiliation under a mutual holding company structure. At December 31, 1998, AUL
has invested $49.5 million in ILGroup in exchange for a 33.2% ownership. In
1998, AUL signed an affiliation agreement with Pioneer Mutual Life Insurance
Company, who joined with AUL, Indianapolis Life and State Life contemplating
future integration of the companies in a mutual holding company structure.
<PAGE>
Notes to Financial Statements
9. Statutory Information:
- ----------------------------
AUL and State Life prepare statutory financial statements in accordance with
accounting principles and practices prescribed or permitted by the Indiana
Department of Insurance. Prescribed statutory accounting practices (SAP)
currently include state laws, regulations and general administrative rules
applicable to all insurance enterprises domiciled in a particular state, as well
as practices described in National Association of Insurance Commissioners'
(NAIC) publications.
A reconciliation of SAP surplus to GAAP surplus at December 31 follows:
- --------------------------------------------------------------------------------
for years ended December 31 1998 (in millions) 1997
- --------------------------------------------------------------------------------
SAP surplus $496.5 $464.2
Deferred policy acquisition costs 481.8 447.4
Adjustments to policy reserves (306.0) (303.1)
Asset valuation and interest maintenance reserves 88.9 86.1
Unrealized gain on invested assets, net 39.5 36.5
Surplus notes (75.0) (75.0)
Deferred income taxes (6.7) 1.0
Other, net 15.1 7.5
- --------------------------------------------------------------------------------
GAAP surplus $734.1 $664.6
- --------------------------------------------------------------------------------
A reconciliation of SAP net income to GAAP net income for the years ended
December 31 follows:
- --------------------------------------------------------------------------------
for years ended December 31 1998 (in millions) 1997
- --------------------------------------------------------------------------------
SAP income $33.5 $41.8
Deferred policy acquisition costs 34.5 37.6
Adjustments to policy reserves (3.7) (9.2)
Deferred income taxes (8.1) (7.3)
Other, net 10.3 11.4
- --------------------------------------------------------------------------------
GAAP net income $66.5 $74.3
- --------------------------------------------------------------------------------
Life insurance companies are required to maintain certain amounts of assets on
deposit with state regulatory authorities. Such assets had an aggregate carrying
value of $4.9 million at December 31, 1998.
10. Fair Value of Financial Instruments:
- ----------------------------------------
The disclosure of fair value information about certain financial instruments is
based primarily on quoted market prices. The fair values of short-term
investments and policy loans approximate the carrying amounts reported in the
balance sheets. Fair values for fixed maturity and equity securities, and
surplus notes are based on quoted market prices where available. For fixed
maturity securities not actively traded, fair values are estimated using values
obtained from independent pricing services, or in the case of private
placements, are estimated by discounting expected future cash flows using a
current market rate applicable to the yield, credit quality and maturity of the
investments.
The fair value of the aggregate mortgage loan portfolio was estimated by
discounting the future cash flows using current rates at which similar loans
would be made to borrowers with similar credit ratings for similar maturities.
The estimated fair values of the liabilities for policyholder funds approximate
the statement values because interest rates credited to account balances
approximate current rates paid on similar funds and are not generally guaranteed
beyond one year. Fair values for other insurance reserves are not required to be
disclosed. However, the estimated fair values for all insurance liabilities are
taken into consideration in the Company's overall management of interest rate
risk, which minimizes exposure to changing interest rates through the matching
of investment maturities with amounts due under insurance contracts. The fair
values of certain financial instruments along with their corresponding carrying
values at December 31, 1998 and 1997 follow.
1998 (in millions) 1997
- --------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amounts Value Amounts Value
- --------------------------------------------------------------------------------
Fixed maturity securities:
Available for sale $1,695.4 $1,695.4 $1,653.8 $1,653.8
Held to Maturity 2,536.2 2,731.9 2,902.2 3,083.2
Equity securities 75.1 75.1 18.6 18.6
Mortgage loans 1,128.5 1,202.1 1,120.4 1,201.0
Policy loans 144.4 144.4 143.1 143.1
Surplus notes 75.0 80.5 75.0 79.5
- --------------------------------------------------------------------------------
<PAGE>
Board of Directors
Jerry D. Semler, CLU (1, 2)
Chairman of the Board,
President and Chief
Executive Officer,
AUL
Steven C. Beering, MD (3)
President, Purdue University
West Lafayette, Indiana
Arthur L. Bryant, FSA (2)
President, The State Life
Insurance Company
James M. Cornelius (1)
Chairman of the Board,
Guidant Corporation
Indianapolis, Indiana
James E. Dora (1)
Chairman of the Board
and Chief Executive Officer,
General Hotels Corporation
Indianapolis, Indiana
Otto N. Frenzel, III (3)
Chairman of Executive Committee,
National City Bank, Indiana
Indianapolis, Indiana
David W. Goodrich, SIOR (2)
President, Indianapolis Colliers Turley Martin Tucker Company
Indianapolis, Indiana
<PAGE>
William P. Johnson (2)
Chairman of the Board and
Chief Executive Officer,
Goshen Rubber Company, Inc.
Goshen, Indiana
James T. Morris (1)
Chairman of the Board
and Chief Executive Officer,
IWC Resources Corporation
and the Indianapolis
Water Company
Indianapolis, Indiana
R. Stephen Radcliffe,
FSA, CLU, MAAA (2)
Executive Vice President,
AUL
Thomas E. Reilly, Jr. (2)
Chairman of the Board, Reilly Industries, Inc.
Indianapolis, Indiana
William R. Riggs (1)
Partner, Ice Miller Donadio
& Ryan
Indianapolis, Indiana
John C. (Jack) Scully, CLU
President Emeritus,
LIMRAInternational
Hartford, Connecticut
Yvonne H. Shaheen (3)
Chief Executive Officer
and President,
Long Electric Company Indianapolis, Indiana
Frank D. Walker (3)
Chairman of the Board,
Walker Information
Indianapolis, Indiana
Board committees
(1) Executive
(2) Finance
(3) Audit
Management Committee
Jerry D. Semler, CLU
Chairman of the Board,
President and Chief Executive Officer
R. Stephen Radcliffe, FSA,
CLU, MAAA
Executive Vice President
John H. Barbre, CLU
Senior Vice President,
Individual Division
<PAGE>
John R. Barton, CLU, FLMI
Senior Vice President,
Group Division
William R. Brown, JD
General Counsel and Secretary
Arthur L. Bryant, FSA
President, The State Life
Insurance Company
Scott A. Kincaid
Senior Vice President and
Chief Information Officer
Charles D. Lineback, FLMI
Senior Vice President,
Reinsurance Division
James W. Murphy, FLMI
Senior Vice President,
Corporate Finance
Jerry L. Plummer
Senior Vice President,
Human Resources and
Corporate Support
G. David Sapp, CFA, FLMI
Senior Vice President, Investments
William L. Tindall
Senior Vice President,
Pension Division
(As of 2/1/99) Enterprise Profile American United Life Insurance Company(R) is a
mutual company with headquarters in Indianapolis. AUL's predecessors were
founded in 1877 and the company is currently licensed to sell in 48 states and
the District of Columbia. AULInternational's headquarters in Coral Gables,
Florida, serves a growing number of Central and South American countries.
AUL, with approximately $9.3 billion in assets, is a diversified company with
four major product lines. We offer individual life insurance and annuities,
group life and disability insurance, pension products and reinsurance services.
The company is one of the nation's top providers of tax-deferred group annuities
and pensions, with more than $5.45 billion of group annuity and pension assets
under management. In 1994, AUL entered into a strategic alliance with The State
Life Insurance Company. All the financials in this report include/ combined AUL
and State Life results, unless otherwise noted. In late 1997, the company
announced an affiliation with Indianapolis Life Insurance Company, and in 1998,
Pioneer Mutual Life Insurance Company of Fargo, North Dakota, also became an
affiliate of AUL. AUL has earned consistently high ratings. We are rated A+
(second highest of 15 rating categories) by A.M. Best, AA (third of 18) by
Standard & Poor's and Duff & Phelps, and A1 (fifth of 25) by Moody's.
AUL's agents and sales representatives are prepared to provide service to
policyholders and clients at any time. If for any reason you need additional
assistance, however, you may call the Home Office toll free. Regarding
individual products, call 1-800-537-6442, regarding group products, call
1-800-553-5318, regarding financial institution sales, call 1-800-381-3683 and
regarding pension products, call 1-800-634-1629. For additional information
about AUL, call Jim Freeman, vice president, Corporate C ommunications, at (317)
285-1609.
<PAGE>
================================================================================
No dealer, salesman or any other person is authorized by the AUL
American Individual Unit Trust to give any information or to make any
representation other than as contained in this Statement of Additional
Information in connection with the offering described herein.
There has been filed with the Securities and Exchange Commission,
Washington, D.C., a Registration Statement under the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as amended,
with respect to the offering herein described. For further information
with respect to the AUL American Individual Unit Trust, AUL and its
variable annuities, reference is made thereto and the exhibits filed
therewith or incorporated therein, which include all contracts or
documents referred to herein.
================================================================================
INDIVIDUAL FLEXIBLE PREMIUM VARIABLE DEFERRED ANNUITY
Individual Variable Annuity Contracts
Sold By
AMERICAN UNITED
LIFE INSURANCE COMPANY(R)
One American Square
Indianapolis, Indiana 46282
STATEMENT OF ADDITIONAL INFORMATION
Dated: December 31, 1998
================================================================================
20
<PAGE>
Part C: Other Information
Item 24. Financial Statements and Exhibits
(a) Financial Statements
1. Included in Prospectus (Part A):
Condensed Financial Information
2. Included in Statement of Additional Information (Part B):
(a) Financial Statements of American United Life Insurance Company(R)
Report of Independent Accountants
Combined Balance Sheet - Assets, Liabilities and Policyowners'
Surplus as of December 31, 1998 and 1997
Combined Statement of Policyowners' Surplus for the years ended
December 31, 1998 and 1997
Combined Statement of Operations for the years ended December 31,
1998 and 1997
Combined Statement of Cash Flows for the years ended December 31,
1998 and 1997
Notes to Financial Statements
(b) Financial Statements of AUL American Individual Variable Annuity
Unit Trust
Not applicable
(b) Exhibits
1. Resolution of the Executive Committee of American United Life
Insurance Company(R) ("AUL") establishing AUL American Individual
Unit Trust(1)
2. Not applicable
3. Not applicable
4. Individual Variable Annuity Contract Forms
4.1 Flexible Premium Variable Annuity Contract (1)
4.2 One Year Flexible Premium Variable Annuity Contract (1)
4.3 Enhanced Death Benefit Rider (1)
4.4 Guaranteed Minimum Income Benefit Rider (2)
4.5 Guaranteed Minimum Account Value Rider (1)
4.6 Long Term Care Facility & Terminal Illness Rider (1)
5. Individual Variable Annuity Enrollment Form(2)
6. Certificate of Incorporation and By-Laws of the Depositor
6.1 Articles of Merger between American Central Life Insurance
Company and United Mutual Life Insurance Company(1)
6.2 Certification of the Indiana Secretary of State as to the filing
of the Articles of Merger between American Central Life
Insurance Company and United Mutual Life Insurance Company(1)
6.3 Code of By-Laws of American United Life Insurance Company(R)(1)
7. Not applicable
8. Form of Participation Agreements:
8.1 Form of Participation Agreement with Alger American Fund(2)
8.2 Form of Participation Agreement with American Century Variable
Portfolios(2)
8.3 Form of Participation Agreement with Calvert Variable Series(2)
8.4 Form of Participation Agreement with Fidelity Variable Insurance
Products Fund(2)
8.5 Form of Participation Agreement with Fidelity Variable Insurance
Products Fund II(2)
8.6 Form of Participation Agreement with Janus Aspen Series(2)
8.7 Form of Participation Agreement with PBHG Funds, Inc.(2)
8.8 Form of Participation Agreement with SAFECO Resource Series
Trust(2)
8.9 Form of Participation Agreement with T. Rowe Price Equity
Series, Inc.(2)
9. Opinion and Consent of Associate General Counsel of AUL as to the
legality of the Contracts being registered(1)
10. Miscellaneous Consents
10.1 Consent of Independent Accountants(1)
10.2 Consent of Dechert Price & Rhoads(1)
10.3 Powers of Attorney(1)
11. Financial Statements of AUL American Individual Variable Annuity
Unit Trust(2)
12. Not applicable
13. Computation of Performance Quotations(1)
14. Financial Data Schedules(2)
(1) Filed with the Registrant's Registration Statement on December 31, 1998
(2) Filed with the Registrant's Pre-Effective Amendment No. 1 to the Registr-
ation Statement on April 1, 1999
<TABLE>
<PAGE>
<CAPTION>
Item 25. Directors and Officers of AUL
<S> <C>
Name and Address Positions and Offices with AUL
- ---------------- ------------------------------
John H. Barbre* Senior Vice President
John R. Barton* Senior Vice President
Steven C. Beering M.D. Director
Purdue University
West Lafayette, Indiana
William R. Brown* General Counsel and Secretary, AUL
Secretary, State Life Insurance Co.
Arthur L. Bryant Director
141 E. Washington St.
Indianapolis, Indiana
James M. Cornelius Director
P.O. Box 44906
Indianapolis, Indiana
James E. Dora Director
P.O. Box 42908
Indianapolis, Indiana
Otto N. Frenzel III Director and Chairman of the Audit
101 W. Washington St., Suite 400E Committee
Indianapolis, Indiana
David W. Goodrich Director
One American Square, Suite 2500
Indianapolis, Indiana
William P. Johnson Director
P.O. Box 517
Goshen, Indiana
Scott A. Kincaid* Senior Vice President
Charles D. Lineback* Senior Vice President
James T. Morris Director
1220 Waterway Boulevard
Indianapolis, Indiana
James W. Murphy* Senior Vice President
Jerry L. Plummer* Senior Vice President
R. Stephen Radcliffe* Director and Executive Vice President
Thomas E. Reilly Jr. Director and Chairman of the Finance
300 N. Meridian, Suite 1500 Committee
Indianapolis, Indiana
William R. Riggs Director
P.O. Box 82001
Indianapolis, Indiana
G. David Sapp* Senior Vice President
John C. Scully Director
2636 Ocean Dr., # 505
Vero Beach, Florida
Jerry D. Semler* Chairman of the Board, President, Chief
Executive Officer and Chairman of the
Executive Committee, Chairman the Board,
Chief Executive Officer, State Life
Insurance Co.
- ---------------------------------------------
*One American Square, Indianapolis, Indiana
2
<PAGE>
Item 25. Directors and Officers of AUL (Continued)
Name and Address Positions and Offices with AUL
- ---------------- ------------------------------
Yvonne H. Shaheen Director
1310 S. Franklin Road
Indianapolis, Indiana
William L. Tindall* Senior Vice President
Frank D. Walker Director
P.O. Box 40972
Indianapolis, Indiana
- ----------------------------------------------
*One American Square, Indianapolis, Indiana
</TABLE>
Item 26. Persons Controlled by or Under Common Control with Registrant
In accordance with current law, it is anticipated that American United Life
Insurance Company(R) ("AUL") will request voting instructions from owners or
participants of any Contracts that are funded by separate accounts that are
registered investment companies under the Investment Company Act of 1940 and
will vote shares in any such separate account attributable to the Contracts in
proportion to the voting instructions received. AUL may vote shares of any
Portfolio, if any, that it owns beneficially in its own discretion.
Registrant, AUL American Individual Unit Trust and AUL American Unit Trust are
separate accounts of AUL, organized for the purpose of the respective sale of
individual and group variable annuity contracts.
AUL American Individual Variable Life Unit Trust is a separate account of AUL,
organized for the purpose of the sale of individual variable life contracts.
American United Life Pooled Equity Fund B is a separate account of AUL organized
for the purpose of the sale of group variable annuity contracts.
AUL Equity Sales Corp. is a wholly owned subsidiary of AUL, organized under the
laws of the State of Indiana in 1969 as a broker-dealer to market registered
variable insurance products and mutual funds.
AUL may also be deemed to control State Life Insurance Company(R) ("State Life")
since a majority of AUL's Directors also serve as Directors of State Life. By
virtue of an agreement between AUL and State Life, AUL provides investment and
other support services for State Life on a contractual basis.
AUL owns a 20% share of the stock of Princeton Reinsurance Managers, LLC, a
limited liability Delaware company. AUL's affiliation provides an alternative
marketing channel for its Reinsurance Division.
AUL American Series Fund, Inc. (the "Fund") was incorporated under the laws of
Maryland on July 26, 1989 and is registered as an open-end, diversified
management investment company under the Investment Company Act of 1940. As a
"series" type of mutual Fund, the Fund issues shares of common stock relating to
separate investment portfolios. Substantially all of the Fund's shares were
originally purchased by AUL in connection with the initial capitalization of the
Fund. On December 31, 1998, AUL owned 6.57% of the outstanding shares of the
Fund's Equity portfolio, 9.99% of the Fund's Tactical Asset Allocation
Portfolio, 81.97% of the Conservative Investor Portfolio, 75.83% of the Moderate
Investor Portfolio, and 77.61% of the Aggressive Investor Portfolio. As of the
same date, the directors and officers of the fund, as a group, owned less than
1% of the fund's shares or the shares of any portfolio.
In 1997, AUL signed an investment agreement with Indianapolis Life Insurance
Company (Indianapolis Life) and Indianapolis Life Group of Companies (ILGroup),
a downstream holding company of Indianapolis Life, with a purpose of creating an
affiliation under a mutual holding company structure. At December 31, 1998, AUL
has invested $49.5 million in ILGroup in exchange for a 33.2% ownership. In
1998, AUL signed an affiliation agreement with Pioneer Mutual Life Insurance
Company, who joined with AUL, Indianapolis Life and State Life contemplating
future integration of the companies in a mutual holding company structure.
3
<PAGE>
Item 27. Number of Contractholders
As of December 31, 1998, AUL has issued 0 Individual variable annuity contracts
associated with the Registrant.
Item 28. Indemnification
Article IX, Section 1 of the by-laws of 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 de-
fense 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 ad-
judged in such action, suit or proceeding, to be liable for negligence or mis-
conduct 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 corpor-
ation that such settlement be made and that such director or officer was not
guilty of negligence or misconduct. Such rights of indemnification and reim-
bursement 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 other-
wise.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
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 registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant 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 registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 29. Principal Underwriters
(a) AUL acts as Investment Adviser to American United Life Pooled Equity Fund B
(File No. 2-27832) and to AUL American Series Fund, Inc. (File No. 33-30156)
(b) For information regarding AUL's Officers and Directors, see Item 25 above.
(c) Not applicable
Item 30. Location of Accounts and Records
The accounts, books and other documents required to be maintained by Registrant
pursuant to Section 31(a) of the investment Company Act of 1940 and the rules
under that section will be maintained at One American Square, Indianapolis, IN
46282.
Item 31. Management Services
There are no management-related service contracts not discussed in Part A or
Part B.
4
<PAGE>
Item 32. Undertakings
The registrant hereby undertakes:
(a) to file a post-effective amendment to this registration statement as
frequently as is necessary to ensure that the audited financial
statements in this registration statement are never more than 16 months
old for so long as payments under the variable annuity contracts may be
accepted, unless otherwise permitted.
(b) to include either (1) as part of any application to purchase a contract
offered by the prospectus, a space that an applicant can check to
request a Statement of Additional Information, or (2) a post card or
similar written communication affixed to or included in the prospectus
that the applicant can remove to send for a Statement of Additional
Information.
(c) to deliver any Statement of Additional Information and any financial
statements required to be made available under this Form promptly upon
written or oral request.
Additional Representations:
(a) The Registrant and its Depositor are relying upon American Council of
Life Insurance, SEC No-Action Letter, SEC Ref. No. IP-6-88 (November
28, 1988) with respect to annuity contract offered as funding vehicles
for retirement plans meeting the requirements of Section 403(b) of the
Internal Revenue Code, and the provisions of paragraphs (1) - (4) of
this letter have been complied with.
(b) The Registrant represents that the aggregate fees and charges deducted
under the variable annuity contracts are reasonable in relation
to the services rendered, the expenses expected to be incurred, and the
risks assumed by the Insurance Company.
5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
AUL American Individual Variable Life Unit Trust, has duly caused this
pre-effective amendment no. 1 to the registration statement to be signed on its
behalf by the undersigned thereunto duly authorized, in the city of
Indianapolis, and the state of Indiana, on the 1st day of April, 1999.
AUL AMERICAN INDIVIDUAL VARIABLE LIFE UNIT TRUST
(Registrant)
By: American United Life Insurance Company
By: Jerry D. Semler*
Name: Jerry D. Semler
Title: Chairman of the Board, President,
and Chief Executive Officer
AMERICAN UNITED LIFE INSURANCE COMPANY(R)
(Depositor)
By: Jerry D. Semler*
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
As required by the Securities Act of 1933, this Pre-Effective Amendment No. 1 to
the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Signature Title Date
- --------- ----- ----
_______________________________________________ Director April 1, 1999
Steven C. Beering M.D.*
_______________________________________________ Director April 1, 1999
Arthur L. Bryant*
_______________________________________________ Director April 1, 1999
James E. Cornelius*
_______________________________________________ Director April 1, 1999
James E. Dora*
_______________________________________________ Director April 1, 1999
Otto N. Frenzel III*
_______________________________________________ Director April 1, 1999
David W. Goodrich*
_______________________________________________ Director April 1, 1999
William P. Johnson*
<PAGE>
SIGNATURES (Continued)
Signature Title Date
- --------- ----- ----
_______________________________________________ Director April 1, 1999
James T. Morris*
_______________________________________________ Principal April 1, 1999
James W. Murphy* Financial and
Accounting Officer
_______________________________________________ Director April 1, 1999
R. Stephen Radcliffe*
_______________________________________________ Director April 1, 1999
Thomas E. Reilly Jr*
_______________________________________________ Director April 1, 1999
William R. Riggs*
_______________________________________________ Director April 1, 1999
John C. Scully*
_______________________________________________ Director April 1, 1999
Yvonne H. Shaheen*
_______________________________________________ Director April 1, 1999
Frank D. Walker*
</TABLE>
/s/ Richard A. Wacker
_____________________________________
*By: Richard A. Wacker as Attorney-in-fact
Date: April 1, 1999
<PAGE>
<TABLE>
EXHIBIT LIST
<S> <C> <C>
Exhibit Exhibit
Number in Form Numbering
N-4, Item 24(b) Value Name of Exhibit
- ---------------- --------- ---------------
4.4 EX-99.B4.4 Form of Guaranteed Minimum Income
Benefit Rider LR-163
5 EX-99.B5 Form of Individual Variable Annuity
Enrollment Form
8.1 EX-99.B8.1 Form of Participation Agreement with
Alger American Fund
8.2 EX-99.B8.2 Form of Participation Agreement with
American Century Variable Portfolios
8.3 EX-99.B8.3 Form of Participation Agreement with
Calvert Variable Series
8.4 EX-99.B8.4 Form of Participation Agreement with
Fidelity Variable Insurance Products Fund
8.5 EX-99.B8.5 Form of Participation Agreement with
Fidelity Variable Insurance Products
Fund II
8.6 EX-99.B8.6 Form of Participation Agreement with
Janus Aspen Series
8.7 EX-99.B8.7 Form of Participation Agreement with
PBHG Funds, Inc.
8.8 EX-99.B8.8 Form of Participation Agreement with
SAFECO Resource Series Trust
8.9 EX-99.B8.9 Form of Participation Agreement with
T. Rowe Price Equity Series, Inc.
9 EX-99.B9 Opinion and Consent of Associate General
Counsel of AUL as to the legality of
Contracts being registered
10.1 EX-99.B10.1 Consent of Independent Accountants
10.2 EX-99.B10.2 Consent of Dechert Price & Rhoads
</TABLE>
- --------------------------------------------------------------------------------
EXHIBIT 4.4
Guaranteed Minimum Income Benefit Rider
LR-163
- --------------------------------------------------------------------------------
AMERICAN UNITED LIFE INSURANCE COMPANY(R)
GUARANTEED MINIMUM INCOME BENEFIT RIDER
This rider is made part of the Contract to which it is attached and is effective
on the Issue Date of the Contract.
Benefit
If your Contract is annuitized at any time after the tenth Contract Anniversary,
the amount applied to the annuity table then current will be the greater of:
1. The Contract Proceeds at that time, or
2. The total of all Premiums paid with interest credited at the rate shown on
the Policy Data Page, less an adjustment for amounts previously withdrawn.
Cost for the Rider
The charge for this rider is shown on the Policy Data Page. Charges for this
rider will cease upon termination of the rider.
Termination
This rider will terminate when the Contract is terminated or annuitized. Any
transfer of Account Value to any Investment Account not listed on the Policy
Data Page as approved for use with this benefit will also terminate the rider.
If the rider is terminated, it may not be reinstated.
[GRAPHIC OMITTED]
American United Life Insurance Company(R)
Secretary
LR-163 12-98
- --------------------------------------------------------------------------------
EXHIBIT 5
Form of Individual Variable Annuity Enrollment Form
- --------------------------------------------------------------------------------
Application for the AUL SelectPoint Individual Variable Annuity AUL
American United Life Insurance Company(R)
P.O. Box 368, Indianapolis, Indiana 46206-0368
1. ANNUITANT/OWNER __________________ __________________ __________________
Last Name First Middle
Address: _________________________________________ Date of Birth: ____________
__________________________________________________
SS#:_______ or Tax ID# ________ Sex: Male__ Female __ Telephone Number:________
2. OWNER (if other than Annuitant)___________________________________________
Last Name First Middle
Address:___________________________ Date of Birth:____________________
___________________________________ SS#: _____________________________
Sex: Male__ Female __ Telephone Number: ___________________________
OTHER:_______________ ____________________________ Tax ID #:__________________
Name Relationship to Annuitant
_______________ Custodian under ________ UGMA, UTMA Telephone Number:___
Name Circle One
3. POLICY PLAN (choose one)
[] Single Premium [] Flexible Premium Amount enclosed $_______________
Features
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Plan (Choose one) Stnd. Death 12% Free Nurseing Home Enhanced Death Guar. Min. Guar. Min.
Benefit Withdrawal Waiver Benefit Income Benefit Acct. Value
[]SelectPoint I X
[]SelectPoint II X X X
[]SelectPoint III X X X
[]SelectPoint IV X X X X
(SPIVA99 Only) []SelectPoint V X X X X X
</TABLE>
4. BENEFICIARY
Name Date of Birth SS Relationship Address
(mo., day, yr.)
First: _____________ ______________ _________ _____________ _____________
_____________ ______________ _________ _____________ _____________
Second, if no first beneficiary is living:
[] any lawful children of the owner, share and share alike. If any second
beneficiary is not living at the time a death benefit is payable, the
living children, if any, of such deceased second beneficiary shall receive,
share and share alike, the share of the proceeds which their parent would
have received if living.
[] _______________ ______________ _________ _____________ _____________
Name Date of Birth ) SS Relationship Address
(mo., day, yr.)
5. TYPE OF PLAN (choose one):
[]Non-Qualified or []Tax-Qualified Account (check only one)
[]IRA []SEP-IRA []Roth IRA []403(b) TDA [] HR-10
[]SIMPLE IRA []Other:
[]Retirement Plan: Pension, Profit Sharing or401(k)
If qualified plan, indicate tax year for initial premium:______________________
6. PREMIUM PAYMENT OPTIONS (choose one)
Choose one of the following premium payment options:
[] Initial Premium $____ ($1,000 minimum; $50 with APP or monthly list bill)
[] Planned Premium $____ ($50 minimum) to be billed:
[] Annually [] Monthly list bill (3 life minimum)
[] Automatic Premium Payment (APP) Annuitant/Payee's Account #__________________
Account Type: [] Checking [] Savings
Please attach a blank voided check from this account for verification of
account information
Additional Premium at Issue $_________________
Check if: []Direct Rollover []Rollover [] ss 1035 Exchange
IVADirect-99
<PAGE>
7. ALLOCATION (Choose up to a maximum of 18 options) Please allocate my
PREMIUM PAYMENT(S) in increments of 1% as follows. (Note: Premiums will be
applied to the AUL American Money Market Account if allocation is not
specified, does not total 100%, or Dollar Cost Averaging is requested.)
Variable:
<TABLE>
<CAPTION>
<S> <C> <C>
__% AUL American Bond __% Calvert Soc Mid Cap Growth __% Janus Flexible Income
__% AUL American Equity __% Fidelity VIP Equity Income __% Janus Worldwide Growth
__% AUL American Managed __% Fidelity VIP Growth __% PBHG Growth 11 (ISF)
__% AUL American Money Market __% Fidelity VIP High Income __% PBHG Tech & Comm (ISF)
__% American Century VP Value __% Fidelity VIP Overseas __% Safeco RST Growth
__% American Century VP Growth&Income __% Fidelity VIP II Asset Manager __% Safeco RST Equity
__% American Century International __% Fidelity VIP Il Contrafund __% T. Rowe Price Equity Income
__% Alger American Growth __% Fidelity VIP II Index 500
</TABLE>
Fixed:
__AUL MVA Fixed Interest Account (Not available in {certain states))
__% One year __% Three year __% Five year __% Seven year __% Ten year
__% Non-MVA Fixed Account (Only available in ( certain states))
__% Enhanced Averaging (First year dollar cost averaging only; $ 10,000 min.)
8. Replacement: Does any proposed annuitant have any intention of replacing or
changing any insurance or annuity in this or any other company by this
annuity? [ ] Yes [] No
9. NASD Affiliation: Is any proposed Owner or Annuitant/Owner employed by or
associated with an NASD member firm? []Yes []No
10. SUITABILITY INFORMATION
Investment Objective []Capital Preservation []Income []Total Return
(Select One) (Conservative) (Moderate) (Moderate)
[]Capital Appreciation
(Aggressive)
Investment Experience Number of Years Annual Income (Salary) $_____
Stocks _______________ Other Income (Source) $_____
Bonds _______________ Total Household Income $_____
Mutual Funds _______________ Net Worth (Assets-Liabilities) $_____
Variable Annuities/Life ______ Liquid Net Worth
Other (Specify)_______________ (Cash and Investments)$_____
Approximate Tax Bracket:____% Filing Status: []Single []Married
[]Head of Household
Number of Dependents __
Proposed Owner or Owner/Annuitant's Occupation: (if retired, list profession
prior to retirement): ___________________________
Employer Name: __________________________________
Employer Address:_______________________________________________________________
Employer Name Street Address City State zip Code______
11. HOME OFFICE ENDORSEMENT (Not applicable in NJ, PA or WV):
FRAUD WARNING (Not applicable to residents of AZ, MD, ND, OR, TX, VA, VT or WA)
Any person who knowingly presents a false or fraudulent claim for payment of a
loss or benefit or knowingly presents false information in an application for
insurance is guilty of a crime and may be subject to fines and confinement in
prison.
NOTE FOR COLORADO RESIDENTS
It is unlawful to knowingly provide false, incomplete, or misleading facts or
information to an insurance company for the purpose of defrauding or attempting
to defraud the company. Penalties may include imprisonment, fines, denial of
insurance, and civil damages. Any insurance company or representative of an
insurance company who knowingly provides false, incomplete, or misleading facts
or information to a policyholder or claimant for the purpose of defrauding or
attempting to defraud the policyholder or claimant with regard to a settlement
or award payable from insurance proceeds shall be reported to the Colorado
division of insurance within the department of regulatory agencies.
NOTE FOR FLORIDA RESIDENTS
Any person who knowingly and with intent to injure or deceive any insurer files
a statement of claim or an application containing any false, incomplete, or
misleading information is guilty of a felony of the third degree.
lVADirect-99
<PAGE>
NOTE FOR KENTUCKY RESIDENTS
Any person who knowingly and with intent to defraud any insurance company or
other person files an application for insurance containing any materially false
information or conceals, for the purpose of misleading, information concerning
any fact material thereto commits a fraudulent insurance act, which is a crime.
NOTE FOR NEW JERSEY RESIDENTS
Any person who includes any false or misleading information on an application
for an insurance policy is subject to criminal and civil penalties.
NOTE FOR PENNSYLVANIA RESIDENTS
Any person who knowingly and with intent to defraud any insurance company or any
other person, files an application for insurance or statement of claim
containing any materially false information, or conceals for the purpose of
misleading information concerning any fact material thereto commits a fraudulent
insurance act, which is a crime and subjects such a person to criminal and civil
penalties.
TAXPAYER IDENTIFICATION NUMBER CERTIFICATION
Under penalties of perjury, I certify that: 1. The number shown on this
application is my correct taxpayer identification number (or I am waiting for a
number to be issued to me), and 2. 1 am not subject to backup withholding
because: (a) I am exempt from backup withholding, or (b) I have not been
notified by the Internal Revenue Service (IRS) that I am subject to backup
withholding as a result of a failure to report all interest or dividends, or (c)
the IRS has notified me that I am no longer subject to backup withholding. (You
must cross out item 2 above if you have been notified by the IRS that you are
currently subject to backup withholding because you have jailed to report all
interest and dividends on your tax return.)
I represent that I have read and understand all the statements and answers given
in this application and that they are true and complete to the best of my
knowledge and belief.
It is agreed that:
(a) any annuity issued will be based on the statements and answers given
in this application and any amendments to it;
(b) no agent has the authority to make or alter any contract for the
company;
(c) the company may indicate changes in the space entitled "Home Office
Endorsement" for administrative purposes only but I must agree in
writing to any other changes in this application.
(d) no contract shall take effect unless and until this application is
approved by the company at its home office;
(e) I have received a current prospectus for each of the investment
accounts and mutual fund(s) indicated in section 9;
(f) all benefits, payments, and values under this contract which are based
on the investment performance of a separate account are variable and
not guaranteed as to fixed dollar amount.
The Internal Revenue Service does not require your consent to any portions of
this document other than the certification required to avoid backup withholding.
Signed at:______________ on_________ _______________________________________
City and State Date Signature of Proposed Annuitant
__________________________________________________________________________
Signature of Owner if not Proposed Annuitant (include title, if applicable)
To the best of your knowledge, will the annuity applied for replace any existing
insurance or annuity? []Yes []No
_____________ _____________________________________
AUL Rep. Code Signature of Registered Representative
_____________________________________________________________
Signature of other Registered Representative(s) if split case
_____________ _____________
AUL Rep. Code Percentage Cr
FLORIDA ONLY.
___________________ __________________________________________________
Florida License No. FL Licensed Resident Rep/resentative (Name Printed)
________________________________________________
FL Licensed Resident representative (Signature)
Field Office Principal/Broker-Dealer Approval__________________ on ____________
Date
Accepted by American United Life Insurance Company (R) at the Home Office by
_____________________________________ on _____________
NASD Principal Date
________________________________________________________________________________
Registered Representative/Home Office Use Only:
________________________________________________________________________________
IVADirect-99
<PAGE>
RECEIPT
_____________________, ________
Date
Received from _______________________________________ the sum of $ ___________
_______________________________________________________________________________
dollars
in connection with an application for a variable annuity from American United
Life Insurance Company (R)(AUL). The amount received and the application will be
forwarded to the Home Office of AUL for review. If the application for the
variable annuity contains all of the required information and is otherwise
acceptable to AUL, then the amount set forth above will be applied and invested
as specified in the current prospectus describing AUL's SelectPoint variable
annuity.
____________________________ _________________________________
Name of Agent (please print) Signature of Agent
ALL CHECKS MUST BE MADE PAYABLE TO AMERICAN UNITED LIFE INSURANCE COMPANY(R), DO
NOT MAKE CHECKS PAYABLE TO A REPRESENTATIVE OR ANY OTHER ENTITY OR LEAVE PAYEE
BLANK.
- --------------------------------------------------------------------------------
EXHIBIT 8.1
FORM OF PARTICIPATION AGREEMENT WITH ALGER AMERICAN FUND
- --------------------------------------------------------------------------------
FUND PARTICIPATION AGREEMENT
This AGREEMENT is made this 14th day of March, 1995, by and between
American United Life Insurance Company(R) (the "Company"), a life insurance
company domiciled in Indiana, on its behalf and on behalf of the segregated
asset accounts of the Company (the "Separate Accounts"); Alger American Fund
(the "Fund"), a Massachusetts business trust; and Fred Alger & Company,
Incorporated (the "Distributor"), a Delaware corporation.
WITNESSETH
WHEREAS, the Fund is registered with the Securities and Exchange Commission
("SEC") as an open-end management investment company under the Investment
Company Act of 1940, as amended ("1940 Act") and the Fund is authorized to
issue separate classes of shares of beneficial interests ("shares"), each
representing an interest in a separate portfolio of assets known as a "series"
and each series has its own investment objective, policies, and limitations; and
WHEREAS, the Fund is available to offer shares of one or more of its series
to separate accounts of insurance companies that fund variable life insurance
policies and variable annuity contracts ("Variable Contracts") and to serve as
an investment medium for Variable Contracts offered by insurance companies that
have entered into participation agreements substantially similar to this
agreement ("Participating Insurance Companies"), and the Fund is currently
comprised of six separate series, and other series may be established in the
future; and
<PAGE>
2
WHEREAS, the Fund has obtained an order from the SEC, granting
Participating insurance Companies, separate accounts funding Variable Contracts
of Participating Insurance Companies, and the Fund exemptions from the
provisions of sections 9(a), 13(a), 15(a), and 15(b) of the 1940 Act and
paragraph (b)(15) of each of Rules 6e-2 and 6e-3(T) under the 1940 Act, to the
extent necessary to permit shares of the Fund to be sold to and held by separate
accounts funding variable annuity contracts or scheduled or flexible premium
variable life insurance contracts of both affiliated and unaffiliated life
insurance companies (the "Shared Funding Exemptive Order"); and
WHEREAS, the Distributor is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended ("1934 Act"), and is a
member in good standing of the National Association of Securities Dealers, Inc.
("NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company wishes to purchase shares of one or more of the Fund's
series on behalf of its Separate Accounts to serve as an investment medium for
Variable Contracts funded by the Separate Accounts, and the Distributor is
authorized to sell shares of the Fund's series;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and covenants hereinafter set forth, the parties hereby agree as follows:
<PAGE>
3
ARTICLE I. Sale of Fund Shares
1.1. The Distributor agrees to sell to the Company those shares of the
series offered and made available by the Fund and identified on Exhibit A
("Series") that the Company orders on behalf of its Separate Accounts, and
agrees to execute such orders on each day on which the Fund calculates its net
asset value pursuant to rules of the SEC ("business day") at the net asset value
next computed after receipt and acceptance by the Fund or its designee of the
order for the shares of the Fund.
1.2. The Fund agrees to make available on each business day shares of the
Series for purchase at the applicable net asset value per share by the Company
on behalf of its Separate Accounts; provided, however, that the Trustees of the
Fund may refuse to sell shares of any Series to any person, or suspend or
terminate the offering of shares of any Series, if such action is required by
law or by regulatory authorities having jurisdiction or is, in the sole
discretion of the Trustees, acting in good faith and in light of the Trustees'
fiduciary duties under applicable law, necessary in the best interests of the
shareholders of any Series.
1.3. The Fund and the Distributor agree that shares of the Series of the
Fund will be sold only to Participating Insurance Companies, their separate
accounts, and other persons consistent with each Series being adequately
diversified pursuant to Section 817(h) of the Internal Revenue Code of 1986, as
amended ("Code") and the regulations thereunder. No shares of any Series will be
sold directly to the general public.
<PAGE>
4
1.4. The Fund and the Distributor will not sell shares of the Series to any
insurance company or separate account unless an agreement containing provisions
substantially the same as this Agreement is in effect to govern such sales.
1.5. Upon receipt of a request for redemption in proper form from the
Company, the Fund agrees to redeem in cash any full or fractional shares of the
Series held by the Company, ordinarily executing such requests on each business
day at the net asset value next computed after receipt and acceptance by the
Fund or its designee of the request for redemption, except that the Fund
reserves the right to suspend the right of redemption, consistent with Section
22(e) of the 1940 Act and any rules thereunder. Such redemptions shall
ordinarily be paid in federal funds or by any other method mutually agreed upon
by the parties hereto by the next business day following receipt by the Fund or
its designee of notice of the order for redemption; however the Fund reserves
the right to postpone payment upon redemption consistent with Section 22(e) of
the Act and any Rules thereunder.
1.6. For purposes of Sections 1.1 and 1.5, the Company shall be the
designee of the Fund for receipt of purchase and redemption orders from the
Separate Account, and receipt by such designee shall constitute receipt by the
Fund; provided that the Company receives the order by the close of business of
the New York Stock Exchange. The Company will use its best efforts to ensure
that the Fund receives notice of such order by 9:30 a.m. New York City time on
the next following business day.
<PAGE>
5
1.7. The Company shall pay for shares of the Series on the business day
next following the day that the Company receives an order to purchase shares of
the Series, except with respect to shares of any Series of the Fund ("Acquired
Series") ordered by the Company for a Separate Account or any subaccount thereof
in connection with an exchange or transfer from another Separate Account or
another subdivision of a Separate Account under the Variable Contracts, Company
shall pay for shares of the Acquired Series on the later of (1) the next
business day after an order to purchase the shares is made in accordance with
Section 1.1 hereof, or (2) on the same business day that the Separate Account
or subdivision from which the exchange or transfer is being made receives
payment from the investment company portfolio in which it invests, but in no
event later than seven days after the purchase order is received by the Company.
Payment shall be in federal funds transmitted by wire or by any other method
mutually agreed upon by the parties hereto.
1.8. Issuance and transfer of shares of the Series will be by book entry
only unless otherwise agreed by the Fund. Stock certificates will not be issued
to the Company or the Separate Accounts unless otherwise agreed by the Fund.
Fund and Distributor agree that shares ordered from the Fund will be recorded as
specified in such orders in an appropriate title for the Separate Accounts or
the appropriate subaccounts of the Separate Accounts.
1.9. The Fund shall promptly furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income dividends or
capital gain distributions payable on the shares of the Series. The Company
hereby elects to reinvest in the Series all such dividends and distributions as
are payable on a Series' shares and to receive such
<PAGE>
6
dividends and distributions in additional shares of that Series. The Company
reserves the right to revoke this election in writing and to receive all such
dividends and distributions in cash. The Fund shall notify the Company of the
number of shares so issued as payment of such dividends and distributions.
1.10. The Fund shall instruct its recordkeeping agent to advise the Company
on each business day of the net asset value per share for each Series as soon as
reasonably practical after the net asset value per share is calculated, which is
normally 6:30 p.m. New York City time and shall use its best efforts to make
such net asset value per share available by 9:00 p.m. New York City time.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that it is an insurance company
duly organized and in good standing under Indiana law and that it is taxed as an
insurance company under Subchapter L of the Code.
2.2. The Company represents and warrants that it has legally and validly
established each of the Separate Accounts as a segregated asset account under
the Indiana Insurance Code, and that each of the Separate Accounts is a validly
existing segregated asset account under Indiana law.
<PAGE>
7
2.3. The Company represents and warrants that the Variable Contracts issued
by the Company or interests in the Separate Accounts under such Variable
Contracts (1) are or, prior to issuance, will be registered as securities under
the Securities Act of 1933 ("1933 Act") or, alternatively (2) are not registered
because they are properly exempt from registration under the 1933 Act or will be
offered exclusively in transactions that are properly exempt from registration
under the 1933 Act.
2.4. The Company represents and warrants that each of the Separate
Accounts: (1) has been registered as a unit investment trust in accordance with
the provisions of the 1940 Act or, alternatively (2) has not been registered in
proper reliance upon an exclusion from registration under the 1940 Act.
2.5. The Company represents that it believes, in good faith, that the
Variable Contracts issued by the Company are currently treated as annuity
contracts or life insurance policies (which may include modified endowment
contracts), whichever is appropriate, under applicable provisions of the Code.
2.6. The Company represents and warrants that any of its Separate Accounts
that fund variable life insurance contracts and that are registered with the SEC
as investment companies, rely on the exemptions provided by Rule 6e-2 or Rule
6e-3(T), or any successor thereto under the 1940 Act.
<PAGE>
8
2.7. The Fund represents and warrants that it is a business trust duly
organized and in good standing under the laws of Massachusetts.
2.8. The Fund represents and warrants that the shares of the Series are
duly authorized for issuance in accordance with applicable law and that the Fund
is registered as an open-end management investment company under the 1940 Act.
2.9. The Fund represents that it believes, in good faith, (i) that the
Series currently comply with the diversification provisions of Section 817(h) of
the Code and the regulations issued thereunder relating to the diversification
requirements for variable life insurance policies and variable annuity contracts
and (ii) that each Series has complied with such provisions since its
commencement of operations.
2. 10. The Distributor represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC.
ARTICLE III. General Duties
3.1. The Fund shall take all such actions as are necessary under applicable
federal and state law to permit the sale of the shares of each Series to the
Separate Accounts, including maintaining its registration as an investment
company under the 1940 Act, and registering the shares of the Series sold to the
Separate Accounts under the 1933 Act for so long as required by applicable law.
The Fund shall amend its Registration Statement filed with the SEC under
<PAGE>
9
the 1933 Act and the 1940 Act from time to time as required in order to permit
the continuous offering of the shares of the Series. The Fund shall register and
qualify the shares of the Series for sale in accordance with the laws of the
various states to the extent deemed necessary by the Fund or the Distributor.
3.2. The Fund shall make every effort to maintain qualification of each
Series as a Regulated Investment Company under Subchapter M of the Code (or any
successor or similar provision) and shall notify the Company immediately upon
having a reasonable basis for believing that a Series has ceased to so qualify
or that it might not so qualify in the future.
3.3. The Fund will invest assets of the Series in such a manner to permit
the Series to be used for investment by Separate Accounts of life insurance
companies funding variable annuity or life insurance contracts, whichever is
appropriate, under the Code and the regulations thereunder (or any successor
provisions). Without limiting the scope of the foregoing, the Fund shall make
every effort to enable each Series to comply with the diversification provisions
of Section 817(h) of the Code and the regulations issued thereunder relating to
the diversification requirements for variable life insurance policies and
variable annuity contracts and any prospective amendments or other modifications
to Section 817 or regulations thereunder, and shall notify the Company
immediately upon having a reasonable basis for believing that any Series has
ceased or might cease to comply.
3.4. Fund agrees to use its best efforts to ensure that each Series of the
Fund shall be managed consistent with its investment objective or objectives,
investment policies, and invest-
<PAGE>
10
ment restrictions as described in the Fund's prospectus and registration
statement, as amended or modified from time to time.
3.5. The Company shall take all such actions as are necessary under
applicable federal and state law to permit the sale of the Variable Contracts
issued by the Company, including registering each Separate Account as an
investment company to the extent required under the 1940 Act, and registering
the Variable Contracts or interests in the Separate Accounts under the Variable
Contracts to the extent required under the 1933 Act, and obtaining all necessary
approvals to offer the Variable Contracts from state insurance commissioners.
3.6. The Company shall make every effort to maintain the treatment of the
Variable Contracts issued by the Company as annuity contracts or life insurance
policies, whichever is appropriate, under applicable provisions of the Code and
shall notify the Fund and the Distributor immediately upon having a reasonable
basis for believing that such Variable Contracts have ceased to be so treated or
that they might not be so treated in the future. In the event that a change in
the Code or in the regulations thereunder or in an interpretation thereof makes
it unreasonable for the Company to continue to treat Variable Contracts as
annuity contracts or life insurance policies, whichever is appropriate, then the
Company shall, as soon as may be practical under the circumstances, notify the
Fund and the Distributor of its intent or plans with respect to such affected
annuity contracts or life insurance policies.
3.7. The Company shall require that any persons who offer and sell the
Variable Contracts issued by the Company do so in accordance with applicable
provisions of the 1933
<PAGE>
11
Act, the 1934 Act, the 1940 Act, the NASD Rules of Fair Practice, and state law
respecting the offering of variable life insurance policies and variable annuity
contracts.
3.8. The Distributor shall sell and distribute the shares of the Series of
the Fund in accordance with the applicable provisions of the 1933 Act, the 1934
Act, the 1940 Act, the NASD Rules of Fair Practice, and state law.
3.9. A majority of the Board of Trustees of the Fund shall consist of
persons who are not "interested persons" of the Fund ("disinterested Trustees"),
as defined by Section 2(a)(19) of the 1940 Act, except that if this provision of
this Section 3.9 is not met by reason of the death, disqualification, or bona
fide resignation of any Trustee or Trustees, then the operation of this
provision shall be suspended (a) for a period of 45 days if the vacancy or
vacancies may be filled by the Fund's Board; (b) for a period of 60 days if a
vote of shareholders is required to fill the vacancy or vacancies; or (c) for
such longer period as the SEC may prescribe by order upon application.
3.10. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities having jurisdiction (including, without
limitation, the SEC, the NASD, and state insurance regulators) and shall permit
such authorities reasonable access to its books and records in connection with
any investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
<PAGE>
12
3.11. The Company shall, at least annually, submit to the Board of Trustees
of the Fund such reports, materials or data as the Trustees may reasonably
request so that the Trustees may carry out the obligations imposed upon them by
the Shared Funding Exemptive Order, and said reports, materials and data shall
be submitted more frequently if deemed appropriate by the Board of Trustees.
ARTICLE IV. Potential Conflicts
4.1. The Fund's Board of Trustees shall monitor the Fund for the existence
of any material irreconcilable conflict (1) between the interests of owners of
variable annuity contracts and variable life insurance policies, and (2) between
the interests of owners of Variable Contracts ("Variable Contract Owners")
issued by different Participating Insurance Companies that invest in the Fund.
An irreconcilable material conflict may arise for a variety of reasons,
including: (a) an action by any state insurance regulatory authority; (b) a
change in applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretive letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of the Fund or any
Series are being managed; or (e) a decision by a Participating Insurance Company
to disregard the voting instructions of Variable Contract Owners.
4.2. The Company agrees that it shall be responsible for reporting any
potential or existing conflicts to the Fund's Board of Trustees. The Company
will be responsible for
<PAGE>
13
assisting the Board of Trustees of the Fund in carrying out its responsibilities
under this Agreement, by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This includes, but is not
limited to, an obligation by the Company to inform the Board whenever Variable
Contract Owner voting instructions are disregarded. The Company shall carry out
its responsibility under this Section 4.2 with a view only to the interests of
the Variable Contract Owners.
4.3. The Company agrees that in the event that it is determined by a
majority of the Board of Trustees of the Fund or a majority of the Fund's
disinterested Trustees that a material irreconcilable conflict exists, the
Company shall, in cooperation with other Participating Insurance Companies whose
Variable Contract owners are affected, at its own expense and to the extent
reasonably practicable (as determined by a majority of the disinterested
Trustees of the Board of the Fund), take whatever steps are necessary to
eliminate the irreconcilable material conflict, including: (1) withdrawing the
assets allocable to some or all of the Separate Accounts from the Fund or any
Series and reinvesting such assets in a different investment medium, which may
include another series of the Fund, or submitting the question of whether such
segregation should be implemented to a vote of all affected Variable Contract
Owners and, as appropriate, segregating the assets of any appropriate group
(i.e., Contract Owners of Variable Contracts issued by one or more Participating
Insurance Companies) that votes in favor of such segregation, or offering to the
affected Variable Contract Owners the option of making such a change; and (2)
establishing a new registered management investment company or managed separate
account. If a material irreconcilable conflict arises because of the Company's
decision to disregard Variable Contract Owners' voting instructions and that
<PAGE>
14
decision represents a minority position or would preclude a majority vote, the
Company shall be required, at the Fund's election, to withdraw the Separate
Accounts' investment in the Fund, and no charge or penalty will be imposed as a
result of such withdrawal. The Fund shall neither be required to bear the costs
of remedial actions taken to remedy a material irreconcilable conflict nor shall
it be requested to pay a higher investment advisory fee for the sole purpose of
covering such costs. In addition, no Variable Contract Owner shall be required
directly or indirectly to bear the direct or indirect costs of remedial actions
taken to remedy a material irreconcilable conflict. A majority of the
disinterested members of the Board of Trustees of the Fund shall determine
whether any proposed action adequately remedies any material irreconcilable
conflict, but in no event will the Fund be required to establish a new funding
medium for any Variable Contract. A new funding medium for any Variable Contract
need not be established by the Company pursuant to this Section 4.3, if an offer
to do so has been declined by vote of a majority of Variable Contract Owners who
would be adversely affected by the irreconcilable material conflict. All reports
received by the Fund's Board of Trustees of potential or existing conflicts, and
all Board action with regard to determining the existence of a conflict,
notifying Participating Insurance Companies and the Fund's investment adviser of
a conflict, and determining whether any proposed action adequately remedies a
conflict, shall be properly recorded in the minutes of the Board of Trustees of
the Fund or other appropriate records, and such minutes or other records shall
be made available to the SEC upon request. The Company and the Fund shall carry
out their responsibilities under this Section 4.3 with a view only to the
interests of the Variable Contract Owners.
<PAGE>
15
4.4. The Board of Trustees of the Fund shall promptly notify the Company in
writing of its determination of the existence of an irreconcilable material
conflict and its implications.
ARTICLE V. Prospectuses and Proxy Statements; Voting
5.1. The Company shall distribute such prospectuses, proxy statements and
periodic reports of the Fund to the owners of Variable Contracts issued by the
Company as required to be distributed to such Variable Contract Owners under
applicable federal or state law.
5.2. The Distributor shall provide the Company with as many copies of the
current prospectus of the Fund as the Company may reasonably request. If
requested by the Company in lieu thereof, the Fund shall provide such
documentation (including a final copy of the Fund's prospectus as set in type or
in camera-ready copy) and other assistance as is reasonably necessary in order
for the Company to print together in one document the current prospectus for the
Variable Contracts issued by the Company and the current prospectus for the
Fund. The Fund shall bear the expense of printing copies of its current
prospectus that will be distributed to existing Variable Contract Owners, and
the Company shall bear the expense of printing copies of the Fund's prospectus
that are used in connection with offering the Variable Contracts issued by the
Company.
5.3. The Fund and the Distributor shall provide (1) at the Fund's expense,
one copy of the Fund's current Statement of Additional Information ("SAI") to
the Company and to any owner of a Variable Contract issued by the Company who
requests such SAI, (2) at the Com-
<PAGE>
16
pany's expense, such additional copies of the Fund's current SAI as the Company
shall reasonably request and that the Company shall require in accordance with
applicable law in connection with offering the Variable Contracts issued by the
Company.
5.4. The Fund, at its expense, shall provide the Company with copies of its
proxy material, periodic reports to shareholders and other communications to
shareholders in such quantity as the Company shall reasonably require for
purposes of distributing to owners of Variable Contracts issued by the Company.
The Fund, at the Company's expense, shall provide the Company with copies of its
periodic reports to shareholders and other communications to shareholders in
such quantity as the Company shall reasonably request for use in connection with
offering the Variable Contracts issued by the Company. If requested by the
Company in lieu thereof, the Fund shall provide such documentation (including a
final copy of the Fund's proxy materials, periodic reports to shareholders and
other communications to shareholders, as set in type or in camera-ready copy)
and other assistance as reasonably necessary in order for the Company to print
such shareholder communications for distribution to owners of Variable Contracts
issued by the Company.
5.5. For so long as the SEC interprets the 1940 Act to require pass-through
voting by Participating Insurance Companies whose Separate Accounts are
registered as investment companies under the 1940 Act ("Registered Separate
Accounts"), the Company shall vote shares of each Series of the Fund held in
Registered Separate Accounts or subaccounts thereof, at regular and special
meetings of the Fund in accordance with instructions timely received by the
Company (or its designated agent) from owners of Variable Contracts funded by
such
<PAGE>
17
Registered Separate Accounts or subaccounts thereof having a voting interest in
the Series. The Company shall vote shares of a Series of the Fund held in
Registered Separate Accounts or subaccounts thereof that are attributable to the
Variable Contracts as to which no timely instructions are received, as well as
shares held in such Registered Separate Accounts or subaccounts thereof that are
not attributable to the Variable Contracts and owned beneficially by the Company
(resulting from charges against the Variable Contracts or otherwise), in the
same proportion as the votes cast by owners of the Variable Contracts funded by
that Separate Account or subaccount thereof having a voting interest in the
Series from whom instructions have been timely received. The Company shall vote
shares of each Series of the Fund held in its general account or in any Separate
Account that is not registered under the 1940 Act, if any, in its discretion or
in the same proportion as the votes cast with respect to shares of the Series
held in all Registered Separate Accounts of the Company or subaccounts thereof,
in the aggregate. The Company agrees to take steps so that each Registered
Separate Account or subaccount thereof investing in the Fund calculates voting
privileges in a reasonable manner which will be communicated to the Company by
the Fund and that such manner will be consistent with other registered variable
annuity or variable life insurance separate accounts investing in the Fund.
5.6. To the extent applicable, the Fund shall disclose in its prospectus,
in substance, that: (1) shares of the Series of the Fund are offered to
affiliated or unaffiliated insurance company separate accounts which fund both
annuity and life insurance contracts, (2) due to differences in tax treatment or
other considerations, the interests of various Variable Contract Owners
participating in the Fund or a Series might at some time be in irreconcilable
conflict,
<PAGE>
18
and (3) the Board of Trustees of the Fund will monitor for any material
irreconcilable conflicts and determine what action, if any, should be taken.
ARTICLE VI. Sales Material and Information
6.1. The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material in
which the Fund (or any Series thereof) or its investment adviser or the
Distributor is named, and no such sales literature or other promotional material
shall be used without the prior approval of the Fund and the Distributor or the
designee of either. The Fund and the Distributor shall use their best efforts to
provide such approval or, if approval is not given, then to provide comments
suggesting appropriate changes to any piece of sales literature or other
promotional material within two (2) business days of receipt of such materials.
6.2. The Company agrees that neither it nor any of its affiliates shall
give any information or make any representations or statements on behalf of the
Fund or concerning the Fund other than the information or representations
contained in the Registration Statement or prospectus for the Fund shares, as
such registration statement and prospectus may be amended or supplemented from
time to time, or in reports or proxy statements for the Fund, or in sales
literature or other promotional material approved by the Fund or its designee
and/or by the Distributor or its designee, except with the prior permission of
the Fund or its designee and/or the Distributor or its designee.
<PAGE>
19
6.3. The Fund or the Distributor or the designee of either shall furnish to
the Company or its designee, each piece of sales literature or other promotional
material in which the Company or its Separate Accounts are named, and no such
material shall be used without the prior approval of the Company or its
designee.
6.4. The Fund and the Distributor agree that each and the affiliates of
each shall not give any information or make any representations on behalf of the
Company or concerning the Company, the Separate Accounts, or the Variable
Contracts issued by the Company, other than the information or representations
contained in a registration statement or prospectus for such Variable Contracts,
as such registration statement and prospectus may be amended or supplemented
from time to time, or in reports for the Separate Accounts or prepared for
distribution to owners of such Variable Contracts, or in sales literature or
other promotional material approved by the Company or its designee, except with
the prior permission of the Company.
6.5. The Fund will provide to the Company at least one complete copy of all
prospectuses, Statements of Additional Information, reports, proxy statements
and other voting solicitation materials, and all amendments and supplements to
any of the above, that relate to the Fund or its shares, promptly after the
filing of such document with the SEC or other regulatory authorities.
6.6. The Company will provide to the Fund at least one complete copy of all
prospectuses (which shall include an offering memorandum if the Variable
Contracts issued by the
<PAGE>
20
Company or interests therein are not registered under the 1933 Act), Statements
of Additional Information, reports, solicitations for voting instructions, and
all amendments or supplements to any of the above, that relate to the Variable
Contracts issued by the Company or the Separate Accounts promptly after the
filing of such document with the SEC or other regulatory authority.
6.7. For purposes of this Article VI, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, computerized media, or other public
media), sales literature (i.e., any written communication distributed or made
generally available to customers or the public, including brochures, circulars,
research reports, market letters, form letters, seminar texts, reprints or
excerpts of any other advertisement, sales literature, or published article),
educational or training materials or other communications distributed or made
generally available to some or all agents or employees.
ARTICLE VII. Indemnification
7.1. Indemnification By the Company
7.l (a). The Company agrees to indemnify and hold harmless the Fund, each
of its Trustees and officers and the Distributor and each of the Directors and
officers of the
<PAGE>
21
Distributor (collectively, the "Indemnified Parties" for purposes of this
Section 7.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Company)
or litigation expenses (including legal and other expenses), to which the
Indemnified Parties may become subject under any statute, regulation, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
litigation expenses:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement or
prospectus (which shall include an offering memorandum) for the Variable
Contracts issued by the Company or sales literature for such Variable
Contracts (or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this agreement to
indemnify shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to the Company by or on behalf
of the Fund for use in the registration statement or prospectus for the
Variable Contracts issued by the Company or in sales literature (or any
amendment or supplement to any of the foregoing) or otherwise for use in
connection with the sale of the Variable Contracts or Fund shares; or
(ii) arise out of or as a result of any statement or representation (other than
statements or representations (1) contained in the registration statement,
prospectus or sales literature of the Fund not supplied by the Company or
persons under its control, or (2) contained in the registration statement,
prospectus, SAI, or sales literature for the Variable Contracts made in
reliance upon and in conformity with information furnished to the Company
by or on behalf of the Fund or the Distributor) or wrongful conduct of the
Company or persons under the control thereof with respect to the sale or
distribution of the Variable Contracts issued by the Company or the Fund
shares; or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, or sales
literature of the Fund or any amendment thereof or supplement thereto or
the omission or alleged omission to state therein a material fact required
to be stated
<PAGE>
22
therein or necessary to make the statements therein not misleading if such
a statement or omission was made in reliance upon information furnished to
the Fund by or on behalf of the Company; or
(iv) arise out of or result from the material breach of any representation
and/or warranty made by the Company in this Agreement or arise out of or
result from any other material breach of this Agreement by the Company;
except to the extent provided in Sections 7.1(b) and 7.1(c) hereof
7.l(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
expenses to which an Indemnified Party would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of his or
her duties or by reason of his or her reckless disregard of obligations or
duties under this Agreement or to the Fund.
7.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Party shall have notified the Company in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon such Indemnified Party (or after such
Party shall have received notice of such service on any designated agent), but
failure to notify the Company of any such claim shall not relieve the Company
from any liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnification provision.
In case any such action is brought against an Indemnified Party, the Company
shall be entitled to participate, at its own expense, in the defense of such
action. The Company also shall be entitled to assume the
<PAGE>
23
defense thereof, with counsel satisfactory to the Indemnified Party named in the
action. After notice from the Company to such party of the Company's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Company will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
7.1(d). The Indemnified Parties shall promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund shares hereunder or the Variable Contracts
issued by the Company or the operation of the Fund provided that such litigation
or proceedings relate to or affect the interests of the Company.
7.2. Indemnification By the Distributor
7.2(a). The Distributor agrees to indemnify and hold harmless the Company
and each of its directors and officers and the Separate Accounts (collectively,
the "Indemnified Parties" for purposes of this Section 7.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Distributor) or litigation expenses (including legal
and other expenses) to which the Indemnified Parties may become subject under
any statute, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or litigation expenses:
<PAGE>
24
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement or
prospectus or sales literature of the Fund (or any amendment or supplement
to any of the foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with information
furnished to the Distributor or the Fund or the designee of either by or on
behalf of the Company for use in the registration statement or prospectus
for the Fund or in sales literature (or any amendment or supplement to any
of the foregoing) or otherwise for use in connection with the sale of the
Variable Contracts issued by the Company or Fund shares; or
(ii) arise out of or as a result of any statement or representation (other than
statements or representations (1) contained in the registration statement,
prospectus or sales literature for the Variable Contracts not supplied by
the Distributor or persons under the control thereof, or (2) contained in
the registration statement, prospectus, SAI, or sales literature for the
Fund made in reliance upon and in conformity with information furnished to
the Fund by or on behalf of the Company) or wrongful conduct of the Fund or
Distributor or persons under their control with respect to the sale or
distribution of the Variable Contracts or the Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, or sales
literature covering the Variable Contracts issued by the Company, or any
amendment thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statement or statements therein not misleading, if
such statement or omission was made in reliance upon information furnished
to the Company by the Distributor or by or on behalf of the Fund; or
(iv) arise out of or result from the material breach of any representation
and/or warranty made by the Distributor or the Fund in this Agreement or
arise out of or result from any other material breach of this Agreement by
the Distributor or the Fund, including but not limited to, compliance with
the diversification requirements of Section 817(h) of the Code and
qualification of each Series of the Fund as a Regulated Investment Company
under Subchapter M of the Code;
<PAGE>
25
except to the extent provided in Sections 7.2(b) and 7.2(c) hereof.
7.2(b). The Distributor shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
expenses to which an Indemnified Party would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of his or
her duties or by reason of his or her reckless disregard of obligations and
duties under this Agreement or to the Company or the Separate Accounts.
7.2(c). The Distributor shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Party shall have notified the Distributor in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Party shall have received notice of such service on any designated agent),
but failure to notify the Distributor of any such claim shall not relieve the
Distributor from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
Indemnification Provision. In case any such action is brought against an
Indemnified Party, the Distributor will be entitled to participate, at its own
expense, in the defense thereof. The Distributor also shall be entitled to
assume the defense thereof, with counsel satisfactory to the Indemnified Party
named in the action. After notice from the Distributor to such party of the
Distributor's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the Distributor will not be liable to such party under this Agree-
<PAGE>
26
meet for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
7.2(d). The Company shall promptly notify the Distributor of the
commencement of any litigation or proceedings against any Indemnified Party in
connection with the issuance or sale of the Fund shares hereunder or the
Variable Contracts issued by the Company or the operation of the Separate
Accounts provided that such litigation or proceedings relate to or affect the
interests of the Fund or the Distributor.
ARTICLE VIII. Applicable Law
8.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Indiana.
8.2. This Agreement shall be subject to the provisions of the 1933, 1934,
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, the Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
<PAGE>
27
ARTICLE IX. Termination
9.1. This Agreement shall terminate:
(a) at the option of any party upon 90 days advance written notice to
the other parties, unless a shorter time is agreed to by the parties to
this Agreement; or
(b) at the option of the Company if shares of the Series are not
reasonably available to meet the requirements of the Variable Contracts
issued by the Company, as determined by the Company, and upon written
notice by the Company to the other parties to this Agreement; or,
(c) at the option of the Fund or the Distributor upon institution of
formal proceedings against the Company by the NASD, the SEC, or any state
securities or insurance department or any other regulatory body if the Fund
or the Distributor shall determine, in its sole judgment exercised in good
faith, that the Company has suffered a material adverse change in its
business, operations, financial condition, or prospects since the date of
this Agreement or is the subject of material adverse publicity; or
(d) at the option of the Company upon institution of formal
proceedings against the Fund or the Distributor by the NASD, the SEC, or
any state securities or insurance department or any other regulatory body
if the Company shall determine, in its sole judgment exercised in good
faith, that the Fund or the Distributor has suffered a material adverse
change in its business, operations, financial condition, or prospects since
the date of this Agreement or is the subject of material adverse publicity;
or
<PAGE>
28
(e) upon requisite vote of the Variable Contract Owners having an
interest in the Separate Accounts (or any subaccounts thereof) to
substitute the shares of another investment company or series thereof for
the corresponding shares of the Fund or a Series in accordance with the
terms of the Variable Contracts for which those shares had been selected to
serve as the underlying investment media; or
(f) in the event any of the shares of a Series are not registered,
issued or sold in accordance with applicable state and/or federal law, or
such law precludes the use of such shares as the underlying investment
media of the Variable Contracts issued or to be issued by the Company; or
(g) at the option of any party to the Agreement upon a determination
by a majority of the Trustees of the Fund, or a majority of its
disinterested Trustees, that an irreconcilable material conflict exists; or
(h) at the option of the Company if the Fund or a Series fails to meet
the diversification requirements specified in Section 3.2 or 3.3 hereof; or
(i) at the option of the Fund or the Distributor if the Variable
Contracts issued by the Company cease to qualify as annuity contracts or
life insurance contracts, as applicable, under the Code or if the Variable
Contracts are not registered, issued or sold in accordance with applicable
state and/or federal law; or
(j) at the option of the Company upon any substitution of the shares
of another investment company or series thereof for shares of the Fund or a
Series in accordance with the terms of the Contracts, provided that the
Company has given at least 45 days prior written notice to the Fund or
Distributor of the date of the substitution.
<PAGE>
29
(k) at the option of the Company upon a material breach of this
Agreement or of any representation or warranty herein by the Fund or the
Distributor, or at the option of the Fund or the Distributor upon a
material breach of this Agreement or of any representation or warranty
herein by the Company.
9.2. Each party to this Agreement shall promptly notify the other parties
to the Agreement of the institution against such party of any such formal
proceedings as described in Sections 9.l(c) and (d) hereof. The Company shall
give 45 days prior written notice to the Fund of the date of any proposed vote
of Variable Contract Owners to replace the Fund's shares as described in Section
9.1(e) hereof.
9.3. Under the terms of the Variable Contracts, the Company reserves the
right, subject to compliance with the law as then in effect, to make
substitutions for the securities that are held by a Separate Account of Company
under certain circumstances. The parties acknowledge that Company has the right
to substitute other securities for the shares of the Fund or a Series already
purchased or to be purchased in the future if the shares of the Fund or any or
all of the Series should no longer be available for investment, or if, in the
judgment of Company management, further investment in shares of the Fund or any
or all of the Series thereof should become inappropriate in view of the purposes
of the Contracts. Company will provide 45 days written notice to the Fund or to
the Distributor prior to effecting any such substitution.
<PAGE>
30
9.4. If this Agreement terminates, any provision of this Agreement
necessary to the orderly windup of business under it will remain in effect as to
that business, after termination.
ARTICLE X. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund: The Alger American Fund
75 Maiden Lane
New York, New York 10038
Attn: Gregory Duch
If to the Distributor: Fred Alger & Company, Incorporated
30 Montgomery Street
Jersey City, New Jersey 07302
Attn: Gregory Duch
If to the Company: American United Life Insurance Company(R)
One American Square
Indianapolis, Indiana 46206
Attn: Richard A. Wacker
ARTICLE XI.
11. 1. The Fund and the Company agree that if and to the extent Rule 6e-2
or 6e-3(T) under the 1940 Act is amended or if Rule 6e-3 is adopted in final
form, to the extent appli-
<PAGE>
31
cable, the Fund and the Company shall each take such steps as may be necessary
to comply with such Rule as amended or adopted in final form.
11.2. A copy of the Fund's Agreement and Declaration of Trust is on file
with the Secretary of the Commonwealth of Massachusetts and notice is hereby
given that the Agreement has been executed on behalf of the Fund by a Trustee of
the Fund in his or her capacity as Trustee and not individually. The obligations
of this Agreement shall only be binding upon the assets and property of the Fund
and shall not be binding upon any Trustee, officer or shareholder of the Fund
individually.
11.3. It is understood that the name "American United Life Insurance
Company(R)", "AUL", or any derivative thereof or logo associated with that name
is the valuable property of the Company and its affiliates, and that the Company
has the right to use such name (or derivative or logo) only so long as this
Agreement is in effect. Upon termination of this Agreement the Company shall
forthwith cease to use such name (or derivative or logo).
11.4. It is understood that the name "Alger", or any derivative thereof or
logo associated with that name is the valuable property of the Distributor and
its affiliates, and that the Company has the right to use such name (or
derivative or logo) only so long as this Agreement is in effect. Upon
termination of this Agreement the Company shall forthwith cease to use such name
(or derivative or logo).
<PAGE>
32
11.5. The Fund and the Distributor agree to treat as the property of the
Company any list or compilation of names, addresses, and other information
relating to the owners of the Variable Contracts or prospects for the sale of
the Variable Contracts acquired in the course of performing under this Agreement
and agree not to use such information for any purpose without the prior written
consent of the Company.
11.6. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
11.7. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
11.8. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
11.9. This Agreement may not be assigned by any party to the Agreement
except with the written consent of the other parties to the Agreement. For
purposes of this provision, the term "assigned" shall include a change in
control of a party to the Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
<PAGE>
33
executed as of the day and year first above written.
THE ALGER AMERICAN FUND
ATTEST: __________________ BY: __________________
Name: Nanci Staple Name: Gregory Duch
Tile: Secretary Title: Treasurer
FRED ALGER & COMPANY, INCORPORATED
ATTEST: __________________ BY: __________________
Name: Nanci Staple Name: Gregory Duch
Tile: Secretary Title: Treasurer
AMERICAN UNITED LIFE INSURANCE COMPANY(R)
ATTEST: __________________ BY:___________________
Name: Richard A. Wacker Name: James H. Akins, Jr.
Tile: Associate General Counsel Title: Vice President
Pension Contracts
<PAGE>
34
Exhibit A
List of Series Currently available to American United Life Insurance
Company(R):
Alger American Growth Portfolio
- --------------------------------------------------------------------------------
EXHIBIT 8.2
FORM OF PARTICIPATION AGREEMENT WITH AMERICAN CENTURY VARIABLE PORTFOLIOS
- --------------------------------------------------------------------------------
FUND PARTICIPATION AGREEMENT
American United Life Insurance Company (the "Company") and TCI Portfolios,
Inc. ("TCIP") and its investment adviser, Investors Research Corporation
("Investors Research") hereby agree to an arrangement whereby shares of TCI
Growth (the "Fund") shall be made available to serve as underlying investment
media for Individual and Group Annuity Contracts ("Contracts") to be offered to
the public by the Company, subject to the following provisions:
1. Establishment of Account; Availability of Fund.
The Company represents that it has established or will establish one or
more separate accounts (an "Account") under state insurance law, each of which
is or will be registered as a unit investment trust under the Investment Company
Act of 1940 (the "1940 Act"), to serve as an investment vehicle for the
Contracts. The Contracts provide for the allocation of net amounts received by
the Company to separate series of an Account for investment in the shares of a
specified investment company selected from among those companies available
through an Account to act as underlying investment media. Selection of a
particular series of an Account is made by the Contract owner, who may change
such selection from time to time in accordance with the terms of the applicable
Contract.
2. Marketing and Promotion.
The Company agrees to make every reasonable effort to market its Contracts.
It will not give disproportionately unequal emphasis and promotion to shares of
the Fund as compared to other underlying investments of an Account. In addition,
the Company shall not
<PAGE>
2
impose any fee, condition, rule or regulation for the use by a Contract owner of
the Fund as an investment option that operates to the specific prejudice of the
Fund vis-a-vis the other investment options offered by the Company to Contract
owners. In marketing and administering its Contracts, the Company will comply
with all applicable state and Federal laws.
3. Pricing Information; Orders; Settlement.
(a) TCIP will make Fund shares available to be purchased by the Company on
behalf of an Account at the net asset value applicable to each order. Fund
shares shall be purchased and redeemed in such quantity and at such time
determined by the Company to be necessary to meet the requirements of those
Contracts for which the Fund serves as underlying investment media.
(b) TCIP will provide to the Company closing net asset value, dividend and
capital gain information at the close of trading each day that the New York
Stock Exchange (the "Exchange") is open (each such day, a "business day"). The
Company will send directly to TCIP or its specified agent orders to purchase
and/or redeem Fund shares by 10:00 a.m. Eastern Time the following business day.
Payment for net purchases will be wired by the Company to a custodial account
designated by TCIP to coincide with the order for shares of the Fund.
(c) TCIP hereby appoints the Company as its agent for the limited purpose
of accepting purchase and redemption orders for Fund shares from Contract
owners. Orders from Contract owners received by the Company acting as agent for
TCIP prior to the close of the Exchange on any given business day will be
executed by TCIP at the net asset value determined as of the close of the
Exchange on such business day. Any orders received by the
<PAGE>
3
Company acting as agent on such day but after the close of the Exchange will be
executed by TCIP at the net asset value determined as of the close of the
Exchange on the next business day following the day of receipt of such order.
(d) Payments for net redemptions of shares of the Fund will be paid in cash
and will be wired by TCIP from the TCIP custodial account to an account
designated by the Company. Payment for net redemptions will ordinarily be wired
one business day after the order for the redemptions has been sent by the
Company to TCIP or its specified agent.
4. Compliance.
(a) In managing and administering TCIP,. TCIP and Investors Research will
comply in all material respects with all applicable state and Federal securities
laws.
(b) TCIP and Investors Research shall use their respective best efforts to
ensure that the Fund qualifies and continues to qualify as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code (or any
successor or similar provision).
(c) TCIP and Investors Research shall use their respective best efforts to
ensure that the Fund complies and maintains compliance with the diversification
provisions of Section 817(h) of the Internal Revenue Code and the regulations
issued thereunder relating to the diversification requirements for variable
annuity contracts, and with any prospective amendments or other modifications to
Section 817 or regulations thereunder.
(d) Unless it notifies the Company with reasonable promptness that it does
not intend to do so, TCIP shall take all steps necessary to adhere to any
requirements under tax or insurance law or otherwise that pertain to the Fund by
virtue of serving as an investment media for the Contracts for which notice is
provided to TCIP by the Company.
(e) Investors Research shall notify the Company with reasonable promptness
after
<PAGE>
4
having a reasonable basis for believing that the Fund has ceased to comply or
likely will cease to comply with any of the requirements described or referenced
in Section 4(a), (b), (c), or (d) of this Agreement.
(f) TCIP and Investors Research represent and warrant that as of the date
of this Agreement the shares of the Fund are duly authorized for issuance in
accordance with applicable law, that the shares of the Fund are registered with
the Securities and Exchange Commission ("SEC") as securities under the
Securities Act of 1933 (the "1933 Act") and that TCIP is registered as an
open-end management investment company under the 1940 Act.
5. Expenses.
(a) Except as otherwise provided in this Agreement, all expenses incident
to the performance by TCIP under this Agreement shall be paid by Investors
Research or TCIP, including the cost of registration of TCIP's shares with the
SEC and in states where required.
(b) TCIP shall provide to the Company its proxy materials, periodic fund
reports to shareholders and other materials that are required by law to be sent
to Contract owners. In addition, TCIP shall provide the Company with a
sufficient quantity of its prospectuses to be used in connection with the
offerings and transactions contemplated by this Agreement. The cost of preparing
and printing such materials shall be paid by Investors Research or TCIP, and the
cost of distributing such materials shall be paid by the Company; provided,
however, that at any time TCIP reasonably deems the usage of such materials to
be excessive, it may request that the Company pay the cost of printing
(including press time and paper) of any additional copies of such materials
requested by the Company.
6. Representations.
The Company and its agents shall not, without the written consent of TCIP,
make
<PAGE>
5
representations concerning TCIP or its shares except those contained in the then
current prospectuses, registration statement and in the then current printed
sales literature of TCIP.
7. Administration of Accounts.
(a) Administrative services to purchasers of Contracts shall be the
responsibility of the Company and shall not be the responsibility of TCIP or
Investors Research. TCIP and Investors Research recognize the Company as the
sole shareholder of TCIP shares issued under this Agreement. TCIP and Investors
Research further recognize that they will derive a substantial savings in
administrative expense, such as significant reductions in postage expense and
shareholder communications and recordkeeping, by virtue of having a sole
shareholder rather than multiple shareholders. In consideration of the
administrative savings resulting from such arrangement, Investors Research
agrees to pay to the Company an amount equal to 15 basis points (0.15%) per
annum of the average aggregate amount invested by the Company under this
Agreement, commencing with the month in which the average aggregate investment
by the Company (on behalf of the Contract owners) in the Fund exceeds $10
million. No payment obligation shall arise until the Company's average aggregate
investment in the Fund reaches $10 million, and such payment obligation, once
commenced, shall be suspended with respect to any month during which the
Company's average aggregate investment in the Fund drops below $10 million.
(b) Investors Research has advised the Company that it customarily pays,
out of its management fee, another affiliated corporation for the type of
administrative services to be provided by the Company to the Contract holders.
The parties agree that Investors Research's payments to the Company, like
Investors Research's payments to its affiliated corporation, are for
administrative services only and do not constitute payment in any manner for
investment
<PAGE>
6
advisory services or for costs of distribution.
(c) For the purposes of computing the payment to the Company contemplated
by this Section 7, the average aggregate amount invested by the Company over a
one month period shall be computed by totaling the Company's aggregate
investment (share net asset value multiplied by total number of shares held by
the Company) on each business day during the month and dividing by the total
number of business days during such month.
(d) Investors Research will calculate the payment contemplated by this
Section 7 at the end of each calendar quarter and will make such payment to the
Company within 30 days thereafter. The check for such payment will be
accompanied by a statement showing the calculation of the monthly amounts
payable by Investors Research and such other supporting data as may be
reasonably requested by the Company.
8. Termination.
This Agreement shall terminate as to the sale and issuance of new
Contracts:
(a) at the option of either the Company or TCIP upon 90 days' advance
written notice to the other;
(b) at the option of the Company if shares of the Fund are not available
for any reason or if the Company shall reasonably determine in good faith that
further investment in shares of the Fund is inappropriate in view of the
purposes of the Contracts, provided that reasonable advance notice of election
to terminate shall be furnished by the Company;
(c) at the option of either the Company or TCIP, upon institution of formal
proceedings against the broker-dealer or broker-dealers underwriting the
Contracts, the Account, the Company, Investors Research or TCIP by the National
Association of Securities Dealers, Inc. (the "NASD"), the SEC or any other
regulatory body;
<PAGE>
7
(d) at the option of TCIP, if TCIP shall reasonably determine in good faith
that the Company is not offering shares of the Fund in conformity with the terms
of this Agreement;
(e) upon termination of the Management Agreement between TCIP and Investors
Research, notice of which shall be promptly furnished to the Company; provided,
however, that this subsection (e) shall not apply if contemporaneously with such
termination a new contract of substantially similar terms is entered into
between TCIP and Investors Research;
(f) upon the requisite vote of Contract owners having an interest in the
Fund to substitute for Fund shares the shares of another investment company in
accordance with the terms of Contracts for which Fund shares had been selected
to serve as an underlying investment medium; provided, however, that the Company
shall give 60 days' written notice to TCIP of any proposed vote to replace the
Fund's shares;
(g) upon assignment of this Agreement, unless made with the written consent
of all other parties hereto;
(h) if TCIP's shares are not registered, issued or sold in conformance with
Federal or applicable state law or such law precludes the use of Fund shares as
the underlying investment medium of Contracts issued or to be issued by the
Company, provided that prompt notice shall be given by either party should such
situation occur;
(i) at the option of the Company by written notice to the other parties in
the event that the Fund ceases to qualify as a Regulated Investment Company
under Subchapter M of the Internal Revenue Code or in the event that the Fund
fails to meet the diversification requirements specified in Section 4(c) of this
Agreement, or if the Company reasonably believes in good faith that the fund may
fail to so qualify as a Regulated Investment Company or may fail to meet such
diversification requirements; or
<PAGE>
8
(j) at the option of any party in the event that a majority of the Board of
TCIP determines that a material irreconcilable conflict exists as provided in
Section 14 of this Agreement.
9. Continuation of Agreement.
Termination as the result of any cause listed in Section 8 shall not affect
TCIP's obligation maintain an account in the name of the Company on behalf of
those Contract owners who selected the Fund as an investment option prior to the
termination of this Agreement; provided, however, TCIP shall have no
administrative services payment obligation to the Company after such
termination.
10. Substitution.
The Company has advised TCIP and Investors Research, and TCIP and Investors
Research understand that the Contracts provide that the Company reserves the
night to substitute the shares of another investment company or series thereof
for the shares of TCIP if such shares are no longer available for investment, or
if, in the judgment of the Company's management, further investment in the
shares of the Fund would be inappropriate in view of the purposes of the
Contracts. The Company hereby represents that all determinations of
appropriateness will be reasonably made in good faith.
11. Advertising Materials; Filed Documents.
(a) Advertising and literature with respect to TCIP prepared by the Company
or its agents for use in marketing its Contracts will be submitted to TCIP for
review before such material is submitted to the SEC or NASD for review.
(b) TCIP will provide to the Company at least one complete copy of all
registration statements, prospectuses, statements of additional information,
annual and semi-
<PAGE>
9
annual reports, proxy statements and all amendments or supplements to any of the
above that relate to the Fund promptly after the filing of such document with
the SEC or other regulatory authorities. The Company will provide to TCIP at
least one complete copy of all registration statements, prospectuses, statements
of additional information, annual and semi-annual reports, proxy statements, and
all amendments or supplements to any of the above that relate to an Account
promptly after the filing of such document with the SEC or other regulatory
authority.
12. Proxy Voting.
(a) The Company shall provide pass-through voting privileges to all
Contract owners so long as the SEC continues to interpret the 1940 Act as
requiring such privileges. It shall be the responsibility of the Company to
assure that it and the separate accounts of the other Participating Companies
(as defined in Section 14(a) below) participating in the Fund calculate voting
privileges in a consistent manner. TCIP and Investors Research agree to advise
the Company if either shall be notified by a Participating Company of a change
in the calculation of voting privileges.
(b) The Company will distribute to Contract owners all proxy material
furnished by TCIP and will vote shares in accordance with instructions received
from such Contract owners. The Company shall vote TCIP shares for which no
instructions have been received in the same proportion as shares for which such
instructions have been received. The Company and its agents shall not oppose or
interfere with the solicitation of proxies for TCIP shares held for Contract
owners.
13. Indemnification.
(a) The Company agrees to indemnify and hold harmless TCIP and each of its
<PAGE>
10
directors, officers, employees, agents and each person, if any, who controls
TCIP or its investment adviser within the meaning of the 1933 Act against any
losses, claims, damages or liabilities to which TCIP or any such director,
officer, employee, agent, or controlling person may become subject, under the
1933 Act or otherwise, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof (i) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, prospectus or sales literature of the Company or arise
out of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or arise out of or as a result of conduct, statements or
representations (other than statements or representations contained in the
registration statement, as amended, the prospectuses or sales literature of
TCIP) of the Company or its agents, with respect to the sale and distribution of
Contracts for which the shares of the Fund are the underlying investment, or
(ii) result from a breach of material provision of this Agreement. The Company
will reimburse any legal or other expenses reasonably incurred by TCIP or any
such director, officer, employee, agent, investment adviser, or controlling
person in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such Registration Statement,
prospectus or sales literature in conformity with written materials furnished to
the Company by TCIP or Investors Research specifically for use therein.
(b) Investors Research agrees to indemnify and hold harmless the Account,
<PAGE>
11
Company and each of its directors, officers, employees, agents and each person,
if any, who controls the Company within the meaning of the 1933 Act against any
losses, claims, damages or liabilities to which the Account, the Company or any
such director, officer, employee, agent or controlling person may become
subject, under the 1933 Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof (i) arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, prospectuses or sales literature of the
Fund or arise out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (ii) result from a breach of a material provision of this
Agreement. Investors Research will reimburse any legal or other expenses
reasonably incurred by the Company or any such director, officer, employee,
agent, or controlling person in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that Investors
Research will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in such
Registration Statement, prospectuses or sales literature in conformity with
written materials furnished to TCIP by the Company specifically for use therein.
(c) Promptly after receipt by an indemnified party hereunder of notice of
the commencement of action, such indemnified party will, if a claim in respect
thereof is to be made against the indemnifying party hereunder, notify the
indemnifying party of the commencement thereof, but the omission so to notify
the indemnifying party will not relieve it from any liability which it may have
to any indemnified party otherwise than under this
<PAGE>
12
Section 13. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the extent
that it may wish to, assume the defense thereof, with counsel satisfactory to
such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section 13 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
14. Potential Conflicts.
(a) The Company has received a copy of an application for exemptive relief,
as amended, filed by TCIP on December 21, 1987, with the SEC and the order
issued by the SEC in response thereto (the "Shared Funding Exemptive Order").
The Company has reviewed the conditions to the requested relief set forth in
such application for exemptive relief. As set forth in such application, the
Board of Directors of TCIP (the "Board") will monitor TCIP for the existence of
any material irreconcilable conflict between the interests of the
contractholders of all separate accounts ("Participating Companies") investing
in TCIP. An irreconcilable material conflict may arise for a variety of reasons,
including: (i) an action by any state insurance regulatory authority; (ii) a
change in applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar actions by insurance, tax or securities
regulatory authorities; (iii) an administrative or judicial decision in any
relevant proceeding; (iv) the manner in which the investments of any portfolio
are being managed; (v) a difference in voting instructions given by variable
annuity contractholders and variable life insurance
<PAGE>
13
contractholders; or (vi) a decision by an insurer to disregard the voting
instructions of contractholders. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
(b) The Company will report any potential or existing conflicts of which it
is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order by providing the Board
with all information reasonably necessary for the Board to consider any issues
raised. This includes, but is not limited to, an obligation by the Company to
inform the Board whenever contractholder voting instructions are disregarded.
(c) If a majority of the Board, or a majority of its disinterested Board
members, determines that a material irreconcilable conflict exists with regard
to contractholder investments in the Fund, the Board shall give prompt notice to
all Participating Companies. If the Board determines that the Company is
responsible for causing or creating said conflict, the Company shall at its sole
cost and expense, and to the extent reasonably practicable (as determined by a
majority of the disinterested Board members), take such action as is necessary
to remedy or eliminate the irreconcilable material conflict. Such necessary
action may include but shall not be limited to:
(i) withdrawing the assets allocable to the Account from the Fund and
reinvesting such assets in a different investment medium or submitting
the question of whether such segregation should be implemented to a
vote of all affected contractholders and as appropriate, segregating
the assets of any appropriate group (i.e., annuity contract owners,
life insurance contract owners, or variable contract owners of one or
more Participating Companies) that votes in favor of such segregation,
or offering to the affected contractholders the option of making such
a change; and/or
(ii) establishing a new registered management investment company or
<PAGE>
14
managed separate account.
(d) If a material irreconcilable conflict arises as a result of a decision
by the Company to disregard its contractholder voting instructions and said
decision represents a minority position or would preclude a majority vote by all
of its contractholders having an interest in TCIP, the Company at its sole cost,
may be required, at the Board's election, to withdraw the Account's investment
in TCIP and terminate this Agreement; provided, however, that such withdrawal
and termination shall be limited to the extent required by the foregoing
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
(e) For the purpose of this Section 14, a majority of the disinterested
Board members shall determine whether or not any proposed action adequately
remedies any irreconcilable material conflict, but in no event will TCIP be
required to establish a new funding medium for any Contract. The Company shall
not be required by this Section 14 to establish a new funding medium for any
Contract if an offer to do so has been declined by vote of a majority of the
Contract owners materially adversely affected by the irreconcilable material
conflict.
15. Miscellaneous.
(a) Amendment and Waiver. Neither this Agreement, nor any provision hereof,
may be amended, waived, discharged or terminated orally, but only by an
instrument in writing signed by all parties hereto.
(b) Notices. All notices and other communications hereunder shall be given
or made in writing and shall be delivered personally, or sent by telex,
telecopier, express delivery or registered or certified mail, postage prepaid,
return receipt requested, to the party
<PAGE>
15
or parties to whom they are directed at the following addresses, or at such
other addresses as may be designated by notice from such party to all other
parties.
To the Company: American United Life Insurance Company
One American Square
Indianapolis, Indiana 42606-0368
Attention: Richard A. Wacker
To TCI or Investors Research:
TCI Portfolios, Inc.
4500 Main Street
Kansas City, Missouri 64111
Attention: Patrick A. Looby
Any notice, demand or other communication given in a manner prescribed in this
subsection (b) shall be deemed to have been delivered on receipt.
(c) Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective permitted successors
and assigns
(d) Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one agreement, and
any party hereto may execute this Agreement by signing any such counterpart.
(e) Severability. In case any one or more of the provisions contained in
this Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
(f) Entire Agreement. This Agreement constitutes the entire agreement and
understanding between the parties hereto and supersedes all prior agreement and
understandings relating to the subject matter hereof.
<PAGE>
16
IN WITNESS WHEREOF, the undersigned have executed this Agreement by their
duly authorized officers as of this 1st day of March 1994.
AMERICAN UNITED LIFE INSURANCE
COMPANY
By: ____________________________
Name: James H. Akins, Jr.
Title: Vice President
INVESTORS RESEARCH CORPORATION
By: ____________________________
Name: William M. Lyons
Title: Executive Vice President
TCI PORTFOLIOS, INC.
By: ____________________________
Name: Patrick A. Looby
Title: Vice President
AMENDMENT NO. 1 TO
FUND PARTICIPATION AGREEMENT
THIS AMENDMENT NO. 1 TO FUND PARTICIPATION AGREEMENT is made and entered
into as of the 31st day of August, 1994, by and among AMERICAN UNITED LIFE
INSURANCE COMPANY (the "Company"), TCI PORTFOLIOS,INC. ("TCIP") and its invest-
ment adviser, INVESTORS RESEARCH CORPORATION ("Investors Research"). Capitalized
terms not otherwise defined herein shall have the meaning ascribed to them in
the Agreement (defined below).
WITNESSETH
WHEREAS, the Company, TCIP and Investors Research are parties to a Fund
Participation Agreement (the "Agreement") dated as of March 1, 1994, whereby
shares of TCI Growth, a series of mutual fund shares registered under the
Investment Company Act of 1940 and issued by TCIP, were made available by TCIP
to serve as underlying investment media for individual and group annuity
contracts to be issued through one or more separate accounts established by the
Company under state law; and
WHEREAS, the Company, TCIP and Investors Research now desire to modify the
Agreement so that shares of TCI International (another series of registered
mutual fund shares issued by TCIP) may be made available to the Company to serve
as underlying investment media for such contracts.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and promises expressed herein, the parties agree as follows:
1. From the date hereof pursuant to the terms of the Agreement, as
amended from time to time, shares of TCI International shall be made
available to serve as underlying investment media for the Contracts.
2. The Company represents that it has established the All American
Individual Separate Account and the All American Group Separate
Account (the "Accounts") as separate accounts under Indiana Insurance
Law to serve as investment vehicles for the Contracts. The Accounts
are registered as unit investment trusts under the Investment Company
Act of 1940 to serve as investment vehicles for the Contracts.
3. All references to "Account" under the Agreement shall be deemed to
refer to the Accounts under this First Amendment.
4. From and after the date hereof, unless the context otherwise requires,
all references in the Agreement to the term "Fund" shall be deemed to
include TCI International.
5. In the event that there is any conflict between the terms of this
Amendment No. 1 and the Agreement, it is the intention of the parties
hereto that the terms of this Amendment No. 1 shall
<PAGE>
2
control, and the Agreement shall be interpreted on that basis. To the
extent that the provisions of the Agreement have not been amended by
this Amendment No. 1, the parties hereto hereby confirm and ratify the
Agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 as of
the date first above written.
AMERICAN UNITED LIFE INSURANCE COMPANY
By: ___________________________________
Name: James H. Akins, Jr.
Title: Vice President Pensions
Contracts to Compliance
INVESTORS RESEARCH CORPORATION
By: ___________________________________
William M. Lyons
Executive Vice President
TCI PORTFOLIOS, INC.
By: ___________________________________
William M. Lyons
Executive Vice President
AMENDMENT NO. 2 TO FUND PARTICIPATION AGREEMENT
THIS AMENDMENT NO. 2 TO FUND PARTICIPATION AGREEMENT is made and entered
into as of the 16th day of September 1997, by and among AMERICAN UNITED LIFE
INSURANCE COMPANY (the "Company"), AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.,
formerly known as TCI Portfolios, Inc. (the "Issuer"), and its investment
adviser, AMERICAN CENTURY INVESTMENT MANAGEMENT, INC., formerly known as
Investors Research Corporation (the "Adviser"). Capitalized terms not otherwise
defined herein shall have the meaning ascribed to them in the Agreement (as
defined below).
WHEREAS, the Company, the Issuer and the Adviser are parties to a Fund
Participation Agreement, dated as of March 1, 1994 and amended as of August 31,
1994 (the "Agreement"), whereby shares of VP Capital Appreciation, formerly
known as TCI Growth, and shares of VP International, formerly known as TCI
International, each of which is a series of mutual fund shares registered under
the Investment Company Act of 1940, as amended, and issued by the Issuer
(collectively, the "Funds"), were made available by the Issuer to serve as
underlying investment media for individual and group annuity contracts to be
issued through one or more separate accounts established by the Company under
state law; and
WHEREAS, the Company offers or will offer to the public certain individual
and group variable life insurance contracts (the "Variable Life Contracts"); and
WHEREAS, the Company, the Issuer and the Adviser now desire to modify the
Agreement so that shares of the Funds may be made available to the Company to
serve as underlying investment media for the Variable Life Contracts in addition
to the annuity contracts.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and promises expressed herein, the parties hereto hereby agree as follows:
1. The Company represents that it has established or will establish one
or more separate accounts (each a "Variable Life Account") under state
insurance law, each of which is or will be registered as a unit
investment trust under the 1940 Act, to serve as investment vehicles
for the Variable Life Contracts.
2. From and after the date hereof, pursuant to the terms of the Agreement
as amended from time to time, shares of the Funds shall be made
available to serve as underlying investment media for the Variable
Life Contracts in addition to the annuity contracts.
3. From and after the date hereof, unless the context otherwise requires,
(a) references in the Agreement to the term "Account" shall be deemed
to include the Variable Life Accounts and (b) references in the
Agreement to the term "Contracts" shall be deemed to include the
Variable Life Contracts.
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4. In the event that there is any conflict between the terms of this
Amendment No. 2 and the Agreement, it is the intention of the parties
hereto that the terms of this Amendment No. 2 shall control, and the
Agreement shall be interpreted on that basis. To the extent that the
provisions of the Agreement have not been amended by this Amendment
No. 2, the parties hereto hereby confirm and ratify the Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 2
as of the date first above written,
AMERICAN UNITED LIFE INSURANCE COMPANY
By: ______________________________________
Name: Richard A. Wacker
Title: Associate General Counsel
AMERICAN CENTURY INVESTMENT
MANAGEMENT, INC.
By: ______________________________________
William M. Lyons
Executive Vice President
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
By: ______________________________________
William M. Lyons
Executive Vice President
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EXHIBIT 8.3
FORM OF PARTICIPATION AGREEMENT WITH CALVERT VARIABLE PORTFOLIOS
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FUND PARTICIPATION AGREEMENT
This AGREEMENT is made this 29th day of March, 1995, by and between
American United Life Insurance Company (R) (the "Company"), a life insurance
company domiciled in Indiana, on its behalf and on behalf of the segregated
asset accounts of the Company (the "Separate Accounts"); Acacia Capital
Corporation (the "Fund"), a Maryland corporation; Calvert Distributors, Inc.
("Distributor") and Calvert Asset Management Corporation ("Adviser"), a Maryland
corporation.
WITNESSETH
WHEREAS, the Fund is registered with the Securities and Exchange Commission
("SEC") as an open-end management investment company under the Investment
Company Act of 1940, as amended ("1940 Act") and the Fund is authorized to issue
separate classes of shares of beneficial interests ("shares"), each representing
an interest in a separate portfolio of assets known as a "series" and each
series has its own investment objective, policies, and limitations; and
WHEREAS, the Fund is available to offer shares of one or more of its series
to separate accounts of insurance companies that fund variable life insurance
policies and variable annuity contracts ("Variable Contracts") and to serve as
an investment medium for Variable Contracts offered by insurance companies that
have entered into participation agreements substantially similar to this
agreement ("Participating Insurance Companies"), and the Fund offers its shares
in one or more series; and
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2
WHEREAS, the Fund has obtained an order from the SEC, granting
Participating Insurance Companies, separate accounts funding Variable Contracts
of Participating Insurance Companies, and the Fund exemptions from the
provisions of sections 9(a), 13(a), 15(a), and 15(b) of the 1940 Act and
paragraph (b)(15) of each of Rules 6e-2 and 6e-3(T) under the 1940 Act, to the
extent necessary to permit such persons to rely on the exemptive relief provided
under paragraph (b)(15) of Rules 6e-2 and 6e-3(T), even though shares of the
Fund may be offered to and held by separate accounts funding variable annuity
contracts or scheduled or flexible premium variable life insurance contracts of
both affiliated and unaffiliated life insurance companies (the "Shared Funding
Exemptive Order"); and
WHEREAS, the Distributor is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended ("1934 Act"), and is a
member in good standing of the National Association of Securities Dealers, Inc.
("NASD"); and
WHEREAS, the Adviser is registered as an Investment Adviser with the SEC
under the Investment Advisers Act of 1940 and with all of the states where
registration is required; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company wishes to purchase shares of one or more of the Fund's
series on behalf of its Separate Accounts to serve as an investment medium for
Variable Contracts funded
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3
by the Separate Accounts, and the Distributor is authorized to sell shares of
the Fund's series;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and covenants hereinafter set forth, the parties hereby agree as follows:
ARTICLE 1. Sale of Fund Shares
1.1. The Distributor agrees to sell to the Company those shares of the
series offered and made available by the Fund and identified on Exhibit A
("Series") that the Company orders on behalf of its Separate Accounts, and
agrees to execute such orders on each day on which the Fund calculates its net
asset value pursuant to rules of the SEC ("business day") at the net asset value
next computed after receipt and acceptance by the Fund or its designee of the
order for the shares of the Fund.
1.2. The Fund agrees to make available on each business day shares of the
Series for purchase at the applicable net asset value per share by the Company
on behalf of its Separate Accounts; provided, however, that the
Directors/Trustees of the Fund may refuse to sell shares of any Series to any
person, or suspend or terminate the offering of shares of any Series, if such
action is required by law or by regulatory authorities having jurisdiction or
is, in the sole discretion of the Directors/Trustees, acting in good faith and
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4
in light of the Directors/Trustees' fiduciary duties under applicable law,
necessary in the best interests of the shareholders of any Series.
1.3. The Fund and the Distributor agree that shares of the Series of the
Fund will be sold only to Participating Insurance Companies, their separate
accounts, and other persons consistent with each Series being adequately
diversified pursuant to Section 817(h) of the Internal Revenue Code of 1986, as
amended ("Code") and the regulations thereunder. No shares of any Series will be
sold directly to the general public.
1.4. The Fund and the Distributor will not sell shares of the Series to any
insurance company or separate account unless an agreement containing provisions
substantially the same as this Agreement is in effect to govern such sales.
1.5. Upon receipt of a request for redemption in proper form from the
Company, the Fund agrees to redeem in cash any full or fractional shares of the
Series held by the Company, ordinarily executing such requests on each business
day at the net asset value next computed after receipt and acceptance by the
Fund or its designee of the request for redemption, except that the Fund
reserves the right to suspend the right of redemption, consistent with Section
22(e) of the 1940 Act and any rules thereunder. Such redemptions shall be paid
in federal funds ordinarily on the next business day following receipt by the
Fund or its designee of the order for redemption; however the
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5
Fund reserves the right to postpone payment upon redemption consistent with
Section 22(e) of the Act and any Rules thereunder.
1.6. For purposes of Sections 1.1 and 1.5, the Company shall be the
designee of the Fund for receipt of purchase and redemption orders from the
Separate Account, and receipt by such designee shall constitute receipt by the
Fund; provided that the Company receives the order by 4:00 p.m. New York City
time and the Fund receives notice of such order by 9:30 a.m. New York City time
on the next following business day.
1.7. The Company shall pay for shares of the Series on the business day
next following the day that the Company places an order to purchase shares of
the Series, except with respect to shares of any Series of the Fund ("Acquired
Series") ordered by the Company for a Separate Account or any subaccount thereof
in connection with an exchange or transfer from another Separate Account or
another subdivision of a Separate Account under the Variable Contracts, Company
shall pay for shares of the Acquired Series on the latter of (1) the next
business day after an order to purchase the shares is made in accordance with
Section 1.1 hereof, or (2) on the same business day that the Separate Account or
subdivision from which the exchange or transfer is being made receives payment
from the investment company portfolio in which it invests. Payment shall be in
federal funds transmitted by wire or by any other method mutually agreed upon by
the parties hereto.
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6
1.8. Issuance and transfer of shares of the Series will be by book entry
only unless otherwise agreed by the Fund. Stock certificates will not be issued
to the Company or the Separate Accounts unless otherwise agreed by the Fund.
Fund and Distributor agree that shares ordered from the Fund will be recorded
properly in an appropriate title for the Separate Accounts or the appropriate
subaccounts of the Separate Accounts.
1.9. The Fund shall promptly furnish same-day notice (by wire or telephone,
followed by written confirmation) to the Company of any income dividends or
capital gain distributions payable on the shares of the Series. The Company
hereby elects to reinvest in the Series all such dividends and distributions as
are payable on a Series' shares and to receive such dividends and distributions
in additional shares of that Series. The Company reserves the right to revoke
this election in writing and to receive all such dividends and distributions in
cash. The Fund shall notify the Company of the number of shares so issued as
payment of such dividends and distributions.
1.10. The Fund shall instruct its recordkeeping agent to advise the Company
on each business day of the net asset value per share for each Series as soon as
reasonably practical after the net asset value per share is calculated, which is
normally 6:30 p.m., New York City time, and shall use its best efforts to make
such net asset value per share available by 7:00 p.m. New York City time.
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7
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that it is an insurance company
duly organized and in good standing under Indiana law and that it is taxed as an
insurance company under Subchapter L of the Code.
2.2. The Company represents and warrants that it has legally and validly
established each of the Separate Accounts as a segregated asset account under
the Indiana Insurance Code, and that each of the Separate Accounts is a validly
existing segregated asset account under Indiana law.
2.3. The Company represents and warrants that the Variable Contracts issued
by the Company or interests in the Separate Accounts under such Variable
Contracts (1) are or, prior to issuance, will be registered as securities under
the Securities Act of 1933 ("1933 Act") or, alternatively (2) are not registered
because they are properly exempt from registration under the 1933 Act or will be
offered exclusively in transactions that are properly exempt from registration
under the 1933 Act.
2.4. The Company represents and warrants that each of the Separate Accounts
(1) has been registered as a unit investment trust in accordance with the
provisions of the 1940 Act or, alternatively (2) has not been registered in
proper reliance upon an exclusion from registration under the 1940 Act.
<PAGE>
8
2.5. The Company represents that it believes, in good faith, that the
Variable Contracts issued by the Company are currently treated as annuity
contracts or life insurance policies (which may include modified endowment
contracts), whichever is appropriate, under applicable provisions of the Code.
2.6. The Company represents and warrants that any of its Separate Accounts
that fund variable life insurance contracts and that are registered with the SEC
as investment companies, rely on the exemptions provided by Rule 6e-2 or Rule
6e-3(T), or any successor thereto, under the 1940 Act.
2.7. The Fund represents and warrants that it is duly organized as a
corporation under the laws of Maryland, and is in good standing under applicable
law.
2.8. The Fund represents and warrants that the shares of the Series are
duly authorized for issuance in accordance with applicable law and that the Fund
is registered as an open-end management investment company under the 1940 Act.
2.9. The Fund represents that it believes, in good faith, that the Series
currently comply with the diversification provisions of Section 817(h) of the
Code and the regulations issued thereunder relating to the diversification
requirements for variable life insurance policies and variable annuity
contracts, and that each Series has complied with such provisions since its
commencement of operations.
<PAGE>
9
2.10. The Distributor represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC.
ARTICLE III. General Duties
3.1. The Fund and Adviser shall take all such actions as are necessary to
permit the sale of the shares of each Series to the Separate Accounts, including
maintaining its registration as an investment company under the 1940 Act, and
registering the shares of the Series sold to the Separate Accounts under the
1933 Act for so long as required by applicable law. The Fund and Adviser shall
amend its Registration Statement filed with the SEC under the 1933 Act and the
1940 Act from time to time as required in order to effect the continuous
offering of the shares of the Series. The Fund and Adviser shall register and
qualify the shares of the Fund for sale in accordance with the laws of the
various states to the extent deemed necessary by the Fund or the Distributor.
The Fund and Distributor shall take all steps necessary to sell shares of the
Fund in compliance with all applicable federal and state securities laws.
3.2. The Fund and Adviser shall make every effort to maintain qualification
of each Series as a Regulated Investment Company under Subchapter M of the Code
(or any successor or similar provision) and shall notify the Company immediately
upon
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10
having a reasonable basis for believing that a Series has ceased to so qualify
or that it might not so qualify in the future.
3.3. The Fund and Adviser shall make every effort to enable each Series to
comply with the requirements of Section 817, including the diversification
provisions of Section 817(h) of the Code and the regulations issued thereunder
relating to the diversification requirements for variable life insurance
policies and variable annuity contracts, and any prospective amendments or other
modifications to Section 817 or regulations thereunder, and shall notify the
Company immediately upon having a reasonable basis for believing that any Series
has ceased or might cease to comply.
3.4. Fund and Adviser agree that each Series of the Fund shall be managed
consistent with its investment objective or objectives, investment policies, and
investment restrictions as described in the Fund's prospectus and registration
statement, as amended or modified from time to time.
3.5. The Company shall take all such actions as are necessary under
applicable federal and state law to permit the sale of the Variable Contracts
issued by the Company, including registering each Separate Account as an
investment company to the extent required under the 1940 Act, and registering
the Variable Contracts or interests in the Separate Accounts under the Variable
Contracts to the extent required under the
<PAGE>
11
1933 Act, and obtaining all necessary approvals to offer the Variable Contracts
from state insurance commissioners.
3.6. The Company shall make every reasonable effort to maintain the
treatment of the Variable Contracts issued by the Company as annuity contracts
or life insurance policies, whichever is appropriate, under applicable
provisions of the Code, and shall notify the Fund and the Distributor
immediately upon having a reasonable basis for believing that such Variable
Contracts have ceased to be so treated or that they might not be so treated in
the future.
3.7. The Company shall require that any persons who offer and sell the
Variable Contracts issued by the Company do so in accordance with applicable
provisions of the 1933 Act, the 1934 Act, the 1940 Act, the NASD Rules of Fair
Practice, and state law respecting the offering of variable life insurance
policies and variable annuity contracts.
3.8. The Distributor shall sell and distribute the shares of the Series of
the Fund in accordance with the applicable provisions of the 1933 Act, the 1934
Act, the 1940 Act, the NASD Rules of Fair Practice, and state law.
3.9. A majority of the Board of Directors/Trustees of the Fund shall
consist of persons who are not "interested persons" of the Fund ("disinterested
Directors/Trustees"),
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12
as defined by Section 2(a)(19) of the 1940 Act, except that if this provision of
this Section 3.9 is not met by reason of the death, disqualification, or bona
fide resignation of any Director/Trustee or Directors/Trustees, then the
operation of this provision shall be suspended (a) for a period of 45 days if
the vacancy or vacancies may be filled by the Fund's Board; (b) for a period of
60 days if a vote of shareholders is required to fill the vacancy or vacancies;
or (c) for such longer period as the SEC may prescribe by order upon
application.
3.10. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities having jurisdiction (including, without
limitation, the SEC, the NASD, and state insurance regulators) and shall permit
such authorities reasonable access to its books and records in connection with
any investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
3.11. The Company shall, at least annually, submit to the Board of
Directors/Trustees of the Fund such reports, materials or data as the
Directors/Trustees may reasonably request so that the Directors/Trustees may
carry out the obligations imposed upon them by the Shared Funding Exemptive
Order, and said reports, materials and data shall be submitted more frequently
if deemed appropriate by the Board of Directors/Trustees.
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13
ARTICLE IV. Potential Conflicts
4.1. The Fund's Board of Directors/Trustees shall monitor the Fund for the
existence of any material irreconcilable conflict (1) between the interests of
owners of variable annuity contracts and variable life insurance policies, and
(2) between the interests of owners of Variable Contracts ("Variable Contract
Owners") issued by different Participating Insurance Companies that invest in
the Fund. An irreconcilable material conflict may arise for a variety of
reasons, including: (a) an action by any state insurance regulatory authority;
(b) a change in applicable federal or state insurance, tax, or securities laws
or regulations, or a public ruling, private letter ruling, no-action or
interpretive letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of the Fund or any
Series are being managed; or (e) a decision by a Participating Insurance Company
to disregard the voting instructions of Variable Contract Owners.
4.2. The Company agrees that it shall be responsible for reporting any
potential or existing conflicts to the Fund's Board of Directors/Trustees. The
Company will be responsible for assisting the Board of Directors/Trustees of the
Fund in carrying out its responsibilities under this Agreement, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever Variable
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14
Contract Owner voting instructions are disregarded. The Company shall carry out
its responsibility under this Section 4.2 with a view only to the interests
of the Variable Contract Owners.
4.3. The Company agrees that in the event that it is determined by a
majority of the Board of Directors/Trustees of the Fund or a majority of the
Fund's disinterested Directors/Trustees that a material irreconcilable conflict
exists, the Company shall, in cooperation with other Participating Insurance
Companies whose Variable Contract owners are affected, at its own expense and to
the extent reasonably practicable (as determined by a majority of the
disinterested Directors/Trustees of the Board of the Fund), take whatever steps
are necessary to eliminate the irreconcilable material conflict, including: (1)
withdrawing the assets allocable to some or all of the Separate Accounts from
the Fund or any Series and reinvesting such assets in a different investment
medium, which may include another series of the Fund, or submitting the question
of whether such segregation should be implemented to a vote of all affected
Variable Contract Owners and, as appropriate, segregating the assets of any
appropriate group (i.e., Contract Owners of Variable Contracts issued by one or
more Participating Insurance Companies) that votes in favor of such segregation,
or offering to the affected Variable Contract Owners the option of making such a
change; and (2) establishing a new registered management investment company or
managed separate account. If a material irreconcilable conflict arises because
of the Company's decision to disregard Variable Contract Owners' voting
instructions and that decision represents a minority
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15
position or would preclude a majority vote, the Company shall be required, at
the Fund's election, to withdraw the Separate Accounts' investment in the Fund,
and no charge or penalty will be imposed as a result of such withdrawal. The
Fund shall neither be required to bear the costs of remedial actions taken to
remedy a material irreconcilable conflict nor shall it be requested to pay a
higher investment advisory fee for the sole purpose of covering such costs. In
addition, no Variable Contract Owner shall be required directly or indirectly to
bear the direct or indirect costs of remedial actions taken to remedy a material
irreconcilable conflict. A majority of the disinterested members of the Board of
Directors/Trustees of the Fund shall determine whether any proposed action
adequately remedies any material irreconcilable conflict, but in no event will
the Fund be required to establish a new funding medium for any Variable
Contract. A new funding medium for any Variable Contract need not be established
by the Company pursuant to this Section 4.3, if an offer to do so has been
declined by vote of a majority of Variable Contract Owners who would be
materially and adversely affected by the irreconcilable material conflict. All
reports received by the Fund's Board of Directors/Trustees of potential or
existing conflicts, and all Board action with regard to determining the
existence of a conflict, notifying Participating Insurance Companies and the
Fund's investment adviser of a conflict, and determining whether any proposed
action adequately remedies a conflict, shall be properly recorded in the minutes
of the Board of Directors/Trustees of the Fund or other appropriate records, and
such minutes or other records shall be made available to the SEC upon request.
The Company and the Fund
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16
shall carry out their responsibilities under this Section 4.3 with a view only
to the interests of the Variable Contract Owners.
4.4. The Board of Directors/Trustees of the Fund shall promptly notify the
Company in writing of its determination of the existence of an irreconcilable
material conflict and its implications.
ARTICLE V. Prospectuses and Proxy Statements, Voting
5.1. The Company shall distribute such prospectuses, proxy statements and
periodic reports of the Fund to the owners of Variable Contracts issued by the
Company as required to be distributed to such Variable Contract Owners under
applicable federal or state law.
5.2. The Distributor shall provide the Company with as many copies of the
current prospectus of the Fund as the Company may reasonably request. If
requested by the Company in lieu thereof, the Fund shall provide such
documentation (including a final copy of the Fund's prospectus as set in type or
in camera-ready copy as defined by the Fund) and other assistance as is
reasonably necessary in order for the Company to print together in one document
the current prospectus for the Variable Contracts issued by the Company and the
current prospectus for the Fund. The Fund or Adviser shall
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17
bear the expense of printing copies of its current prospectus that will be
distributed to existing Variable Contract Owners, and the Company shall bear the
expense of printing copies of the Fund's prospectus that are used in connection
with offering the Variable Contracts issued by the Company.
5.3. The Fund and the Distributor shall provide (1) at the Fund's expense,
one copy of the Fund's current Statement of Additional Information ("SAI") to
the Company and to any owner of a Variable Contract issued by the Company who
requests such SAI, (2) at the Company's expense, such additional copies of the
Fund's current SAI as the Company shall reasonably request.
5.4. The Fund, at its expense, shall provide the Company with copies of its
proxy material, periodic reports to shareholders and other communications to
shareholders in such quantity as the Company shall reasonably require for
purposes of distributing to owners of Variable Contracts issued by the Company.
The Fund, at the Company's expense, shall provide the Company with copies of its
periodic reports to shareholders and other communications to shareholders in
such quantity as the Company shall reasonably request for use in connection with
offering the Variable Contracts issued by the Company. If requested by the
Company in lieu thereof, the Fund shall provide such documentation (including a
final copy of the Fund's proxy materials, periodic reports to shareholders and
other communications to shareholders, as set in type or in camera-ready copy as
defined by the Fund) and other assistance as reasonably necessary
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18
in order for the Company to print such shareholder communications for
distribution to owners of Variable Contracts issued by the Company.
5.5. For so long as the SEC interprets the 1940 Act to require pass-through
voting by Participating Insurance Companies whose Separate Accounts are
registered as investment companies under the 1940 Act ("Registered Separate
Accounts"), the Company shall vote shares of each Series of the Fund held in
Registered Separate Accounts or subaccounts thereof, at regular and special
meetings of the Fund in accordance with instructions timely received by the
Company (or its designated agent) from owners of Variable Contracts funded by
such Registered Separate Accounts or subaccounts thereof having a voting
interest in the Series. The Company shall vote shares of a Series of the Fund
held in Registered Separate Accounts or subaccounts thereof that are
attributable to the Variable Contracts as to which no timely instructions are
received, as well as shares held in such Registered Separate Accounts or
subaccounts thereof that are not attributable to the Variable Contracts and
owned beneficially by the Company (resulting from charges against the Variable
Contracts or otherwise), in the same proportion as the votes cast by owners of
the Variable Contracts funded by that Separate Account or subaccount thereof
having a voting interest in the Series from whom instructions have been timely
received. The Company shall vote shares of each Series of the Fund held in its
general account or in any Separate Account that is not registered under the 1940
Act, if any, in its discretion or in the same proportion as the votes cast with
respect to shares of the Series held in all Registered Separate Accounts of the
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19
Company or subaccounts thereof, in the aggregate. In the event that the Shared
Funding Exemptive Order requires all Participating Insurance Companies to
calculate voting privileges in substantially the same manner, the Company agrees
to take steps so that each Registered Separate Account or subaccount thereof
investing in the Fund calculates voting privileges substantially in the manner
established by the Fund, provided that such manner is reasonable and
communicated to the Company by the Fund.
5.6. To the extent applicable, the Fund shall disclose in its prospectus,
in substance, that: (1) shares of the Series of the Fund are offered to
affiliated or unaffiliated insurance company separate accounts which fund both
annuity and life insurance contracts, (2) due to differences in tax treatment or
other considerations, the interests of various Variable Contract Owners
participating in the Fund or a Series might at some time be in irreconcilable
conflict, and (3) the Board of Directors/Trustees of the Fund will monitor for
any material irreconcilable conflicts and determine what action, if any, should
be taken.
ARTICLE VI. Sales Material and Information
6.1. The Company agrees that neither it nor any of its affiliates shall
give any information or make any representations or statements on behalf of the
Fund or concerning the Fund other than the information or representations
contained in the Registration Statement or prospectus for the Fund shares, as
such registration statement
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and prospectus may be amended or supplemented from time to time, or in reports
or proxy statements for the Fund, or in sales literature or other promotional
material approved by the Fund or its designee and/or by the Distributor or its
designee, except with the prior permission of the Fund or its designee and/or
the Distributor or its designee. The Parties agree that total return information
of the Fund and its Series derived from the prospectus or Registration Statement
of the Fund or from reports provided by the Fund or the Adviser, Distributor to
the Company may be used by the Company in connection with the sale of the
Variable Contracts without prior approval of the Fund or the Distributor, or
their designees, and the Company shall be responsible for using such information
in conformity with the information it is provided.
6.2. Neither the Fund nor the Distributor nor the designee of either shall
use any sales literature or other promotional material in which the Company or
its Separate Accounts are named without the prior approval of the Company or its
designee.
6.3. The Fund and the Distributor agree that each and the affiliates of
each shall not give any information or make any representations on behalf of the
Company or concerning the Company, the Separate Accounts, or the Variable
Contracts issued by the Company, other than the information or representations
contained in a registration statement or prospectus for such Variable Contracts,
as such registration statement and prospectus may be amended or supplemented
from time to time, or in reports for the Separate Accounts or prepared for
distribution to owners of such Variable Contracts, or
<PAGE>
21
in sales literature or other promotional material approved by the Company or its
designee, except with the prior permission of the Company.
6.4. The Fund will provide to the Company at least one complete copy of all
prospectuses, Statements of Additional Information, reports, proxy statements
and other voting solicitation materials, and all amendments and supplements to
any of the above, that relate to the Fund or its shares, promptly after the
filing of such document with the SEC or other regulatory authorities.
6.5. The Company will provide to the Fund at least one complete copy of all
prospectuses (which shall include an offering memorandum if the Variable
Contracts issued by the Company or interests therein are not registered under
the 1933 Act), Statements of Additional Information, reports, solicitations for
voting instructions, and all amendments or supplements to any of the above, that
relate to the Variable Contracts issued by the Company or the Separate Accounts
promptly after the filing of such document with the SEC or other regulatory
authority.
6.6. For purposes of this Article VI, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, computerized media, or other public
media), sales literature (i.e., any written
<PAGE>
22
communication distributed or made generally available to customers or the
public, including brochures, circulars, research reports, market letters, form
letters, seminar texts, reprints or excerpts of any other advertisement, sales
literature, or published article), educational or training materials or other
communications distributed or made generally available to some or all agents or
employees.
ARTICLE VII. Administration of Accounts
7.1 Services to Owners of Variable Contracts shall be the responsibility of
the Company and shall not be the responsibility of the Fund or the Distributor.
These services include, but are not limited to:
(a) providing information periodically to Contract Owners showing their
interests in the Separate Accounts or subaccounts thereof that invest
in the Fund or in any Series thereof;
(b) addressing inquiries from Contract Owners relating to investing,
exchanging or transferring, or redeeming interests under the Variable
Contracts and the Separate Accounts or subaccounts or any Series
thereof funding such Variable Contracts, which inquiries may relate to
the Fund or a Series thereof;
(c) providing explanations to Owners regarding Fund investment objectives
and policies and other information about the Fund and its Series,
including the performance of the Series;
(d) forwarding shareholder communications from the Fund, including but not
limited to shareholder reports containing annual and semi-annual
financial statements of the Fund to Contract Owners;
(e) delivering the Fund prospectus and supplements thereto to Owners
whenever necessary under the Securities Act of 1933;
<PAGE>
23
(f) delivering any notices of shareholder meetings and proxy statements
accompanying such notices in connection with general and special
meetings of shareholders of the Fund under which Contract Owners may
have voting rights, and helping tabulate the voting of Owners
tendering voting instructions to the Company.
7.2 The Fund and the Distributor recognize the Company as the sole
shareholder of Fund shares issued under this Agreement and further recognize
that Distributor, Adviser, and/or the Fund will derive a substantial savings in
administrative expense because the Company will provide the services described
above, thus allowing the Fund significant reductions in postage expense and
shareholder communications and recordkeeping, by virtue of having a sole
shareholder rather than multiple shareholders. In consideration of the
administrative savings resulting from such arrangement, the Company shall be
paid an amount equal to 0 basis points (0.00%) per annum of the average
aggregate amount invested by the Company under this Agreement until $5 million
has been invested, and then an amount equal to 7.5 basis points (0.075%) per
annum of the average aggregate amount invested by the Company under this
Agreement until $10 million has been invested, and then an amount equal to 10
basis points (0.10%) per annum of the average aggregate amount invested by the
Company under this Agreement.
7.3 For purposes of computing the payment to the Company contemplated by
this Section VII, the average aggregate amount invested by Company over a one
month period shall be computed by totaling the Company's aggregate investment
(share net asset value multiplied by total number of shares held by the Company)
on each business
<PAGE>
24
day during the month and dividing by the total number of business days during
such month.
7.4 The payment contemplated by this Section VII shall be calculated by the
Fund, or the Distributor at the end of each calendar quarter and will be paid by
the Distributor to the Company within ten (10) business days thereafter. Payment
will be accompanied by a statement showing the calculation of the monthly amount
payable by the Distributor and such other supporting data as may be reasonably
requested by the Company.
ARTICLE VIII. Indemnification
8. 1. Indemnification By the Company
8.1(a). The Company agrees to indemnify and hold harmless the Fund, each of
its Directors/Trustees and officers, the Adviser, and the Distributor and each
of the Directors/Trustees of the Adviser and the Distributor (collectively, the
"Indemnified Parties" for purposes of this Section 8. 1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation expenses (including legal and
other expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or litigation expenses:
<PAGE>
25
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement
or prospectus (which shall include an offering memorandum) for the
Variable Contracts issued by the Company or sales literature for such
Variable Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not apply
as to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to the Company by or on behalf
of the Fund: (1) for use in the registration statement or prospectus
for the Variable Contracts issued by the Company or in sales
literature (or any amendment or supplement to any of the foregoing) or
otherwise, (2) was contained in sales literature or other promotional
material that has been approved by the Fund or its designee or by the
Distributor or its designee for use in connection with the sale of
such Variable Contracts or Fund shares, or (3) or otherwise in
connection with the sale of the Variable Contracts or Fund shares; or
(ii) arise out of or as a result of any statement or representation (other
than statements or representations (1) contained in the registration
statement, prospectus or sales literature of the Fund not supplied by
the Company or persons under its control, (2) contained in the
registration statement, prospectus, SAI, or sales literature for the
Variable Contracts made in reliance upon and in conformity with
information furnished to the Company by or on behalf of the Fund or
the Distributor, or (3) in sales literature or other promotional
material that has been approved by the Fund or its designee or the
Distributor or its designee) or wrongful conduct of the Company or
persons under the control thereof with respect to the sale or
distribution of the Variable Contracts issued by the Company or the
Fund shares; or
(iii arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, or
sales literature of the Fund or any amendment thereof or supplement
thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or omission was
made in reliance upon information furnished to the Fund by or on
behalf of the Company; or
(iv) arise out of or result from the material breach of any representation
and/or warranty made by the Company in this Agreement or
<PAGE>
26
arise out of or result from any other material breach of this Agree-
ment by the Company;
except to the extent provided in Sections 8. 1 (b) and 8. 1 (c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
expenses to which an Indemnified Party would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of his or
her duties or by reason of his or her reckless disregard of obligations or
duties under this Agreement or to the Fund.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Party shall have notified the Company in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon such Indemnified Party (or after such
Party shall have received notice of such service on any designated agent), but
failure to notify the Company of any such claim shall not relieve the Company
from any liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnification provision.
In case any such action is brought against an Indemnified Party, the Company
shall be entitled to participate, at its own expense, in the defense of such
action. The Company also shall be entitled to assume the defense thereof, with
counsel satisfactory to the Indemnified Party named in the action. After notice
from the Company to such party of the Company's election to assume the defense
thereof, the
<PAGE>
27
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Company will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
8.1(d). The Indemnified Parties shall promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund shares thereunder or the Variable Contracts
issued by the Company or the operation of the Fund.
8.2. Indemnification By the Adviser/Distributor
8.2(a). The Adviser and Distributor jointly and severally agree to
indemnify and hold harmless the Company and each of its directors and officers
and the Separate Accounts (collectively, the "Indemnified Parties" for purposes
of this Section 8.2) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Distributor) or litigation expenses (including legal and other expenses) to
which the Indemnified Parties may become subject under any statute, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
litigation expenses:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement
or prospectus or sales literature of the Fund (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon
<PAGE>
28
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Distributor,
Adviser or the Fund or the designee of either by or on behalf of the
Company: (1) for use in the registration statement or prospectus for
the Fund or in sales literature (or any amendment or supplement to any
of the foregoing) or otherwise, (2) was contained in sales literature
or other promotional material that has been approved by the Company or
its designee for use in connection with the sale of the Variable
Contracts or Fund shares, or (3) or otherwise for use in connection
with the sale of the Variable Contracts issued by the Company or Fund
shares; or
(ii) arise out of or as a result of any statement or representation (other
than statements or representations (1) contained in the registration
statement, prospectus or sales literature for the Variable Contracts
not supplied by the Distributor, Adviser, or persons under the control
thereof, (2) contained in the registration statement, prospectus, SAI,
or sales literature for the Fund made in reliance upon and in
conformity with information furnished to the Fund by or on behalf of
the Company, or (3) in sales literature or other promotional material
that has been approved by the Company or its designee) or wrongful
conduct of the Fund, Adviser or Distributor or persons under their
control with respect to the sale or distribution of the Variable
Contracts or the Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, or
sales literature covering the Variable Contracts issued by the
Company, or any amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in
reliance upon information furnished to the Company by the Distributor,
Adviser, or by or on behalf of the Fund; or
(iv) arise out of or result from the material breach of any representation
and/or warranty made by the Distributor, Adviser, or the Fund in this
Agreement or arise out of or result from any other material breach of
this Agreement by the Distributor, Adviser, or the Fund, including but
not limited to, compliance with the diversification requirements of
Section 817(h) of the Code and qualification of each Series of the
Fund as a Regulated Investment Company under Subchapter M of the Code;
<PAGE>
29
except to the extent provided in Sections 8.2(b) and 8.2(c) hereof.
8.2(b). The Distributor shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
expenses to which an Indemnified Party would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of his or
her duties or by reason of his or her reckless disregard of obligations and
duties under this Agreement or to the Company or the Separate Accounts.
8.2(c). The Distributor shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Party shall have notified the Distributor in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Party shall have received notice of such service on any designated agent),
but failure to notify the Distributor of any such claim shall not relieve the
Distributor from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
Indemnification Provision. In case any such action is brought against an
Indemnified Party, the Distributor will be entitled to participate, at its own
expense, in the defense thereof The Distributor also shall be entitled to assume
the defense thereof, with counsel satisfactory to the Indemnified Party named in
the action. After notice from the Distributor to such party of the Distributor's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by
<PAGE>
30
it, and the Distributor will not be liable to such party under this Agreement
for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
8.2(d). The Company shall promptly notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Fund shares
hereunder or the Variable Contracts issued by the Company or the operation of
the Separate Accounts provided that such litigation or proceedings relate to or
affect the interests of the Fund or the Distributor.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Indiana.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934,
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, the Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
<PAGE>
31
ARTICLE X. Termination
10.1. This Agreement shall terminate:
(a) at the option of any party upon 90 days advance written notice to the
other parties, unless a shorter time is agreed to by the parties to
this Agreement; or
(b) at the option of the Company if shares of the Series are not
reasonably available to meet the requirements of the Variable
Contracts issued by the Company, as determined by the Company, and
upon written notice by the Company to the other parties to this
Agreement; or,
(c) at the option of the Fund, Adviser, or the Distributor upon
institution of formal proceedings against the Company by the NASD, the
SEC, or any state securities or insurance department or any other
regulatory body if the Fund, Adviser, or the Distributor shall
determine, in their sole judgment exercised in good faith, that the
Company has suffered a material adverse change in its business,
operations, financial condition, or prospects since the date of this
Agreement or is the subject of material adverse publicity; or
(d) at the option of the Company upon institution of formal proceedings
against the Fund, Adviser, or the Distributor by the NASD, the SEC, or
any state securities or insurance department or any other regulatory
body if the Company shall determine, in its sole judgment exercised in
good faith, that the Fund, Adviser, or the Distributor has suffered a
material adverse change in its business, operations, financial
<PAGE>
32
condition, or prospects since the date of this Agreement or is the
subject of material adverse publicity; or
(e) upon requisite vote of the Variable Contract Owners having an interest
in the Separate Accounts (or any subaccounts thereof) to substitute
the shares of another investment company or series thereof for the
corresponding shares of the Fund or a Series in accordance with the
terms of the Variable Contracts for which those shares had been
selected to serve as the underlying investment media; or
(f) in the event any of the shares of a Series are not registered, issued
or sold in accordance with applicable state and/or federal law, or
such law precludes the use of such shares as the underlying investment
media of the Variable Contracts issued or to be issued by the Company;
or
(g) by any party to the Agreement upon a determination by a majority of
the Directors/Trustees of the Fund, or a majority of its disinterested
Directors/Trustees, that an irreconcilable material conflict exists;
or
(h) at the option of the Company if the Fund or a Series fails to meet the
diversification requirements specified in Section 3.2 or 3.3 hereof;
or
(i) at the option of the Fund or the Distributor if the Variable Contracts
issued by the Company cease to qualify as annuity contracts or life
insurance contracts, as applicable, under the Code or if the Variable
Contracts are not registered, issued or sold in accordance with
applicable state and/or federal law; or
(j) at the option of the Company upon any substitution of the shares of
another investment company or series thereof for shares of the Fund or
a Series of the
<PAGE>
33
Fund in accordance with the terms of the Contracts, provided that the
Company has given at least 30 days prior written notice to the Fund or
Distributor of the date of the substitution.
(k) at the option of the Company upon a material breach of this Agreement
or of any representation or warranty herein by the Fund, Adviser, or
the Distributor, or at the option of the Fund. Adviser, or the
Distributor upon a material breach of this Agreement or of any
representation or warranty herein by the Company.
10.2.Each party to this Agreement shall promptly notify the other parties
to the Agreement of the institution against such party of any such formal
proceedings as described in Sections 10.1(c) and (d) hereof. The Company shall
give 30 days prior written notice to the Fund of the date of any proposed vote
of Variable Contract Owners to replace the Fund's shares as described in Section
10.1(e) hereof.
10.3. Under the terms of the Variable Contracts, the Company reserves the
right, subject to compliance with the law as then in effect, to make
substitutions for the securities that are held by a Separate Account of Company
under certain circumstances. The parties acknowledge that Company has the right
to substitute other securities for the shares of the Fund or a Series thereof
already purchased or to be purchased in the future if the shares of the Fund or
any or all of the Series of the Fund should no longer be available for
investment, or if, in the judgment of Company management, further investment in
shares of the Fund or any or all of the Series thereof should become
<PAGE>
34
inappropriate in view of the purposes of the Contracts. Company will provide 30
days written notice to the Fund or to the Distributor prior to effecting any
such substitution.
10.4. If this Agreement terminates, any provision of this Agreement
necessary to the orderly windup of business under it will remain in effect as to
that business, after termination.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
Calvert Group
4550 Montgomery Ave., Suite 100ON
Bethesda, MD 20814
Attn: Legal Department
If to the Adviser:
Calvert Group
4550 Montgomery Ave., Suite IOOON
Bethesda, MD 20814
Attn: Legal Department
<PAGE>
35
If to the Distributor:
Calvert Group
4550 Montgomery Ave., Suite 100ON
Bethesda, MD 20814
Attn: Legal Department
If to the Company:
American United Life Insurance Company
One American Square
P.O. Box 368
Indianapolis, Indiana 46206-0368
Attn: Richard A. Wacker Associate General Counsel
ARTICLE XII. Miscellaneous
12.1. The Fund and the Company agree that if and to the extent Rule 6e-2 or
6e-3(T) under the 1940 Act is amended or if Rule 6e-3 is adopted in final form,
to the extent applicable, the Fund and the Company shall each take such steps as
may be necessary to comply with such Rule as amended or adopted in final form.
12.2. It is understood that the name "American United Life Insurance
Company," "AUL" or any derivative thereof or logo associated with that name is
the valuable property of the Distributor and its affiliates, and that the
Company has the right to use such name (or derivative or logo) only so long as
this Agreement is in effect. Upon
<PAGE>
36
termination of this Agreement the Company shall forthwith cease to use such name
(or derivative or logo).
12.3. It is understood that the name "Calvert" or any derivative thereof or
logo associated with that name is the valuable property of the Distributor and
its affiliates, and that the Company has the right to use such name (or
derivative or logo) only so long as this Agreement is in effect. Upon
termination of this Agreement the Company shall forthwith cease to use such name
(or derivative or logo).
12.4. The parties agree that the names, addresses, and other information
relating to the owners of the Variable Contracts or prospects for the sale of
the Variable Contracts are the exclusive property of Company and may not be used
by the Fund, Adviser, or Distributor without the written consent of the Company.
12.5. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.6. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
<PAGE>
37
12.7. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.8. This Agreement may not be assigned by any party to the Agreement
except with the written consent of the other parties to the Agreement. For
purposes of this provision, assignment shall be as defined in the Investment
Company Act of 1940 and the rules thereunder.
<PAGE>
38
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
Acacia Capital Corporation
ATTEST:___________________________ By: _________________________
Name: Name: William M. Tartikoff
Title: Title: General Counsel
Calvert Asset Management
Corporation
ATTEST: __________________________ By: _________________________
Name: Name: William M. Tartikoff
Title: Title: General Counsel
Calvert Distributors Inc.
ATTEST:___________________________ By:__________________________
Name: Name: William M. Tartikoff
Title: Title: General Counsel
American United Life Insurance
Company(R)
ATTEST:___________________________ By:__________________________
Name: Name: Brian Sweeney
Title: Title: V.P. Pension Marketing
<PAGE>
39
EXHIBIT A
The following series of Acacia Capital Corporation are "Series" for purposes of
Section
1.1 of the Agreement:
Calvert Capital Accumulation Portfolio
- --------------------------------------------------------------------------------
EXHIBIT 8.4
FORM OF PARTICIPATION AGREEMENT WITH FIDELITY VARIABLE INSURANCE PRODUCTS FUND
- --------------------------------------------------------------------------------
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND,
FIDELITY DISTRIBUTORS CORPORATION
and
AMERICAN UNITED LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of the 1st day of May, 1993 by and
among AMERICAN UNITED LIFE INSURANCE COMPANY, (hereinafter the "Company"), an
Indiana corporation, on its own behalf and on behalf of each segregated asset
account of the Company set forth on Schedule A hereto as may be amended from
time to time (each such account hereinafter referred to as the "Account"), and
the VARIABLE INSURANCE PRODUCTS FUND, an unincorporated business trust organized
under the laws of the Commonwealth of Massachusetts (hereinafter the "Fund") and
FIDELITY DISTRIBUTORS CORPORATION (hereinafter the "Underwriter"), a
Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and variable annuity contracts
(collectively, the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and the
Underwriter (hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission, dated October 15, 1985 (File No. 812-6102), granting Participating
Insurance Companies and variable annuity and variable life insurance separate
accounts exemptions from the provisions of sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended, (hereinafter the "1940
Act") and Rules 6e-2(b) (15) and 6e-3(T) (b) (15) thereunder, to the extent
necessary to permit shares of the Fund to be sold to and held by variable
annuity and variable life insurance separate accounts of both affiliated and
unaffiliated life insurance companies (hereinafter the "Shared Funding Exemptive
Order"); and
<PAGE>
2
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser") is duly
registered as an investment adviser under the federal Investment Advisers Act of
1940 and any applicable stare securities law; and, to the extent required by
law,
WHEREAS, the Company has, to the extent required by law, registered or will
register interests in each Account funding certain variable annuity contracts
under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established under the provisions of Indian law, on the date shown
for such Account on Schedule A hereto, to set aside and invest assets
attributable to attributable to the aforesaid variable annuity contracts; and
WHEREAS, the Company has registered or will register, as required by law,
certain of the Accounts as unit investment trusts under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended, (hereinafter the " 1934 Act"), and is a member in good
standing of the National Association of Securities Dealers, Inc. (hereinafter
"NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable annuity contracts and
the Underwriter is authorized to sell such shares to unit investment trusts such
as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Underwriter agrees to sell to the Company those shares of the Fund
which each Account orders, executing such orders on a daily basis at the net
asset value next computed after receipt by the Fund or its designee of the order
for the shares of the Fund. For purposes of this Section 1.1, the Company shall
be the designee of the Fund for receipt of such orders from each Account and
receipt by such designee shall constitute receipt by the Fund; provided that the
Fund receives notice of such order by 9.00 am. Boston time on the next following
Business Day. "Business Day" shall mean any day on which the New York Stock
Exchange is open for trading and on which the Fund calculates its net asset
value pursuant to the rules of the Securities and Exchange Commission.
<PAGE>
3
1.2. The Fund agrees to make its shares available indefinitely for purchase
at the applicable net asset value per share by the Company and its Accounts on
those days on which the Fund calculates its net asset value pursuant to rules of
the Securities and Exchange Commission and the Fund shall use reasonable efforts
to calculate such net asset value on each day which the New York Stock Exchange
is open for trading. Notwithstanding the foregoing, the Board of Trustees of the
Fund (hereinafter the "Board") may refuse to sell shares of any Portfolio to any
person, or suspend or terminate the offering of shares of any Portfolio if such
action is required by law or by regulatory authorities having jurisdiction or
is, in the sole discretion of the Board acting in good faith and in light of
their fiduciary duties under federal and any applicable state laws necessary in
the best interests of the shareholders of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts. No
shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, II, V, VII and Section 2.5 of Article II
of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request, any full
or fractional shares of the Fund held by the Company, executing such requests on
a daily basis at the net asset value next computed after receipt by the Fund or
its designee of the request for redemption. For purposes of this Section 1.5,
the Company shall be the designee of the Fund for receipt of requests for
redemption from each Account and receipt by such designee shall constitute
receipt by the Fund; provided that the Fund receives notice of such request for
redemption on the next following Business Day.
1.6. The Company agrees to purchase and redeem the shares of each Portfolio
offered by the then current prospectus of the Fund in accordance with the
provisions of such prospectus. The Company agrees that all net amounts available
under the variable annuity contracts with the form number(s) which are listed on
Schedule A attached hereto and incorporated herein by this reference, as such
Schedule A may be amended from time to time hereafter by mutual written
agreement of all the parties hereto, (the "Contracts") shall be invested in the
Fund, in such other Funds advised by the Adviser as may be mutually agreed to in
writing by the parties hereto, or in the Company's general account, provided
that such amounts may also be invested in an investment company other than the
Fund if (a) such other investment company, or series thereof, has investment
objectives or policies that are substantially different from the investment
objectives and policies of all the Portfolios of the Fund; or (b) the Company
gives the Fund and the Underwriter 45 days written notice of its intention to
make such other investment company available as a funding vehicle for the
Contracts; or (c) such other investment company was available or contemplated as
a funding vehicle for the Contracts prior to the date of this Agreement and the
Company so informs the Fund and Underwriter prior to their signing this
Agreement (a list of such funds appearing on Schedule C to this Agreement); or
(d) the Fund or Underwriter consents to the use of such other investment
company.
<PAGE>
4
1.7. The Company shall pay for Fund shares on the next Business Day after
an order to purchase Fund shares is made in accordance with the provisions of
Section 1.1 hereof. Payment shall be in federal funds transmitted by wire. For
purpose of Section 2.10 and 2.11, upon receipt by the Fund of the federal funds
so wired, such funds shall cease to be the responsibility of the Company and
shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account. Shares
ordered from the Fund will be recorded in an appropriate title for each Account
or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone, followed
by written confirmation) to the Company of any income, dividends or capital gain
distributions payable on the Fund's shares. The Company hereby elects to receive
all such income dividends and capital gain distributions as are payable on the
Portfolio shares in additional shares of that Portfolio. The Company reserves
the right to revoke this election and to receive all such income dividends and
capital gain distributions in cash. The Fund shall notify the Company of the
number of shares so issued as payment of such dividends and distributions.
1.10. The Fund shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated and shall use its best efforts to
make such net asset value per share available by 7 p.m. Boston time.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that interests in the Separate
Account funding the Contracts are or will be registered under the 1933 Act if
required by law; that the Contracts will be issued and sold in compliance in all
material respects with all applicable Federal and State laws and that the sale
of the Contracts shall comply in all material respects with state insurance
suitability requirements. The Company further represents and warrants that it is
an insurance company duly organized and in good standing under applicable law
and that it has legally and validly established each Account prior to any
issuance or sale thereof as a segregated asset account under Section 27-1-5-1 of
the Indiana Insurance Code and has registered or, prior to any issuance or sale
of the Contracts, will register each Account as a unit investment trust in
accordance with the provisions of the 1940 Act to serve as a segregated
investment account for the Contracts, if required by law.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Indiana and all
applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as
<PAGE>
5
required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4. The Company represents that the Contracts are currently treated as
annuity contracts under applicable provisions of the Code and that it will make
every effort to maintain such treatment and that it will notify the Fund and the
Underwriter immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so treated in
the future.
2.5. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it may make such payments in the future. The Fund has adopted a "no
fee" or "defensive" Rule 12b-1 Plan under which it makes no payments for
distribution expenses. To the extent that it decides to finance distribution
expenses pursuant to Rule 12b-1, the Fund undertakes to have a board of
trustees, a majority of whom are not interested persons of the Fund, formulate
and approve any plan under Rule 12b-1 to finance distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Indiana and the Fund and the Underwriter represent that their
respective operations are and shall at all times remain in material compliance
with the laws of the State of Indiana to the extent required to perform this
Agreement.
2.7. The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Indiana and all applicable state and
federal securities laws, including without limitation the 1933 Act, the 1934
Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly existing
under the laws of the Commonwealth of Massachusetts and that it does and will
comply in all material respects with the 1940 Act.
2.9. The Underwriter represents and warrants that the Adviser is and shall
remain duly registered as an investment adviser in all material respects under
all applicable federal and
<PAGE>
6
stare securities laws and that the Adviser shad perform its obligations for the
Fund in compliance in all material respects with the laws of the State of
Indiana and any applicable state and federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of their
directors, trustees, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund, in an amount not less than
the minimum coverage as required currently by Rule 17g-1 of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid
includes coverage for larceny and embezzlement is issued by a reputable bonding
company. The Company agrees to make all reasonable efforts to see that this bond
or another bond containing these provisions is always in effect, and agrees to
notify the Fund and the Underwriter in the event that such coverage no longer
applies.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Underwriter shall provide the Company (at the Company's expense)
with as many copies of the Fund's current prospectus as the Company may
reasonably request. If requested by the Company in lieu thereof, the Fund shall
provide such documentation (including a final copy of the new prospectus as set
in type at the Fund's expense) and other assistance as is reasonably necessary
in order for the Company once each year (or more frequently if the prospectus
for the Fund is amended) to have the prospectus for the Contracts and the Fund's
prospectus printed together in one document (such printing to be at the
Company's expense).
3.2. The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Underwriter (or in the Fund's
discretion, the Prospectus shall state that such Statement is available from the
Fund), and the Underwriter (or the Fund), at its expense, shall print and
provide such Statement free of charge to the Company and to any owner of a
Contract or prospective owner who requests such Statement.
3.3. The Fund, at its expense, shall provide the Company with copies of its
proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners or Participants under Contracts.
3.4. If and to the extent required by law the Company shall:
<PAGE>
7
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions received
from contract owners; and
(iii) vote Fund shares for which no instructions have been received in
the same proportion as Fund shares of such portfolio for which
instructions have been received,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent permitted
by law. Participating Insurance Companies shall be responsible for assuring that
each of their separate accounts participating in the Fund calculates voting
privileges in a manner consistent with the standards set forth on Schedule B
attached hereto and incorporated herein by this reference, which standards will
also be provided to the other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the Securities and Exchange Commission's interpretation of the
requirements of Section 16(a) with respect to periodic elections of trustees and
with whatever rules the Commission may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material in
which the Fund or its investment adviser or the Underwriter is named, at least
ten Business Days prior to its use. No such material shall be used if the Fund
or its designee reasonably objects to such use within ten Business Days after
receipt of such material.
4.2. The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement or prospectus for the Fund shares, as
such registration statement and prospectus may be amended or supplemented from
time to time, or in reports or proxy statements for the Fund, or in sales
literature or other promotional material approved by the Fund or its designee or
by the Underwriter, except with the permission of the Fund or the Underwriter or
the designee of either.
4.3. The Fund, Underwriter, or its designee shall furnish, or shall cause
to be furnished, to the Company or its designee, each piece of sales literature
or other promotional material in which the Company and/or its separate
account(s), is named at least ten Business Days
<PAGE>
8
prior to its use. No such material shall be used if the Company or its designee
reasonably objects to such use within ten Business Days after receipt of such
material.
4.4. The Fund and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company, each
Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports' proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the Securities and Exchange Commission or
other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the Contracts or
each Account, contemporaneously with the filing of such document with the SEC or
other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, or other public media), sales literature
(i.e., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
Statements of Additional Information, shareholder reports, and proxy materials.
ARTICLE V. Fees and Expenses
5.1. The Fund and Underwriter shall pay no fee or other compensation to the
Company under this agreement, except that if the Fund or any Portfolio adopts
and implements a plan pursuant to Rule 12b-1 to finance distribution expenses,
then the Underwriter may make payments to the Company or to the underwriter for
the Contracts if and in amounts agreed to by the Underwriter in writing and such
payments will be made out of existing fees otherwise payable
<PAGE>
9
to the Underwriter, past profits of the Underwriter or other resources available
to the Underwriter. No such payments shall be made directly by the Fund.
Currently, no such payments are contemplated.
5.2. All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund. The Fund shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent necessary in accordance with applicable state laws
prior to their sale. The Fund shall bear the expenses for the cost of
registration and qualification of the Fund's shares, preparation and filing of
the Fund's prospectus and registration statement, proxy materials and reports,
setting the prospectus in type, setting in type and printing the proxy materials
and reports to shareholders (including the costs of printing a prospectus that
constitutes an annual report), the preparation of all statements and notices
required by any federal or state law, and all taxes on the issuance or transfer
of the Fund's shares.
5.3. The Company shall bear the expenses of printing and distributing the
Fund's prospectus to owners of Contracts issued by the Company and of
distributing the Fund's proxy materials and reports to such Contract owners.
ARTICLE VI. Diversification
6.1. The Fund will at all times invest money from the Contracts in such a
manner as to ensure that the Contracts will be treated as variable contracts
under the Code and the regulations issued thereunder. Without limiting the scope
of the foregoing, the Fund will at all times comply with Section 817(h) of the
Code and Treasury Regulation 1.817-5, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts and
any amendments or other modifications to such Section or Regulations. In the
event of a breach of this Article VI by the Fund, it will take all reasonable
steps (a) to notify Company of such breach and (b) to adequately diversify the
Fund so as to achieve compliance with the grace period afforded by Regulation
817-5.
ARTICLE VII. Potential Conflicts
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or (f)
a decision by an insurer to disregard the voting instructions of contract
owners. The Board shall
<PAGE>
10
promptly inform the Company if it determines that an irreconcilable material
conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority of its
disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such
Account; provided, however that such withdrawal and termination shall be limited
to the extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Underwriter and Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
<PAGE>
11
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 to establish a new funding
medium for the Contracts if an offer to do so has been declined by vote of a
majority of Contract owners materially adversely affected by the irreconcilable
material conflict. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Fund and terminate this
Agreement within six (6) months after the Board informs the Company in writing
of the foregoing determination, provided, however, that such withdrawal and
termination shall be Limited to the extent required by any such material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-9 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall
continue in effect only to the extent that terms and conditions substantially
identical to such Sections are contained in such Rule(s) as so amended or
adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
8.1 (a). The Company agrees to indemnify and hold harmless the Fund and
each trustee of the Board and officers and each person, if any, who controls the
Fund within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.l) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation (including legal and other
expenses). to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Fund's shares or the Contracts
and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the
Registration Statement or prospectus for the Contracts or
contained in the Contracts or sales Literature for the Contracts
(or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material
<PAGE>
12
fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this agreement
to indemnify shall not apply as to any indemnified Parry such
statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information fur-
nished to the Company by or on behalf of the Fund for use in the
Registration Statement or prospectus for the Contracts or in the
Contracts or sales Literature (or any amendment or supplement)
or otherwise for use in connection with the sale of the Contracts
or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus or sales Literature of the
Fund not supplied by the Company, or persons under its control)
or wrongful conduct of the Company or persons under its control,
with respect to the sale or distribution of the Contracts or Fund
Shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a Registration Statement,
prospectus, or sales Literature of the Fund or any amendment
thereof or supplement thereto or the omission or alleged omission
to state therein a material fact required to be stated therein or
necessary to mace the statements therein not misleading if such a
statement or omission was made in reliance upon information
furnished to the Fund by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company, as Limited by and in
accordance with the provisions of Sections 8.1(b) and 8.1(c)
hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
the Fund, whichever is applicable.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to
<PAGE>
13
notify the Company of any such claim shall not relieve the Company from any
liability which it may have to the Indemnified Party whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, the Company shall be entitled
to participate, at its own expense, in the defense of such action. The Company
also shall be entitled to assume the defense thereof, with counsel satisfactory
to the party named in the action. After notice from the Company to such party of
the Company's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the Company will not be Liable to such party under this Agreement for any legal
or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund Shares or the Contracts or the operation of the
Fund.
8.2. Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless the Company
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Underwriter) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of the Fund's shares or the Contracts or the operations of
the Fund and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
Registration Statement or prospectus or sales literature of the
Fund (or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to the Underwriter
or Fund by or on behalf of the Company for use in the
Registration Statement or prospectus for the Fund or in sales
literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement,
<PAGE>
14
prospectus sides literature for the Contracts not supplied by the
Underwriter or persons under its control) or wrongful conduct of
the Fund, Adviser or Underwriter or persons under their control,
with respect to the sale or distribution of the Contracts or Fund
shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a Registration Statement,
prospectus, or sales literature covering the Contracts, or any
amendment thereof or supplement thereto, or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in
reliance upon information furnished to the Company by or on
behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in good
faith or otherwise, to comply with the diversification
requirements specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter or the
Fund in this Agreement or arise out of or result from any other
material breach of this Agreement by the Underwriter; as limited
by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
each Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses
<PAGE>
15
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3. Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the Company, and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements result from the
gross negligence, bad faith or willful misconduct of the Board or any member
thereof, are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure to comply with the diversification
requirements specified in Article VI of this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party as such may arise from such indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to the
Company, the Fund, the Underwriter or each Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Fund in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Fund of any such claim shall not
relieve the Fund from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
<PAGE>
16
Indemnified Parties, the Fund will be entitled to participate, at its own
expense, in the defense thereof. The Fund also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Fund to such party of the Fund's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify the Fund
of the commencement of any litigation or proceedings against it or any of its
respective officers or directors in connection with this Agreement, the issuance
or sale of the Contracts, with respect to the operation of either Account, or
the sale or acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the Securities and
Exchange Commission may grant (including, but not limited to, the Shared Funding
Exemptive Order) and the terms hereof shall be interpreted and construed in
accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason by sixty (60) days
advance written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio based upon the
Company's determination that shares of such Portfolio are not
reasonably available to meet the requirements of the Contracts;
or
(c) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event any of the
Portfolio's shares are not registered, issued or sold in
accordance with applicable state and/or federal law or such law
precludes the use of such shares as the underlying investment
media of the Contracts issued or to be issued by the Company, or
<PAGE>
17
(d) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such
Portfolio ceases to qualify as a Regulated Investment Company
under Subchapter M of the Code or under any successor or similar
provision, or if the Company reasonably believes that the Fund
may fail to so qualify; or
(e) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such
Portfolio fails to meet the diversification requirements
specified in Article VI hereof; or
(f) termination by either the Fund or the Underwriter by written
notice to the Company, if either one or both of the Fund or the
Underwriter respectively, shall determine, in their sole judgment
exercised in good faith, that the Company and/or its affiliated
companies has suffered a material adverse change in its business,
operations, financial condition or prospects since the date of
this Agreement or is the subject of material adverse publicity;
or
(g) termination by the Company by written notice to the Fund and the
Underwriter, if the Company shall determine, in its sole judgment
exercised in good faith, that either the Fund or the Underwriter
has suffered a material adverse change in its business,
operations, financial condition or prospects since the date of
this Agreement or is the subject of material adverse publicity;
or
(h) termination by the Fund or the Underwriter by written notice to
the Company, if the Company gives the Fund and the Underwriter
the written notice specified in Section 1.6(b) hereof and at the
time such notice was given there was no notice of termination
outstanding under any other provision of this Agreement;
provided, however any termination under this Section 10.1 (h)
shall be effective forty five (45) days after the notice
specified in Section 1.6(b) was given.
10.2. Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.2 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
10.3 The Company shall not redeem Fund shares attributable to the Contracts
(as opposed to Fund shares attributable to the Company's assets held in the
Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"), or (iii) pursuant
to the terms of the Contracts. Upon request, the
<PAGE>
18
Company will promptly furnish to the Fund and the Underwriter the opinion of
counsel for the Company (which counsel shall be reasonably satisfactory to the
Fund and the Underwriter) to the effect that any redemption pursuant to clause
(ii) above is a Legally Required Redemption. Furthermore, except in cases where
permitted under the terms of the Contracts, the Company shall not prevent
Contract Owners from allocating payments to a Portfolio that was otherwise
available under the Contracts without first giving the Fund or the Underwriter
90 days notice of its intention to do so.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
American United Life Insurance Company
One American Square, P.O. Box 368
Indianapolis, IN 46206-0368
Attention: Dusty Akins
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. Miscellaneous
12.1 All persons dealing with the Fund must look solely to the property of
the Fund for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory authority,
each party hereto shall treat as confidential the names and addresses of the
owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
<PAGE>
19
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance Regulations and any other applicable law or regulations.
12.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at, law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8. This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Underwriter may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Underwriter, if such assignee is duly licensed and registered
to perform the obligations of the Underwriter under this Agreement.
12.9. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports:
(a) the Company's annual statement prepared under statutory
accounting principles) and annual report (prepared under
accounting practices prescribed by the Insurance Department of
the State of Indiana), as soon as practical and in any event
within 90 days after the end of each fiscal year;
(b) the Company's quarterly statements (statutory), as soon as
practical and in any event within 45 days after the end of each
quarterly period:
<PAGE>
20
(c) any financial statement, proxy statement, notice or report of the
Company sent to policyholders, as soon as practical after the
delivery thereof to policyholders;
(d) any registration statement (without exhibits) and financial
reports of the Company filed with the Securities and Exchange
Commission or any state insurance regulator, as soon as practical
after the filing, thereof;
(e) any other report submitted to the Company by independent
accountants in connection with any annual, interim or special
audit made by them of the books of the Company, as soon as
practical after the receipt thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
AMERICAN UNITED LIFE INSURANCE COMPANY
By its authorized officer,
By:_______________________
Title: V.P. Pension Contracts and Compliance
Date:_____________________
VARIABLE INSURANCE PRODUCTS FUND
By its authorized officer,
By:_______________________
Title:____________________
Date:_____________________
FIDELITY DISTRIBUTORS CORPORATION
By its authorized officer,
By:_______________________
Title:____________________
Date:_____________________
<PAGE>
21
Schedule A
----------
Separate Accounts and Associated Contracts
------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Name of Separate Account
and Date Established by the Contracts Funded by the
Executive Committee of AUL Separate Account
- -----------------------------------------------------------------------------------------
1.AUL American Unit Trust DCP Multiple-Fund Group Variable Annuity (P-12518)
Separate Account TDA Multiple-Fund Group Variable Annuity (P-12511)
(Established 8/17/89) TDA Multiple-Fund Group Variable Annuity (P-12511,WA)
TDA Multiple-Fund Group Variable Annuity (P-12833)
TDA Multiple-Fund Group Variable Annuity (P-12833SPL)
IRA Multiple-Fund Group Variable Annuity(P-12366)
IRA Multiple-Fund Group Variable Annuity (P-12867)
Employer-Sponsored TDA Multiple-Fund Group Variable
Annuity (P-12621)
Employer-Sponsored TDA Multiple-Fund Group Variable
Annuity [P-12621(BR)]
Employer-Sponsored TDA and Qualified Plan Multiple-
Fund Group Variable Annuity [P-13098(BR)]
2. Group Retirement Annuity Separate Accounts Group Retirement Annuity
Separate Account I (GRA VIII)[P-12947(BR)]
(Established 12-17-92)
3.Group Retirement Annuity Separate Accounts Group Retirement Annuity
Separate Account II (GRA IV) (P-11710)
(established 4/15/93) Separate Accounts Group Retirement Annuity
(GRA V) (P-11736)
Separate Accounts Group Retirement Annuity
(GRA VI) (P-12390)
Separate Accounts Group Retirement Annuity
(GRA VI & IX) ((BR) (P-12390(BR))
</TABLE>
<PAGE>
22
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the Company by the
Underwriter as early as possible before the date set by the Fund
for the shareholder meeting to facilitate the establishment of
tabulation procedures. At this time the Underwriter will inform
the Company of the Record, Mailing and Meeting dates. This will
be done verbally approximately two months before meeting.
2. Promptly after the Record Date, the Company will perform a "tape
run", or other activity, which will generate the names, addresses
and number of units which are attributed to each
Contractowner/policyholder (the "Customer") as of the Record
Date. Allowance should be made for account adjustments made after
this date that could affect the status of the Customers' accounts
as of the Record Date.
Note: The number of proxy statements is determined by the
activities described in Step #2. The Company will use its best
efforts to call in the number of Customers to Fidelity, as soon
as possible, but no later than two weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the
Company either before or together with the Customers' receipt of
a proxy statement. Underwriter will provide at least one copy of
the last Annual Report to the Company.
4. The text and format for the Voting Instruction Cards ("Cards" or
"Card") is provided to the Company by the Fund. The Company, at
its expense, shall produce and personalize the Voting Instruction
Cards. The Legal Department of the Underwriter or its affiliate
("Fidelity legal") must approve the Card before it is printed.
Allow approximately 2-4 business days for printing information on
the Cards. Information commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and
verification of votes (already on Cards as printed
by the Fund)
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
<PAGE>
23
5. During this time, Fidelity Legal will develop, produce, and the
Fund will pay for the Notice of Proxy and the Proxy Statement
(one document). Printed and folded notices and statements will be
sent to Company for insertion into envelopes (envelopes and
return envelopes are provided and paid for by the Insurance
Company). Contents of envelope sent to Customers by Company will
include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to
the company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a
small, single sheet of paper that requests Customers to vote
as quickly as possible and that their vote is important. One
copy will be supplied by the Fund.)
e. cover letter - optional, supplied by Company and reviewed
and approved in advance by Fidelity Legal.
6. The above contents should be received by the Company
approximately 3-5 business days before mail date. Individual in
charge at Company reviews and approves the contents of the
mailing package to ensure correctness and completeness. Copy of
this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to
the Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but not
including) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually
takes place in another department or another vendor depending on
process used. An often used procedure is to sort Cards on arrival
by proposal into vote categories of all yes, no, or mixed
replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal
procedure and has not been required by Fidelity in the past.
9. Signatures on Card checked against legal name on account
registration which was printed on the Card.
Note: For Example, If the account registration is under "Bertram
C. Jones, Trustee," then that is the exact legal name to be
printed on the Card and is the signature needed on the Card.
<PAGE>
24
10. If Cards are mutilated, or for any reason are illegible or are
not signed properly, they are sent back to Customer with an
explanatory letter, a new Card and return envelope. The mutilated
or illegible Card is disregarded and considered to be not
received for purposes of vote tabulation. Any Cards that have
"kicked out" (e.g. mutilated, illegible) of the procedure are
"hand verified," i.e., examined as to why they did not complete
the system. Any questions on those Cards are usually remedied
individually.
11. There are various control procedures used to ensure proper
tabulation of votes and accuracy of that tabulation. The most
prevalent is to sort the Cards as they first arrive into
categories depending upon their vote; an estimate of how the vote
is progressing may then be calculated. If the initial estimates
and the actual vote do not coincide, then an internal audit of
that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then
converted to shares. (It is very important that the Fund receives
the tabulations stated in terms of a percentage and the number of
shares.) Fidelity Legal must review and approve tabulation
format.
13. Final tabulation in shares is verbally given by the Company to
Fidelity Legal on the morning of the meeting not later than 10:00
a.m. Boston time. Fidelity Legal may request an earlier deadline
if required to calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will
be required from the Company as well as an original copy of the
final vote. Fidelity Legal will provide a standard form for each
Certification.
15. The Company will be required to box and archive the Cards
received from the Customers. In the event that any vote is
challenged or if otherwise necessary for legal, regulatory, or
accounting purposes, Fidelity Legal will be permitted reasonable
access to such Cards.
l6. All approvals and "signing-off" may be done orally, but must
always be followed up in writing.
<PAGE>
25
SCHEDULE C
Other investment companies currently available or contemplated under
variable annuities issued by the Company:
All Portfolios currently offered by (a) Scudder Variable Life Investment
Fund, (b) Twentieth Century Investors, Inc., (c) Dreyfus Investment Fund, (d)
Dreyfus Life and Annuity Index Fund, Inc., (e) Dreyfus Socially Responsible
Growth Fund, Inc.
AMENDMENT NO. 1
Amendment to the Participation Agreement among Variable Insurance Products Fund
(the Fund), Fidelity Distributors Corporation (the Underwriter) and American
United Life Insurance Company (the Company) dated May l, 1993 (the Agreement).
WHEREAS each of the parties desire to expand the Accounts of the Company which
invest in shares of the Fund. The Fund, Underwriter and the Company hereby agree
to amend Schedule A of the Agreement by inserting the following in its entirety:
Name of Separate Account and
Date Established by Contracts Funded Executive
Committee of Board of Directors By Separate Account
All of the Separate Accounts listed in Schedule A of the original Participation
Agreement between the parties hereto as well as the ALL American Individual
Separate Account, which was established by AUL on April 14, 1994 for the purpose
of providing a funding medium for the Individual Flexible Premium Deferred
Variable Annuity (Contract LA-28) and the Individual One Year Flexible Premium
Deferred Variable Annuity (Contract LA-27).
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to be
executed in its name and on its behalf by its duly authorized representative as
of 8/31,1994.
AMERICAN UNITED LIFE INSURANCE
COMPANY
By its authorized officer,
By: _________________________________________
Title: V.P. Pension Contracts and Compliance
Date: ________________________________
VARIABLE INSURANCE PRODUCTS FUND
By its authorized officer,
By: _________________________________________
Title: Senior Vice President
Date: ________________________________
FIDELITY DISTRIBUTORS CORPORATION
By: _________________________________________
Title: President
Date:_________________________________
- --------------------------------------------------------------------------------
EXHIBIT 8.5
FORM OF PARTICIPATION AGREEMENT WITH
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
- --------------------------------------------------------------------------------
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND II,
FIDELITY DISTRIBUTORS CORPORATION
and
AMERICAN UNITED LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of the 1st day of May, 1993 by and
among AMERICAN UNITED LIFE INSURANCE COMPANY, (hereinafter the "Company"), an
Indiana corporation, on its own behalf and on behalf of each segregated asset
account of the Company set forth on Schedule A hereto as may be amended from
time to time (each such account hereinafter referred to as the "Account"), and
the VARIABLE INSURANCE PRODUCTS FUND, an unincorporated business trust organized
under the laws of the Commonwealth of Massachusetts (hereinafter the "Fund") and
FIDELITY DISTRIBUTORS CORPORATION (hereinafter the "Underwriter"), a
Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and variable annuity contracts
(collectively, the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and the
Underwriter (hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission, dated September 17, 1986 (File No. 812-6422), granting Participating
Insurance Companies and variable annuity and variable life insurance separate
accounts exemptions from the provisions of sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended, (hereinafter the "1940
Act") and Rules 6e-2(b) (15) and 6e-3(T) (b) (15) thereunder, to the extent
necessary to permit shares of the Fund to be sold to and held by variable
annuity and variable life insurance separate accounts of both affiliated and
unaffiliated life insurance companies (hereinafter the "Shared Funding Exemptive
Order"); and
<PAGE>
2
WHEREAS, the Fund is registered as an open-ended management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser") is duly
registered as an investment adviser under the federal Investment Advisers Act of
1940 and any applicable state securities law; and
WHEREAS, the Company has, to the extent required by law, registered or will
register interests in each Account funding certain variable annuity contracts
under the 1933 Act if required by law; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established under the provisions of Indiana law, on the date
shown for such Account on Schedule A hereto, to set aside and invest assets
attributable to attributable to the aforesaid variable annuity contracts; and
WHEREAS, the Company has registered or will register, as required by law,
certain of the Accounts as unit investment trusts under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended, (hereinafter the "1934 Act"), and is a member in good standing
of the National Association of Securities Dealers, Inc. (hereinafter "NASD");
and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable annuity contracts and
the Underwriter is authorized to sell such shares to unit investment trusts such
as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Underwriter agrees to sell to the Company those shares of the Fund
which each Account orders, executing such orders on a daily basis at the net
asset value next computed after receipt of the Fund or its designee of the order
for the shares of the Fund. For purposes of this Section 1.1, the Company shall
be the designee of the Fund for receipt of such orders from each Account and
receipt by such designee shall constitute receipt by the Fund; provided that the
Fund receives notice of such order by 9:00 a.m. Boston time on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Fund calculates its net
asset value pursuant to the rules of the Securities and Exchange Commission.
<PAGE>
3
1.2. The Fund agrees to make its shares available indefinitely for purchase
at the applicable net asset value per share by the Company and its Accounts on
those days on which the Fund calculates its net asset value pursuant to rules of
the Securities and Exchange Commission and the Fund shall use reasonable efforts
to calculate such net asset value on each day which the New York Stock Exchange
is open for trading. Notwithstanding the foregoing, the Board of Trustees of the
Fund (hereinafter the "Board") may refuse to sell shares of any Portfolio to any
person, or suspend or terminate the offering of shares of any Portfolio if such
action is required by law or by regulatory authorities having jurisdiction or
is, in the sole discretion of the Board acting in good faith and in light of
their fiduciary duties under federal and any applicable state laws, necessary in
the best interests of the shareholders of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts. No
shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VII and Section 2.5 of Article II
of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request, any full
or fractional shares of the Fund held by the Company, executing such requests on
a daily basis at the net asset value next computed after receipt by the Fund or
its designee of the request for redemption. For purposes of this Section 1.5,
the Company shall be the designee of the Fund for receipt of requests for
redemption from each Account and receipt by such designee shall constitute
receipt by the Fund; provided that the Fund receives notice of such request for
redemption on the next following Business Day.
1.6. The Company agrees to purchase and redeem the shares of each Portfolio
offered by the then current prospectus of the Fund in accordance with the
provisions of such prospectus. The Company agrees that all net amounts available
under the variable annuity contracts with the form number(s) which are listed on
Schedule A attached hereto and incorporated herein by this reference, as such
Schedule A may be amended from time to time hereafter by mutual written
agreement of all the parties hereto, (the "Contracts") shall be invested in the
Fund, in such other Funds advised by the Adviser as may be mutually agreed to in
writing by the parties hereto, or in the Company's general account, provided
that such amounts may also be invested in an investment company other than the
Fund if (a) such other investment company, or series thereof, has investment
objectives or policies that are substantially different from the investment
objectives and policies of all the Portfolios of the Fund; or (b) the Company
gives the Fund and the Underwriter 45 days written notice of its intention to
make such other investment company available as a funding vehicle for the
Contracts; or (c) such other investment company was available or contemplated as
a funding vehicle for the Contracts prior to the date of this Agreement and the
Company so informs the Fund and Underwriter prior to their signing this
Agreement (a list of such funds appearing on Schedule C to this Agreement); or
(d) the Fund or Underwriter consents to the use of such other investment
company.
<PAGE>
4
1.7. The Company shall pay for Fund shares on the next Business Day after
an order to purchase Fund shares is made in accordance with the provisions of
Section 1.1 hereof. Payment shall be in federal funds transmitted by wire. For
purpose of Section 2.10 and 2.11, upon receipt by the Fund of the federal funds
so wired, such funds shall cease to be the responsibility of the Company and
shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account. Shares
ordered from the Fund will be recorded in an appropriate title for each Account
or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone, followed
by written confirmation) to the Company of any income, dividends or capital gain
distributions payable on the Fund's shares. The Company hereby elects to receive
all such income dividends and capital gain distributions as are payable on the
Portfolio shares in additional shares of that Portfolio. The Company reserves
the right to revoke this election and to receive all such income dividends and
capital main distributions in cash. The Fund shall notify the Company of the
number of shares so issued as payment of such dividends and distributions.
1.10. The Fund shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated and shall use its best efforts to
make such net asset value per share available by 7 p.m. Boston time.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that interests in the Separate
Account funding the Contracts are or will be registered under the 1933 Act if
required by law; that the Contracts will be issued and sold in compliance in all
material respects with all applicable Federal and State laws and that the sale
of the Contracts shall comply in all material respects with state insurance
suitability requirements. The Company further represents and warrants that it is
an insurance company duly organized and in good standing under applicable law
and that it has legally and validly established each Account prior to any
issuance or sale thereof as a segregated asset account under Section 27-1-5-1 of
the Indiana Insurance Code and has registered or, prior to any issuance or sale
of the Contracts, will register each Account as a unit investment trust in
accordance with the provisions of the 1940 Act to serve as a segregated
investment account for the Contracts, if required by law.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Indiana and all
applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as
<PAGE>
5
required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4. The Company represents that the Contracts are currently treated as
annuity contracts under applicable provisions of the Code and that it will make
every effort to maintain such treatment and that it will notify the Fund and the
Underwriter immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so treated in
the future.
2.5. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it may make such payments in the future. The Fund has adopted a "no
fee" or "defensive" Rule 12b-1 Plan under which it makes no payments for
distribution expenses. To the extent that it decides to finance distribution
expenses pursuant to Rule 12b-1, the Fund undertakes to have a board of
trustees, a majority of whom are not interested persons of the Fund, formulate
and approve any plan under Rule 12b-1 to finance distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Indiana and the Fund and the Underwriter represent that their
respective operations are and shall at all times remain in material compliance
with the laws of the State of Indiana to the extent required to perform this
Agreement.
2.7. The Underwriter represents and warrants that it is a member in good
standing, of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Indiana and all applicable state and
federal securities laws, including without limitation the 1933 Act, the 1934
Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly existing
under the laws of the Commonwealth of Massachusetts and that it does and will
comply in all material respects with the 1940 Act.
2.9. The Underwriter represents and warrants that the Adviser is and shall
remain duly registered as an investment adviser in all material respects under
all applicable federal and
<PAGE>
6
state securities laws and that the Advise shall perform its obligations for the
Fund in compliance in all material respects with the laws of the State of
Indiana and any applicable state or federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of their
directors, trustees, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and Shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund, in an amount not less than
the minimum coverage as required currently by Rule 17g-1 of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid
includes coverage for larceny and embezzlement is issued by a reputable bonding
company. The Company agrees to make all reasonable efforts to see that this bond
or another bond containing these provisions is always in effect, and agrees to
notify the Fund and the Underwriter in the event that such coverage no longer
applies.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Underwriter shall provide the Company (at the Company's expense)
with as many copies of the Fund's current prospectus as the Company may
reasonably request. If requested by the Company in lieu thereof, the Fund shall
provide such documentation (including a final copy of the new prospectus as set
in type at the Fund's expense) and other assistance as is reasonably necessary
in order for the Company once each year (or more frequently if the prospectus
for the Fund is amended) to have the prospectus for the Contracts and the Fund's
prospectus printed together in one document (such printing to be at the
Company's expense).
3.2. The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Underwriter (or in the Fund's
discretion, the Prospectus shall state that such Statement is available from the
Fund), and the Underwriter (or the Fund), at its expense, shall print and
provide such Statement free of charge to the Company and to any owner of a
Contract or prospective owner who requests such Statement.
3.3. The Fund, at its expense, shall provide the Company with copies of its
proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners or Participants under Contracts.
3.4. If and to the extent required by law the Company shall:
<PAGE>
7
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in the same proportion as Fund shares of such
portfolio for which instructions have been received,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent permitted
by law. Participating Insurance Companies shall be responsible for assuring that
each of their separate accounts participating in the Fund calculates voting
privileges in a manner consistent with the standards set forth on Schedule B
attached hereto and incorporated herein by this reference, which standards will
also be provided to the other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the Securities and Exchange Commission's interpretation of the
requirements of Section 16(a) with respect to periodic elections of trustees and
with whatever rules the Commission may promulgate with respect thereto.
ARTICLE IV. Sale Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material in
which the Fund or its investment adviser or the Underwriter is named, at least
ten Business Days prior to its use. No such material shall be used if the Fund
or its designee reasonably objects to such use within ten Business Days after
receipt of such material.
4.2. The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement or prospectus for the Fund shares, as
such registration statement and prospectus may be amended or supplemented from
time to time, or in reports or proxy statements for the Fund, or in sales
literature or other promotional material approved by the Fund or its designee or
by the Underwriter, except with the permission of the Fund or the Underwriter or
the designee of either.
4.3. The Fund, Underwriter, or its designee shall furnish, or shall cause
to be furnished, to the Company or its designee, each piece of sales literature
or other promotional material in which the Company and/or its separate
account(s), is named at least ten Business Days
<PAGE>
8
prior to its use. No such material shall be used if the Company or its designee
reasonably objects to such use within ten Business Days after receipt of such
material.
4.4. The Fund and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company, each
Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the Securities and Exchange Commission or
other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports, solicitations for voting instructions, sales Literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the Contracts or
each Account, contemporaneously with the filing of such document with the SEC or
other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, or other public media), sales literature
(i.e., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
Statements of Additional Information, shareholder reports, and proxy materials.
ARTICLE V. Fees and Expenses
5.1. The Fund and Underwriter shall pay no fee or other compensation to the
Company under this agreement, except that if the Fund or any Portfolio adopts
and implements a plan pursuant to Rule 12b-1 to finance distribution expenses,
then the Underwriter may make payments to the Company or to the underwriter for
the Contracts if and in amounts agreed to by the Underwriter in writing and such
payments will be made out of existing fees otherwise payable
<PAGE>
9
to the Underwriter, past profits of the Underwriter or other resource available
to the Underwriter. No such payments shall be made directly by the Fund.
Currently, no such payments are contemplated.
5.2. All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund. The Fund shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent necessary in accordance with applicable state laws
prior to their sale. The Fund shall bear the expenses for the cost of
registration and qualification of the Fund's shares, preparation and filing of
the Fund's prospectus and registration statement, proxy materials and reports,
setting the prospectus in type, setting, in type and printing the proxy
materials and reports to shareholders (including the costs of printing a
prospectus that constitutes an annual report), the preparation of all statements
and notices required by any federal or state law, and all taxes on the issuance
or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of printing and distributing the
Fund's prospectus to owners of Contracts issued by the Company and of
distributing the Fund's proxy materials and reports to such Contract owners.
ARTICLE VI. Diversification
6.1. The Fund will at all times invest money from the Contracts in such a
manner as to ensure that the Contracts will be treated as variable contracts
under the Code and the regulations issued thereunder. Without limiting the scope
of the foregoing, the Fund will at all times comply with Section 817(h) of the
Code and Treasury Regulation 1.817-5, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts and
any amendments or other modifications to such Section or Regulations. In the
event of a breach of this Article VI by the Fund, it will take all reasonable
steps (a) to notify Company of such breach and (b) to adequately diversify the
Fund so as to achieve compliance with the grace period afforded by Regulation
817-5.
ARTICLE VII. Potential Conflicts
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or (f)
a decision by an insurer to disregard the voting instructions of contract
owners. The Board shall
<PAGE>
10
promptly inform the Company if it determines that an irreconcilable material
conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority of its
disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such
Account; provided, however that such withdrawal and termination shall be limited
to the extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Underwriter and Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
<PAGE>
11
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 to establish a new funding
medium for the Contracts if an offer to do so has been declined by vote of a
majority of Contract owners materially adversely affected by the irreconcilable
material conflict. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Fund and terminate this
Agreement within six (6) months after the Board informs the Company in writing
of the foregoing determination, provided, however, that such withdrawal and
termination shall be limited to the extent required by any such material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are
applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this
Agreement shall continue in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in such Rule(s) as so
amended or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
8.1(a). The Company agrees to indemnify and hold harmless the Fund and each
trustee of the Board and officers and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.1) against any and all losses, claims,
damages, liabilities (including amounts paid in the Company) or litigation
(including legal and other settlement with the written consent of expenses), to
which the Indemnified Parties may become subject under any statute, regulation,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the Registration
Statement or prospectus for the Contracts or contained in the
Contracts or sales literature for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a material
<PAGE>
12
fact required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Company by or
on behalf of the Fund for use in the Registration Statement or
prospectus for the Contracts or in the Contracts or sales literature
(or any amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the Registration
Statement, prospectus or sales literature of the Fund not supplied by
the Company, or persons under its control) or wrongful conduct of the
Company or persons under its control, with respect to the sale or
distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a Registration Statement, prospectus, or
sales literature of the Fund or any amendment thereof or supplement
thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or omission was
made in reliance upon information furnished to the Fund by or on
behalf of the Company; or
(iv) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this Agreement;
or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Company in this Agreement or arise out of
or result from any other material breach of this Agreement by the
Company, as limited by and in accordance with the provisions of
Sections 8.l(b) and 8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party as such may arise from such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Parties duties or by reason of such Indemnified Party's reckless
disregard of obligations or duties under this Agreement or to the Fund,
whichever is applicable.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to
<PAGE>
13
notify the Company of any such claim shall not relieve the Company from any
liability which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In case any
such action is brought against the Indemnified Parties, the Company shall be
entitled to participate, at its own expense, in the defense of such action. The
Company also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from the Company to
such party of the Company's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Company will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund Shares or the Contracts or the operation of the
Fund.
8.2. Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless the Company
and each of its directors and officers and each person, if any, who controls the
Company within the meaning, of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Underwriter) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of the Fund's shares or the Contracts or the operations of
the Fund and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement
or prospectus or sales literature of the Fund (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Underwriter
or Fund by or on behalf of the Company for use in the Registration
Statement or prospectus for the Fund or in sales literature (or any
amendment or supplement) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the Registration
Statement,
<PAGE>
14
prospectus or sales Literature for the Contracts not supplied by the
Underwriter or persons under its control) or wrongful conduct of the
Fund, Adviser or Underwriter or persons under their control, with
respect to the sale or distribution of the Contracts or Fund shares;
or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a Registration Statement, prospectus, or
sales literature covering the Contracts, or any amendment thereof or
supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statement or statements therein not misleading, if such
statement or omission was made in reliance upon information furnished
to the Company by or on behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to provide the services
and furnish the materials under the terms of this Agreement (including
a failure, whether unintentional or in good faith or otherwise, to
comply with the diversification requirements specified in Article VI
of this Agreement); or
(v) arise out of or result from any material breach of any representation
and warranty made by the Underwriter or the Fund in this Agreement or
arise out of or result from any other material breach of this
Agreement by the Underwriter; as limited by and in accordance with the
provisions of Sections 8.2(b) and 8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
each Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing, within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses
<PAGE>
15
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3. Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the Company, and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements result from the gross
negligence, bad faith or willful misconduct of the Board or any member thereof,
are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the services
and furnish the materials under the terms of this Agreement (including
a failure to comply with the diversification requirements specified in
Article VI of this Agreement); or
(ii) arise out of or result from any material breach of any representation
and/or warranty made by the Fund in this Agreement or arise out of or
result from any other material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party as such may arise from such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to the
Company, the Fund, the Underwriter or each Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Fund in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Fund of any such claim shall not
relieve the Fund from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
<PAGE>
16
Indemnified Parties, the Fund will be entitled to participate, at its own
expense, in the defense thereof. The Fund also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Fund to such party of the Fund's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify the Fund
of the commencement of any litigation or proceedings against it or any of its
respective officers or directors in connection with this Agreement, the issuance
or sale of the Contracts, with respect to the operation of either Account, or
the sale or acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1993, 1934,
and 1940 acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the Securities and
Exchange Commission may grant (including but not limited to, the Shared Funding
Exemptive Order) and the terms hereof shall be interpreted and construed in
accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason by sixty (60) days advance
written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio based upon the Company's
determination that shares of such Portfolio are not reasonably
available to meet the requirements of the Contracts; or
(c) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event any of the
Portfolio's shares are not registered, issued or sold in accordance
with applicable state and/or federal law or such law precludes the use
of such shares as the underlying investment media of the Contracts
issued or to be issued by the Company; or
<PAGE>
17
(d) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such
Portfolio ceases to qualify as a Regulated Investment Company under
Subchapter M of the Code or under any successor or similar provision,
or if the Company reasonably believes that the Fund may fail to so
qualify; or
(e) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such
Portfolio fails to meet the diversification requirements specified in
Article VI hereof; or
(f) termination by either the Fund or the Underwriter by written notice to
the Company, if either one or both of the Fund or the Underwriter
respectively, shall determine, in their sole judgment exercised in
good faith, that the Company and/or its affiliated companies has
suffered a material adverse change in its business, operations,
financial condition or prospects since the date of this Agreement or
is the subject of material adverse publicity; or
(g) termination by the Company by written notice to the Fund and the
Underwriter, if the Company shall determine, in its sole judgment
exercised in good faith, that either the Fund or the Underwriter has
suffered a material adverse change in its business, operations,
financial condition or prospects since the date of this Agreement or
is the subject of material adverse publicity; or
(h) termination by the Fund or the Underwriter by written notice to the
Company, if the Company gives the Fund and the Underwriter the written
notice specified in Section 1.6(b) hereof and at the time such notice
was given there was no notice of termination outstanding under any
other provision. of this Agreement; provided, however any termination
under this Section 10.1(h) shall be effective forty five (45) days
after the notice specified in Section 1.6(b) was given.
10.2. Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.2 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
10.3 The Company shall not redeem Fund shares attributable to the Contracts
(as opposed to Fund shares attributable to the Company's assets held in the
Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"), or (iii) pursuant
to the terms of the Contracts. Upon request, the
<PAGE>
18
Company will promptly furnish to the Fund and the Underwriter the opinion of
counsel for the Company (which counsel shall be reasonably satisfactory to the
Fund and the Underwriter) to the effect that any redemption pursuant to clause
(ii) above is a Legally Required Redemption. Furthermore, except in cases where
permitted under the terms of the Contracts, the Company shall not prevent
Contract Owners from allocating payments to a Portfolio that was otherwise
available under the Contracts without first giving the Fund or the Underwriter
90 days notice of its intention to do so.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
92 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
American United Life Insurance Company
One American Square, P.O. Box 368
Indianapolis, IN 46206-0368
Attention: Dusty Akins
If to the Underwriter:
92 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. Miscellaneous
12.1 All persons dealing with the Fund must look solely to the property of
the Fund for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory authority,
each party hereto shall treat as confidential the names and addresses of the
owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
<PAGE>
19
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance Regulations and any other applicable law or regulations.
12.7. The rights, remedies and obligations contained in this Agreement are,
cumulative and are in addition to any and all rights, remedies and obligations
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8. This Agreement or any of the rights and obligations hereunder may not
be sent of all parties without the prior written consent of all parties hereto;
provided, however, that the Underwriter may assign this Agreement or any rights
or obligations hereunder to any affiliate of or company under common control
with the Underwriter, if such assignee is duly licensed and registered to
perform the obligations of the Underwriter under this Agreement.
12.9. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports:
(a) the Company's annual statement prepared under statutory accounting
principles and annual report (prepared under accounting practices
prescribed by the Insurance Department of the State of Indiana), as
soon as practical and in any event within 90 days after the end of
each fiscal year;
(b) the Company's quarterly statements (statutory), as soon as practical
and in any event within 45 days after the end of each quarterly
period;
<PAGE>
20
(c) any financial statement, proxy statement, notice or report of the
Company sent to policyholders, as soon as practical after the delivery
thereof to policyholders;
(d) any registration statement (without exhibits) and financial reports of
the Company filed with the Securities and Exchange Commission or any
state insurance regulator, as soon as practical after the filing
thereof;
(e) any other report submitted to the Company by independent accountants
in connection with any annual, interim or special audit made by them
of the books of the Company, as soon as practical after the receipt
thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
AMERICAN UNITED LIFE INSURANCE COMPANY
By its authorized officer,
By: _______________________
Title: V.P. Pension Contracts and Compliance
Date: _____________________
VARIABLE INSURANCE PRODUCTS FUND II
By its authorized officer,
By:________________________
Title:
Date:______________________
FIDELITY DISTRIBUTORS CORPORATION
By its authorized officer,
By:________________________
Title:
Date:______________________
<PAGE>
21
<TABLE>
Schedule A
----------
Separate Accounts and Associated Contracts
------------------------------------------
<CAPTION>
<S> <C>
Name of Separate Account
and Date Established by the Contracts Funded by the
Executive Committee of AUL Separate Account
- -----------------------------------------------------------------------------------------
1.AUL American Unit Trust DCP Multiple-Fund Group Variable Annuity (P-12518)
Separate Account TDA Multiple-Fund Group Variable Annuity (P-12511)
(Established 8/17/89) TDA Multiple-Fund Group Variable Annuity (P-12511,WA)
TDA Multiple-Fund Group Variable Annuity (P-12833)
TDA Multiple-Fund Group Variable Annuity (P-12833SPL)
IRA Multiple-Fund Group Variable Annuity(P-12366)
IRA Multiple-Fund Group Variable Annuity (P-12867)
Employer-Sponsored TDA Multiple-Fund Group Variable
Annuity (P-12621)
Employer-Sponsored TDA Multiple-Fund Group Variable
Annuity [P-12621(BR)]
Employer-Sponsored TDA and Qualified Plan Multiple-
Fund Group Variable Annuity [P-13098(BR)]
2. Group Retirement Annuity Separate Accounts Group Retirement Annuity
Separate Account I (GRA VIII)[P-12947(BR)]
(Established 12-17-92)
3.Group Retirement Annuity Separate Accounts Group Retirement Annuity
Separate Account II (GRA IV) (P-11710)
(established 4/15/93) Separate Accounts Group Retirement Annuity
(GRA V) (P-11736)
Separate Accounts Group Retirement Annuity
(GRA VI) (P-12390)
Separate Accounts Group Retirement Annuity
(GRA VI & IX) ((BR) (P-12390(BR))
</TABLE>
<PAGE>
22
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities
for the handling of proxies relating to the Fund by the Underwriter, the Fund
and the Company. The defined terms herein shall have the meanings assigned in
the Participation Agreement except that the term "Company" shall also include
the department or third party assigned by the Insurance Company to perform the
steps delineated below.
1. The number of proxy proposals is given to the Company by the
Underwriter as early as possible before the date set by the Fund for
the shareholder meeting to facilitate the establishment of tabulation
procedures. At this time the Underwriter will inform the Company of
the Record, Mailing and Meeting dates. This will be done verbally
approximately two months before meeting.
2. Promptly after the Record Date, the Company will perform a "tape
run", or other activity, which will generate the names, addresses and
number of units which are attributed to each
contractowner/policyholder (the "Customer") as of the Record Date.
Allowance should be made for account adjustments made after this date
that could affect the status of the Customers' accounts as of the
Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in
the number of Customers to Fidelity, as soon as possible, but no later
than two weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of a proxy
statement. Underwriter will provide at least one copy of the last
Annual Report to the Company.
4. The text and format for the Voting Instruction Cards ("Cards" or
"Card") is provided to the Company by the Fund. The Company, at its
expense, shall produce and personalize the Voting Instruction Cards.
The Legal Department of the Underwriter or its affiliate ("Fidelity
Legal") must approve the Card before it is printed. Allow
approximately 2-4 business days for printing information on the Cards.
Information commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and
verification of votes (already on Cards as printed
by the Fund)
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
<PAGE>
23
5. During this time, Fidelity legal will develop, produce, and the Fund
will pay for the Notice of Proxy and the Proxy Statement (one
document). Printed and folded notices and statements will be sent to
Company for insertion into envelopes (envelopes and return envelopes
are provided and paid for by the Insurance Company). Contents of
envelope sent to Customers by Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company)
addressed to the Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is
a small, single sheet of paper that requests
Customers to vote as quickly as possible and that
their vote is important. One copy will be supplied
by the Fund.)
e. cover letter - optional, supplied by Company and
reviewed and approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company
reviews and approves the contents of the mailing package to ensure
correctness and completeness. Copy of this approval sent to Fidelity
Legal.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the
Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but not
including) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes
place in another department or another vendor depending on process
used. An often used procedure is to sort Cards on arrival by proposal
into vote categories of all yes, no, or mixed replies, and to begin
data entry.
Note: Postmarks are not generally needed. A need for postmark infor-
mation would be due to an insurance company's internal procedure and
has not been required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration
which was printed on the Card.
Note: For Example, If the account registration is under "Bertrarn C.
Jones, Trustee," then that is the exact legal name to be printed on
the Card and is the signature needed on the Card.
<PAGE>
24
10. If cards are mutilated, or for any reason illegible or are not signed
properly, they are sent back to Customer with an explanatory letter, a
new Card and return envelope. The mutilated or illegible Card is
disregarded and considered to be not received for purposes of vote
tabulation. Any Cards that have "kicked out" (e.g. mutilated,
illegible) of the procedure are "hand verified" i.e., examined as to
why they did not complete the system. Any questions on those Cards are
usually remedied individually.
11. There are various control procedures used to ensure proper tabulation
of votes and accuracy of that tabulation. The most prevalent is to
sort the Cards as they first arrive into categories depending upon
their vote; an estimate and the actual vote do not coincide, then an
internal audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then
converted to shares. (It is very important that the Fund receives the
tabulations stated in terms of a percentage and the number of shares.)
Fidelity Legal must review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to
Fidelity Legal on the morning of the meeting not later than 10:00 a.m.
Boston time. Fidelity Legal may request an earlier deadline if
required to calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final
vote. Fidelity Legal will provide a standard form for each
Certification.
15. The Company will be required to box and archive the Cards received
from the Customers. In the event that any vote is challenged or if
otherwise necessary for legal, regulatory, or accounting purposes,
Fidelity Legal will be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
<PAGE>
25
SCHEDULE C
Other investment companies currently available or contemplated under variable
annuities issued by the Company:
All Portfolios currently offered by (a) Scudder Variable Life Investment Fund,
(b) Twentieth Century Investors, Inc., (c) Dreyfus Investment Fund, (d) Dreyfus
Life and Annuity Index Fund, Inc., (e) Dreyfus Socially Responsible Growth Fund,
Inc.
AMENDMENT NO. 1
Amendment to the Participation Agreement among Variable Insurance Products
Fund II (the Fund), Fidelity Distributors Corporation (the Underwriter) and
American United Life Insurance Company (the Company) dated May 1, 1993 (the
Agreement).
WHEREAS each of the parties desire to expand the Accounts of the Company
which invest in shares of the Fund. The Fund, Underwriter and the Company hereby
agree to amend Schedule A of the Agreement by inserting the following in its
entirety:
Name of Separate Account and
Date Established by Contracts Funded
Executive Committee of Board of Directors By Separate Account
- --------------------------------------------------------------------------------
All of the Separate Accounts listed in Schedule A of the original
Participation Agreement between the parties hereto as well as the AUL American
Individual Separate Account, which was established by AUL on April 14, 1994 for
the purpose of providing a funding medium for the Individual Flexible Premium
Deferred Variable Annuity (Contract LA-28) and the Individual One Year Flexible
Premium Deferred Variable Annuity (Contract LA-27).
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to
be executed in its name and on its behalf by its duly authorized representative
as of 8/31, 1994.
AMERICAN UNITED LIFE INSURANCE
COMPANY
By its authorized officer,
By:_______________________________________
Title: V.P. Pension Contracts & Compliance
Date:_____________________________________
VARIABLE INSURANCE PRODUCTS
FUND II
By its authorized officer,
By:_______________________________________
Title: Senior Vice President
Date: ____________________________________
FIDELITY DISTRIBUTORS
CORPORATION
By its authorized officer,
By:_______________________________________
Title: President
Date: ____________________________________
- --------------------------------------------------------------------------------
EXHIBIT 8.6
FORM OF PARTICIPATION AGREEMENT WITH JANUS ASPEN SERIES
- --------------------------------------------------------------------------------
JANUS ASPEN SERIES
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT is made this 25th day of February, 1997, between JANUS
ASPEN SERIES, an open-end management investment company organized as a Delaware
business trust (the "Trust"), JANUS CAPITAL CORPORATION (the "Adviser"), a
Colorado corporation and the investment adviser to the Trust, and AMERICAN
UNITED LIFE INSURANCE COMPANY, a life insurance company organized under the laws
of the State of Indiana (the "Company"), on its own behalf and on behalf of each
segregated asset account of the Company set forth on Schedule A, as may be
amended from time to time (the "Accounts").
WITNESSETH:
WHEREAS, the Trust has registered with the Securities and Exchange
Commission as an open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"), and has registered the offer
and sale of its shares under the Securities Act of 1933, as amended (the "1933
Act"); and
WHEREAS, the Trust desires to act as an investment vehicle for separate
accounts established for variable life insurance policies and variable annuity
contracts to be offered by insurance companies that have entered into
participation agreements with the Trust (the "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares, each series representing an interest in a particular managed
portfolio of securities and other assets (the "Portfolios"); and
WHEREAS, the Trust has received an order from the Securities and Exchange
Commission granting Participating Insurance Companies and their separate
accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a) and 15(b)
of the 1940 Act, and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the
extent necessary to permit shares of the Trust to be sold to and held by
variable annuity and variable life insurance separate accounts of both
affiliated and unaffiliated life insurance companies and certain qualified
pension and retirement plans (the "Exemptive Order"); and
WHEREAS, the Company has registered or will register (unless registration
is not required under applicable law) certain variable life insurance policies
and/or variable annuity contracts under the 1933 Act (the "Contracts"); and
WHEREAS, the Company has registered or will register (unless registration
is not required under applicable law) each Account as a unit investment trust
under the 1940 Act; and
<PAGE>
2
WHEREAS, the Adviser is registered with the Securities and Exchange
Commission as an investment adviser under the Investment Advisers Act of 1940,
as amended; and
WHEREAS, the Company desires to utilize shares of one or more Portfolios as
an investment vehicle of the Accounts;
NOW, THEREFORE, in consideration of their mutual promises, the parties
agree as follows:
ARTICLE I
Sale of Trust Shares
1.1 The Trust and the Adviser shall make shares of the Trust's Portfolios
available to the Accounts at the net asset value next computed after receipt of
such purchase order by the Trust (or its agent), as established in accordance
with the provisions of the then current prospectus of the Trust. Shares of a
particular Portfolio of the Trust shall be ordered in such quantities and at
such times as determined by the Company to be necessary to meet the requirements
of the Contracts. The Trustees of the Trust (the "Trustees") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Trustees
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.2 The Trust will redeem any full or fractional shares of any Portfolio
when requested by the Company on behalf of an Account at the net asset value
next computed after receipt by the Trust (or its agent) of the request for
redemption. Such redemptions shall ordinarily be paid in federal funds or by any
other method mutually agreed upon by the parties hereto by the next Business Day
(as defined below) following receipt by the Trust (or its agent) of notice of
the order for redemption; however, the Fund reserves the right to postpone
payment upon redemption consistent with Section 22(e) of the 1940 Act and any
rules thereunder.
1.3 For the purposes of Sections 1.1 and 1.2, the Trust hereby appoints
the Company as its agent for the limited purpose of receiving and accepting
purchase and redemption orders resulting from investment in and payments under
the Contracts. Receipt by the Company shall constitute receipt by the Trust
provided that i) such orders are received by the Company in good order prior to
the time the net asset value of each Portfolio is priced in accordance with its
prospectus and ii) the Trust receives notice of such orders by 11: 00 a.m. New
York time on the next following Business Day. "Business Day" shall mean any day
on which the New York Stock Exchange is open for trading and on which the Trust
calculates its net asset value pursuant to the rules of the Securities and
Exchange Commission.
<PAGE>
3
1.4 Purchase orders that are transmitted to the Trust in accordance with
Section 1.3 shall be paid for no later than 12:00 noon New York time on the same
Business Day that the Trust receives notice of the order. Payments shall be made
in federal funds transmitted by wire.
1.5 Issuance and transfer of the Trust's shares will be by book entry only.
Stock certificates will not be issued to the Company or the Account. Shares
ordered from the Trust will be recorded in the appropriate title for each
Account or the appropriate subaccount of each Account.
1.6 The Trust shall furnish same-day notice to the Company of any income
dividends or capital gain distributions payable on the Trust's shares. The
Company hereby elects to receive all such income dividends and capital gain
distributions as are payable on a Portfolio's shares in additional shares of
that Portfolio. The Company reserves the right to revoke this election in
writing and to receive all such dividends and distributions in cash. The Trust
shall notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.7 The Trust shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated and shall use its best efforts to
make such net asset value per share available by 6 p.m. New York time.
1.8 The Trust and the Adviser agree that the Trust's shares will be sold
only to Participating Insurance Companies and their separate accounts and to
certain qualified pension and retirement plans to the extent permitted by the
Exemptive Order consistent with each Portfolio being adequately diversified
pursuant to Section 817(h) of the Internal Revenue Code of 1986, as amended (the
"Code"), and the regulations thereunder. No shares of any Portfolio will be sold
directly to the general public. The Company agrees that Trust shares will be
used only for the purposes of funding the Contracts and Accounts listed in
Schedule A, as amended from time to time. The Trust and the Adviser will not
sell shares of the Portfolios to any insurance company or separate account
unless an agreement containing provisions required by the Exemptive Order is in
effect and governs such sales.
1.9 The Trust and the Adviser agree that all Participating Insurance
Companies shall have the obligations and responsibilities regarding pass-through
voting and conflicts of interest corresponding to those contained in Section 2.8
and Article IV of this Agreement.
1.10 Price Errors.
(1) In the event adjustments are required to correct any material error in
the computation of the net asset value of the Trust's shares, the
Trust or the Adviser shall notify the Company as soon as practicable
after discovering the need for those adjustments which result in a
reimbursement to an Account in accordance with the Trust's or the
Adviser's then current
<PAGE>
4
policies on reimbursement, which the Trust or the Adviser represents
are reasonable and consistent with applicable standards. Notification
may be made via facsimile or via direct or indirect systems access.
Any such notification shall be promptly followed by a letter written
on the Trust's or the Adviser's letterhead stating for each day for
which an error occurred the incorrect price, the correct price, and,
to the extent communicated to the Trust's shareholders, the reason for
the price change.
(2) If an adjustment is to be made in accordance with subsection (1) above
to correct an error which has caused an Account to receive an amount
different than that to which it is entitled, the Trust or the Adviser
shall make all necessary adjustments to the number of shares owned in
the Account and distribute to the Account the amount of such
underpayment for credit to the Contract owners. Upon the furnishing of
an accounting to the Trust or the Adviser by the Company, the Trust or
the Adviser will immediately reimburse to the Company all reasonable
expenses incurred by the Company, including the expense of any
organization that the Company has retained to provide administration
or recordkeeping services under this Agreement, to adjust all Accounts
and accounts of Contract owners affected by such error.
ARTICLE II
Obligations of the Parties
2.1 The Trust and the Adviser shall prepare and be responsible for filing
with the Securities and Exchange Commission and any state regulators requiring
such filing all shareholder reports, notices, proxy materials (or similar
materials such as voting instruction solicitation materials), prospectuses and
statements of additional information of the Trust. The Trust shall bear the
costs of registration and qualification of its shares, preparation and filing of
the documents listed in this Section 2.1 and all taxes to which an issuer is
subject on the issuance and transfer of its shares.
2.2 At the option of the Company, the Trust shall either (a) provide the
Company (at the Company's expense) with as many copies of the Trust's current
prospectus, annual report, semi-annual report and other shareholder
communications, including any amendments or supplements to any of the foregoing,
as the Company shall reasonably request; or (b) provide the Company with a
camera ready copy of such documents in a form suitable for printing. The Trust
shall provide the Company with a copy of its statement of additional information
in a form suitable for duplication by the Company. The Trust (at its expense)
shall provide the Company with copies of any Trust-sponsored proxy materials in
such quantity as the Company shall reasonably require for distribution to
Contract owners.
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5
2.3 The Company shall bear the costs of printing and distributing the
Trust's prospectus, statement of additional information, shareholder reports and
other shareholder communications to owners of and applicants for policies for
which the Trust is serving or is to serve as an investment vehicle. The Company
shall bear the costs of distributing proxy materials (or similar materials such
as voting solicitation instructions) to Contract owners. The Company assumes
sole responsibility for ensuring that such materials are delivered to Contract
owners in accordance with applicable federal and state securities laws.
2.4
(a) The Company agrees and acknowledges that the Adviser is the sole owner
of the name and mark "Janus" and that all use of any designation
comprised in whole or part of Janus (a "Janus Mark") under this
Agreement shall inure to the benefit of the Adviser. Except as
provided in Section 2.5, the Company shall not use any Janus Mark on
its own behalf or on behalf of the Accounts or Contracts in any
registration statement, advertisement, sales literature or other
materials relating to the Accounts or Contracts without the prior
written consent of the Adviser. Upon termination of this Agreement for
any reason, the Company shall cease all use of any Janus Mark(s) as
soon as reasonably practicable.
(b) The Trust and the Adviser agree and acknowledge that the names
"American United Life Insurance Company(R)", "AUL", or any derivative
thereof or logo associated with those names ("AUL Mark") is the
valuable property of the Company and its affiliates, and that the
Trust shall not use any AUL Mark without the prior written consent of
the Company. Upon termination of this Agreement for any reason, the
Trust and the Adviser shall cease all use of any AUL Mark as soon as
reasonably practicable.
2.5 The Company shall furnish, or cause to be furnished, to the Trust or
its designee, a copy of each Contract prospectus or statement of additional
information in which the Trust or the Adviser is named prior to the filing of
such document with the Securities and Exchange Commission. The Company shall
furnish, or shall cause to be furnished, to the Trust or its designee, each
piece of sales literature or other promotional material in which the Trust or
the Adviser is named, at least ten Business Days prior to its use. No such
material shall be used if the Trust or its designee reasonably objects to such
use within ten Business Days after receipt of such material.
2.6 The Company shall not give any information or make any representations
or statements on behalf of the Trust or concerning the Trust or the Adviser in
connection with the sale of the Contracts other than information or
representations contained in and accurately derived from the registration
statement or prospectus for the Trust shares (as such registration statement and
prospectus may be amended or supplemented from time to time), reports of the
Trust, Trust-sponsored proxy statements, or in sales literature or other
promotional material approved by the Trust or its designee, except as required
by legal process or regulatory authorities or with the written permission of the
Trust or its designee. The Trust or its designee shall use their best
<PAGE>
6
efforts to provide such approval or, if approval is not given, then to provide
comments suggesting appropriate changes to such information or representations
as set forth in Section 2.5 above.
2.7 The Trust and the Adviser shall not give any information or make any
representations or statements on behalf of the Company or concerning the
Company, the Accounts or the Contracts other than information or representations
contained in and accurately derived from the registration statement or
prospectus for the Contracts (as such registration statement and prospectus may
be amended or supplemented from time to time), or in materials approved by the
Company for distribution including sales literature or other promotional
materials, except as required by legal process or regulatory authorities or with
the written permission of the Company.
2.8 If, and to the extent required by the Exemptive Order or that the
Securities and Exchange Commission interprets the 1940 Act to require
pass-through voting privileges for variable Contract owners, the Company will
provide pass-through voting privileges to those owners of Contracts subject to
the pass-through voting requirements whose cash values are invested, through the
Accounts, in shares of the Trust. The Trust shall require all Participating
Insurance Companies to calculate voting privileges in the same manner and the
Company shall be responsible for assuring that the Accounts calculate voting
privileges in the manner established by the Trust. With respect to each Account,
the Company will vote shares of the Trust held by the Account and for which no
timely voting instructions from Contract owners are received as well as shares
it owns that are held by that Account, in the same proportion as those shares
for which voting instructions are received. The Company and its agents will in
no way recommend or oppose or interfere with the solicitation of proxies for
Trust shares held by Contract owners without the prior written consent of the
Trust, which consent may be withheld in the Trust's sole discretion.
2.9 The Company shall notify the Trust of any applicable state insurance
laws that restrict the Portfolios' investments or otherwise affect the operation
of the Trust and shall notify the Trust of any changes in such laws.
ARTICLE III
Representations and Warranties
3.1 The Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of the State of Indiana and
that it has legally and validly established each Account as a segregated asset
account under such law on the date set forth in Schedule A.
3.2 The Company represents and warrants that each Account (1) has been
registered or, prior to any issuance or sale of the Contracts, will be
registered as a unit investment trust in accordance with the provisions of the
1940 Act or, alternatively (2) has not been registered in proper reliance upon
an exclusion from registration under the 1940 Act.
<PAGE>
7
3.3 The Company represents and warrants that the Contracts or interests in
the Accounts (1) are or, prior to issuance, will be registered as securities
under the 1933 Act or, alternatively (2) are not registered because they are
properly exempt from registration under the 1933 Act or will be offered
exclusively in transactions that are properly exempt from registration under the
1933 Act. The Company further represents and warrants that the Contracts will be
issued and sold in compliance in all material respects with all applicable
federal and state laws; and the sale of the Contracts shall comply in all
material respects with state insurance suitability requirements.
3.4 The Trust and the Adviser represent and warrant that the Trust is duly
organized and validly existing under the laws of the State of Delaware.
3.5 The Trust and the Adviser represent and warrant that the Trust shares
offered and sold pursuant to this Agreement are duly authorized for issuance in
accordance with applicable law and will be registered under the 1933 Act and the
Trust shall be registered under the 1940 Act prior to any issuance or sale of
such shares. The Trust shall amend its registration statement under the 1933 Act
and the 1940 Act from time to time as required in order to effect the continuous
offering of its shares. The Trust shall register and qualify its shares for sale
in accordance with the laws of the various states only if and to the extent
deemed advisable by the Trust.
3.6 The Trust and the Adviser will invest assets of the Portfolios in such
a manner to permit the Portfolios to be used for investment by separate accounts
of life insurance companies funding variable annuity and variable life insurance
contracts, whichever is appropriate, under the Code and the regulations
thereunder. Without limiting the scope of the foregoing, the Trust and the
Adviser represent and warrant that the investments of each Portfolio will comply
with the diversification requirements set forth in Section 817(h) of the Code,
and the rules and regulations thereunder and each Portfolio has complied with
such requirements since each Portfolio's commencement of operations.
3.7 The Trust and the Adviser shall maintain qualification of each
Portfolio as a Regulated Investment Company under Subchapter M of the Code (or
any successor or similar provisions) and shall notify the Company immediately
upon having a reasonable basis for believing that a Portfolio has ceased to so
qualify or that it might not so qualify in the future.
3.8 The Trust and the Adviser agree to use their best efforts to ensure
that each Portfolio of the Trust shall be managed consistent with its investment
objective or objectives,
<PAGE>
8
investment policies, and investment restrictions as described in the Trust's
prospectus and registration statement, as amended or modified from time to time.
ARTICLE IV
Potential Conflicts
4.1 The parties acknowledge that the Trust's shares may be made available
for investment to other Participating Insurance Companies. In such event, the
Trustees will monitor the Trust for the existence of any material irreconcilable
conflict between the interests of the contract owners of all Participating
Insurance Companies. An irreconcilable material conflict may arise for a variety
of reasons, including: (a) an action by any state insurance regulatory
authority; (b) a change in applicable federal or state insurance, tax, or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax, or
securities regulatory authorities; (c) an administrative or judicial decision in
any relevant proceeding; (d) the manner in which the investments of any
Portfolio are being managed; (e) a difference in voting instructions given by
variable annuity contract and variable life insurance contract owners; or (f) a
decision by an insurer to disregard the voting instructions of contract owners.
The Trustees shall promptly inform the Company if they determine that an
irreconcilable material conflict exists and the implications thereof.
4.2 The Company agrees to promptly report any potential or existing
conflicts of which it is aware to the Trustees. The Company will assist the
Trustees in carrying out their responsibilities under the Exemptive Order by
providing the Trustees with all information reasonably necessary for the
Trustees to consider any issues raised including, but not limited to,
information as to a decision by the Company to disregard Contract owner voting
instructions.
4.3 If it is determined by a majority of the Trustees, or a majority of its
disinterested Trustees, that a material irreconcilable conflict exists that
affects the interests of Contract owners, the Company shall, in cooperation with
other Participating Insurance Companies whose contract owners are also affected,
at its expense and to the extent reasonably practicable (as determined by the
Trustees) take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, which steps could include: (a) withdrawing the
assets allocable to some or all of the Accounts from the Trust or any Portfolio
and reinvesting such assets in a different investment medium, including (but not
limited to) another Portfolio of the Trust, or submitting the question of
whether or not such segregation should be implemented to a vote of all affected
Contract owners and, as appropriate, segregating the assets of any appropriate
group (i.e., annuity contract owners, life insurance contract owners, or
variable contract owners of one or more Participating Insurance Companies) that
votes in favor of such segregation, or offering to the affected Contract owners
the option of making such a change; and (b) establishing a new registered
management investment company or managed separate account.
<PAGE>
9
4.4 If a material irreconcilable conflict arises because of a decision by
the Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Trust's election, to withdraw the affected Account's
investment in the Trust and terminate this Agreement with respect to such
Account; provided, however that such withdrawal and termination shall be limited
to the extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested Trustees. Any such withdrawal and
termination must take place within six (6) months after the Trust gives written
notice that this provision is being implemented. Until the end of such six (6)
month period, the Trust shall continue to accept and implement orders by the
Company for the purchase and redemption of shares of the Trust.
4.5 If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state regulators, then the Company will withdraw the affected
Account's investment in the Trust and terminate this Agreement with respect to
such Account within six (6) months after the Trustees inform the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested Trustees. Until the
end of such six (6) month period, the Trust shall continue to accept and
implement orders by the Company for the purchase and redemption of shares of the
Trust.
4.6 For purposes of Sections 4.3 through 4.6 of this Agreement, a majority
of the disinterested Trustees shall determine whether any proposed action
adequately remedies any irreconcilable material conflict, but in no event will
the Company be required to establish a new funding medium for the Contracts if
an offer to do so has been declined by vote of a majority of Contract owners
materially adversely affected by the irreconcilable material conflict. In the
event that the Trustees determine that any proposed action does not adequately
remedy any irreconcilable material conflict, then the Company will withdraw the
Account's investment in the Trust and terminate this Agreement within six (6)
months after the Trustees inform the Company in writing of the foregoing
determination; provided, however, that such withdrawal and termination shall be
limited to the extent required by any such material irreconcilable conflict as
determined by a majority of the disinterested Trustees.
4.7 The Company shall at least annually submit to the Trustees such
reports, materials or data as the Trustees may reasonably request so that the
Trustees may fully carry out the duties imposed upon them by the Exemptive
Order, and said reports, materials and data shall be submitted more frequently
if deemed appropriate by the Trustees.
4.8 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Exemptive Order) on terms and conditions materially different
from those contained in the Exemptive Order, then the Trust
<PAGE>
10
and/or the Participating Insurance Companies, as appropriate, shall take such
steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and
Rule 6e-3, as adopted, to the extent such rules are applicable.
ARTICLE V
Indemnification
5.1 Indemnification By the Company. The Company agrees to indemnify and
hold harmless the Trust, the Adviser, and each of their Trustees, Directors,
officers, employees and agents and each person, if any, who controls the Trust
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Article V) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Company) or expenses (including the reasonable costs of
investigating or defending any alleged loss, claim, damage, liability or expense
and reasonable legal counsel fees incurred in connection therewith)
(collectively, "Losses"), to which the Indemnified Parties may become subject
under any statute or regulation, or at common law or otherwise, insofar as such
Losses:
(a) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in a registration statement
or prospectus for the Contracts or in the Contracts themselves or in
sales literature generated or approved by the Company on behalf of the
Contracts or Accounts (or any amendment or supplement to any of the
foregoing) (collectively, "Company Documents" for the purposes of this
Article V), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, provided that this indemnity shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and was accurately
derived from written information furnished to the Company by or on
behalf of the Trust for use in Company Documents or otherwise for use
in connection with the sale of the Contracts or Trust shares; or
(b) arise out of or result from statements or representations (other than
statements or representations contained in and accurately derived from
Trust Documents as defined in Section 5.2(a)) or wrongful conduct of
the Company or persons under its control, with respect to the sale or
acquisition of the Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or alleged untrue
statement of a material fact contained in Trust Documents as defined
in Section 5.2(a) or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading if such statement or omission was
made in reliance upon and accurately derived from written information
furnished to the Trust by or on behalf of the Company; or
<PAGE>
11
(d) arise out of or result from any failure by the Company to provide the
services or furnish the materials required under the terms of this
Agreement; or
(e) arise out of or result from any material breach of any representation
and/or warranty made by the Company in this Agreement or arise out of
or result from any other material breach of this Agreement by the
Company.
5.2 Indemnification By the Adviser. The Adviser agrees to indemnify and
hold harmless the Company and each of its directors, officers, employees and
agents and each person, if any, who controls the Company within the meaning of
Section 15 of the 1933 Act, and the Accounts (collectively, the "Indemnified
Parties" for purposes of this Article V) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Adviser) or expenses (including the reasonable costs of
investigating or defending any alleged loss, claim, damage, liability or expense
and reasonable legal counsel fees incurred in connection therewith)
(collectively, "Losses"), to which the Indemnified Parties may become subject
under any statute or regulation, or at common law or otherwise, insofar as such
Losses:
(a) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the registration
statement or prospectus or sales literature for the Trust prepared by
the Trust or the Adviser (or any amendment or supplement thereto),
(collectively, "Trust Documents" for the purposes of this Article V),
or arise out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that
this indemnity shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made
in reliance upon and was accurately derived from written information
furnished to the Trust or the Adviser by or on behalf of the Company
for use in Trust Documents or otherwise for use in connection with the
sale of the Contracts or Trust shares; or
(b) arise out of or result from statements or representations (other than
statements or representations contained in and accurately derived from
Company Documents) or wrongful conduct of the Trust or persons under
its control, with respect to the sale or acquisition of the Contracts
or Trust shares; or
(c) arise out of or result from any untrue statement or alleged untrue
statement of a material fact contained in Company Documents or the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading if such statement or omission was made in reliance upon and
accurately derived from written information furnished to the Company
by or on behalf of the Trust; or
(d) arise out of or result from any failure by the Trust to provide the
services or furnish the materials required under the terms of this
Agreement; or
<PAGE>
12
(e) arise out of or result from any material breach of any representation
and/or warranty made by the Trust in this Agreement or arise out of or
result from any other material breach of this Agreement by the Trust,
including but not limited to, compliance with the diversification
requirements of Section 817(h) of the Code and qualification of each
Portfolio of the Trust as a regulated investment company under
Subchapter M of the Code.
5.3 Neither the Company nor the Adviser shall be liable under the
indemnification provisions of Sections 5.1 or 5.2, as applicable, with respect
to any Losses incurred or assessed against an Indemnified Party that arise from
such Indemnified Party's willful misfeasance, bad faith or negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
5.4 Neither the Company nor the Adviser shall be liable under the
indemnification provisions of Sections 5.1 or 5.2, as applicable, with respect
to any claim made against an Indemnified Party unless such Indemnified Party
shall have notified the other party in writing within a reasonable time after
the summons, or other first written notification, giving information of the
nature of the claim shall have been served upon or otherwise received by such
Indemnified Party (or after such Indemnified Party shall have received notice of
service upon or other notification to any designated agent), but failure to
notify the party against whom indemnification is sought of any such claim shall
not relieve that party from any liability which it may have to the Indemnified
Party in the absence of Sections 5.1 and 5.2.
5.5 In case any such action is brought against the Indemnified Parties, the
indemnifying party shall be entitled to participate, at its own expense, in the
defense of such action. The indemnifying party also shall be entitled to assume
the defense thereof, with counsel reasonably satisfactory to the party named in
the action. After notice from the indemnifying party to the Indemnified Party of
an election to assume such defense, the Indemnified Party shall bear the fees
and expenses of any additional counsel retained by it, and the indemnifying
party will not be liable to the Indemnified Party under this Agreement for any
legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
ARTICLE VI
Termination
6.1 This Agreement may be terminated as follows:
(a) by any party for any reason by ninety (90) days advance written notice
delivered to the other parties;
<PAGE>
13
(b) at the option of the Company if shares of the Trust are not reasonably
available to meet the requirements of the Contracts, as determined by
the Company, and upon written notice by the Company to the other
parties to this Agreement;
(c) at the option of the Company upon institution of formal proceedings
against the Trust or the Adviser by the NASD, the SEC, or any state
securities or insurance department or any other regulatory body if the
Company shall determine, in its sole judgment exercised in good
faith, that the Trust or the Adviser has suffered a material adverse
change in its business, operations, financial condition, or prospects
since the date of this Agreement or is the subject of material adverse
publicity;
(d) at the option of the Trust or the Adviser upon institution of formal
proceedings against the Company by the NASD, the SEC, or any state
securities or insurance department or any other regulatory body if
the Trust or Adviser shall determine, in its sole judgment exercised
in good faith, that the Company has suffered a material adverse change
in its business, operations, financial condition, or prospects since
the date of this Agreement or is the subject of material adverse
publicity;
(e) at the option of any party to the Agreement upon a determination by a
majority of the Trustees of the Trust, or a majority of disinterested
Trustees, that an irreconcilable material conflict exists;
(f) at the option of the Company if the Trust fails to meet the
diversification requirements under Subchapter M or Section 817(h) of
the Code as provided in this Agreement;
(g) at the option of the Company upon a material breach of this Agreement
or of any representation or warranty herein by the Trust of the
Adviser, or at the option of the Trust or the Adviser upon a material
breach of this Agreement or any representation or warranty herein by
the Company.
6.2 Notwithstanding any termination of this Agreement, the Trust shall, at
the option of the Company, continue to make available additional shares of the
Trust (or any Portfolio) pursuant to the terms and conditions of this Agreement
for all Contracts in effect on the effective date of termination of this
Agreement, provided that the Company continues to pay the costs set forth in
Section 2.3.
6.3 The provisions of Article V shall survive the termination of this
Agreement, and the provisions of Article IV and Section 2.8 shall survive the
termination of this Agreement as long as shares of the Trust are held on behalf
of Contract owners in accordance with Section 6.2.
<PAGE>
14
ARTICLE VII
Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Trust:
Janus Aspen Series
100 Fillmore Street
Denver, Colorado 80206
Attention: David C. Tucker, Esq. General Counsel
If to the Company:
American United Life Insurance Company
One American Square
Indianapolis, Indiana 46206
Attention: Richard A. Wacker Associate General Counsel
ARTICLE VIII
Miscellaneous
8.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
8.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
8.3 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
8.4 This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of State of Colorado.
8.5 The parties to this Agreement acknowledge and agree that all
liabilities of the Trust arising, directly or indirectly, under this Agreement,
of any and every nature whatsoever, shall be satisfied solely out of the assets
of the Trust and that no Trustee, officer, agent or holder of shares of
beneficial interest of the Trust shall be personally liable for any such
liabilities.
<PAGE>
15
8.6 Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the Securities and
Exchange Commission, the National Association of Securities Dealers, Inc., and
state insurance regulators) and shall permit such authorities reasonable access
to its books and records in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby.
8.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
8.8 The parties to this Agreement acknowledge and agree that this Agreement
shall not be exclusive in any respect.
8.9 Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the prior written approval of the other party.
8. 10 No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties.
8.11 The Trust and the Adviser agree to treat as the property of the
Company any list or compilation of names, addresses, and other information
relating to the owners of the Contracts or prospects for the sale of Contracts
acquired in the course of performing under this Agreement and agree not to use
such information for any purpose without the prior consent of the Company, or
except as required by applicable law.
<PAGE>
16
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Participation Agreement as of the date and year first above
written.
JANUS ASPEN SERIES
By: __________________________
Name: Deborah E. Bielicke
Title: Assistant Vice President
JANUS CAPITAL CORPORATION
By:___________________________
Name: Stephen L. Stieneker
Title: Vice President of Compliance
AMERICAN UNITED LIFE INSURANCE
COMPANY
By:___________________________
Name: Richard A. Wacker
Title: Associate General Counsel
<PAGE>
17
Schedule A
Separate Accounts and Associated Contracts
Name of Separate Account and Date Contracts Funded
Established by the AUL Exec. Comm. By Separate Account
AUL American Unit Trust (established 8/17/89) Registered 401, 403(b), 457,
408 contracts
Group Retirement Annuity Separate Account I Qualified 401 contracts
(established 8/17/89)
Group Retirement Annuity Separate Account II Qualified 401 contracts
(established 8/17/89)
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EXHIBIT 8.7
FORM OF PARTICIPATION AGREEMENT WITH PBHG FUNDS, INC.
- --------------------------------------------------------------------------------
FUND PARTICIPATION AGREEMENT
This AGREEMENT is made this 3rd day of April, 1995, by and between American
United Life Insurance Company(R) (the "Company"), a life insurance company
domiciled in Indiana, on its behalf and on behalf of the segregated asset
accounts of the Company (the "Separate Accounts"); The PBHG Funds, Inc. (the
"Fund"), a Maryland corporation; SEI Financial Services Company ("Distributor"),
a Delaware corporation; and Pilgrim Baxter & Associates, Ltd. ("Adviser"), a
Limited Partnership.
WITNESSETH
WHEREAS, the Fund is registered with the Securities and Exchange Commission
("SEC") as an open-end management investment company under the Investment
Company Act of 1940, as amended ("1940 Act") and the Fund is authorized to issue
separate classes of shares of beneficial interests ("shares"), each representing
an interest in a separate portfolio of assets known as a "series" and each
series has its own investment objective, policies, and limitations; and
WHEREAS, Distributor is registered as a broker-dealer with the SEC under
the Securities Exchange Act of 1934, as amended ("1934 Act"), and is a member in
good standing of the National Association of Securities Dealers, Inc. ("NASD");
and
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2
WHEREAS, Adviser is registered as an Investment Adviser with the SEC under
the Investment Advisers Act of 1940 and with all of the states where such
registration is required; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company wishes to purchase shares of one or more of the Fund's
series on behalf of its Separate Accounts to serve as an investment medium for
Variable Contracts funded by the Separate Accounts, and Distributor is
authorized to sell shares of the Fund's series;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and covenants hereinafter set forth, the parties hereby agree as follows:
ARTICLE 1. Sale of Fund Shares
1.1. Distributor agrees to sell to the Company those shares of the series
offered and made available by the Fund and identified on Exhibit B ("Series")
that the Company orders on behalf of its Separate Accounts, and agrees to
execute such orders on each day on which the Fund calculates its net asset value
pursuant to rules of the SEC ("business day") at the net asset value next
computed after receipt and acceptance by the Fund or its designee of the order
for the shares of the Fund.
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3
1.2. The Fund agrees to make available on each business day shares of the
Series for purchase at the applicable net asset value per share by the Company
on behalf of its Separate Accounts; provided, however, that the
Directors/Trustees of the Fund may refuse to sell shares of any Series to any
person, or suspend or terminate the offering of shares of any Series, if such
action is required by law or by regulatory authorities having jurisdiction or
is, in the sole discretion of the Directors/Trustees, acting in good faith and
in light of the Directors/Trustees' fiduciary duties under applicable law,
necessary in the best interests of the shareholders of any Series.
1.3. Upon receipt of a request for redemption in proper form from the
Company, the Fund agrees to redeem in cash any full or fractional shares of the
Series held by the Company, ordinarily executing such requests on each business
day at the net asset value next computed after receipt and acceptance by the
Fund or its designee of the request for redemption, except that the Fund
reserves the right to suspend the right of redemption, consistent with Section
22(e) of the 1940 Act and any rules thereunder. Such redemptions shall be paid
in federal funds ordinarily on the next business day following receipt by the
Fund or its designee of the order for redemption; however the Fund reserves the
right to postpone payment upon redemption consistent with Section 22(e) of the
Act and any Rules thereunder.
1.4. For purposes of Sections 1.1 and 1.3, the Company shall be the
designee of the Fund for receipt of purchase and redemption orders from the
Separate Account, and
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4
receipt by such designee shall constitute receipt by the Fund; provided that the
Company receives the order by 4:00 p.m. New York City time and the Fund receives
notice of such order by 8:30 a.m. New York City time on the next following
business day.
1.5. The Company shall pay for shares of the Series on the business day
next following the day that the Company places an order to purchase shares of
the Series, except with respect to shares of any Series of the Fund ("Acquired
Series") ordered by the Company for a Separate Account or any subaccount thereof
in connection with an exchange or transfer from another Separate Account or
another subdivision of a Separate Account under the Variable Contracts, Company
shall pay for shares of the Acquired Series on the latter of (1) the next
business day after an order to purchase the shares is made in accordance with
Section 1.1 hereof, or (2) on the same business day that the Separate Account or
subdivision from which the exchange or transfer is being made receives payment
from the investment company portfolio in which it invests. Payment shall be in
federal funds transmitted by wire or by any other method mutually agreed upon by
the parties hereto.
1.6. Issuance and transfer of shares of the Series will be by book entry
only unless otherwise agreed by the Fund. Stock certificates will not be issued
to the Company or the Separate Accounts unless otherwise agreed by the Fund.
Fund and Distributor agree that shares ordered from the Fund will be recorded
properly in an
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5
appropriate title for the Separate Accounts or the appropriate subaccounts of
the Separate Accounts.
1.7. The Fund shall promptly furnish same-day notice (by wire or telephone,
followed by written confirmation) to the Company of any income dividends or
capital gain distributions payable on the shares of the Series. The Company
hereby elects to reinvest in the Series all such dividends and distributions as
are payable on a Series' shares and to receive such dividends and distributions
in additional shares of that Series. The Company reserves the right to revoke
this election in writing and to receive all such dividends and distributions in
cash. The Fund shall notify the Company of the number of shares so issued as
payment of such dividends and distributions.
1.8. The Fund shall instruct its recordkeeping agent to advise the Company
on each business day of the net asset value per share for each Series as soon as
reasonably practical after the net asset value per share is calculated, which is
normally 6:30 p.m. New York City time, and shall use its best efforts to make
such net asset value per share available by 7:00 p.m. New York City time.
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6
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that it is an insurance company
duly organized and in good standing under Indiana law and that it is taxed as an
insurance company under Subchapter L of the Internal Revenue Code of 1986, as
amended ("Code").
2.2. The Company represents and warrants that it has legally and validly
established each of the Separate Accounts as a segregated asset account under
the Indiana Insurance Code, and that each of the Separate Accounts is a validly
existing segregated asset account under Indiana law.
2.3. The Company represents and warrants that the Variable Contracts issued
by the Company or interests in the Separate Accounts under such Variable
Contracts (1) are or, prior to issuance, will be registered as securities under
the Securities Act of 1933 ("1933 Act") or, alternatively (2) are not registered
because they are properly exempt from registration under the 1933 Act or will be
offered exclusively in transactions that are properly exempt from registration
under the 1933 Act.
2.4. The Company represents and warrants that each of the Separate
Accounts:
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7
(1) has been registered as a unit investment trust in accordance with the
provisions of the 1940 Act or, alternatively (2) has not been registered in
proper reliance upon an exclusion from registration under the 1940 Act.
2.5. The Company represents that it believes, in good faith, that the
Variable Contracts issued by the Company are currently treated as annuity
contracts or life insurance policies (which may include modified endowment
contracts), whichever is appropriate, under applicable provisions of the Code.
2.6. The Fund represents and warrants that it is duly organized as a
corporation under the laws of the State of Maryland, and is in good standing
under applicable law.
2.7. The Fund represents and warrants that the shares of the Series are
duly authorized for issuance in accordance with applicable law and that the Fund
is registered as an open-end management investment company under the 1940 Act.
2.8. Distributor represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC.
<PAGE>
8
ARTICLE Ill. General Duties
3.1. The Fund and Distributor shall take all such actions as are necessary
to permit the sale of the shares of each Series to the Separate Accounts,
including maintaining the Fund's registration as an investment company under the
1940 Act, and registering the shares of the Series sold to the Separate Accounts
under the 1933 Act for so long as required by applicable law. The Fund and
Distributor shall amend the Fund's registration statement filed with the SEC
under the 1933 Act and the 1940 Act from time to time as required in order to
effect the continuous offering of the shares of the Series. The Fund and
Distributor shall register and qualify the shares of the Fund for sale in
accordance with the laws of the various states to the extent deemed necessary by
the Fund or Distributor. The Fund and Distributor shall take all steps necessary
to sell shares of the Fund in compliance with all applicable federal and state
securities laws.
3.2. The Fund and Adviser shall make every effort to maintain qualification
of each Series as a Regulated Investment Company under Subchapter M of the Code
(or any successor or similar provision) and shall notify the Company immediately
upon having a reasonable basis for believing that a Series has ceased to so
qualify or that it might not so qualify in the future.
3.3. The Fund and Adviser agree that each Series of the Fund shall be
managed consistent with its investment objective or objectives, investment
policies, and
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9
investment restrictions as described in the Fund's prospectus and registration
statement, as amended or modified from time to time.
3.4. The Company shall take all such actions as are necessary under
applicable federal and state law to permit the sale of the Variable Contracts
issued by the Company, including registering each Separate Account as an
investment company to the extent required under the 1940 Act, and registering
the Variable Contracts or interests in the Separate Accounts under the Variable
Contracts to the extent required under the 1933 Act, and obtaining all necessary
approvals to offer the Variable Contracts from state insurance commissioners.
3.5. The Company shall require that any persons who offer and sell the
Variable Contracts issued by the Company do so in accordance with applicable
provisions of the 1933 Act, the 1934 Act, the 1940 Act, the NASD Rules of Fair
Practice, and state law respecting the offering of variable life insurance
policies and variable annuity contracts.
3.6. Distributor shall sell and distribute the shares of the Series of the
Fund in accordance with the applicable provisions of the 1933 Act, the 1934 Act,
the 1940 Act, the NASD Rules of Fair Practice, and state law.
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10
3.7. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities having jurisdiction (including, without
limitation, the SEC, the NASD, and state insurance regulators) and shall permit
such authorities reasonable access to its books and records in connection with
any investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
ARTICLE IV. Prospectuses and Proxy Statements, Voting
4.1. The Company shall distribute such prospectuses, proxy statements and
periodic reports of the Fund to the owners of Variable Contracts issued by the
Company as required to be distributed to such Variable Contract Owners under
applicable federal or state law.
4.2. Distributor shall provide the Company with as many copies of the
current prospectus of the Fund as the Company may reasonably request. If
requested by the Company in lieu thereof, the Fund shall provide such
documentation (including a final copy of the Fund's prospectus as set in type or
in camera-ready copy) and other assistance as is reasonably necessary in order
for the Company to print together in one document the current prospectus for the
Variable Contracts issued by the Company and the current prospectus for the
Fund. The Fund shall bear the expense of printing copies of its current
prospectus that will be distributed to existing Variable Contract Owners,
<PAGE>
11
and the Company shall bear the expense of printing copies of the Fund's
prospectus that are used in connection with offering the Variable Contracts
issued by the Company.
4.3. The Fund and Distributor shall provide (1) at the Fund's expense, one
copy of the Fund's current Statement of Additional Information ("SAI") to the
Company and to any owner of a Variable Contract issued by the Company who
requests such SAI, (2) at the Company's expense, such additional copies of the
Fund's current SAI as the Company shall reasonably request and that the Company
shall require in accordance with applicable law in connection with offering the
Variable Contracts issued by the Company.
4.4. The Fund, at its expense, shall provide the Company with copies of its
proxy material, periodic reports to shareholders and other communications to
shareholders in such quantity as the Company shall reasonably require for
purposes of distributing to owners of Variable Contracts issued by the Company.
The Fund, at the Company's expense, shall provide the Company with copies of its
periodic reports to shareholders and other communications to shareholders in
such quantity as the Company shall reasonably request for use in connection with
offering the Variable Contracts issued by the Company. If requested by the
Company in lieu thereof, the Fund shall provide such documentation (including a
final copy of the Fund's proxy materials, periodic reports to shareholders and
other communications to shareholders, as set in type or in camera-ready copy)
and other assistance as reasonably necessary in order for the
<PAGE>
12
Company to print such shareholder communications for distribution to owners of
Variable Contracts issued by the Company.
4.5. For so long as the SEC interprets the 1940 Act to require pass-through
voting by Participating Insurance Companies whose Separate Accounts are
registered as investment companies under the 1940 Act ("Registered Separate
Accounts"), the Company shall vote shares of each Series of the Fund held in
Registered Separate Accounts or subaccounts thereof, at regular and special
meetings of the Fund in accordance with instructions timely received by the
Company (or its designated agent) from owners of Variable Contracts funded by
such Registered Separate Accounts or subaccounts thereof having a voting
interest in the Series. The Company shall vote shares of a Series of the Fund
held in Registered Separate Accounts or subaccounts thereof that are
attributable to the Variable Contracts as to which no timely instructions are
received, as well as shares held in such Registered Separate Accounts or
subaccounts thereof that are not attributable to the Variable Contracts and
owned beneficially by the Company (resulting from charges against the Variable
Contracts or otherwise), in the same proportion as the votes cast by owners of
the Variable Contracts funded by that Separate Account or subaccount thereof
having a voting interest in the Series from whom instructions have been timely
received. The Company shall vote shares of each Series of the Fund held in its
general account or in any Separate Account that is not registered under the 1940
Act, if any, in its discretion or in the same proportion as the votes cast
<PAGE>
13
with respect to shares of the Series held in all Registered Separate Accounts of
the Company or subaccounts thereof, in the aggregate.
ARTICLE V. Sales Material and Information
5.1. The Company agrees that neither it nor any of its affiliates shall
give any information or make any representations or statements on behalf of the
Fund or concerning the Fund other than the information or representations
contained in the Registration Statement or prospectus for the Fund shares, as
such registration statement and prospectus may be amended or supplemented from
time to time, or in reports or proxy statements for the Fund, or in sales
literature or other promotional material approved by the Fund or its designee
and/or by Distributor or its designee, except with the prior permission of the
Fund or its designee and/or Distributor or its designee. The Parties agree that
total return information of the Fund and its Series derived from the prospectus
or Registration Statement of the Fund or from reports provided by the Fund or
Distributor to the Company may be used by the Company in connection with the
sale of the Variable Contracts without prior approval of the Fund or
Distributor, or their designees, and the Company shall be responsible for using
such information in conformity with the information provided to it.
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14
5.2. The Fund or Distributor or the designee of either shall furnish to the
Company or its designee, each piece of sales literature or other promotional
material in which the Company or its Separate Accounts are named, and no such
material shall be used without the prior approval of the Company or its
designee.
5.3. The Fund and Distributor agree that each and the affiliates of each
shall not give any information or make any representations on behalf of the
Company or concerning the Company, the Separate Accounts, or the Variable
Contracts issued by the Company, other than the information or representations
contained in a registration statement or prospectus for such Variable Contracts,
as such registration statement and prospectus may be amended or supplemented
from time to time, or in reports for the Separate Accounts or prepared for
distribution to owners of such Variable Contracts, or in sales literature or
other promotional material approved by the Company or its designee, except with
the prior permission of the Company.
5.4. The Fund will provide to the Company at least one complete copy of all
prospectuses, Statements of Additional Information, reports, proxy statements
and other voting solicitation materials, and all amendments and supplements to
any of the above, that relate to the Fund or its shares, promptly after the
filing of such document with the SEC or other regulatory authorities.
<PAGE>
15
5.5. The Company will provide to the Fund at least one complete copy of all
prospectuses (which shall include an offering memorandum if the Variable
Contracts issued by the Company or interests therein are not registered under
the 1933 Act), Statements of Additional Information, reports, solicitations for
voting instructions, and all amendments or supplements to any of the above, that
relate to the Variable Contracts issued by the Company or the Separate Accounts
promptly after the filing of such document with the SEC or other regulatory
authority.
5.6. For purposes of this Article V, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, computerized media, or other public
media), sales literature (i.e., any written communication distributed or made
generally available to customers or the public, including brochures, circulars,
research reports, market letters, form letters, seminar texts, reprints or
excerpts of any other advertisement, sales literature, or published article),
educational or training materials or other communications distributed or made
generally available to some or all agents or employees.
<PAGE>
16
ARTICLE VI. Administration of Accounts
6.1 Services to Owners of Variable Contracts shall be the responsibility of
the Company and shall not be the responsibility of the Fund or Distributor.
These services include, but are not limited to:
(a) providing information periodically to Contract Owners showing their
interests in the Separate Accounts or subaccounts thereof that invest
in the Fund or in any Series thereof,
(b) addressing inquiries from Contract Owners relating to investing,
exchanging or transferring, or redeeming interests under the Variable
Contracts and the Separate Accounts or subaccounts or any Series
thereof funding such Variable Contracts, which inquiries may relate to
the Fund or a Series thereof;
(c) providing explanations to Owners regarding Fund investment objectives
and policies and other information about the Fund and its Series,
including the performance of the Series;
(d) forwarding shareholder communications from the Fund, including but not
limited to shareholder reports containing annual and semi-annual
financial statements of the Fund to Contract Owners;
(e) delivering the Fund prospectus and supplements thereto to Owners
whenever necessary under the Securities Act of 1933;
(f) delivering any notices of shareholder meetings and proxy statements
accompanying such notices in connection with general and special
meetings of shareholders of the Fund under which Contract Owners may
have voting rights, and helping tabulate the voting of Owners
tendering voting instructions to the Company.
6.2 The Fund and Adviser recognize the Company as the sole shareholder of
Fund shares issued under this Agreement and further recognize that Adviser
and/or the Fund will derive a substantial savings in administrative expense
because the Company will provide the services described above, thus allowing the
Fund significant reductions in
<PAGE>
17
postage expense and shareholder communications and recordkeeping, by virtue of
having a sole shareholder rather than multiple shareholders. In consideration of
the administrative savings resulting from such arrangement, the Company shall be
paid an amount equal to 15 basis points (0.15%) per annum of the average
aggregate amount invested by the Company under this Agreement.
6.3 For purposes of computing the payment to the Company contemplated by
this Section VI, the average aggregate amount invested by Company over a one
month period shall be computed by totaling the Company's aggregate investment
(share net asset value multiplied by total number of shares held by the Company)
on each business day during the month and dividing by the total number of
business days during such month.
6.4 The payment contemplated by this Section VI shall be calculated by
Adviser at the end of each calendar month and will be paid by Adviser to the
Company within ten (10) business days thereafter. Payment will be accompanied by
a statement showing the calculation of the monthly amount payable by Adviser and
such other supporting data as may be reasonably requested by the Company.
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18
ARTICLE VII. Indemnification
7.1. Indemnification By the Company
7.1(a). The Company agrees to indemnify and hold harmless the Fund, each of
its Directors/Trustees and officers, Adviser, and Distributor and each of the
Directors/Trustees of Adviser and Distributor (collectively, the "Indemnified
Parties" for purposes of this Section 7.1) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Company) or litigation expenses (including legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or litigation expenses:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement
or prospectus (which shall include an offering memorandum) for the
Variable Contracts issued by the Company or sales literature for such
Variable Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not apply
as to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to the Company by or on behalf
of the Fund: (1) for use in the registration statement or prospectus
for the Variable Contracts issued by the Company or in sales
literature (or any amendment or supplement to any of the foregoing) or
otherwise, (2) was contained in sales literature or other promotional
material that has been approved by the Fund or its designee or by
Distributor or its designee for use in connection with the sale of
such Variable Contracts or Fund shares, or (3) otherwise in connection
with the sale of the Variable Contracts or Fund shares; or
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19
(ii) arise Out Of Or result from the material breach of any representation
and/or warranty made by the Company in this Agreement or arise out of
or result from any other material breach of this Agreement by the
Company;
except to the extent provided in Sections 7.1(b) and 7.1(c) hereof.
7.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
expenses to which an Indemnified Party would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of his or
her duties or by reason of his or her reckless disregard of obligations or
duties under this Agreement or to the Fund.
7.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Party shall have notified the Company in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon such Indemnified Party (or after such
Party shall have received notice of such service on any designated agent), but
failure to notify the Company of any such claim shall not relieve the Company
from any liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnification provision.
In case any such action is brought against an Indemnified Party, the Company
shall be entitled to participate, at its own expense, in the defense of such
action. The Company also shall be entitled to assume the defense thereof, with
counsel satisfactory to the Indemnified Party named in the action. After notice
from the
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20
Company to such party of the Company's election to assume the defense thereof,
the Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Company will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
7.1(d). The Indemnified Parties shall promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund shares thereunder or the Variable Contracts
issued by the Company or the operation of the Fund.
7.2. Indemnification By Distributor
7.2(a). Distributor agrees to indemnify and hold harmless the Company and
each of its directors and officers and the Separate Accounts (collectively, the
"Indemnified Parties" for purposes of this Section 7.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of Distributor) or litigation expenses (including legal and
other expenses) to which the Indemnified Parties may become subject under any
statute, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or litigation expenses:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement
or prospectus or sales literature of the Fund (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon
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21
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to Distributor or
the Fund or the designee of either by or on behalf of the Company: (1)
for use in the registration statement or prospectus for the Fund or in
sales literature (or any amendment or supplement to any of the
foregoing) or otherwise, (2) was contained in sales literature or
other promotional material that has been approved by the Company or
its designee for use in connection with the sale of the Variable
Contracts or Fund shares, or (3) or otherwise for use in connection
with the sale of the Variable Contracts issued by the Company or Fund
shares; or
(ii) arise out of or result from the material breach of any representation
and/or warranty made by Distributor, Adviser, or the Fund in this
Agreement or arise out of or result from any other material breach of
this Agreement by Distributor, Adviser, or the Fund, including but not
limited to, compliance with the diversification requirements of
Section 817(h) of the Code and qualification of each Series of the
Fund as a Regulated Investment Company under Subchapter M of the Code;
except to the extent provided in Sections 7.2(b) and 7.2(c) hereof.
7.2(b). Distributor shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
expenses to which an Indemnified Party would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of his or
her duties or by reason of his or her reckless disregard of obligations and
duties under this Agreement or to the Company or the Separate Accounts.
7.2(c). Distributor shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Party shall have
<PAGE>
22
notified Distributor in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the claim shall
have been served upon such Indemnified Party (or after such Party shall have
received notice of such service on any designated agent), but failure to notify
Distributor of any such claim shall not relieve Distributor from any liability
which it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this Indemnification Provision. In case any such
action is brought against an Indemnified Party, Distributor will be entitled to
participate, at its own expense, in the defense thereof. Distributor also shall
be entitled to assume the defense thereof, with counsel satisfactory to the
Indemnified Party named in the action. After notice from Distributor to such
party of Distributor's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and Distributor will not be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
7.2(d). The Company shall promptly notify Distributor of the commencement
of any litigation or proceedings against it or any of its officers or directors
in connection with the issuance or sale of the Fund shares hereunder or the
Variable Contracts issued by the Company or the operation of the Separate
Accounts provided that such litigation or proceedings relate to or affect the
interests of the Fund or Distributor.
<PAGE>
23
ARTICLE VIII. Applicable Law
8.l. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Maryland.
8.2. This Agreement shall be subject to the provisions of the 1933, 1934,
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
and the terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE IX. Termination
9.1. This Agreement shall terminate:
(a) at the option of any party upon 90 days advance written notice to the
other parties, unless a shorter time is agreed to by the parties to
this Agreement; or
(b) at the option of the Company if shares of the Series are not
reasonably available to meet the requirements of the Variable
Contracts issued by the Company, as determined by the Company, and
upon written notice by the Company to the other parties to this
Agreement; or,
(c) at the option of the Fund, Adviser, or Distributor upon institution of
formal proceedings against the Company by the NASD, the SEC, or any
state securities
<PAGE>
24
or insurance department or any other regulatory body if the Fund,
Adviser, or Distributor shall determine, in their sole judgment
exercised in good faith, that the Company has suffered a material
adverse change in its business, operations, financial condition, or
prospects since the date of this Agreement or is the subject of
material adverse publicity; or
(d) at the option of the Company upon institution of formal proceedings
against the Fund, Adviser, or Distributor by the NASD, the SEC, or any
state securities or insurance department or any other regulatory body
if the Company shall determine, in its sole judgment exercised in good
faith, that the Fund, Adviser, or Distributor has suffered a material
adverse change in its business, operations, financial condition, or
prospects since the date of this Agreement or is the subject of
material adverse publicity; or
(e) upon requisite vote of the Variable Contract Owners having an interest
in the Separate Accounts (or any subaccounts thereof) to substitute
the shares of another investment company or series thereof for the
corresponding shares of the Fund or a Series in accordance with the
terms of the Variable Contracts for which those shares had been
selected to serve as the underlying investment media; or
(f) in the event any of the shares of a Series are not registered, issued
or sold in accordance with applicable state and/or federal law, or
such law precludes the use of such shares as the underlying investment
media of the Variable Contracts issued or to be issued by the Company;
or
(g) at the option of the Company if the Fund or a Series fails to meet the
requirements specified in Section 3.2 hereof; or
<PAGE>
25
(h) at the option of the Fund or Distributor if the Variable Contracts
issued by the Company cease to qualify as annuity contracts or life
insurance contracts, as applicable, under the Code or if the Variable
Contracts are not registered, issued or sold in accordance with
applicable state and/or federal law; or
(i) at the option of the Company upon any substitution of the shares of
another investment company or series thereof for shares of the Fund or
a Series of the Fund in accordance with the terms of the Contracts,
provided that the Company has given at least 30 days prior written
notice to the Fund or Distributor of the date of the substitution.
(j) at the option of the Company upon a material breach of this Agreement
or of any representation or warranty herein by the Fund, Adviser, or
Distributor, or at the option of the Fund, Adviser, or Distributor
upon a material breach of this Agreement or of any representation or
warranty herein by the Company.
9.2. Each party to this Agreement shall promptly notify the other parties
to the Agreement of the institution against such party of any such formal
proceedings as described in Sections 9.1(c) and (d) hereof The Company shall
give 30 days prior written notice to the Fund of the date of any proposed vote
of Variable Contract Owners to replace the Fund's shares as described in Section
9.1(e) hereof.
<PAGE>
26
9.3. Under the terms of the Variable Contracts, the Company reserves the
right, subject to compliance with the law as then in effect, to make
substitutions for the securities that are held by a Separate Account of the
Company under certain circumstances. The parties acknowledge that the Company
has the right to substitute other securities for the shares of the Fund or a
Series thereof already purchased or to be purchased in the future if the shares
of the Fund or any or all of the Series of the Fund should no longer be
available for investment, or if, in the judgment of the Company's management,
further investment in shares of the Fund or any or all of the Series thereof
should become inappropriate in view of the purposes of the Contracts. The
Company will provide 30 days written notice to the Fund or to Distributor prior
to effecting any such substitution.
9.4. If this Agreement terminates, any provision of this Agreement
necessary to the orderly windup of business under it will remain in effect as to
that business, after termination.
ARTICLE X. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
<PAGE>
27
If to the Fund: Anthony Fischer
SEI Financial Services Company
680 Swedesford Road
Wayne, PA 19087
If to the Transfer Agent: Michael Melles
Supervised Service Company
811 Main
Kansas City, MO 64105
If to Adviser: Michael Harrington
Pilgrim Baxter & Associates, Ltd.
1255 Drummers Lane, Suite 300
Wayne, PA 19087
If to Distributor: Anthony Fischer
SEI Financial Services Company
680 Swedesford Road
Wayne, PA 19087
If to the Company: Richard A. Wacker
Associate General Counsel
American United Life Insurance
Company
One American Square
Indianapolis, IN 46282
ARTICLE XI. Miscellaneous
11.1. It is understood that the name "American United Life Insurance
Company", "AUL:' or any derivative thereof or logo associated with that name is
the valuable property of Distributor and its affiliates, and that the Company
has the right to use such name (or derivative or logo) only so long as this
Agreement is in effect. Upon
<PAGE>
28
termination of this Agreement the Company shall forthwith cease to use such name
(or derivative or logo).
11.2. It is understood that the name "The PBHG Funds, Inc.", "PBHG",
"Pilgrim Baxter & Associates" or any derivative thereof or logo associated with
that name is the valuable property of Distributor and its affiliates and
Adviser, and that the Company has the right to use such name (or derivative or
logo) only so long as this Agreement is in effect. Upon termination of this
Agreement the Company shall forthwith cease to use such name (or derivative or
logo).
11.3. The parties agree that the names, addresses, and other information
relating to the owners of the Variable Contracts or prospects for the sale of
the Variable Contracts are the exclusive property of Company and may not be used
by the Fund, Adviser, or Distributor without the written consent of the Company.
11.4. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
11.5. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
<PAGE>
29
11.6. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
11.7. This Agreement may not be assigned by any party to the Agreement
except with the written consent of the other parties to the Agreement. For
purposes of this provision, assignment shall be as defined in the Investment
Company Act of 1940 and the rules thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
The PBHG Funds, Inc.
ATTEST: _______________________ By: _______________________
Name: Name: David G. Lee
Title: Title: President
Pilgrim Baxter & Associates, Inc.
ATTEST: _______________________ By: _______________________
Name: Name: Michael J. Harrington
Title: Title: Mutual Funds Coordinator
SEI Financial Services Company
<PAGE>
30
ATTEST: _______________________ By: ______________________
Name: Name: David G. Lee
Title: Title: President
American United Life Insurance
Company(R)
ATTEST: ______________________ By: _______________________
Name: Richard A. Wacker Name: Brian M. Sweeney
Title: Associate General Counsel Title: V.P., Pension Mktg.
AMENDMENT NO. 1
TO
FUND PARTICIPATION AGREEMENT
This AMENDMENT NO. 1 is made as of the day of February, 1997, by and among
American United Life Insurance Company (R) (the "Company"), a life insurance
company domiciled in Indiana, on its behalf and on behalf of the segregated
asset accounts of the Company; The PBHG Funds, Inc. (the "Fund"), a Maryland
corporation; SEI Financial Services Company (the "Distributor"), a Delaware
corporation; and Pilgrim Baxter & Associates, Ltd. (the "Adviser"), a Delaware
corporation.
WITNESSETH
WHEREAS, the Company, the Fund, the Distributor, and the Adviser have
entered into a Participation Agreement dated April 3, 1995 relating to the
purchase and sale of shares of certain series of the Fund (the "Participation
Agreement"); and,
WHEREAS, the Company, the Fund, the Distributor and the Adviser desire to
amend the Participation Agreement to allow for the purchase of shares of
additional series of the Fund.
NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the parties hereby agree as follows:
1. Exhibit B to the Participation Agreement is hereby amended and
replaced by the Exhibit B that is attached hereto.
2. All other provisions of the Participation Agreement shall remain
unchanged.
3. This Amendment may be executed in two or more counterparts, each of
which when taken together shall constitute one and the same
instrument.
<PAGE>
1
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day and year first above written.
THE PBHG FUNDS, INC.
ATTEST: ___________________ By: __________________
Name: John M. Zerr Name: Brian F. Bereznak
Title: Vice President Title: Vice President
PILGRIM BAXTER &
ASSOCIATES, LTD.
ATTEST: ___________________ By: __________________
Name: John M. Zerr Name: Gary L. Pilgrim
Title: General Counsel & Secretary Title: President
SEI FINANCIAL
SERVICES COMPANY
ATTEST: ___________________ By: __________________
Name: William R. White Name: David Gene
Title: Account Director Title: Senior Vice President
AMERICAN UNITED LIFE
INSURANCE COMPANY(R)
ATTEST: ___________________ By: __________________
Name: Brian Sweeney Name: Richard A. Wacker
Title: Vice President Title: Associate General
Counsel
<PAGE>
2
EXHIBIT B
Name of Portfolios
PBHG Growth Fund
PBHG Emerging Growth Fund
- --------------------------------------------------------------------------------
EXHIBIT 8.8
FORM OF PARTICIPATION AGREEMENT WITH SAFECO RESOURCE SERIES TRUST
- --------------------------------------------------------------------------------
FUND PARTICIPATION AGREEMENT
American United Life (the "Company"), SAFECO Resource Series Trust, an
unincorporated business trust organized under the laws of the state of Delaware
(the "Trust"), and its investment adviser, SAFECO Asset Management Company, a
Washington corporation ("SAM"), hereby agree to an arrangement whereby shares of
the series funds comprising the Trust (the "Portfolios") shall be made available
to serve as underlying investment media for variable annuity and/or variable
life insurance contracts ("Variable Contracts") to be issued by the Company,
subject to the following provisions:
1. Establishment of Accounts: Availability of Portfolios.
(a) The Company represents that it has established variable annuity accounts
and variable life accounts (the "Accounts"), each of which is a separate
account under the insurance laws of the state of the Company's domicile,
and has registered each of the Accounts as a unit investment trust under
the Investment Company Act of 1940 (the " 1940 Act"), unless such Account
is exempt from registration, to serve as an investment vehicle for the
Variable Contracts. Each Variable Contract provides for the allocation of
net amounts received by the Company to an Account for investment in the
shares of one or more specified open-end investment companies available
through that Account as underlying investment media. Selection of a
particular underlying investment and changes in such selection from time to
time may be made by the person covered under the Variable Contract
("Participant") or Variable Contract owner, as applicable under the
particular Variable Contract.
(b) The Trust and SAM represent and warrant that the investments of the
Portfolios will at all times be adequately diversified within the meaning
of Section 817(h) of the Internal Revenue Service Code of 1986, as amended
(the "Code"), and the regulations promulgated thereunder (the
"Regulations"), and that at all times while this Agreement is in effect (1)
all beneficial interests in the Portfolios will be owned by one or more
insurance companies or qualified plans (through trustees), or by any other
party permitted under Section 1.817-5(f)(3) of the Regulations, and (11) no
shares of any Portfolio will be sold to the general public.
(c) SAM represents and warrants that it is registered as an investment adviser
with the Securities and Exchange Commission ("SEC").
<PAGE>
2
2. Marketing and Promotion.
(a) The Company agrees to make every reasonable effort to market its Variable
Contracts, whether directly or through its affiliates. In marketing and
administering the Variable Contracts, the Company and its affiliates will
comply with all applicable State and Federal laws.
(b) SAM agrees to provide the Company with monthly and/or quarterly performance
information with respect to the Portfolios, and such other information as
the parties deem appropriate for the promotion of the Portfolios, within
five business days of the end of each month for monthly information and
within ten days of the end of each calendar quarter for quarterly
information.
3. Pricing Information; Orders; Settlement.
(a) SAM will make shares of the Portfolios available to be purchased by the
Company, and will accept redemption orders from the Company, on behalf of
each Account, at the net asset value applicable to each order on each day
on which the Trust calculates its net asset value pursuant to the rules of
the SEC. Portfolio shares shall be purchased and redeemed in such quantity
and at such time determined by the Company to be necessary to meet the
requirements of those Variable Contracts for which the Portfolios serve as
underlying investment media.
(b) SAM will provide to the Company closing net asset value, dividend and
capital gain information at the close of trading each day that the New York
Stock Exchange (the "Exchange") is open (each such day, a "business day").
The Company hereby elects to reinvest in the Portfolios all dividends and
distributions payable on a Portfolio's shares and to receive such dividends
and distributions in additional shares of such Portfolio. The Company
reserves the right to revoke this election in writing and to receive all
such dividends and distributions in cash.
(c) The Company will send via facsimile transmission to SAM, or to such other
agent as the Trust may specify, orders to purchase and/or redeem Portfolio
shares. Orders from Variable Contract owners or Participants received by
the Company which are sent by the Company prior to the close of the
Exchange on any given business day via facsimile transmission to SAM or
such other agent as the Trust may specify by 8:00 a.m., Pacific Time, the
following business day will be executed by SAM or such agent at the net
asset value determined as of the close of the Exchange on such prior
business
<PAGE>
3
day. Any orders received by the Company after the close of the Exchange on
such prior business day (or not meeting the foregoing sentence's require-
ments) will be deemed to be received by the Company on the following
business day, and will be executed by SAM at the net asset value determined
as of the close of the Exchange on the next business day following the day
such order was received. Payment for net purchases will be wired by the
Company to a custodial account designated by the Trust to coincide with the
order for shares of the Portfolios.
(d) Payments for net redemptions of shares of the Portfolios will be wired from
the Trust's custodial account to an account designated by the Company. Such
redemptions shall ordinarily be paid in federal funds or by any other
method mutually agreed upon by the parties hereto by the next business day
following receipt by the Trust (or its agent) of notice of the order of
redemption.
(e) Each party has the right to rely on information or confirmations provided
by the other party (or by any affiliate of the other party), including
Portfolio net asset values provided to the Company by SAM or an affiliate
of SAM, and shall not be liable in the event that an error is a result of
any misinformation supplied by the other party or any such affiliate. If a
mistake is caused in supplying such information or confirmations, which
results in a reconciliation with incorrect information, the amount required
to make a Variable Contract owner's or a Participant's account whole shall
be borne by the party providing the incorrect information.
(f) SAM shall advise the Company on each business day of the net asset value
per share for each Portfolio as soon as reasonably practical after the net
asset value per share is calculated, which is normally by 6 p.m. Eastern
Standard time and shall use its best efforts to make such net asset value
per share available by 9:00 p.m. Eastern Standard time.
(g) Price Errors.
(1) In the event adjustments are required to correct any error in the
computation of the net asset value of a Portfolio's shares, SAM or the
Trust shall notify the Company as soon as practicable after
discovering the need for those adjustments which result in a
reimbursement to an Account in accordance with SAM's or the Trust's
then current policies on reimbursement, which SAM or the Trust, as
appropriate, represents are reasonable and consistent with applicable
standards. Notification may be made via facsimile or via direct or
indirect systems access. Any such notification shall be
<PAGE>
4
promptly followed by a letter written on SAM's or the Trust's letter-
head stating for each day for which an error occurred the incorrect
price, the correct price, and, to the extent communicated to the
Trust's shareholders, the reason for the price change.
(2) If an adjustment is to be made in accordance with subsection (1) above
to correct an error which has caused an Account to receive an amount
different than that to which it is entitled, SAM or the Trust shall
make all necessary adjustments to the number of shares owned in the
Account and distribute to the Account the amount of such underpayment
for credit to the Contract owners. Upon the furnishing of an
accounting to SAM or the Trust by the Company, SAM or the Trust will
immediately reimburse to the Company all reasonable expenses incurred
by the Company, or any organization that the Company has retained to
provide administration or recordkeeping services under this Agreement
to adjust all Accounts and accounts of Contract owners affected by
such error.
4. Expenses.
(a) Except as otherwise provided in this Agreement, all expenses incident to
the performance by the Trust or SAM under this Agreement shall be paid by
SAM, including the cost of registration of the Trust and shares of its
Portfolios with the Securities and Exchange Commission (the "SEC") and in
states where required.
(b) SAM shall distribute to the Company proxy material with respect to the
Trust, periodic reports to shareholders and other material that are
required by law to be sent to Variable Contract owners. In addition, SAM
shall provide the Company with a sufficient quantity of prospectuses for
the Trust to be used in connection with the offerings and transactions
contemplated by this Agreement. Subject to subsection (c) below, the cost
of preparing and printing such materials shall be paid by SAM or its
affiliates, and the cost of distributing such materials shall be paid by
the Company. However, if the Trust makes changes to its prospectus for its
own benefit or the benefit of someone other than the Company resulting in
the need to print and distribute one or more supplements to Variable
Contract holders, all costs associated with printing and distributing any
such supplement shall be borne by SAM.
(c) In lieu of SAM providing printed copies of prospectuses and periodic fund
reports to shareholders, the Company shall have the right to request that
SAM provide a copy of such materials in an electronic or camera-ready
format, which the Company may use to have such materials printed together
with similar materials of other Account
<PAGE>
5
funding media that the Company or any distributor will distribute to exis-
ting or prospective Variable Contract owners or Participants.
(d) SAM and the Trust shall provide (1) at the Trust's expense, one copy of the
Trust's current Statement of Additional Information ("SAI") to the
Company and to any owner of a Contract issued by the Company who requests
such SAI; (2) at the Company's expense, such additional copies of the
Trust's current SAI as the Company shall reasonably request and that the
Company shall require in accordance with applicable law in connection with
offering the Variable Contracts issued by the Company.
(e) The Trust currently does not make and does not intend to make any payments
to finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act
or otherwise, although it may make such payments in the future. To the
extent that it decides to finance distribution expenses pursuant to Rule
12b-1, the Trust undertakes to have its board of trustees, a majority of
whom are not interested persons of the Trust, formulate and approve any
plan under Rule 12b-1 to finance distribution expenses.
5. Representations.
(a) The Company agrees that it and its agents shall not, without the written
consent of SAM, make representations concerning the Trust or the Portfolio
shares except those contained in the then current prospectuses, statement
of additional information and in current printed sales literature of the
Trust previously approved, or provided to the Company, by SAM.
(b) The Company represents and warrants that interests in certain Variable
Contracts are or will be registered under the Securities Act of 1933 ("
1933 Act") or are exempt from registration thereunder, that the Variable
Contracts will be issued and sold in compliance in all material respects
with all applicable federal and state laws and that the sale of the
Variable Contracts shall comply in all material respects with state
insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good
standing under applicable law and that it has legally and validly
established each Account prior to any issuance or sale. thereof as a
segregated asset account and that each Account is or will be registered as
a unit investment trust or will be exempt from registration as such in
accordance with the provisions of the 1940 Act to serve as a segregated
investment account for the Variable Contracts.
<PAGE>
6
(c) The Company represents that the Variable Contracts are currently treated as
annuity and/or life insurance contracts under applicable provisions of the
Code and that it will make every effort to maintain such treatment and that
it will notify SAM and the Trust immediately upon having a reasonable basis
for believing that the Variable Contracts have ceased to be so treated or
that they might not be so treated in the future.
(d) The Company represents and warrants that its directors, officers, and
employees, if any, dealing with the money and/or securities of the Accounts
are and shall continue to be at all times covered by a blanket fidelity
bond or similar coverage for the benefit of the Accounts in an amount not
less than $2 million. The aforesaid bond shall include coverage for larceny
and embezzlement and shall be issued by a reputable bonding company.
(e) SAM and the Trust make no representation as to whether any aspect of the
Trust's operations (including, but not limited to, fees and expenses and
investment policies) complies with the insurance laws or regulations of the
various states.
(f) SAM represents that shares of the Portfolios will be sold and distributed
in accordance with all applicable federal and state securities laws,
including without limitation, the 1933 Act, the Securities Exchange Act of
1934, and the 1940 Act.
(g) The Trust represents that it is currently qualified as a regulated
investment company under Subchapter M of the Code and SAM and the Trust
represent that they will make every effort to maintain such qualification
(under Subchapter M or any successor or similar provision) and that SAM or
the Trust will notify the Company immediately upon having a reasonable
basis for believing that a Portfolio has ceased to so qualify or might not
so qualify in the future. The Trust and SAM acknowledge that any failure of
the Trust to qualify as a regulated investment company under Subchapter M
of the Code would constitute a breach of their representations and
warranties under Item 1 (b) of this Agreement.
(h) The Trust and SAM represent and warrant that the shares of the Portfolios
sold pursuant to this Agreement shall be registered under the 1933 Act,
duly authorized for issuance and sold in compliance with the laws of the
State of Washington and all applicable federal and state securities laws
and that the Portfolios are and shall remain registered under the 1940 Act.
The Trust shall amend the registration statement for such shares under the
1933 Act and 1940 Act from time to time as required in order to effect the
continuous offering of its shares. The Trust shall also register and
qualify its shares
<PAGE>
7
for sale in accordance with the laws of the various states only if and to
the extent deemed advisable by the Trust or SAM.
(i) The Trust represents that it is lawfully organized and validly existing
under the laws of its state of domicile, that the shares of the Portfolios
are duly authorized for issuance in accordance with applicable law, and
that it is and will comply in all material respects with the 1940 Act.
(j) SAM represents and warrants that it is duly organized under the laws of its
state of domicile, and is and shall remain duly registered in all material
respects under any applicable federal and state securities laws, and
further that it shall perform its obligations for the Trust and the
Portfolios in compliance in all material respects with applicable federal
and state securities laws.
(k) The Trust and SAM represent and warrant that all of their respective
directors, officers, and employees dealing with the money and/or securities
of the Trust are and shall continue to be at all times covered by a blanket
fidelity bond or similar coverage for the benefit of the Trust and its
Portfolios in an amount not less than the minimal coverage as required
currently by Rule 17g-(1) of the 1940 Act or related provisions as may be
promulgated from time to time. The aforesaid bond shall include coverage
for larceny and embezzlement and shall be issued by a reputable bonding
company.
(1) The Trust and SAM agree to use their best efforts to ensure that each
Portfolio of the Trust will be managed consistent with its investment
objective or objectives, investment policies, and investment restrictions
as described in the Trust's prospectus and registration statement, as
modified from time to time.
6. Administration of Accounts.
(a) Administrative services to Variable Contract owners and Participants shall
be the responsibility of the Company and shall not be the responsibility of
the Trust or SAM. SAM recognizes the Company as the sole shareholder of
fund shares issued under this Agreement. From time to time, SAM may pay
amounts from its past profits to the Company for providing certain
administrative services for the Trust or its Portfolios, or for providing
Variable Contract owners with other services that relate to the Trust.
These services may include, among other things, sub-accounting services,
answering inquiries of Variable Contract owners regarding the Portfolios,
transmitting, on behalf of the Trust, proxy statements, annual reports,
updated prospectus and other communications to
<PAGE>
8
Variable Contract owners regarding the Trust and its Portfolios and such
other related services as the Trust or a Variable Contract holder may
request. In consideration of the savings resulting from such arrangement,
and to compensate the Company for these services, SAM agrees to pay to the
Company an amount equal to 25 basis points (0.25%) per annum of the
average aggregate amount invested by the Company in the Portfolios under
this Agreement. Payment of such amounts by SAM will not increase the fees
paid by the Trust, the Portfolios or their shareholders.
(b) The parties agree that SAM's payments to the Company are for administrative
services only and do not constitute payment in any manner for investment
advisory services or for costs of distribution.
(c) For the purposes of computing the amount of the administrative fee
contemplated by this Section 6, the average aggregate amount invested by
the Company over a one month period shall be computed by adding the
Company's aggregate investment (share net asset value multiplied by total
number of shares held by the Company) on the first day of each month to the
Company's aggregate investment on the last day of each month and dividing
by two.
(d) SAM will calculate the amount of the administrative fee at the end of each
calendar quarter and payment of such fee will be made to the Company within
30 days thereafter. The check for the administrative services will be
accompanied by a statement showing the calculation of the monthly amounts
payable by SAM and such other supporting data as may be reasonably
requested by the Company.
7. Termination.
(a) This agreement shall terminate as to the sale and issuance of new Variable
Contracts:
(i) at the option of either the Company or the Trust, upon 60 days advance
written notice to the other;
(ii) at the option of the Company, upon written notice to the Trust if
shares of the Portfolios are not available for any reason to meet the
requirements of Variable Contracts as determined by the Company;
<PAGE>
9
(iii) at the option of either the Company or the Trust, immediately upon
institution of formal proceedings against the broker-dealer or
broker-dealers serving as distributor for the Variable Contracts, the
Accounts, the Company, the Trust, or SAM by the National Association
of Securities Dealers, Inc. (the "NASD"), the SEC or any other
regulatory body having jurisdiction over the operations of such
entities. Further, each of SAM, the Trust, and the Company shall
promptly notify the other parties hereto of the institution of any
such formal proceedings;
(iv) upon substitution of shares of the Portfolios with the shares of
another investment company in accordance with the terms of the
applicable Variable Contracts. The Company will give 60 days written
notice to SAM of any pending substitution to replace the Portfolio's
shares;
(v) upon assignment of this Agreement, unless made with the written
consent of all other parties hereto;
(vi) if the shares of the Portfolios are not registered, issued or sold in
conformance with Federal law or such law precludes the use of the
Portfolios' shares as underlying investment media for Variable
Contracts issued or to be issued by the Company. Prompt notice shall
be given by either party should such situation occur;
(vii) at the option of any party to the Agreement upon a determination by a
majority of the Trustees of the Trust, or a majority of disinterested
Trustees, that an irreconcilable material conflict exists;
(viii) at the option of the Company if the Trust or a Portfolio falls to
meet the requirements under the Code specified in Section 1 (b)
hereof,
(ix) at the option of the Company upon a material breach of this agreement
or of any representation or warranty herein by SAM or the Trust, or at
the option of the Trust or SAM upon a material breach of this
Agreement or of any representation or warranty herein by the Company.
(b) If the need for substitution of the shares of another investment company,
pursuant to Section 26(b) of the 1940 Act, arises out of the failure of the
Portfolio shares to be registered, issued or sold in conformance with
federal law, or such law precludes the use of shares of the Portfolios as
underlying investment media for Variable Contracts issued or to be issued
by the Company, the expenses of obtaining such order shall be
<PAGE>
10
reimbursed by SAM. SAM shall cooperate with the Company in connection with such
application.
8. Continuation of Agreement. Termination as the result of any cause listed
in Section 7 shall not affect the obligation of the Trust to furnish shares of
the Portfolios to Variable Contracts then in force for which such shares serve
or may serve as the underlying media unless such further sale of shares of the
Portfolios is proscribed by law or the SEC or other regulatory body.
9. Advertising, Materials, Filed Documents.
(a) Advertising and sales literature with respect to the Portfolios prepared by
the Company or its agents for use in marketing its Variable Contracts will
be submitted to SAM for review before such material is submitted to any
regulatory body for review, and in no event less than 10 days prior to its
use. The Company shall not use any such material if SAM or the Trust
objects to such use within 10 days after receipt.
(b) SAM or the Trust shall furnish to the Company or its designee each piece of
sales literature or other promotional material in which the Company or its
Accounts are named, and no such material shall be used without the prior
approval of the Company or its designee. SAM and the Trust agree that each
and the affiliate's of each shall not give any information or make any
representation on behalf of the Company or concerning the Company, the
Accounts, or the Variable Contracts issued by the Company, other than the
information or representations contained in a registration statement or
prospectus for such contracts, as such registration statement may be
amended or supplemented from time to time, or in reports for the Separate
Accounts or prepared for distribution to owners of such contracts, or in
sales literature or other promotional material approved by the Company or
its designee, except with the prior permission of the Company.
(c) SAM will provide to the Company at least one complete copy of all
registration statements, prospectuses, statements of additional
information, annual and semiannual reports, proxy statements and all
amendments or supplements to any of the above that relate to the Trust and
its Portfolios promptly after the filing of such document with the SEC or
other regulatory authorities. The Trust's prospectus shall state that the
statement of additional information for the Trust is available from the
Trust or its designated agent and shall be provided free of charge to the
Company and to any Variable Contract owner or Participant who requests a
copy.
<PAGE>
11
(d) The Company will provide to SAM at least one complete copy of all
registration statements, prospectuses, statements of additional
information, annual and semi-annual reports, proxy statements, and all
amendments or supplements to any of the above that relate to each Account
promptly after the filing of such document with the SEC or other regulatory
authority.
10. Proxy Voting.
(a) The Company shall provide pass-through voting privileges on shares of the
Portfolios to all owners and Participants of Variable Contracts funded by
Accounts that are registered as investment companies with the SEC to the
extent the SEC continues to interpret the 1940 Act as requiring such
privileges. If shares are held in any other Account not required to be
registered under the 1940 Act, those shares will be voted in the Company's
sole discretion.
(b) The Company will distribute to Variable Contract owners and Participants,
as provided for in paragraph 10(a) above, all proxy material furnished by
SAM and will vote shares of the Portfolios in accordance with instructions
received from Variable Contract owners and Participants. The Company, with
respect to each Variable Contract and each Account, shall vote Portfolio
shares for which no instructions have been received in the same proportion
as shares for which such instructions have been received. The Company
agrees that it and its affiliates shall not oppose or interfere with the
solicitation of proxies for Portfolio shares held for such Variable
Contract owners and Participants.
11. Indemnification
(a) The Company agrees to indemnify and hold harmless the Trust and its
Portfolios, SAM, and each of their respective directors, officers,
employees, agents and each person, if any, who controls the Trust, its
underwriter or investment adviser within the meaning of the Securities Act
of 1933 (the "1933 Act") against any losses, claims, damages or
liabilities to which the Trust, the Portfolios, SAM, or any such director,
officer employee, agent, or controlling person may become subject, under
the 1933 Act or otherwise, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon:
(i) Any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, prospectus or sales
literature of the Company, or arising
<PAGE>
12
out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements or representations therein not misleading (other
than statements or representations contained in the prospectuses or
sales literature of the Trust), provided, however, that the Company
will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue
statement or omission or alleged omission made in such Registration
Statement or prospectus in conformity with written materials furnished
to the Company by the Trust, the Portfolios or SAM specifically for
use either therein or otherwise in connection with the sale of the
Variable Contracts or Trust shares;
(ii) Any untrue statement or alleged untrue statement of a material fact
contained in sales literature pertaining to the Company, the Accounts
or the Variable Contracts which has been prepared by SAM or the
underwriter for the Trust if such statement was made in reliance upon
written information furnished by the Company specifically for use
therein; or
(iii) The breach by the Company of any representation or warranty in this
Agreement.
The Company will reimburse any legal or other expenses reasonably incurred by
the indemnified parties in connection with investigating or defending any such
loss, claim, damage, liability or action. This indemnity agreement will be in
addition to any liability which the Company may otherwise have.
(b) The Company shall not be liable under this Section I I with respect to any
losses, claims, damages or liabilities (or actions in respect thereof)
incurred or assessed against any such indemnified party to the extent such
may arise from such party's willful misfeasance, bad faith, or negligence
in the performance of such party's duties or by reason of such party's
reckless disregard of obligations or duties under this Agreement.
(c) The Trust and SAM agree, jointly and severally, to indemnify and hold
harmless the Company and its directors, officers, employees, the
distributor for the Variable Contracts, the Company's agents and each
person, if any, who controls the Company within the meaning of the 1933
Act, against any losses, claims, damages or liabilities to which the
Company or any such director, officer, employee, distributor, agent or
controlling person may become subject under the 1933 Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon:
<PAGE>
13
(i) Any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, prospectuses or sales
literature of the Trust, or the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided
however, that neither SAM, the Trust nor any Portfolio will be liable
in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon a Registration Statement or
prospectuses which are in conformity with written materials furnished
to the Trust or SAM by the Company specifically for use therein;
(ii) Any untrue statement or alleged untrue statement of a material fact
contained in a registration statement, prospectus, periodic report or
sales literature covering the Variable Contracts issued by the
Company, or any amendment thereof or supplement thereto, if such
statement was made in reliance upon written information furnished by
SAM or by or on behalf of the Trust specifically for use therein; or
(iii) The breach of any representation or warranty in this Agreement by SAM
or the Trust, including but not limited to a finding or claim that the
Portfolios are not adequately diversified within the meaning of
Section 817(h) of the Code and/or that while this Agreement is in
effect, all beneficial interests will be owned by one or more
insurance companies or by any other party permitted under Section
1.817-5(f)(3) of the Regulations promulgated under the Code.
SAM will reimburse any legal or other expenses reasonably incurred by the
Company or any such director, officer, employee, distributor, agent, or
controlling person in connection with investigating or defending any such loss,
claim, damage, liability or action. This indemnity agreement will be in addition
to any liability which SAM or the Trust may otherwise have.
(d) Neither SAM, the Trust nor any Portfolio will be liable under this Section
11 to the Company or other parties covered under Section 11 (c) with
respect to any losses, claims, damages or liabilities (or actions in
respect thereof) incurred or assessed against any such party (including the
Company) as such may arise from such party's willful misfeasance, bad
faith, or negligence in the performance of such party's duties or by reason
of such party's reckless disregard of obligations or duties under this
Agreement.
(e) Promptly after receipt by an indemnified party hereunder of notice of the
commencement of action, such indemnified party will, if a claim in
respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party of the
<PAGE>
14
commencement of such action; but the omission so to notify the indemnifying
party will not relieve it from any liability which it may have to any
indemnified party otherwise than under this Section 11. In case any such
action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement of such action, the indemnifying
party will be entitled to participate in such action and, to the extent
that it may wish to, assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election to assume the
defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section 11 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation.
12. Potential Conflicts
(a) The Company has received a copy of an application for exemptive relief, as
amended, filed by Trust and certain affiliates on December 20, 1995 with
the SEC and the order issued by the SEC on January 17, 1996, in response
thereto (the "Shared Funding Exemptive Order"). The Company has reviewed
the conditions to the requested relief set forth in such application for
exemptive relief. As set forth in such application, the Board of Trustees
of the Trust (the "Board") will monitor the Trust for the existence of any
material irreconcilable conflict between the interests of the Variable
Contract holders of all separate accounts ("Participating Companies")
investing in the Portfolios. An irreconcilable material conflict may arise
for a variety of reasons, including (i) a state insurance regulatory
action; (ii) a change in applicable federal or state insurance, tax, or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax
or securities regulatory authorities; (iii) an administrative or judicial
decision in any relevant proceeding; (iv) the manner in which the
investments of a Portfolio are being managed; (v) a difference among voting
instructions given by Variable Contract Owners/Participants; or (vi) a
decision by a Participating Company to disregard the voting instructions of
Variable Contract owners or Participants. The Board shall promptly inform
the Company if it determines that an irreconcilable material conflict
exists and the implications of such conflict.
(b) The Company will report any potential or existing conflicts of which it
becomes aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order by
providing the Board with all information reasonably necessary for the Board
to consider any issues raised. This
<PAGE>
15
assistance shall include, but is not limited to, an obligation by the
Company (i) to inform the Board whenever the voting instructions of
Variable Contract owners or Participants are disregarded, and (ii) to
submit to the Board such reports, materials or data as the Board may
reasonably request so that the Board may fully carry out the obligations
imposed upon it by the Shared Funding Order, and such reports, materials
and data shall be submitted more frequently if deemed appropriate by the
Board. The Company will carry out its responsibility under this subsection
(b) with a view only to the interests of the Variable Contract owners and
Participants.
(c) If a majority of the Board, or a majority of the disinterested trustees of
the Board ("Independent Trustees"), determine that a material
irreconcilable conflict exists with regard to Variable Contract owner or
Participant investments in the Portfolios, the Board shall give prompt
notice to all Participating Companies. If the Trust or SAM is responsible
for causing or creating such conflict, SAM shall at its sole cost and
expense, and to the extent reasonably practicable (as determined by a
majority of the Independent Trustees), take such action as is necessary to
remedy or eliminate the irreconcilable material conflict. If a majority of
the Board or a majority of the Independent Trustees determine that the
Company is responsible for causing or creating such conflict, the Company
shall at its sole cost and expense, and to the extent reasonably
practicable (as determined by a majority of the Independent Trustees),
take whatever steps are necessary to remedy or eliminate the irreconcilable
material conflict. Such necessary action may include but shall not be
limited to:
(i) withdrawing the assets allocable to the Accounts from the Portfolios
and reinvesting those assets in a different investment medium or
submitting the question of whether such segregation should be
implemented to a vote of all affected Variable Contract owners and
Participants, and, as appropriate, segregating the assets of any
appropriate group (i.e., annuity contract owners, life insurance
contract owners, or Variable Contract owners of one or more
Participating Companies) that votes in favor of such segregation, or
offering to the affected Variable Contract owners or Participants the
option of making such a change; and/or
(ii) establishing a new registered management investment company or managed
separate account.
(d) If a material irreconcilable conflict arises as a result of a decision by
the Company to disregard the voting instructions of its Variable Contract
owners or Participants, and that decision represents a minority position or
would preclude a
<PAGE>
16
majority vote, the Company at its sole cost, may be required, to withdraw
an Account's investment in the affected Portfolio and no charge or penalty
will be imposed by SAM or the Trust as a result of such withdrawal;
provided, however, that such withdrawal and termination shall be limited to
the extent required to remedy the foregoing material irreconcilable
conflict as determined by a majority of the Independent Trustees. The
Company's responsibility under this subsection (d) shall be carried out
with a view only to the interests of the Variable Contract owners and
Participants. In addition, no Variable Contract owner shall be required to
bear, directly or indirectly, the costs of remedial actions taken to remedy
a material irreconcilable conflict.
(e) For the purpose of this Section 12, a majority of the Independent Trustees
shall determine whether or not any proposed action adequately remedies any
irreconcilable material conflict, but in no event will the Trust or SAM be
required to establish a new funding medium for any Variable Contract. The
Company shall not be required by this Section 12 to establish a new funding
medium for any Variable Contract if an offer to do so has been declined by
vote of a majority of the Variable Contract owners or Participants
materially affected by the irreconcilable material conflict.
(f) All reports received by the Board regarding potential or existing
conflicts, and all action of the Board with respect to determining the
existence of a conflict, notifying Participating Companies of a conflict,
and determining whether any proposed action adequately remedies a conflict,
will be properly recorded in the minutes or other appropriate records of
the Trust.
13. Miscellaneous.
(a) Amendment and Waiver. Neither this Agreement, nor any provision hereof, may
be amended, waived, discharged or terminated orally, but only by an
instrument in writing signed by all parties hereto.
(b) Notices. All notices and other communications hereunder shall be given or
made in writing and shall be delivered personally, or sent by telex,
telecopier or registered or certified mail, postage prepaid, return receipt
requested, to the party or parties to whom they are directed at the
following addresses, or at such other addresses as may be designated by
notice from such party to all other parties.
<PAGE>
17
To the Company: American United Life Insurance
Company
One American Square
Indianapolis, IN 46282
Attention: General Counsel
To SAM: SAFECO Asset Management Co.
4333 Brooklyn Avenue NE
Seattle, Washington 98105
Attention: Institutional Division
To the Trust: SAFECO Resource Series Trust
4333 Brooklyn Avenue NE
Seattle, Washington 98105
Attention: Controller
Any notice, demand or other communication given in a manner prescribed in this
subsection (b) shall be deemed to have been delivered on receipt.
(c) Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective permitted successors
and assigns.
(d) Counterparts. This Agreement may be executed in any number of counterparts,
all of which taken together shall constitute one agreement, and any party
hereto may execute this Agreement by signing any such counterpart.
(e) Severability. In case any one or more of the provisions contained in this
Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
(f) Entire Agreement. This Agreement constitutes the entire agreement and
understanding among the parties hereto and supersedes all prior agreements
and understandings relating to the subject matter hereof.
(g) Governing Law. This Agreement shall be governed and interpreted in
accordance with the laws of the State of Washington.
<PAGE>
18
(h) Cooperation. Each party hereto shall cooperate with each other party and
all appropriate governmental authorities having jurisdiction (including,
without limitation, the SEC, the NASD, and state insurance regulators) and
shall permit such authorities reasonable access to its books and records in
connection with any investigation or inquiry relating to this Agreement or
the transactions contemplated hereby.
(i) SEC Rules. The Trust and the Company agree that if and to the extent Rule
6e-2 or 6e-3(T) under the 1940 Act is amended or if Rule 6e-3 is adopted in
final form, to the extent applicable the Portfolios and the Company shall
each take such steps as may be necessary to comply with such Rules as
amended or adopted in final form.
(j) Name. The Trust and SAM agree and understand that the names "American
United Life Insurance Company", "AUL", or any derivative thereof or logo
associated with those names (an "AUL Mark") is the valuable property of the
Company and its affiliates, and that the Trust and/or SAM shall not use any
AUL Mark without the prior written consent of the Company. Upon termination
of this Agreement for any reason, the Trust and/or SAM shall cease all use
of any AUL Mark as soon as reasonably practicable.
(k) Customers. The Trust and SAM agree to treat as the property of the Company
any list or compilation of names, addresses, and other information relating
to the owners of the Variable Contracts or prospects for the sale of
Variable Contracts acquired in the course of performing under this
Agreement and agree not to use such information for any purpose without the
prior consent of the Company.
(1) Captions. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
(m) Assignment. This Agreement may not be assigned by any party to the
Agreement except with the written consent of the other parties to the
Agreement. For purposes of this provision, the term "assigned" shall
include a change in control of a party to the Agreement.
14. Limitation on Liability of Trustees. This Agreement has been executed on
behalf of the Trust by the undersigned officer of the Trust in his/her
capacity as an officer of the Trust. The obligations of this Agreement that
pertain to the Trust shall be binding only upon the assets and property of
the Trust and shall not be binding upon any individual
<PAGE>
19
trustee, officer or shareholder of the Trust or its Portfolios. This
provision shall not affect the obligations or liabilities of SAM under this
Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement by their
duly authorized officers as of this 24th day of February, 1997.
SAFECO RESOURCE SERIES TRUST
By /s/ Neal A. Fuller
- --------------------------------------
Name: Neal A. Fuller
Title: Vice President and Controller
SAFECO ASSET MANAGEMENT COMPANY
By /s/ Leslie Eggerling
- --------------------------------------
Name: Leslie Eggerling
Title: Vice President
AMERICAN UNITED LIFE INSURANCE COMPANY
By /s/ Brian Sweeney
- --------------------------------------
Name Brian Sweeney
Title: Vice President Marketing
- --------------------------------------------------------------------------------
EXHIBIT 8.9
FORM OF PARTICIPATION AGREEMENT WITH T. ROWE PRICE EQUITY SERIES INC.
- --------------------------------------------------------------------------------
PARTICIPATION AGREEMENT
Among
AMERICAN UNITED LIFE INSURANCE COMPANY,
T. ROWE PRICE INVESTMENT SERVICES, INC.,
and
T. ROWE PRICE EQUITY SERIES, INC.,
THIS AGREEMENT, effective as of the 3rd day of April, 1995 by and among
American United Life (hereinafter, the "Company"), an Indiana life insurance
company, on its own behalf and on behalf of each segregated asset account of the
Company set forth on Schedule A hereto as may be amended from time to time
(each account hereinafter referred to as the "Account"), and the T. Rowe Price
Equity Series Inc. (the "Fund"), a corporation organized under the laws of
Maryland, and T. Rowe Price Investment Services, Inc. (hereinafter the
"Underwriter"), a Maryland corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is or will be available to act as the investment vehicle for
separate accounts established for variable life insurance and variable annuity
contracts (the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and
Underwriter (hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Fund will obtain an order from the Securities and Exchange
Commission ("SEC") granting Participating Insurance Companies and variable
annuity and variable life insurance separate accounts exemptions from the
provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment. Company
Act of 1940, as amended, (hereinafter the "1940 Act") and Rules 6e-2(b)(15) and
6e-3(T) (b)(15) thereunder, if and to the extent necessary to permit shares of
the Fund to be sold to and held by variable annuity and variable life insurance
separate accounts of both affiliated and unaffiliated life insurance companies
(hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, T. Rowe Price Associates, Inc. (the "Adviser"), which serves as
investment adviser to the Fund, is duly registered as an investment adviser
under the federal Investment Advisers Act of 1940, as amended, and any
applicable state securities laws; and
<PAGE>
2
WHEREAS, the Company has issued or will issue certain variable life
insurance and variable annuity contracts supported wholly or partially by the
Account (the "Contracts"), and said Contracts are listed in Schedule A hereto,
as it may be amended from time to time by mutual written agreement; and
WHEREAS, the Account is duly established and maintained as a segregated
asset account, duly established by the Company, on the date shown for such
Account on Schedule A hereto, to set aside and invest assets attributable to the
aforesaid Contracts; and
WHEREAS, the Underwriter, which serves as distributor to the Fund, is
registered as a broker dealer with the SEC under the Securities Exchange Act of
1934, as amended (hereinafter the "1934 Act"), and is a member in good standing
of the National Association of Securities Dealers, Inc. (hereinafter "NASD");
and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement (the "Designated Portfolios") on behalf of the Account to fund the
aforesaid Contracts, and the Underwriter is authorized to sell such shares to
the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1 The Underwriter agrees to sell to the Company those shares of the
Designated Portfolios which the Account orders, executing such orders on a daily
basis at the net asset value next computed after receipt by the Fund or its
designee of the order for the shares of the Designated Portfolios.
1.2 The Fund agrees to make shares of the Designated Portfolios available
for purchase at the applicable net asset value per share by the Company and the
Account on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission, and the Fund shall use
reasonable efforts to calculate such net asset value on each day which the New
York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Trustees or Directors of the Fund (hereinafter the "Board") may refuse
to sell shares of any Designated Portfolio to any person, or suspend or
terminate the offering of shares of any Designated Portfolio if such action is
required by law or by regulatory authorities having jurisdiction or is, in the
sole discretion of the Board acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws, necessary in the
best interests of the shareholders of such Designated Portfolio.
1.3 The Fund and the Underwriter agree that shares of the Fund will be sold
only to Participating Insurance Companies and their separate accounts. No shares
of any Designated Portfolios will be sold to the general public. The Fund and
the Underwriter will not sell Fund shares to any insurance company or separate
account unless an agreement containing provisions substantially the same as
Articles I, III and VII of this Agreement is in effect to govern such sales.
1.4 The Fund agrees to redeem, on the Company's request, any full or
fractional shares of the Designated Portfolios held by the Company, ordinarily
executing such requests on a daily basis at the net asset value next computed
after receipt by the Fund or its designee of the request for redemption, except
that the Fund reserves the right to suspend the right of redemption or postpone
the date of payment or satisfaction upon redemption consistent with Section
22(e) of the 1940 Act and any rules thereunder, and in accordance with the
procedures and policies of the Fund as described in the then current prospectus.
<PAGE>
3
Subject to the foregoing, the Fund ordinarily expects to pay redemption proceeds
in cash on the next Business Day after an order to redeem Fund shares is made in
accordance with the provisions of Section 1.5 hereof. Payment shall be in
federal funds transmitted by wire by 3:00 p.m. Baltimore time.
1.5 For purposes of Sections 1.1 and 1.4, the Company shall be the designee
of the Fund for receipt of purchase and redemption orders from the Account, and
receipt by such designee shall constitute receipt by the Fund; provided that the
Company receives the order by 4:00 p.m. Baltimore time and the Fund receives
notice of such order by 9:30 a.m. Baltimore time on the next following Business
Day. "Business Day" shall mean any day on which the New York Stock Exchange is
open for trading and on which the Fund calculates its net asset value pursuant
to the rules of the SEC.
1.6 The Company agrees to purchase and redeem the shares of the Designated
Portfolios offered by the then current prospectus of the Fund and in accordance
with the provisions of such prospectus.
1.7 The Company shall pay for Fund shares on the next Business Day after an
order to purchase Fund shares is made in accordance with the provisions of
Section 1.5 hereof. Payment shall be in federal funds transmitted by wire by
3:00 p.m. Baltimore time. If payment in federal funds for any purchase is not
received or is received by the Fund after 3:00 p.m. Baltimore time on such
Business Day, the Company shall promptly, upon the Fund's request, reimburse the
Fund for any charges, costs, fees, interest or other expenses incurred by the
Fund in connection with any advances to, or borrowing or overdrafts by, the
Fund, or any similar expenses incurred by the Fund, as a result of portfolio
transactions effected by the Fund based upon such purchase request. For purposes
of Section 2.8 and 2.9 hereof, upon receipt by the Fund of the federal funds so
wired, such funds shall cease to be the responsibility of the Company and shall
become the responsibility of the Fund.
1.8 Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account. Shares
ordered from the Fund will be properly recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9 The Fund shall furnish same day notice (by wire or telephone, followed
by written confirmation) to the Company of any income, dividends or capital gain
distributions payable on the Designated Portfolios' shares. The Company hereby
elects to receive all such income, dividends, and capital gain distributions as
are payable on Designated Portfolio shares in additional shares of that
Portfolio. The Company reserves the right to revoke this election and to receive
all such income dividends and capital gain distributions in cash. The Fund shall
notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.10 The Fund shall make the net asset value per share for each Designated
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. Baltimore time) and shall use its best efforts to make such net asset value
per share available by 7 p.m. Baltimore time.
1.11 The Parties hereto acknowledge that the arrangement contemplated by
this Agreement is not exclusive; the Fund's shares may be sold to other
insurance companies (subject to Section 1.3 and Article VI hereof) and the cash
value of the Contracts may be invested in other investment companies, provided,
however, that (a) such other investment company, or series thereof, has
investment objectives or policies that are substantially different from the
investment objectives and policies of the Fund; or (b) the Company gives the
Fund and the Underwriter 45 days written notice of its intention to make such
other investment company available as a funding vehicle for the Contracts; or
(c) such other investment
<PAGE>
4
company was available as a funding vehicle for the Contracts prior to the date
of this Agreement and the Company so informs the Fund and Underwriter prior to
their signing this Agreement; or (d) the Fund or Underwriter consents to the use
of such other investment company, such consent not to be unreasonably withhold.
ARTICLE II. Representations and Warranties
2.1 The Company represents and warrants that the Contracts (a) are or,
prior to issuance, will be registered under the 1933 Act or, alternatively (b)
are not registered because they are properly exempt from registration under the
1933 Act or will be offered exclusively in transactions that are properly exempt
from registration under the 1933 Act. The Company further represents and
warrants that the Contracts will be issued and sold in compliance in all
material respects with all applicable federal securities and state securities
and insurance laws and that the sale of the Contracts shall comply in all
material respects with state insurance suitability requirements. The Company
further represents and warrants that it is an insurance company duly organized
and in good standing under applicable law, that it has legally and validly
established the Account prior to any issuance or sale thereof as a segregated
asset account under Indiana insurance laws, and that it (a) has registered or,
prior to any issuance or sale of the Contracts, will register the Account as a
unit investment trust in accordance with the provisions of the 1940 Act to serve
as a segregated investment account for the Contracts, or alternatively (b) has
not registered the Account in proper reliance upon an exclusion from
registration under the 1940 Act. The Company shall register and qualify the
contracts or interests therein as securities in accordance with the laws of the
various states only if and to the extent deemed advisable by the Company.
2.2 The Fund represents and warrants that Fund shares sold pursuant to this
Agreement shall be registered under the 1933 Act, duly authorized for issuance
and sold in compliance with the laws of the State of Indiana and all applicable
federal and state securities laws and that the Fund is and shall remain
registered under the 1940 Act. The Fund shall amend the Registration Statement
for its shares under the 1933 Act and the 1940 Act from time to time as required
in order to effect the continuous offering of its shares. The Fund shall
register and qualify the shares for sale in accordance with the laws of the
various states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3 The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, although it may
make such payments in the future. To the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund will undertake to have
the Board of Directors or Trustees of the Fund (the "Board"), a majority of whom
are not interested persons of the Fund, formulate and approve any plan pursuant
to Rule 12b-1 under the 1940 Act to finance distribution expenses.
2.4 The Fund makes no representations as to whether any aspect of its
operations, including but not limited to, investment policies, fees and
expenses, complies with the insurance and other applicable laws of the various
states, except that the Fund represents that the Fund's investment policies,
fees and expenses are and shall at all times remain in compliance with the laws
of the State of Indiana to the extent required to perform this Agreement.
2.5 The Fund represents that it is lawfully organized and validly existing
under the laws of the State of Maryland and that it does and will comply in all
material respects with the 1940 Act.
2.6 The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will
<PAGE>
5
sell and distribute the Fund shares in accordance with the laws of the State of
Indiana and any applicable state and federal securities laws.
2.7 The Underwriter represents and warrants that the Adviser is and shall
remain duly registered under all applicable federal and state securities laws
and that the Adviser shall perform its obligations for the Fund in compliance in
all material respects with the laws of the State of Indiana and any applicable
state and federal securities laws.
2.8 The Fund and the Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other individuals or
entities dealing with the money and/or securities of the Fund are and shall
continue to be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of the Fund in an amount not less than the minimum
coverage as required currently by Rule 17g-1 of the 1940 Act or related
provisions as may be promulgated from time to time. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
2.9 The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities
employed or controlled by the Company dealing with the money and/or securities
of the Account are covered by a blanket fidelity bond or similar coverage for
the benefit of the Account, in an amount not less than $5 million. The aforesaid
bond includes coverage for larceny and embezzlement and is issued by a reputable
bonding company. The Company agrees to hold for the benefit of the Fund and to
pay to the Fund any amounts lost from larceny, embezzlement or other events
covered by the aforesaid bond to the extent such amounts properly belong to the
Fund pursuant to the terms of this Agreement. The Company agrees to make all
reasonable efforts to see that this bond or another bond containing these
provisions is always in effect, and agrees to notify the Fund and the
Underwriter in the event that such coverage no longer applies.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1 The Underwriter shall provide the Company with as many copies of the
Fund's current prospectus (describing only the Designated Portfolios listed on
Schedule A) as the Company may reasonably request. The Company shall bear the
expense of printing copies of its current prospectus that will be distributed to
existing Contract owners, and the Company shall bear the expense of printing
copies of the Fund's prospectus that are used in connection with offering the
Contracts issued by the Company. If requested by the Company in lieu thereof,
the Fund shall provide such documentation (including a final copy of the new
prospectus on diskette at the Fund's expense) and other assistance as is
reasonably necessary in order for the Company once each year (or more frequently
if the prospectus for the Fund is amended) to have the prospectus for the
Contracts and the Fund's prospectus printed together in one document (such
printing to be at the Company's expense).
3.2 The Fund's prospectus shall state that the current Statement of
Additional Information ("SAI") for the Fund is available from the Company, and
the Underwriter (or the Fund), at its expense, shall provide copies of such SAI
free of charge to the Company for itself and for any owner of a Contract who
requests such SAI.
3.3 The Fund, at its expense, shall provide the Company with copies of its
proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners.
<PAGE>
6
3.4 The Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions received
from Contract owners; and
(iii) vote Fund shares for which no instructions have been received in
the same proportion as Fund shares of such portfolio for which
instructions have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners or to the
extent otherwise required by law. The Company reserves the right to vote Fund
shares held in any segregated asset account in its own right, to the extent
permitted by law.
3.5 Participating Insurance Companies shall be responsible for assuring
that each of their separate accounts participating in a Designated Portfolio
calculates voting privileges as required by the Shared Funding Exemptive Order
and consistent with any reasonable standards that the Fund may adopt and provide
in writing.
3.6 The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the SEC's interpretation of the requirements of Section 16(a)
with respect to periodic elections of directors or trustees and with whatever
rules the SEC may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1 The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material
that the Company develops or uses and in which the Fund (or a Designated
Portfolio thereof) or the Adviser or the Underwriter is named, at least ten
Business Days prior to its use. No such material shall be used if the Fund or
its designee reasonably object to such use within ten Business Days after
receipt of such material. The Fund or its designee reserves the night to
reasonably object to the continued use of any such sales literature or other
promotional material in which the Fund (or a Designated Portfolio thereof) or
the Adviser or the Underwriter is named, and no such material shall be used if
the Fund or its designee so object.
4.2 The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement or prospectus or SAI for the Fund
shares, as such registration statement and prospectus or SAI may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3 The Fund, Underwriter, or its designee shall furnish, or shall cause to
be furnished, to the Company, each piece of sales literature or other
promotional material that it develops or uses and in which
<PAGE>
7
the Company, and/or its Account, is named at least ten Business Days prior to
its use. No such material shall be used if the Company reasonably objects to
such use within ten Business Days after receipt of such material. The Company
reserves the right to reasonably object to the continued use of any such sales
literature or other promotional material in which the Company and/or its Account
is named, and no such material shall be used if the Company so objects.
4.4. The Fund and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company, the
Account, or the Contracts other than the information or representations
contained in a registration statement, prospectus (which shall include an
offering memorandum, if any, if the Contracts issued by the Company or interests
therein are not registered under the 1933 Act), or SAI for the Contracts, as
such registration statement, prospectus, or SAI may be amended or supplemented
from time to time, or in published reports for the Account which are in the
public domain or approved by the Company for distribution to Contract Owners, or
in sales literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5 The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, SAIs, reports, proxy statements, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above, that
relate to the Fund or its shares, contemporaneously with the filing of such
document(s) with the SEC or other regulatory authorities.
4.6 The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses (which shall include an offering
memorandum, if any, if the Contracts issued by the Company or interests therein
are not registered under the 1933 Act), SAIs, reports, solicitations for voting
instructions, sales literature and other promotional materials, applications for
exemptions, requests for no- action letters, and all amendments to any of the
above, that relate to the Contracts or the Account, contemporaneously with the
filing of such document(s) with the SEC or other regulatory authorities.
4.7 The Fund will provide the Company with as much notice as is reasonably
practicable of any proxy solicitation for any Designated Portfolio, and of any
material change in the Fund's registration statement, particularly any change
resulting in a change to the registration statement or prospectus for any
Account. The Fund will work with the Company so as to enable the Company to
solicit proxies from Contract Owners, or to make changes to its prospectus or
registration statement, in an orderly manner. The Fund will make reasonable
efforts to attempt to have changes affecting Contract prospectuses become
effective simultaneously with the annual updates for such prospectuses.
4.8 For purposes of this Article IV, the phrase "sales literature and other
promotional materials" includes, but is not limited to, any of the following
that refer to the Fund or any affiliate of the Fund: advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, or other public media), sales literature
(i.e., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, reports, market
letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
SAIs, shareholder reports, proxy materials, and any other communications
distributed or made generally available with regard to the Funds.
<PAGE>
8
ARTICLE V. Fees and Expenses
5.1 The Fund and the Underwriter shall pay no fee or other compensation to
the Company under this Agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing, and such payments will be made out of existing fees otherwise payable
to the Underwriter, past profits of the Underwriter, or other resources
available to the Underwriter. No such payments shall be made directly by the
Fund. Currently, no such payments are contemplated.
5.2 All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund. The Fund shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent deemed advisable by the Fund, in accordance with
applicable state laws prior to their sale. The Fund shall bear the expenses for
the cost of registration and qualification of the Fund's shares, preparation and
filing of the Fund's prospectus and registration statement, proxy materials and
reports, setting the prospectus in type, setting in type and printing the proxy
materials and reports to shareholders (including the costs of printing a
prospectus that constitutes an annual report), the preparation of all statements
and notices required by any federal or state law, and all taxes on the issuance
or transfer of the Fund's shares.
5.3 The Company shall bear the expenses of distributing the Fund's
prospectus to owners of Contracts issued by the Company and of distributing the
Fund's proxy materials and reports to such Contract owners.
ARTICLE VI. Diversification and Qualification
6.1 The Fund will invest its assets in such a manner as to ensure that the
Contracts will be treated as annuity or life insurance contracts, whichever is
appropriate, under the Internal Revenue Code of 1986, as amended (the "Code")
and the regulations issued thereunder (or any successor provisions). Without
limiting the scope of the foregoing, each Designated Portfolio has complied and
will continue to comply with Section 817(h) of the Code and Treasury Regulation
Sec. 1.817-5, and any Treasury interpretations thereof, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts, and any amendments or other modifications or successor provisions to
such Section or Regulations. In the event of a breach of this Article VI by the
Fund, it will take all reasonable steps (a) to notify the Company of such breach
and (b) to adequately diversify the Fund so as to achieve compliance within the
grace period afforded by Regulation 817.5.
6.2 The Fund represents that it is or will be qualified as a Regulated
Investment Company under Subchapter M of the Code, and that it will make every
effort to maintain such qualification (under Subchapter M or any successor or
similar provisions) and that it will notify the Company immediately upon having
a reasonable basis for believing that it has ceased to so qualify or that it
might not so qualify in the future.
6.3 The Company represents that the Contracts are currently, and at the
time of issuance shall be, treated as life insurance or annuity insurance
contracts, under applicable provisions of the Code, and that it will make every
effort to maintain such treatment, and that it will notify the Fund and the
Underwriter immediately upon having a reasonable basis for believing the
Contracts have ceased to be so treated or that they might not be so treated in
the future. The Company agrees that any prospectus offering a contract that is a
"modified endowment contract" as that term is defined in Section 7702A of
<PAGE>
9
the Code (or any successor or similar provision), shall identify such contract
as a modified endowment contract.
ARTICLE VII. Potential Conflicts
The following provisions shall apply only upon issuance of the Mixed and Shared
Funding Order and the sale of shares of the Fund to variable life insurance
separate accounts.
7.1 The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or (f)
a decision by an insurer to disregard the voting instructions of contract
owners. The Board shall promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3 If it is determined by a majority of the Board, or a majority of its
disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested Board members), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account.
7.4 If a material irreconcilable conflict arises because of a decision by
the Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the Account's investment in
the Fund and terminate this Agreement with respect to each Account provided,
however, that such withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as determined by a
majority of the disinterested members of the Board. Any such withdrawal and
termination must take place within six (6) months after the Fund gives written
notice that this provision is being implemented, and until the end of that six
month period the Fund shall continue to accept and implement orders by the
Company for the purchase (and redemption) of shares of the Fund.
<PAGE>
10
7.5 If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state regulators, then the Company will withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account within six months after the Board informs the Company in writing
that it has determined that such decision has created an irreconcilable material
conflict; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. Until the
end of the foregoing six month period, the Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.6 For purposes of Section 7.3 through 7.6 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 to establish a new funding
medium for the Contract if an offer to do so has been declined by vote of a
majority of Contract owners materially adversely affected by the irreconcilable
material conflict. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Fund and terminate this
Agreement within six (6) months after the Board informs the Company in writing
of the foregoing determination; provided, however, that such withdrawal and
termination shall be limited to the extent required by any such material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
7.7 If and to the extent the Shared Funding Exemption Order or any
amendment thereto contains terms and conditions different from Sections 3.4,
3.5, 3.6, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement, then the Fund and/or
the Participating Insurance Companies, as appropriate, shall take such steps as
may be necessary to comply with the Shared Funding Exemptive Order, and Sections
3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4 and 7.5 of this Agreement shall continue in
effect only to the extent that terms and conditions substantially identical to
such Sections are contained in the Shared Funding Exemptive Order or any
amendment thereto. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule 6c-3 is adopted, to provide exemptive relief from any provision
of the 1940 Act or the rules promulgated thereunder with respect to mixed or
shared funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared Funding
Exemptive Order, then (a) the Fund and/or the Participating Insurance Companies,
as appropriate, shall take such steps as may be necessary to comply with Rules
6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such
rules are applicable; and (b) Sections 3.4, 3.5, 7.1., 7.2, 7.3, 7.4, and 7.5 of
this Agreement shall continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8.1 Indemnification By the Company
8.1(a). The Company agrees to indemnify and hold harmless the Fund and the
Underwriter and each of its directors and officers, and each person, if any, who
controls the Fund or Underwriter within the meaning of Section 15 of the 1933
Act (collectively, the "Indemnified Parties" for purposes of this Section 8.1)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Company) or litigation (including
legal and other expenses), to which the Indemnified Parties may become subject
under any statute or regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in
<PAGE>
11
respect thereof) or settlements are related to the current or prior sale or
acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the
Registration Statement, prospectus (which shall include an
offering memorandum, if any), or SAI for the Contracts or
contained in the Contracts or sales literature for the Contracts
(or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to the Company by or
on behalf of the Fund for use in the Registration Statement,
prospectus or SAI for the Contracts or in the Contracts or sales
literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus, SAI, or sales literature of
the Fund not supplied by the Company or persons under its
control) or wrongful conduct of the Company or persons under its
authorization or control, with respect to the sale or
distribution of the Contracts or Fund Shares, or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a Registration Statement,
prospectus, SAI, or sales literature of the Fund or any amendment
thereof or supplement thereto or the omission or alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if such a
statement or omission was made in reliance upon information
furnished to the Fund by or on behalf of the Company; or
(iv) arise as a result of any material failure by the Company to
provide the services and furnish the materials under the terms of
this Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the qualification
requirements specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company, as limited by and in
accordance with the provisions of Sections 8-1(b) and 8.1(c)
hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of its obligations or duties under this Agreement.
<PAGE>
12
8.1(c) The Company shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Company in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Company of any such claim shall not
relieve the Company from any liability which it may have to the Indemnified
Party against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against an
Indemnified Party, the Company shall be entitled to participate, at its own
expense, in the defense of such action. The Company also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Company to such party of the Company's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Company will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund Shares or the Contracts or the operation of the
Fund.
8.2 Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless the Company
and each of it directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Underwriter) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute
or regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the current or prior sale or acquisition of the Fund's shares or
the Contracts; and
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
Registration Statement or prospectus or SAI or sales literature
of the Fund (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to the Underwriter
or Fund by or on behalf of the Company for use in the
Registration Statement, prospectus or SAI for the Fund or in
sales literature (or any amendment or supplement) or otherwise
for use in connection with the sale of the Contracts or Fund
shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus, SAI or sales literature for
the Contracts not supplied by the Underwriter or persons under
its control) or wrongful conduct of the
<PAGE>
13
Fund or Underwriter or persons under their control, with respect
to the sale or distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a Registration Statement,
prospectus, SAI or sales literature covering the Contracts, or
any amendment thereof or supplement thereto, or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in
reliance upon information furnished to the Company by or on
behalf of the Fund or the Underwriter; or
(iv) arise as a result of any failure by the Fund or the Underwriter
to provide the services and furnish the materials under the terms
of this Agreement (including a failure of the Fund, whether
unintentional or in good faith or otherwise, to comply with the
diversification and other qualification requirements specified in
Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Underwriter;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance or such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Party, the Underwriter will be entitled to participate,
at its own expense, in the defense thereof. The Underwriter also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Underwriter to such party of the
Underwriter's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the Underwriter will not be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
<PAGE>
14
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account.
8.3 Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the Company and each
of its directors and officers and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.3) against any and all losses, claims,
expenses, damages, liabilities (including amounts paid in settlement with the
written consent of the Fund) or litigation (including legal and other expenses)
to which the Indemnified Parties may be required to pay or may become subject
under any statute or regulation, at common law or otherwise, insofar as such
losses, claims, expenses, damages, liabilities or expenses (or actions in
respect thereof) or settlements, are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in good
faith or otherwise, to comply with the diversification and other
qualification requirements specified in Article VI of this
Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation to which
an Indemnified Party would otherwise be subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to the
Company, the Fund, the Underwriter or the Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Fund in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Fund of any such claim shall not
relieve the Fund from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Fund will be entitled to participate, at its own
expense, in the defense thereof. The Fund also shall be entitled to assume the
expense thereof, with counsel satisfactory to the party named in the action.
After notice from the Fund to such party of the Fund's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
<PAGE>
15
8.3(d). The Company and the Underwriter agree promptly to notify the Fund
of the commencement of any litigation or proceeding against it or any of its
respective officers or directors in connection with the Agreement, the issuance
or sale of the Contracts, the operation of the Account, or the sale or
acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1 This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of Maryland.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934 and
1940 Acts, and the rules and regulations and rulings thereunder, including such
exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, any Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. Termination
10.1 This Agreement shall continue in full force and effect until the first
to occur of
(a) termination by any party, for any reason with respect to some or
all Designated Portfolios, by three (3) months advance written
notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and the
Underwriter based upon the Company's determination that shares of
the Fund are not reasonably available to meet the requirements of
the Contracts; or
(c) termination by the Company by written notice to the Fund and the
Underwriter in the event any of the Portfolio's shares are not
registered, issued or sold in accordance with applicable state
and/or federal law or such law precludes the use of such shares
as the underlying investment media of the Contracts issued or to
be issued by the Company; or
(d) termination by the Fund or Underwriter in the event that formal
administrative proceedings are instituted against the Company by
the NASD, the SEC, the Insurance Commissioner or like official of
any state or any other regulatory body regarding the Company's
duties under this Agreement or related to the sale of the
Contracts, the operation of any Account, or the purchase of the
Fund shares; provided, however, that the Fund or Underwriter
determines in its sole judgment exercised in good faith, that any
such administrative proceedings will have a material adverse
effect upon the ability of the Company to perform its obligations
under this Agreement; or
(e) termination by the Company in the event that formal
administrative proceedings are instituted against the Fund or
Underwriter by the NASD, the SEC, or any state securities or
insurance department or any other regulatory body; provided,
however, that the Company determines in its sole judgment
exercised in good faith, that any such administrative proceedings
will have a material adverse effect upon the ability of the Fund
or Underwriter to perform its obligations under this Agreement;
or
<PAGE>
16
(f) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Designated Portfolio in the event
that such Portfolio ceases to qualify as a Regulated Investment
Company under Subchapter M or fails to comply with the Section
817(h) diversification requirements specified in Article VI
hereof, or if the Company reasonably believes that such Portfolio
may fail to so qualify or comply; or
(g) termination by the Fund or Underwriter by written notice to the
Company in the event that the Contracts fail to meet the
qualifications specified in Article VI hereof, or
(h) termination by either the Fund or the Underwriter by written
notice to the Company, if either one or both of the Fund or the
Underwriter respectively, shall determine, in their sole judgment
exercised in good faith, that the Company has suffered a material
adverse change in its business, operations, financial condition,
or prospects since the date of this Agreement or is the subject
of material adverse publicity; or
(i) termination by the Company by written notice to the Fund and the
Underwriter, if the Company shall determine, in its sole judgment
exercised in good faith, that the Fund, Adviser, or the
Underwriter has suffered a material adverse change in its
business, operations, financial condition or prospects since the
date of this Agreement or is the subject of material adverse
publicity; or
(j) termination by the Fund or the Underwriter by written notice to
the Company, if the Company gives the Fund and the Underwriter
the written notice specified in Section 1.11 (b) hereof and at
the time such notice was given there was no notice of termination
outstanding under any other provision of this Agreement;
provided, however, any termination under this Section 10.1(j)
shall be effective forty-five days after the notice specified in
Section 1.11 (b) was given; or
(k) termination by the Company upon any substitution of the shares of
another investment company or series thereof for shares of a
Designated Portfolio of the Fund in accordance with the terms of
the Contracts, provided that the Company has given at least 45
days prior written notice to the Fund and Underwriter of the date
of substitution; or
(1) termination by any party in the event that the Fund's Board of
Directors determines that a material irreconcilable conflict
exists as provided in Article VII.
10.2 Notwithstanding any termination of this Agreement, the Fund and the
Underwriter shall, at the option of the Company, continue to make available
additional shares of the Fund pursuant to the terms and conditions of this
Agreement, for all Contracts in effect on the effective date of termination of
this Agreement (hereinafter referred to as "Existing Contracts"). Specifically,
the owners of the Existing Contracts may be permitted to reallocate investments
in the Fund, redeem investments in the Fund and/or invest in the Fund upon the
making of additional purchase payments under the Existing Contracts. The parties
agree that this Section 10.2 shall not apply to any terminations under Article
VII and the effect of such Article VII terminations shall be governed by Article
VII of this Agreement. The parties further agree that this Section 10.2 shall
not apply to any terminations under Section 10.1(g) of this Agreement.
<PAGE>
17
10.3 The Company shall not redeem Fund shares attributable to the Contracts
(as opposed to Fund shares attributable to the Company's assets held in the
Account) except (i) as necessary to implement Contract owner initiated or
approved transactions, (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"), (iii) as permitted
by an order of the SEC pursuant to Section 26(b) of the 1940 Act, or (iv) as
permitted under the terms of the Contract. Upon request, the Company will
promptly furnish to the Fund and the Underwriter reasonable assurance that any
redemption pursuant to clause (ii) above is a Legally Required Redemption.
Furthermore, except in cases where permitted under the terms of the Contracts,
the Company shall not prevent Contract owners from allocating payments to a
Portfolio that was otherwise available under the Contracts without first giving
the Fund or the Underwriter 45 days notice of its intention to do so.
10.4 Notwithstanding any termination of this Agreement, each party's
obligation under Article VIII to indemnify the other parties shall survive.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
Attention: Henry H. Hopkins, Esq.
If to the Company:
American United Life Insurance Company
One American Square
Indianapolis, Indiana 46204
Attention: Richard A. Wacker, Esq.
If to Underwriter:
T. Rowe Price Investment Services, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
Attention: Terrie Westren
ARTICLE XII. Miscellaneous
12.1 All persons dealing with the Fund must look solely to the property of
the Fund, and in the case of a series company, the respective Designated
Portfolios listed on Schedule A hereto as though each such Designated Portfolio
had separately contracted with the Company and the Underwriter for the
enforcement of any claims against the Fund. The parties agree that neither the
Board, officers, agents or shareholders of the Fund assume any personal
liability or responsibility for obligations entered into by or on behalf of the
Fund.
12.2 Subject to the requirements of legal process and regulatory authority,
each party hereto shall treat as confidential the names and addresses of the
owners of the Contracts and all information
<PAGE>
18
reasonably identified as confidential in writing by any other party hereto and,
except as permitted by this Agreement, shall not disclose, disseminate or
utilize such names and addresses and other confidential information without the
express written consent of the affected party until such time as such
information has come into the public domain.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the Indiana Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the variable annuity
operations of the Company are being conducted in a manner consistent with the
Iowa variable annuity laws and regulations and any other applicable law or
regulations.
12.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies, and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8 This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior written consent of all parties
hereto.
12.9 The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under
generally accepted accounting principles ("GAAP"), if any) filed
with any state or federal regulatory body or otherwise made
available to the public, as soon as practical and in any event
within 90 days after the end of each fiscal year; and
(b) any registration statement (without exhibits) and financial
reports of the Company filed with the Securities and Exchange
Commission or any state insurance regulatory, as soon as
practical after the filing thereof.
<PAGE>
19
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed in its name and on its behalf by its duly authorized representative and
its seal to be hereunder affixed hereto as of the date specified below.
COMPANY: AMERICAN UNITED LIFE INSURANCE COMPANY
By its authorized officer
By:
-----------------------------------
Title: Vice President
Date: April 6, 1995
FUND: T. Rowe Price Equity Series, Inc.
By its authorized officer
By:
Title: Vice President
Date: April 5, 1995
UNDERWRITER: T. ROWE PRICE INVESTMENT SERVICES, INC.
By its authorized officer
By:
Title: Vice President
Date: April 5, 1995
<PAGE>
SCHEDULE A
<TABLE>
<S> <C> <C>
Name of Separate Account and
Date Established by the Contracts Funded by
Executive Committee of AUL the Separate Account Designated Portfolios
1. AUL American Unit Trust Separate DCP Multiple-Fund Group Variable Annuity (P-12518) T. Rowe Price Equity
Account (established 8/17/89) TDA Multiple-Fund Group Variable Annuity (P-1 251 1) Series, Inc.
TDA Multiple-Fund Group Variable Annuity (P-12511,WA) ----------
TDA Multiple-Fund Group Variable Annuity (P-12833) T. Rowe Price Equity
TDA Multiple-Fund Group Variable Annuity (P-12833SPL) Income Portfolio
IRA Multiple-Fund Group Variable Annuity (P-12566)
IRA Multiple-Fund Group Variable Annuity (P-12867)
Employer-Sponsored TDA Multiple-Fund Group
Variable Annuity (P-12621)
Employer-Sponsored TDA Multiple-Fund Group
Variable Annuity [(P-12621(BR)]
Employer-Sponsored TDA and Qualified Plan Multiple-Fund
Group Variable Annuity [P-13098(BR)]
2. Group Retirement Annuity Separate Separate Accounts Group Retirement T. Rowe Price Equity
Account II (established 12/17/92) Annuity (GRA VIII) [P-12947(BR)] Series, Inc.
----------
T. Rowe Price Equity
Income Portfolio
3. Group Retirement Annuity Separate Separate Accounts Group Retirement Annuity T. Rowe Price Equity
Account I (established 4/15/93) (GRA IV) (P-11710) Series, Inc.
Separate Accounts Group Retirement Annuity ----------
(GRA V) (P-11736) T. Rowe Price Equity
Separate Accounts Group Retirement Annuity Income Portfolio
(GRA VI) (P-12390)
Separate Accounts Group Retirement Annuity
(GRA VI & IX)(BR) [P-12390(BR)]
Separate Accounts Group Deposit Annuity Contract
4. AUL American Individual Unit Trust Individual Flexible Premium Deferred Variable Annuity T. Rowe Price Equity
Separate Account (established 4/14/94) (LA-27) Series, Inc.
Individual One Year Flexible Premium Deferred ----------
Variable Annuity (LA-27) T. Rowe Price Equity
Income Portfolio
</TABLE>
- --------------------------------------------------------------------------------
EXHIBIT 9
OPINION AND CONSENT OF ASSOCIATE GENERAL COUNSEL OF AUL
AS TO THE LEGALITY OF CONTRACTS BEING REGISTERED
- --------------------------------------------------------------------------------
American United Life Insurance Company
One American Square
P.O. Box 368
Indianapolis Indiana 46206-0368
Telephone (317) 263-1877
Associate General Counsel April 1, 1999
Filing Room
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington D.C. 20549
Dear Sir or Madam:
In my capacity as Associate General Counsel of American United Life
Insurance Company (R) ("AUL"), I supervised the establishment of AUL American
Individual Variable Annuity Unit Trust on November 11, 1998, by resolution of
the Executive Committee of the Board of Directors of AUL as the separate account
for assets applicable to individual variable annuity contracts, pursuant to the
provisions of Section 27-1-5-1 Class l(c) of the Indiana Insurance Code.
Moreover, I have been associated with the preparation of the Registration
Statements on Form N-4 ("Registration Statements") filed by AUL on December 31,
1998 in the name of the Individual Flexible Premium Deferred Variable Annuity
(File No. 333-70049) and the Individual No Load Flexible Premium Deferred
Variable Annuity (File No. 333-70065) with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, and the Investement
Company Act of 1940, as amended, for the registration of Individual Variable
Annuity Contracts to be issued with respect to the AUL American Individual
Variable Annuity Unit Trust.
I have made such examination of the law and examined such corporate records
and such other documents that, in my judgment, are necessary and appropriate to
enable me to render the following opinion that:
1. AUL has been duly organized under the laws of the State of Indiana and is a
validly existing corporation.
2. AUL American Individual Variable Annuity Unit Trust has been duly created
and validly exists as a separate account pursuant to Indiana law.
3. The portion of the assets held in AUL American Individual Variable Annuity
Unit Trust equal to the reserves and other liabilities under the Individual
Variable Annuity Contracts is not chargeable with liabilities arising out
of any
<PAGE>
Securities and Exchange Commission
April 1, 1998
Page Two
other business AUL may conduct.
4. The Individual Variable Annuity Contracts have been duly authorized by AUL
and, when issued as contemplated by the Registration Statement, will
constitute legal, validly issued and binding obligations of AUL, except as
limited by bankruptcy and other laws generally affecting the rights of
creditors.
I hereby consent to the filing of this opinion as an exhibit to the
Registration statement.
Very truly yours,
/s/ Richard A. Wacker
Richard A. Wacker
Associate General Counsel
RAW
- --------------------------------------------------------------------------------
EXHIBIT 10.1
CONSENT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
Consent of Independent Accountants
We consent to the inclusion in this prospectus for the "AUL Individual Flexible
Premium Deferred Variable Annuity" of our report dated Feburary 26, 1999, on our
audits of the combined financial statements of American United Life Insurance
Company. We also consent to the reference to our firm under the caption
"Independent Accountants."
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
April 1, 1999
- --------------------------------------------------------------------------------
EXHIBIT 10.2
CONSENT OF DECHERT PRICE & RHOADS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
30 ROCKEFELLER PLAZA LAW OFFICES OF TEN POST OFFICE SQUARE,
NEW YORK, NY 10112 SOUTH
(212) 698-3500 DECHERT PRICE & RHOADS BOSTON, MA 02109-4603
1775 EYE STREET, N.W. (617) 728-7100
4000 BELL ATLANTIC TOWER WASHINGTON, DC 20006-2401
1717 ARCH STREET TELEPHONE: (202) 261-3300 90 STATE HOUSE SQUARE
PHILADELPHIA, PA 19103-2793 FAX: (202) 261-3333 HARTFORD, CT 06103-3702
(215) 994-4000 (860) 224-3999
THIRTY NORTH THIRD STREET 65 AVENUE LOUISE
HARRISBURG, PA 17101-1603 1050 BRUSSELS, BELGIUM
(717) 237-2000 (32-2) 535-5411
TITMUSS SANIER DECHERT
PRINCETON PIKE CORPORATE CENTER 2 SERJEANTS' INN
P.O. BOX 5218 LONDON EC4Y 1LT, ENGLAND
(609) 620-3200 (44-171) 583-5353
55, AVENUE KLEBER
75116 PARIS, FRANCE
Direct Dial: (202) 261-7765 (33-1) 53 65 05 00
</TABLE>
April 1, 1999
Board of Directors
American United Life Insurance Company
One American Square
Indianapolis, Indiana 46204
RE: AUL American Individual Variable Annuity Unit Trust, SEC
File Nos. 333-70049 and 333-70065
Dear Sirs:
We hereby consent to the reference to our firm under the caption "Legal Matters"
in the Prospectuses comprising a part of the above referenced Registration
Statements.
Very truly yours,
/s/ Dechert Price & Rhoads
Dechert Price & Rhoads
