File No. 2-27832
As filed with the Securities and Exchange Commission on April 30, 1997
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-3
REGISTRATION STATEMENT UNDER THE
[X] SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No.
[X] Post-Effective Amendment No. 41
and/or
REGISTRATION STATEMENT UNDER THE
[X] INVESTMENT COMPANY ACT OF 1940
[X] Amendment No. 41
(Check appropriate box or boxes)
AMERICAN UNITED LIFE POOLED EQUITY FUND B
(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) 263-1877
Richard A. Wacker, One American Square, Indianapolis, Indiana 46282
(Name and Address of Agent for Service)
Title of Securities Being Registered: Interests in group variable annuity
contracts
It is proposed that this filing will become effective (Check appropriate Space)
_____ immediately upon filing pursuant to paragraph (b) of Rule 485
X on May 1, 1997 pursuant to paragraph (b) of Rule 485
_____ --------------
_____ 60 days after filing pursuant to paragraph (a)(i) of Rule 485
on (date) pursuant to paragraph (a)(1) of Rule 485
_____ 75 days after filing pursuant to paragraph (a)(ii)
_____ on (date) pursuant to paragraph (a) (ii) of Rule 485
_____ this post-effective amendment designates a new effective date
for a previously filed amendment.
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2
AMERICAN UNITED LIFE POOLED EQUITY FUND B
CROSS REFERENCE SHEET ON FORM N-3
Pursuant to Rule 404(c) and Item 501 of Regulation S-X
Showing Location in Part A (Prospectus) and Part B (Statement of Additional
Information) of Registration Statement of Information Required by Form N-3
Item Number Location Location Location
and Caption in Part A in Part B in Part C
- ----------- --------- --------- ---------
1. Prospectus Cover Page --- ---
2. Definitions 3-4 --- ---
3. Expense Summary and Synopsis 5-6 --- ---
4. Condensed Financial Information 7 --- ---
5. Description of AUL and Fund B 8-10 --- ---
6. Management of Fund B 10 --- ---
7. Condensed Financial Information 7,11 --- ---
8. Deductions and Expenses; Voting and Other
Rights Under the Variable Annuity
Contracts; Table of Contents for the
Statement of Additional Information 11-14, 25 --- ---
9. Definitions; Annuity Period 3-4, 4-16 --- ---
10. Return of Accumulated Value in the
Event of Death 16 --- ---
11. Purchases and Contract Values 16-18 --- ---
12. Redemptions 18-19 --- ---
13. Federal Tax Status 20-23 --- ---
14. Legal Proceedings 23 --- ---
15. Table of Contents for the Statement of
Additional Information 25 2 ---
16. Statement of Additional Information --- Cover Page ---
17. Table of Contents for the Statement of
Additional Information 25 2 ---
18. Not Applicable --- --- ---
19. Description of AUL and Fund B; Investment
Objectives and Policies --- 3 ---
20. Management of Fund B; Investment Advisory
and Other Services --- 3-4 ---
21. Deductions and Expenses; Investment
Advisory and Other Services --- 4-5 ---
22. Brokerage --- 5 ---
23. Purchases and Contract Values; Purchase
and Pricing of Securities Being Offered 16-18 5 ---
24. Investment Advisory and Other Services;
Underwriters --- 4-6 ---
25. Not Applicable --- --- ---
26. Annuity Period; Annuity Payments and
Other Calculations 14-16 6 ---
27. Financial Statements --- 7-23 ---
28. Financial Statements and Exhibits --- --- 1-2
29. Directors and Officers of American
United Life Insurance Company(R) --- --- 2-6
30. Persons Controlled or Under Common Control of
American United Life Insurance Company(R) --- --- 6
31. Number of Contractowners --- --- 6
32. Indemnification of Directors and Officers --- --- 6-7
33. Business and Other Connections of Officers
and Directors of American United Life
Insurance Company(R) --- --- 7
34. Principal Underwriter and Compensation --- --- 7
35. Location of Accounts and Records --- --- 7
36. Management Services --- --- 7
37. Undertakings --- --- 7
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1
American United Life Pooled Equity Fund B
GROUP VARIABLE ANNUITY CONTRACTS
Sold By
American United Life Insurance Company(R)
One American Square
Indianapolis, Indiana 46282
(317) 263-1877
American United Life Pooled Equity Fund B is primarily a common stock fund.
This Prospectus offers information about American United Life Pooled Equity Fund
B ("Fund B") that a prospective investor should know before investing.
Additional information about Fund B is contained in a Statement of Additional
Information dated May 1, 1997, which has been filed with the Securities and
Exchange Commission ("Commission"). A Statement of Additional Information is
available upon request by mailing the Business Reply Mail card located in the
back of this Prospectus to AUL. A Table of Contents for the Statement of
Additional Information is located on page 25 of this Prospectus.
Group variable contracts described in this Prospectus are offered to (i)
employees of tax exempt or public school organizations with a 403(b) Program
(tax deferred annuities); (ii) employees of employers with 401 Employee Benefit
Plans or 408 Programs (Individual Retirement Annuities); and (iii) employers
that are units of state or local government with 457 deferred compensation
plans.
Participants should read this Prospectus and keep it for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Dated: May 1, 1997
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Table of Contents
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Page
Definitions................................. 3-4
Expense Summary............................. 5
Synopsis.................................... 5-6
Condensed Financial Information............. 7
Description of AUL and Fund B............... 8-10
American United Life..................... 8
Fund B................................... 8
Investment Objectives and Policies....... 8
Management of Fund B........................ 10
Deductions and Expenses..................... 11-13
Sales and Administrative Services........ 11
Investment Management Services........... 11
Mortality and Expense Risk Charges....... 12
Deductions for Premium Taxes............. 12
Participation............................ 12
Amendments............................... 12
Voting and Other Rights Under
The Variable Annuity Contracts........... 13-14
Annuity Period.............................. 14-16
Variable Retirement Annuity.............. 14
Optional Variable Annuity
Settlements............................ 14
The Annuity Unit......................... 15
Amount of Variable Retirement
Annuity................................ 15
Return of Accumulated Value in the
Event of Death........................... 16
Purchases and Contract Values............... 16-18
Purchase Limits.......................... 16
Accumulation Units....................... 16
Value of Accumulation Unit............... 17
Net Investment Factor.................... 17
Valuation of Assets...................... 17
Redemptions................................. 18-19
Redemption (Withdrawal).................. 18
Constraints on Distributions From
Section 403(b) Annuity
Contracts.............................. 19
Right of Cancellation.................... 19
Texas Optional Retirement
Program................................ 19
Federal Tax Status.......................... 20-23
Introduction............................. 20
Tax Status of the Company and
the Variable Account................... 20
Tax Treatment of Retirement
Programs............................... 20
Employee Benefit Plans................... 21
403(b) Programs.......................... 21
408 Programs............................. 22
457 Programs............................. 22
Tax Penalty.............................. 22
Withholding.............................. 23
Legal Proceedings........................... 23
Historical Record........................... 24
Table of Contents for the Statement
of Additional Information................ 25
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3
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DEFINITIONS
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Various terms commonly used in this Prospectus are defined as follows:
ACCUMULATION PERIOD - The period before annuity payments begin.
ACCUMULATION UNIT - A share of Fund B expressed in dollars used to measure the
value of a Fund B Participant's account before annuity payments commence.
ANNUITANT - The person on whose life annuity payments depend.
ANNUITY - A series of payments during the period specified in the annuity
settlement.
ANNUITY COMMENCEMENT DATE - The first day of any month during which annuity
payments begin, as provided in the Group Contract or Employee Benefit Plan,
provided however that the date shall not be later than the required beginning
date as defined in the applicable section of the Internal Revenue Code and the
Code of Federal Regulations.
ANNUITY UNIT - A share of Fund B expressed in dollars used to measure the
amount of annuity payments.
COMPANION CONTRACT - A fixed dollar annuity Group Contract issued by AUL to a
Contract-holder for the benefit of the same employees covered by the Group
Contract of such Contract-holder.
CONTRACTHOLDER - A party to a Group Contract on behalf of itself as an
employer or on behalf of other employers.
EMPLOYEE BENEFIT PLAN - A pension or profit sharing plan established by an
employer for the benefit of its employees which plan is qualified or designed to
be qualified under Section 401 of the Internal Revenue Code. (See Federal Tax
Status.)
EMPLOYER - A tax exempt or public school organization or other employer with
respect to which a Group Contract has been entered into for the benefit of its
employees. In some cases, the Custodian of a Trust may act as the
Contract-holder for Participants. In this case, rights usually reserved to the
Employer will be exercised either directly by the Employees or through such
Custodian who will act as the agent of such Employees.
EMPLOYER'S PARTICIPANT ACCOUNT - The sum of Accumulation Units credited to the
employer as a result of Net Payments to Fund B under a Group Contract for use
with an Employee Benefit Plan.
FIXED DOLLAR ANNUITY - An annuity providing for payments fixed in amount and
which do not vary with investment experience.
GROUP CONTRACT - A group variable annuity contract between a Contractholder
and AUL which calls for the deposit of Net Payments in Fund B.
HR-10 PLAN - An Employee Benefit Plan established by a self-employed person in
accordance with the Self-employed Individuals Tax Retirement Act of 1962 and
Section 401 of the Internal Revenue Code, as amended.
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4
NET PAYMENT - The difference between a payment and the deduction of the 6% or
4% (as the case may be) payment to AUL for its sales and administrative
services.
PARTICIPANT - Any natural person and any employer having an interest in Fund
B.
PARTICIPANT'S INDIVIDUAL ACCOUNT - The sum of the Accumulation Units credited
to a Participant as a result of Net Payments made to Fund B by him or on his
behalf under a Group Contract.
PAYMENT - Any payment made by a Participant or by an employer on behalf of a
Participant under a 403(b) Program, a 408 Program, an Employee Benefit Plan, or
by an employer in connection with a 457 deferred compensation plan.
SEGREGATED INVESTMENT ACCOUNT - A separate account (such as Fund B) authorized
by law which is not chargeable with the liabilities arising out of any business
of AUL other than its contracts under which payments are made into and out of
such account.
VALUATION PERIOD - A period beginning immediately after a valuation of Fund B
and ending with the next valuation of Fund B. Valuations will occur as of the
close of trading on the New York Stock Exchange on each day during which the
Exchange is open for trading provided AUL is open for business. Traditionally,
in addition to federal holidays, AUL is not open for business on the the day
after Thanksgiving and either the day before or after Christmas or Independence
Day.
VARIABLE ANNUITY - An annuity providing for payments which vary in amount in
accordance with the investment experience of a Segregated Investment Account.
403(B) PROGRAM - An arrangement by a tax-exempt or public school organization
to permit its employees to take advantage of the federal income tax deferral
benefits provided for in Section 403(b) of the Internal Revenue Code.
408 PROGRAM - A plan of individual retirement accounts or annuities, including
a simplified employee pension plan or SIMPLE IRA plan established by an em-
ployer, that meets the requirements of Section 408 of the Internal Revenue Code.
457 PROGRAM - A plan established by a unit of state or local government under
Section 457 of the Internal Revenue Code. An employer who shall have set up such
a program is referred to as a 457 Employer.
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5
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EXPENSE SUMMARY
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Contract Owner or Participant
Transaction Expenses:
Sales Load Imposed on Purchases 6%*
(as a percentage of purchase payments)
Deferred Sales Load NONE
Surrender Fees NONE
Exchange Fee NONE
Annual Contract Fee: NONE
*This charge is reduced to 4% when a Participant's total contributions exceed
$5,000.
Annual Expenses:
(as a percentage of average net assets)
Management Fees 0.3%
Mortality and Expense Risk Fees 0.9%
Other Expenses NONE
Total Annual Expenses 1.2%
<TABLE>
<CAPTION>
Example: 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Whether or not a contract is annuitized or
surrendered at the end of the applicable time period,
you would pay the following expenses on a $1,000 in-
vestment, assuming a 5% annual return on assets:
$71.50 $95.80 $121.96 $196.43
</TABLE>
The purpose of these tables is to assist a Contract Owner or Participant in
understanding the various costs and expenses that are paid, either directly or
indirectly. These deductions and expenses are further described in the
Prospectus in the section "Deductions and Expenses." Depending on the state of
residence of the Participant, there may be an additional charge for premium
taxes which AUL is required to withhold. The examples above should not be
considered representations of past or future expenses or returns and actual
expenses may be greater or less than those shown.
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SYNOPSIS
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Group variable contracts described in this Prospectus are offered to (i)
employees of tax exempt or public school organizations with a 403(b) Program
("tax deferred annuities"); (ii) employees of employers with 401 Employee
Benefit Plans or 408 Programs ("Individual Retirement Annuities"); and (iii)
employers that are units of state or local government with 457 deferred
compensation plans. In order to fund such plans, the employer has entered into a
group variable annuity contract ("Group Contract") with American United Life
Insurance Company(R) ("AUL"). Pursuant to a properly completed application, a
variable annuity may be purchased through employer payments ($120 or $300 per
year minimum depending on the type of contract selected) under a 403(b), 408 or
457 Program or by means of employee and employer payments under a 401 Employee
Benefit Plan or 408 Program.
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6
Variable annuities such as those described in this Prospectus are designed
to provide Participants with annuity payments that, unlike fixed dollar annuity
payments, vary with the investment performance of the assets of Fund B. Since
the assets are invested, for the most part, in common stocks, the value of the
investments of Fund B will fluctuate and are subject to all of the risks of
changing economic and market conditions. The type, identity and timing involved
in the purchase and sale of the securities which make up the Fund B portfolio
will also have a major impact on the overall performance experienced by the
Fund. At the time an annuity is taken, a Participant will be able to choose
among several different options. These are more fully described under "Optional
Variable Annuity Settlements."
American United Life Pooled Equity Fund B ("Fund B") was established by AUL
as a Segregated Investment Account under provisions of the Indiana Insurance
Law. Under that law, Fund B is not chargeable with any liabilities except those
arising under the Group Contracts described in this Prospectus. Other charges
and expenses associated with Fund B, including charges for Sales and
Administrative Services, Investment Management Services, and Mortality and
Expense Risk Charges, are discussed in the section titled "Deductions and
Expenses." No fee or other deduction is charged by AUL upon withdrawal or
transfer of an account or payment of benefits except premium taxes levied by the
state of residence of the Participant, if any.
Under the Investment Company Act of 1940, Fund B is registered as an
open-end, diversified management investment company. Such registration does not
involve supervision of the management or investment practices of Fund B or AUL
by the Securities and Exchange Commission.
The principal investment objective of Fund B is the selection of
investments for long-term growth of capital. A secondary investment objective is
the production of current income. Investments will be made primarily in common
stocks, but may also include preferred stocks and debentures which may or may
not be convertible into common stocks or be accompanied by warrants for the
purchase of common stock. There may be temporary occasions, however, when the
Board of Managers may determine for defensive purposes that other types of
investments are more advantageous because of general economic conditions or for
other reasons, in which event, investments may be made to some extent in bonds,
notes, or other evidences of indebtedness, including United States Government
securities, issued publicly, of a type customarily purchased for investment by
institutional investors. A complete description of the Investment Objectives and
Policies of Fund B may be found on pages 8-10 of the Prospectus.
A contractholder may cancel the contract no later than ten days after
receiving it by returning it along with a written notice of cancellation to AUL
at its Home Office. See page 19 "Right of Cancellation" in this Prospectus for
details.
Certain rights including voting rights may be associated with being a
"Participant." For a discussion of these and other rights, see pages 13 and 14
of the Prospectus.
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7
<TABLE>
<CAPTION>
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CONDENSED FINANCIAL INFORMATION
PER UNIT INCOME AND CAPITAL CHANGES
IN FUND B ACCUMULATION UNIT
(For an accumulation unit outstanding throughout the year)
- ---------------------------------------------------------------------------------------------------------------
Year Ended December 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Investment Income $ .262 $ .236 $ .194 $ .162 $ .180 $ .197 $ .194 $ .192 $ .160 $ .136
Expenses .128 .109 .099 .088 .077 .070 .061 .057 .048 .050
- -------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net investment income .134 .127 .095 .074 .103 .127 .133 .135 .112 .086
Net realized and
unrealized gain (loss)
on investments 1.731 1.519 0.069 1.239 .473 1.098 (.385) .903 .310 .133
-------------- ----- ----- ----- ----- ---- ----- ------ ---- ---- ----
Net increase (decrease) in
Accumulation Unit Value 1.865 1.646 0.164 1.313 .576 1.225 (.252) 1.038 .422 .219
Fund B Accumulation Unit
Value at beginning of year $9.909 $8.263 $8.099 $6.786 $6.210 $4.980 $5.232 $4.194 $3.772 $3.553
Fund B Accumulation Unit
Value at end of year $11.774 $9.909 $8.263 $8.099 $6.786 $6.205 $4.980 $5.232 $4.194 $3.772
======= ====== ====== ====== ====== ====== ====== ====== ====== ======
Ratio of expenses to
average net assets 1.20% 1.20% 1.20% 1.19% 1.21% 1.20% 1.21% 1.19% 1.19% 1.21%
Ratio of net investment
income to avg. net assets 1.25% 1.39% 1.16% 1.01% 1.64% 2.16% 2.65% 2.85% 3.97% 2.07%
Portfolio turnover rate 17.53% 20.00% 23.26% 25.4% 11.9% 36.7% 24.8% 24.3% 20.4% 27.0%
Number of Accumulation Units
outstanding at end of year
(in thousands): 1,068 1,264 1,417 1,518 1,635 1,698 1,784 1,860 2,028 2,124
<FN>
Investment income and expenses are calculated on the basis of average units
outstanding during the year. Net investment income represents investment income
less expenses.
</FN>
</TABLE>
Other financial information consisting of the financial statements for Fund B
and for AUL is located in the Statement of Additional Information, on pages 7
through 23.
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8
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DESCRIPTION OF AUL
AND FUND B
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AMERICAN UNITED LIFE
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 47 states and the District of Columbia. As a mutual company,
it is owned by and operated exclusively for the benefit of its policyowners. AUL
has its principal business office located at One American Square, Indianapolis,
IN 46282.
AUL conducts a conventional life insurance, reinsurance, and annuity
business. At December 31, 1996, AUL had admitted assets of $7,852,292,848 and a
policyowners' surplus of $572,825,650. With respect to the variable annuities
offered hereunder, the assets of AUL should be considered only as bearing upon
the ability of AUL to meet its obligations under the variable annuity contracts,
since the amounts payable to the Participants will depend upon the investment
performance of Fund B and not on the value of the other assets of AUL.
FUND B
American United Life Pooled Equity Fund B ("Fund B") was established by AUL
on November 20, 1967 as a Segregated Investment Account (See Definitions) under
provisions of the Indiana Insurance Law. Under that law, Fund B is not
chargeable with any liabilities except those arising under the Group Contracts
described in this Prospectus which are fundable and computable as to payments or
benefits on the basis of experience factors of Fund B. By law, any surplus or
deficit which may arise in Fund B by virtue of mortality experience contracted
for by AUL shall be adjusted by withdrawals from or additions to Fund B so that
the assets of Fund B shall always be equal to the assets required to satisfy all
liabilities arising under contracts fundable by Fund B. Income, gains, and
losses from assets allocated to Fund B, whether or not realized, are credited to
or charged against Fund B without regard to other income, gains, or losses of
AUL. Under the Investment Company Act of 1940, Fund B is registered as an
open-end, diversified management investment company. Such registration does not
involve supervision of the management or investment practices of Fund B or AUL
by the Securities and Exchange Commission.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies shown below in Items 1 through 11
are fundamental and may not be changed without approval of Fund B Participants
casting a majority of the votes entitled to be cast. (See "Voting and Other
Rights under the Variable Annuity Contracts.") Although the fundamental
investment policy permits investment in restricted securities and in real
estate, none has been made nor is any contemplated at this time.
1. The principal investment objective of Fund B is the selection of investments
for long-term growth of capital. A secondary investment objective is the
production of current income.
2. Investments will be made primarily in common stocks, but may also include
preferred stocks and debentures which may or may not be con-
<PAGE>
9
vertible into common stocks or be accompanied by warrants for the purchase of
common stock. There may be temporary occasions, however, when the Board of
Managers may determine for defensive purposes that other types of investments
are more advantageous because of general economic conditions or for other
reasons, in which event investment may be made to some extent in bonds, notes or
other evidences of indebtedness, including United States Government
securities, issued publicly, of a type customarily purchased for investment by
institutional investors.
3. Income and realized capital gains will be retained.
4. Fund B assets will be kept fully invested except for reasonable amounts held
in cash or United States Government securities to meet normal contract payments
and held for temporary periods pending investment or for defensive purposes.
5. With respect to 75% of the assets, not more than 5% of the value of Fund B
assets will be invested in securities of any one issuer, except obligations of
the United States Government and instrumentalities thereof.
6. Not more than 10% of the voting securities of any one issuer will be
acquired. Fund B does not propose to concentrate its investments in any
particular industries. In no event will investments in any one industry exceed
25% of the value of Fund B assets.
7. Borrowings will not be made except for temporary or emergency purposes in an
amount not in excess of 5% of the value of the assets of Fund B, but not for
investment purposes.
8. Fund B will not act as an underwriter of securities of other issuers, except
that Fund B may invest up to 10% of the value of its assets (at the time of
investment) in portfolio securities which Fund B might not be free to sell to
the public without registration of such securities under the Securities Act of
1933. If through the appreciation of restricted securities or the depreciation
of unrestricted securities, Fund B should be in a position where more than 10%
of the value of its net assets are invested in illiquid assets, including
restricted securities, and a question arises with respect to liquidity, then,
Fund B will consider appropriate steps to provide adequate flexibility.
9. Real estate will not be purchased or sold as a principal activity. However,
Fund B may invest up to 10% of its assets in real properties.
10. No purchase of commodities or commodity contracts will be made.
11. Loans will not be made except through the acquisition of a portion of an
issue of publicly distributed bonds, debentures or other evidences of
indebtedness of a type customarily purchased by institutional investors.
Additional non-fundamental investment objectives and policies are:
12. Investment will not be made in the securities of a company for the purpose
of exercising management or control.
13. Investment in securities of other investment companies will not be made with
the exception of participation in a money market fund to facilitate the
management of Fund B liquidity. Such investments, together with all other
investments for which market disposition is not readily available, will not
exceed 10% of the value of Fund B, which is acceptable under current federal
securities laws.
14. Short sales of securities will not be made.
15. Purchases will not be made on margin except for such short-term credits as
are necessary for the clearance of transactions.
<PAGE>
10
16. The investments of Fund B are subject to the provisions of the Indiana
Insurance Law of 1935, as amended and will conform to the restrictions found
therein.
Variable annuities such as those described in this Prospectus are designed
to provide Participants with annuity payments that, unlike fixed dollar annuity
payments, vary with the investment performance of the assets in Fund B. Since
the assets are invested, for the most part, in common stocks, the value of the
investments of Fund B will fluctuate and are subject to all of the risks of
changing economic and market conditions. Although the value of a diversified
portfolio of common stocks held for an extended period of time has tended to
rise sufficiently to offset inflation, there have been periods during which the
values of securities have declined while the cost of living has risen. Equally
important to the performance of Fund B is the type, identity and timing involved
in the purchase and sale of the securities which make up the Fund B portfolio.
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MANAGEMENT OF FUND B
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Fund B is managed by a Board of Managers, consisting of five members. Under
a Management Agreement between Fund B and AUL dated December 20, 1971, and most
recently renewed on May 10, 1996, AUL is responsible for managing the investment
and reinvestment of Fund B's assets and for administering its other affairs,
subject to the supervision of Fund B's Board of Managers. The Agreement between
Fund B and AUL provides that AUL will invest the assets of Fund B in accordance
with the investment objectives and policies of Fund B. At least quarterly, AUL
reports its investment decisions and recommendations to the Board of Managers to
allow the Board to perform its responsibility to oversee AUL's activity and
conformity to the objectives and policies of Fund B. Currently, the Fund B Board
of Managers consists of James W. Murphy, Chairman, Ronald D. Anderson, Leslie
Lenkowsky, and James P. Shanahan.
Commencing with the first Annual Meeting of Fund B Participants on May 8,
1970, and at each Annual Meeting of Fund B Participants until May 6, 1994,
successors to the members of the Board of Managers whose terms had expired were
elected to serve for terms of three (3) years and until their successors were
duly elected and qualified. At the Annual Meeting of Participants held on May 6,
1994, a proposal to amend the Rules and Regulations of Fund B was approved by
the Participants. Under the proposal, as approved, an Annual Meeting of Fund B
Participants would not be held in any year when only routine matters were being
considered. The re-election of those members of the Board of Managers who had
previously been elected by the Participants would be considered a routine matter
so long as a majority of the Board has previously been elected by Fund B
Participants. However, a Participants' meeting will be held whenever required by
Federal Securities laws. (See "Voting and Other Rights under the Variable
Annuity Contracts.")
AUL, the investment advisor for Fund B, is an Indiana insurance company
with its Home Office located at One American Square, Indianapolis, Indiana
46282. AUL is registered with the Securities and Exchange Commission as an
investment adviser for Fund B.
AUL furnishes to Fund B all necessary office space, facilities and
equipment and pays the compensation of members of the Board of Managers. Due to
the size of Fund B, the Board of Managers has not felt the need to establish an
Audit Committee, Compensation Committee or Nominating Committee.
<PAGE>
11
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DEDUCTIONS AND EXPENSES
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SALES AND ADMINISTRATIVE SERVICES
Under the Sales and Administrative Services Agreement between AUL and Fund
B, AUL is obligated to act as the principal underwriter for Fund B and to
perform the sales and administrative services relative to the Group Contracts.
Such services include all services of AUL, its employees, agents and brokers and
include the payment by AUL to such persons of all compensation related to the
sale and administration of such Group Contracts and the payment of other
expenses related thereto including, if applicable, rent, postage, telephone,
travel, stationery, office equipment and supplies and legal, actuarial and
auditing fees. In addition, AUL is obligated under such agreement to pay the
fees of the members of the Board of Managers of Fund B (presently $1,500 per
manager per year, plus $50 expense allowance per meeting attended, and any
member's out of state travel expenses incurred to attend meetings of the Board
of Managers), the fee of the auditors for the annual audit of Fund B, the cost
of preparing and mailing the annual and other regular reports of Fund B to the
Fund B Participants, and the cost of registering the Group Contracts and
variable annuities as required under federal and state securities laws.
For such sales and administrative services, AUL will receive 6% (5% for
sales expense and 1% for administrative expense) of each payment (which equals
6.38% of the amount invested in Fund B) made for or by a Participant under all
Group Contracts until payments totaling $5,000 have been made for or by such
Participant and 4% (3% for sales expense and 1% for administrative expense) of
each payment (which equals 4.17% of the amount invested in Fund B) made in
excess of $5,000 for or by such Participant. The balance of any payment will be
invested in Fund B, and such Participant or his employer, as the case may be,
will be credited with that number of Accumulation Units determined by dividing
such balance by the value of one Accumulation Unit at the end of the Valuation
Period in which the payment is received. The deductions for sales and
administrative expense represent AUL's estimate of the minimal cost it will
incur and contain no specific loading for profit. Recently, however, the
distribution expenses have exceeded the sales charges and administrative
expenses. This excess has been paid by AUL from its general account assets which
consist, in part, of amounts derived from mortality and expense risk charges
received from Fund B. The amounts for sales and administrative services payable
to AUL may be reduced by the participation of the Group Contracts in the
divisible surplus of AUL under certain circumstances described in the Section
titled "Participation" on the following page.
INVESTMENT MANAGEMENT SERVICES
Under the Investment Management Services Agreement between AUL and Fund B,
AUL is obligated to provide investment management services relative to such
Group Contracts and to the assets of Fund B, including the management of such
assets, investment analysis, preparation of investment programs for the approval
or rejection of the Board of Managers, the placing of orders for the purchase
and sale of investments and all other matters normally associated with the
investment management activities of such a fund. For such services, as provided
in both the Group Contracts and Investment Management Services Agreement, AUL
will receive from Fund B a daily fee of .00082% of the value of Fund B. This
amounts to 0.3% on an annual basis.
<PAGE>
12
MORTALITY AND EXPENSE RISK CHARGES
Although variable annuity payments will vary with the investment
performance of Fund B, payments will not be affected by adverse mortality
experience or when the actual expenses of AUL exceed the fees charged by AUL
under the Group Contracts. AUL has agreed to assume the risk (except under the
Fixed Period Option described on page 15 where there is no such risk) that
annuitants, as a class, may live longer than had been estimated. In this case,
payments would continue beyond the period estimated and AUL's expenses could
exceed the fees received from Fund B. For assuming these risks, AUL receives
from Fund B a daily fee of .00164% of the value of Fund B for the mortality
risks and a daily fee of .00082% of the value of Fund B for the expense risks.
These two fees amount to approximately 0.9% on an annual basis and continue to
be charged during the annuity payout period under all of the settlement options
described on pages 14 and 15.
DEDUCTION FOR PREMIUM TAXES
When an annuity is effected (or at the time of purchase if required by a
particular state's law), any applicable premium taxes will be deducted from the
amount to be applied to purchase the annuity or from the amount deposited and
paid over immediately to the state. Presently, such taxes range from .0% to
3.5%. In any given state, the rate may also vary depending on the type of
contract purchased. Since premium tax statutes can be enacted, changed or
repealed by a state's legislature at any time, and since the imposition of a
premium tax will usually be at the time the annuity is commenced, the present
tax rates may not be in effect when the actual premium tax charge is imposed.
PARTICIPATION
Because AUL is a mutual life insurance company, its Group Contracts
participate in the divisible surplus of AUL, according to the annual
determination by AUL of the portion, if any, of the divisible surplus which has
resulted from and accrued on such Group Contracts. Any such portion determined
to be payable will be applied to the benefit of the Participants under such
Group Contracts in one of the following ways (as determined by AUL):
(a) a reduction in the sales and administrative service fee payable to AUL in
the next succeeding year, or
(b) a crediting of additional Accumulation or Annuity Units to the
Participant's accounts. (Such additional units shall be credited without
deductions for sales and administrative service charges.)
Although the Group Contracts so provide for participation, there has been no
divisible surplus to date and there can be no assurance that there will be any
available for payment or payable under such Group Contracts.
AMENDMENTS
AUL cannot amend or change any Group Contract to increase the amount of its
charges for its sales and administrative services, investment advisory services
or mortality risk and expense charges or to affect the annuity purchase rates as
such charges and rates apply to existing Accumulation and Annuity Units or to
Accumulation and Annuity Units which may thereafter be purchased for any
existing Participant under a 403(b) or 408 contract except to the extent that
payments for such Participant in any contract year are in excess of the greater
of either (a) $5,000 or (b) twice the average of all payments for such
Participant for the five contract years preceding
<PAGE>
13
the change (or lesser period if the Participant has not completed five contract
years). Insofar as any payments for such a Participant are in excess of such
amount in any contract year following the change, such payments will be affected
by any amendments of the Group Contract by AUL, but subject to the further
limitation that, during the first five years of a Group Contract, no change or
amendment of any kind may be made by AUL in a Group Contract without the consent
of the Contractholder and, in addition, the consent of all Participants if the
change would adversely affect their rights under the contract (except to conform
the contract to any federal or state statute or rule or regulation of the U.S.
Treasury Department). By agreement and at any time, a 457 employer and AUL may,
unless specifically prohibited by state law, amend any contract provision and
such amendments shall thereafter be binding on all affected Participants,
beneficiaries or contingent annuitants.
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VOTING AND OTHER RIGHTS UNDER
THE VARIABLE ANNUITY CONTRACTS
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Generally, a Participant or the employer of a Participant, depending on the
type of contract involved, has certain rights associated with the contract.
During the accumulation period, these rights consist of the right to vote at any
meeting of Fund B Participants. A meeting of Participants will be held in any
year when any of the following matters are being considered:
(a) any change in the investment adviser;
(b) any change to any of Fund B's fundamental investment objectives or in any
of the fundamental investment restrictions;
(c) filling a vacancy on the Board of Managers when less than 2/3 of the Man-
agers have been elected by the Participants, or electing members to the
Board of Managers when less than a majority of the Managers have been
elected by the Participants;
(d) any other action requiring Participant approval under the Investment Com-
pany Act of 1940, as amended, or by the Rules and Regulations of Fund B.
In addition to these rights, during accumulation, Participants have an ongoing
right to contribute to or withdraw funds from the account, the right to name and
change the beneficiary, the right to select the annuity settlement option from
those described on pages 14 and 15, and the right to select the date that
payments shall commence. However, the section entitled "Federal Tax Status" on
pages 20-23 should be reviewed for the effect and requirements of current law on
this election.
After a Participant's account has been annuitized, annuitants continue to
have the right to vote on any issue which may be voted on by Participants, as
listed above. After the death of an annuitant, the voting rights of a contingent
payee under a Survivorship Annuity (see page 15) are the same as the annuitant
had. Under some annuity options, all rights under the contract may terminate at
the death of the annuitant.
Each Fund B Participant under a Group Contract may cast one vote for each
Accumulation Unit credited to his account or accounts under such contract. (See
Accumulation Units, pages 16-17). Each variable Annuitant who is receiving
variable annuity payments under a Group Contract may cast that number of votes
equal to (i) the dollar amount of the assets established in Fund B to meet the
annuity obligation relating to such Annuitant divided by (ii) the value of one
Accumulation Unit, determined in
<PAGE>
14
each case as of the valuation date next preceding the Fund B Participant record
date. Fractional votes shall be counted. During the annuity period, the number
of votes will generally decrease. This occurs because the Annuitant has voting
interests attributable to the reserves during the pay-out period.
The Board of Managers may fix a Fund B Participant record date, not more
than 90 days before the date set for any meeting of Fund B Participants, for the
purpose of determining the Fund B Participants entitled to notice of and to vote
at such meeting, and the number of votes each Fund B Participant may cast. If
the Board of Managers does not fix a Fund B Participant record date, the record
date shall be the 90th day before the date of the meeting.
For a description of AUL's right to change the provisions of the contracts,
see the Section entitled "Amendments."
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ANNUITY PERIOD
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VARIABLE RETIREMENT ANNUITY. Each Participant has an Annuity Commencement
Date (see Definitions) and selects a variable annuity settlement except that in
a 457 Program the Employer shall make the election. Group Contracts provide the
five optional variable annuity settlements described hereinafter. Within limits,
other options may be mutually agreed to between the Participant and AUL. For
403(b), 408 and 457 Programs, the automatic option shall be an annuity payable
during the lifetime of the Annuitant with payments certain for 120 months. For
use with an Employee Benefit Plan, the automatic option shall be an annuity
payable during the lifetime of the Annuitant with payments certain for 120
months or, for a married Annuitant, a joint and survivor annuity. Once annuity
payments have commenced, a Participant cannot surrender his annuity and receive
a lump-sum settlement in lieu thereof. If, under any option, monthly payments
are less than $20 each, AUL has the right to make larger payments at quarterly
or semi-annual intervals. AUL will not allow annuitization of a Participant's
account if the total value is less than $2,000. Should this occur, a Participant
may elect either a lump-sum settlement or may choose to receive the account
balance in installments over a period of 36 months. Participants should
carefully review the following settlement options with their financial or tax
advisers since a settlement option cannot be changed after receipt of the first
payment under that option.
The method of determining the amount of the payments under any option
selected is described under "Amount of Variable Retirement Annuity" on pages
15-16.
OPTIONAL VARIABLE ANNUITY SETTLEMENTS.
OPTION 1 - LIFE ANNUITY. An annuity payable monthly during the lifetime of
the Annuitant which ends with the last monthly payment before the death of
the Annuitant. This option offers the maximum level of monthly payments since
there is no guarantee of a minimum number of payments or provision for a
death benefit for beneficiaries. However, under this option it is possible
that the Annuitant would receive only one annuity payment if he died prior to
the due date of the second annuity payment, two if he died prior to the third
annuity payment, and so forth.
OPTION 2 - CERTAIN AND LIFE ANNUITY. An annuity payable monthly during the
lifetime of
<PAGE>
15
the Annuitant with the promise that if, at the death of the Annuitant,
payments have been made for less than a stated period, which may be five,
ten, fifteen, or twenty years as elected, annuity payments will be continued
during the remainder of such period to the beneficiary designated by the
Annuitant.
OPTION 3 - SURVIVORSHIP ANNUITY. An annuity payable monthly during the
lifetime of the Annuitant and after the death of the Annuitant, an amount
equal to 50%, 66 2/3% or 100% (as specified in the election) of such
annuity will be paid to the contingent Annuitant named in the election if and
so long as such contingent Annuitant lives. An election of this option is
automatically cancelled if either the Participant or the contingent Annuitant
dies prior to the Annuity Commencement Date.
OPTION 4 - UNIT REFUND LIFE ANNUITY. An annuity payable monthly during the
lifetime of the Annuitant, terminating with the last payment due prior to the
death of the Annuitant, provided that, at the death of the Annuitant, the
beneficiary designated by the Annuitant will receive an additional payment of
the then dollar value of a number of Annuity Units (described below) equal to
the excess, if any, of (a) over (b) where (a) is the total amount applied
under the option divided by the Annuity Unit value at the date annuity
payments commence and (b) is the number of Annuity Units represented by each
monthly payment multiplied by the number of monthly payments made. An
illustration of this Settlement Option can be found in the Statement of
Additional Information on page 6.
OPTION 5 - FIXED PERIODS. An annuity payable monthly for a fixed period (not
to exceed 30 years) as elected, with the guarantee that if, at the death of
the Annuitant, payments have been made for less than the contracted fixed
period, annuity payments will be continued during the remainder of said
period to the beneficiary designated by the Annuitant.
THE ANNUITY UNIT. The value of an Annuity Unit was established at $1 on
April 3, 1969. The value of the Annuity Unit at the end of any current Valuation
Period is determined by multiplying the value of an Annuity Unit at the end of
the next preceding Valuation Period by the product of (a) the Net Investment
Factor (see page 17) for the current Valuation Period and (b) 0.9999058 for each
calendar day in such current Valuation Period. This daily factor neutralizes the
assumed net investment rate of 3 1/2% per annum built into the annuity tables
contained in the Group Contracts, which assumed rate is not applicable as actual
net investment result is credited instead.
The objective of a variable annuity contract is to provide level payments
during periods when the securities market is relatively stable and to reflect as
increased payments only investment results in excess of the 3 1/2% assumption.
The achievement of this objective will depend in part upon the validity of the 3
1/2% assumption. A higher assumption would mean a higher initial payment but a
more slowly rising series of subsequent payments (or a more rapidly falling
series of subsequent payments in a period when unit values are declining). A
lower assumption would have the opposite effect. If the actual net investment
rate is at the annual rate of 3 1/2%, the annuity payments will be level. There
can be no assurance that the net investment rate will be as high as 3 1/2%.
AMOUNT OF VARIABLE RETIREMENT ANNUITY. Except for certain Employee Benefit
Plans, the Group Contracts contain tables (1951 Group Annuity Table, projected
to 1967 by scale C) indicating the dollar amount of the first monthly pay-
<PAGE>
16
ment under each optional annuity settlement for each $1,000 of value of the
Participant's Individual Account and the vested portion, if any, of the
Employer's Participant Account for such Participant applied under the option,
less any applicable premium taxes not previously deducted.
The first monthly payment varies according to the form of annuity selected
(see the descriptions above) and the adjusted age of the Annuitant. The amount
of the first monthly annuity payment is divided by the value of an Annuity Unit
at the valuation next following the eighteenth day of the month prior to the
Participant's Annuity Commencement Date to determine the number of Annuity Units
on which subsequent payments are based. The amount of each monthly payment after
the first will be equal to the number of Annuity Units multiplied by the value
of an Annuity Unit at the valuation next following the eighteenth day of the
month prior to the month in which the payment is due. An illustration of this
calculation can be found in the Statement of Additional Information on page 6.
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RETURN OF ACCUMULATED VALUE
IN THE EVENT OF DEATH
- --------------------------------------------------------------------------------
If the death of a Participant occurs prior to his Annuity Commencement
Date, the value as of the end of the Valuation Period in which due proof of
death is received by AUL will be paid to his designated beneficiary. This amount
will be equal to (i) such Participant's Individual Account under the 403(b)
Program, 408 Program or an HR-10 Plan, or (ii) such Participant's Individual
Account plus the vested portion, if any, of the Employer's Participant Account
for such Participant under an Employee Benefit Plan other than an HR-10 Plan, or
(iii) the sum of (i) and (ii) if both are applicable. Such amount will be paid
to the beneficiary in a single sum or under one of the Optional Variable
Settlements, as directed by the Participant or as elected by the beneficiary.
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PURCHASES AND CONTRACT VALUES
- --------------------------------------------------------------------------------
PURCHASE LIMITS. With respect only to Group Contracts for use with 403(b),
408, and 457 Programs, the minimum payment for the purchase of a variable
annuity that may be made by or for the benefit of a Participant is $120 or $300
annually, depending on the type of contract selected. With respect to 408
Programs, the maximum payment is, under current federal law, $2,000 for each
Participant per year (except that for Simplified Employee Pension Plans, the
limit may be the lesser of $22,500 or 15% of earned income.) There is no minimum
with respect to Employee Benefit Plans. The $2,000 maximum payment described
above may be reduced if either the Participant or his spouse is an active
participant in a qualified retirement or tax deferred annuity plan.
ACCUMULATION UNITS. During the Accumulation Period, (the period before
annuity payments begin), the Net Payments for any Participant are credited as of
the end of the Valuation Period in which any such payment is received by AUL for
the account of such Participant, in the case of 403(b) Programs, 408 Programs,
457 Programs and HR-10 Plans, and for the accounts both of the Participant and
the employer in the case of Employee Benefit Plans
<PAGE>
17
other than HR-10 Plans. Such credit is made and the account of such Participant
or employer, as the case may be, is kept on the basis of Accumulation Units. The
number of Accumulation Units credited at any time to an account is determined by
dividing the dollar amount to be credited by the value of an Accumulation Unit
at the end of the Valuation Period in which the amount to be credited is
received by AUL. A payment shall be received by AUL at such time as AUL has
received the payment, and, if applicable, proper instructions from an employer
or other contractholder regarding the allocation of the payments among
Participants. The number of Accumulation Units credited to the account shall not
be changed by any subsequent change in the value of an Accumulation Unit, but
the dollar value of an Accumulation Unit may vary from valuation to valuation
depending upon the investment experience of Fund B.
VALUE OF ACCUMULATION UNIT. The value of an Accumulation Unit was
established at $1 on April 3, 1969. The value of an Accumulation Unit at the end
of a specific Valuation Period is determined by multiplying the value of an
Accumulation Unit at the end of the immediately preceding Valuation Period by
the Net Investment Factor for such specific Valuation Period.
The value of an Accumulation Unit will vary and is directly affected by the
market value and performance of portfolio securities, expenses and the deduction
of the charges described on pages 11 and 12.
NET INVESTMENT FACTOR. At each valuation of Fund B a gross investment rate
for the Valuation Period then ended is determined from the investment
performance of Fund B during the Valuation Period. Such gross rate is (i) the
investment income for the Valuation Period, plus capital gains and minus capital
losses for the period, whether realized or unrealized, less a deduction for any
applicable taxes and less expenses of Fund B which are not the contractual
liabilities of AUL divided by (ii) the value of the assets of Fund B at the
beginning of such Valuation Period. The gross investment rate may be positive or
negative.
The net investment rate for the Valuation Period is then determined by
deducting from the gross investment rate the percentage which reflects the fee
payable to AUL for providing investment management services and for mortality
risk and expense risk charges. The daily fee is .00328% of the value of the
assets of Fund B (approximately 1.2% on an annual basis).
The Net Investment Factor for the Valuation Period is the sum of 1.0000000
plus the net investment rate for the period.
The net investment rate may be negative if the combined capital losses and
deduction for taxes and expenses exceed the investment income and capital gains.
Thus, the Net Investment Factor may be less than 1.0000000, and the value of an
Accumulation Unit at the end of a Valuation Period may be less than the value
for the previous Valuation Period.
An example of valuation of assets and the determination of the Net
Investment Factor can be found in the Statement of Additional Information on
page 6.
VALUATION OF ASSETS. The value of the assets in Fund B at the end of any
Valuation Period shall be the aggregate of the following:
(a) the face amount of cash; plus
(b) when market quotations are readily available with respect to securit-
ies, the total market value of such securities, valued at the closing
prices on that day for securities
<PAGE>
18
traded on national securities exchanges, and at the bid prices quoted
that day for over-the-counter securities or last sale prices for NASDAQ
quoted securities; plus
(c) when market quotations are not readily available, or when restricted
securities or other assets are being valued, the fair value of such
securities or other assets as determined in good faith by the Board of
Managers; and minus
(d) liabilities of Fund B other than contract liabilities.
Valuation of assets will occur once each business day, Monday through
Friday, as of the close of trading on the New York Stock Exchange, usually at or
about 4 p.m., eastern standard time ("EST"). The determination may be made
earlier than 4 p.m. EST if the markets close earlier than 4 p.m. EST and it is
possible to determine the net asset value at that time. Net asset value will not
be determined on days that the New York Stock Exchange is closed, on any federal
holidays or on days when AUL is not open for business. Traditionally, in
addition to federal holidays, AUL is not open for business on the day after
Thanksgiving and either the day before or the day after Christmas or
Independence Day.
Any change in the method of valuation must be approved by the Board of
Managers.
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REDEMPTIONS
- --------------------------------------------------------------------------------
REDEMPTION (WITHDRAWAL). During the Accumulation Period and in accordance
with the applicable provisions of the Employee Benefit Plan or 457 plan
document, if any, a Participant or 457 Employer may elect at any time to
withdraw a portion or all of his individual account, except as described below.
If the amount of any withdrawal by a Participant reduces his individual account
below $500, his entire account must be withdrawn. In such event, AUL shall have
the right to refuse to accept future payments by or for the benefit of such
Participant, unless an account is being maintained for such Participant under
the Companion Contract. The amount received by a Participant upon withdrawal of
his entire account may be more or less than the original cost, depending on the
value of the securities in the portfolio and other assets of Fund B at the time
of the withdrawal. Withdrawal is effected by sending a written application for
withdrawal to American United Life Insurance Company(R), P.O. Box 368,
Indianapolis, IN 46206-0368. The Participant's account will be valued on the
basis of the valuation of Fund B at the end of the Valuation Period during which
the request was received by AUL. AUL will pay in cash the portion so requested
to be withdrawn from the Participant's Individual Account. Payment of the
withdrawal value will be made within seven days after receipt of such request,
except that payment may be postponed whenever (i) the New York Stock Exchange is
closed (other than customary weekend and holiday closings), (ii) the Securities
and Exchange Commission permits postponement and so orders, or (iii) an
emergency exists, or trading on such Exchange is restricted, as defined by the
Securities and Exchange Commission, so that the valuation of assets or disposal
of securities is not reasonably practicable. See Federal Tax Status, pages
20-23, for a discussion of possible tax consequences on withdrawal.
Amounts withdrawn may not be reinvested without payment of a sales and
administrative service charge.
<PAGE>
19
CONSTRAINTS ON DISTRIBUTIONS FROM SECTION 403(B) ANNUITY CONTRACTS. Section
403(b) of the Code requires that distribution from Section 403(b) tax-deferred
annuities that are attributable to employee contributions under a salary
reduction agreement not begin before the employee reaches age 59 1/2, separates
from service, dies, becomes disabled, or incurs a hardship. Furthermore,
distributions of income attributable to such contributions may not be made on
account of hardship. Hardship, for this purpose, is generally defined as an
immediate and heavy financial need, such as paying medical expenses, the
purchase of a principal residence, or paying certain tuition expenses.
Therefore, a Participant in an annuity purchased as a tax-deferred 403(b)
annuity contract will not be entitled to exercise the right of withdrawal, as
described in this prospectus, in order to receive the value of his account
attributable to elective contributions credited after December 31, 1988 or that
portion of his account attributable to increases in the value of the December
31, 1988 balance unless one of the above-described conditions has been
satisfied. A Participant's account may be able to be transferred to certain
other investment alternatives meeting the requirements of Section 403(b) that
are available under an employer's 403(b) arrangement. See "Federal Tax Status",
pages 20-23 for a discussion of the tax consequences of such distributions.
RIGHT OF CANCELLATION. A contractholder may cancel the contract no later
than ten days after receiving it by returning it along with a written notice of
cancellation to the Company at its Home Office. AUL will refund contributions
not later than seven days after it receives such contract and such notice at its
Home Office. Unless applicable state law requires a refund of purchase payments,
AUL will refund the purchase payments (contributions) plus any increase or minus
any decrease in the value attributable to the market performance during the time
such funds were invested in Fund B.
TEXAS OPTIONAL RETIREMENT PROGRAM. A contract sold to a Participant of the
Texas Optional Retirement Program may not be redeemed except upon termination of
employment in all Texas public institutions of public education, retirement,
death or total disability of such Participant. However, if the termination
should occur before the commencement of a second year of employment, the
Participant would not receive that portion of his account attributable to
contributions made on his behalf by his employer other than under the terms of a
salary reduction agreement.
The tax consequences of redemptions and withdrawals should be carefully
reviewed by a Participant's tax adviser before such action is taken. The Section
entitled "Federal Tax Status" below should also be reviewed.
However, this does not purport to be a complete treatment of the subject
and is intended only to highlight certain important features of the tax laws.
<PAGE>
20
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FEDERAL TAX STATUS
- --------------------------------------------------------------------------------
INTRODUCTION
The Contracts described in this Prospectus are designed for use by
Employer, association, and other group retirement plans under the provisions of
Sections 401, 403, 408, and 457 of the Internal Revenue Code ("Code"). The
ultimate effect of Federal income taxes on values under a Contract, the
Participant's Account, on annuity payments, and on the economic benefits to the
Owner, the Participant, the Annuitant, and the Beneficiary or other payee may
depend upon the type of Plan for which the Contract is purchased and a number of
different factors. The discussion contained herein 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. Moreover,
no attempt is made to consider any applicable state or other laws. Because of
the inherent complexity of such laws and the fact that tax results will vary
according to the particular circumstances of the Plan or individual involved,
any person contemplating the purchase of a Contract, or becoming a Participant
under a Contract, or receiving annuity payments under a Contract should consult
a qualified tax adviser.
AUL DOES NOT MAKE ANY GUARANTEE REGARDING THE TAX STATUS, FEDERAL, STATE, OR
LOCAL, OF ANY CONTRACT OR PARTICIPANT'S ACCOUNT OR ANY TRANSACTION INVOLVING THE
CONTRACTS.
TAX STATUS OF THE COMPANY AND THE VARIABLE ACCOUNT
AUL is taxed as a life insurance company under Part I, Subchapter L of the
Code. The operations of Fund B will form a part of, and be taxed with, the
operations of AUL and therefore Fund B is not taxed as a "regulated investment
company" under the Code.
TAX TREATMENT OF RETIREMENT PROGRAMS
The Contracts described in this Prospectus are offered for use with several
types of retirement programs as described above. The tax rules applicable to
Participants in such retirement programs vary according to the type of
retirement plan and its terms and conditions. Therefore, no attempt is made
herein to provide more than general information about the the use of the
Contracts with the various types of retirement programs. Participants under such
programs, as well as Owners, Annuitants, Beneficiaries and other payees are
cautioned that the rights of any person to any benefits under these programs may
be subject to the terms and conditions of the Plans themselves, regardless of
the terms and conditions of the Contracts issued in connection therewith.
Generally, no taxes are imposed on the increases in the value of a Contract
by reason of investment experience until a distribution occurs, either as a
lump-sum payment or annuity payments under an elected Annuity Option or in the
form of cash withdrawals, surrenders, or other distributions prior to the
Annuity Commencement Date.
<PAGE>
21
When annuity payments commence (as opposed to a lump-sum distribution),
under Section 72 of the Code, the portion of each payment attributable to
contributions that were taxable to the Participant in the year made, if any, is
excluded from gross income as a return of the Participant's investment. The
portion so excluded is determined at the time the payments commence by dividing
the Participant's investment in the Contract by the expected return. The
periodic payments in excess of this amount are taxable as ordinary income. Once
the participant's investment has been recovered, the full annuity payment will
be taxable. If the annuity should stop before the investment has been received,
the unrecovered portion is deductible on the Annuitant's final return. If the
Participant made no contributions that were taxable to the Participant in the
year made there would be no portion excludable.
The amounts that may be contributed to the Plans are subject to limitations
that may vary depending on the type of Plan. In addition, early distributions
from most Plans may be subject to penalty taxes, or in the case of distributions
of amounts contributed under salary reduction agreements, could cause the Plan
to be disqualified. Furthermore, distributions from most Plans are subject to
certain minimum distribution rules. Failure to comply with these rules could
result in disqualification of the plan or subject the Participant to penalty
taxes. As a result, the minimum distribution rules could limit the availability
of certain Annuity Options to Participants and their Beneficiaries.
Below are brief descriptions of various types of retirement programs and
the use of the Contracts in connection therewith.
EMPLOYEE BENEFIT PLANS
Code Section 401 permits business employers and certain associations to
establish various types of retirement plans for employees. Such retirement plans
may permit the purchase of Contracts to provide benefits thereunder.
If a Participant under an Employee Benefit Plan receives a lump-sum
distribution, the portion of the distribution equal to any contribution that was
taxable to the Participant in the year when paid is received tax free. The
balance of the distribution will be treated as ordinary income. Special
five-year forward averaging provisions under Code Section 402 may be utilized on
any amount subject to ordinary income tax treatment, provided that the
Participant has reached age 59 1/2, has not previously elected forward averaging
for a distribution from any Employee Benefit Plan after reaching age 59 1/2, and
has not rolled over a partial distribution from a similar plan into an
individual retirement account or annuity. Special ten-year averaging and a
capital-gains election may be available to a Participant who reached age 50
before 1986.
403(B) PROGRAMS
Code Section 403(b) permits public school systems and certain types of
charitable, educational, and scientific organizations specified in Code Section
501(c)(3) to purchase annuity contracts on behalf of their employees, and,
subject to certain limitations, allows employees of those organizations to
exclude the amount of contributions from gross income for Federal income tax
purposes.
If a Participant under a 403(b) Program makes a surrender or partial
withdrawal from the Participant's Account, the Participant will realize income
taxable at ordinary tax rates on the full amount received. See "Constraints on
Distributions from Section 403(b) Annuity
<PAGE>
22
Contracts." Since, under a 403(b) Program, contributions are excludable from the
taxable income of the employee, the full amount received will usually be taxable
as ordinary income when annuity payments commence.
408 PROGRAMS
Code Sections 219 and 408 permit eligible individuals to contribute to an
individual retirement program, including Simplified Employee Pension Plans and
Employer/Association Established Individual Retirement Account Trusts, known as
an Individual Retirement Account ("IRA"). These IRA accounts are subject to
limitations on the amount that may be contributed, the persons who may be
eligible, and on the time when distributions may commence. In addition, certain
distributions from some other types of retirement plans may be placed on a
tax-deferred basis in an IRA. Sale of the Contracts for use with IRA's may be
subject to special requirements imposed by the 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 a Participant under a 408 Program makes a surrender or partial
withdrawal from the Participant's Account, the Participant will realize income
taxable at ordinary tax rates on the full amount received. Since under a 408
Program, contributions are deductible from the taxable income of the employee,
the full amount received will usually be taxable as ordinary income when annuity
payments commence.
457 PROGRAMS
Section 457 of the Code permits employees of state and local governments
and units and agencies of state and local governments as well as tax-exempt
organizations described in Section 501(c)(3) of the Code to defer a portion of
their compensation without paying current taxes. The employees must be
Participants in an eligible deferred compensation plan.
If the Employer sponsoring a 457 Program requests and receives a withdrawal
for an eligible employee in connection with a 457 Program, then the amount
received by the employee will be taxed as ordinary income. Since under a 457
Program, contributions are excludable from the taxable income of the employee,
the full amount received will be taxable when annuity payments commence or other
distribution is made.
TAX PENALTY
Any distribution made to a Participant from an Employee Benefit Plan, a 408
Program or a 403(b) Program other than on account of one or more of the
following events will be subject to a 10% penalty tax on the amount includible
in gross income:
(a) the Participant has attained age 59 1/2;
(b) the Participant has died; or
(c) the Participant is disabled.
In addition, a distribution from an Employee Benefit Plan or 403(b) Program
will not be subject to a 10% excise tax on the amount distributed if the
Participant is 55 and has separated from service. Distributions
<PAGE>
23
that are made as a part of a series of substantially equal periodic payments
over the life of a Participant where payment is made at least annually will not
be subject to an excise tax. Certain amounts paid for medial care also may not
be subject to an excise tax.
WITHHOLDING
Distributions from an Employee Benefit Plan under Code Section 401(a) or a
403(b) Program to an employee, surviving spouse, or former spouse who is an
alternate payee under a qualified domestic relations order, in the form of a
lump-sum settlement or periodic annuity payments for a fixed period of fewer
than 10 years are subject to mandatory federal income tax withholding of 20% of
the taxable amount of the distribution, unless the distributee directs the
transfer of such amounts to another Employee Benefit Plan or 403(b) Program or
to an Individual Retirement Account under Code Section 408. The taxable amount
is the amount of the distribution, less the amount allocable to after-tax
contributions.
All other types of distributions from Employee Benefit Plans and 403(b)
Programs, and all distributions from 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 Services.
- --------------------------------------------------------------------------------
LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
There are no legal proceedings pending which would materially affect Fund
B.
<PAGE>
24
- --------------------------------------------------------------------------------
HISTORICAL RECORD
- --------------------------------------------------------------------------------
The value of an Accumulation Unit was established at $1.00 with the initial
payment being received on August 8, 1969. The following is a historical record
of quarterly values of an Accumulation Unit to December 31, 1996.
<TABLE>
<S> <C>
Date Value
Aug. 8, 1969 1.000
Sept. 30, 1969 1.032
Dec. 31, 1969 1.086
Mar. 31, 1970 1.075
June 30, 1970 .863
Sept. 30, 1970 1.027
Dec. 31, 1970 1.142
Mar. 31, 1971 1.261
June 30, 1971 1.218
Sept. 30, 1971 1.214
Dec. 31, 1971 1.278
Mar. 31, 1972 1.321
June 30, 1972 1.333
Sept. 30, 1972 1.364
Dec. 31, 1972 1.471
Mar. 31, 1973 1.337
June 30, 1973 1.210
Sept. 30, 1973 1.338
Dec. 31, 1973 1.115
Mar. 31, 1974 1.116
June 30, 1974 1.012
Sept. 30, 1974 .737
Dec. 31, 1974 .815
Mar. 31, 1975 1.015
June 30, 1975 1.167
Sept. 30, 1975 1.000
Dec. 31, 1975 1.102
Mar. 31, 1976 1.244
June 30, 1976 1.280
Sept. 30, 1976 1.333
Dec. 31, 1976 1.353
Mar. 31, 1977 1.230
June 30, 1977 1.262
Sept. 30, 1977 1.250
Dec. 31, 1977 1.248
Mar. 31, 1978 1.168
June 30, 1978 1.298
Sept. 30, 1978 1.396
Dec. 31, 1978 1.313
Mar. 31, 1979 1.366
June 30, 1979 1.397
Sept. 30, 1979 1.488
Dec. 31, 1979 1.450
Mar. 31, 1980 1.356
June 30, 1980 1.521
Sept. 30, 1980 1.558
Dec. 31, 1980 1.663
Mar. 31, 1981 1.667
June 30, 1981 1.636
Sept. 30, 1981 1.438
Dec. 31, 1981 1.550
Mar. 31, 1982 1.519
June 30, 1982 1.513
Sept. 30, 1982 1.679
Dec. 31, 1982 1.943
Mar. 31, 1983 2.079
June 30, 1983 2.242
Sept. 30, 1983 2.241
Dec. 31, 1983 2.270
Mar. 31, 1984 2.214
June 30, 1984 2.149
Sept. 30, 1984 2.278
Dec. 31, 1984 2.336
Mar. 31, 1985 2.514
June 30, 1985 2.720
Sept. 30, 1985 2.624
Dec. 31, 1985 3.015
Mar. 31, 1986 3.505
June 30, 1986 3.581
Sept. 30, 1986 3.384
Dec. 31, 1986 3.553
Mar. 31, 1987 4.240
June 30, 1987 4.432
Sept. 30, 1987 4.735
Dec. 31, 1987 3.772
Mar. 31, 1988 3.904
June 30, 1988 4.173
Sept. 30, 1988 4.125
Dec. 31, 1988 4.194
Mar. 31, 1989 4.403
June 30, 1989 4.720
Sept. 30, 1989 5.086
Dec. 31, 1989 5.232
Mar. 31, 1990 5.144
June 30, 1990 5.341
Sept. 30, 1990 4.596
Dec. 31, 1990 4.980
Mar. 31, 1991 5.816
June 30, 1991 5.969
Sept. 30, 1991 6.034
Dec. 31, 1991 6.205
Mar. 31, 1992 6.388
June 30, 1992 6.435
Sept. 30, 1992 6.389
Dec. 31, 1992 6.786
Mar. 31, 1993 7.232
June 30, 1993 7.252
Sept. 30, 1993 7.570
Dec. 31, 1993 8.099
Mar. 31, 1994 8.095
June 30, 1994 7.927
Sept. 30, 1994 8.363
Dec. 31, 1994 8.263
Mar. 31, 1995 8.537
June 30, 1995 9.235
Sept. 30. 1995 9.765
Dec. 31, 1995 9.914
Mar. 31, 1996 10.293
June 30, 1996 10.728
Sept. 30. 1996 11.186
Dec. 31, 1996 11.774
</TABLE>
<PAGE>
25
- --------------------------------------------------------------------------------
TABLE OF CONTENTS FOR THE
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
Financial statements and other information relating to Fund B and American
United Life Insurance Company(R) may be found in the Statement of Additional
Information. To obtain a copy of the current Statement of Additional
Information, mail the Business Reply Mail card included in this Prospectus to
AUL. Postage has been prepaid for your convenience. This card may also be used
for inquiries regarding AUL or Fund B.
The Table of Contents for the Statement of Additional Information follows.
<TABLE>
<CAPTION>
Location in
Statement of
Additional
Information
<S> <C>
Cover Page..................................................
Table of Contents...........................................
General Information and History.............................
Investment Objectives and Policies..........................
Management of Fund B........................................
Investment Advisory and Other Services......................
Brokerage...................................................
Purchase and Pricing of Securities Being Offered............
Underwriters................................................
Annuity Payments and Other Calculations.....................
Financial Statements of Fund B..............................
Financial Statements of AUL.................................
</TABLE>
<PAGE>
25
================================================================================
No dealer, salesman or any other person is authorized by Fund B 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 Fund B, 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.
================================================================================
AMERICAN UNITED LIFE
POOLED EQUITY FUND B
Group Variable Annuity Contracts
Sold By
AMERICAN UNITED
LIFE INSURANCE COMPANY(R)
One American Square
Indianapolis, Indiana 46282
PROSPECTUS
Dated: May 1, 1997
================================================================================
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
American United Life Pooled Equity Fund B
Group Variable Annuity Contracts
Sold By
American United Life Insurance Company(R)
One American Square
Indianapolis, Indiana 46282
(317) 263-1877
(Fund B Logo)
This Statement of Additional Information is not a Prospectus and should
be read in conjunction with the current Prospectus for American United
Life Pooled Equity Fund B dated May 1, 1997.
A Prospectus is available upon request by mailing the Business Reply Mail
card included in this Statement of Additional Information to AUL. Postage
has been prepaid for your convenience.
The date of this Statement of Additional Information is May 1, 1997.
<PAGE>
(This page left intentionally blank.)
<PAGE>
<TABLE>
<CAPTION>
Table of Contents for the
Statement of Additional Information
Location in Cross
Statement of Reference
Additional to Location in
Information Prospectus
<S> <C> <C>
Cover Page.................................................................................... 1 -
Table of Contents............................................................................. 2 25
General Information and History............................................................... 3 8
Investment Objectives and Policies............................................................ 3 8-10
Management of Fund B.......................................................................... 3-4 10
Investment Advisory and Other Services........................................................ 4-5 11
Brokerage..................................................................................... 5 -
Purchase and Pricing of Securities Being Offered.............................................. 5 16-18
Underwriters.................................................................................. 6 -
Annuity Payments and Other Calculations....................................................... 6 14-18
Financial Statements of Fund B................................................................ 7-13 -
Financial Statements of AUL................................................................... 14-24 -
</TABLE>
<PAGE>
(This page left intentionally blank.)
<PAGE>
3
GENERAL INFORMATION AND HISTORY
See page 8 of the Prospectus for a description of the history and
operations of both AUL and Fund B.
INVESTMENT OBJECTIVES AND POLICIES
See the Prospectus for the complete description of the Investment
Objectives and Policies of Fund B.
Fund B has no fixed policy as to timing or amount of sales or purchase of
securities. Fund B does not engage in trading on a short-term basis. However,
occasionally Fund B may sell investments which have been held for only a short
period of time when it is deemed necessary to achieve the long-range objectives
of Fund B. While no specific prediction regarding turnover of securities may be
made, it is not contemplated that annual turnover of securities in the portfolio
under normal circumstances will be in excess of 50%. Portfolio turnover during
the last 10 years is itemized in the Condensed Financial Information in the
Prospectus.
MANAGEMENT OF FUND B
Fund B is managed by a Board of Managers, consisting of five members who
were initially appointed by AUL. The Board has adopted Rules and Regulations for
Fund B. Commencing with the first Annual Meeting of Fund B Participants on May
8, 1970, and at each Annual Meeting of Fund B Participants until May 6, 1994,
successors to the members of the Board of Managers whose terms had expired were
elected to serve for terms of three (3) years and until their successors were
duly elected and qualified. At the Annual Meeting of Participants held on May 6,
1994, a proposal to amend the Rules and Regulations was approved by the
Participants. Under the proposal, as approved, an Annual Meeting of Fund B
Participants would not be held in any year when only routine matters were being
considered. The re-election of those Members of the Board of Managers who had
previously been elected by the Participants would be considered a routine matter
so long as a majority of the Board has previously been elected by Fund B
Participants. However, a Participants' meeting will be held whenever required by
Federal securities laws. The individuals presently serving on the Board of
Managers are:
<TABLE>
<CAPTION>
Position with Present Position and Principal
Name Fund B Occupation During Last Five Years
- ---- ------ ---------------------------------
<S> <C> <C>
James W. Murphy* Chairman and Senior Vice President, Corporate Finance, AUL
Member
Ronald D. Anderson Member Professor, School of Business, Indiana University,
Indianapolis (8/88 to present)
Leslie Lenkowsky Member President, Hudson Institute
R. Stephen Radcliffe** Proposed Nominee Director and Executive Vice
President, AUL, (8/94 to present);
Sr. V.P., Chief Actuary, AUL,
(5/83-8/94)
James P. Shanahan* Member Senior Vice President, Pension Operations, AUL
- -----------------------------------------------------------------------------------------------------------------------------------
Richard A. Wacker* Secretary to the Associate General Counsel, AUL, (10/92 to present);
Board Senior Counsel, AUL, (11/87 to 10/92)
<FN>
*Classified as an interested person under the Investment Company Act of 1940.
** Due to the resignation of Jerry D. Semler as a Member of the Board of
Managers effective March 1, 1997, the Board approved the nomination of Mr.
Radcliffe at the 3/27/97 meeting of the Board of Managers. Mr. Radcliffe's
election as a Member, as well as the re-election of the existing members of the
Board, will be submitted to the Fund B Participants at a meeting called for that
purpose during 1997 at One American Square, Indianapolis, Indiana, 46282.
</FN>
</TABLE>
<PAGE>
4
REMUNERATION OF THE BOARD OF MANAGERS
Aggregate remuneration for all members of the Board of Managers and the
Secretary to the Board of Managers of Fund B for the year 1996 was as follows:
<TABLE>
<CAPTION>
Name of Individual or Capacities in Which Remuneration Aggregate
Identity of Group Will be Received Remuneration
----------------- ---------------- ------------
<S> <C> <C>
All members of the Board of Managers and As members of the Board of Managers $3,300*
the Secretary of Fund B, as a group or Secretary of Fund B
</TABLE>
*AUL has agreed to pay $1,500 per year, plus a $50 expense allowance per meeting
attended to each member of the Board of Managers of Fund B who is not also an
active employee of AUL and any member's out of state travel expenses incurred to
attend meetings of the Board of Managers. Active employees of AUL who serve Fund
B will not be additionally compensated by AUL for such services. It is not
estimated that any additional remuneration will be paid by either AUL or Fund B
to the members of the Board of Managers and the Secretary to the Board of
Managers of Fund B other than what AUL has so agreed to pay. It is estimated
that the aggregate remuneration for all members of the Board of Managers and the
Secretary to the Board of Managers of Fund B, as a group, for the current fiscal
year will not exceed $4,000.
INVESTMENT ADVISORY AND OTHER SERVICES
American United Life Insurance Company(R) is a Registered Investment
Adviser and as such provides investment advisory services to Fund B. A general
description of the business and organization of AUL can be found in the
Prospectus. Information regarding the computation of the advisory fee payable by
Fund B to AUL is described in the topic "Investment Management Services" in of
the Prospectus. For its services under the Investment Management Services
Agreement. AUL charged Fund B $37,854 in the year 1996, $36,619 in 1995, and
$36,662 in the year 1994.
The following is a list of the Directors and senior officers of AUL.
<TABLE>
<CAPTION>
Positions and Offices Positions and Offices
Name with AUL with Fund B
- ---- -------- -----------
<S> <C> <C>
John H. Barbre Senior Vice President None
Steven C. Beering M.D. Director None
William R. Brown General Counsel & Secretary,
Secretary, State Life Insurance Company None
Arthur L. Bryant Director None
James M. Cornelius Director None
James E. Dora Director None
Otto N. Frenzel III Director and Chairman of the Audit Committee None
David W. Goodrich Director None
William P. Johnson Director None
Charles D. Lineback Senior Vice President None
James T. Morris Director None
James W. Murphy Senior Vice President Chairman and Member, Board
of Managers
Jerry L. Plummer Senior Vice President None
R. Stephen Radcliffe Director and Executive Vice President Member Nominee
Thomas E. Reilly Jr. Director and Chairman of the Finance Committee, AUL None
William R. Riggs Director None
G. David Sapp Senior Vice President None
Jerry D. Semler Chairman of the Board, President, Chief Executive Officer None
and Chairman of the Executive Committee, AUL; Chairman of
the Board and Chief Executive Officer, State Life
Insurance Company
Yvonne H. Shaheen Director None
James P. Shanahan Senior Vice President Member, Board of Managers
Frank D. Walker Director None
Gerald T. Walker Senior Vice President None
</TABLE>
<PAGE>
5
CUSTODIAL ARRANGEMENTS
Substantially all of the assets of Fund B are held by National City Bank,
Indiana, under a custodial agreement to which AUL, Fund B and such Bank are
parties.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., One American Square, Indianapolis, Indiana,
serve as independent accountants for Fund B. Coopers & Lybrand L.L.P. provides
the following audit services for Fund B: audit of Fund B's annual financial
statements; review and consultation regarding filings with the Securities and
Exchange Commission; and consultation regarding financial accounting and
reporting matters. Coopers & Lybrand L.L.P. is not engaged to provide any
non-audit services nor do they have any direct or material indirect interest in
Fund B.
OTHER FEES RECEIVED BY AUL
AUL also receives compensation under the Sales and Administrative Services
Agreement for the services described in of the Prospectus. For these services,
during 1996, AUL charged Fund B $23,406. In the years 1995 and 1994, AUL charged
Fund B $17,995 and $30,045 respectively, under the terms of this Agreement.
AUL also assumes the risks that annuitants as a class will live longer than
estimated and that its expenses will exceed the fees received from Fund B as
described in the Prospectus . Total mortality and expense risk payments to AUL
were $113,562 in 1996, $109,858 in 1995, and $109,986 in 1994.
BROKERAGE
With respect to transactions in portfolio securities, whether through a
broker as agent or with a dealer as a principal, it is the policy of Fund B to
obtain the most favorable prices and execution of orders. AUL, as the investment
advisor, is responsible for the execution of this policy. However, AUL
investment personnel may be allowed to pay a broker a commission in excess of
that which another broker might charge for the same transaction if the executing
broker has provided AUL with statistical and factual information and services.
This type of information is customarily available only in return for brokerage
and under this type of arrangement, AUL customarily receives investment reports,
recommendations and analyses regarding individual companies, industries, and the
economy in general with regard to equity investing. Access to such information
is a commonly recognized way to keep abreast of information circulated generally
among institutional investors by broker-dealers. Research services furnished by
such brokers may be used by AUL in servicing any of its other separate accounts,
however, and not solely by or for the benefit of Fund B.
During 1996, 100% of the Fund B portfolio transactions constituting
brokerage commissions of $8,355 placed with broker-dealers providing such
information. For the years 1995 and 1994, brokerage commissions were paid to
such broker-dealers in the amounts of $9,707 and $10,670 respectively. While
this information is useful in varying degrees, it is of indeterminable value. No
portion of any commissions payable to a broker-dealer from the purchase or sale
of portfolio securities of Fund B will be surrendered to any other broker-dealer
who was not involved in the execution of such transactions. Brokerage
transactions and portfolio decisions for Fund B are made through the office of
G. David Sapp, AUL Senior Vice President, Investments.
Some securities considered for investment by the Fund's Portfolio may also
be appropriate for other accounts served by the Advisor, including the Adviser's
general account. If a purchase or sale of securities consistent with the
investment policies of the Portfolio and one or more of these accounts served by
the Adviser is considered at or about the same time, it is the policy of AUL not
to favor any one account or Portfolio over another, and any purchase or sale
orders executed contemporaneously are allocated at the average price and as
nearly as practicable on a pro rata basis in proportion to the amounts desired
to be purchased or sold by each account or portfolio. While it is conceivable
that in certain instances this procedure could adversely affect the price or
number of shares involved in a particular portfolio transaction, it is believed
that the procedure generally contributes to better overall execution of the
Fund's portfolio transactions. This allocation method and the results of such
allocations, are subject to periodic review by the Fund's Adviser and the Board
of Managers.
Fund B will use the third and over-the-counter markets whenever the best
prices and executions for securities can be obtained through such use, and it
intends to deal with the principal market makers in such transactions. It is
contemplated that a substantial majority of the transactions will involve
securities traded on national exchanges.
PURCHASE AND PRICING OF SECURITIES BEING OFFERED
Variable annuity contracts are sold by AUL through life insurance salesmen
who have been licensed by the state insurance departments and through certain of
its home office employees. Where state law so requires, such persons are also
licensed or registered as securities salesmen.
Accumulation Units are purchased with Net Payments or Contributions from
Participants as described in the Prospectus. There are no special purchase plans
or exchange privileges.
<PAGE>
6
UNDERWRITERS
The variable annuity contracts described in the Prospectus and in this
Statement of Additional Information are sold and underwritten on a continuous
basis by American United Life Insurance Company(R). Underwriting commissions
received by AUL from Fund B have been listed previously and identified as sales
and administrative services fees under "Other Fees Received by AUL" on page 5.
ANNUITY PAYMENTS AND OTHER CALCULATIONS
1. AMOUNT OF VARIABLE RETIREMENT ANNUITY
Assume a Participant at the date of retirement has credited to his
individual account 23,000 Accumulation Units, and that the value of an
Accumulation Unit at the valuation immediately following the eighteenth day of
the month preceding the Annuity Commencement Date was $2.649321, producing a
total value of his individual account of $60,934.38. Assume also that the
Participant elects an option for which the table in the Group Contract indicates
the first monthly payment is $6.83 per $1,000 of value applied; the
Participant's first monthly payment would thus be 60.93438 multiplied by $6.83
or $416.18.
Assume that the Annuity Unit value at the valuation immediately following
the eighteenth day of the month preceding the Annuity Commencement Date was
$1.324655. When this is divided into the first monthly payment, the number of
Annuity Units represented by that payment is determined to be 314.179919. The
value of this same number of Annuity Units will be paid in each subsequent
month.
To illustrate the calculation of the amount of the payment due in any
subsequent month, assume further that the value of an Annuity Unit at the
valuation immediately following the eighteenth day of the month previous to the
month in which the payment is due is $1.327020. The payment for that month is
then calculated by multiplying the number of Annuity Units (314.179919) by the
Annuity Unit value ($1.327020) which produces a payment of $416.92.
2. VALUATION OF ASSETS AND DETERMINATION OF NET INVESTMENT FACTOR
Assume a Valuation Period of one day's duration at the beginning of which
the value of the assets of Fund B was $10,000,000 and the value of an
Accumulation Unit was $1.276431. Assume further that during the Valuation Period
investment income was $1,850, net realized capital losses were $500, net
unrealized capital gains were $2,500, and there were no applicable taxes or
expenses of Fund B which were not the contractual liability of AUL. The value of
the assets of Fund B at the end of the Valuation Period would thus be
$10,003,850 ($10,000,000 plus $1,850, minus $500 plus $2,500).
The gross investment rate for the Valuation Period would be equal to (a)
$3,850 ($1,850 minus $500, plus $2,500) divided by (b) $10,000,000 which
produces .0003850. The net investment rate for the Valuation Period is
determined by deducting .0000328 for one day from the gross investment rate,
which results in a net investment rate of .0003522. The Net Investment Factor
for the Valuation Period would be determined as the net investment rate plus
1.0000000, or 1.0003522.
The value of the Accumulation Unit at the end of such Valuation Period
would equal the value at the beginning of the period ($1.276431) multiplied by
the Net Investment Factor for the period (1.0003522), which produces $1.276881.
3. OPTIONAL VARIABLE ANNUITY SETTLEMENT - OPTION 4
If it is assumed that (a) $15,000 were applied to purchase an annuity under
this option, (b) the value of an Annuity Unit was $1.753261 on the Annuity
Commencement Date, (c) the number of Annuity Units represented by each monthly
payment was 53.985117, (d) 23 monthly annuity payments were made prior to the
date of death, and (e) the value of an Annuity Unit on the valuation date
following the Annuitant's death was $1.849375, then the amount paid to the
beneficiary would be $13,526.01.
<PAGE>
7
FINANCIAL STATEMENTS
AMERICAN UNITED LIFE POOLED EQUITY FUND B
The following financial statements relate to the condition and operations of
Fund B.
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Managers and Contract Owners
American United Life Pooled Equity Fund B
Indianapolis, Indiana
We have audited the accompanying statement of net assets, of American United
Life Pooled Equity Fund B, including the schedule of investments, as of December
31, 1996, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years then ended, and
financial highlights for each of the five years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments and cash held by
the custodian as of December 31, 1996, confirmation by correspondence with
brokers as to securities purchased but not received at that date, or other
auditing procedures where confirmations from brokers were not received. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
American United Life Pooled Equity Fund B as of December 31, 1996, the results
of its operations for the year then ended, the changes in its net assets for the
each of two years in the period then ended, and financial highlights for each of
the five years in the period then ended, in conformity with generally accepted
accounting principles.
/s/ Coopers & Lybrand L.L.P.
Indianapolis, Indiana
January 31, 1997
<PAGE>
8
<TABLE>
<CAPTION>
AMERICAN UNITED LIFE POOLED EQUITY FUND B
STATEMENT OF NET ASSETS
December 31, 1996
ASSETS:
Investments in securities at market value (cost: $8,999,299)
<S> <C>
Common stock $ 11,646,272
Money market mutual funds 636,700
Notes 251,016
-------
12,533,988
Cash 32,617
Dividends and interest receivable 18,855
------
TOTAL ASSETS 12,585,460
LIABILITIES 14,071
------
NET ASSETS: $ 12,571,389
============
Units outstanding 1,067,642
=========
ACCUMULATION UNIT VALUE $ 11.77
============
<FN>
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
AMERICAN UNITED LIFE POOLED EQUITY FUND B
STATEMENT OF OPERATIONS
for the year ended December 31, 1996
<TABLE>
<CAPTION>
Net Investment Income:
Income
<S> <C>
Dividends $ 265,207
Interest 44,092
------
309,299
-------
Expense
Investment management services 37,854
Mortality and expense risks charges 113,562
-------
151,416
-------
Net investment income 157,883
-------
Gain on Investments:
Net realized gain 370,506
Net change in unrealized gain 1,637 717
---------
Net gain 2,008,223
---------
Increase in Net Assets from Operations $ 2,166,106
===========
<FN>
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
<PAGE>
9
<TABLE>
<CAPTION>
AMERICAN UNITED LIFE POOLED EQUITY FUND B
STATEMENTS OF CHANGES IN NET ASSETS
for the years ended December 31, 1996 and 1995
- -----------------------------------------------------------------------------------------------------------------------------------
1996 1995
---- ----
Operations:
<S> <C> <C>
Net investment income $ 157,883 $ 170,092
Net realized gain 370,506 868,191
Net change in unrealized gain 1,637,717 1,181,274
--------- ----------
Increase in assets from operations 2,166,106 2,219,557
--------- ----------
Changes from Contract Owner Transactions:
Proceeds from units sold 604,294 399,714
Payments for units withdrawn (2,723,610) (1,775,378)
Payments for units redeemed (1,684) (23,881)
---------- ----------
Decrease (2,121,000) (1,399,545)
---------- ----------
Net increase in net assets 45,106 820,012
Net Assets at beginning year 12,526,283 11,706,271
---------- ----------
Net Assets at end of year $ 12,571,389 $ 12,526,283
============= =============
Units sold 57,351 43,713
Units withdrawn (253,596) (194,201)
Units redeemed (156) (2,212)
------ ------
Net decrease in units outstanding (196,401) (152,700)
Units outstanding at beginning of year 1,264,043 1,416,743
--------- ---------
Units outstanding at end of year 1,067,642 1,264,043
========= =========
<FN>
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
<PAGE>
10
<TABLE>
<CAPTION>
AMERICAN UNITED LIFE POOLED EQUITY FUND B
SCHEDULE OF INVESTMENTS
December 31, 1996
- ------------------------------------------------------------------------------------------------------------
Market
Description Shares Value
- --------------------------------------------------------------------------- ------------ -----------
Common Stock (92.9%)
Banks & Financial (10.7%)
<S> <C> <C>
American Express Company................................................... 5,100 $ 288,150
Banc One Corporation ...................................................... 9,020 387,860
Great Western Financial ................................................... 8,300 240,700
Ohio Casualty Corporation ................................................. 5,200 184,600
Salomon, Inc. ............................................................. 5,400 254,475
---------
1,355,785
Broadcasting & Publishing (10.0%)
Chris-Craft Industries, Inc.* ............................................. 4,972 206,960
Deluxe Corporation ........................................................ 7,300 239,075
Gibson Greetings, Inc...................................................... 12,400 243,350
Harland (John H.) Company ................................................. 5,100 168,300
Meredith Corporation ...................................................... 3,700 195,175
Moore Corporation, Ltd..................................................... 9,600 196,800
-------
1,249,660
---------
Chemicals (1.5%)
Carlisle Companies, Inc.................................................... 2,100 127,050
Quaker Chemical Corporation ............................................... 4,000 65,500
-------
192,550
-------
Electrical Equipment & Electronics (9.3%)
Baldor Electric Company ................................................... 14,930 367,651
Dynatech Corporation* ..................................................... 14,200 628,350
General Electric Company .................................................. 1,700 168,513
---------
1,164,514
---------
Entertainment & Leisure (4.4%)
CPI Corporation .......................................................... 17,900 299,825
Fleetwood Enterprises, Inc................................................. 9,100 250,250
-------
550,075
-------
Furniture & Apparel (13.8%)
Hillenbrand Industries, Inc................................................ 8,000 290,000
Kellwood Corporation ...................................................... 10,000 200,000
La Z Boy Chair Company .................................................... 9,300 274,350
Liz Claiborne, Inc. ....................................................... 10,500 405,563
Oshkosh B'Gosh, Inc. Class A .............................................. 11,800 179,950
Reebok International ...................................................... 9,100 382,200
-------
1,732,063
---------
<FN>
*does not pay cash dividends
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
<PAGE>
11
<TABLE>
<S> <C> <C>
AMERICAN UNITED LIFE POOLED EQUITY FUND B
SCHEDULE OF INVESTMENTS (continued)
December 31, 1996
- ---------------------------------------------------------------------------------------------------------------
Market
Description Shares Value
- ------------------------------------------------------------------------ ---------- -------------------
Common Stock (92.9%), continued
Health Care (8.0%)
Acuson Corporation........................................................ 9,500 $ 231,563
Guidant Corp.............................................................. 1,816 103,512
Lilly (Eli) and Company .................................................. 1,686 123,078
Merck & Company, Inc...................................................... 3,200 254,400
McKesson Corporation ..................................................... 5,200 290,550
----------
1,003,103
----------
Industrial Services (2.5%)
Fluor Daniel/GTI Inc...................................................... 5,997 47,225
Kelly Services............................................................ 9,800 264,600
----------
311,825
Information Processing & Telecommunications (7.8%)
Apple Computer, Inc.*..................................................... 4,100 85,587
International Business Machines Corporation .............................. 1,800 272,025
Novell*................................................................... 10,500 99,422
Sun Microsystems, Inc.* .................................................. 12,400 318,525
Telxon Corporation........................................................ 16,200 198,450
-------
974,009
---------
Machinery (1.5%)
Lawson Products, Inc...................................................... 2,700 59,063
Precision Castparts Corporation .......................................... 2,500 124,062
-------
183,125
-------
Merchandising (6.5%)
Longs Drug Stores Corporation ............................................ 6,600 324,225
Mac Frugal's Bargains Close-outs, Inc..................................... 4,100 107,113
Mercantile Stores Co. .................................................... 4,100 202,437
Stanhome, Inc............................................................. 7,000 185,500
--------
819,275
-------
Metals & Mining (2.6%)
Aluminum Company of America................................................ 4,100 261,375
Oregon Steel Mills, Inc. .................................................. 3,800 63,650
-------
325,025
-------
Oil & Oil Services (4.3%)
Royal Dutch Petroleum Company ............................................ 1,300 221,975
Valero Energy Corporation ................................................ 11,100 317,738
-------
539,713
-------
<FN>
*does not pay cash dividends
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
<PAGE>
12
<TABLE>
<S> <C> <C>
AMERICAN UNITED LIFE POOLED EQUITY FUND B
SCHEDULE OF INVESTMENTS (continued)
December 31, 1996
- ------------------------------------------------------------------------------------------------------------
Market
Description Shares Value
- ------------------------------------------------------------------------ ---------- ---------------
Common Stock (92.9%) continued
Transportation (4.1%)
Alexander & Baldwin, Inc................................................... 10,500 262,500
Norfolk Southern Corporation .............................................. 2,900 255,200
-------
517,700
-------
Miscellaneous (5.9%)
Boeing Company ............................................................ 2,100 223,650
Ford Motor Co. ............................................................ 8,500 272,000
Michael Foods, Inc......................................................... 12,200 155,550
Sealright, Inc............................................................. 7,300 76,650
----------
727,850
----------
Total common stock (cost: $8,108,498) 11,646,272
----------
Money Market Mutual Funds (5.1%)
Dreyfus Cash Management..................................................... 357,440 357,440
Merrill Lynch Institutional Fund............................................ 279,260 279,260
-------
Total money market mutual funds (cost: $636,700) 636,700
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Interest Maturity Principal
Rate Date Amount
-------- ----------- ----------
Notes (2.0%)
U.S. Treasury Note (cost: $254,101) 6.50% 5/15/97 250,000 251,016
----------
Total Investments (cost: $8,999,299) $ 12,533,988
=========== ==============
<FN>
*does not pay cash dividends
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
<PAGE>
13
NOTES TO FINANCIAL STATEMENTS
1. Organization and Significant Accounting Policies
American United Life Pooled Equity Fund B (Fund B) is registered under the
Investment Company Act of 1940 as an open-end, diversified management investment
company. Fund B was established by and is managed by American United Life
Insurance Company(R) (AUL) for the purpose of issuing group and individual
variable annuities.
Investments are valued at closing prices for those securities traded on
organized exchanges and at bid prices for securities traded over-the-counter.
Gains and losses on the sale of investments are determined on a first-in,
first-out (FIFO) basis. Investment transactions are accounted for on a trade
date basis.
Dividends are included in income as of the ex-dividend date. Interest income is
accrued daily.
Operations of the Variable Account are part of, and are taxed with, the
operations of AUL, which is taxed as a "life insurance company" under the
Internal Revenue Code. Under current laws, investment income, including realized
and unrealized capital gains of the investment accounts, is not taxed to AUL to
the extent it is applied to increase reserves under the contracts. The Variable
Account has not been charged for federal and state income taxes since none have
been imposed.
The preparation of financial statements in conformity with generally accepted
accounting principles 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.
2. Investments
Net realized and unrealized gain on investments is summarized below.
<TABLE>
<CAPTION>
Common
Stock
-----
Net Realized Gain:
<S> <C>
Proceeds from securities sold $ 3,435,011
Cost of securities sold 3,064,505
---------
$ 370,506
----------
Net change in Unrealized Gain:
Market value at end of period $ 11,897,288
Less: investments purchased (2,021,562)
Add: investments sold at cost 3,064,505
Less: market value at beginning of year (11,302,514)
--------------
$ 1,637,717
==============
</TABLE>
3. Transactions With AUL
Fund B pays AUL an annual fee of 1.2% of its average daily net assets for
providing investment management services and for mortality and expense risks
charges. The expense incurred during the years ended December 31, 1996 and 1995
was $151,416 and $146,477, respectively.
AUL withholds a portion of the proceeds obtained from contract owners to pay
commissions and certain expenses under a sales and administrative services
agreement with Fund B. The amount AUL retained during the years ended December
31, 1996 and 1995 was $23,406 and $17,995, respectively.
4. Net Assets
<TABLE>
<CAPTION>
<S> <C>
Net Assets as of December 31, 1996:
Proceeds from units sold less payments $ (6,175,737)
for units withdrawn and redeemed
Net investment income 3,978,989
Net realized gains 11,233,448
Unrealized gain 3,534,689
----------------------
$ 12,571,389
======================
The unrealized gain of $3,534,689 consists of common stock appreciation and
depreciation of $3,826,587 and $291,898, respectively.
</TABLE>
FINANCIAL HIGHLIGHTS
The per unit amounts are based on average units outstanding throughout the year.
<TABLE>
<S> <C> <C> <C> <C> <C>
Year Ended December 31
--------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------- --------------- ------------ ------------- -------------
Investment income $ 0.26 $ 0.24 $ 0.19 $ 0.16 $ 0.18
Expenses 0.13 0.11 0.10 0.09 0.08
------------ --------------- ------------ ------------- -------------
Net investment income 0.13 0.13 0.09 0.07 0.10
Net gain 1.73 1.52 0.07 1.24 0.48
------------ --------------- ------------ ------------- -------------
Net increase 1.86 1.65 0.16 1.31 0.58
Value per unit:
Beginning of year 9.91 8.26 8.10 6.79 6.21
------------ --------------- ------------ ------------- -------------
End of year $ 11.77 $ 9.91 $ 8.26 $ 8.10 $ 6.79
============ =============== ============ ============= =============
Ratio to Average Net
Assets:
Expenses 1.20% 1.20% 1.20% 1.19% 1.21%
Net investment income 1.25% 1.39% 1.16% 1.01% 1.64%
Total Return 18.76% 21.1% 2.94% 20.4% 10.3%
Portfolio Turnover Rate 18% 20% 23% 25% 12%
Average Commission Rate Paid* $ 0.0669 N/A N/A N/A N/A
Units outstanding 1,068 1,264 1,417 1,518 1,635
(in 000's)
<FN>
* Computed by dividing the total amount of commission paid by the total number
of shares purchased and sold during the period for which there was a commission.
This disclosure is required by the SEC beginning in 1996.
</FN>
</TABLE>
<PAGE>
14
FINANCIAL STATEMENTS - AUL
The following statements relate solely to the condition and operations of AUL.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
American United Life Insurance Company
Indianapolis, Indiana
We have audited the accompanying combined balance sheet of American United Life
Insurance Company(R) and affiliates as of December 31, 1996 and 1995, and the
related combined statements of operations, policyowners' surplus and cash flows
for the years then ended. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of American United Life
Insurance Company(R) and affiliates as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
As discussed in Note I to the combined financial statements, the Company adopted
Statement of Financial Accounting Standards No. 120 (SFAS 120) and Financial
Accounting Standards Board Interpretation No. 40 (FIN 40) which required
implementation of several accounting pronouncements not previously adopted. The
effects of adopting SFAS 120 and FIN 40 were retroactively applied to the
Company's previously issued financial statements, consistent with the
implementation guidance of those standards.
The Company previously issued financial statements for 1995 which were presented
in accordance with accounting principles prescribed or permitted by the
Insurance Department of the State of Indiana and which were considered generally
accepted accounting principles for mutual life insurance companies. We
previously issued our report dated February 19, 1996, on such financial
statements.
/s/ Coopers & Lybrand L.L.P.
Indianapolis, Indiana
February 19, 1997
<PAGE>
15
COMBINED BALANCE SHEET
<TABLE>
<S> <C> <C>
December 31,1996, and l995 1996 (in millions) 1995
- -----------------------------------------------------------------------------
Assets
Investments:
Fixed Maturities:
Available for sale at fair value $1,593.4 $1,628.8
Held to maturity at amortized cost 3,013.6 2,982.4
Equity securities at fair value 15.2 19.0
Mortgage loans 1,114.6 1,124.7
Real estate 52.3 54.5
Policy loans 143.5 141.6
Short term and other invested assets 43.8 69.0
Cash and cash equivalents 20.2 10.9
- -----------------------------------------------------------------------------
Total investments 5,996.6 6,030.9
- -----------------------------------------------------------------------------
Accrued investment income 82.1 86.0
Reinsurance receivables 209.5 191.2
Deferred acquisition costs 348.2 310.2
Property and equipment 54.0 47.3
Insurance premiums in course of collection 47.5 31.2
Other assets 35.7 26.9
Assets held in separate accounts 1,078.7 603.9
- -----------------------------------------------------------------------------
Total assets $7,852.3 $7,327.6
- -----------------------------------------------------------------------------
Liabilities and policyowners' surplus
Liabilities
Policy reserves $5,688.6 $5,755.8
Other policyowner funds 176.2 171.7
Pending policyowner claims 137.6 130.4
Surplus notes 75.0 ---
Other liabilities and accrued expenses 123.4 116.9
Liabilities related to separate accounts 1,078.7 603.9
- -----------------------------------------------------------------------------
Total liabilities 7,279.5 6,778.7
- -----------------------------------------------------------------------------
Unrealized appreciation of securities,
net of deferred income tax 19.0 47.2
Policyowners' surplus 553.8 501.7
- -----------------------------------------------------------------------------
Total policyowners' surplus 572.8 548.9
- -----------------------------------------------------------------------------
Total liabilities and policyowners' surplus$7,852.3 $7,327.6
- -----------------------------------------------------------------------------
</TABLE>
<PAGE>
17
<TABLE>
<S> <C> <C>
COMBINED STATEMENT OF OPERATIONS
for years ended December 31,1996, and l995 1996 (in millions) 1995
- -----------------------------------------------------------------------------
Revenues:
Insurance premiums and other considerations $ 401.1 $ 390.0
Policy and contract charges 46.5 39.8
Net investment income 471.8 478.9
Realized investment gains 6.6 8.2
Other income 3.8 .1
- -----------------------------------------------------------------------------
Total revenues 929.8 917.0
- -----------------------------------------------------------------------------
Benefits and expenses:
Policy benefits $ 381.4 $ 346.7
Interest expense on annuities
and financial products 261.6 283.1
Underwriting, acquisition and insurance
expenses 110.2 100.3
Amortization 49.8 41.2
Dividends to policyowners 26.3 24.7
Interest expense on surplus notes 5.1 ----
Other operating expenses 8.9 42.7
- -----------------------------------------------------------------------------
Total benefits and expenses 843.3 838.7
- -----------------------------------------------------------------------------
Income before income tax expense 86.5 78.3
Income tax expense 34.4 32.7
- -----------------------------------------------------------------------------
Net income $ 52.1 $ 45.6
- -----------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
COMBINED STATEMENT OF POLICYOWNERS' SURPLUS
Policyowners' surplus at beginning of year $548.9 $430.7
Net income 52.1 45.6
Unrealized appreciation
(depreciation) of securities, net (28.2) 72.6
- -----------------------------------------------------------------------------
Policyowners' surplus at end of year $ 572.8 $ 548.9
- -----------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
18
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<S> <C> <C>
for years ended December 31,1996, and l995 1996 (in millions) 1995
- -----------------------------------------------------------------------------
Cash flows from operating activities:
- ------------------------------------------------------------------------------
Net Income $ 52.1 $ 45.6
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization 49.8 41.2
Depreciation 9.2 8.6
Deferred taxes 1.8 7.0
Realized investment gains (6.6) (8.2)
Policy acquisition costs (69.3) (61.2)
Interest credited to deposit liabilities 254.7 274.2
Fees charged to deposit liabilities (19.8) (19.5)
Amortization of investment income (6.2) (10.9)
Increase in insurance liabilities 93.9 110.5
Increase in assets (44.4) (72.1)
Increase in liabilities 19.6 14.7
- ------------------------------------------------------------------------------
Net cash provided by operating activities 334.8 329.9
- ------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases:
Fixed maturities, Held to Maturity (194.4) (390.1)
Fixed maturities, Available for Sale (477.7) (234.9)
Equity securities (24.7) (1.1)
Mortgage loans (169.1) (159.9)
Real estate (3.9) (2.2)
Short term and other invested assets (2.6) (.4)
Proceeds from sales, calls or maturities:
Fixed maturities, Held to Maturity 158.8 290.1
Fixed maturities, Available for Sale 466.4 145.7
Equity securities 28.7 14.7
Mortgage loans 175.0 115.7
Real estate 3.1 3.4
Short term and other invested assets 27.6 4.6
- -----------------------------------------------------------------------------
Net cash used by investing activities (12.8) (214.4)
- -----------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of surplus notes 75.0 ---
Deposits to insurance liabilities 595.2 471.7
Withdrawals from insurance liabilities (984.6) (587.8)
Policyowner dividends 3.6 .7
Increase in policy loans (1.9) (3.6)
- ------------------------------------------------------------------------------
Net cash used by financing activities (312.7) (119.0)
- ------------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents 9.3 (3.5)
- ------------------------------------------------------------------------------
Cash and cash equivalents beginning of year 10.9 14.4
- ------------------------------------------------------------------------------
Cash and cash equivalents end of year $ 20.2 $ 10.9
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
19
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 47 states and the District of Columbia. AUL offers individual life
insurance and annuities, group life and disability insurance and pension
products through career agents working in a distribution network of general
agency offices. AUL also offers reinsurance services. The combined financial
statements include the accounts of the Company and its affiliate, The State Life
Insurance Company (State Life). Significant intercompany transactions have been
excluded.
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles (GAAP). As of January 1, 1996, AUL
adopted Financial Accounting Standards Board (FASB) Statement No. 120,
Accounting and Reporting by Mutual Life Insurance Enterprises and by Insurance
Enterprises for Certain Long-Duration Participating Contracts, and Financial
Accounting Standards Board Interpretation No. 40 (FIN40), 'Applicability of
Generally Accepted Accounting Principles for Mutual Life Insurance and Other
Enterprises.' SFAS120 requires financial statements prepared in accordance with
generally accepted accounting principles to apply all applicable authoritative
GAAP pronouncements. The cumulative effect of applying SFAS No. 120 primarily
consists of the initial deferral of acquisition costs, the establishment of
deferred taxes, the change in methodology for insurance reserves, the
elimination of the statutory asset valuation reserve and the effect of
classifying certain fixed maturity investments as available for sale. The effect
of the changes has been reported retroactively through restatement of the
financial information as of January 1, 1994. As a result of restating the 1995
financial statements, combined net income was increased by $1.4 million, and
combined policyowners' surplus increased $239.8 million.
AUL also files 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 generally accepted
accounting principles 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 $28.8 million and $28.3 million at December 31, 1996 and 1995,
respectively. Depreciation expense for investment real estate amounted to $2.4
million and $2.6 million for 1996 and 1995, 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 policyowners' surplus, net of deferred income 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.
<PAGE>
20
NOTES TO FINANCIAL STATEMENTS (continued)
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.
ASSETS HELD IN SEPARATE ACCOUNTS
Separate accounts are funds on which investment income and gains or losses
accrue directly to certain policyholders, primarily variable annuity contracts
and equity-based pension and profit sharing plans. 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
$35.9 million and $30.1 million as of December 31, 1996 and 1995, respectively.
The Company provides for depreciation of property and equipment using the
straight-line method over its estimated useful life. Depreciation expense for
1996 and 1995 was $6.8 million and $6.0 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 cost of policies produced. 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>
21
NOTES TO FINANCIAL STATEMENTS (continued)
2. Investments:
The amortized cost and fair value of investments in fixed maturity securities by
type of investment were as follows:
<TABLE>
<S> <C> <C> <C> <C>
December 31, 1996
- ------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------
Available for sale: (in millions)
Obligations of U.S. government, states,
political subdivisions and foreign governments $ 85.2 $ 1.9 $ 1.3 $ 85.8
Corporate securities 1,000.0 33.9 7.0 1,026.9
Mortgage-backed securities 463.0 19.1 1.4 480.7
- -----------------------------------------------------------------------------------------------------------------
$ 1,548.2 $ 54.9 $ 9.7 $ 1,593.4
- -----------------------------------------------------------------------------------------------------------------
Held to maturity:
Obligations of U.S. government, states,
political subdivisions and foreign governments $ 132.0 $ 5.5 $ 1.1 $ 136.4
Corporate securities 1,891.1 100.1 14.0 1,977.2
Mortgaged-backed securities 990.5 44.9 4.4 1,031.0
- -----------------------------------------------------------------------------------------------------------------
$3,013.6 $ 150.5 $ 19.5 $ 3,144.6
December 31, 1995
- ------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------
Available for sale: (in millions)
Obligations of U.S. government, states,
political subdivisions and foreign governments $ 50.7 $ 3.7 $ .1 $ 54.3
Corporate securities 925.3 63.5 2.0 986.8
Mortgage-backed securities 543.2 44.7 .2 587.7
- -----------------------------------------------------------------------------------------------------------------
$ 1,519.2 $ 111.9 $ 2.3 $ 1,628.8
- -----------------------------------------------------------------------------------------------------------------
Held to maturity:
Obligations of U.S. government, states,
political subdivisions and foreign governments $ 135.0 $ 10.7 $ .3 $ 145.4
Corporate securities 1,817.7 174.8 1.5 1,991.0
Mortgaged-backed securities 1,029.7 89.7 .2 1,119.2
- -----------------------------------------------------------------------------------------------------------------
$2,982.4 $ 275.2 $ 2.0 $ 3,255.6
</TABLE>
<PAGE>
22
NOTES TO FINANCIAL STATEMENTS (continued)
The amortized costs and fair value of fixed maturity securities at December 31,
1996, 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>
<S> <C> <C> <C> <C> <C> <C>
Available for Sale Held to Maturity Total
Amortized Fair Amortized Fair Amortized Fair
(in millions) Cost Value Cost Value Costs Value
- -----------------------------------------------------------------------------------------------------------------------------
Due in one year or less $ 85.1 $ 85.7 $ 62.7 $ 63.4 $ 147.8 $ 149.1
Due after one year through five years 369.2 370.8 704.0 727.6 1,073.2 1,098.4
Due after five years through ten years 363.0 376.7 800.8 841.8 1,163.8 1,218.5
Due after ten years 267.9 279.5 455.6 480.8 723.5 760.3
- -----------------------------------------------------------------------------------------------------------------------------
1,085.2 1,112.7 2,023.1 2,113.6 3,108.3 3,226.3
Mortgage-backed securities 463.0 480.7 990.5 1,031.0 1,453.5 1,511.7
- -----------------------------------------------------------------------------------------------------------------------------
$ 1,548.2 $ 1,593.4 $3,013.6 $3,144.6 $4,561.8 $ 4,738.0
=============================================================================================================================
</TABLE>
Net investment income consistent of the following:
<TABLE>
<S> <C> <C>
December 31,1996,and l995 1996 (in millions) 1995
- -----------------------------------------------------------------------------
Fixed maturity securities $ 364.0 $ 369.4
Equity securities 2.0 2.9
Mortgage loans 104.4 104.4
Real estate 10.8 10.7
Policy loans 9.0 9.2
Other 6.1 4.5
- -----------------------------------------------------------------------------
Gross investment income 496.3 501.1
Investment expenses 24.5 22.2
- -----------------------------------------------------------------------------
Net investment income $ 471.8 $ 478.9
- -----------------------------------------------------------------------------
</TABLE>
Net realized investment gains and losses include write downs and changes in the
reserve for losses on mortgage loans and foreclosed real estate of $.5 million
and $1.5 million for 1996 and 1995, respectively. Proceeds from the sales,
maturities or calls of investments in fixed maturities during 1996 and 1995 were
approximately $609.0 million and $435.8 million, respectively. Gross gains of
$12.0 million and $9.1 million, and gross losses of $6.9 million and $2.9
million were realized in 1996 and 1995, respectively. The changes in unrealized
appreciation (depreciation) of fixed maturities amounted to approximately
$(64.3) million and $156.5 million in 1996 and 1995, respectively.
At December 31, 1996, the unrealized appreciation on equity securities of
approximately $1.4 million is comprised of $3.0 million in unrealized gains and
$1.6 million of unrealized losses and has been reflected directly in
policyowners' surplus. The change in the unrealized appreciation (depreciation)
of equity securities amounted to approximately $(1.1) million and $1.2 million
in 1996 and 1995, respectively.
The Company maintains a diversified mortgage loan portfolio and exercises
internal limits on concentrations of loans by geographic area, industry, use and
individual mortgagor. Mortgage loans on various properties in nine states
(California, Florida, North Carolina, Indiana, Texas, Illinois, Georgia,
Kentucky and Ohio) account for approximately 62% of the fair value of the
mortgage loan portfolio. Approximately $163.9 million of mortgage loans have
been issued on 67 geographically diversified properties of 8 large retailers.
<PAGE>
23
NOTES TO FINANCIAL STATEMENTS (continued)
The Company has outstanding mortgage loan commitments at December 31, 1996, of
approximately $67.9 million.
As of December 31, 1996, the carrying value of investments that produced no
income for the previous twelve month period was $9.7 million.
3. Insurance Liabilities:
At December 31, 1996 and 1995, insurance liabilities consisted of the following:
<TABLE>
<S> <C> <C> <C> <C> <C>
(in millions)
- -------------------------------------------------------------------------------------------------------------------------------
Mortality Interest
Withdrawal or morbidity rate
assumption assumption assumption 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
Future policy benefits:
Participating whole life contracts Company experience Company experience 2.5% to 6.0% $ 554.9 $ 520.0
Universal life-type contracts N/A N/A N/A 352.0 334.9
Other individual life contracts Company experience Company experience 6.8% to 10.0% 183.6 160.3
Accident and health N/A N/A N/A 43.7 43.3
Annuity products N/A N/A N/A 4,397.1 4,546.8
Group life and health N/A N/A N/A 157.3 150.5
Other policyowner funds N/A N/A N/A 176.2 171.7
Pending policy owner claims N/A N/A N/A 137.6 130.4
- -------------------------------------------------------------------------------------------------------------------------------
Total insurance liabilities $6,002.4 $ 6,057.9
===============================================================================================================================
</TABLE>
Participating life insurance policies under generally accepted accounting
principles represent approximately 11% and 12% of the total individual life
insurance in force at December 31, 1996 and 1995, respectively. Participating
policies represented approximately 40% of life premium income for both 1996 and
1995. 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
annually in an amount between the minimum ERISA required contribution and the
maximum tax-deductible contribution. Contributions made to the Plan were $2.4
million in 1996 and $2.2 million in 1995. The net periodic pension cost was $.6
million and $1.6 million for the year ended December 31, 1996 and 1995,
respectively. This includes service cost of $3.5 million and $.8 million,
interest cost of $1.4 million and $1.3 million, and return on plan assets of
$4.3 million and $.5 million for the year ended December 31, 1996 and 1995,
respectively.
The following benefit information for the employees' defined benefit plan was
determined by outside actuaries as of January 1, 1996 and 1995, respectively,
the most recent actuarial valuation dates.
<TABLE>
<S> <C> <C>
1996 (in millions) 1995
- -----------------------------------------------------------------------------
Actuarial present value of accumulated benefits
for the employees' defined benefit plan:
Vested $ 20.1 $ 18.2
Nonvested .2 .2
- -----------------------------------------------------------------------------
$ 20.3 $ 18.4
- -----------------------------------------------------------------------------
Related net assets available for plan
benefits $ 28.8 $ 25.1
- ------------------------------------------------------------------------------
</TABLE>
The Company has a defined contribution plan covering employees who have
completed one full calendar year of service. Annual contributions are made by
the Company in amounts based upon the Company's financial results. Company
contributions to the plan during 1996 and 1995 were $1.7 million and $1.2
million, respectively.
<PAGE>
24
NOTES TO FINANCIAL STATEMENTS (continued)
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%
defined commissions (plus 3% for commissions over the Social Security wage base)
are made to the pension plan. An additional contribution of 3% of defined
commissions are made to a 401(k) plan. Company contributions expended for these
plans for 1996 and 1995 were $612,000 and $606,000, 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).
Substantially all employees and agents may become eligible for such benefits if
they reach retirement age while working for the Company.
The net periodic postretirement benefit cost was $956,000 and $986,000 for the
year ended December 31, 1996 and 1995, respectfully. This includes service cost
of $255,000 and $253,000, interest cost of $645,000 and $688,000, amortization
of unrecognized loss of $56,000 and $45,000 for the year ended December 31, 1996
and 1995, respectively.
Accrued postretirement benefits as of December 31 were as follows:
<TABLE>
<S> <C> <C>
1996 (in millions) 1995
- -----------------------------------------------------------------------------
Accumulated postretirement benefit obligation
(APBO):
Retirees and their dependents $ 4.6 $ 5.6
Active employees fully eligible to retire
and receive benefits 2.6 2.4
Active employees not fully eligible 2.7 1.3
Unrecognized loss (1.0) (1.5)
- -----------------------------------------------------------------------------
Total APBO $ 8.9 $ 7.8
- -----------------------------------------------------------------------------
</TABLE>
The assumed discount rate used in determining the accumulated postretirement
benefit was 7.25% and the assumed health care cost trend rate was 10% graded to
6% over 50 years. Compensation rates were assumed to increase 6% at each year
end. The health coverage for retirees and 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, 1996 by $178,000 and increase the accumulated
postretirement benefit cost for 1996 by $77,000.
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:
<TABLE>
<S> <C> <C>
for years ended December 31, 1996 and 1995 1996 (in millions) 1995
- -----------------------------------------------------------------------------
Income tax computed at statutory tax rate $ 30.3 $ 27.4
Bond discount accrual and investment (4.0) (4.0)
Mutual company differential earnings amount 7.5 3.4
Other .6 5.9
- -----------------------------------------------------------------------------
Federal income tax $ 34.4 $ 32.7
- -----------------------------------------------------------------------------
</TABLE>
The components of the provision for income taxes on earnings included current
tax provisions of $32.6 million and $25.7 million for the year ended December
31, 1996 and 1995, respectively, and deferred tax expense of $1.8 million and
$7.0 million for the year ended December 31, 1996 and 1995, respectively.
<PAGE>
25
NOTES TO FINANCIAL STATEMENTS (continued)
Deferred income tax assets (liabilities):
<TABLE>
<S> <C> <C>
1996 (in millions) 1995
- -----------------------------------------------------------------------------
Deferred policy acquisition costs $(110.9) $ (104.5)
Investments (8.1) (16.6)
Insurance liabilities 139.0 132.5
Unrealized appreciation of securities (11.2) (28.6)
Other (4.9) 5.5
- -----------------------------------------------------------------------------
Deferred income tax assets (liabilities) $ 3.9 $ (11.7)
- -----------------------------------------------------------------------------
</TABLE>
Federal income taxes paid were $39.0 million and $18.2 million for 1996 and
1995, 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, 1996 and 1995, life reinsurance assumed was
approximately 67% and 65%, respectively, of life insurance in force.
The Company cedes that portion of the total risk on an individual life in excess
of $1,000,000. For accident and health and disability policies, the Company has
established various limits of coverage it will retain on any one policy owner
and cedes the remainder of such coverage.
Certain statistical data with respect to reinsurance follows:
<TABLE>
<S> <C> <C>
for years ended December 31, 1996 and 1995 1996 (in millions) 1995
- -----------------------------------------------------------------------------
Direct statutory premiums $ 353.1 $ 352.3
Reinsurance assumed 214.8 209.7
Reinsurance ceded 109.8 103.8
- -----------------------------------------------------------------------------
Net premiums 458.1 458.2
- -----------------------------------------------------------------------------
Reinsurance recoveries $ 73.5 $ 77.3
- -----------------------------------------------------------------------------
</TABLE>
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. Five
reinsurers account for approximately 64% of the Company's December 31, 1996
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 1996 was $3.6 million. The
Company has available a $125 million committed credit facility. No amounts have
been drawn as of December 31, 1996.
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.
<PAGE>
26
NOTES TO FINANCIAL STATEMENTS (continued)
9. Statutory Information:
The Company and its affiliate, 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:
<TABLE>
<S> <C> <C>
for years ended December 31, 1996 and 1995 1996 (in millions) 1995
- -----------------------------------------------------------------------------
SAP Surplus $ 407.9 $ 309.1
Deferred policy acquisition costs 362.7 343.2
Adjustments to policy reserves (278.3) (285.0)
Asset valuation and interest maintenance
reserves 106.4 105.2
Unrealized gain on invested assets 17.4 49.9
Surplus notes (75.0) ----
Deferred income taxes 16.8 15.6
Other, net 14.9 10.9
- -----------------------------------------------------------------------------
GAAP surplus $ 572.8 $ 548.9
- -----------------------------------------------------------------------------
</TABLE>
A reconciliation of SAP net income to GAAP net income for the years ended
December 31 follows:
<TABLE>
<S> <C> <C>
for years ended December 31, 1996 and 1995 1996 (in millions) 1995
- -----------------------------------------------------------------------------
SAP Income $ 51.4 $ 44.2
Deferred policy acquisition costs 19.5 20.1
Adjustments to policy reserves (15.0) (10.7)
Deferred income taxes (1.5) (6.7)
Other, net (2.3) (1.3)
- -----------------------------------------------------------------------------
GAAP net income $ 52.1 $ 45.6
- -----------------------------------------------------------------------------
</TABLE>
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 $4.5 million at December 31, 1996.
10. Fair Value of Financial Instruments:
The disclosure of fair value information about certain financial instruments
based primarily on quoted market prices. The fair values of short-term
investments and accrued investment income approximate the carrying amounts
reported in the balance sheets. Fair values for fixed maturity set 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 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, 1996 and 1995 follows.
<TABLE>
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
1996 (in millions) 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
- ---------------------------------------------------------------------------------------------------
Fixed maturity securities:
Available for sale $1,593.4 $1,593.4 $ 1,628.8 $ 1,628.8
Held to Maturity 3,013.6 3,144.6 2,982.4 3,255.6
Equity securities 15.2 15.2 19.0 19.0
Mortgage loans 1,114.6 1,186.3 1,124.7 1,229.1
Policy loans 143.5 143.5 141.6 141.6
Surplus notes 75.0 73.0 --- ----
- -------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
27
================================================================================
No dealer, salesman or any other person is authorized by the AUL American
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 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.
================================================================================
AMERICAN UNITED LIFE
POOLED EQUITY FUND B
Group Variable Annuity Contracts
Sold By
AMERICAN UNITED
LIFE INSURANCE COMPANY(R)
One American Square
Indianapolis, Indiana 46282
STATEMENT OF ADDITIONAL INFORMATION
Dated: May 1, 1997
================================================================================
<PAGE>
1
Part C: Other Information
ITEM 28(A): FINANCIAL STATEMENTS AND EXHIBITS.
Financial Statements
Included in Prospectus (Part A):
Expense Summary
Condensed Financial Information - Per Unit Income and Capital
Changes in a Fund B Accumulation Unit
Included in Statement of Additional Information (Part B):
Financial Statements of American United Life Pooled Equity Fund B
Report of Independent Accountants
Statement of Net Assets - December 31, 1996
Statement of Operations - December 31, 1996
Statement of Changes in Net Assets - December 31, 1996 and 1995
Schedule of Investments - December 31, 1996
Notes to Financial Statements
Financial Highlights years ended December 31, 1996, 1995, 1994
1993, & 1992
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, 1996 and 1995
Combined Statement of Operations for the years ended
December 31, 1996 and 1995
Combined Statement of Policyowners' Surplus for the years ended
December 31, 1996 and 1995
Combined Statement of Cash Flows for the years ended
December 31, 1996 and 1995
Notes to Financial Statements
Schedules for which provision is made under the applicable articles of
Regulation S-X have been omitted because the items are not present in
the financial statements, or if present, are adequately explained in
the financial statements or are not considered to be material to the
purpose for which the financial statements are included in the
Prospectus.
ITEM 28(B): EXHIBITS.
Copies of all Exhibits required by Form N-3.
(1) Resolution of American United Life Insurance Company(R) ("AUL")
Board of Directors establishing American United Life Pooled
Equity Fund B ("Fund B").............................................(1)
(2) Rules and Regulations of Fund B...................................(2)(5)
(3) Form of Custodial Agreement between AUL, Fund B, and Merchants
National Bank and Trust Company...................................(3)(5)
(4) Form of Agreement between AUL and Fund B re Investment
Management Services..................................................(1)
(5) Form of Agreement between AUL and Fund B re Sales and
Administrative Services..............................................(1)
(6) Form of Variable Annuity Contracts and Certificates
(i) Group variable annuity contract, Form Number
TA-VA-TP [for 403(b) Program].................................(4)
(ii) Individual Participant's certificate, Form Number
TA-VA-C [for 403(b) Program]..................................(4)
(iii) Group variable annuity contract for use with
Employee Pension Plans, Form Number TA-VAQ-TP.................(4)
(iv) Individual Participant's certificate for use with
Employee Pension Plans, Form Number TA-VAQ-C..................(4)
(v) Group variable annuity contract, Form Number
TA-VAH-TP (for HR-10 Plans)...................................(4)
(vi) Individual Participants certificate, Form Number
TA-VAH-C (for HR-10 Plans)....................................(4)
(vii) Group variable annuity contract, Form Number
TA-VA-9894 [for 408(b) Plans].................................(4)
(viii) Individual Participant's certificate, Form
Number VA-9896 [for 408(b) Plans].............................(4)
(ix) Group variable annuity contract, Form Number
VA-10515 (for 457 Programs)...................................(4)
(1) Filed in Registrant's Form No. N-8B-1, File Number 811-1571, and incor-
porated by reference herein.
(2) Filed in Registrant's Post-Effective Amendment No. 3 on Form S-5, Reg-
istrant's No. 2-27832, and incorporated by reference herein.
(3) Filed in Registrant's Post-Effective Amendment No. 25 on Form S-5, Reg-
istrant's No. 2-27832, and incorporated by reference herein.
(4) Filed in Post-Effective Amendment No. 1, Form S-5; in Post-Effective
Amendment No. 3, Form S-5; in Post-Effective Amendment No. 11, Form
S-5; and in Post-Effective Amendment No. 20, Form N-1; Registrant's
No. 2-27832, all of which are incorporated by reference thereto.
(5) Filed in Registrant's Post-Effective Amendment No. 38, Form N-3, File
Number 811-1571, Registration Number 2-27832, and incorporated by
reference herein.
<PAGE>
2
ITEM 28(B): EXHIBITS (CONTINUED).
(7) Application for use in contracts listed above........................(7)
(8) Certificate of Incorporation and By-laws of AUL......................(7)
(9) Exhibit 9 to Form N-3.....................................Not Applicable
(10) Exhibit 10 to Form N-3....................................Not Applicable
(11) Exhibit 11 to Form N-3....................................Not Applicable
(12) Exhibit 12 to Form N-3 - Opinion of Mssrs. Ice Miller
Donadio & Ryan.......................................................(6)
(13) Powers of Attorney and Consent of Independent
Accountant....................................(8)(9)(10)(11)(12)(13)(14)
(14) Exhibit 14: No financial statements are omitted from
Item 27...................................................Not Applicable
(15) Exhibit 15 to Form N-3....................................Not Applicable
(16) Exhibit 16 to Form N-3....................................Not Applicable
(17) Electronic Filers - Financial Data Schedule.....................(13)(14)
(6) Incorporated by reference in Registrant's Form No. N-8B-1, File Number
811-1571.
(7) Incorporated by reference in Registrant's Post-Effective Amendment No.
31 on Form N-3, Registrant's No. 2-27832.
(8) Incorporated by reference in Registrant's Post-Effective Amendment No.
35, Form N-3, File Number 811-1571, Registration Number 2-27832.
(9) Incorporated by reference in Registrant's Post-Effective Amendment No.
36, Form N-3, File Number 811-1571, Registration Number 2-27832.
(10) Incorporated by reference in a December 3, 1993 filing of Post Effec-
tive Amendment number 7 to the Registration Statement filed by AUL
American Unit Trust, File No. 33-31375.
(11) Incorporated by reference in Registrant's Post-Effective Amendment No.
38, Form N-3, File Number 811-1571, Registration Number 2-27832.
(12) Incorporated by reference in Registrant's Post-Effective Amendment No.
39, Form N-3, File Number 811-1571, Registration Number 2-27832.
(13) Incorporated by reference in Registrant's Post-Effective Amendment No.
40, Form N-3, File Number 811-1571, Registration Number 2-27832.
(13) Incorporated by reference in Registrant's Post-Effective Amendment No.
40, Form N-3, File Number 811-1571, Registration Number 2-27832.
(14) Incorporated by reference in Registrant's Post-Effective Amendment No.
41, Form N-3, File Number 811-1571, Registration Number 2-27832.
ITEM 29: DIRECTORS AND SENIOR OFFICERS OF AMERICAN UNITED LIFE INSURANCE
COMPANY(R)
<TABLE>
<CAPTION>
Principal Officers Positions and Company and Nature of
and Directors of AUL Positions and Offices Offices with Such Association Within
and Business Address with AUL Registrant the Past 2 Years
- -------------------- --------------------- -------------- --------------------------
<S> <C> <C> <C>
John H. Barbre* Senior Vice President None None
Steven C. Beering M.D. Director None President, Purdue
Purdue University University; Director,
West Lafayette, Indiana Lilly (Eli) and Company;
Director, Arvin Industries;
Director, NIPSCO Industries, Inc.;
Director, Guidant Corporation;
Director, State Life Ins. Co.
William R. Brown* General Counsel and None Secretary, State Life
Secretary; Dir. AUL Insurance Company
Equity Sales Corp.
*One American Square
Indianapolis, Indiana
<PAGE>
3
<CAPTION>
ITEM 29: (CONTINUED)
Principal Officers Positions and Company and Nature of
and Directors of AUL Positions and Offices Offices with Such Association Within
and Business Address with AUL Registrant the Past 2 Years
- -------------------- --------------------- -------------- --------------------------
<S> <C> <C> <C>
Arthur L. Bryant Director None Chairman of the Board &
141 E. Washington St. President, State Life
Indianapolis, Indiana Insurance Company
James E. Cornelius Director None Chairman of the Board,
P.O. Box 44906 Guidant Corporation;
Indianapolis, Indiana V.P. & CFO, Eli Lilly & Co.,
1/83 - 1995;
Director, State Life Insurance Company;
Director, National Bank of Indianapolis;
Director, Lilly Industries, Inc.
James E. Dora Director None Chairman of the Board &
P.O. Box 42908 Chief Executive Officer and owner,
Indianapolis, Indiana General Hotels Corporation;
Director, NBD Bank, N.A.;
Director, State Life Insurance Company
Otto N. Frenzel III Director and Chairman None Chairman, Executive Committee,
101 W. Washington St., Suite 400E of the Audit Committee National City Bank Indiana;
Indianapolis, Indiana Chairman, National City Bank
Indiana, 10/92 - 1/96;
Director: Indiana Gas
Company; Indianapolis
Power & Light Co.;
Baldwin & Lyons, Inc.;
IPALCO Enterprises, Inc.;
IWC Resources Corp.;
Indiana Energy, Inc.;
National City Co. of Indpls;
Merchants National Corp.;
State Life Insurance Company;
Indianapolis Water Co.
David W. Goodrich Director None Executive Vice President,
One American Square F. C. Tucker Company;
Suite 2500 Chairman, Methodist Hospital of
Indianapolis, Indiana Indiana, 1/93 - 6/96; Director:
State Life Ins. Co.; Irwin Financial Corp.;
Citizens Gas & Coke Utility;
Vice Chairman, Clarian Health Products;
William P. Johnson Director None Chairman of the Board &
1525 S. 10th St. Chief Executive Officer,
Goshen, Indiana Goshen Rubber Co., Inc.;
Indianapolis, Indiana Pres. & Dir.:GSH Corp.; GRN Corp.;
Chairman: GRN Corp., Goshen Rubber
of Canada, Ltd.; Director, Society Bank Ind.
(formerly Trustcorp Inc.), So. Bend, IN;
Member of Advisory Comm., Society Bank Ind.,
Goshen, IN; Director, Coachman Industries;
Chairman & CEO: Syracuse Rubber Co.; Bond-Flex
Rubber Co.; Director: Peetro Go, Inc.; Flair
Johnson Inc.; Lighfoot Enterprises;
Chairman: Palmer Plastics; Dayton Polymrics
GR Plastics; Chairman & CEO: ETI Inc.;
GKI Inc.; Prolon, Inc.; Yeasel, Inc.; Bower
Mfg.; & Director, State Life Ins. Co.
<PAGE>
4
ITEM 29: (CONTINUED)
Association with Other
Principal Officers Positions and Company and Nature of
and Directors of AUL Positions and Offices Offices with Such Association Within
and Business Address with AUL Registrant the Past 2 Years
- -------------------- --------------------- -------------- --------------------------
Charles D. Lineback* Senior Vice President None None
James T. Morris Director None Chairman & CEO, Indianapolis Water Co.;
1220 Water Boulevard President, Chairman & CEO, IWC Resources
Indianapolis, Indiana Corp.; Director: National City Bank Corp.;
Paul Harris; State Life Ins. Co.
James W. Murphy* Senior Vice President; Chairman & Chairman of the Board &
Director, President & Member of the President, AUL
Treasurer, AUL Sales Board of American Series Fund,
Equity Corp. Managers Inc.
Jerry L. Plummer* Senior Vice President None None
R. Stephen Radcliffe* Director & Executive Proposed None
Vice President, Chairman Nominee
of the Board, AUL Equity
Sales Corp.
Thomas E. Reilly Jr. Director and Chairman of the None Chairman, Reilly Industries, Inc.; Director,
151 N. Delaware St. Finance Committee Lilly Indus. Inc.; First Chicago NBD Corp.;
Indianapolis, Indiana Herff Jones Corp; State Life Ins. Co.
William R. Riggs* Director None Partner, Ice Miller Donadio & Ryan;
Director, State Life Ins. Co.
*One American Square
Indianapolis, Indiana
<PAGE>
5
Item 29: (continued)
Principal Officers Positions and Company and Nature of
and Directors of AUL Positions and Offices Offices with Such Association Within
and Business Address with AUL Registrant the Past 2 Years
- -------------------- --------------------- -------------- --------------------------
G. David Sapp* Senior Vice President; None None
Director, AUL Equity
Sales Corp.
Jerry D. Semler* Chairman of the Board, None Director: Jenn Foundation Board;
President, Chief Executive IWC Resources Corp;
Officer Mental Health Board, State of Indiana
Yvonne H. Shaheen Director None President and Chief
1310 S. Franklin Rd. Executive Officer:
Indianapolis, Indiana Long Electric Co.;
Director: Corporate
Community Council;
Community Hospital
Foundation; Junior
Achievement; National
Electrical Contractors
Assoc.; Indpls Chamber
of Commerce; Greater
Indpls. Progress
Committee; Boy Scouts
of America; State Life Ins. Co.
James P. Shanahan* Senior Vice President Member, Director, Vice President,
Board of and Treasurer, AUL
Managers American Series Fund, Inc.
Frank D. Walker Director None Chairman of the Board &
P.O. Box 80432 Chief Executive Officer,
Indianapolis, Indiana Walker Information, Inc.;
Managing Partner,
W. R. Properties;
Director, Citizen's Gas & Coke
Utility; NBD Bank N.A. Indiana;
State Life Ins. Co.;
Advisor, Wild Birds Unlimited, Inc.
*One American Square,
Indianapolis, Indiana
<PAGE>
6
ITEM 29: (CONTINUED)
Association with Other
Principal Officers Positions and Company and Nature of
and Directors of AUL Positions and Offices Offices with Such Association Within
and Business Address with AUL Registrant the Past 2 Years
- -------------------- --------------------- -------------- --------------------
Gerald T. Walker* Senior Vice President None None
*One American Square
Indianapolis, Indiana
</TABLE>
ITEM 30: PERSONS CONTROLLED OR UNDER COMMON CONTROL OF AMERICAN UNITED LIFE
INSURANCE COMPANY(R).
American United Life Insurance Company(R) (AUL) is a mutual insurance company
organized under the laws of the State of Indiana. As a mutual company, AUL has
no shareholders and therefore no one individual controls as much as 10% of AUL.
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 Equity Sales Corp. is a wholly-owned subsidiary of American United Life
Insurance Company(R) organized under the laws of the State of Indiana in 1969
for the purpose of the sale of mutual funds on an application-way basis only.
AUL American Individual Unit Trust and AUL American Unit Trust are separate
accounts of AUL, organized for the purpose of the sale of individual and group
variable annuity contracts, respectively.
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. As a result of providing the initial capital for the Portfolios, on
December 31, 1996, AUL owned 10.2% of the outstanding shares of the Fund's
Equity portfolio, 0.0% of the Fund's Bond Portfolio, 0.0% of the Fund's Managed
Portfolio, 0.0% of the Fund's Money Market Portfolio, and 27.2% of the Fund's
Tactical Asset Allocation Portfolio. Therefore, AUL may be able to control the
outcome of any issue submitted generally to the vote of Fund shareholders and
would be able to control the outcome of any issue submitted to the vote of
shareholders of the Tactical Asset Allocation Portfolio.
Registrant is a separate account of AUL organized for the purpose of the sale
of group variable annuity contract.
ITEM 31: NUMBER OF CONTRACTOWNERS
The number of contractowners/participants for all variable annuity contracts
offered by American United Life Insurance Company(R) and Fund B was 551 as of
December 31, 1996.
ITEM 32: INDEMNIFICATION OF DIRECTORS AND OFFICERS
On March 5, 1969, American United Life Insurance Company(R), sponsor of the
Registrant, agreed to indemnify the members of the Board of Managers of the
Registrant against expenses incurred by any member in defense of an
<PAGE>
7
action brought by reason of his being a member of the Board of Managers, except
when in such action, the member is adjudged to have been liable for negligence
or misconduct. American United Life Insurance Company(R) has also agreed to pay
costs of settlement if it is determined by American United Life Insurance
Company(R) that settlement should be made and that the member was not guilty of
negligence or misconduct.
ITEM 33: BUSINESS AND OTHER CONNECTIONS OF OFFICERS AND DIRECTORS OF
AMERICAN UNITED LIFE INSURANCE COMPANY(R)
See Response to Item 29.
ITEM 34: PRINCIPAL UNDERWRITER AND COMPENSATION
(a) American United Life Insurance Company(R) is principal underwriter only for
the Registrant.
<TABLE>
<CAPTION>
(b) Net Underwriting Discounts
and Commissions Deducted Compensation Gross
Name of Principal From Offering Price at or Profit on Brokerage Other
Underwriter Time of Sale Redemptions and Purchases Commissions Compensation
- ----------- --------------------- ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
American United Life $23,406 $---- $---- $----(A)
Insurance Company(R)
Note A-American United Life Insurance Company(R) performs the duties of
principal underwriter under the Sales and Administrative Services Agreement.
The other compensation paid is the fee for providing investment management
services ($37,854), and for mortality risk and expense charges ($113,562) as
explained elsewhere.
</TABLE>
ITEM 35: LOCATION OF ACCOUNTS AND RECORDS
All accounts, records and other pertinent documents of the Registrant are
under the control of Richard A. Wacker, Secretary to the Board of Managers and
are physically located at One American Square, Indianapolis, IN 46282.
ITEM 36: MANAGEMENT SERVICES
The terms of the Investment Management Services Agreement are fully described
on page 11 of the Prospectus.
ITEM 37: UNDERTAKINGS
Registrant hereby undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never more than 16 months
old for so long as payments under the variable annuity contracts may be
accepted.
Registrant undertakes 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.
Registrant undertakes 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.
The Registrant and its Depositor are relying upon Rule 6c-7 under the
Investment Company Act of 1940 (17 CRF 270.6c-7), Exemptions from Certain
Provisions of Section 22(e) and 27 for Registered Separate Accounts Offering
Variable Annuity Contracts to Participants in the Texas Optional Retirement
Program, and the provisions of paragraphs (a) through (d) of this Rule have been
complied with.
The Registrant and its Depositor, American United Life Insurance Company(R),
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 contracts 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.
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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) of the Securities Act of 1933 and
has duly caused this Post-Effective Amendment to the Registration Statement
(Form N-3) to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Indianapolis and the State of Indiana on this
30th day of April, 1997.
AMERICAN UNITED LIFE POOLED EQUITY FUND B
By: American United Life Insurance Company(R)
------------------------------------------
By: James W. Murphy*, Chairman of
the Board of Managers
/s/ Richard A. Wacker
_________________________________________
*By: Richard A. Wacker as Attorney-in-fact
Date: April 30, 1997
Pursuant to the requirements of the Securities Act of 1933, this Post Effective
Amendment to the Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
- --------- ----- ----
__________________________________________ Member, Board of Managers April 30, 1997
Ronald D. Anderson*
__________________________________________ Member, Board of Managers April 30, 1997
Leslie Lenkowsky*
__________________________________________ Member, Board of Managers April 30, 1997
James P. Shanahan*
/s/ Richard A. Wacker
__________________________________________
*By: Richard A. Wacker as Attorney-in-fact
Date: April 30, 1997
</TABLE>
<PAGE>
9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, American United Life Insurance Company(R) certifies that it
meets all of the requirements for effectiveness of this Post-Effective Amendment
to the Registration Statement pursuant to Rule 485(b) of the Securities Act of
1933 and has duly caused this Post-Effective Amendment 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 this
30th day of April, 1997.
American United Life Insurance Company(R)
------------------------------------------
By: Jerry D. Semler*, Chairman of the Board,
President, and Chief Executive Officer
/s/ Richard A. Wacker
___________________________________________
*By: Richard A. Wacker as Attorney-in-fact
Date: April 30, 1997
Pursuant to the requirements of the Securities Act of 1933, this Post Effective
Amendment to the Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
_______________________________________________ Director April 30, 1997
Steven C. Beering M.D.*
_______________________________________________ Director April 30, 1997
Arthur L. Bryant*
_______________________________________________ Director April 30, 1997
James E. Cornelius*
_______________________________________________ Director April 30, 1997
James E. Dora*
_______________________________________________ Director April 30, 1997
Otto N. Frenzel III*
_______________________________________________ Director April 30, 1997
David W. Goodrich*
<PAGE>
10
SIGNATURES (Continued)
Signature Title Date
- --------- ----- ----
_______________________________________________ Director April 30, 1997
William P. Johnson*
_______________________________________________ Director April 30, 1997
James T. Morris*
_______________________________________________ Principal Financial April 30, 1997
James W. Murphy* and Accounting Officer
_______________________________________________ Director April 30, 1997
R. Stephen Radcliffe*
_______________________________________________ Director April 30, 1997
Thomas E. Reilly Jr*
_______________________________________________ Director April 30, 1997
William R. Riggs*
_______________________________________________ Director April 30, 1997
Yvonne H. Shaheen*
_______________________________________________ Director April 30, 1997
Frank D. Walker*
</TABLE>
/s/ Richard A. Wacker
_______________________________________________
*By: Richard A. Wacker as Attorney-in-fact
Date: April 30, 1997
* Powers of Attorney filed with AUL American Unit Trust's Registration Statement
(File No. 33-31375) and Post-Effective Amendment Nos. 1, 2, 3, 7, 10, and 13 and
incorporated by reference thereto.
<PAGE>
11
EXHIBIT LIST
Exhibit 13: Consent of Independent Accountant
Exhibit 17: Financial Data Schedule
Consent of Independent Accountants
Board of Directors
American United Life Insurance Company(R)
Indianapolis, Indiana
We consent to the inclusion in this Registration Statement on Form N-3 of our
report dated January 31, 1997 on our audits of the financial statements and
supplementary per unit data and ratios of American United Life Pooled Equity
Fund B and our report dated February 19, 1997 on our audits of the financial
statements of American United Life Insurance Company(R).
/s/ Coopers & Lybrand L.L.P.
Indianapolis, Indiana
April 30, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000005966
<NAME> AUL POOLED EQUITY FUND B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 10,602,679
<INVESTMENTS-AT-VALUE> 12,499,650
<RECEIVABLES> 14,712
<ASSETS-OTHER> 26,344
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12,540,706
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 14,423
<TOTAL-LIABILITIES> 14,423
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 1,264,043
<SHARES-COMMON-PRIOR> 1,416,743
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 868,191
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,896,971
<NET-ASSETS> 12,526,283
<DIVIDEND-INCOME> 234,559
<INTEREST-INCOME> 82,010
<OTHER-INCOME> 0
<EXPENSES-NET> 146,477
<NET-INVESTMENT-INCOME> 170,092
<REALIZED-GAINS-CURRENT> 868,191
<APPREC-INCREASE-CURRENT> 1,181,274
<NET-CHANGE-FROM-OPS> 2,219,557
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 43,713
<NUMBER-OF-SHARES-REDEEMED> 196,413
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 820,012
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 36,619
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 146,477
<AVERAGE-NET-ASSETS> 12,204,063
<PER-SHARE-NAV-BEGIN> 8.26
<PER-SHARE-NII> .13
<PER-SHARE-GAIN-APPREC> 1.52
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.91
<EXPENSE-RATIO> .012
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
