File No. 2-27832
As filed with the Securities and Exchange Commission on April 30, 1999
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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. 44
and/or
REGISTRATION STATEMENT UNDER THE
[X] INVESTMENT COMPANY ACT OF 1940
[X] Amendment No. 44
(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) 285-1877
Richard A. Wacker, One American Square, Indianapolis, Indiana 46282
(Name and Address of Agent for Service)
Title of Securities Interests in group variable
Being Registered: 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, 1999 pursuant to paragraph (b) of Rule 485
_____ -----------
_____ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
on (date) pursuant to paragraph (a)(1) of Rule 485
_____ 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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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
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1. Prospectus Cover Page --- ---
2. Definitions 3-4 --- ---
3. Expense Summary and Synopsis 5-7 --- ---
4. Condensed Financial Information 7 --- ---
5. Description of AUL and Fund B 8-10 --- ---
6. Management of Fund B 10-11 --- ---
7. Deductions and Expenses 11-13 --- ---
8. Deductions and Expenses; Voting and Other
Rights Under the Variable Annuity
Contracts; Table of Contents for the
Statement of Additional Information 11,13,26 --- ---
9. Definitions; Annuity Period 3-4, 14-16 --- ---
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 --- 7-26 ---
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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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) 285-1877
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. A Statement
of Additional Information, dated May 1, 1999, contains additional information
about Fund B. AUL has also filed the Statement of Additional Information with
the Securities and Exchange Commission ("Commission"). A copy 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.
AUL offers Group variable contracts described in this Prospectus to:
(1) employees of tax exempt or public school organizations with a 403(b)
Program (tax deferred annuities);
(2) employees of employers with 401 Employee Benefit Plans or 408 Programs
(Individual Retirement Annuities); and
(3) 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.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of the prospectus. Any representation to the contrary is a
criminal offense.
Dated: May 1, 1999
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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........................ 10-11
Deductions and Expenses..................... 11-13
Sales and Administrative Services........ 11
Investment Management Services........... 12
Mortality and Expense Risk Charges....... 12
Deduction for Premium Taxes.............. 12
Participation............................ 12
Amendments............................... 13
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................................ 16
Return of Accumulated Value in the
Event of Death........................... 16
Purchases and Contract Values............... 16-18
Purchase Limits.......................... 16
Accumulation Units....................... 17
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.......................... 19-22
Introduction............................. 19
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............................. 21
457 Programs............................. 22
Tax Penalty.............................. 22
Withholding.............................. 23
Year 2000 Readiness Disclosure.............. 23
Legal Proceedings........................... 23
Historical Record........................... 24
Table of Contents for the Statement
of Additional Information................ 25
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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
Contractholder for the benefit of the same employees covered by the Group
Contract of such Contractholder.
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
Contractholder 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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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 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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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,
an investor would pay the following
expenses on a $1,000 investment,
assuming a 5% annual return on
assets: $71.50 $95.80 $121.96 $196.43
</TABLE>
These tables assist a Contract Owner or Participant in understanding the
various costs and expenses that are paid, either directly or indirectly. The
Prospectus section "Deductions and Expenses" further describes these deductions
and expenses. The Participant's state of residence may require AUL to withhold
an additional charge for premium taxes. The Contract Owner or Participant should
not consider the examples above as representations of past or future expenses or
returns; actual expenses may be greater or less than those shown.
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SYNOPSIS
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AUL offers Group variable contracts described in this Prospectus to:
(1) employees of tax exempt or public school organizations with a
403(b) Program ("tax deferred annuities");
(2) employees of employers with 401 Employee Benefit Plans or 408
Programs ("Individual Retirement Annuities"); and
(3) 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"). A Participant may purchase a variable annuity through
employer payments under a 403(b), 408 or 457 Program. Alternatively, a
Participant may purchase a variable annuity by means of employee and employer
payments under a 401 Employee Benefit Plan or 408 Program.
AUL designed the variable annuities described in this Prospectus to provide
Participants with
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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. A Participant will be able
to choose among several different annuity options which are more fully described
under "Optional Variable Annuity Settlements."
AUL established the American United Life Pooled Equity Fund B ("Fund B") 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. The section
titled "Deductions and Expenses" discusses other charges and expenses associated
with Fund B, including charges for Sales and Administrative Services, Investment
Management Services, and Mortality and Expense Risk Charges. AUL charges no fee
or other deduction 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. Fund B will invest primarily in common stocks.
However, the Fund may also invest in 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. Notwithstanding these objectives, the Board of
Managers or the Investment Adviser may determine that other types of
investments are more advantageous due to general economic conditions or for
other reasons. In that event, the Fund may temporarily invest in other types of
investments, such as bonds, notes, or other evidences of indebtedness, including
United States Government securities, issued publicly, of a type customarily
purchased for investment by institutional investors. This Prospectus completely
describes the Investment Objectives and Policies of Fund B on pages 8-10.
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.
A Participant may receive certain rights including voting rights under
the Contracts. For a discussion of these and other rights, see pages 13 and 14
of the Prospectus.
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<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)
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Year Ended December 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Investment Income* $ .332 $ .285 $ .262 $ .236 $ .194 $ .162 $ .180 $ .197 $ .194 $ .192
Expenses* .190 .163 .128 .109 .099 .088 .077 .070 .061 .057
- ----------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net investment income .142 .122 .134 .127 .095 .074 .103 .127 .133 .135
Net realized and
unrealized gain (loss)
on investments .874 3.411 1.731 1.519 0.069 1.239 .473 1.098 (.385) .903
----- ----- ----- ----- ----- ----- ---- ----- ------ ----
Net increase (decrease) 1.016 3.533 1.865 1.646 0.164 1.313 .576 1.225 (.252) 1.038
Accumulation Unit
Value at beginning
of year $15.307 $11.774 $ 9.909 $8.263 $8.099 $6.786 $6.210 $4.980 $5.232 $4.194
Fund B Accumulation
Unit Value at end
of year $16.323 $15.307 $11.774 $9.909 $8.263 $8.099 $6.786 $6.205 $4.980 $5.232
======= ======= ======= ====== ====== ====== ====== ====== ====== ======
Ratio of expenses to
average net assets 1.20% 1.20% 1.20% 1.20% 1.20% 1.19% 1.21% 1.20% 1.21% 1.19%
Ratio of net investment
income to avg. net
assets 0.90% 0.90% 1.25% 1.39% 1.16% 1.01% 1.64% 2.16% 2.65% 2.85%
Total Return 7.6% 31.2% 19.8% 21.1% 2.9% 20.4% 10.3% 25.7% (4.0%) 25.9%
Portfolio turnover rate 29.0% 28.0% 17.5% 20.0% 23.3% 25.4% 11.9% 36.7% 24.8% 24.3%
Number of Accumulation
units outstanding at
end of year (in
thousands): 841 933 1,068 1,264 1,417 1,518 1,635 1,698 1,784 1,860
<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 24.
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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 48 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, 1998, AUL had admitted assets of $9,336,325,097 and a
policyowners' surplus of $734,099,854. 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 convertible into common
stocks or be accompanied by warrants for the purchase of common stock. There may
be temporary
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occasions, however, when the Board of Managers may determine for defensive
purposes that other types of invesments 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.
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
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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
changingeconomic 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.
To comply with regulations under Section 817(h) of the Code, the Portfolio
underlying a separate account will be required to diversify its investments.
Generally, to meet the requirements, on the last day of each calendar quarter,
no more than 55% of the total assets may be represented by any one investment,
no more than 70% may be represented by any two investments, no more than 80% may
be represented by any three investments, and no more than 90 % may be
represented by any four investments. All securities of a given issuer generally
are regarded for this purpose as one investment and, in the case of U.S.
Government securities, each U.S. Government agency or instrumentality is treated
as a separate issuer. Other tax-related diversification requirements may apply
to each Portfolio in connection with qualifying as a regulated investment
company.
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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 8, 1998, 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, R. Stephen Radcliffe, 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.") On August 4, 1997, a Meeting of Participants was held and
the five managers named above were elected by the
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Participants as members of the Board of Managers of Fund B.
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.
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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.
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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.
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.
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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 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 19-23 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
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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 (1) the dollar amount of the assets established in Fund B to meet the
annuity obligation relating to such Annuitant divided by (2) the value of one
Accumulation Unit, determined in 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
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<PAGE>
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 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
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<PAGE>
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 payment
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
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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 (1) such Participant's Individual Account under the 403(b)
Program, 408 Program or an HR-10 Plan, or (2) 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
(3) the sum of (1) and (2) 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.
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<PAGE>
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 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 (1) 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 (2) 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
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(b) when market quotations are readily available with respect to
securities, the total market value of such securities, valued at the
closing prices on that day for securities 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 (1) the New York Stock Exchange is
closed (other than customary weekend and holiday closings), (2) the Securities
and Exchange Commission permits postponement and so orders, or (3) 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 19-23,
for a discussion of possible tax consequences on withdrawal.
Amounts withdrawn may not be reinvested without payment of a sales and
administrative service charge.
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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 19-23 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.
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FEDERAL TAX STATUS
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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
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<PAGE>
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 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.
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
20
<PAGE>
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 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
21
<PAGE>
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 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
22
<PAGE>
be withheld on the basis that the payee is married with three withholding
exemptions. Tax on all surrenders and lump-sum distributions from Individual
Retirement Accounts will be withheld at a flat 10% rate.
Withholding on annuity payments and other distributions from the Contract
will be made in accordance with regulations of the Internal Revenue Service.
- --------------------------------------------------------------------------------
YEAR 2000 READINESS DISCLOSURE
- --------------------------------------------------------------------------------
In recent years, the Year 2000 problem has received extensive publicity.
The problem arises because most computer systems and programs were written with
dates expressed as a 2 digit code. Unless steps are taken, many systems may read
the year "2000" as "1900" and date-related computations either would not be
processed or would be processed incorrectly. This could have a material and
adverse effect on financial institutions, such as banks and insurance companies
like AUL. To prevent this, AUL began assessing the potential impact in early
1996 and adopted a detailed written work plan in June, 1997 to deal with Year
2000 issues.
Due to the complexity of this issue and the ever-increasing
interrelationships of computer systems in the United States, it would be
extremely difficult for any company to state that it has or will achieve
complete Year 2000 compliance or to guarantee that its systems will not be
affected in any way on January 1, 2000. However, AUL currently believes that all
critical computer systems and software (those systems or software, which would
cause great disruption to AUL if they were inoperable for any length of time or
if they were to generate erroneous data) are, as of April 1, 1999, Year 2000
compliant. Although AUL has no reason to believe that these steps will not be
sufficient to avoid any material adverse impact from Year 2000 issues and is
addressing Year 2000 issues by using both internal staff and external
consultants, by replacing or upgrading hardware, operating systems, and
application software, by remediating current application software by testing
hardware and software in future dated scenarios, there can be no assurance that
AUL's efforts will be sufficient to avoid any adverse impact. This total effort
for all activities to make AUL systems ready for the year 2000 is currently
expected to amount to more than 250 person years of labor at a cost of
approximately $19,000,000 which has been or will be expensed against current
operating funds. As of December 31, 1998, $13,000,000 of this cost has already
been incurred.
As a part of its plan, AUL has surveyed its primary business partners to be
sure that they have taken steps to address the Year 2000 issues. AUL will
continue to monitor the status of all business partner' Year 2000 efforts.
Additionally, a contingency planning effort is underway to identify means by
which the risk associated with potential internal or external failures can be
reduced. Year 2000 contingency planning also includes development of a mechanism
to identify and respond to problems that could develop and to define steps to be
taken should problems arise.
- --------------------------------------------------------------------------------
LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
There are no legal proceedings pending which would materially affect Fund B.
23
<PAGE>
- --------------------------------------------------------------------------------
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, 1998.
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
Mar. 31, 1997 11.981
June 30, 1997 13.788
Sept. 30, 1997 15.344
Dec. 31, 1997 15.307
Mar. 31, 1998 16.793
June 30, 1998 16.723
Sept. 30, 1998 14.758
Dec. 31, 1998 16.323
24
<PAGE>
- --------------------------------------------------------------------------------
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.................................................. 1
Table of Contents........................................... 2
General Information and History............................. 3
Investment Objectives and Policies.......................... 3
Management of Fund B........................................ 3
Investment Advisory and Other Services...................... 4
Brokerage................................................... 5
Purchase and Pricing of Securities Being Offered............ 5
Underwriters................................................ 6
Annuity Payments and Other Calculations..................... 6
Financial Statements of Fund B.............................. 7
Financial Statements of AUL................................. 15
</TABLE>
25
<PAGE>
================================================================================
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.
AUL has filed a Registration Statement with the Securities and Exchange
Commission, Washington, D.C. For further information regarding the AUL
Pooled Equity Fund B, AUL and its variable annuities, please reference the
Registration statement and the exhibits filed with it or incorporated into
it. All contracts referred to in this prospectus are also included in that
filing.
================================================================================
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, 1999
================================================================================
<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) 285-1877
(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, 1999.
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, 1999.
<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
Management of Fund B.......................................................................... 3 10
Investment Advisory and Other Services........................................................ 4 11
Brokerage..................................................................................... 5 -
Purchase and Pricing of Securities Being Offered.............................................. 5 16
Underwriters.................................................................................. 6 -
Annuity Payments and Other Calculations....................................................... 6 14
Financial Statements of Fund B................................................................ 7 -
Financial Statements of AUL................................................................... 15 -
</TABLE>
2
<PAGE>
(This page left intentionally blank.)
<PAGE>
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. On August 4, 1997, a Meeting of Participants was held
and the five managers named below were elected by the Participants to serve as
members of the Board of Managers of Fund B:
<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 Professor, Indiana University Center of Philanthropy,
Indiana University, Indianapolis (9/97 to present)
President, Hudson Institute (6/90 to 9/97)
R. Stephen Radcliffe* Member Director and Executive Vice President, AUL, (8/94 to present);
Senior V.P., Chief Actuary, AUL, (5/83 - 8/94)
James P. Shanahan* Member Senior Vice President, Pension Operations, AUL
(1/84 to 1/98)
- -----------------------------------------------------------------------------------------------------------------------------------
Richard A. Wacker* Secretary to the Associate General Counsel, AUL, (10/92 to present)
Board
<FN>
*Classified as an interested person under the Investment Company Act of 1940.
</FN>
</TABLE>
3
<PAGE>
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 1998 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 $5,000.00*
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 $5,500.
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 $42,515 in the year 1998, $40,319 in the year
1997,and $37,854 in the year 1996.
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
John R. Barton 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; President, State Life Insurance Company None
James M. Cornelius Director None
James E. Dora Director None
Otto N. Frenzel III Director and Chairman of the Audit Committee, AUL None
David W. Goodrich Director None
William P. Johnson Director None
Scott A. Kincaid Senior Vice President None
Charles D. Lineback Senior Vice President None
James T. Morris Director and Chairman of the Salary and Nominating Committee 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, Board of Managers
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
John C. Scully Director None
Jerry D. Semler Chairman of the Board, President, Chief Executive Officer, None
Chairman of the Executive Committee and the AUL Acquisition
Committee, AUL; Chairman of the Board and Chief Executive
Officer, State Life Insurance Company
Yvonne H. Shaheen Director None
William L. Tindall Senior Vice President None
Frank D. Walker Director None
</TABLE>
4
<PAGE>
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
PricewaterhouseCoopers, LLP, One American Square, Indianapolis, Indiana,
serve as independent accountants for Fund B and AUL. PricewaterhouseCoopers LLP
provides the following audit services for Fund B: audit of Fund B's and AUL's
annual financial statements; review and read filings with the Securities and
Exchange Commission; and consultation regarding financial accounting and
reporting matters. PricewaterhouseCoopers, LLP 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 1998, AUL charged Fund B $8,979. In the years 1997 and 1996, AUL charged
Fund B $10,654 and $23,406 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 $127,545 in 1998, $120,956 in 1997, and $113,562 in 1996.
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 1998, 100% of the Fund B portfolio transactions constituting
brokerage commissions of $10,462 placed with broker-dealers providing such
information. For the years 1997 and 1996, brokerage commissions were paid to
such broker-dealers in the amounts of $6,479 and $8,355 respectively. For 1998,
the aggregate dollar value of equity transactions (net of commissions and SEC
charges) on which brokerage commissions were paid was $7,462,929. For 1997 and
1996, the respective aggregate dollar values were $4,359,679 and $3,880,798.
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.
5
<PAGE>
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.
6
<PAGE>
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
In our opinion, the accompanying statement of net assets, including the schedule
of investments, and the related statements of operations and of changes in net
assets and the financial highlights present fairly, in all material respects,
the financial position of American United Life Pooled Equity Fund B (the "Fund")
at December 31, 1998, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the five years in the period then ended, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Indianapolis, Indiana
February 1, 1999
7
<PAGE>
American United Life Pooled Equity Fund B
STATEMENT OF NET ASSETS
December 31, 1998
Assets:
Investments at value (cost: $9,745,937)
Common stock $ 12,802,622
Money market mutual funds 629,256
Short-term notes 297,420
------------
13,729,298
Cash 41,328
Dividends and interest receivable 18,229
------------
Total assets 13,788,855
Liabilities:
Payable for investments purchased 42,350
Due to AUL 13,599
------------
Total liabilities 55,949
Net Assets $ 13,732,906
============
Units outstanding 841,122
============
Accumulation Unit Value $ 16.32
============
The accompanying notes are an integral part of the financial statements.
American United Life Pooled Equity Fund B
STATEMENT OF OPERATIONS
for the year ended December 31, 1998
Net Investment Income:
Income
Dividends $ 273,460
Interest 23,697
------------
297,157
------------
Expense
Investment management services 42,515
Mortality and expense risks charges 127,546
------------
170,061
------------
Net investment income 127,096
------------
Gain on Investments:
Net realized gain 2,519,736
Net change in unrealized appreciation (1,728,633)
------------
Net gain 791,103
------------
Increase in Net Assets from Operations $ 918,199
============
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
American United Life Pooled Equity Fund B
STATEMENTS OF CHANGES IN NET ASSETS
for the years ended December 31, 1998 and 1997
1998 1997
---- ----
Operations:
Net investment income $ 127,096 $ 120,442
Net realized gain 2,519,736 1,177,099
Net change in unrealized appreciation (1,728,633) 2,177,306
------------ -----------
Increase in net assets from operations 918,199 3,474,847
------------ -----------
Changes from Contract Owner Transactions:
Proceeds from units sold 273,438 262,150
Payments for units withdrawn (1,735,807) (2,025,646)
Payments for units redeemed (2,460) (3,204)
------------ -----------
Decrease (1,464,829) (1,766,700)
------------ -----------
Net (decrease) increase in net assets (546,630) 1,708,147
Net Assets at beginning year 14,279,536 12,571,389
------------ -----------
Net Assets at end of year $ 13,732,906 $14,279,536
============ ===========
Units sold 17,400 18,716
Units withdrawn (108,807) (153,443)
Units redeemed (153) (233)
------------ -----------
Net decrease in units outstanding (91,560) (134,960)
Units outstanding at beginning of year 932,682 1,067,642
------------ -----------
Units outstanding at end of year 841,122 932,682
============ ===========
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
American United Life Pooled Equity Fund B
SCHEDULE OF INVESTMENTS
December 31, 1998
Market
Description Shares Value
----------- ------ ----------
Common Stock (93.2%)
Aerospace (1.8%)
Boeing Co. 3,900 $ 127,238
Precision Castparts Corporation 2,700 119,475
----------
246,713
----------
Automotive & Auto Parts (8.5%)
Bandag, Inc. 8,300 331,481
Carlisle Companies 4,700 242,638
Ford Motor Co. 7,200 422,550
TBC Corporation* 23,300 166,012
----------
1,162,681
----------
Banks & Financial (12.8%)
American Express Company 2,700 276,075
Associates First Capital 4,498 190,603
Bank One Corporation 5,932 302,903
Citigroup, Inc. 8,644 428,959
Ohio Casualty Corporation 7,000 287,875
Washington Mutual 7,255 277,050
----------
1,763,465
----------
Broadcasting & Publishing (5.0%)
Chris-Craft Industries, Inc.* 4,356 209,904
Gibson Greetings, Inc.* 6,500 77,188
Meredith Corporation 6,200 234,825
Moore Corporation, Ltd. 15,300 168,300
----------
690,217
----------
Electrical Equipment & Electronics (3.3%)
Baldor Electric Company 14,640 296,460
General Electric Company 1,500 153,000
----------
449,460
----------
Entertainment & Leisure (4.4%)
CPI Corporation 8,900 235,850
Fleetwood Enterprises, Inc. 10,700 371,825
----------
607,675
----------
Furniture & Apparel (10.8%)
Hillenbrand Industries, Inc. 5,200 295,750
Kellwood Corporation 7,500 187,500
La-Z-Boy Chair Company 25,800 459,563
Liz Claiborne, Inc. 8,500 268,281
Reebok International* 18,300 272,212
----------
1,483,306
----------
*does not pay cash dividends
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
American United Life Pooled Equity Fund B
SCHEDULE OF INVESTMENTS (continued)
December 31, 1998
Market
Description Shares Value
----------- ------ ----------
Common Stock (93.2%), continued
Health Care (2.9%)
Acuson Corporation* 9,700 $ 143,681
McKesson Corporation 1,400 110,688
Merck & Company, Inc. 1,000 147,500
----------
401,869
----------
Information Processing & Telecommunications (9.4%)
A T & T Corp. 2,100 158,025
Ascend Communications, Inc.* 2,625 172,594
International Business Machines Corporation 800 147,500
Sun Microsystems, Inc.* 7,900 676,438
Telxon Corporation 9,500 131,812
----------
1,286,369
----------
Merchandising (7.0%)
Enesco Group, Inc. 5,500 127,875
Gymboree Corporation* 21,600 137,700
Land's End, Inc.* 8,900 239,744
Longs Drug Stores Corporation 12,100 453,750
----------
959,069
----------
Metals & Mining (11.2%)
AK Steel Holding Corporation 17,000 399,500
Aluminum Company of America 5,400 402,638
Cleveland Cliffs, Inc. 7,200 290,250
Oregon Steel Mills, Inc. 17,100 203,063
Phelps Dodge Corporation 4,900 249,287
----------
1,544,738
----------
Oil & Oil Services (5.1%)
Royal Dutch Petroleum Company 6,200 296,825
Tidewater, Inc. 8,300 192,456
Valero Energy 9,700 206,125
----------
695,406
----------
*does not pay cash dividends
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
American United Life Pooled Equity Fund B
SCHEDULE OF INVESTMENTS (continued)
December 31, 1998
Market
Description Shares Value
----------- ------ ----------
Common Stock (93.2%), continued
Transportation (4.6%)
Alexander & Baldwin, Inc. 12,300 $ 285,975
Norfolk Southern Corporation 10,900 345,392
----------
631,367
----------
Miscellaneous (6.4%)
Kelly Services, Inc. 10,300 327,025
Michael Foods, Inc. 5,700 171,000
PG&E Corporation 8,773 76,350
Park Electrochemical Corp. 3,700 105,912
----------
880,287
----------
Total common stock (cost: $8,819,261) 12,802,622
----------
Money Market Mutual Funds (4.6%)
Dreyfus Cash Management 293,336 293,336
Merrill Lynch Institutional Fund 335,920 335,920
----------
Total money market mutual funds (cost: $629,256) 629,256
----------
Interest Maturity Principal
Rate Date Amount
-------- -------- ---------
Short-term Notes (2.2%)
John Deere & Co. (cost: $297,420) 5.16% 1/22/99 300,000 297,420
----------
Total Investments (cost: $9,745,937) $13,729,298
===========
*does not pay cash dividends
All investments are in United States enterprises.
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. 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 (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 Fund B 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 law, 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. Fund B 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 and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of increases and decreases in net assets from operations
during the reporting period. Actual results could differ from those estimates.
2. INVESTMENTS
Net realized gain and unrealized appreciation on investments is summarized
below.
Common
Stock
------------
Net Realized Gain:
Proceeds from securities sold $ 4,903,607
Cost of securities sold 2,383,871
------------
$ 2,519,736
============
Net change in Unrealized Appreciation:
Market value at end of period $ 12,802,622
Less: investments purchased (3,910,823)
Add: investments sold at cost 2,383,871
Less: market value at beginning of year (13,004,303)
------------
$(1,728,633)
============
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 risk
charges. The expense incurred during the years ended December 31, 1998 and 1997
was $170,061 and $161,275, 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, 1998 and 1997 was $8,980 and $10,654,
respectively.
4. NET ASSETS
Net Assets as of December 31, 1998:
Proceeds from units sold less payments $(9,407,267)
for units withdrawn and redeemed
Net investment income 4,226,527
Net realized gains 14,930,285
Unrealized appreciation 3,983,361
------------
$ 13,732,906
============
The unrealized appreciation of $3,983,361 consists of common stock appreciation
and depreciation of $4,707,260 and $723,899, respectively.
13
<PAGE>
FINANCIAL HIGHLIGHTS
The per unit amounts are based on average units outstanding throughout the year.
Year Ended December 31
----------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Investment income $ 0.33 $ 0.28 $ 0.26 $ 0.24 $ 0.19
Expenses 0.19 0.16 0.13 0.11 0.10
------ ------ ------ ------ ------
Net investment income 0.14 0.12 0.13 0.13 0.09
Net realized gain and
unrealized appreciation
on investments 0.87 3.42 1.73 1.52 0.07
------ ------ ------ ------ ------
Net increase 1.01 3.54 1.86 1.65 0.16
Value per unit:
Beginning of year 15.31 11.77 9.91 8.26 8.10
------ ------ ------ ------ ------
End of year $16.32 $15.31 $11.77 $ 9.91 $ 8.26
====== ====== ====== ====== ======
Ratio to Average Net Assets:
Expenses 1.20% 1.20% 1.20% 1.20% 1.20%
Net investment income 0.90% 0.90% 1.25% 1.39% 1.16%
Total Return 7.6% 31.2% 19.8% 21.1% 2.94%
Portfolio Turnover Rate 29% 28% 18% 20% 23%
Units outstanding 841 933 1,068 1,264 1,417
(in 000's)
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
FINANCIAL STATEMENTS - AUL
The following statements relate solely to the condition and operations of AUL.
REPORT OF INDEPENDENT ACCOUNTANTS
Report of Independent Accountants
To the Board of Directors
American United Life Insurance Company(R)
Indianapolis, Indiana
In our opinion, the accompanying combined balance sheet and the related combined
statements of operations, policyholders' surplus, and cash flows present fairly,
in all material respects, the financial position of American United Life
Insurance Company(R) and affiliates (the "Company") at December 31, 1998 and
1997, and the results of their operations and their cash flows for years then
ended, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Indianapolis, Indiana
February 26, 1999
15
<PAGE>
<TABLE>
<CAPTION>
COMBINED BALANCE SHEET
December 31 1998 (in millions) 1997
- --------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C>
Investments:
Fixed Maturities:
Available for sale at fair value $ 1,695.4 $ 1,653.8
Held to maturity at amortized cost 2,536.2 2,902.2
Equity securities at fair value 75.1 18.6
Mortgage loans 1,128.5 1,120.4
Real estate 46.6 52.1
Policy loans 144.4 143.1
Short term and other invested assets 64.9 102.0
Cash and cash equivalents 95.7 41.2
- --------------------------------------------------------------------------------------------------------
Total investments 5,786.8 6,033.4
- --------------------------------------------------------------------------------------------------------
Accrued investment income 73.0 79.3
Reinsurance receivables 290.6 244.3
Deferred acquisition costs 451.7 421.2
Property and equipment 56.8 55.5
Insurance premiums in course of collection 66.7 72.9
Other assets 16.1 17.2
Assets held in separate accounts 2,594.6 1,674.0
- --------------------------------------------------------------------------------------------------------
Total assets $9,336.3 $8,597.8
- --------------------------------------------------------------------------------------------------------
Liabilities and policyholders' surplus
Liabilities
Policy reserves $5,339.1 $5,642.9
Other policyholder funds 203.9 177.1
Pending policyholder claims 209.2 164.3
Surplus notes 75.0 75.0
Other liabilities and accrued expenses 180.4 199.9
Liabilities related to separate accounts 2,594.6 1,674.0
- --------------------------------------------------------------------------------------------------------
Total liabilities 8,602.2 7,933.2
- --------------------------------------------------------------------------------------------------------
Unrealized appreciation of securities,
net of deferred income tax 39.5 36.5
Policyholders' surplus 694.6 628.1
- --------------------------------------------------------------------------------------------------------
Total policyholders' surplus 734.1 664.6
- --------------------------------------------------------------------------------------------------------
Total liabilities and policyholders' surplus $9,336.3 $8,597.8
- --------------------------------------------------------------------------------------------------------
16
<PAGE>
COMBINED STATEMENT OF POLICYHOLDERS' SURPLUS
Policyholders' surplus at beginning of year $664.6 $572.8
Net income 66.5 74.3
Change in unrealized appreciation (depreciation)
of securities, net 3.0 17.5
- --------------------------------------------------------------------------------------------------------
Policyholders' surplus at end of year $734.1 $664.6
- --------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
<CAPTION>
COMBINED STATEMENT OF OPERATIONS
Year ended December 31 1998 (in millions) 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Insurance premiums and other considerations $478.5 $413.9
Policy and contract charges 87.7 69.3
Net investment income 452.1 469.5
Realized investment gains 15.8 13.7
Other income 8.9 5.9
- --------------------------------------------------------------------------------------------------------
Total revenues 1,043.0 972.3
- --------------------------------------------------------------------------------------------------------
Benefits and expenses:
Policy benefits $462.4 $386.2
Interest expense on annuities and financial products 231.9 257.3
Underwriting, acquisition and insurance expenses 157.8 131.2
Amortization of deferred acquisition costs 59.7 53.2
Dividends to policyholders 26.4 25.0
Interest expense on surplus notes 5.8 5.8
Other operating expenses 10.2 9.5
- --------------------------------------------------------------------------------------------------------
Total benefits and expenses 954.2 868.2
- --------------------------------------------------------------------------------------------------------
Income before income tax expense 88.8 104.1
Income tax expense 22.3 29.8
- --------------------------------------------------------------------------------------------------------
Net income $ 66.5 $ 74.3
- --------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
<TABLE>
<CAPTION>
COMBINED STATEMENT OF CASH FLOWS
Year ended December 31 1998 (in millions) 1997
- --------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Income $ 66.5 $ 74.3
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of deferred acquisition costs 59.7 53.2
Depreciation 11.2 10.1
Deferred taxes 8.1 7.3
Realized investment gains (15.8) (13.7)
Policy acquisition costs capitalized (94.2) (90.8)
Interest credited to deposit liabilities 225.7 252.1
Fees charged to deposit liabilities (32.7) (32.9)
Amortization and accrual of investment income (10.8) (8.2)
Increase in insurance liabilities 169.6 140.2
Increase in noninvested assets (45.5) (66.3)
Increase in other liabilities (1.8) 35.1
- --------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 340.0 360.4
- --------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases:
Fixed maturities, Held to Maturity (18.7) (120.8)
Fixed maturities, Available for Sale (473.8) (348.3)
Equity securities (63.7) (9.4)
Mortgage loans (183.2) (155.4)
Real estate (4.9) (1.9)
Short term and other invested assets (2.7) (43.3)
Proceeds from sales, calls or maturities:
Fixed maturities, Held to Maturity 388.9 241.2
Fixed maturities, Available for Sale 461.6 335.1
Equity securities 8.1 7.2
Mortgage loans 179.2 149.7
Real estate 4.0 4.3
Short term and other invested assets 39.9 1.6
- --------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 334.7 60.0
- --------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Deposits to insurance liabilities 846.6 713.6
Withdrawals from insurance liabilities (1,467.0) (1,112.5)
Other .2 (.5)
- --------------------------------------------------------------------------------------------------------
Net cash used by financing activities (620.2) (399.4)
- --------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 54.5 21.0
- --------------------------------------------------------------------------------------------------------
Cash and cash equivalents beginning of year 41.2 20.2
- --------------------------------------------------------------------------------------------------------
Cash and cash equivalents end of year $ 95.7 $ 41.2
- --------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Basis of Presentation
- ----------------------------------------------
American United Life Insurance Company(R) (AUL) is an Indiana-domiciled mutual
life insurance company with headquarters in Indianapolis. AUL is licensed to do
business in 48 states and the District of Columbia and is an authorized
reinsurer in all states. AUL offers individual life and annuity products through
its career agent distribution system. AUL's qualified group retirement plans,
tax deferred annuities and other non-medical group products are marketed through
independent agents and brokers, as well as career agents who are supported by 37
regional sales offices located throughout the country. Life and pooled
reinsurance is marketed directly to other insurance companies. In 1998, AUL
International began operations to develop reinsurance partners in Central and
South America. The combined Company financial statements include the accounts of
AUL and its affiliate, The State Life Insurance Company (State Life), and its
subsidiary, Equity Sales Corporation. Significant intercompany transactions have
been excluded.
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles (GAAP). AUL and State Life file
separate financial statements with insurance regulatory authorities which are
prepared on the basis of statutory accounting practices which are significantly
different from financial statements prepared in accordance with GAAP. These
differences are described in detail in Note 9 - Statutory Information.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Investments
- ------------
Fixed maturity securities which may be sold to meet liquidity and other needs of
the Company are categorized as available for sale and are stated at fair value.
Fixed maturity securities which the Company has the positive intent and ability
to hold to maturity are categorized as held-to-maturity and are stated at
amortized cost. Equity securities are stated at fair value. Mortgage loans on
real estate are carried at amortized cost less an impairment allowance for
estimated uncollectible amounts. Real estate is reported at cost less allowances
for depreciation. Depreciation is provided (straight line) over the estimated
useful lives of the related assets. Investment real estate is net of accumulated
depreciation of $31.7 million at December 31, 1998 and 1997. Depreciation
expense for investment real estate amounted to $2.4 million and $2.5 million for
1998 and 1997, respectively. Policy loans are carried at their unpaid balance.
Other invested assets are reported at cost plus the Company's equity in
undistributed net equity since acquisition. Short term investments include
investments with maturities of one-year or less and are carried at cost which
approximates market. Short term certificates of deposit and savings certificates
are considered to be cash equivalents. The carrying amount for cash and cash
equivalents approximates market.
Realized gains and losses on sale or maturity of investments are based upon
specific identification of the investments sold and do not include amounts
allocable to separate accounts. At the time a decline in value of an investment
is determined to be other than temporary, a provision for loss is recorded which
is included in realized investment gains and losses. Unrealized gains and
losses, resulting from carrying available-for-sale securities at fair value, are
reported in policyholders' surplus, net of deferred taxes.
Deferred Policy Acquisition Costs
- ---------------------------------
Those costs of acquiring new business, which vary with and are primarily related
to the production of new business, have been deferred to the extent that such
costs are deemed recoverable. Such costs include commissions, certain costs of
policy underwriting and issue and certain variable agency expenses. These costs
are amortized with interest as follows:
For participating whole life insurance products, over the lesser of 30
years or the lifetime of the policy in relation to the present value of
estimated gross margins from expenses, investments and mortality,
discounted using the expected investment yield.
For universal life-type policies and investment contracts, over the lesser
of the lifetime of the policy or 30 years for life policies or 20 years for
other policies in relation to the present value of estimated gross profits
from surrender charges and investment, mortality and expense margins,
discounted using the interest rate credited to the policy.
For term life insurance products and life reinsurance policies, over the
lesser of the benefit period or 30 years for term life or 20 years for life
reinsurance policies in relation to the ratio of anticipated annual premium
revenue to the anticipated total premium revenue, using the same
assumptions used in calculating policy benefits.
For miscellaneous group life and individual and group health policies,
straight line over the expected life of the policy.
For credit insurance policies, the deferred acquisition cost balance is
primarily equal to the unearned premium reserve multiplied by the ratio of
deferrable commissions to premiums written.
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
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 policies, primarily variable annuity contracts,
equity-based pension and profit sharing plans and variable universal life
policies. The assets of these accounts are legally segregated, and are valued at
fair value. The related liabilities are recorded at amounts equal to the
underlying assets; the fair value of these liabilities is equal to their
carrying amount.
Property and Equipment
- ----------------------
Property and equipment includes real estate owned and occupied by the Company.
Property and equipment is carried at cost, net of accumulated depreciation of
$47.1 million and $41.6 million as of December 31, 1998 and 1997, respectively.
The Company provides for depreciation of property and equipment using the
straight-line method over its estimated useful life. Depreciation expense for
1998 and 1997 was $8.8 million and $7.6 million, respectively.
Premium Revenue and Benefits to Policyholders
- ---------------------------------------------
The premiums and benefits for whole life and term insurance products and certain
annuities with life contingencies (immediate annuities) are fixed and
guaranteed. Such premiums are recognized as premium revenue when due. Group
insurance premiums are recognized as premium revenue over the time period to
which the premiums relate. Benefits and expenses are associated with earned
premiums so as to result in recognition of profits over the life of the
contracts. This association is accomplished by means of the provision for
liabilities for future policy benefits and the amortization of deferred policy
acquisition costs.
Universal life policies and investment contracts are policies with terms that
are not fixed and guaranteed. The terms that may be changed could include one or
more of the amounts assessed the policyholder, premiums paid by the policyholder
or interest accrued to policyholder balances. The amounts collected from
policyholders for these policies are considered deposits, and only the
deductions during the period for cost of insurance, policy administration and
surrenders are included in revenue. Policy benefits and claims that are charged
to expense include interest credited to contracts and benefit claims incurred in
the period in excess of related policy account balances.
Reserves for Future Policy and Contract Benefits
- ------------------------------------------------
Liabilities for future policy benefits for participating whole life policies are
calculated using the net level premium method and assumptions as to interest and
mortality. The interest rate is the dividend fund interest rate and the
mortality rates are those guaranteed in the calculation of cash surrender values
described in the contract. Liabilities for future policy benefits for term life
insurance and life reinsurance policies are calculated using the net level
premium method and assumptions as to investment yields, mortality and
withdrawals. The assumptions are based on projections of past experience and
include provisions for possible unfavorable deviation. These assumptions are
made at the time the contract is issued. Liabilities for future policy benefits
on universal life and investment contracts consist principally of policy account
values plus certain deferred policy fees which are amortized using the same
assumptions and factors used to amortize the deferred policy acquisition costs.
If the future benefits on investment contracts are guaranteed (immediate
annuities with benefits paid for a period certain) the liability for future
benefits is the present value of such guaranteed benefits. Claim liabilities
include provisions for reported claims and estimates based on historical
experience for claims incurred but not reported.
Income Taxes
- ------------
The provision for income taxes includes amounts currently payable and deferred
income taxes resulting from the temporary differences in the assets and
liabilities determined on a tax and financial reporting basis.
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
2. INVESTMENTS:
- ---------------
<TABLE>
<CAPTION>
The book value and fair value of investments in fixed maturity securities by type of
investment were as follows:
December 31, 1998
- --------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------------------
Available for sale: (in millions)
<S> <C> <C> <C> <C>
Obligations of U.S. government, states,
political subdivisions and foreign governments. $ 42.7 $ 5.4 $0.0 $ 48.1
Corporate securities 1,119.7 65.5 4.3 1,180.9
Mortgage-backed securities 440.7 26.0 0.3 466.4
- --------------------------------------------------------------------------------------------------------------------
$ 1,603.1 $ 96.9 $4.6 $ 1,695.4
- --------------------------------------------------------------------------------------------------------------------
Held to maturity:
Obligations of U.S. government, states,
political subdivisions and foreign governments $ 108.8 $ 7.6 $0.0 $ 116.4
Corporate securities. 1,656.4 141.0 2.9 1,794.5
Mortgage-backed securities. 771.0 50.3 0.3 821.0
- --------------------------------------------------------------------------------------------------------------------
$ 2,536.2 $ 198.9 $3.2 $ 2,731.9
- --------------------------------------------------------------------------------------------------------------------
December 31, 1997
- --------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------------------
Available for sale: (in millions)
Available for sale:
Obligations of U.S. government, states,
...political subdivisions and foreign governments $ 47.8 $ 4.0 $0.0 $ 51.8
Corporate securities. 1,064.1 55.5 1.8 1,117.8
Mortgage-backed securities. 456.8 27.6 0.2 484.2
- --------------------------------------------------------------------------------------------------------------------
$ 1,568.7 $ 87.1 $2.0 $1,653.8
- --------------------------------------------------------------------------------------------------------------------
Held to maturity:
Obligations of U.S. government, states,
...political subdivisions and foreign governments $ 124.2 $ 6.2 $0.3 $ 130.1
Corporate securities. 1,854.4 123.4 3.6 1,974.2
Mortgage-backed securities 923.6 55.5 0.2 978.9
- --------------------------------------------------------------------------------------------------------------------
$ 2,902.2 $ 185.1 $4.1 $ 3,083.2
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and fair value of fixed maturity securities at December 31,
1998, by contractual average maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Available for Sale Held to Maturity Total
Amortized Fair Amortized Fair Amortized Fair
(in millions) Cost Value Cost Value Cost Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Due in one year
or less $ 40.7 $ 40.9 $ 72.9 $ 73.9 $ 113.6 $ 114.8
Due after one year
through five years 392.8 404.1 753.4 790.5 1,146.2 1,194.6
Due after five years
through ten years 363.9 383.1 577.7 639.3 941.6 1,022.4
Due after ten years 365.0 400.9 361.2 407.2 726.2 808.1
- --------------------------------------------------------------------------------------------------------------------
1,162.4 1,229.0 1,765.2 1,910.9 2,927.6 3,139.9
Mortgage-backed securities 440.7 466.4 771.0 821.0 1,211.7 1,287.4
- --------------------------------------------------------------------------------------------------------------------
$1,603.1 $1,695.4 $2,536.2 $2,731.9 $4,139.3 $4,427.3
</TABLE>
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
Net investment income consisted of the following:
for years ended December 31 1998 (in millions) 1997
- -------------------------------------------------------------------------
Fixed maturity securities $341.0 $359.4
Equity securities 2.3 2.5
Mortgage loans 98.5 100.9
Real estate 10.7 11.2
Policy loans 8.8 8.8
Other 10.0 7.3
- -------------------------------------------------------------------------
Gross investment income 471.3 490.1
Investment expenses 19.2 20.6
- -------------------------------------------------------------------------
Net investment income $452.1 $469.5
- -------------------------------------------------------------------------
Net realized investment gains and (losses) include write downs and changes in
the reserve for losses on mortgage loans and foreclosed real estate of $(.1)
million and $(1.3) million for 1998 and 1997, respectively. Proceeds from the
sales, maturities or calls of investments in fixed maturities during 1998 and
1997 were approximately $850.5 million and $576.3 million, respectively. Gross
gains of $14.9 million and $11.6 million, and gross losses of $.6 million and
$1.3 million were realized in 1998 and 1997, respectively. The changes in
unrealized appreciation of fixed maturities amounted to approximately $7.2
million and $39.9 million in 1998 and 1997, respectively.
At December 31, 1998, the unrealized appreciation on equity securities of
approximately $2.3 million is comprised of $3.8 million in unrealized gains and
$1.5 million of unrealized losses and has been reflected directly in
policyholders' surplus. The change in the unrealized appreciation of equity
securities amounted to approximately $.1 million and $.9 million in 1998 and
1997, respectively.
The Company maintains a diversified mortgage loan portfolio and exercises
internal limits on concentrations of loans by geographic area, industry, use and
individual mortgagor. At December 31, 1998, the largest geographic concentration
of commercial mortgage loans was in Indiana, California and Florida where
approximately 31% of the portfolio was invested. A total of 40% of the mortgage
loans have been issued on retail properties, primarily backed by long term
leases or guarantees from strong credits.
The Company has outstanding mortgage loan commitments at December 31, 1998, of
approximately $100.3 million. As of December 31, 1998, the carrying value of
investments that produced no income for the previous twelve month period was $.2
million.
3. Insurance Liabilities:
- -------------------------
Insurance liabilities consisted of the following:
<TABLE>
<CAPTION>
(in millions)
- -------------------------------------------------------------------------------------------------------------------------
Withdrawal Mortality or morbidity Interest rate December 31,
assumption assumption assumption 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
Future policy benefits:
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Participating whole life contracts Company Company 2.5% to 6.0% $ 632.7 $ 594.5
experience experience
Universal life-type contracts n/a n/a n/a 381.2 376.4
Other individual life contracts Company Company 2.5% to 8.0% 271.1 216.4
experience experience
Accident and health n/a n/a n/a 55.2 51.0
Annuity products n/a n/a n/a 3,803.7 4,213.6
Group life and health n/a n/a n/a 195.2 191.0
Other policyholder funds n/a n/a n/a 203.9 177.1
Pending policyholder claims n/a n/a n/a 209.2 164.3
- -------------------------------------------------------------------------------------------------------------------------
Total insurance liabilities $5,752.2 $5,984.3
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Participating life insurance policies under generally accepted accounting
principles represent approximately 7% and 9% of the total individual life
insurance in force at December 31, 1998 and 1997, respectively. Participating
policies represented approximately 34% and 39% of life premium income for 1998
and 1997, respectively. The amount of dividends to be paid is determined
annually by the Board of Directors.
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
4. Employees' and Agents' Benefit Plans:
- ----------------------------------------
The Company has a noncontributory defined benefit pension plan covering
substantially all employees. Company contributions to the employee plan are made
periodically in an amount between the minimum ERISA required contribution and
the maximum tax-deductible contribution. Such amounts are expensed as
contributed. Contributions made to the Plan were $2.1 million in 1998 and $2.8
million in 1997.
The following benefit information for the employees' defined benefit plan was
determined by independent actuaries as of January 1, 1998 and 1997,
respectively, the most recent actuarial valuation dates:
1998 (in millions) 1997
- --------------------------------------------------------------------------------
Actuarial present value of
accumulated benefits for the
employees' defined benefit plan $33.6 $28.1
Fair value of plan assets 49.6 39.7
- --------------------------------------------------------------------------------
Funded status $16.0 $11.6
- --------------------------------------------------------------------------------
Net periodic pension cost $ 2.1 $ 2.0
- --------------------------------------------------------------------------------
The assumed discount rate was 7.17% and 7.36% for 1998 and 1997, respectively.
For both 1998 and 1997, the expected return on plan assets was 8.0% and the rate
of compensation increase assumed was 6%. Benefits paid out of the Plan were
approximately $3.1 million in 1998 and $2.6 million in 1997.
The Company has a defined contribution plan and a 401(k) salary
reduction/savings plan for employees. Quarterly contributions covering employees
who have completed one full calendar year of service are made by the Company in
amounts based upon the Company's financial results. Company contributions to the
plan during 1998 and 1997 were $1.7 million and $1.5 million, respectively.
The Company has a defined contribution pension plan and a 401(k) plan covering
substantially all of the agents, except general agents. Contributions of 3% to
4 1/2% of defined commissions (plus 3% to 41/2% for commissions over the Social
Security wage base) are made to the pension plan. An additional contribution of
3% of defined commissions is made to a 401(k) plan. Company contributions
expensed for these plans for 1998 and 1997 were $257,000 and $268,000,
respectively.
The funds for all plans are held by the Company under deposit administration and
group annuity contracts.
The Company also provides certain health care and life insurance benefits
(postretirement benefits) for retired employees and certain agents (retirees).
Employees and agents with at least 10 years of plan participation may become
eligible for such benefits if they reach retirement age while working for the
Company.
Accrued postretirement benefits as of December 31: 1998 (in millions) 1997
================================================================================
Accumulated postretirement benefit obligation $9.5 $9.3
Net postretirement benefit cost 1.2 1.0
Company contributions .7 .7
- --------------------------------------------------------------------------------
There are no specific plan assets for this postretirement liability as of
December 31, 1998 and 1997. Claims incurred for benefits were funded by company
contributions.
The assumed discount rate used in determining the accumulated postretirement
benefit was 7.00% and the assumed health care cost trend rate was 10% graded to
5% until 2004. Compensation rates were assumed to increase 6% at each year end.
The health coverage for retirees 65 and over is capped in the year 2000. The
health care cost trend rate assumption has an effect on the amounts reported. An
increase in the assumed health care cost trend rates by one percentage point
would increase the accumulated postretirement benefit obligation as of December
31, 1998, by $152,000 and increase the accumulated postretirement benefit cost
for 1998 by $16,000.
23
<PAGE>
5. Federal Income Taxes:
- ------------------------
A reconciliation of the income tax attributable to continuing operations
computed at U.S. federal statutory tax rates to the income tax expense included
in the statement of operations follows:
for years ended December 31 1998 (in millions) 1997
- ------------------------------------------------------------------------------
Income tax computed at statutory tax rate $31.0 $36.3
Tax exempt income (2.0) (1.5)
Mutual company differential earnings amount 4.3 6.1
Prior year differential earnings amount (10.2) (3.7)
Other (0.8) (7.4)
- ------------------------------------------------------------------------------
Federal income tax $22.3 $29.8
- ------------------------------------------------------------------------------
The components of the provision for income taxes on earnings included current
tax provisions of $14.2 million and $22.5 million for the years ended December
31, 1998 and 1997, respectively, and deferred tax expense of $8.1 million and
$7.3 million for the years ended December 31, 1998 and 1997, respectively.
Deferred income tax assets (liabilities)
- --------------------------------------------------------------------------------
as of December 31: 1998 1997
- --------------------------------------------------------------------------------
Deferred policy acquisition costs $(148.8) $(137.0)
Investments (11.1) (12.0)
Insurance liabilities 158.9 154.7
Unrealized appreciation of securities (23.6) (21.9)
Other (6.1) (4.7)
- --------------------------------------------------------------------------------
Deferred income tax assets (liabilities) $ (30.7) $ (20.9)
- --------------------------------------------------------------------------------
Federal income taxes paid were $10.6 million and $28.6 million for 1998 and
1997, respectively.
6. Reinsurance:
- ---------------
The Company is a party to various reinsurance contracts under which it receives
premiums as a reinsurer and reimburses the ceding companies for portions of the
claims incurred. At December 31, 1998 and 1997, life reinsurance assumed was
approximately 74% and 71%, respectively, of life insurance in force.
For individual life policies, the Company cedes the portion of the total risk in
excess of $1,500,000. For other policies, the Company has established various
limits of coverage it will retain on any one policyholder and cedes the
remainder of such coverage.
Certain statistical data with respect to reinsurance follows:
for years ended December 31 1998 1997
- --------------------------------------------------------------------------------
Direct statutory premiums $374.1 $369.4
Reinsurance assumed 329.7 253.9
Reinsurance ceded 150.2 132.3
- --------------------------------------------------------------------------------
Net premiums 553.6 491.0
- --------------------------------------------------------------------------------
Reinsurance recoveries $146.4 $ 103.4
The Company accounts for all reinsurance agreements as transfers of risk. If
companies to which reinsurance has been ceded are unable to meet obligations
under the reinsurance agreements, the Company would remain liable. Six
reinsurers account for approximately 66% of the Company's December 31, 1998,
ceded reserves for life and accident and health insurance. The remainder of such
ceded reserves is spread among numerous reinsurers.
7. Surplus Notes and Lines of Credit:
- -------------------------------------
On February 16, 1996, the Company issued $75 million of Surplus Notes, due March
30, 2026. Interest is payable semi-annually on March 30, and September 30 at a
7.75% annual rate. Any payment of interest on or principal of the Notes may be
made only with the prior approval of the Commissioner of the Indiana Department
of Insurance. The Surplus Notes may not be redeemed at the option of AUL or any
holder of the Surplus Notes. Interest paid during 1998 was $5.8 million. The
Company has available a $125 million committed credit facility. No amounts have
been drawn as of December 31, 1998.
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
8. Commitments and Contingencies:
- ---------------------------------
Various lawsuits have arisen in the ordinary course of the Company's business.
In each of the matters, the Company believes the ultimate resolution of such
litigation will not result in any material adverse impact to operations or
financial condition of the Company.
In 1997, AUL signed an investment agreement with Indianapolis Life Insurance
Company (Indianapolis Life) and Indianapolis Life Group of Companies (ILGroup),
a downstream holding company of Indianapolis Life, with a purpose of creating an
affiliation under a mutual holding company structure. At December 31, 1998, AUL
has invested $49.5 million in ILGroup in exchange for a 33.2% ownership. In
1998, AUL signed an affiliation agreement with Pioneer Mutual Life Insurance
Company, who joined with AUL, Indianapolis Life and State Life contemplating
future integration of the companies in a mutual holding company structure.
9. Statutory Information:
- ---------------------------
AUL and State Life prepare statutory financial statements in accordance with
accounting principles and practices prescribed or permitted by the Indiana
Department of Insurance. Prescribed statutory accounting practices (SAP)
currently include state laws, regulations and general administrative rules
applicable to all insurance enterprises domiciled in a particular state, as well
as practices described in National Association of Insurance Commissioners'
(NAIC) publications.
A reconciliation of SAP surplus to GAAP surplus at December 31 follows:
- --------------------------------------------------------------------------------
for years ended December 31 1998 (in millions) 1997
- --------------------------------------------------------------------------------
SAP surplus $496.5 $464.2
Deferred policy acquisition costs 481.8 447.4
Adjustments to policy reserves (306.0) (303.1)
Asset valuation and interest maintenance reserves 88.9 86.1
Unrealized gain on invested assets, net 39.5 36.5
Surplus notes (75.0) (75.0)
Deferred income taxes (6.7) 1.0
Other, net 15.1 7.5
- --------------------------------------------------------------------------------
GAAP surplus $734.1 $664.6
- --------------------------------------------------------------------------------
A reconciliation of SAP net income to GAAP net income for the years ended
December 31 follows:
- --------------------------------------------------------------------------------
for years ended December 31 1998 (in millions) 1997
- --------------------------------------------------------------------------------
SAP income $33.5 $41.8
Deferred policy acquisition costs 34.5 37.6
Adjustments to policy reserves (3.7) (9.2)
Deferred income taxes (8.1) (7.3)
Other, net 10.3 11.4
- --------------------------------------------------------------------------------
GAAP net income $66.5 $74.3
- --------------------------------------------------------------------------------
Life insurance companies are required to maintain certain amounts of assets on
deposit with state regulatory authorities. Such assets had an aggregate carrying
value of $4.9 million at December 31, 1998.
10. Fair Value of Financial Instruments:
- ----------------------------------------
The disclosure of fair value information about certain financial instruments is
based primarily on quoted market prices. The fair values of short-term
investments and policy loans approximate the carrying amounts reported in the
balance sheets. Fair values for fixed maturity and equity securities, and
surplus notes are based on quoted market prices where available. For fixed
maturity securities not actively traded, fair values are estimated using values
obtained from independent pricing services, or in the case of private
placements, are estimated by discounting expected future cash flows using a
current market rate applicable to the yield, credit quality and maturity of the
investments.
The fair value of the aggregate mortgage loan portfolio was estimated by
discounting the future cash flows using current rates at which similar loans
would be made to borrowers with similar credit ratings for similar maturities.
The estimated fair values of the liabilities for policyholder funds approximate
the statement values because interest rates credited to account balances
approximate current rates paid on similar funds and are not generally guaranteed
beyond one year. Fair values for other insurance reserves are not required to be
disclosed. However, the estimated fair values for all insurance liabilities are
taken into consideration in the Company's overall management of interest rate
risk, which minimizes exposure to changing interest rates through the matching
of investment maturities with amounts due under insurance contracts. The fair
values of certain financial instruments along with their corresponding carrying
values at December 31, 1998 and 1997 follow.
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
1998 (in millions) 1997
- --------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amounts Value Amounts Value
- --------------------------------------------------------------------------------
Fixed maturity securities:
Available for sale $1,695.4 $1,695.4 $1,653.8 $1,653.8
Held to Maturity 2,536.2 2,731.9 2,902.2 3,083.2
Equity securities 75.1 75.1 18.6 18.6
Mortgage loans 1,128.5 1,202.1 1,120.4 1,201.0
Policy loans 144.4 144.4 143.1 143.1
Surplus notes 75.0 80.5 75.0 79.5
- --------------------------------------------------------------------------------
26
<PAGE>
================================================================================
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.
AUL has filed a Registration Statement with the Securities and Exchange
Commission, Washington, D.C. For further information regarding the AUL American
Individual Unit Trust, AUL and its variable annuities, please reference the
Registration statement and the exhibits filed with it or incorporated into it.
All contracts referred to in this prospectus are also included in that filing.
================================================================================
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, 1999
================================================================================
<PAGE>
1
Part C: Other Information
ITEM 28(A): FINANCIAL STATEMENTS AND EXHIBITS.
Financial Statements
Included in Prospectus (Part A):
Expense Summary (3)
Condensed Financial Information - Per Unit Income and Capital
Changes in a Fund B Accumulation Unit (3)
Included in Statement of Additional Information (Part B):
Financial Statements of American United Life Pooled Equity
Fund B (3)
Report of Independent Accountants
Statement of Net Assets - December 31, 1998
Statement of Operations - December 31, 1998
Statement of Changes in Net Assets - December 31, 1998 and 1997
Schedule of Investments - December 31, 1998
Notes to Financial Statements
Financial Highlights years ended December 31, 1998, 1997, 1996,
1995, & 1994
Financial Statements of American United Life Insurance
Company(R) (3)
Report of Independent Accountants
Combined Balance Sheet - Assets, Liabilities and Policyowners'
Surplus as of December 31, 1998 and 1997
Combined Statement of Operations for the years ended
December 31, 1998 and 1997
Combined Statement of Policyowners' Surplus for the years ended
December 31, 1998 and 1997
Combined Statement of Cash Flows for the years ended
December 31, 1998 and 1997
Notes to Financial Statements
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......................................(1)
(3) Custodial Agreement between AUL, Fund B, and
National City Bank ................................................(1)
(4) Investment Management Services Agreement between AUL and Fund B .....(1)
(5) Sales and Administrative Services Agreement between AUL and Fund B ..(1)
(6) Form of Variable Annuity Contracts and Certificates
6.1 TDA Group variable annuity contract for 403(b)
Plans, Form TA-VA-TP ........................................(1)
6.2 Individual Participant's certificate for
403(b) Plans, Form TA-VA-C ..................................(1)
6.3 Group variable annuity contract for use with
Employee Pension Plans, Form TA-VAQ-TP.......................(1)
6.4 Individual Participant's certificate for use with
Employee Pension Plans, Form TA-VAQ-C........................(1)
6.5 Group variable annuity contract for
HR-10 Plans, Form TA-VAH-TP .................................(1)
6.6 Individual Participants certificate for
HR-10 Plans, Form TA-VAH-C ..................................(1)
6.7 Group variable annuity contract for
408 Plans, Form TA-VA-9894 ..................................(1)
6.8 Individual Participant's certificate for
408 Plans, Form VA-9896 .....................................(1)
6.9 Group variable annuity contract for
457 Programs, Form VA-10515 .................................(1)
(1) Refiled in Registrant's Post Effective Amendment No. 42, Form N-3,
File Number 811-1571, on April 30, 1998.
(2) Filed in Registrant's Post Effective Amendment No. 42, Form N-3, File
Number 811-1571, on April 30, 1998.
(3) Filed in Registrant's Post Effective Amendment No. 44, Form N-3,
File No. 811-1571, on April 30, 1999.
<PAGE>
2
ITEM 28(B): EXHIBITS (CONTINUED).
(7) Application for Fund B contracts ....................................(1)
(8.1) Articles of Merger between American Central Life
Insurance Company and United Mutual Life
Insurance Company .................................................(1)
(8.2) Certification of the Indiana Secretary of State as to
the filing of the Articles of Merger between American
Central Life Insurance Company and United Mutual Life
Insurance Company .................................................(1)
(8.3) Code of By-Laws of AUL ..............................................(1)
(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 Counsel .........................(1)
(13.1) Powers of Attorney ..................................................(1)
(13.2) Consent of Independent Accountant ...................................(3)
(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..........................(3)
(1) Refiled in Registrant's Post Effective Amendment No. 42, Form N-3,
File Number 811-1571, on April 30, 1998.
(2) Filed in Registrant's Post Effective Amendment No. 42, Form N-3, File
Number 811-1571, on April 30, 1998.
(3) Filed in Registrant's Post Effective Amendment No. 44, Form N-3,
File No. 811-1571, on April 30, 1999.
ITEM 29: DIRECTORS AND SENIOR OFFICERS OF AMERICAN UNITED LIFE INSURANCE
COMPANY(R)
<TABLE>
<CAPTION>
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
- -------------------- --------------------- -------------- --------------------------
<S> <C> <C> <C>
John H. Barbre* Senior Vice President None None
John R. Barton* Senior Vice President None Vice President, Group Operations, Wausau
Ins. Co. (5/98-12/98); Consultant, Heron
Management Group (4/97-5/98); President &
CEO, The Epoch Group (1/95-4/97)
Steven C. Beering M.D. Director None President, Purdue University;
Purdue University Director, Lilly (Eli) and Company;
West Lafayette, Indiana Director, Arvin Industries;
Director, NIPSCO Industries, Inc.;
Director, State Life Ins. Co.
William R. Brown* General Counsel and None Secretary, State Life Insurance Company
Secretary
*One American Square
Indianapolis, Indiana
<PAGE>
3
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
- -------------------- --------------------- -------------- --------------------------
Arthur L. Bryant Director None Chairman of the Board & President, State Life
141 E. Washington St. Insurance Company
Indianapolis, Indiana
James E. Cornelius Director None Chairman of the Board, Guidant Corporation;
P.O. Box 44906 Director, State Life Insurance Company;
Indianapolis, Indiana Director, National Bank of Indianapolis;
Director, Lilly Industries, Inc.
Director, Chubb Corporation
James E. Dora Director None Chairman of the Board, President, Chief
P.O. Box 42908 Executive Officer and Owner, General
Indianapolis, Indiana Hotels Corporation; Director, NBD Bank, N.A.
(10/93-5/99); Director, State Life Insurance
Company
Otto N. Frenzel III Director and Chairman None Chairman, Executive Committee, National City
101 W. Washington St., Suite 400E of the Audit Committee Bank Indiana; Director: Indiana Gas Company;
Indianapolis, Indiana Indianapolis Power & Light Co.; Baldwin & Lyons,
Inc.; IPALCO Enterprises, Inc.; Indiana Energy,
Inc.; National City Corp. (10/92-4/98); State
Life Insurance Company
David W. Goodrich Director None Executive Vice President & Treasurer, F.C.
One American Square, Suite 2500 Tucker Company (1/86-5/98); Director: State Life
Indianapolis, Indiana Insurance Company; Irwin Financial Corp.;
Citizens Gas & Coke Utility; Vice Chairman,
Clarian Health Partners; President, Indianapolis
Colliers Turley martin Tucker (formerly F.C.
Tucker Company)
Catherine B. Husman* Vice President and
Chief Actuary
William P. Johnson Director None Chairman of the Board & CEO: Goshen Rubber Co.,
1525 S. 10th St. Inc.; GSH Corp.; GRN Corp.; Goshen Rubber of
Goshen, Indiana Canada, Ltd.; Syracuse Rubber Co.; Bond-Flex
Rubber Co.; Palmer Plastics; Dayton Polymrics;
GR Plastics; ETI Incorporated; GKI Incorporated;
Prolon, Inc; Yeasel, Inc.; Bower Mfg.; GNC Corp;
Director, Society Bank Ind.(formerly Trustcorp
Inc.), So. Bend, IN; Member of Advisory Comm.,
Society Bank Ind., Goshen, IN; Director,
Coachman Industries Inc.; Petro Go, Inc.; Flair
Inc.; Lightfoot Enterprises; State Life
Insurance Company; First Source Bank; Kootnz
Wagner
<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
- -------------------- --------------------- -------------- --------------------------
Scott A. Kincaid* Senior Vice President None None
Charles D. Lineback* Senior Vice President None None
James T. Morris Director and Chairman None Chairman & CEO, Indianapolis Water Co.;
1220 Waterway Boulevard of the Salary and President, Chairman & CEO, IWC Resources
Indianapolis, Indiana Nominating Committee Corp.; Director: National City Bank Corp.;
Paul Harris; State Life Insurance Company
James W. Murphy* Senior Vice President; Chairman & Chairman of the Board & President, AUL
Director, President & Member of the American Series Fund, Inc.,
Treasurer, AUL Sales Board of
Equity Corp. Managers
Jerry L. Plummer* Senior Vice President None None
R. Stephen Radcliffe* Director & Executive Member of Director, State Life Insurance Company
Vice President; Chairman the Board of
of the Board, AUL Equity Managers
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.; Bank One Corporation;
Indianapolis, Indiana Herff Jones Corp; State Life Insurance Company
William R. Riggs* Director None Partner, Ice Miller Donadio & Ryan;
Director, State Life Insurance Company
*One American Square
Indianapolis, Indiana
<PAGE>
5
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
- -------------------- --------------------- -------------- --------------------------
G. David Sapp* Senior Vice President; None None
Director, AUL Equity
Sales Corp.
John C. Scully Director None President and CEO, LIMRA International
2636 Ocean Dr., # 505 (6/92-11/97); Director, State Life Insurance
Vero Beach, Florida Company
Jerry D. Semler* Chairman of the Board, None IWC Resources Corp; Chairman of the Board &
President, Chief Executive CEO, State Life Insurance Company
Officer, Chairman, AUL
Acquisition Committee
Yvonne H. Shaheen Director None President and Chief Executive Officer, Long
1310 S. Franklin Rd. Electric Co.; Director, State Life Ins. Co.;
Indianapolis, Indiana E.F.S.; Consultant, Methodist Hospital/Clarion
(MMG)
James P. Shanahan* Retired, formerly Senior Member, Director, AUL American Series Fund;
Vice President (1/84-1/98) Board of Vice President & Treasurer, AUL American Series
Managers Fund (3/90-3/98)
William L. Tindall* Senior Vice President None Senior Vice President, Pension Management Sales,
Mass Mutual Ins. Co. (1/93-7/97)
Frank D. Walker Director None Chairman of the Board, Walker Information,
P.O. Box 80432 Inc.; Managing Partner, W. R. Properties
Indianapolis, Indiana (6/84-1/98); Director: Citizen's Gas & Coke
Utility; NBD Bank N.A. Indiana (4/88-4/98);
State Life Insurance Company; Advisor, Wild
Birds Unlimited, Inc.
</TABLE>
*One American Square,
Indianapolis, Indiana
<PAGE>
6
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 Reinsurance Managers of Princeton, LLC,
("Princeton") a limited liability company organized under the laws of Delaware
on July 1, 1996. Princeton is a reinsurance intermediary for certain
catastrophic or pooled risks. AUL's affiliation allows it the opportunity to
participate in this reinsurance business.
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
as a broker-dealer to market mutual funds.
AUL American Unit Trust and AUL American Individual Unit Trust are separate
accounts of AUL, organized for the purpose of the sale of group and individual
variable annuity contracts, respectively.
AUL American Individual Variable Life Unit Trust is a separate account of AUL,
organized for the purpose of the sale of individual variable life insurance
products.
AUL American Series Fund, Inc. (the "Fund") was incorporated under the laws
of Maryland on July 26, 1989 and is registered as an open-end, diversified
management investment company under the Investment Company Act of 1940. As a
"series" type of mutual Fund, the Fund issues shares of common stock relating to
separate investment portfolios. Substantially all of the Fund's shares were
originally purchased by AUL in connection with the initial capitalization of the
Fund. On December 31, 1998, AUL owned 6.57% of the outstanding shares of
Registrant's Equity Portfolio, 9.99% of Registrant's Tactical Asset Allocation
Portfolio, 81.97% of Registrant's Conservative Investor Portfolio, 75.83% of
Registrant's Moderate Investor Portfolio, and 77.61% of Registrant's Aggressive
Investor Portfolio. AUL would, therefore, would be able to control any issue
submitted to the vote of shareholders of the Conservative Investor Portfolio,
the Moderate Investor Portfolio, and the Aggressive Investor Portfolio.
INDIANAPOLIS LIFE INSURANCE COMPANY is an Indiana domestic mutual insurance
company whose principal business is the sale of life insurance and annuity
contracts. On November 3, 1997 AUL entered into an Agreement to Affiliate and an
Investment Agreement with Indianapolis Life. The Indiana Insurance
Commissioner's Findings of Fact, Conclusions of Law and Order was filed
regarding AUL's agreements with Indianapolis Life on December 19, 1997. Under
the agreements, AUL initially invested $27 million in Indianapolis Life's wholly
owned downstream holding company, Indianapolis Life Group of Companies, Inc., a
portion of this investment occurring on December 30, 1997 and the remainder on
March 30, 1998. On June 30, 1998, AUL invested another $4,166,000, on December
31, 1998 AUL invested $18,375,000, and on March 31, 1999, AUL invested another
$4,500,000. At the present time, AUL holds an equity interest of approximately
33% in Indianapolis Life Group of Companies, Inc. These investments are pursuant
to the agreements which also provide, in part, for the two insurers to
eventually affiliate under the same mutual holding company structure as soon as
state law permits. Currently, that matter is pending before the Indiana General
Assembly.
PIONEER MUTUAL LIFE INSURANCE COMPANY is a North Dakota domestic mutual
insurance company whose principal business is the sale of life insurance and
annuity contracts. On November 10, 1998, AUL became a party to an agreement,
along with Indianapolis Life Insurance Company, whereby Pioneer Mutual will
eventually become a part of the mutual holding company structure noted above. On
March 31, 1999, AUL purchased a Surplus Note issued by Pioneer Mutual Life
Insurance Company in the amount of $10,000,000.
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 383 as of
December 31, 1998.
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 $8,979 $---- $---- $----(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 ($42,515), and for mortality risk and expense charges ($127,545) 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.
<PAGE>
8
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, 1999.
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, 1999
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, 1999
Ronald D. Anderson*
__________________________________________ Member, Board of Managers April 30, 1999
Leslie Lenkowsky*
__________________________________________ Member, Board of Managers April 30, 1999
R. Stephen Radcliffe*
__________________________________________ Member, Board of Managers April 30, 1999
James P. Shanahan*
/s/ Richard A. Wacker
__________________________________________
*By: Richard A. Wacker as Attorney-in-fact
Date: April 30, 1999
</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, 1999.
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, 1999
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, 1999
Steven C. Beering M.D.*
_______________________________________________ Director April 30, 1999
Arthur L. Bryant*
_______________________________________________ Director April 30, 1999
James E. Cornelius*
_______________________________________________ Director April 30, 1999
James E. Dora*
_______________________________________________ Director April 30, 1999
Otto N. Frenzel III*
_______________________________________________ Director April 30, 1999
David W. Goodrich*
<PAGE>
10
SIGNATURES (Continued)
Signature Title Date
- --------- ----- ----
_______________________________________________ Director April 30, 1999
William P. Johnson*
_______________________________________________ Director April 30, 1999
James T. Morris*
_______________________________________________ Principal Financial April 30, 1999
James W. Murphy* and Accounting Officer
_______________________________________________ Director April 30, 1999
R. Stephen Radcliffe*
_______________________________________________ Director April 30, 1999
Thomas E. Reilly Jr*
_______________________________________________ Director April 30, 1999
William R. Riggs*
_______________________________________________ Director April 30, 1999
John C. Scully*
_______________________________________________ Director April 30, 1999
Yvonne H. Shaheen*
_______________________________________________ Director April 30, 1999
Frank D. Walker*
</TABLE>
/s/ Richard A. Wacker
_______________________________________________
*By: Richard A. Wacker as Attorney-in-fact
Date: April 30, 1999
<PAGE>
11
EXHIBIT LIST
Exhibit
Number in Exhibit
Form N-3, Numbering Name of
Item 28(b) Value Exhibit
- --------- --------- -------
13 EX-99.B13.2 Consent of Independent Accountants
17 EX-27 Electronic Filers - Financial Data Schedule
- --------------------------------------------------------------------------------
EXHIBIT 13.2
CONSENT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
Consent of Independent Accountants
Board of Directors
American United Life Insurance Company(R)
Indianapolis, Indiana
We consent to the inclusion in Post-Effective Amendment No. 44 to the
Registration Statement of American United Life Pooled Equity Fund B (the "Fund")
on Form N-3 (File No. 2-27832) in the Statement of Additional Information of:
(1) Our report dated February 1, 1999, on our audits of the financial
statements of the Fund; and
(2) Our report dated February 26, 1999, on our audits of the financial
statements of American United Life Insurance Company.
We also consent to the reference to our Firm under the caption "Independent
Accountant" in the Statement of Additional Information.
/s/ PricewaterhouseCoopers LLP
Indianapolis, Indiana
April 30, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000005966
<NAME> American United Life Pooled Equity Fund B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 9,745,937
<INVESTMENTS-AT-VALUE> 13,729,298
<RECEIVABLES> 18,229
<ASSETS-OTHER> 41,328
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 13,788,855
<PAYABLE-FOR-SECURITIES> 42,350
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 13,599
<TOTAL-LIABILITIES> 55,949
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 841,122
<SHARES-COMMON-PRIOR> 932,682
<ACCUMULATED-NII-CURRENT> 4,226,527
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 14,930,285
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,983,361
<NET-ASSETS> 13,732,906
<DIVIDEND-INCOME> 273,460
<INTEREST-INCOME> 23,697
<OTHER-INCOME> 0
<EXPENSES-NET> 170,061
<NET-INVESTMENT-INCOME> 127,096
<REALIZED-GAINS-CURRENT> 2,519,736
<APPREC-INCREASE-CURRENT> (1,728,633)
<NET-CHANGE-FROM-OPS> 918,199
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 17,400
<NUMBER-OF-SHARES-REDEEMED> 108,960
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (546,630)
<ACCUMULATED-NII-PRIOR> 4,099,431
<ACCUMULATED-GAINS-PRIOR> 12,410,549
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 42,515
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 170,061
<AVERAGE-NET-ASSETS> 14,143,021
<PER-SHARE-NAV-BEGIN> 15.31
<PER-SHARE-NII> 0.14
<PER-SHARE-GAIN-APPREC> 0.87
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.32
<EXPENSE-RATIO> 1.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
