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1
As filed with the Securities and Exchange Commission on April 30, 1997
File No. 33-31375
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE
[X] SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No. ____
[X] Post-Effective Amendment No. 14
and/or
REGISTRATION STATEMENT UNDER THE
[X] INVESTMENT COMPANY ACT OF 1940
[X] Amendment No. 15
(Check appropriate box or boxes)
AUL AMERICAN UNIT TRUST
(Exact Name of Registrant)
AMERICAN UNITED LIFE INSURANCE COMPANY(R)
(Name of Depositor)
One American Square, Indianapolis, Indiana 46282
(Address of Depositor's Principal Executive Offices)(Zip Code)
Depositor's Telephone Number: (317) 263-1877
Richard A. Wacker, One American Square, Indianapolis, Indiana 46282
(Name and Address of Agent for Service)
Title of Securities Being Registered: Interests in group variable annuity
contracts
Declaration Pursuant to Rule 24f-2: Pursuant to Rule 24f-2 under the Investment
Company Act of 1940, the Registrant has registered an indefinite number or
amount of securities under the Securities Act of 1933. Registrant will file its
notice pursuant to Rule 24f-2 for its fiscal year ending December 31, 1997 on or
before February 28, 1998.
It is proposed that this filing will become effective (Check appropriate Space)
immediately upon filing pursuant to paragraph (b) of Rule 485
X on May 1, 1997 pursuant to paragraph (b) of Rule 485
_____ --------------
_____ 60 days after filing pursuant to paragraph (a)(i) of Rule 485
_____ on (date) pursuant to paragraph (a)(1) of Rule 485
_____ 75 days after filing pursuant to paragraph (a)(ii)
_____ on (date) pursuant to paragraph (a) (ii) of Rule 485
_____ this post-effective amendment designates a new effective date for a
previously filed amendment.
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CROSS REFERENCE SHEET
Pursuant to Rule 495
Showing Location in Part A (Prospectus) and Part B (Statement of Additional
Information) of Registration Statement of Information Required by Form N-4
PART A - PROSPECTUS
Item of Form N-4 Prospectus Caption
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1. Cover Page ...........................Cover Page
2. Definitions ..........................Definitions
3. Synopsis .............................Summary; Expense Table
4. Condensed Financial Information ......Condensed Financial Information
5. General Description ..................Information About AUL, The Variable
Account, and the Funds; Voting
Shares of the Funds
6. Deductions and Expenses ..............Charges and Deductions
7. General Description of Variable
Annuity Contracts ...................The Contracts; Contributions and
Contract Values During the
Accumulation Period; Cash
Withdrawals and Death Benefits;
Summary
8. Annuity Period .......................Annuity Period
9. Death Benefit ........................Cash Withdrawals and The Death Benefit
10. Purchase and Policy Values ...........Contributions and Contract Values
During the Accumulation Period
11. Redemptions ..........................Cash Withdrawals and The Death Benefit
12. Taxes ................................Federal Tax Matters
13. Legal Proceedings ....................Other Information
14. Table of Contents for the Statement
of Additional Information ...........Statement of Additional Information
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PART B - STATEMENT OF ADDITIONAL INFORMATION
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Statement of Additional Statement of Additional
Information Item of Form N-4 Information Caption
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15. Cover Page ...........................Cover Page
16. Table of Contents ....................Table of Contents
17. General Information and History ......General Information and History
18. Services .............................Custody of Assets; Independent
Accountants
19. Purchase of Securities Being Offered .Distribution of Contracts;
(Prospectus) Charges and
and Deductions
20. Underwriters .........................Distribution of Contracts
21. Calculation of Performance Data ......Performance Information
22. Annuity Payments .....................(Prospectus) Annuity Period
23. Financial Statements .................Financial Statements
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PART C - OTHER INFORMATION
Item of Form N-4 Part C Caption
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24. Financial Statements and Exhibits ....Statement of Additional Information)
Financial Statements and Exhibits
25. Directors and Officers of the
Depositor ...........................Directors and Officers of AUL
26. Persons Controlled By or Under
Common Control with Depositor
or Registrant .......................Persons Controlled By or Under Common
Control With the Depositor or
Registrant
27. Number of Policyowners ...............Number of Contractholders
28. Indemnification ......................Indemnification
29. Principal Underwriters ...............Principal Underwriters
30. Location of Accounts and Records .....Location of Accounts and Records
31. Management Services ..................Management Services
32. Undertakings .........................Undertakings
33. Signature Page .......................Signatures
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<PAGE>
PROSPECTUS
for
AUL American Unit Trust
AUL American Series Fund, Inc.
Dated May 1, 1997
Sponsored by:
American United Life Insurance Company(R)
P.O. Box 6148
Indianapolis, Indiana 46206-6148
AUL
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Prospectus
AUL American Unit Trust
GROUP VARIABLE ANNUITY CONTRACTS
Offered By
American United Life Insurance Company(R)
One American Square
Indianapolis, Indiana 46282
(800) 634-1629
Annuity Service Office Mailing Address:
P.O. Box 6148, Indianapolis, Indiana 46206-6148
The date of this Prospectus is May 1, 1997.
This Prospectus describes group annuity contracts (the "Contracts") offered
by American United Life Insurance Company(R) ("AUL" or the "Company"). The
Contracts are designed for use in connection with employer, association, and
other group retirement plans (each a "Plan") that qualify for favorable
tax-deferred treatment as retirement programs under Sections 401, 403(b), 408,
or 457 of the Internal Revenue Code of 1986, as amended. The Contracts may be
entered into by any employer, association, or other group.
This Prospectus describes several types of Contracts, including Contracts
for which contributions may vary in amount and frequency, subject to certain
limitations ("Recurring Contribution Contracts") and Contracts for which only a
single contribution may be made ("Single Contribution Contracts"). As of the
date of this Prospectus, Single Contribution Contracts are available only for
use in connection with retirement plans that meet the requirements of Sections
403(b) and 408 of the Internal Revenue Code. All of the Contracts provide for
the accumulation of values on either a variable basis, a fixed basis, or both.
The Contracts also provide several options for fixed annuity payments to begin
on a future date.
Contributions designated to accumulate on a variable basis may be allocated
to one or more of the Investment Accounts that comprise a separate account of
AUL called AUL American Unit Trust (the "Variable Account"). Each Investment
Account of the Variable Account invests in shares of one of the following mutual
funds:
<TABLE>
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Portfolio Mutual Fund Investment Adviser
<S> <C> <C>
AUL American Equity AUL American Series Fund, Inc. American United Life Insurance Company(R)
AUL American Bond AUL American Series Fund, Inc. American United Life Insurance Company(R)
AUL American Managed AUL American Series Fund, Inc. American United Life Insurance Company(R)
AUL American Money Market AUL American Series Fund, Inc. American United Life Insurance Company(R)
AUL Tactical Asset Allocation AUL American Series Fund, Inc. American United Life Insurance Company(R)
Alger American Growth Alger American Fund Fred Alger & Company
American Century International Growth American Century World Mutual Funds, Inc. American Century Investment Management, Inc.
American Century Select American Century Mutual Funds, Inc. American Century Investment Management, Inc.
American Century Ultra American Century Mutual Funds, Inc. American Century Investment Management, Inc.
American Century VP Capital Appreciation American Century Variable Portfolios, Inc. Investors Research Corporation
Calvert Capital Accumulation Acacia Capital Corporation Calvert Management Corporation
Fidelity Asset Manager Fidelity Variable Insurance Products Fund II Fidelity Management & Research Company
Fidelity Contrafund Fidelity Variable Insurance Products Fund II Fidelity Management & Research Company
Fidelity Equity-Income Fidelity Variable Insurance Products Fund Fidelity Management & Research Company
Fidelity Growth Fidelity Variable Insurance Products Fund Fidelity Management & Research Company
Fidelity High Income Fidelity Variable Insurance Products Fund Fidelity Management & Research Company
Fidelity Index 500 Fidelity Variable Insurance Products Fund II Fidelity Management & Research Company
Fidelity Overseas Fidelity Variable Insurance Products Fund Fidelity Management & Research Company
Invesco Dynamics Invesco Dynamics Fund, Inc. Invesco Funds Group, Inc.
Janus Flexible Income Janus Aspen Series Janus Capital Corporation
Janus Growth Janus Aspen Series Janus Capital Corporation
PBHG Emerging Growth PBHG Funds, Inc. Pilgrim Baxter & Associates, Inc.
PBHG Growth PBHG Funds, Inc. Pilgrim Baxter & Associates, Inc.
PBHG Growth II PBHG Insurance Series Fund, Inc. Pilgrim Baxter & Associates, Ltd.
PBHG Technology & Communication PBHG Insurance Series Fund, Inc. Pilgrim Baxter & Associates, Ltd.
SAFECO Equity SAFECO Resource Series Trust SAFECO Asset Management Company
SAFECO Growth SAFECO Resource Series Trust SAFECO Asset Management Company
T. Rowe Price Equity Income T. Rowe Price Equity Series, Inc. T. Rowe Price Associates, Inc.
Vanguard Explorer Vanguard Explorer Fund, Inc. Wellington Management Company &
Granahan Investment Management, Inc.
Vanguard Short Term Federal Bond Vanguard Fixed Income Securities Fund, Inc. Vanguard Group, Inc.
</TABLE>
Contributions may be allocated to one or more Investment Accounts available
under a Contract. Not all of the Investment Accounts may be available under a
particular Contract and some of the Investment Accounts are either not available
for certain types of Contracts or are not in operation as of the date of this
Prospectus. Contributions allocated to an Investment Account of the Variable
Account will increase or decrease in dollar value depending on the investment
performance of the corresponding mutual fund portfolio in which the Investment
Account invests. These amounts are not guaranteed.
Contributions designated to accumulate on a fixed basis may be allocated to
AUL's Fixed Account and will earn interest at rates that are paid by AUL as
described in "The Fixed Account."
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2
This Prospectus concisely sets forth information about the Contracts and
the Variable Account that a prospective investor should know before investing.
Certain additional information is contained in a "Statement of Additional
Information," dated May 1, 1997, which has been filed with the Securities and
Exchange Commission (the "SEC"). The Statement of Additional Information is
incorporated by reference into this Prospectus. A copy may be obtained without
charge by calling or writing to AUL at the telephone number or address indicated
above. The table of contents of the Statement of Additional Information is
located at the end of this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS ACCOMPANIED BY THE CURRENT PROSPECTUSES FOR
THE MUTUAL FUND OR FUNDS BEING CONSIDERED. EACH OF THESE PROSPECTUSES
SHOULD BE READ CAREFULLY AND RETAINED FOR FUTURE REFERENCE.
(This page left intentionally blank.)
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TABLE OF CONTENTS
Description Page
DEFINITIONS............................................. 4-5
SUMMARY................................................. 6-9
Purpose of the Contracts.............................. 6
Types of Contracts.................................... 6
The Variable Account and the Funds.................... 6
Fixed Account......................................... 6
Contributions......................................... 6
Transfers............................................. 7
Withdrawals........................................... 7
The Death Benefit..................................... 7
Annuity Options....................................... 7
Charges............................................... 7
Withdrawal Charge.................................... 7
Premium Tax Charge................................... 8
Mortality and Expense Risk Charge.................... 8
Administrative Charge................................ 8
Expenses of the Funds................................ 8
Ten-Day Free Look..................................... 8
Termination by the Owner.............................. 8
Contacting AUL........................................ 9
EXPENSE TABLE........................................... 9-13
CONDENSED FINANCIAL INFORMATION......................... 14-15
PERFORMANCE OF THE INVESTMENT
ACCOUNTS.............................................. 15-16
INFORMATION ABOUT AUL, THE VARIABLE
ACCOUNT, AND THE FUNDS................................ 16-21
American United Life Insurance Company(R)............. 16
Variable Account...................................... 17
The Funds............................................. 17
AUL American Series Fund, Inc........................ 18
Acacia Capital Corporation........................... 18
Alger American Fund.................................. 18
American Century Mutual Funds, Inc................... 18
American Century Variable Portfolios, Inc............ 19
American Century World Mutual Funds, Inc............. 19
Fidelity Variable Insurance Products Fund............ 19
Fidelity Variable Insurance Products Fund II......... 19
Invesco Dynamics Fund, Inc........................... 20
Janus Aspen Series................................... 20
PBHG Funds, Inc...................................... 20
PBHG Insurance Series Fund, Inc...................... 20
SAFECO Resource Series Trust......................... 21
T. Rowe Price Equity Series, Inc..................... 21
Vanguard Explorer Fund, Inc.......................... 21
Vanguard Fixed Income Securities Fund, Inc........... 21
THE CONTRACTS........................................... 21-22
General............................................... 21
CONTRIBUTIONS AND CONTRACT VALUES
DURING THE ACCUMULATION PERIOD........................ 22-24
Contributions under the Contracts..................... 22
Ten-Day Free Look..................................... 22
Initial and Single Contributions...................... 22
Allocation of Contributions........................... 22
Subsequent Contributions Under Recurring
Contribution Contracts............................... 23
Transfers of Account Value............................ 23
Participant's Variable Account Value.................. 23
Accumulation Units................................... 23
Accumulation Unit Value.............................. 23
Net Investment Factor................................ 23
DOLLAR COST AVERAGING................................... 24
CASH WITHDRAWALS AND THE DEATH
BENEFIT............................................... 24-28
Cash Withdrawals...................................... 24
Systematic Withdrawal Service for 403(b) and
408 Programs......................................... 25
Constraints on Withdrawals............................ 25
General.............................................. 25
403(b) Programs...................................... 25
Texas Optional Retirement Program.................... 26
The Death Benefit..................................... 26
Termination by the Owner.............................. 26
Termination by AUL.................................... 27
Payments from the Variable Account.................... 28
CHARGES AND DEDUCTIONS.................................. 28-30
Premium Tax Charge.................................... 28
Withdrawal Charge..................................... 28
Mortality and Expense Risk Charge..................... 29
Variable Investment Plus Factor....................... 29
Administrative Charge................................. 30
Other Charges......................................... 30
Variations in Charges................................. 30
Guarantee of Certain Charges.......................... 30
Expenses of the Funds................................. 30
ANNUITY PERIOD.......................................... 30-31
General............................................... 30
Annuity Options....................................... 31
Option 1 - Life Annuity.............................. 31
Option 2 - Certain and Life Annuity.................. 31
Option 3 - Survivorship Annuity...................... 31
Option 4 - Unit Refund Life Annuity.................. 31
Option 5 - Fixed Periods............................. 31
Selection of an Option................................ 31
THE FIXED ACCOUNT....................................... 32-34
Interest.............................................. 32
Withdrawals and Transfers............................. 32
Transfer of Interest Option........................... 33
Contract Charges...................................... 33
Payments from the Fixed Account....................... 33
Loans from the Fixed Account.......................... 33
MORE ABOUT THE CONTRACTS................................ 34
Designation and Change of Beneficiary................. 34
Assignability......................................... 34
Proof of Age and Survival............................. 34
Misstatements......................................... 34
Acceptance of New Participants or Contributions....... 34
FEDERAL TAX MATTERS..................................... 35-37
Introduction.......................................... 35
Tax Status of the Company and
the Variable Account................................. 35
Tax Treatment of Retirement Programs.................. 35
Employee Benefit Plans................................ 35
403(b) Programs....................................... 36
408 Programs.......................................... 36
457 Programs.......................................... 36
Tax Penalty........................................... 36
Withholding........................................... 36
Effect of Tax-Deferred Accumulation................... 37
OTHER INFORMATION....................................... 38-39
Voting of Shares of the Funds......................... 38
Substitution of Investments........................... 38
Changes to Comply with Law and Amendments............. 39
Reservation of Rights................................. 39
Periodic Reports...................................... 39
Legal Proceedings..................................... 39
Legal Matters......................................... 39
PERFORMANCE INFORMATION................................. 39-40
STATEMENT OF ADDITIONAL
INFORMATION........................................... 40
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4
DEFINITIONS
Various terms commonly used in this Prospectus are defined as follows:
ACCOUNT DATE - The date on which a Participant's initial contribution is applied
to a Participant's Account and on which AUL begins to determine account values.
It is the date used to determine Account Years and Account Anniversaries.
ACCUMULATION PERIOD - The period commencing on a Participant's Account Date and
terminating when the Participant's Account is closed, either through a
surrender, withdrawal(s), annuitization, payment of charges, payment of the
death benefit, or a combination thereof.
ACCUMULATION UNIT - A unit of measure used to record amounts of increases to,
decreases from, and accumulations in the Investment Accounts of the Variable
Account during the Accumulation Period.
ANNUITANT - The person or persons on whose life annuity payments depend.
ANNUITY - A series of payments made by AUL to an Annuitant or Beneficiary during
the period specified in the Annuity Option.
ANNUITY COMMENCEMENT DATE - The first day of any month in which an annuity
begins under a Contract, which shall not be later than the required beginning
date under applicable federal requirements.
ANNUITY OPTIONS - Options under a Contract that prescribe the provisions under
which a series of annuity payments are made to an Annuitant, contingent
Annuitant, or Beneficiary.
ANNUITY PERIOD - The period during which annuity payments are made.
AUL - American United Life Insurance Company(R)
BENEFICIARY - The person having the right to the death benefit, if any, payable
during the Accumulation Period, and the person having the right to benefits, if
any, payable upon the death of an Annuitant during the Annuity Period under any
Annuity Option other than a survivorship option (i.e., Option 3 - under which
the contingent Annuitant has the right to benefits payable upon the death of an
Annuitant).
BUSINESS DAY - A day on which AUL's Home Office is customarily open for
business. Traditionally, in addition to federal holidays, AUL is not open for
business on the day after Thanksgiving and either the day before or after
Christmas or Independence Day.
CERTIFICATE - The document for each Participant that evidences the coverage of
the Participant under a Contract.
CONTRACT DATE - The date shown as the Contract Date in a Contract. It will not
be later than the date any contribution is accepted under a Contract, and it is
the date used to determine Contract Months, Contract Years, and Contract
Anniversaries.
CONTRACT YEAR - A period beginning with one Contract Anniversary, or, in the
case of the first Contract Year, beginning on the Contract Date, and ending the
day before the next Contract Anniversary. The first Contract Year may, at the
request of the Owner, be less than 12 months so that the Contract Year will
coincide with the Owner's accounting year. Thereafter, each Contract Year will
consist of a 12 month period.
CONTRIBUTIONS - Any amount deposited under a Contract by a Participant or by an
Owner or other duly authorized entity on behalf of a Participant under a 403(b)
Program, a 408 Program, or an Employee Benefit Plan, or by an Employer in
connection with a 457 Program. Depending on the type of Contract, contributions
may be made on a recurring basis or on a single premium basis. To allow the
consolidation of funds from different sources, contributions made under single
premium contracts may be made for a period of twelve months, measured from the
date of first deposit. After this twelve month period, no further single premium
contributions to that specific Account will be accepted.
EMPLOYEE BENEFIT PLAN - A pension or profit sharing plan established by an
Employer for the benefit of its employees and which is qualified under Section
401 of the Internal Revenue Code.
EMPLOYER - A tax-exempt or public school organization or other employer with
respect to which a Contract has been entered into for the benefit of its
employees. In some cases, a trustee or custodian may act as the Owner for
Participants. In this case, rights usually reserved to the Employer will be
exercised either directly by the employees or through such trustee or custodian,
which will act as the agent of such employees.
EMPLOYER SPONSORED 403(B) PROGRAM - A 403(b) Program to which an Employer makes
contributions on behalf of its employees by means other than a salary reduction
arrangement, or other 403(b) Program that is subject to the requirements of
Title I of the Employee Retirement Income Security Act of 1974, as amended.
FIXED ACCOUNT - An account that is part of AUL's General Account in which all or
a portion of a Participant's Account Value may be held for accumulation at fixed
rates of interest paid by AUL.
FUNDS - AUL American Series Fund, Inc., Acacia Capital Corporation, Alger
American Fund, American Century Mutual Funds, Inc., American Century Variable
Portfolios, Inc., American Century World Mutual Funds, Inc., Fidelity Variable
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Insurance Products Fund, Fidelity Variable Insurance Products Fund II, Invesco
Dynamics Fund, Inc., Janus Aspen Series, PBHG Funds, Inc., PBHG Insurance Series
Fund, Inc., SAFECO Resource Series Trust, T. Rowe Price Equity Series, Inc.,
Vanguard Explorer Fund, Inc., and Vanguard Fixed Income Securities Fund, Inc.
Each of the Funds is a diversified, open-end management investment company
commonly referred to as a mutual fund.
GENERAL ACCOUNT - All assets of AUL other than those allocated to the Variable
Account or to any other separate account of AUL.
HOME OFFICE - The Annuity Service Office at AUL's principal business office, One
American Square, Indianapolis, Indiana 46282.
HR-10 PLAN - An Employee Benefit Plan established by a self-employed person
in accordance with Section 401 of the Internal Revenue Code.
INVESTMENT ACCOUNT - A sub-account of the Variable Account that invests in
shares of a specific Portfolio of AUL American Series Fund, Inc., Acacia Capital
Corporation, Alger American Fund, American Century Mutual Funds, Inc, American
Century Variable Portfolios, Inc., American Century World Mutual Funds, Inc.,
Fidelity Variable Insurance Products Fund, Fidelity Variable Insurance Products
Fund II, Invesco Dynamics Fund, Inc., Janus Aspen Series, PBHG Funds, Inc., PBHG
Insurance Series Fund, Inc., SAFECO Resource Series Trust, T. Rowe Price Equity
Series, Inc., Vanguard Explorer Fund, Inc., and Vanguard Fixed Income Securities
Fund, Inc. Not all of the Investment Accounts may be available under a
particular Contract and some of the Investment Accounts are either not available
for certain types of Contracts or are not in operation as of the date of this
Prospectus.
OWNER - The employer, association, trust, or other entity entitled to the
ownership rights under the Contract and in whose name or names the Contract is
issued. A trustee or custodian may be designated to exercise an owner's rights
and responsibilities under a Contract in connection with a retirement plan that
meets the requirements of Sections 401, 408, or 457 of the Internal Revenue
Code. An administrator, custodian, or other person performing similar functions
may be designated to exercise an Owner's responsibilities under a Contract in
connection with a 403(b) Program. The term "Owner," as used in this Prospectus,
shall include, where appropriate, such a trustee, custodian, or administrator.
PARTICIPANT - An eligible employee, member, or other person named in the
Certificate who is entitled to benefits under the Plan as determined and
reported to AUL by the Owner or other duly authorized entity.
PARTICIPANT'S ACCOUNT - An account established for each Participant.
PARTICIPANT'S ACCOUNT VALUE - The current value of a Participant's Account under
a Contract, which is equal to the sum of a Participant's Fixed Account Value and
Variable Account Value. Initially, it is equal to the initial contribution, and
thereafter will reflect the net result of contributions, investment experience,
charges deducted, loans, and any partial withdrawals taken.
PARTICIPANT'S FIXED ACCOUNT VALUE - The total value of a Participant's interest
in the Fixed Account.
PARTICIPANT'S VARIABLE ACCOUNT VALUE - The total value of a Participant's
interest in the Investment Accounts of the Variable Account.
PARTICIPANT'S WITHDRAWAL VALUE - A Participant's Account Value minus the
applicable withdrawal charge and minus the Participant's outstanding loan
balances, if any, and any expense charges due thereon.
PLAN - The retirement plan or plans in connection with which the Contract is
issued and any subsequent amendment to such a plan.
VALUATION DATE - Each date on which the Variable Account is valued, which
currently includes each Business Day that is also a day on which the New York
Stock Exchange is open for trading.
VALUATION PERIOD - A period used in measuring the investment experience of each
Investment Account of the Variable Account. The Valuation Period begins at the
close of one Valuation Date and ends at the close of the next succeeding
Valuation Date.
VARIABLE ACCOUNT - AUL American Unit Trust, which is a separate account of AUL,
and whose assets and liabilities are maintained separately from those of AUL's
General Account.
403(B) PROGRAM - An arrangement by a public school organization or a charitable,
educational, or scientific organization that is described in Section 501(c)(3)
of the Internal Revenue Code under which employees are permitted to take
advantage of the Federal income tax deferral benefits provided for in Section
403(b) of the Internal Revenue Code.
408 PROGRAM - A plan of individual retirement accounts or annuities, including a
simplified employee pension plan or SIMPLE IRA plan established by an employer,
that meets the requirements of Section 408 of the Internal Revenue Code.
457 PROGRAM - A plan established by a unit of a state or local government or
a tax-exempt organization under Section 457 of the Internal Revenue Code.
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6
SUMMARY
This summary is intended to provide a brief overview of the more
significant aspects of the Contracts. Further detail is provided in this
Prospectus, the Statement of Additional Information, and the Contracts. Unless
the context indicates otherwise, the discussion in this summary and the
remainder of the Prospectus relates to the portion of the Contracts involving
the Variable Account. The Fixed Account is briefly described under "The Fixed
Account" and in the pertinent Contract.
PURPOSE OF THE CONTRACTS
The group variable annuity contracts ("Contracts") described in this
Prospectus are offered for use in connection with retirement plans that meet the
requirements of Sections 401, 403(b), 408, or 457 of the Internal Revenue Code
(collectively, "Plans"). A Contract presents a dynamic concept in retirement
planning designed to give employers and employees and other Participants in
Plans flexibility in attaining investment goals. A Contract provides for the
accumulation of values on a variable basis, a fixed basis, or both, and provides
several options for fixed annuity payments. During the Accumulation Period, a
Participant can pursue various investment options by allocating contributions to
the Investment Accounts of the Variable Account or to the Fixed Account. See
"The Contracts."
TYPES OF CONTRACTS
AUL offers several types of contracts that are described in this
Prospectus. These include Recurring Contribution Contracts under which
contributions may vary in amount and frequency, subject to the limitations
described below. Recurring Contribution Contracts are available for use in
connection with retirement plans that meet the requirements of Sections 401,
403(b), 408, or 457 of the Internal Revenue Code. AUL also offers Single
Contribution Contracts which require a minimum contribution of at least
$100,000. As of the date of this Prospectus, Single Contribution Contracts are
available only for use in connection with retirement plans that meet the
requirements of Sections 403(b) and 408 of the Internal Revenue Code.
THE VARIABLE ACCOUNT AND THE FUNDS
Contributions designated to accumulate on a variable basis are allocated to
the Variable Account. See "Variable Account." The Variable Account is currently
divided into sub-accounts referred to as Investment Accounts. Each Investment
Account invests exclusively in shares of a specific mutual fund or in shares of
a specific Portfolio of one of the following mutual funds: AUL American Series
Fund, Inc., Acacia Capital Corporation, Alger American Fund, American Century
Mutual Funds, Inc., American Century Variable Portfolios, Inc., American Century
World Mutual Funds, Inc., Fidelity Variable Insurance Products Fund, Fidelity
Variable Insurance Products Fund II, Invesco Dynamics Fund, Inc., Janus Aspen
Series, PBHG Funds, Inc., PBHG Insurance Series Fund, Inc., SAFECO Resource
Series Trust, T. Rowe Price Equity Series, Inc., Vanguard Explorer Fund, Inc.,
and Vanguard Fixed Income Securities Fund, Inc. (the "Funds"). Each of the
mutual funds or Portfolios of the Funds has a different investment objective or
objectives. AUL American Series Fund, Inc. offers the Equity, Bond, Money
Market, Managed and Tactical Asset Allocation Portfolios. Acacia Capital
Corporation offers the Calvert Capital Accumulation Portfolio. The Alger
American Fund offers the Alger American Growth Portfolio. The American Century
Mutual Funds, Inc. offers the Select and Ultra Portfolios. The American Century
Variable Portfolios, Inc. offers the VP Capital Appreciation Portfolio. The
American Century World Mutual Funds, Inc. offers the International Growth
Portfolio. The Fidelity Variable Insurance Products Fund offers the
Equity-Income, Growth, High Income and Overseas Portfolio. The Fidelity Variable
Insurance Products Fund II offers the Asset Manager, Contrafund, and Index 500
Portfolios. Invesco Dynamics Fund, Inc. offers the Invesco Dynamics Fund. The
Janus Aspen Series offers the Worldwide Growth and the Flexible Income
Portfolios. PBHG Funds, Inc. offers the PBHG Emerging Growth and the PBHG Growth
Funds. The PBHG Insurance Series Fund, Inc. offers the PBHG Growth II and the
Technology & Communications Portfolios. The SAFECO Resource Series Trust offers
the Equity and Growth Portfolios. The T. Rowe Price Equity Series, Inc. offers
the Equity Income Portfolio. Vanguard Explorers Fund, Inc. offers the Vanguard
Explorer Fund. Vanguard Fixed Income Securities Fund, Inc. offers the Vanguard
Short Term Federal Bond Portfolio. Contributions may be allocated to one or more
Investment Accounts available under a Contract. Not all Investment Accounts may
be available under a particular Contract, and some of the Investment Accounts
either are not available for certain types of Contracts or are not in operation
as of the date of this Prospectus. The value of the Accumulation Units held in
an Investment Account will increase or decrease in dollar value depending on the
investment performance of the corresponding Portfolio of a Fund in which the
Investment Account invests. A Participant bears the investment risk for amounts
allocated to an Investment Account of the Variable Account.
FIXED ACCOUNT
Contributions designated to accumulate on a fixed basis may be allocated to
the Fixed Account, which is part of AUL's General Account. Amounts allocated to
the Fixed Account earn interest at rates periodically determined by AUL that are
guaranteed to be at least an effective annual rate of 4%. See "The Fixed
Account."
CONTRIBUTIONS
For Recurring Contribution Contracts, contributions may vary in amount and
frequency, but contributions for each Participant under a Contract used for a
403(b) Program must total at least $200 each Contract Year. Contributions for
each Participant under a Recurring Contribution Contract used for
<PAGE>
7
any other Plan must total at least $300 each Contract Year. In addition, the
maximum and minimum amounts that may be contributed under a Plan may be subject
to limitations depending on the type of Plan. In a Single Contribution Contract,
contributions for each Participant must be at least $100,000. Contributions of
less than $100,000 will initially be allocated to a Recurring Contribution
Contract. To allow the consolidation of assets from different sources,
Participants will be allowed a twelve month period, measured from the date of
first deposit, to reach the $100,000 minimum required contribution for Single
Contribution Contracts. If less than $100,000 is received and allocated to a
Recurring Contribution Contract, but the $100,000 required minimum contribution
for Single Contribution Contracts is received within the twelve month period,
measured from the date of the first deposit, then the Participant's Account
Value will be immediately transferred from the Recurring Contribution Contract
to a Single Contribution Contract pursuant to the terms of a Transfer Agreement
between AUL and the Participant. However, after this twelve month period, no
further contributions will be accepted under Single Contribution Contracts and
any subsequent contributions will be allocated to a Recurring Contribution
Contract, unless the $100,000 minimum contribution for establishing an
additional Participant's Account under a Single Contribution Contract is made.
See "Contributions under the Contracts."
TRANSFERS
A Participant's Variable Account Value may be transferred among the
Investment Accounts of the Variable Account that are available under the
Contract or to the Fixed Account at any time during the Accumulation Period.
Part of a Participant's Fixed Account Value may be transferred to one or more
available Investment Accounts of the Variable Account during the Accumulation
Period, subject to certain restrictions. The minimum transfer from any
Investment Account or from the Fixed Account is the lesser of $500 or a
Participant's entire Account Value in that Investment Account or in the Fixed
Account, provided however, that amounts transferred from the Fixed Account to an
Investment Account during any given Contract Year cannot exceed 20% of the
Participant's Fixed Account Value as of the beginning of that Contract Year.
However, if a Participant's Fixed Account Value at the beginning of the Contract
Year is less than $2,500, the amount that will be transferred for that Contract
Year from the Fixed Account is the lesser of $500 or the entire Fixed Account
Value as of the date the transfer request is received by AUL at its Home Office.
If, after any transfer, the Participant's remaining Account Value in an
Investment Account or in the Fixed Account would be less than $500, then such
request will be treated as a request for a transfer of the entire Account Value.
See "Transfers of Account Value."
WITHDRAWALS
At any time before the Annuity Commencement Date, a Participant's Account
may be surrendered or a partial withdrawal may be taken from a Contract or a
Participant's Account subject to the provisions of the Contract. The minimum
amount that may be withdrawn from a Participant's Account Value in any one
Investment Account or the Fixed Account is the lesser of $500 or the
Participant's entire Account Value in the Investment Account or Fixed Account as
of the date the withdrawal request is received by AUL at its Home Office. If a
partial withdrawal is requested that would leave a Participant's Account Value
in the Fixed Account or any Investment Account, from whichever the withdrawal is
requested, less than $500, then such request will be treated as a request for a
full surrender from the Fixed Account or Investment Account. See "Cash
Withdrawals."
Certain retirement programs, such as 403(b) Programs, are subject to
constraints on withdrawals and full surrenders. See "Constraints on
Withdrawals." In addition, distributions under certain retirement programs may
result in a tax penalty. See "Tax Penalty." A withdrawal or surrender may also
be subject to a withdrawal charge. See "Withdrawal Charge."
THE DEATH BENEFIT
If a Participant dies during the Accumulation Period, AUL will pay a death
benefit to the Beneficiary. The amount of the death benefit is equal to the
vested portion of the Participant's Account Value minus any outstanding loan
balances and any due and unpaid charges on those loans. If the death of the
Participant occurs on or after the Annuity Commencement Date, no death benefit
will be payable, except as may be provided under the Annuity Option elected. See
"The Death Benefit" and "Annuity Options."
ANNUITY OPTIONS
The Contracts provide for several optional fixed Annuity Options, any one
of which may be elected if permitted by the applicable Plan and applicable law.
Payments under the Annuity Options will be fixed and guaranteed by AUL. See
"Annuity Period."
CHARGES
Certain charges will be deducted in connection with the operation of the
Contracts and the Variable Account:
WITHDRAWAL CHARGE - AUL does not impose a sales charge at the time a
contribution is made to a Participant's Account under a Contract. If a cash
withdrawal is made or a Participant's Account is surrendered, a withdrawal
charge (which may also be referred to as a contingent deferred sales charge) may
be assessed by AUL where the Participant's Account has not been in existence for
a certain period of time (see chart below). No withdrawal charge will be taken
on or after the Annuity Commencement Date or upon payment of a death benefit
under a Contract. Under certain Contracts known as "benefit responsive"
Contracts, withdrawal charges are not imposed for payment of retirement, death,
disability, termination of employment, hardship, loan, age 70 1/2 required
minimum distribution benefits, or benefits upon attainment of age 59 1/2
(provided that the age 59 1/2 benefit is a taxable distribution paid to the
Participant and not to any other person or entity, including any alternative or
substitute funding medium). For certain other Contracts known as "modified
benefit responsive" Contracts, withdrawal charges are not imposed for cash
lump-sum payments of death benefits. Withdrawal charges are also not imposed for
cash lump-sum payments provided the Participant has (1) attained age 55 and has
10 years of service with the employer identified in the Plan, or (2) attained
age 62, and is receiving benefits for retirement, dis-
<PAGE>
8
<TABLE>
<CAPTION>
Charge on Withdrawal Exceeding 10% Allowable Amount
---------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11 or
Account Year 1 2 3 4 5 6 7 8 9 10 more
- -------------- - - - - - - - - -- ----
Recurring
Contribution
Contracts 8% 8% 8% 8% 8% 4% 4% 4% 4% 4% 0%
Single
Contribution
Contracts 6% 5% 4% 3% 2% 1% 0% 0% 0% 0% 0%
</TABLE>
ability, termination of employment, hardships, loans, or required minimum
distribution benefits pursuant to Internal Revenue Code Section 401(a)(9) and
Regulations issued thereunder, or for benefits upon attainment of age 59 1/2
(provided that such benefit upon attainment of age 59 1/2 is a taxable
distribution paid to the Participant and not to any other person or entity,
including any substitute funding medium).
For the first two Contract Years that a Participant's Account exists, the
amount withdrawn during a Contract Year that will not be subject to an otherwise
applicable withdrawal charge is 10% of (i) the total of all contributions made
during the year that the withdrawal is being made, plus (ii) the Participant
Account Value at the beginning of the Contract Year. After the first two
Contract Years, and until the withdrawal charge has decreased to 0% (the
eleventh year for Recurring Contribution Contracts and the seventh year for
Single Contribution Contracts), the amount withdrawn during a Contract Year that
will not be subject to a withdrawal charge is 10% of the Participant's Account
Value at the beginning of the Contract Year in which the withdrawal is being
made.
If a Participant's contributions were initially allocated to a Recurring
Contribution Contract and then transferred to a Single Contribution Contract
pursuant to the terms of a Transfer Agreement between AUL and the Participant
when the required minimum of $100,000 was reached, then for purposes of
establishing the number of Account Years that an account has been in existence,
credit will be given for the time that the contributions were in the Recurring
Contribution Contract.
If a surrender or a withdrawal in excess of this 10% allowable amount is
made to pay a non-benefit responsive benefit, a withdrawal charge will be
assessed on the amount withdrawn in excess of the 10% allowable amount. The
chart above illustrates the amount of the withdrawal charge that applies to the
different types of contracts based on the number of years that the Account has
been in existence. However, the total withdrawal charge will never exceed 9% of
total contributions made by or on behalf of a Participant. See "Withdrawal
Charge" on page 25.
PREMIUM TAX CHARGE - Various states and municipalities impose a tax on
premiums received by insurance companies. AUL assesses a premium tax charge to
reimburse itself for premium taxes that it incurs, which usually will be
deducted at the time annuity payments commence. Premium taxes currently range
from 0% to 3.5%, but are subject to change by such governmental entities. See
"Premium Tax Charge."
MORTALITY AND EXPENSE RISK CHARGE - AUL deducts a daily charge in an amount
equal to an annual rate of 1.25% of the average daily net assets of each
Investment Account of the Variable Account for mortality and expense risks that
AUL assumes in connection with the Contracts. For certain contracts, a portion
of the mortality and expense risk charges may be credited back to Participant
accounts based on aggregate variable investment account assets and payment of a
fee per Participant, at the election of the contract holder.
ADMINISTRATIVE CHARGE - Under Recurring Contribution Contracts, AUL deducts
from a Participant's Account an administrative charge equal to the lesser of
0.5% of the Participant's Account Value or $7.50 per quarter. The charge is
assessed every quarter on a Participant Account if the account exists on the
quarterly Contract Anniversary, and is assessed only during the Accumulation
Period. Such charge may be billed to the Owner in a "benefit responsive"
Employer Sponsored 403(b) Contract or in a combined contract which contains both
Employee Benefit Plan contributions and 403(b) contributions. There is no
Administrative Charge imposed on Single Contribution Contracts or on some
Recurring Contribution contracts. See "Administrative Charge."
EXPENSES OF THE FUNDS - Each Investment Account of the Variable Account
purchases shares of the corresponding Portfolio of one of the Funds at the net
asset value of such shares. The net asset value reflects investment advisory
fees and other expenses paid by each Portfolio. See the Funds' Prospectuses for
a description of these fees and expenses.
TEN-DAY FREE LOOK
Under 403(b) and 408 Contracts, the Owner has the right to return the
Contract for any reason within ten days of receipt. If this right is exercised,
the Contract will be considered void from its inception and any contributions
will be fully refunded.
TERMINATION BY THE OWNER
An Owner of a Contract acquired in connection with an Employee Benefit
Plan, a 457 Program, or an Employer Sponsored 403(b) Program may terminate the
Contract by sending proper written notice of termination to AUL at its Home
Office. Upon termination of such a Contract, the Owner may elect from two pay-
<PAGE>
9
ment options. Under one option, AUL will assess an Investment Liquidation Charge
on a Participants' Fixed Account Withdrawal Value from Contracts acquired in
connection with Employee Benefit Plans and 457 Programs (but not Employer
Sponsored 403(b) Programs). Under the second payment option, AUL will not assess
an Investment Liquidation Charge; however, amounts attributable to the aggregate
Withdrawal Values derived from the Fixed Account of all Participants under the
Contract shall be paid in six or seven
(depending on the Contract) equal annual installments, starting with the first
Contract Anniversary immediately succeeding the effective date of termination.
For more information on termination by an Owner, including information on the
payment options and the Investment Liquidation Charge, see "Termination by the
Owner."
CONTACTING AUL
All written requests, notices, and forms required by the Contracts, and any
questions or inquiries should be directed to AUL at the address of the Annuity
Service Office provided in the front of this Prospectus.
<TABLE>
<CAPTION>
EXPENSE TABLE
The purpose of the following table is to assist investors in understanding
the various costs and expenses that Participants in the Contracts bear directly
and indirectly. The table reflects expenses of the Variable Account as well as
the Funds. Expenses of the Variable Account shown under "Participant Transaction
Expenses" (including the withdrawal charge and annual contract fee) and
"Variable Account Annual Expenses" are fixed and specified under the terms of
the Contract. Expenses of the Funds as shown under "Fund Annual Expenses" are
not fixed or specified under the terms of the Contract, and may vary from year
to year. The fees in this Expense Table have been provided by the Funds and have
not been independently verified by AUL. The table does not reflect premium taxes
that may be imposed by various jurisdictions. See "Premium Tax Charge." The
information contained in the table is not generally applicable to amounts
allocated to the Fixed Account or to annuity payments under an Annuity Option.
For a complete description of a Contract's costs and expenses, see "Charges and Deductions." For a more complete
description of the Funds' costs and expenses, see the Funds' Prospectuses.
<S> <C>
Participant Transaction Expenses
Maximum withdrawal charge................................................................................................ 8%
Recurring Contribution Contracts(1)..................................................................................... 8%
Single Contribution Contracts(2)........................................................................................ 6%
Maximum administrative charge (per year)(3).............................................................................. $30
Variable Account Annual Expenses (as a percentage of average account value)
Mortality and expense risk fee...........................................................................................1.25%(4)
Fund Annual Expenses After Expense Limitation (as a percentage of average net assets of each Portfolio)
<S> <C> <C> <C> <C>
Total Port-
Management/ Other 12b-1 folio Annual
Portfolio Advisory Fee Expenses Fees Expenses
- --------- ------------ --------- ----- --------
AUL American Series Fund, Inc.:
Equity Portfolio 0.50%(5) 0.20% -- 0.70%
Bond Portfolio 0.50%(5) 0.21% -- 0.71%
Managed Portfolio 0.50%(5) 0.20% -- 0.70%
Money Market Portfolio 0.50%(5) 0.20% -- 0.70%
Tactical Asset Allocation Portfolio 0.68%(5) 0.32% -- 1.00%
<FN>
(1) For the first two Contract Years that a Participant's Account exists, the
amount withdrawn during a Contract Year that will not be subject to an otherwise
applicable withdrawal charge is 10% of (i) the total of all contributions made
during the year that the withdrawal is being made, plus (ii) the Participant's
Account Value at the beginning of the Contract Year. After the first two
Contract Years, and until the withdrawal charge has decreased to 0%, the amount
withdrawn during a Contract Year that will not be subject to a withdrawal charge
is 10% of the Participant's Account Value at the beginning of the Contract Year
in which the withdrawal is being made. The withdrawal charge, which is applied
to amounts withdrawn in excess of the 10% allowable amount, decreases from 8% to
4% for Account years 6 through 10, and to 0% thereafter. See "Withdrawal
Charge."
(2) For the first two Contract Years that a Participant's Account exists, the
amount withdrawn during a Contract Year that will not be subject to an otherwise
applicable withdrawal charge is 10% of (i) the total of all contributions made
during the year that the withdrawal withdrawal is being made, plus (ii) the
Participant's Account Value at the beginning of the Contract Year. After the
first two Contract Years, and until the withdrawal charge has decreased to 0%,
the amount withdrawn during a Contract Year that will not be subject to a
withdrawal charge is 10% of the Participant's Account Value at the beginning of
the Contract Year in which the withdrawal is being made. The withdrawal charge,
which is applied to amounts withdrawn in excess of the 10% allowable amount,
decreases by 1% in each account Year until it is 0% in Account Year 7 and
thereafter. If a Participant's contributions were initially allocated to a
Recurring Contribution Contract and then transferred to a Single Contribution
Contract when the required minimum of $100,000 was reached, then for purposes of
establishing the number of Account Years that an account has been in existence,
credit will be given for the time that the contributions were in the Recurring
Contribution Contract. See "Withdrawal Charge."
(3) The Administrative Charge may be less than $30.00 per year, based on the
size of the Participant's Account. The maximum charge imposed will be the lesser
of 0.5% of the Participant's Account Value or $30.00 per year. There are no
Administrative Charges applied to Single Contribution Contracts and on some
recurring contribution contracts.
(4) This charge may be less than 1.25% for certain Contracts. In these
Contracts, a portion of the mortality and expense risk charge may be credited
back to Participant's accounts in the form of Accumulation Units. The number of
Accumulation Units credited will depend on the aggregate variable investment
account assets on deposit and the payment of a fee per Participant.
(5) AUL has currently agreed to waive its advisory fee if the ordinary expenses
of a Portfolio exceed 1% and, to the extent necessary, assume any expenses in
excess of its advisory fee so that the expenses of each Portfolio, including the
advisory fee but excluding extraordinary expenses, will not exceed 1% of the
Portfolio's average daily net asset value per year. The Adviser may terminate
the policy of reducing its fee and/or assuming Fund expenses upon 30 days
written notice to the Fund and such policy will be terminated automatically by
the termination of the Investment Advisory Agreement. With the exception of the
Tactical Asset Allocation Portfolio, during 1996, expenses did not exceed 1% of
the average daily net asset value. Asset Allocation Portfolio.
[/FN]
<PAGE>
10
<CAPTION>
EXPENSE TABLE (CONTINUED)
<S> <C> <C> <C> <C>
Total Port-
Management/ Other 12b-1 folio Annual
Portfolio Advisory Fee Expenses Fees Expenses
- --------- ------------ -------- ----- --------
Acacia Capital Corporation:
Calvert Capital Accumulation Portfolio 0.90%(6) 0.46% -- 1.36%
Alger American Fund
Alger American Growth Portfolio 0.75% 0.04% -- 0.79%
American Century Mutual Funds, Inc.
Select Portfolio 1.00% 0.00% -- 1.00%
Ultra Portfolio 1.00% 0.00% -- 1.00%
American Century Variable Portfolios, Inc.
VP Capital Appreciation 1.00% 0.00% -- 1.00%
American Century World Mutual Funds, Inc.
International Growth 1.45%(8) 0.00% -- 1.45%(8)
Fidelity Variable Insurance Products Fund
Equity-Income Portfolio 0.51% 0.07% -- 0.58%(9)
Growth Portfolio 0.61% 0.08% -- 0.69%(9)
High Income Portfolio 0.59% 0.12% -- 0.71%
Overseas Portfolio 0.76% 0.17% -- 0.93%(9)
Fidelity Variable Insurance Products Fund II
Asset Manager Portfolio 0.64% 0.10% -- 0.74%(9)
Contrafund Portfolio 0.61% 0.13% -- 0.74%(9)
Index 500 Portfolio 0.13% 0.15% -- 0.28%(10)
Invesco Dynamics Fund, Inc.
Invesco Dynamics Fund 0.60% 0.29%(7) 0.25% 1.14%
Janus Aspen Series
Worldwide Growth 0.66% 0.14% -- 0.80%(11)
Flexible Income 0.65% 0.19% -- 0.84%
PBHG Funds, Inc.
PBHG Emerging Growth 0.85% 0.43% -- 1.28%
PBHG Growth Fund 0.85% 0.38% -- 1.23%
PBHG Insurance Series Fund, Inc.
Growth II 0.85% 0.30% -- 1.15%
Technology & Communications 0.61% 0.59% -- 1.20%
SAFECO Resource Series Trust
Equity 0.74% 0.02% -- 0.76%
Growth 0.74% 0.07% -- 0.81%
T. Rowe Price Equity Series, Inc.
T. Rowe Price Equity Income 0.85% 0.00% -- 0.85%
Vanguard Explorer Fund, Inc.
Vanguard Explorer Fund 0.64% 0.04% -- 0.68%
Vanguard Fixed Income
Securities Fund, Inc.
Vanguard Short Term Federal
Bond Portfolio 0.22% 0.05% -- 0.27%
<FN>
(6) The figures above are based on expenses for fiscal year 1996, and have been
restated to reflect an increase in transfer agency expenses of 0.03% expected to
be incurred in 1997. Management and Advisory Expenses includes a performance
adjustment, which depending on performance, could cause the fee to be as high as
0.95% or as low as 0.85%. "Other Expenses" reflect an indirect fee. Net fund
operating expenses after reductions for fees paid indirectly (again, restated)
would be 1.03%. Management and Advisory expenses for CRI Capital Accumulation
includes an adminstrative service fee of 0.10%, paid to Advisor's affilitate.
(7) It should be noted that the Fund's actual total operating expenses were
lower than the figures shown, because the Fund's custodian fees and pricing
expenses were reduced under an expense offset arrangement. However, as a result
of an SEC requirement for mutual funds to state their total operating expenses
without crediting any such expense offset arrangement, the figures shown above
DO NOT reflect these reductions. In comparing expenses for different years,
please note that the ratios of expenses to average net assets shown under
"Financial Highlights" DO reflect any reductions for periods prior to the fiscal
year ended April 30, 1995.
(8) The fund's annual management fees are equal to 1.90% of its first $1 billion
of average net assets, 1.25% of the next $1 billion, and 1.00% of average net
assets over $2 billion. However, the manager has voluntarily reduced its
management fee to 1.50% of its first $1 billion of average net assets, 1.20% of
the next $1 billion, and 1.10% of average net assets over $2 billion. The
manager will submit a new management agreement for shareholder approval in 1997
that reflects the reduced fee structure.
(9) A portion of the brokerage commissions that certain funds pay was used to
reduce funds expenses. In addition, certain funds have entered into arrangments
with their custodian and transfer agent whereby interest earned on uninvested
cash balances was used to reduce custodian and transfer agent expenses. Includ-
ing these reductions, the total operating expenses presented in the table would
have been 0.56% for the Equity-Income portfolio, 0.67% for the Growth portfolio,
0.92% for Overseas portfolio, 0.73% for Asset Manager portfolio, and 0.71% for
the Contrafund portfolio.
(10) Fidelity Management & Research Company agreed to reimburse a portion of
Index 500 portfolio's expenses during the period. Without this reimbursement,
the fund's management fee, other expenses and total expenses would have been
0.28%, 0.15%, and 0.43% respectively for Index 500 Portfolio on an annualized
basis.
(11) The fees and expenses in the table above are based on gross expenses before
offset arrangements for the fiscal year ended December 31, 1996. The information
for Worldwide Growth portfolio is net of fee reductions from Janus Capital which
reduce the management fee to the level of the corresponding Janus retail fund.
Without such reductions, the Management Fee, Other Expenses and Total Operating
expenses would have been 0.77%, 0.14% and 0.91% for Worldwide Growth Portfolio.
Janus Capital may modify or terminate the fee reductions at any time upon at
least 90 days' notice to the Trustees.
[/FN]
</TABLE>
<PAGE>
11
EXAMPLES (FOR ANY INVESTMENT ACCOUNT)
The following examples show expenses that a Participant would pay at the
end of one, three, five, or ten years if at the end of those time periods, the
Account is (1) surrendered, or (2) not surrendered. Example (2) will also apply
to a Participant Account that is annuitized at the end of the applicable time
period. The information below represents expenses on a $1,000 contribution and
assumes a 5% return per year. For an account that is surrendered, the example
shows expenses for Recurring Contribution Contracts, and Single Contribution
Contracts. Expenses will be the same for all Contracts if not surrendered. These
examples should not be considered a representation of past or future expenses.
Actual expenses may be greater or less than those shown. The assumed 5% return
is hypothetical and should not be considered a representation of past or future
returns, which may be greater or less than the assumed amount. For Recurring
Contribution Contracts, the Administrative charge used in these examples is
based on an estimated average Participant Account of $10,000. A pro-rata portion
of the annual Administrative Charge has, therefore, been used in the
calculations for Recurring Contribution Contracts.
<TABLE>
<CAPTION>
<S> <C> <C>
(2) If your Contract
is not Surrendered
(1) If your Contract is Surrendered or is Annuitized
----------------------------------- ----------------
<S> <C> <C> <C>
Recurring Single
Contribution Contribution
Contracts Contracts All Contracts
--------- --------- -------------
Investment Account
AUL American Equity
1 year $ 96.68 $ 78.20 $ 22.76
3 years 147.81 108.84 69.87
5 years 201.42 139.77 119.22
10 years 300.32 253.32 253.32
AUL American Bond
1 year $ 96.78 $ 78.30 $ 22.87
3 years 148.12 109.16 70.20
5 years 201.94 140.32 119.78
10 years 301.40 254.44 254.44
AUL American Managed
1 year 96.68 78.20 22.76
3 years 147.81 108.84 69.87
5 years 201.42 139.77 119.22
10 years 300.32 253.32 253.32
AUL American Money Market
1 year 96.68 78.20 22.76
3 years 147.81 108.84 69.87
5 years 201.42 139.77 119.22
10 years 300.32 253.32 253.32
AUL American Tactical Asset Allocation
1 year 99.46 81.03 25.76
3 years 156.14 117.52 78.90
5 years 215.28 154.55 134.31
10 years 329.19 283.59 283.59
Alger American Growth
1 year 97.53 79.06 23.67
3 years 150.36 111.49 72.63
5 years 205.67 144.30 123.85
10 years 309.22 262.65 262.65
American Century International Growth
1 year 103.64 85.30 30.27
3 years 168.59 130.49 92.39
5 years 235.82 176.46 156.68
10 years 371.08 327.52 327.52
American Century Select
1 year 99.46 81.03 25.76
3 years 156.14 117.52 78.90
5 years 215.28 154.55 134.31
10 years 329.19 283.59 283.59
American Century Ultra
1 year 99.46 81.03 25.76
3 years 156.14 117.52 78.90
5 years 215.28 154.55 134.31
10 years 329.19 283.59 283.59
<PAGE>
12
<CAPTION>
EXAMPLES (FOR ANY INVESTMENT ACCOUNT) (CONTINUED)
<S> <C> <C>
(2) If your Contract
is not Surrendered
(1) If your Contract is Surrendered or is Annuitized
----------------------------------- ----------------
<S> <C> <C> <C>
Recurring Single
Contribution Contribution
Contracts Contracts All Contracts
--------- --------- -------------
Investment Account
American Century VP Capital Appreciation
1 year 99.46 81.03 25.76
3 years 156.14 117.52 78.90
5 years 215.28 154.55 134.31
10 years 329.19 283.59 283.59
Calvert Capital Accumulation
1 year 102.80 84.44 29.37
3 years 166.09 127.89 89.69
5 years 231.72 172.09 152.21
10 years 362.80 318.84 318.84
Fidelity VIP Equity-Income
1 year 95.56 77.06 21.55
3 years 144.44 105.32 66.21
5 years 195.79 133.76 113.08
10 years 288.43 240.85 240.85
Fidelity VIP Growth
1 year 96.61 78.13 22.68
3 years 147.61 108.63 69.65
5 years 201.08 139.41 118.85
10 years 299.61 252.57 252.57
Fidelity VIP High Income
1 year 96.78 78.30 22.87
3 years 148.12 109.16 70.20
5 years 201.94 140.32 119.78
10 years 301.40 254.44 254.44
Fidelity VIP Overseas
1 year 98.81 80.38 25.06
3 years 154.22 115.51 76.81
5 years 212.09 151.15 130.83
10 years 322.59 276.66 276.66
Fidelity VIP II Asset Manager
1 year 97.05 78.58 23.16
3 years 148.93 110.01 71.09
5 years 203.30 141.77 121.26
10 years 304.25 257.43 257.43
Fidelity VIP II Contrafund
1 year 97.05 78.58 23.16
3 years 148.93 110.01 71.09
5 years 203.30 141.77 121.26
10 years 304.25 257.43 257.43
Fidelity VIP II Index 500
1 year 92.77 74.21 18.53
3 years 136.00 96.53 57.07
5 years 181.62 118.65 97.66
10 years 258.20 209.15 209.15
Invesco Dynamics
1 year 100.78 82.38 27.18
3 years 160.07 121.62 83.16
5 years 221.79 161.50 141.40
10 years 342.59 297.64 297.64
<PAGE>
13
<CAPTION>
EXAMPLES (FOR ANY INVESTMENT ACCOUNT) (CONTINUED)
<S> <C> <C>
(2) If your Contract
is not Surrendered
(1) If your Contract is Surrendered or is Annuitized
----------------------------------- ----------------
<S> <C> <C> <C>
Recurring Single
Contribution Contribution
Contracts Contracts All Contracts
--------- --------- -------------
Investment Account
Janus Flexible Income
1 year 98.00 79.55 24.18
3 years 151.78 112.98 74.17
5 years 208.04 146.83 126.43
10 years 314.17 267.84 267.84
Janus Worldwide Growth
1 year 97.63 79.17 23.78
3 years 150.66 111.81 72.96
5 years 206.18 144.85 124.40
10 years 310.29 263.76 263.76
PBHG Emerging Growth
1 year 102.06 83.69 28.56
3 years 163.89 125.59 87.30
5 years 228.09 168.22 148.26
10 years 355.45 311.12 311.12
PBHG Growth
1 year 101.59 83.20 28.05
3 years 162.48 124.13 85.78
5 years 225.78 165.75 145.74
10 years 350.73 306.18 306.18
PBHG Growth II
1 year 100.88 82.48 27.29
3 years 160.37 121.93 83.49
5 years 222.29 162.03 141.94
10 years 343.61 298.71 298.71
PBHG Technology & Communications
1 year 101.32 82.93 27.76
3 years 161.68 123.29 84.91
5 years 224.45 164.33 144.30
10 years 348.03 303.34 303.34
SAFECO Equity
1 year 97.26 78.79 23.38
3 years 149.54 110.65 71.75
5 years 204.31 142.86 122.37
10 years 306.39 259.67 259.67
SAFECO Growth
1 year 97.70 79.24 23.85
3 years 150.87 112.02 73.18
5 years 206.52 145.21 124.77
10 years 310.99 264.51 264.51
T. Rowe Price Equity Income
1 year $ 98.07 $ 79.62 $ 24.26
3 years 151.98 113.19 74.39
5 years 208.38 147.19 126.80
10 years 314.88 268.58 268.58
Vanguard Explorer
1 year 96.51 78.03 22.57
3 years 147.30 108.31 69.32
5 years 200.57 138.86 118.30
10 years 298.53 251.44 251.44
Vanguard Short Term Federal Bond
1 year 92.67 74.11 18.42
3 years 135.69 96.21 56.73
5 years 181.10 118.10 97.10
10 years 257.08 207.97 207.97
</TABLE>
<PAGE>
14
CONDENSED FINANCIAL INFORMATION
The following table presents Condensed Financial Information with respect to
each of the Investment Accounts of the Variable Account for the period from the
date of first deposit on April 12, 1990 through December 31, 1996. The following
table should be read in conjunction with the Variable Account's financial
statements, which are included in the Variable Account's Annual Report dated as
of December 31, 1996. The Variable Account's financial statements have been
audited by Coopers & Lybrand L.L.P., the Variable Account's independent
accountants. Information on the Investment Accounts that had not commenced
operations as of the date of this prospectus are not presented. These Investment
Accounts include American Century International Growth, American Century Select,
American Century Ultra, Invesco Dynamics, Janus Flexible Income, PBHG Emerging
Growth, PBHG Growth, PBHG Growth II, PBHG Technology & Communications, Vanguard
Explorer, and Vanguard Short Term Federal Bond.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
<S>
Year End December 31,
---------------------
Investment Account 1996 1995 1994 1993 1992 1991 1990(1)
- ------------------ ---- ---- ---- ---- ---- ---- -------
AUL American Equity
Unit Value at beginning of
period 1.790 1.518 1.497 1.321 1.215 0.980 1.000
Unit Value at end of period 2.107 1.790 1.518 1.497 1.321 1.215 0.980
Number of Units outstanding
at end of period 10,589,355.422 9,332,221.965 7,471,155.099 3,727,950.202 2,576,500.035 620,179.861 3,470.730
AUL American Bond
Unit Value at beginning of
period 1.600 1.375 1.444 1.321 1.247 1.085 1.000
Unit Value at end of period 1.615 1.600 1.375 1.444 1.321 1.247 1.085
Number of Units outstanding
at end of period 4,535,170.834 3,613,483.251 2,640,899.535 784,085.837 544,295.023 191,389.337 1,022.938
AUL American Money Market
Unit Value at beginning of
period 1.189 1.144 1.118 1.107 1.088 1.042 1.000
Unit Value at end of period 1.230 1.189 1.144 1.118 1.107 1.088 1.042
Number of Units outstanding
at end of period 3,931,272.297 2,066,492.545 1,083,827.569 253,762.037 161,749.917 81,497.969 2,051.457
AUL American Managed
Unit Value at beginning of
period 1.664 1.415 1.446 1.296 1.215 1.054 1.000
Unit Value at end of period 1.838 1.664 1.415 1.446 1.296 1.215 1.054
Number of Units outstanding
at end of period 10,087,185.513 9,242,020.341 8,146,955.380 2,935,364.727 1,979,512.799 399,535.438 1,612.093
Alger American Growth(2)
Unit value at beginning of
period 1.259 1.000 N.A. N.A. N.A. N.A. N.A.
Unit value at end of period 1.409 1.259 N.A. N.A. N.A. N.A. N.A.
Number of units outstanding
at end of period 6,674,991.947 1,028,838.673 N.A. N.A. N.A. N.A. N.A.
American Century VP Capital Appreciation(2)
Unit Value at beginning of
period 1.297 1.002 1.000 N.A. N.A. N.A. N.A.
Unit Value at end of period 1.225 1.297 1.002 N.A. N.A. N.A. N.A.
Number of units outstanding
at end of period 1,785,853.516 747,778.781 254,316.431 N.A. N.A. N.A. N.A.
Calvert Capital Accumulation(2)
Unit value at beginning of
period 1.266 1.000 N.A. N.A. N.A. N.A. N.A.
Unit value at end of period 1.343 1.266 N.A. N.A. N.A. N.A. N.A.
Number of units outstanding
at end of period 970,440.084 71,033.449 N.A. N.A. N.A. N.A. N.A.
Fidelity VIP Equity-Income(2)
Unit value at beginning of
period 1.223 1.000 N.A. N.A. N.A. N.A. N.A.
Unit value at end of period 1.380 1.223 N.A. N.A. N.A. N.A. N.A.
Number of units outstanding
at end of period 4,243,458.551 762,131.875 N.A. N.A. N.A. N.A. N.A.
Fidelity VIP Growth(2)
Unit Value at beginning of
period 1.505 1.126 1.138 1.000 N.A. N.A. N.A.
Unit Value at end of period 1.705 1.505 1.126 1.138 N.A. N.A. N.A.
Number of Units outstanding
at end of period 22,560,070.202 14,966,606.367 9,247,289.712 2,051,512.032 N.A. N.A. N.A.
Fidelity VIP High Income(2)
Unit Value at beginning of
period 1.285 1.078 1.108 1.000 N.A. N.A. N.A.
Unit Value at end of period 1.447 1.285 1.078 1.108 N.A. N.A. N.A.
Number of Units outstanding
at end of period 6,679,226.546 4,719,928.038 3,013,462.025 598,050.742 N.A. N.A. N.A.
Fidelity VIP Overseas(2)
Unit Value at beginning of
period 1.237 1.142 1.136 1.000 N.A. N.A. N.A.
Unit Value at end of period 1.383 1.237 1.142 1.136 N.A. N.A. N.A.
Number of units outstanding
at end of period 8,245,189.259 6,385,519.182 4,748,284.000 872,248.301 N.A. N.A. N.A.
Fidelity VIP II Asset Manager(2)
Unit Value at beginning of
period 1.209 1.047 1.129 1.000 N.A. N.A. N.A.
Unit Value at end of period 1.368 1.209 1.047 1.129 N.A. N.A. N.A.
Number of units outstanding
at end of period 26,868,078.219 22,931,562.511 19,540,375.804 5,859,606.501 N.A. N.A. N.A.
<FN>
(1) Period from April 12, 1990 through December 31, 1990.
(2) The Fidelity High Income, Growth, Overseas, Asset Manager, and Index 500
Investment Accounts first became available on May 1, 1993. The American Century
VP Capital Appreciation Investment Account (then known as TCI Growth) first
became available on May 1, 1994. The Alger American Growth, Calvert Capital
Accumulation, Fidelity Contrafund and Equity-Income, and the T. Rowe Price
Equity Income Investment Accounts first became available on April 28, 1995.
Therefore, there is no information available for any period prior to these
dates.
</FN>
<PAGE>
15
<CAPTION>
CONDENSED FINANCIAL INFORMATION (CONTINUED)
<S> <C> <C> <C> <C> <C> <C> <C>
Year End December 31,
---------------------
Investment Account 1996 1995 1994 1993 1992 1991 1990(1)
- ------------------ ---- ---- ---- ---- ---- ---- -------
Fidelity VIP II Contrafund(2)
Unit value at beginning of
period 1.266 1.000 N.A. N.A. N.A. N.A. N.A.
Unit value at end of period 1.516 1.266 N.A. N.A. N.A. N.A. N.A.
Number of units outstanding
at end of period 4,656,175.353 691,977.949 N.A. N.A. N.A. N.A. N.A.
Fidelity VIP II Index 500(2)
Unit Value at beginning of
period 1.437 1.061 1.068 1.000 N.A. N.A. N.A.
Unit Value at end of period 1.744 1.437 1.061 1.068 N.A. N.A. N.A.
Number of units outstanding
at end of period 9,841,199.457 3,976,682.434 1,966,815.581 507,196.270 N.A. N.A. N.A.
T. Rowe Price Equity Income(2)
Unit value at beginning of
period 1.230 1.000 N.A. N.A. N.A. N.A. N.A.
Unit value at end of period 1.452 1.230 N.A. N.A. N.A. N.A. N.A.
Number of units outstanding
at end of period 4,259,153.580 388,731.509 N.A. N.A. N.A. N.A. N.A.
<FN>
(1) Period from April 12, 1990 through December 31, 1990.
(2)The Fidelity High Income, Growth, Overseas, Asset Manager, and Index 500
Investment Accounts first became available on May 1, 1993. The American Century
VP Capital Appreciation Investment Account (then known as TCI Growth) first
became available on May 1, 1994. The Alger American Growth, Calvert Capital
Accumulation, Fidelity Contrafund and Equity-Income, and the T. Rowe Price
Equity Income Investment Accounts first became available on April 28, 1995.
Therefore, there is no information available for any period prior to these
dates.
</FN>
</TABLE>
PERFORMANCE OF THE INVESTMENT ACCOUNTS
The following tables present the return on investment for the Investment
Accounts. For all of the figures shown below, return on investment represents a
change in the Account Value allocated to an Investment Account and takes into
account Variable Account annual expenses such as the mortality and expense risk
charge. For the Investment Accounts that have not been in existence for the time
periods indicated, the reported performance represents hypothetical returns that
the Investment Accounts that invest in the corresponding Mutual Fund Portfolios
would have achieved had they invested in such Portfolios for the periods
indicated. For the periods that a particular Investment Account has been in
existence (see "Inception Date of Investment Account"), then the performance is
actual performance and not hypothetical in nature.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Performance (excluding charges)(1)
----------------------------------
Average Average Average Average
Annual Annual Annual Annual Cumulative
Return on Return on Return on Return on Return on
Inception Inception Investment Investment Investment Investment Investment for
Date of Date of for Year for 3 Years for 5 Years for lesser of lesser of 10
Investment Mutual Investment ending ending ending 10 Years or Years or Since
Account Fund Account 12/31/96 12/31/96 12/31/96 Since Inception Inception
- ------- ---- ------- -------- -------- -------- --------------- ---------
AUL American Equity 04/10/90 04/12/90 17.69% 12.06% 11.63% 11.75% 88.78%
AUL American Bond 04/10/90 04/12/90 0.96% 3.80% 5.30% 7.41% 50.51%
AUL American Money Market 04/10/90 04/12/90 3.44% 3.22% 2.49% 3.13% 19.28%
AUL American Managed 04/10/90 04/12/90 10.41% 8.31% 8.62% 9.49% 67.96%
AUL Tactical Asset Allocation 08/01/95 05/01/97 14.23% N.A. N.A. 14.41% 21.05%
Alger American Growth 01/09/89 04/28/95 11.94% 14.74% 15.20% 16.91% 247.82%
American Century International Growth 05/09/91 N.A. 13.03% 5.47% 11.35% 11.50% 84.87%
American Century Select 10/31/58 N.A. 17.79% 9.10% 6.78% 10.30% 166.54%
American Century Ultra 11/02/81 N.A. 12.37% 13.37% 11.89% 18.73% 456.68%
American Century VP Capital Appreciation 11/20/87 05/01/94 (5.51%) 6.09% 4.85% 10.08% 139.95%
Calvert Capital Accumulation 07/16/91 04/28/95 6.06% 9.15% 9.18% 9.87% 67.18%
Fidelity VIP Equity-Income 10/09/86 04/28/95 12.86% 16.77% 16.52% 12.33% 219.86%
Fidelity VIP Growth 10/09/86 05/01/93 13.28% 14.43% 13.73% 13.73% 262.03%
Fidelity VIP High Income 09/19/85 05/01/93 12.61% 9.28% 13.54% 9.75% 153.54%
Fidelity VIP Overseas 01/28/87 05/01/93 11.81% 6.80% 7.79% 6.56% 87.91%
Fidelity VIP II Asset Manager 09/06/89 05/01/93 13.18% 6.60% 9.88% 10.45% 106.93%
Fidelity VIP II Contrafund 01/03/95 04/28/95 19.80% N.A. N.A. 30.90% 71.22%
Fidelity VIP II Index 500 08/27/92 05/01/93 21.30% 17.74% N.A. 15.66% 88.21%
Invesco Dynamics 09/15/67 N.A. 14.21% 14.49% 14.56% 14.96% 303.15%
Janus Flexible Income 09/13/93 05/01/97 7.86% 8.90% N.A. 8.26% 29.94%
Janus Growth 09/14/93 05/01/97 27.46% 17.16% N.A. 20.88% 86.87%
PBHG Emerging Growth 06/14/93 05/01/97 15.64% 27.52% N.A. 32.83% 173.75%
PBHG Growth 12/19/85 N.A. 8.46% 18.54% 25.09% 19.78% 507.92%
PBHG Growth II 05/01/97 05/01/97 N.A. N.A. N.A. N.A. N.A.
PBHG Technology & Communications 05/01/97 05/01/97 N.A. N.A. N.A. N.A. N.A.
<FN>
(1) These figures do not reflect deduction of the withdrawal charge and a
pro-rata portion of the administrative charge.
</FN>
<PAGE>
16
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Performance (excluding charges)(1)
----------------------------------
Average Average Average Average
Annual Annual Annual Annual Cumulative
Return on Return on Return on Return on Return on
Inception Inception Investment Investment Investment Investment Investment for
Date of Date of for Year for 3 Years for 5 Years for lesser of lesser of 10
Investment Mutual Investment ending ending ending 10 Years or Years or Since
Account Fund Account 12/31/96 12/31/96 12/31/96 Since Inception Inception
- ------- ---- ------- -------- -------- -------- --------------- ---------
SAFECO Equity 11/06/86 05/01/97 23.26% 19.00% 17.84% 14.91% 301.40%
SAFECO Growth 01/07/93 05/01/97 30.45% 26.17% N.A. 28.58% 172.23%
T. Rowe Price Equity Income 03/31/94 04/28/95 18.07% N.A. N.A. 20.45% 66.81%
Vanguard Explorer 12/11/67 N.A. 12.62% 11.81% 12.21% 11.54% 198.06%
Vanguard Short Term Federal Bond 12/31/87 N.A. 3.54% 3.72% 4.34% 6.07% 69.95%
<FN>
(1) These figures do not reflect deduction of the withdrawal charge and a
pro-rata portion of the administrative charge.
</FN>
</TABLE>
<TABLE>
<CAPTION>
PERFORMANCE OF THE INVESTMENT ACCOUNTS (CONTINUED)
<S> <C> <C> <C> <C> <C> <C> <C>
Performance (including charges)(1)
----------------------------------
Average Average Average Average
Annual Annual Annual Annual Cumulative
Return on Return on Return on Return on Return on
Inception Inception Investment Investment Investment Investment Investment for
Date of Date of for Year for 3 Years for 5 Years for lesser of lesser of 10
Investment Mutual Investment ending ending ending 10 Years or Years or Since
Account Fund Account 12/31/96 12/31/96 12/31/96 Since Inception Inception
- ------- ---- ------- -------- -------- -------- --------------- ---------
AUL American Equity 04/10/90 04/12/90 7.95% 8.66% 9.46% 10.74% 98.47%
AUL American Bond 04/10/90 04/12/90 (7.39%) 0.65% 3.25% 6.43% 52.00%
AUL American Money Market 04/10/90 04/12/90 (5.12%) 0.09% 0.49% 2.20% 15.75%
AUL American Managed 04/10/90 04/12/90 1.27% 5.03% 6.50% 8.50% 73.01%
AUL Tactical Asset Allocation 08/01/95 05/01/97 4.78% N.A. N.A. 7.53% 10.85%
Alger American Growth 01/09/89 04/28/95 2.68% 11.26% 12.95% 15.95% 225.67%
American Century International Growth 05/09/91 N.A. 3.68% 2.27% 9.18% 10.34% 74.28%
American Century Select 10/31/58 N.A. 8.04% 5.80% 4.69% 9.52% 148.28%
American Century Ultra 11/02/81 N.A. 3.07% 9.93% 9.71% 17.89% 418.52%
American Century VP Capital Appreciation 11/20/87 05/01/94 (13.33%) 2.87% 2.81% 9.25% 123.96%
Calvert Capital Accumulation 07/16/91 04/28/95 (2.72%) 5.84% 7.05% 8.72% 57.85%
Fidelity VIP Equity-Income 10/09/86 04/28/95 3.52% 13.23% 14.25% 11.54% 198.06%
Fidelity VIP Growth 10/09/86 05/01/93 3.90% 10.96% 11.51% 12.93% 237.36%
Fidelity VIP High Income 09/19/85 05/01/93 3.29% 5.97% 11.32% 8.97% 136.09%
Fidelity VIP Overseas 01/28/87 05/01/93 2.56% 3.56% 5.69% 5.80% 75.02%
Fidelity VIP II Asset Manager 09/06/89 05/01/93 3.81% 3.37% 7.74% 9.50% 94.26%
Fidelity VIP II Contrafund 01/03/95 04/28/95 9.89% N.A. N.A. 24.93% 55.98%
Fidelity VIP II Index 500 08/27/92 05/01/93 11.26% 14.17% N.A. 13.10% 70.76%
Invesco Dynamics 09/15/67 N.A. 4.76% 11.02% 12.33% 14.15% 275.63%
Janus Flexible Income 09/13/93 05/01/97 (1.07%) 5.60% N.A. 5.20% 18.21%
Janus Growth 09/14/93 05/01/97 16.91% 13.61% N.A. 17.47% 70.04%
PBHG Emerging Growth 06/14/96 05/01/97 6.07% 23.66% N.A. 29.31% 148.88%
PBHG Growth 12/19/85 N.A. (0.52%) 14.95% 22.65% 18.93% 466.13%
PBHG Growth II 05/01/97 05/01/97 N.A. N.A. N.A. N.A. N.A.
PBHG Technology & Communications 05/01/97 05/01/97 N.A. N.A. N.A. N.A. N.A.
SAFECO Equity 11/06/86 05/01/97 13.06% 15.39% 15.55% 14.10% 273.99%
SAFECO Growth 01/07/97 05/01/97 19.66% 22.35% N.A. 25.48% 147.01%
T. Rowe Price Equity Income 03/31/94 04/28/95 8.30% N.A. N.A. 16.50% 52.19%
Vanguard Explorer 12/11/67 N.A. 3.30% 8.42% 10.02% 10.75% 177.61%
Vanguard Short Term Federal Bond 12/31/87 N.A. (5.03%) 0.58% 2.31% 5.28% 58.90%
<FN>
(2) These figures reflect deduction of the withdrawal charge and a pro-rata
portion of the administrative charge.
</FN>
</TABLE>
INFORMATION ABOUT AUL, THE VARIABLE ACCOUNT, AND THE FUNDS
AMERICAN UNITED LIFE INSURANCE COMPANY(R)
AUL is a legal reserve mutual life insurance company existing under the
laws of the State of Indiana. It was originally incorporated as a fraternal
society on November 7, 1877 under the laws of the Federal government, and
reincorporated under the laws of the State of Indiana in 1933. It is qualified
to do business in 47 states and the District of Columbia. As a mutual company,
it is owned by and operated exclusively for the benefit of its policyowners. AUL
has its principal business office located at One American Square, Indianapolis,
Indiana 46282.
<PAGE>
17
AUL conducts a conventional life insurance, reinsurance, and annuity
business. At December 31, 1996, AUL had admitted assets of $7,852,292,848 and a
policyowners' surplus of $572,825,650.
The principal underwriter for the Contracts is AUL, which is registered
with the SEC as a broker-dealer.
VARIABLE ACCOUNT
AUL American Unit Trust was established by AUL on August 17, 1989, under
procedures established under Indiana law. The income, gains, or losses of the
Variable Account are credited to or charged against the assets of the Variable
Account without regard to other income, gains, or losses of AUL. AUL owns the
assets in the Variable Account and is required to maintain sufficient assets in
the Variable Account to meet all Variable Account obligations under the
Contracts. AUL may transfer to its General Account assets that exceed
anticipated obligations of the Variable Account. All obligations arising under
the Contracts are general corporate obligations of AUL. AUL may invest its own
assets in the Variable Account, and may accumulate in the Variable Account
proceeds from Contract charges and investment results applicable to those
assets.
The Variable Account is currently divided into sub-accounts referred to as
Investment Accounts. Each Investment Account invests exclusively in shares of a
specific mutual fund or in a specific Portfolio of one of the Funds.
Contributions may be allocated to one or more Investment Accounts available
under a Contract. Not all of the Investment Accounts may be available under a
particular Contract and some of the Investment Accounts are either not available
for certain types of Contracts or are not in operation as of the date of this
Prospectus. AUL may in the future establish additional Investment Accounts of
the Variable Account, which may invest in other Portfolios of the Funds or in
other securities, mutual funds, or investment vehicles.
The Variable Account is registered with the SEC as a unit investment trust
under the Investment Company Act of 1940 (the "1940 Act"). Registration with the
SEC does not involve supervision by the SEC of the administration or investment
practices of the Variable Account or of AUL.
THE FUNDS
Each of the Funds is a diversified, open-end management investment company
commonly referred to as a mutual fund. Each of the Funds is registered with the
SEC under the 1940 Act. Such registration does not involve supervision by the
SEC of the investments or investment policies or practices of the Fund. AUL
American Series Fund, Inc. currently has five separate investment portfolios
that it offers to the Variable Account, namely: the Equity, Bond, Money Market,
Managed, and Tactical Asset Allocation. Acacia Capital Corporation offers the
Calvert Capital Accumulation Portfolio. The Alger American Fund offers the Alger
American Growth Portfolio. The American Century Mutual Funds, Inc. offers the
Select and Ultra Portfolios. The American Century Variable Portfolios, Inc.
offers the VP Capital Appreciation Portfolio. The American Century World Mutual
Funds, Inc. offers the International Growth Portfolio. The Fidelity Variable
Insurance Products Fund offers the Equity-Income, Growth, High Income, and
Overseas Portfolios. The Fidelity Variable Insurance Products Fund II offers the
Asset Manager, Contrafund, and Index 500 Portfolios. Invesco Dynamics Fund, Inc.
offers the Invesco Dynamics Fund. The Janus Aspen Series offers the Worldwide
Growth and Flexible Income Portfolios. PBHG Funds, Inc. offers the PBHG Emerging
Growth and PBHG Growth Funds. The PBHG Insurance Series Fund, Inc. offers the
PBHG Growth II and the PBHG Technology & Communications Portfolios. The SAFECO
Resource Series Trust offers the Equity and Growth Portfolios. T. Rowe Price
Equity Series, Inc. offers the Equity Income Portfolio. Vanguard Explorers Fund,
Inc. offers the Vanguard Explorer Fund. Vanguard Fixed Income Securities Fund,
Inc. offers the Vanguard Short Term Federal Bond Portfolio. Each Portfolio has
its own investment objective or objectives and policies. The shares of each
mutual fund Portfolio are purchased by AUL for the corresponding Investment
Account at the Portfolio's net asset value per share, i.e., without any sales
load. All dividends and capital gain distributions received from a Portfolio are
automatically reinvested in such Portfolio at net asset value, unless AUL
instructs otherwise. AUL has entered into agreements with the
Distributors/Advisers of Acacia Capital Corporation, American Century Variable
Portfolios, Inc., Fidelity Management & Research Company, Invesco Dynamics Fund,
Inc., Janus Capital Corporation, Pilgrim Baxter & Associates, and SAFECO Asset
Management Company, under which AUL has agreed to render certain services and to
provide information about these funds to its Contractowners and/or Participants
who invest in these Funds. Under these agreements and for providing these
services, AUL receives compensation from the Distributor/Adviser of these funds,
ranging from zero basis points until a certain level of fund assets have been
purchased to twenty-five basis points on the net average aggregate deposits
made.
AUL serves as investment adviser to each Portfolio of the AUL American
Series Fund, Inc. Fred Alger & Company acts as investment adviser to the Alger
American Fund. American Century Investment Managment, Inc. acts as investment
adviser to American Century Mutual Funds, Inc., American Century Variable
Portfolios, Inc., and American Century World Mutual Funds, Inc. Calvert
Management Company acts as investment adviser to the Acacia Capital Corporation.
Fidelity Management & Research Company acts as investment adviser to the
Fidelity Variable Insurance Products Fund and to the Fidelity Variable Insurance
Products Fund II. Invesco Funds Group, Inc. acts as investment manager to the
Invesco Dynamics Fund, Inc. Janus Capital Corporation acts as investment adviser
to the Janus Aspen Series. Pilgrim Baxter & Associates, Inc. acts as investment
adviser to PBHG Funds, Inc. and
<PAGE>
18
PBHG Insurance Series Fund, Inc. T. Rowe Price & Associates, Inc. acts as
investment adviser to T. Rowe Price Equity Series, Inc. Wellington Management
Company and Granahan Investment Management, Inc. act as investment advisers to
Vanguard Explorer Fund, Inc. Vanguard Group, Inc. acts as investment adviser to
Vanguard Fixed Income Securities Fund, Inc.
A summary of the investment objective or objectives of each Portfolio of
each of the Funds is provided below. There can be no assurance that any
Portfolio will achieve its objective or objectives. More detailed information is
contained in the Prospectuses for the Funds, including information on the risks
associated with the investments and investment techniques of each Portfolio.
AUL AMERICAN SERIES FUND, INC.
AUL AMERICAN EQUITY PORTFOLIO
The primary investment objective of the AUL American Equity Portfolio is
long-term capital appreciation. The Portfolio seeks current investment income as
a secondary objective. The Portfolio attempts to achieve these objectives by
investing primarily in equity securities selected on the basis of fundamental
investment research for their long-term growth prospects.
AUL AMERICAN BOND PORTFOLIO
The primary investment objective of the AUL American Bond Portfolio is to
provide a high level of income consistent with prudent investment risk. As a
secondary objective, the Portfolio seeks to provide capital appreciation to the
extent consistent with the primary objective. The Portfolio attempts to achieve
these objectives by investing primarily in corporate bonds and other debt
securities.
AUL AMERICAN MONEY MARKET PORTFOLIO
The investment objective of the AUL American Money Market Portfolio is to
provide a high level of current income while preserving assets and maintaining
liquidity and investment quality. The Portfolio attempts to achieve this
objective by investing in short-term money market instruments that are of the
highest quality.
AUL AMERICAN MANAGED PORTFOLIO
The investment objective of the AUL American Managed Portfolio is to
provide a high total return consistent with prudent investment risk. The
Portfolio attempts to achieve this objective through a fully managed investment
policy utilizing publicly traded common stock, debt securities (including
convertible debentures), and money market securities.
AUL AMERICAN TACTICAL ASSET ALLOCATION PORTFOLIO
The investment objective of the Tactical Asset Allocation Portfolio is
preservation of capital and competitive investment returns. The Portfolio seeks
to achieve its objective by investing primarily in stocks, United States
Treasury bonds, notes and bills, and money market funds.
FOR ADDITIONAL INFORMATION CONCERNING AUL AMERICAN SERIES FUND, INC. AND ITS
PORTFOLIOS, PLEASE SEE THE AUL AMERICAN SERIES FUND, INC. PROSPECTUS, WHICH
SHOULD BE READ CAREFULLY BEFORE INVESTING.
ACACIA CAPITAL CORPORATION
CALVERT CAPITAL ACCUMULATION PORTFOLIO
The Calvert Capital Accumulation Portfolio is a socially responsible growth
Portfolio that seeks long-term capital appreciation by investing primarily in
the stock of small to medium sized companies. To the extent possible,
investments are made in enterprises that make a significant contribution to
society through their products and services and through the way they do
business.
FOR ADDITIONAL INFORMATION CONCERNING ACACIA CAPITAL CORPORATION AND THE CALVERT
CAPITAL ACCUMULATION PORTFOLIO, PLEASE SEE THE ACACIA CAPITAL CORPORATION
PROSPECTUS, WHICH SHOULD BE READ CAREFULLY BEFORE INVESTING.
ALGER AMERICAN FUND
ALGER AMERICAN GROWTH PORTFOLIO
The Alger American Growth Portfolio is a growth portfolio that seeks to
obtain long-term capital appreciation by investing in a diversified, actively
managed portfolio of equity securities. Except during temporary defensive
periods, the Portfolio invests at least 65% of its total assets in equity
securities of companies that at the time of purchase have a total market
capitalization of one billion dollars or greater.
FOR ADDITIONAL INFORMATION CONCERNING THE ALGER AMERICAN FUND AND ITS PORTFOLIO,
PLEASE SEE THE ALGER AMERICAN FUND PROSPECTUS, WHICH SHOULD BE READ CAREFULLY
BEFORE INVESTING.
AMERICAN CENTURY MUTUAL FUNDS, INC.
AMERICAN CENTURY SELECT
The American Century Select Portfolio seeks capital growth by investing in
equity securities, primarily common stocks' of companies that meet certain
fundamental and technical standards of selection and have, in the opinion of the
investment manager, better than average potential for appreciation. Eighty
percent of fund assets must be invested in securities that pay dividends or
otherwise produce income (although such income payments on dividend paying
securities is only a secondary consideration and may not be significant). The
Select Portfolio primarily invests in securities of larg-
<PAGE>
19
er companies with larger share trading volume and attempts to stay full
invested, regardless of the movement of stock prices generally. This Portfolio
is only available to AUL Participants under 401 Contracts.
AMERICAN CENTURY ULTRA
The Ultra Portfolio seeks capital growth by investing in equity securities,
primarily common stocks' of companies that meet certain fundamental and
technical standards of selection and have, in the opinion of the investment
manager, better than average potential for appreciation. The Ultra Portfolio
tends to invest in securities of medium sized companies and attempts to stay
fully invested, regardless of the movement of stock prices generally. This
Portfolio is only available to AUL Participants under 401 Contracts.
FOR ADDITIONAL INFORMATION CONCERNING AMERICAN CENTURY MUTUAL FUNDS, INC. AND
ITS PORTFOLIOS, PLEASE SEE THE AMERICAN CENTURY MUTUAL FUNDS, INC. PROSPECTUS,
WHICH SHOULD BE READ CAREFULLY BEFORE INVESTING.
AMERICAN CENTURY PORTFOLIOS VARIABLE, INC.
AMERICAN CENTURY VP CAPITAL APPRECIATION
The American Century VP Capital Appreciation Portfolio seeks capital growth
by investing primarily in common stocks (including securities convertible into
common stocks and other equity equivalents) and other securities that meet
certain fundamental and technical standards of selection and have, in the
opinion of the Fund's investment manager, better than average potential for
appreciation. The Fund tries to stay fully invested in such securities,
regardless of the movement of prices generally. This Portfolio is not currently
available to AUL Participants under 457 Contracts.
FOR ADDITIONAL INFORMATION CONCERNING AMERICAN CENTURY PORTFOLIOS, INC. AND ITS
PORTFOLIO, PLEASE SEE THE AMERICAN CENTURY PORTFOLIOS, INC. PROSPECTUS, WHICH
SHOULD BE READ CAREFULLY BEFORE INVESTING.
AMERICAN CENTURY WORLD MUTUAL FUNDS, INC.
AMERICAN CENTURY INTERNATIONAL GROWTH
The American Century Inernational Growth Portfolio seeks capital growth by
investing primarily in securities of foreign companies primarily located in
developed markets that meet certain fundamental and technical standards of
selection and have, in the opinion of the Fund's investment manager, potential
for appreciation. The Portfolio will invest primarily in common stocks
(including depository receipts for common stocks) and other equity securities
and equity equivalents of such companies and attempts to stay fully invested in
such securities, regardless of the movement of prices generally. This Portfolio
is only available to AUL Participants under 401 Contracts.
FOR ADDITIONAL INFORMATION CONCERNING AMERICAN CENTURY WORLD MUTUAL FUNDS, INC.
AND ITS PORTFOLIO, PLEASE SEE THE AMERICAN CENTURY WORLD MUTUAL FUNDS, INC.
PROSPECTUS, WHICH SHOULD BE READ CAREFULLY BEFORE INVESTING.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
EQUITY-INCOME PORTFOLIO
The Equity-Income Portfolio seeks reasonable income by investing primarily
in income-producing equity securities; the fund will also consider the potential
for capital appreciation.
GROWTH PORTFOLIO
The Growth Portfolio seeks to achieve capital appreciation.
The Portfolio normally purchases common stocks, although the Portfolio's
investments are not restricted to any one type of security. Capital appreciation
may also be found in other types of securities, including bonds and preferred
stocks.
HIGH INCOME PORTFOLIO
The High Income Portfolio seeks to obtain a high level of current income by
investing primarily in high-yielding, lower-rated, fixed-income securities,
while also considering growth of capital. These include securities commonly
referred to as junk bonds, the risks of which are described in the prospectus
for the Fund.
OVERSEAS PORTFOLIO
The Overseas Portfolio seeks long-term growth of capital primarily through
investments in foreign securities. The Overseas Portfolio provides a means for
investors to diversify their own portfolios by participating in companies and
economies outside of the United States.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
ASSET MANAGER PORTFOLIO
The Asset Manager Portfolio seeks high total return with reduced risk over
the long-term by allocating its assets among domestic and foreign stocks, bonds
and short-term fixed income instruments.
CONTRAFUND
The Contrafund Portfolio seeks capital appreciation by investing primarily
in companies that the investment adviser believes to be undervalued due to an
overly pessimistic appraisal by the public.
INDEX 500 PORTFOLIO
The Index 500 Portfolio seeks to provide investment results
<PAGE>
20
that correspond to the total return (i.e., the combination of capital changes
and income) of common stocks publicly traded in the United States. In seeking
this objective, the Portfolio attempts to duplicate the composition and total
return of the Standard & Poor's 500 Composite Stock Price Index.
FOR ADDITIONAL INFORMATION CONCERNING FIDELITY'S VARIABLE INSURANCE PRODUCTS
FUND AND FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II AND THEIR PORTFOLIOS,
PLEASE SEE THE FIDELITY VARIABLE INSURANCE PRODUCTS FUND AND FIDELITY VARIABLE
INSURANCE PRODUCTS FUND II PROSPECTUS, WHICH SHOULD BE READ CAREFULLY BEFORE
INVESTING.
INVESCO FUNDS GROUP, INC.
INVESCO DYNAMICS FUND, INC.
Invesco Dynamics seeks to achieve its investment objective of providing
appreciation of capital through aggressive investment policies by investing its
assets in a variety of securities that are believed to present opportunities for
capital enhancement. The fund normally invests in common stocks, but may invest
in convertible or straight issues of debentures and preferred stocks, as well as
foreign securities, when determined appropriate by management. The fund should
not be considered by investors seeking current income. This Portfolio is only
available to AUL Participants under 401 Contracts.
FOR ADDITIONAL INFORMATION CONCERNING THE INVESCO FUNDS GROUP, INC. AND ITS
PORTFOLIO, PLEASE SEE THE INVESCO FUNDS GROUP, INC. PROSPECTUS, WHICH SHOULD BE
READ CAREFULLY BEFORE INVESTING.
JANUS ASPEN SERIES
FLEXIBLE INCOME PORTFOLIO
The Flexible Income Portfolio is a diversified portfolio that seeks to
maximize total return from a combination of income and capital appreciation by
investing primarily in income-producing securities. This Portfolio may have
substantial holdings of lower rated debt securities or "junk" bonds.
WORLDWIDE GROWTH PORTFOLIO
The Worldwide Growth Portfolio is a diversified portfolio that seeks
long-term growth of capital by investing primarily in common stocks of foreign
and domestic issuers.
FOR ADDITIONAL INFORMATION CONCERNING JANUS ASPEN SERIES FUND AND ITS PORTFOLIO,
PLEASE SEE THE JANUS ASPEN SERIES FUND PROSPECTUS, WHICH SHOULD BE READ
CAREFULLY BEFORE INVESTING
PBHG FUNDS, INC.
PBHG EMERGING GROWTH
The primary objective of the PBHG Emerging Growth Fund is to seek long-term
growth of capital by investing in common stocks of domestic emerging growth
companies that have exhibited exceptional or strong growth characteristics.
PBHG GROWTH
The Growth Fund seeks capital appreciation by investing primarily in the
common stock of small companies which are believed to have an outlook for strong
growth in earnings and the potential for significant capital appreciation. The
Fund will normally be as fully invested as practicable in common stocks, but may
invest up to 5% of its assets in warrants and rights to purchase common stocks.
Securities will be sold when the Adviser believes that anticipated appreciation
is no longer probable, alternative investments offer superior appreciation
prospects, or the risk of a decline in market price is too great. This Portfolio
is only available to AUL Participants under 401 Contracts.
FOR ADDITIONAL INFORMATION CONCERNING PBHG FUNDS, INC. AND ITS PORTFOLIO, PLEASE
SEE THE PBHG FUNDS, INC. PROSPECTUS, WHICH SHOULD BE READ CAREFULLY BEFORE
INVESTING.
PBHG INSURANCE SERIES FUND, INC.
PBHG GROWTH II PORTFOLIO
The investment objective of the PBHG Growth II Portfolio is capital
appreciation. The Portfolio normally will be invested in common stocks and
convertible securities of small and medium-sized companies (market
capitalization or annual revenues up to $4 billion) which, in the adviser's
opinion, have an outlook for strong earnings growth. The PBHG Growth II
Portfolio will be co-managed by Gary Pilgrim, CFA, who manages the PBHG Growth
Fund, of the PBHG Funds, Inc., and Bruce Muzina. Mr. Muzina has managed
institutional growth and mid-cap growth separate accounts for Pilgrim Baxter &
Associates, Ltd., the Fund's investment adviser, since 1985.
PBHG TECHNOLOGY & COMMUNICATIONS PORTFOLIO
The primary objective of the PBHG Technology & Communications Portfolio is
long-term growth of capital. The Portfolio will seek out companies which rely
extensively on technology or communications in their product development or
operations, or those which are experiencing exceptional growth in sales and
earnings driven by technology or communications related products and services.
The Portfolio will be managed by John Force, CFA, who manages the PBHG
Technology & Communications Fund of the PBHG Funds, Inc.
FOR ADDITIONAL INFORMATION CONCERNING THE PBHG INSURANCE SERIES FUND, INC. AND
ITS PORTFOLIOS, PLEASE SEE THE PBHG INSURANCE SERIES FUND, INC. PROSPECTUS,
WHICH SHOULD BE READ CAREFULLY BEFORE INVESTING.
<PAGE>
21
SAFECO RESOURCE SERIES TRUST
EQUITY PORTFOLIO
The Equity Portfolio has as its investment objective to seek long-term
capital and reasonable current income. The Equity Portfolio ordinarily invests
principally in common stocks or securities convertible into common stocks.
GROWTH
The Growth Portfolio has as its investment objective to seek growth of
capital and the increased income that ordinarily follows from such growth. The
Growth Portfolio ordinarily invests a prepronderance of its assets in common
stocks selected for potential appreciation.
FOR ADDITIONAL INFORMATION CONCERNING SAFECO RESOURCE SERIES TRUST AND ITS
PORTFOLIOS, PLEASE SEE THE SAFECO RESOURCE SERIES TRUST PROSPECTUS, WHICH SHOULD
BE READ CAREFULLY BEFORE INVESTING.
T. ROWE PRICE EQUITY SERIES, INC.
T. ROWE PRICE EQUITY INCOME PORTFOLIO
The T. Rowe Price Equity Income Portfolio seeks to provide substantial
dividend income as well as long-term capital appreciation through investments in
common stocks of established companies.
FOR ADDITIONAL INFORMATION CONCERNING T.ROWE PRICE EQUITY SERIES, INC. AND ITS
PORTFOLIO, PLEASE SEE THE T. ROWE PRICE EQUITY SERIES, INC. PROSPECTUS, WHICH
SHOULD BE READ CAREFULLY BEFORE INVESTING.
VANGUARD EXPLORER FUND, INC.
VANGUARD EXPLORER FUND
The Vanguard Explorer Fund seeks to provide long-term growth of capital.
The fund invests primarily in equity securities of small companies deemed to
have favorable prospects for growth in market value. These securities are
primarily common stocks generally traded on the over-the-counter market, but may
also include securities convertible into common stocks. Dividend income is
expected to be incidental to this objective. This Portfolio is only available to
AUL Participants under 401 Contracts.
FOR ADDITIONAL INFORMATION CONCERNING VANGUARD EXPLORER FUND, INC. AND ITS
PORTFOLIO, PLEASE SEE THE VANGUARD EXPLORER FUND, INC. PROSPECTUS, WHICH SHOULD
BE READ CAREFULLY BEFORE INVESTING.
VANGUARD FIXED INCOME SECURITIES FUND, INC.
VANGUARD SHORT TERM FEDERAL BOND PORTFOLIO
The Short Term Federal Bond Portfolio invests primarily in U.S. Government
agency securities, U.S. Treasury securities, and repurchase agreements
collateralized by U.S. Government agency securities or U.S. Treasury securities.
In an effort to minimize fluctuations in market value, the Portfolio expects to
maintain a dollar weighted-average maturity between one and three years. This
Portfolio is only available to AUL Participants under 401 Contracts.
FOR ADDITIONAL INFORMATION CONCERNING VANGUARD FIXED INCOME SECURITIES FUND,
INC. AND ITS PORTFOLIO, PLEASE SEE THE VANGUARD FIXED INCOME SECURITIES FUND,
INC. PROSPECTUS, WHICH SHOULD BE READ CAREFULLY BEFORE INVESTING.
THE CONTRACTS
GENERAL
The Contracts are offered for use in connection with retirement plans that
meet the requirements of Sections 401, 403(b), 408, or 457 of the Internal
Revenue Code. Certain Federal tax advantages are currently available to
retirement plans that qualify as (1) self-employed individuals' retirement plans
under Section 401, such as HR-10 Plans, (2) pension or profit-sharing plans
established by an Employer for the benefit of its employees under Section 401,
(3) annuity purchase plans sponsored by certain tax-exempt organizations or
public school organizations under Section 403(b), (4) individual retirement
accounts or annuities, including those established by an employer as a
simplified employee pension plan or SIMPLE IRA plan, under Section 408, or (5)
deferred compensation plans for employees established by a unit of a state or
local government or by a tax-exempt organization under Section 457.
A Contract is issued to the Owner. Generally, persons eligible to
participate in the Owner's Plan are eligible to become Participants under the
Contract. The Owner shall be responsible for determining persons who are
eligible to become Participants and for designating such persons to AUL. AUL
will issue to the Owner for delivery to each Participant (or may deliver
directly to each Participant) a Certificate that evidences the Participant's
participation in the Contract. For purposes of determining benefits under a
Contract, an account called a Participant's Account is established for each
Participant during the Accumulation Period.
The Owner of the Contract is generally responsible for providing all
communications and instructions concerning Participant Accounts to AUL. However,
in some instances a Participant may communicate directly with AUL. For example,
a Participant in a 403(b) Program may request a partial withdrawal directly from
AUL. While the Owner generally is responsible for transmitting contributions and
instructions for Participants, the Participant may be permitted or required to
<PAGE>
22
make certain decisions and elections under the Contract, as specified by the
Owner in the Plan, trust, or other appropriate document. The pertinent Plan
document and, if applicable, the Employer's plan administrator should be
consulted with any questions on benefits under the Contract.
CONTRIBUTIONS AND CONTRACT VALUES DURING THE ACCUMULATION PERIOD
CONTRIBUTIONS UNDER THE CONTRACTS
Contributions under Recurring Contribution Contracts may be made by or on
behalf of a Participant at any time during the Participant's life and before the
Participant's Annuity Commencement Date. Contributions must be at least equal to
the minimum required contribution, and the amount of contributions made by or on
behalf of a Participant is subject to certain limitations. Contributions for
each Participant under a Recurring Contribution Contract used for a 403(b)
Program must total at least $200 each Contract Year. Contributions for each
Participant under a Recurring Contribution Contract used for any other Plan must
total at least $300 each Contract Year. In Single Contribution Contracts, the
minimum contributions for each Participant must be at least $100,000.
Contributions of less than $100,000 will initially be allocated to a Recurring
Contribution Contract. To allow the consolidation of assets from different
sources, Participants will be allowed a twelve month period, measured from the
date of first deposit, to reach the $100,000 minimum required contribution for
Single Contribution Contracts. If the $100,000 required minimum contribution for
Single Contribution Contracts is received within the twelve month period,
measured from the date of the first deposit, then the Participant's Account
Value will be immediately transferred to a Single Contribution Contract pursuant
to a Transfer Agreement between AUL and the Participant. However, after this
twelve month period, no further contributions will be accepted to that specific
Account under a Single Contribution Contract, and any subsequent contributions
will be allocated to a Recurring Contribution Contract, unless the $100,000
minimum contribution for an additional Single Contribution Contract is met. AUL
may change the minimum contributions permitted under a Contract, but any such
change shall apply only to Participant Accounts established on or after the
effective date of the change. AUL may, at its discretion, waive any minimum
required contribution.
Annual contributions under any of the Plans are subject to maximum limits
imposed by the Internal Revenue Code. See the Statement of Additional
Information for a discussion of these limits, or consult the pertinent Plan
document.
TEN-DAY FREE LOOK
Under 403(b) and 408 Contracts, the Owner has the right to return the
Contract for any reason within ten days of receipt. If a particular state
requires a longer free-look period, Owners in that state will be allowed the
longer statutory period in which to return the Contract. If this right is
exercised, the Contract will be considered void from its inception, and any
contributions will be fully refunded.
INITIAL AND SINGLE CONTRIBUTIONS
Initial contributions received for a Participant will be credited to the
Participant's Account no later than the end of the second Business Day after it
is received by AUL at its Home Office if it is preceded or accompanied by a
completed annuity enrollment form for the Participant that contains all the
information necessary for opening the Participant's Account. The enrollment form
will be provided by AUL. If AUL does not receive a complete enrollment form for
a Participant, AUL will notify the individual that AUL does not have the
necessary information to open the account. If the necessary information is not
provided to AUL within five Business Days after AUL first receives the initial
contribution, AUL will return the initial contribution to the contributing
party. However, if the Contract so allows, AUL may retain the contribution, if
consent is received, until the earliest of: the time the enrollment form for the
Participant is made complete, or 25 days after receipt at AUL's Home Office.
ALLOCATION OF CONTRIBUTIONS
Initial and subsequent contributions under the Contracts will be allocated
among the Investment Accounts of the Variable Account and the Fixed Account as
instructed by the Owner or Participant and as provided by the terms of the
Contract. The investment allocation of the initial contribution is to be
designated on an investment allocation form at the time the annuity enrollment
form is completed, and the completed allocation form should accompany the
enrollment form to open an account for a Participant. The enrollment application
specifies that in the absence of an investment allocation form or other
instructions, initial and subsequent contributions shall be allocated to the AUL
American Money Market Investment Account. A Participant's Account Value that has
been initially allocated to the Money Market Investment Account may be
transferred to other available investment options upon receipt by AUL at its
Home Office of an investment allocation form or other proper request. Under some
Contracts, allocation to any Investment Account or the Fixed Account must be
made in increments of 10%, 25%, or 33 1/3% of any contribution. Not all of the
Investment Accounts may be available under a particular Contract, and some of
the Investment Accounts are either not available for certain types of Contracts
or are not in operation as of the date of this Prospectus.
Any change in allocation instructions will be effective upon receipt by AUL
at its Home Office and will continue in effect until subsequently changed.
Changes in the allocation of future contributions have no effect on amounts
already contributed on behalf of a Participant. Such amounts, however, may be
transferred among the Investment Accounts of the
<PAGE>
23
Variable Account or the Fixed Account in the manner described in "Transfers of
Account Value."
SUBSEQUENT CONTRIBUTIONS UNDER RECURRING CONTRIBUTION CONTRACTS
When forwarding contributions to AUL, the amount being contributed on
behalf of each Participant must be specified. The contributions shall be
allocated among the Investment Accounts of the Variable Account that are
available under a Contract and the Fixed Account as described above in
"Allocation of Contributions." Contributions (other than the initial
contribution for each Participant) are created as of the end of the Valuation
Period in which they are received by AUL its Home Office at such time as AUL has
received full payment for the contribution, the information needed to establish
the Participant's account, and proper instructions regarding the application and
allocation of the contributions among Participants.
TRANSFERS OF ACCOUNT VALUE
All or part of a Participant's Variable Account Value may be transferred
among the Investment Accounts of the Variable Account that are available under a
Contract or to the Fixed Account at any time during the Accumulation Period upon
receipt of a proper written request by AUL at its Home Office. Transfers may be
made by telephone if a Telephone Authorization Form has been properly completed
and received by AUL at its Home Office. The minimum transfer from any Investment
Account or from the Fixed Account is the lesser of $500 or a Participant's
entire Account Value in that Investment Account or in the Fixed Account as of
the date the transfer request is received by AUL at its Home Office, provided
however, that amounts transferred from the Fixed Account to an Investment
Account during any given Contract Year cannot exceed 20% of the Participant's
Fixed Account Value as of the beginning of that Contract Year. However, if a
Participant's Fixed Account Value at the beginning of the Contract Year is less
than $2,500, the amount that will be transferred for that Contract Year from the
Fixed Account is the lesser of $500 or the entire Fixed Account Value as of the
date the transfer request is received by AUL at its Home Office. If, after any
transfer, the Participant's remaining Account Value in an Investment Account or
in the Fixed Account would be less than $500, then such request will be treated
as a request for a transfer of the entire Account Value. Transfers may also be
subject to other limitations provided in a Plan document and in the Contract.
Currently, there are no limitations on the number of transfers between
Investment Accounts available under a Contract or the Fixed Account. In
addition, no charges are currently imposed upon transfers. AUL reserves the
right, however, at a future date, to change the limitation on the minimum
transfer, to assess transfer charges, to change the limit on remaining balances,
to limit the number and frequency of transfers, and to suspend the transfer
privilege or the telephone transfer authorization. Any transfer from an
Investment Account of the Variable Account shall be effective as of the end of
the Valuation Date in which AUL receives the request in proper form.
PARTICIPANT'S VARIABLE ACCOUNT VALUE
ACCUMULATION UNITS
Contributions to be allocated to the Investment Accounts available under a
Contract will be credited to the Participant's Account in the form of
Accumulation Units. Except for allocation of a Participant's initial
contribution, the number of Accumulation Units to be credited is determined by
dividing the dollar amount allocated to the particular Investment Account by the
Accumulation Unit value for the particular Investment Account at the end of the
Valuation Period in which the contribution is received by AUL at its Home
Office. The number of Accumulation Units so credited to the account shall not be
changed by a subsequent change in the value of an Accumulation Unit, but the
dollar value of an Accumulation Unit may vary from Valuation Date to Valuation
Date depending upon the investment experience of the Investment Account and
charges against the Investment Account.
ACCUMULATION UNIT VALUE
AUL determines the Accumulation Unit value for each Investment Account of
the Variable Account on each Valuation Date. The Accumulation Unit value for
each Investment Account was initially set at one dollar ($1) when operations
commenced. Subsequently, the Accumulation Unit value for each Investment Account
is determined by multiplying the Net Investment Factor for the particular
Investment Account by the Accumulation Unit value for the Investment Account as
of the immediately preceding Valuation Period. The Accumulation Unit value for
each Investment Account may increase, decrease, or remain the same from
Valuation Period to Valuation Period in accordance with the Net Investment
Factor.
NET INVESTMENT FACTOR
The Net Investment Factor is used to measure the investment performance of
an Investment Account from one Valuation Period to the next. For any Investment
Account for a Valuation Period, the Net Investment Factor is determined by
dividing (a) by (b) and then subtracting (c) from the result where
(a) is equal to:
(1)the net asset value per share of the Portfolio of the Fund in which
the Investment Account invests, determined as of the end of the
Valuation Period, plus
(2)the per share amount of any dividend or other distribution, if any,
paid by the Portfolio during the Valuation Period, plus or minus
(3)a credit or charge with respect to taxes paid, if any, or reserved for
by AUL during the Valuation Period that are determined by AUL to be
attributable to the operation of the Investment Account (although no
Federal income taxes are applicable under present
<PAGE>
24
law and no such charge is currently assessed).
(b) is the net asset value per share of the Portfolio, determined as of the
end of the preceding Valuation Period; and
(c) is a daily charge factor determined by AUL to reflect the fee assessed
against the assets of the Investment Account for the mortality and expense risk
charge.
DOLLAR COST AVERAGING PROGRAM
Contract Owners and Participants who wish to purchase units of an
Investment Account over a period of time may do so through the Dollar Cost
Averaging ("DCA") Program. The theory of dollar cost averaging is that greater
numbers of Accumulation Units are purchased at times when the unit prices are
relatively low than are purchased when the prices are higher. This has the
effect, when purchases are made at different prices, of reducing the aggregate
average cost per Accumulation Unit to less than the average of the Accumulation
Unit prices on the same purchase dates. However, participation in the Dollar
Cost Averaging Program does not assure a Contract Owner or Participant of
greater profits from the purchases under the Program, nor will it prevent or
necessarily alleviate losses in a declining market.
For example, assume that a Contract Owner or Participant requests that
$1,000 per month be transferred from the Money Market Investment Account to the
AUL American Equity Investment Account. The following Table illustrates the
effect of dollar cost averaging over a six month period.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Transfer Unit Units
Month Amount Value Purchased
----- -------- ----- ---------
1 $1,000 $20 50
2 $1,000 $25 40
3 $1,000 $30 33.333
4 $1,000 $40 25
5 $1,000 $35 28.571
6 $1,000 $30 33.333
</TABLE>
The average price per unit for these purchases is the sum of the prices
($180) divided by the number of monthly transfers (6) or $30. The average cost
per Accumulation Unit for these purchases is the total amount transferred
($6,000) divided by the total number of Accumulation Units purchased (210.237)
or $28.54. THIS TABLE IS FOR ILLUSTRATIVE PURPOSES ONLY AND IS NOT
REPRESENTATIVE OF FUTURE RESULTS.
Under a DCA Program, the owner deposits premiums into the AUL American
Money Market Investment Account or the Fixed Account and then authorizes AUL to
transfer a specific dollar amount for a specific length of time from such
Account into one or more other Investment Accounts at the unit values determined
on the dates of the transfers. This may be done monthly, quarterly,
semi-annually, or annually on the last business day of such period. These
transfers will continue automatically until the earliest of: the date AUL
receives notice to discontinue the Program; until there is not enough money in
the Money Market Investment Account or the Fixed Account to continue the
Program; until the expiration of the length of time selected; or if the
transfers are being drawn from the Fixed Account, until the time a transfer
would exceed the 20% limitation on transfers from the Fixed Account.
Currently, the minimum required amount of each transfer is $500, although
AUL reserves the right to change this minimum transfer amount in the future. DCA
transfers to the Fixed Account and to the Money Market Investment Account are
not permitted under the Dollar Cost Averaging Program. At least ten days advance
written notice to AUL is required before the date of the first proposed transfer
under the DCA Program. AUL offers the Dollar Cost Averaging Program to Contract
Owners and Participants at no charge, and the Company reserves the right to
temporarily discontinue, terminate, or change the Program at any time. Contract
Owners and Participants may discontinue participation in the Program at any time
by providing written notice to AUL, provided that AUL must receive written
notice of such a change at least five days before a previously scheduled
transfer is to occur.
Contract Owners or Participants may initially elect to participate in the
DCA Program, and if this election is made at the time the Contract is applied
for, the Program will take effect on the first monthly, quarterly, semi-annual,
or annual transfer date following the premium receipt by AUL at its Home Office.
The Contract Owner or Participant may select the month, quarter, or year that
the transfers are to be made and such transfers will automatically be performed
on the last business day of such period. To participate in the Program, a
minimum balance of $10,000 in the Money Market Investment Account or in the
Fixed Account is required.
CASH WITHDRAWALS AND THE DEATH BENEFIT
CASH WITHDRAWALS
During the lifetime of the Participant, at any time before the Annuity
Commencement Date and subject to the limitations under the applicable Plan and
applicable law, a Participant's Account may be surrendered or a partial
withdrawal may be taken from a Participant's Account Value. A surrender or
withdrawal request will be effective as of the end of the Valuation Date that a
proper written request in a form acceptable to AUL is received by AUL at its
Home Office.
A full surrender of a Participant's Variable Account Value will result in a
withdrawal payment equal to the value of the Participant's Variable Account
Value as of the end of the Valuation Period during which a proper withdrawal
request is received by AUL at its Home Office, minus any applicable withdrawal
charge. A partial withdrawal may be requested for a specified percentage or
dollar amount of a Participant's Variable Account Value. A request for a partial
withdrawal will result in a payment by AUL equal to the amount specified in the
partial withdrawal request. Upon payment, the Partici-
<PAGE>
25
pant's Variable Account Value will be reduced by an amount equal to the payment
and any applicable withdrawal charge. If a partial withdrawal is requested that
would leave a Participant's Variable Account Value in any Investment Account
less than $500, then such partial withdrawal request will be treated as a
request for a full withdrawal from the Investment Account.
The minimum amount that may be withdrawn from a Participant's Variable
Account Value in an Investment Account is the lesser of $500 or the
Participant's entire Account Value in the Investment Account as of the date the
withdrawal request is received by AUL. However, if after the withdrawal, the
amount or value of the Investment Account would be less than $500, then the
request will be treated as a request for a withdrawal of the entire Account
Value.
The amount of a partial withdrawal will be taken from the Investment
Accounts and the Fixed Account as instructed. A partial withdrawal will not be
effected until proper instructions are received by AUL at its Home Office.
A surrender or a partial withdrawal may result in the deduction of a
withdrawal charge. See "Withdrawal Charge."
In addition, distributions under certain retirement programs may result in
a tax penalty. See "Tax Penalty."
SYSTEMATIC WITHDRAWAL SERVICE FOR 403(B) AND 408 PROGRAMS
A Participant in a Contract used in connection with a 403(b) plan (other
than an Employer Sponsored 403(b) plan) or 408 Program who is at least age 59
1/2 can arrange to have systematic cash withdrawals from his or her Account
Value paid on a regular monthly, quarterly, or annual basis. Each withdrawal
payment must be at least equal to $100. An application form containing details
of the service is available upon request from AUL. The service is voluntary and
can be terminated at any time by the Participant or Owner. AUL does not
currently deduct a service charge for withdrawal payments, but reserves the
right to do so in the future and similarly, reserves the right to increase the
minimum required amount for each withdrawal payment.
Participants will pay a withdrawal charge in connection with the systematic
cash withdrawals to the extent the withdrawal charge is applicable (e.g., for a
Recurring Contribution Contract, during the first ten Account Years and
excluding the 10% allowable amount each Contract Year). Systematic withdrawals
of up to 10% of (i) the total of all contributions made during the year that the
withdrawal is being made, plus (ii) the Participant's Account Value at the
beginning of the Contract Year may begin in the year the Participant's Account
is established. After the first two Contract Years, and until the withdrawal
charge has decreased to 0%, the amount withdrawn during a Contract Year that
will not be subject to a withdrawal charge is 10% of the Participant's Account
Value at the beginning of the Contract Year in which the withdrawal is being
made. See "Withdrawal Charge." In addition, receipt of the cash withdrawals may
result in the receipt of taxable income to the Participant. See "Federal Tax
Matters." No withdrawal charges are applied to "benefit responsive" Contracts
for payment of retirement, death, disability, termination of employment,
hardship, loan, age 70 1/2 required minimum distribution benefits or benefits
upon attainment of age 59 1/2 (provided that the age 59 1/2 benefit is a taxable
distribution paid to the Participant and not to any other person or entity,
including any alternative or substitute funding medium). For certain other
Contracts known as "modified benefit responsive" Contracts, withdrawal charges
are not imposed for cash lump-sum payments of death benefits. For Modified
Benefit Responsive Contracts, withdrawal charges are not imposed for cash
lump-sum payments provided the Participant has (1) attained age 55 and has 10
years of service with the employer identified in the Plan, or (2) attained age
62, and is receiving benefits for retirement, disability, termination of
employment, hardships, loans, or required minimum distribution benefits pursuant
to Internal Revenue Code Section 401(a)(9) and Regulations issued thereunder, or
for benefits upon attainment of age 59 1/2 (provided that such benefit upon
attainment of age 59 1/2 is a taxable distribution paid to the Participant and
not to any other person or entity, including any alternative or substitute
funding medium).
CONSTRAINTS ON WITHDRAWALS
GENERAL
Since the Contracts offered by this Prospectus will be issued in connection
with retirement plans that meet the requirements of Section 401, Section 403(b),
Section 408, or Section 457 of the Internal Revenue Code, reference should be
made to the terms of the particular Plan or Contract for any limitations or
restrictions on cash withdrawals. A surrender or withdrawal that results in
receipt of proceeds by a Participant may result in receipt of taxable income to
the Participant and, in some instances, in a tax penalty. The tax consequences
of a surrender or withdrawal under the Contracts should be carefully considered.
See "Federal Tax Matters."
403(B) PROGRAMS
Section 403(b) of the Internal Revenue Code permits public school employees
and employees of certain types of charitable, educational, and scientific
organizations specified in Section 501(c)(3) of the Internal Revenue Code to
purchase annuity contracts, and, subject to certain limitations, to exclude the
amount of purchase payments from gross income for federal tax purposes. Section
403(b) imposes restrictions on certain distributions from tax-sheltered annuity
contracts meeting the requirements of Section 403(b) that apply to tax years
beginning on or after January 1, 1989.
Section 403(b) requires that distributions from Section 403(b)
tax-sheltered annuities that are attributable to employee contributions made
after December 31, 1988 under a salary reduction agreement not begin before the
employee reaches age 59 1/2, sep-
<PAGE>
26
arates from service, dies, becomes disabled, or incurs a hardship. Furthermore,
distributions of income or gains attributable to such contributions accrued
after December 31, 1988 may not be made on account of hardship. Hardship, for
this purpose, is generally defined as an immediate and heavy financial need,
such as paying for medical expenses, the purchase of a principal residence, or
paying certain tuition expenses.
A Participant in a Contract purchased as a tax-sheltered Section 403(b)
annuity contract will not, therefore, be entitled to exercise the right of
surrender or withdrawal, as described in this Prospectus, in order to receive
his or her Account Value attributable to contributions made under a salary
reduction agreement or any income or gains credited to such Participant after
December 31, 1988 under the Contract unless one of the above-described
conditions has been satisfied, or unless the withdrawal is otherwise permitted
under applicable federal tax law. In the case of transfers of amounts
accumulated in a different Section 403(b) contract to this Contract under a
Section 403(b) Program, the withdrawal constraints described above would not
apply to the amount transferred to the Contract attributable to a Participant's
December 31, 1988 account balance under the old contract, provided that the
amounts transferred between contracts qualifies as a tax-free exchange under the
Internal Revenue Code. A Participant's Account Withdrawal in a Contract 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 Section
403(b) arrangement.
TEXAS OPTIONAL RETIREMENT PROGRAM
AUL intends to offer the Contract within the Texas Optional Retirement
Program. Under the terms of the Texas Optional Retirement Program, if a
Participant makes the required contribution, the State of Texas will contribute
a specified amount to the Participant's Account. If a Participant does not
commence the second year of participation in the plan as a "faculty member," as
defined in Title 110B of the State of Texas Statutes, AUL will return the
State's contribution. If a Participant does begin a second year of
participation, the Employer's first-year contributions will then be applied as a
contribution under the Contract, as will the Employer's subsequent
contributions.
The Attorney General of the State of Texas has ruled that under Title 110B
of the State of Texas Statutes, withdrawal benefits of contracts issued under
the Optional Retirement Program are available only in the event of a
participant's death, retirement, termination of employment due to total
disability, or other termination of employment in a Texas public institution of
higher education. A Participant under a Contract issued in connection with the
Texas Optional Retirement Program will not, therefore, be entitled to exercise
the right of surrender or withdrawal to receive the Account Value credited to
such Participant unless one of the foregoing conditions has been satisfied. The
Withdrawal Value of such Participant's Account may, however, be transferred to
other contracts or other carriers during the period of participation in the
program.
THE DEATH BENEFIT
If a Participant dies during the Accumulation Period, AUL will pay a death
benefit to the Beneficiary upon receipt of due proof of the Participant's death
and instructions regarding payment to the Beneficiary. If there is no designated
Beneficiary living on the date of death of the Participant, AUL will pay the
death benefit in one sum to the estate of the Participant upon receipt of due
proof of death of both the Participant and the designated Beneficiary and
instructions regarding payment. If the death of the Participant occurs on or
after the Annuity Commencement Date, no death benefit will be payable under the
Contract except as may be provided under the Annuity Option elected.
The amount of the death benefit equals the vested portion of the
Participant's Account Value minus any outstanding loan balances and any due and
unpaid charges on those loans. Under Contracts acquired in connection with 408
Programs, 457 Programs, and 403(b) Programs other than Employer Sponsored 403(b)
Programs, the vested portion of a Participant's Account Value shall be the
Participant's entire Account Value. Under Employee Benefit Plans and Employer
Sponsored 403(b) Programs, the vested portion of a Participant's Account Value
is the amount to which the Participant is entitled upon death or separation from
service under a vesting schedule contained in the pertinent Plan. If the death
benefit is less than a Participant's Account Value, the death benefit shall be
paid pro rata from the Investment Accounts and the Fixed Account, and the
remainder of the Account Value shall be distributed to the Owner or as directed
by the Owner. Prior to such distribution, any remaining Account Value in the
Investment Accounts shall be transferred to AUL's General Account. In the case
of a 457 Program, the Owner of the Contract shall be the Beneficiary.
The death benefit will be paid to the Beneficiary in a single sum or under
one of the Annuity Options, as directed by the Participant or as elected by the
Beneficiary. If the Beneficiary is to receive annuity payments under an Annuity
Option, there may be limits under applicable law on the amount and duration of
payments that the Beneficiary may receive, and requirements respecting timing of
payments. A tax adviser should be consulted in considering payout options.
TERMINATION BY THE OWNER
An Owner of a Contract acquired in connection with an Employee Benefit
Plan, a 457 Program, or an Employer Sponsored 403(b) Program may terminate the
Contract by sending proper written notice of termination to AUL at its Home
Office. Termination shall be effective as of the end of the Valuation Date that
the notice is received by AUL at its Home Office. Proper notice of termination
must include an election of the method of payment or payments from AUL, an
indication of the person or persons to whom payment is to be made, and the
Owner's agreement (and the Plan Sponsor's agreement, if the Contract is issued
in connection with an Employee Benefit Plan or an Employer Sponsored 403(b)
<PAGE>
27
Program) that AUL shall not be held responsible for any losses or claims that
may arise against AUL in connection with making a payment or payments upon
termination.
Upon termination of such a Contract used in connection with an Employee
Benefit Plan, a 457 Program, or Employee Benefit Plan contributions in a
combined Contract for an Employee Benefit Plan and Employer Sponsored 403(b)
Plan, the Owner (and the Plan Sponsor, if the Contract is issued in connection
with an Employee Benefit Plan) may elect from two payment options. Under one
option, AUL will pay an amount equal to the aggregate Withdrawal Values of all
of the Participant Accounts under the Contract determined as of the end of the
Valuation Date that the termination is effective, minus any applicable
Investment Liquidation Charge. The Investment Liquidation Charge applies only to
Participants' Fixed Account Values under these Contracts. The charge is equal to
a certain percentage, as described below, multiplied by the Withdrawal Value
derived from the Fixed Account of each Participant under a Contract. The
percentage is determined by the following formula: 6(x - y), where "x" is the
Current Rate of interest, as described under "Interest," being credited by AUL
to new Contributions allocated to the Fixed Account as of the effective date of
termination, and "y" is the average rate of interest being credited by AUL to
various portions of a Participant's Fixed Account Value as of the effective date
of termination. Payment under this option shall be made as described under
"Payments from the Variable Account," except that payment of amounts
attributable to the Fixed Account may be delayed for up to six months after the
effective date of termination.
Under the second payment option for a 457 Program Contract, AUL will pay an
amount equal to the aggregate Withdrawal Values derived from the Variable
Account of all Participants under the Contract determined as of the end of the
Valuation Date on which termination is effective. Payment of this amount shall
be made as described under "Payments from the Variable Account." AUL will also
pay an amount equal to the aggregate Withdrawal Values derived from the Fixed
Account of all Participants under the Contract as of the Contract Anniversary
immediately succeeding the effective date of termination. This amount shall be
payable in six equal annual installments, the first of which shall be paid on
the Contract Anniversary immediately succeeding the effective date of
termination. As of this date, AUL shall have the right to refuse to accept
further contributions and shall cease to maintain individual Participant
Accounts, and amounts remaining under the Contract after each annual installment
shall be paid interest by AUL at an annual effective rate that shall be equal to
the lesser of (a) the weighted average of each of the various Current Rates of
interest being credited to amounts held in the Fixed Account under the Contract
determined as of the Contract Anniversary immediately succeeding the effective
date of termination, or (b) the interest rate for U.S. Government Security
Treasury Constant Maturity for three years (as set forth in the Federal Reserve
Statistical Releases), as determined on the Business Day coincident with or next
following the Contract Anniversary immediately succeeding the effective date of
termination. Interest earned during the Contract Year following payment of any
annual installment shall be paid by AUL on the next succeeding Contract
Anniversary.
Under the second payment option for an Employee Benefit Plan Contract, or
for the Employee Benefit Plan contributions in a combined Contract for an
Employee Benefit Plan and Employer Sponsored 403(b) Plan, AUL will pay an amount
equal to the aggregate Withdrawal Values derived from the Variable Account of
all Participants under the Contract determined as of the end of the Valuation
Date on which termination is effective. Payment shall be made as described under
"Payments from the Variable Account." AUL will also pay amounts derived from the
Fixed Account in seven annual installments as follows: As of the first Contract
Anniversary immediately succeeding the effective date of termination,
one-seventh of that portion of the Withdrawal Value of each Participant's
Account consisting of the net dollar balance in the Fixed Account credited to
each such Participant's Account will be calculated and paid. On the next
succeeding six Contract Anniversaries thereafter, a fraction of the remaining
Withdrawal Values will be paid. The fraction paid in each succeeding year shall
have the number "1" as the numerator and the denominator shall be a number which
is, numerically, "1" less than the denominator of the fraction paid on the prior
Contract Anniversary. Therefore, the payment on the second Contract Anniversary
would be one-sixth, on the third Contract Anniversary, the payment would be
one-fifth, and so forth until the final payment is the remaining balance in the
Fixed Account credited to each such Participant. Until all funds have been paid
by AUL, the Current Rates of interest credited to other Contracts of the same
type will be credited to the remaining Withdrawal Values.
Upon termination of a Contract used in connection with an Employer
Sponsored 403(b) Program or a combined Contract for an Employee Benefit Plan and
Employer Sponsored 403(b) Plan, AUL shall have the right to refuse to accept
further contributions. Upon such a termination, amounts attributable to Employer
Sponsored 403(b) contributions will be paid by AUL as described in the prior
paragraph.
TERMINATION BY AUL
AUL has the right, subject to applicable state law, to terminate any
Participant's Account established under a Contract acquired in connection with
an Employee Benefit Plan, a 457 Program, or an Employer Sponsored 403(b) Program
at any time during the Contract Year if the Participant's Account Value falls
below $300 ($200 for an Employer Sponsored 403(b) Program or for a Contract with
both 403(b) and 401(a) funds) during the first Contract Year, or $500 ($400 for
an Employer Sponsored 403(b) Program or for a Contract with both 403(b) and
401(a) funds) during any subsequent Contract Year, provided that at least six
months have elapsed since the Owner's last contribution to the Contract. AUL
will give notice
<PAGE>
28
to the Owner and the Participant that the Participant's Account is to be
terminated. Termination shall be effective six months from the date that AUL
gives such notice, provided that any contributions made during the six month
notice period are insufficient to bring the Participant's Account Value up to
the applicable minimum. Single Contribution Contracts have a minimum required
contribution of $100,000. After the twelve month contribution period, as
measured from the date of first deposit, no further contributions to that
specific Account will be accepted or required under Single Contribution
Contracts, and AUL will not terminate such a Contract or Account for failure to
make further contributions.
Upon termination of a Participant's Account by AUL, AUL will pay an amount
equal to the Participant's Account Value as of the close of business on the
effective date of termination. Payment of this amount will be made within seven
days from such effective date of termination.
AUL may, at its option, terminate any Contract if there are no Participant
Accounts in existence under the Contract.
PAYMENTS FROM THE VARIABLE ACCOUNT
Payment of an amount from the Variable Account resulting from a surrender,
cash withdrawal, transfer from a Participant's Variable Account Value, payment
of the death benefit, or payment upon termination by the Owner will be made
within seven days from the date a proper request is received at AUL's Home
Office. However, AUL can postpone the calculation or payment of such an amount
to the extent permitted under applicable law, which is currently permissible
only for any period: (a) during which the New York Stock Exchange is closed
other than customary week-end and holiday closings, (b) during which trading on
the New York Stock Exchange is restricted as determined by the SEC, (c) during
which an emergency, as determined by the SEC, exists as a result of which (i)
disposal of securities held by the Variable Account is not reasonably
practicable, or (ii) it is not reasonably practicable to determine the value of
the assets of the Variable Account, or (d) for such other periods as the SEC may
by order permit for the protection of investors. For information concerning
payment of an amount from the Fixed Account, see "The Fixed Account" and
"Termination by the Owner."
CHARGES AND DEDUCTIONS
PREMIUM TAX CHARGE
Various states and municipalities impose a tax on premiums received by
insurance companies. Whether or not a premium tax is imposed will depend upon,
among other things, the Owner's state of residence, the Annuitant's state of
residence, and the insurance tax laws and AUL's status in a particular state.
AUL assesses a premium tax charge to reimburse itself for premium taxes that it
incurs. This charge will be deducted as premium taxes are incurred by AUL, which
is usually when an annuity is effected. Premium tax rates currently range from
0% to 3.5%, but are subject to change by such governmental entities.
WITHDRAWAL CHARGE
No deduction for sales charges is made from contributions for a Contract.
However, if a cash withdrawal is made, a Participant's Account is surrendered,
or the Contract is terminated by the Owner, then, depending on the type of
Contract, a withdrawal charge (which may also be referred to as a contingent
deferred sales charge) may be assessed by AUL if the Participant's Account has
not been in existence for a certain period of time. For the first two Contract
Years that a Participant's Account exists, the amount withdrawn during a
Contract Year that will not be subject to a withdrawal charge is 10% of (1) the
total of all contributions made during the year that the withdrawal is being
made, plus (2) the Participant's Account Value at the beginning of the Contract
Year. After the first two Contract Years, and until the withdrawal charge has
decreased to 0%, the amount withdrawn during a Contract Year that will not be
subject to an otherwise applicable withdrawal charge is 10% of the Participant's
Account Value at the beginning of the Contract Year in which the withdrawal is
being made. If a Participant's contributions were initially allocated to a
Recurring Contribution Contract and then transferred to a Single Contribution
Contract pursuant to a Transfer Agreement between AUL and the Participant when
the required minimum of $100,000 was reached, then, for purposes of establishing
the number of Account Years that an account has been in existence, credit will
be given for the time that the contributions were in the Recurring Contribution
Contract.
The chart below illustrates the amount of the withdrawal charge that applies to
the different types of Contracts based on the number of years that the Account
has been in existence.
<TABLE>
<CAPTION>
Charge on Withdrawal Exceeding 10% Allowable Amount
---------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11 or
Account Year 1 2 3 4 5 6 7 8 9 10 more
- -------------- - - - - - - - - -- ----
Recurring
Contribution
Contracts 8% 8% 8% 8% 8% 4% 4% 4% 4% 4% 0%
Single
Contribution
Contracts 6% 5% 4% 3% 2% 1% 0% 0% 0% 0% 0%
</TABLE>
<PAGE>
29
Withdrawal charges are not imposed for many benefits provided under
"benefit responsive" Contracts. A "benefit responsive" Contract can be
distinguished from a Contract that is not "benefit responsive" by the
contractual condition that under a "benefit responsive" Contract, withdrawal
charges are not imposed for payment of retirement, death, disability,
termination of employment, hardship, loan, age 70 1/2 required minimum
distribution benefits, or benefits upon attainment of age 59 1/2 (provided that
the age 59 1/2 benefit is a taxable distribution paid to the Participant and not
to any other person or entity, including any alternative or substitute funding
medium). Under certain circumstances, withdrawal charges are not imposed under
"modified benefit responsive" Contracts. A "modified benefit responsive"
Contract can be distinguished from a Contract that is not "modified benefit
responsive" by the contractual condition that under a "modified benefit
responsive" Contract, withdrawal charges are not imposed for cash lump-sum
payments of death benefits, or, provided the Participant has (1) attained age 55
and has 10 years of service with the employer identified in the Plan, or (2)
attained age 62 for Plan benefits due to retirement, disability, termination of
employment, hardships, loans, or required minimum distribution benefits pursuant
to Internal Revenue Code Section 401(a)(9) and Regulations issued thereunder, or
for benefits upon attainment of age 59 1/2 (provided that such benefit upon
attainment of age 59 1/2 is a taxable distribution paid to the Participant and
not to any other person or entity, including any alternative or substitute
funding medium).
In no event will the amount of any withdrawal charge, when added to any
withdrawal charges previously assessed against any amount withdrawn from a
Participant's Account, exceed 9% of the contributions made by or on behalf of a
Participant under a Contract. In addition, no withdrawal charge will be imposed
on or after the Annuity Commencement Date or upon payment of a death benefit
under the Contract.
The withdrawal charge will be used to recover certain expenses relating to
sales of the Contracts, including commissions paid to sales personnel and other
promotional costs. AUL reserves the right to increase the withdrawal charge for
any Participant Accounts established on or after the effective date of the
change, but the withdrawal charge will not exceed 9% of the contributions made
by or on behalf of a Participant.
MORTALITY AND EXPENSE RISK CHARGE
AUL deducts a daily charge from the assets of each Investment Account for
mortality and expense risks assumed by AUL. The charge is equal to an annual
rate of 1.25% of the average daily net assets of each Investment Account. This
amount is intended to compensate AUL for certain mortality and expense risks AUL
assumes in offering and administering the Contracts and in operating the
Variable Account. The 1.25% charge was originally based on estimates of .40% for
expense risk and .85% for mortality risk.
The expense risk is the risk that AUL's actual expenses in issuing and
administering the Contracts and operating the Variable Account will be more than
the charges assessed for such expenses. The mortality risk borne by AUL is the
risk that Annuitants, as a group, will live longer than the Company's actuarial
tables predict. AUL may ultimately realize a profit from this charge to the
extent it is not needed to address mortality and administrative expenses, but
AUL may realize a loss to the extent the charge is not sufficient. AUL may use
any profit derived from this charge for any lawful purpose, including any
distribution expenses not covered by the withdrawal charge.
VARIABLE INVESTMENT PLUS OPTION
Certain Contracts, such as Employer Sponsored 403(b) Contracts, 457
Contracts, and Combination Contracts used in connection with an Employee Benefit
Plan and Employer Sponsored 403(b) contributions may, at the option of the
Contract Holder, receive a portion of the Mortality and Expense Risk Charge in
the form of Accumulation Units credited to Participant Accounts. If this Option
is elected by the Contract holder, and if the total amount of assets invested in
variable investment options meets certain underwriting minimums, then the Plus
Factor used to credit units on an annual basis will be as follows:
<TABLE>
<S> <C> <C>
Month End Aggregate Annual
Participant Variable Plus
Investment Assets Factor
--------------------- -------
Up to $500,000 0%
$500,001-$1,000,000 .25%
$1,000,001-$3,000,000 .35%
$3,000,001-$5,000,000 .40%
$5,000,001-$6,000,000 .50%
Over $6,000,000 .75%
</TABLE>
Under this Option, the appropriate Plus Factor for aggregate Participant
Variable Investment Assets of less than $500,000 is 0%. Therefore, if the
aggregate Participant Variable Investment Assets were $1,000,000 at the end of a
particular month, an annual Plus Factor of 0% would be applied to the first
$500,000 received. For that particular month, an annual Plus Factor of .25%
(divided by 12 months or 0.00020833) would be applied to the next $500,000 and
the sum of $104.17 would be applied by AUL to purchase Accumulation Units in
each Variable Investment Option owned by each Participant under the Contract.
Units will be credited to Participant Accounts on a monthly basis and purchased
at the Accumulation Unit Value next computed following the calculation of the
appropriate Factor. Accumulation Units purchased will be reported to
Participants as Earnings.
To qualify for this Option, contracts must have a minimum of $220,000 in
contributions during the first contract year. Up to 10% of any assets
transferred into a contract may qualify to meet the required first year
contribution minimum and ongoing ontributions after the first contract year must
be at least $50,000 per year.
If a Contract holder elects this Option, a per Participant charge will be
imposed and billed annually. The charge is
<PAGE>
30
based on the number of Participants who contribute to variable investment
options as follows:
<TABLE>
<S> <C> <C>
Number of Charge per
Participants Participant
------------ -----------
First 100 Participants $15
Next 100 Participants $10
Over 200 Participants $5
</TABLE>
AUL reserves the right at any time to change the aggregate investment
amounts, the Plus Factor, the underwriting minimums and the charge per
Participant for offering this Option.
ADMINISTRATIVE CHARGE
Under some Recurring Contribution Contracts, AUL deducts an administrative
charge from each Participant's Account equal to the lesser of 0.5% of the
Participant's Account Value or $7.50 a quarter. The charge is assessed every
quarter on a Participant Account if the account exists on the quarterly Contract
Anniversary, and is assessed only during the Accumulation Period. When a
Participant annuitizes or surrenders on any day other than a quarterly Contract
Anniversary, a pro rata portion of the charge for that portion of the quarter
will not be assessed. The charge is deducted proportionately from the
Participant's Account Value allocated among the Investment Accounts and the
Fixed Account. The purpose of this charge is to reimburse AUL for the expenses
associated with administration of the Contracts and operation of the Variable
Account.
The Administrative charge may, at the Employer's option, be billed directly
to and paid directly by, the Employer in lieu of being deducted from a
Participant's Account under Employer Sponsored 403(b) Contracts or under
combined Contracts containing an Employee Benefit Plan and Employer Sponsored
403(b) contributions, or the charge may be paid on any other basis mutually
agreed upon by the Employer and AUL. AUL does not expect to profit from this
charge. There is no Administrative Charge deducted from Participant's accounts
that are allocated to Single Contribution Contracts, and on some Recurring
Contribution Contracts.
OTHER CHARGES
AUL may charge the Investment Accounts of the Variable Account for the
federal, state, or local income taxes incurred by AUL that are attributable to
the Variable Account and its Investment Accounts. No such charge is currently
assessed. An Investment Liquidation Charge, which applies only to Participants'
Fixed Account Values under a Contract, may be imposed upon termination by an
Owner of a Contract acquired in connection with an Employee Benefit Plan or 457
Program. See "Termination by the Owner."
VARIATIONS IN CHARGES
AUL may reduce or waive the amount of the withdrawal charge and
administrative charge for a Contract where the expenses associated with the sale
of the Contract or the administrative costs associated with the Contract are
reduced. For example, the withdrawal and/or administrative charge may be reduced
in connection with acquisition of the Contract in exchange for another annuity
contract issued by AUL. AUL may also reduce or waive the withdrawal charge and
administrative charge on Contracts sold to the directors or employees of AUL or
any of its affiliates or to directors or any employees of any of the Funds.
GUARANTEE OF CERTAIN CHARGES
AUL guarantees that the mortality and expense risk charge shall not
increase. AUL also guarantees that through the year 2000, the administrative
charge may not increase to more than $15.00 per quarter. After the year 2000,
AUL may increase the fee but only to the extent necessary to recover the
expenses associated with administration of the Contracts and operation of the
Variable Account.
EXPENSES OF THE FUNDS
Each Investment Account of the Variable Account purchases shares at the net
asset value of the corresponding Portfolio of one of the Funds. The net asset
value reflects the investment advisory fee and other expenses that are deducted
from the assets of the Portfolio. The advisory fees and other expenses are more
fully described in the Funds' Prospectuses.
ANNUITY PERIOD
GENERAL
On the Annuity Commencement Date, the adjusted value of the Participant's
Account may be applied to provide an annuity under one of the options described
below. The adjusted value will be equal to the value of the Participant's
Account as of the Annuity Commencement Date, reduced by any applicable premium
or similar taxes and any outstanding loan balances and unpaid expense charges on
those loans.
The Contracts provide for five optional annuity forms, any one of which may
be elected if permitted by the particular Plan or applicable law. A lump-sum
distribution may also be elected under most Plans. Other Annuity Options may be
available upon request at the discretion of AUL. All Annuity Options are fixed
and the annuity payments remain constant throughout the Annuity Period. Annuity
payments are based upon annuity rates that vary with the Annuity Option selected
and the age of the Annuitant (except that in the case of Option 5, the Fixed
Period Option, age is not a consideration). The annuity rates are based upon an
assumed interest rate of 2%, compounded annually. If no Annuity Option has been
selected for a Participant, annuity payments will be made to the Annuitant under
an automatic option. For 403(b) (other than Employer Sponsored 403(b) Programs)
and 457 Programs, the automatic option shall be an annuity payable during the
lifetime of the Annuitant with payments certain for 120 months. For an
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Employee Benefit Plan or Employer Sponsored 403(b) Program, 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 Survivorship Annuity as
described in Option 3 below. For 408 Programs, the automatic option for
unmarried Participants shall be a 10 Year Certain and Life Annuity; for married
Participants, the automatic option shall be a 50% Survivorship Annuity. For
"benefit responsive" Employer Sponsored 403(b) Contracts, and for an Employee
Benefit Plan combined with an Employer Sponsored 403(b) Contract, there is no
automatic annuity option.
Once annuity payments have commenced, a Participant cannot surrender his or
her annuity and receive a lump-sum settlement in lieu thereof and cannot change
the Annuity Option. If, under any option, monthly payments are less than $25
each, AUL has the right to make either a lump-sum settlement or to make larger
payments at quarterly, semi-annual, or annual intervals. AUL also reserves the
right to change the minimum payment amount. AUL will not allow annuitization of
a Participant's Account if the total Account Value is less than $2000. Should
this occur, a Participant will receive the Account Value in a lump-sum
settlement.
Annuity payments will begin on the Annuity Commencement Date. No withdrawal
charge will be applied on this Date.
A Participant or, depending on the Contract, an Owner on behalf of a
Participant, may designate an Annuity Commencement Date, Annuity Option,
contingent Annuitant, and Beneficiary on an Annuity Election Form that must be
received by AUL at its Home Office at least 30 days prior to the Annuity
Commencement Date. AUL may also require additional information before annuity
payments commence. During the lifetime of the Participant and up to 30 days
prior to the Annuity Commencement Date, the Annuity Option, the Annuity
Commencement Date, or the designation of a contingent Annuitant or Beneficiary,
if any, under an Annuity Option may be changed. To help ensure timely receipt of
the first annuity payment, a transfer of a Participant's Variable Account Value
should be made to the Fixed Account at least two weeks prior to the Annuity
Commencement Date.
ANNUITY OPTIONS
OPTION 1 - LIFE ANNUITY
An annuity payable monthly during the lifetime of the Annuitant that ends
with the last monthly payment before the death of the Annuitant.
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.
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 before the Annuity Commencement
Date.
OPTION 4 - UNIT REFUND LIFE ANNUITY
An annuity payable monthly during the lifetime of the Annuitant that ends
with the last payment due prior to the death of the Annuitant, except, that at
the death of the Annuitant, the Beneficiary will receive additional annuity
payments until the amount paid to purchase the annuity has been distributed.
OPTION 5 - FIXED PERIODS
An annuity payable monthly for a fixed period (not less than 5 years or
more than 30 years) as elected, with the guarantee that if, at the death of the
Annuitant, payments have been made for less than the selected fixed period,
annuity payments will be continued during the remainder of said period to the
Beneficiary.
SELECTION OF AN OPTION
Participants should carefully review the Annuity Options with their
financial or tax advisers, and reference should be made to the terms of a
particular Plan for pertinent limitations respecting annuity payments and other
matters. For instance, under requirements for retirement plans that qualify for
treatment under Sections 401, 403(b), 408, or 457 of the Internal Revenue Code,
annuity payments generally must begin no later than April 1 of the calendar year
following the calendar year in which the Participant reaches age 70 1/2,
provided the Participant is no longer employed. For Options 2 and 5, the period
elected for receipt of annuity payments under the terms of the Annuity Option
generally may be no longer than the joint life expectancy of the Annuitant and
Beneficiary in the year that the Annuitant reaches age 70 1/2 and must be
shorter than such joint life expectancy if the Beneficiary is not the
Annuitant's spouse and is more than 10 years younger than the Annuitant. Under
Option 3, if the contingent Annuitant is not the Annuitant's spouse and is more
than 10 years younger than the Annuitant, the 66 2/3% and 100% elections
specified above may not be available.
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THE FIXED ACCOUNT
Contributions or transfers to the Fixed Account become part of AUL's
General Account. The General Account is subject to regulation and supervision by
the Indiana Insurance Department as well as the insurance laws and regulations
of other jurisdictions in which the Contracts are distributed. In reliance on
certain exemptive and exclusionary provisions, interests in the Fixed Account
have not been registered as securities under the Securities Act of 1933 (the
"1933 Act") and the Fixed Account has not been registered as an investment
company under the 1940 Act. Accordingly, neither the Fixed Account nor any
interests therein are generally subject to the provisions of the 1933 Act or the
1940 Act. AUL has been advised that the staff of the SEC has not reviewed the
disclosure in this Prospectus relating to the Fixed Account. This disclosure,
however, may be subject to certain generally applicable provisions of the
federal securities laws relating to the accuracy and completeness of statements
made in the Prospectus. This Prospectus is generally intended to serve as a
disclosure document only for aspects of a Contract involving the Variable
Account and contains only selected information regarding the Fixed Account. For
more information regarding the Fixed Account, see the Contract itself or a
Participant's Certificate.
INTEREST
A Participant's Fixed Account Value earns interest at fixed rates that are
paid by AUL. The Account Value in the Fixed Account earns interest at one or
more interest rates determined by AUL at its discretion and declared in advance
("Current Rate"), which are guaranteed to be at least an annual effective rate
of 4% per year ("Guaranteed Rate"). AUL will determine a Current Rate from time
to time, and any Current Rate that exceeds the Guaranteed Rate will be in effect
for a period of at least one year. If AUL determines a Current Rate in excess of
the Guaranteed Rate, contributions or transfers to a Participant's Account
during the time the Current Rate is in effect are guaranteed to earn interest at
that particular Current Rate for at least one year. AUL may declare a different
Current Rate for a particular contract based on costs of acquisition to AUL or
the level of service provided by AUL. Transfers from other AUL annuity contracts
may be transferred at a rate of interest different than the Current Rate.
Except for transfers from other AUL annuity contracts, and automatic
transfers to Single Contribution Contracts from Recurring Contribution Contracts
when the minimum required contribution of $100,000 is reached, amounts
contributed or transferred to the Fixed Account earn interest at the Current
Rate then in effect. Amounts transferred from other AUL annuity contracts may
not earn the Current Rate, but may, at AUL's discretion, continue to earn the
rate of interest which was paid under the former Contract. Automatic transfers
to Single Contribution Contracts will, as of the date of such transfer, be
credited with the Single Contribution Contract interest rate which was in effect
on the date the transferred contribution was originally deposited into the
Recurring Contribution Contract. If AUL changes the Current Rate, such amounts
contributed or transferred on or after the effective date of the change earn
interest at the new Current Rate; however, amounts contributed or transferred
prior to the effective date of the change may earn interest at the prior Current
Rate or other Current Rate determined by AUL. Therefore, at any given time,
various portions of a Participant's Fixed Account Value may be earning interest
at different Current Rates for different periods of time, depending upon when
such portions were originally contributed or transferred to the Fixed Account.
AUL bears the investment risk for Participant's Fixed Account Values and for
paying interest at the Current Rate on amounts allocated to the Fixed Account.
AUL reserves the right at any time to change the Guaranteed Rate of
interest for any Participant Accounts established on or after the effective date
of the change, although once a Participant Account is established, the
Guaranteed Rate may not be changed for the duration of that Account.
WITHDRAWALS AND TRANSFERS
A Participant (or a Contract Owner on behalf of a Participant) may make a
full surrender or a partial withdrawal from his or her Fixed Account Value
subject to the provisions of the Contract. A full surrender of a Participant's
Fixed Account Value will result in a withdrawal payment equal to the value of
the Participant's Fixed Account Value as of the day the surrender is effected,
minus any applicable withdrawal charge and minus the Participant's outstanding
loan balance(s), if any, and any expense charges due thereon. A partial
withdrawal may be requested for a specified percentage or dollar amount of the
Participant's Fixed Account Value, except, where a Participant has outstanding
loans under a Contract, a partial withdrawal will be permitted only to the
extent that the Participant's remaining Withdrawal Value in the Fixed Account
equals twice the total of the outstanding loans under the Participant's account.
The minimum amount that may be withdrawn from a Participant's share of the Fixed
Account is the lesser of $500 or the Participant's entire Fixed Account Value as
of the date the withdrawal request is received by AUL at its Home Office. If a
partial withdrawal is requested that would leave the Participant's Fixed Account
Value less than $500, then such partial withdrawal request will be treated as a
request for a full withdrawal from the Fixed Account. If a Participant has more
than one Account, then the Account from which the partial withdrawal is to be
taken must be specified and any withdrawal restrictions shall be effective at an
Account level. For a further discussion of surrenders and partial withdrawals as
generally applicable to a Participant's Variable Account Value and Fixed Account
Value, see "Cash Withdrawals."
A Participant's Fixed Account Value may be transferred from the Fixed
Account to the Variable Account subject to certain limitations. Where a
Participant has outstanding loans under a
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33
Contract, a transfer will be permitted only to the extent that the Participant's
remaining Withdrawal Value in the Fixed Account equals twice the total of the
outstanding loans under the Participant's Account. The minimum transfer from any
Investment Account or from the Fixed Account is the lesser of $500 or a
Participant's entire Account Value in that Investment Account or in the Fixed
Account as of the date the transfer request is received by AUL at its Home
Office, provided, however, that amounts transferred from the Fixed Account to an
Investment Account during any given Contract Year cannot exceed 20% of the
Participant's Fixed Account Value as of the beginning of that Contract Year.
However, if a Participant's Fixed Account Value at the beginning of the Contract
Year is less than $2,500, the amount that will be transferred for that Contract
Year from the Fixed Account is the lesser of $500 or the entire Fixed Account
Value as of the date the transfer request is received by AUL at its Home Office.
If, after any transfer, the Participant's remaining Account Value in an
Investment Account or in the Fixed Account would be less than $500, then such
request will be treated as a request for a transfer of the entire Account Value.
Transfers and withdrawals of a Participant's Fixed Account Values will be
effected on a first-in, first-out basis. If a Participant has more than one
Account, then the Account from which the transfer is to be taken must be
specified and any transfer restrictions shall be effective at an Account level.
For a discussion of transfers as generally applicable to a Participant's
Variable Account Value and Fixed Account Value, see "Transfers of Account
Value."
TRANSFER OF INTEREST OPTION
Participants may elect to use interest earned in their Fixed Account to
purchase Accumulation Units in one or more Variable Accounts. Upon receipt at
AUL's Home Office of properly executed written instructions to do so, AUL will,
on the last business day of each month and monthly thereafter, use the interest
earned in the Fixed Account during that month to purchase Accumulation Units at
the corresponding Accumulation Unit Value on each date that a purchase is made.
To elect this Option, the Participant must have previously provided AUL with
instructions specifying the Variable Investment Account or Accounts to be
purchased and a percentage allocation among Investment Accounts if more than one
Investment Account has been elected. If no such instructions are received by
AUL, then the Participant's prior investment allocation instructions will be
used by AUL to allocate purchases under this Option.
To participate in this Option, a Participant's Fixed Account Value must be
greater than $10,000. Amounts transferred out of the Fixed Account under this
Option will be considered a part of the 20% maximum amount that can be
transferred from the Fixed Account to a Variable Account during any given
Contract Year.
CONTRACT CHARGES
The withdrawal charge will be the same for amounts surrendered or withdrawn
from a Participant's Fixed Account Value as for amounts surrendered or withdrawn
from a Participant's Variable Account Value. In addition, the administrative
charge will be the same whether or not a Participant's Account Value is
allocated to the Variable Account or the Fixed Account. The charge for mortality
and expense risks will not be assessed against the Fixed Account, and any
amounts that AUL pays for income taxes allocable to the Variable Account will
not be charged against the Fixed Account. In addition, the investment advisory
fees and operating expenses paid by the Funds will not be paid directly or
indirectly by Participants to the extent the Account Value is allocated to the
Fixed Account; however, such Participants will not participate in the investment
experience of the Variable Account. See "Charges and Deductions."
An Investment Liquidation Charge may be imposed upon termination by an
Owner of a Contract acquired in connection with an Employee Benefit Plan or 457
Program. See "Termination by the Owner."
PAYMENTS FROM THE FIXED ACCOUNT
Surrenders, withdrawals, and transfers from the Fixed Account and payment
of a death benefit based upon a Participant's Fixed Account Value may be delayed
for up to six months after a written request in proper form is received by AUL
at its Home Office. During the period of deferral, interest at the applicable
interest rate or rates will continue to be credited to the Participant's Fixed
Account Value. For information on payment upon termination by the Owner of a
Contract acquired in connection with an Employee Benefit Plan, an Employer
Sponsored 403(b) Program, or a 457 Program, see "Termination by the Owner."
LOANS FROM THE FIXED ACCOUNT
A Participant under a 403(b) Program, other than an Employer Sponsored
403(b) Program, who has a Participant Account Value in the Fixed Account may
borrow money from AUL using his or her Fixed Account Value as the only security
for the loan by submitting a proper written request to AUL's Home Office. A loan
may be taken any time prior to the Annuity Commencement Date. The minimum loan
that can be taken at any time is $2000, unless a lower minimum loan amount is
specified by state law or Department of Labor regulations. The maximum amount
that can be borrowed at any time is an amount which, when combined with the
largest loan balance during the prior 12 months, does not exceed the lesser of
(1) 50% of the Participant's Withdrawal Value in the Fixed Account, or (2)
$50,000. The Participant's Withdrawal Value in the Fixed Account, which must be
at least twice the amount of the outstanding loan balance, shall serve as
security for the loan, and shall continue to earn interest as described under
"Interest." Payment by AUL of the loan amount may be delayed for up to six
months. If a Participant has more than one Participant Account invested in the
Fixed Account, then the account in which funds are to be held as security for
the loan
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must be specified, and any loan restrictions shall be effective at an Account
level.
Interest will be charged for the loan, and will accrue on the loan balance
from the effective date of any loan. The interest rate will be declared by AUL
at the beginning of each calendar quarter, or, with respect to Contracts or
Participants in some states, annually. The interest charged will be determined
under a procedure specified in the loan provision of the Contract; the interest
rate generally follows the Moody's Corporate Bond Yield Average-Monthly Average
Corporates as published by Moody's Investors Service. However, no change from a
previously established rate will be made in an amount less than .50% in any
periodic adjustment. The Contract should be consulted for more information. The
loan balance shall also be subject to a loan expense charge equal to 2% of each
loan repayment unless such a charge is prohibited by state law.
Loans to Participants must be repaid within a term of five years, unless
the Participant certifies to AUL that the loan is to be used to acquire a
principal residence for the Participant, in which case the term may be longer.
Loan repayments must be made at least quarterly. Upon receipt of a repayment,
AUL will deduct the 2% expense charge from the repayment and will apply the
balance first to any accrued interest and then to the outstanding loan
principal.
If a loan either remains unpaid at the end of its term, or if at any time
during the Accumulation Period, 102% of the total of all the Participant's loan
balances equals the Participant's Withdrawal Value allocated to the Fixed
Account, then AUL will deduct these loan balances, as well as an expense charge
equal to 2% of the outstanding loan balances, from the Participant's Fixed
Account Value to the extent permitted by law. If a Participant has outstanding
loans, then withdrawals or transfers to the Variable Account will be permitted
only to the extent that the remaining Participant's Withdrawal Value in the
Fixed Account equals or exceeds twice the total of any outstanding loans under
the Contract. All loan balances plus the 2% expense charge must be paid or
satisfied in full before any amount based upon a Participant's Fixed Account
Value is paid upon surrender, as a death benefit, upon annuitization, or other
permitted distribution.
The restrictions or limitations stated above may be modified, or new
restrictions and limitations added, to the extent necessary to comply with
Section 72(p) of the Internal Revenue Code or its regulations, under which a
loan will not be treated as a distribution under a 403(b) Program, or other
applicable law as determined by AUL. It should be noted that the Internal
Revenue Service has issued regulations which cause the outstanding balance of a
loan to be treated as a taxable distribution if the loan is not repaid in a
timely manner.
MORE ABOUT THE CONTRACTS
DESIGNATION AND CHANGE OF BENEFICIARY
The Beneficiary designation contained in an enrollment form application to
open a Participant's Account will remain in effect until changed. Payment of
benefits to any Beneficiary are subject to the specified Beneficiary surviving
the Participant. Unless otherwise provided, if no designated Beneficiary is
living upon the death of the Participant prior to the Annuity Commencement Date,
the Participant's estate is the Beneficiary. Unless otherwise provided, if no
designated Beneficiary under an Annuity Option is living after the Annuity
Commencement Date, upon the death of the Annuitant, the Annuitant's estate is
the Beneficiary.
Subject to the rights of an irrevocably designated Beneficiary, the
designation of a Beneficiary may be changed or revoked at any time while the
Participant is living by filing with AUL a written beneficiary designation or
revocation in such form as AUL may require. The change or revocation will not be
binding upon AUL until it is received by AUL at its Home Office. When it is so
received, the change or revocation will be effective as of the date on which the
beneficiary designation or revocation was signed, but the change or revocation
will be without prejudice to AUL if any payment has been made or any action has
been taken by AUL prior to receiving the change or revocation.
Reference should be made to the terms of the particular Plan and any
applicable law for any restrictions on the beneficiary designation. For
instance, under an Employee Benefit Plan or Employer Sponsored 403(b) Program,
the Beneficiary (or contingent Annuitant) must be the Participant's spouse if
the Participant is married, unless the spouse properly consents to the
designation of a Beneficiary (or contingent Annuitant) other than the spouse.
ASSIGNABILITY
No benefit or privilege under a Contract may be sold, assigned, discounted,
or pledged as collateral for a loan or as security for the performance of an
obligation or for any other purpose to any person or entity other than AUL.
PROOF OF AGE AND SURVIVAL
AUL may require proof of age or survival of any person on whose life
annuity payments depend.
MISSTATEMENTS
If the age of an Annuitant or contingent Annuitant has been misstated, the
correct amount paid or payable by AUL shall be such as the Participant's Account
Value would have provided for the correct age.
ACCEPTANCE OF NEW PARTICIPANTS OR CONTRIBUTIONS
AUL reserves the right to refuse to accept new Participants or new
Contributions to a Contract at any time.
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FEDERAL TAX MATTERS
INTRODUCTION
The Contracts described in this Prospectus are designed for use by
Employer, association, and other group retirement plans under the provisions of
Sections 401, 403, 408, and 457 of the Internal Revenue Code ("Code"). The
ultimate effect of Federal income taxes on values under a Contract, the
Participant's Account, on annuity payments, and on the economic benefits to the
Owner, the Participant, the Annuitant, and the Beneficiary or other payee may
depend upon the type of Plan for which the Contract is purchased and a number of
different factors. The discussion contained herein and in the Statement of
Additional Information is general in nature. It is based upon AUL's
understanding of the present Federal income tax laws as currently interpreted by
the Internal Revenue Service ("IRS"), and is not intended as tax advice. No
representation is made regarding the likelihood of continuation of the present
Federal income tax laws or of the current interpretations by the IRS. Moreover,
no attempt is made to consider any applicable state or other laws. Because of
the inherent complexity of such laws and the fact that tax results will vary
according to the particular circumstances of the Plan or individual involved,
any person contemplating the purchase of a Contract, or becoming a Participant
under a Contract, or receiving annuity payments under a Contract should consult
a qualified tax adviser.
AUL DOES NOT MAKE ANY GUARANTEE REGARDING THE TAX STATUS, FEDERAL, STATE, OR
LOCAL, OF ANY CONTRACT OR PARTICIPANT'S ACCOUNT OR ANY TRANSACTION INVOLVING THE
CONTRACTS.
TAX STATUS OF THE COMPANY AND THE VARIABLE ACCOUNT
AUL is taxed as a life insurance company under Part I, Subchapter L of the
Code. Because the Variable Account is not taxed as a separate entity and its
operations form a part of AUL, AUL will be responsible for any Federal income
taxes that become payable with respect to the income of the Variable Account.
However, each Investment Account will bear its allocable share of such
liabilities. Under current law, no item of dividend income, interest income, or
realized capital gain attributable, at a minimum, to appreciation of the
Investment Accounts will be taxed to AUL to the extent it is applied to increase
reserves under the Contracts.
The Funds in which the Variable Account will invest its assets are each
intended to qualify as a regulated investment company under Part I, Subchapter M
of the Code. If the requirements of the Code are met, the Funds will not be
taxed on amounts distributed on a timely basis to the Variable Account.
TAX TREATMENT OF RETIREMENT PROGRAMS
The Contracts described in this Prospectus are offered for use with several
types of retirement programs as described in "The Contracts." 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 or Employer contributions 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.
The amounts that may be contributed to the Plans are subject to limitations
that may vary depending on the type of Plan. In addition, early distributions
from most Plans may be subject to penalty taxes, or in the case of distributions
of amounts contributed under salary reduction agreements, could cause the Plan
to be disqualified. Furthermore, distributions from most Plans are subject to
certain minimum distribution rules. Failure to comply with these rules could
result in disqualification of the Plan or subject the Annuitant 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.
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Under an Employee Benefit Plan under Section 401 of the Code, when annuity
payments commence (as opposed to a lump-sum distribution), under Section 72 of
the Code, the portion of each payment attributable to 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.
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
Withdrawal - 403(b) Programs." Since, under a 403(b) Program, contributions
generally 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,
SIMPLE IRA plans and Employer/Association Established Individual Retirement
Account Trusts, known as an Individual Retirement Account ("IRA"). These IRA
accounts are subject to limitations on the amount that may be contributed, the
persons who may be eligible, and on the time when distributions may commence. In
addition, certain distributions from some other types of retirement plans may be
placed on a tax-deferred basis in an IRA. Sale of the Contracts for use with
IRA's may be subject to special requirements imposed by the Internal Revenue
Service. Purchasers of the Contracts for such purposes will be provided with
such supplementary information as may be required by the Internal Revenue
Service or other appropriate agency, and will have the right to revoke the
Contract under certain circumstances.
If a Participant under a 408 Program makes a surrender or partial
withdrawal from the Participant's Account, the Participant generally will
realize income taxable at ordinary tax rates on the full amount received. Since
under a 408 Program, contributions generally 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 as ordinary income when annuity
payments commence or other distribution is made.
TAX PENALTY
Any distribution made to a Participant from an Employee Benefit Plan or a
408 Program other than on account of one or more of the following events will be
subject to a 10% penalty tax on the amount distributed:
(a) the 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 will not be
subject to a 10% excise tax on the amount distributed if the Participant is 55
and has separated from service. Distributions received at least annually as part
of a series of substantially equal periodic payments made for the life of the
Participant will not be subject to an excise tax. Certain amounts paid for
medical care also may not be subject to an excise tax.
Any permitted distribution from a Participant Account under a 403(b)
Program will be subject to a 10% excise tax unless the Participant satisfies one
of the exemptions listed above for Employee Benefit Plans. See "Constraints on
Withdrawals - 403(b) Programs."
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
<PAGE>
37
Individual Retirement Account under Code Section 408. The taxable amount is the
amount of the distribution, less the amount allocable to after-tax
contributions.
All other types of distributions from Employee Benefit Plans and 403(b)
Programs, and all distributions from Individual Retirement Accounts, are subject
to federal income tax withholding on the taxable amount unless the distributee
elects not to have the withholding apply. The amount withheld is based on the
type of distribution. Federal tax will be withheld from annuity payments (other
than those subject to mandatory 20% withholding) pursuant to the recipient's
withholding certificate. If no withholding certificate is filed with AUL, tax
will be withheld on the basis that the payee is married with three withholding
exemptions. Tax on all surrenders and lump-sum distributions from Individual
Retirement Accounts will be withheld at a flat 10% rate.
Withholding on annuity payments and other distributions from the Contract
will be made in accordance with regulations of the Internal Revenue Service.
EFFECT OF TAX DEFERRED ACCUMULATION
In general, participants in retirement plans that own annuity contracts are
not taxed on increases in the value of their accounts until some form of
distribution is made to the Participant. Due to this tax deferral during the
accumulation period, participation in a retirement plan funded by an annuity
contract generally results in more rapid growth than a comparable investment
under which contributions and increases in value are taxed on a current basis.
The chart illustrates this benefit by comparing a retirement plan that invests
in a variable annuity contract to accumulation from an investment whose
contributions and gains are taxed on a current basis. The chart illustrates
accumulation of $250 of monthly before-tax contributions going into an annuity
contract for a retirement plan and $172.50 of monthly after-tax contributions
going into a conventional savings plan ($250 minus $77.50 of income taxes based
on an assumed combined rate of 31% for state and federal income tax equals
$172.50 of after-tax contributions). Each contribution is made at the end of
each month. This chart also assumes a 6% before-tax earnings rate. Values for
Tax Deferred Accumulation After Tax and Pre Tax Accumulation Value do not
reflect the deduction for mortality and expense risk charges under a variable
annuity contract. Values shown for Tax Deferred Accumulation After Tax reflect
appropriate withdrawal charges at the end of the periods shown.
The hypothetical rate of return used in the chart is an assumption only,
and no implication is intended that the return is guaranteed in any way or that
it represents an average or expected rate of return over the period depicted.
The portion of a Participant's Account Value that exceeds the variable annuity
contract owner's or participant's investment in the Participant's Account is
taxed at ordinary income tax rates upon distribution, and a 10% tax penalty may
apply to withdrawals taken before the taxpayer reaches the age of 59 1/2.
(Chart omitted; the following information is an explanation of the
information contained in the chart.)
<TABLE>
<CAPTION>
$250 per month at gross annual rate of 6.00%, taxed at 31%
<S> <C> <C> <C>
Period After Tax Conventional Savings Tax Deferred Accumulation After Tax Pre-Tax Accumulation Value
- ------ ------------------------------ ----------------------------------- --------------------------
5 Years $11,455 $11,555 $17,371
10 Years $25,486 $28,027 $40,618
20 Years $63,722 $78,218 $113,360
30 Years $121,087 $168,103 $243,628
40 Years $207,152 $329,074 $476,919
</TABLE>
After state and federal income tax at 31% has been paid on the amount
distributed, with a variable annuity, after 5 years there would be an additional
$100 available; after 10 years there would be an additional $2,541 available;
after 20 years, there would be an additional $14,496 available; after 30 years,
there would be an additional $47,016 available; and after 40 years, there would
be an additional $121,922 available. Tax rates may vary for different taxpayers
from the 31% used in this chart, which would result in different values from
those shown in the chart.
<PAGE>
38
OTHER INFORMATION
VOTING OF SHARES OF THE FUNDS
AUL is the legal owner of the shares of the Funds held by the Investment
Accounts of the Variable Account. In accordance with its view of present
applicable law, AUL will exercise voting rights attributable to the shares of
each Portfolio of the Funds held in the Investment Accounts at any regular and
special meetings of the shareholders of the Funds on matters requiring
shareholder voting under the 1940 Act.
AUL will exercise these voting rights based on instructions received from
persons having the voting interest in corresponding Investment Accounts of the
Variable Account and consistent with any requirements imposed on AUL under
contracts with any of the Funds, or under applicable law. However, if the 1940
Act or any regulations thereunder should be amended, or if the present
interpretation thereof should change, and as a result AUL determines that it is
permitted to vote the shares of the Funds in its own right, it may elect to do
so.
The person having the voting interest under a Contract is the Owner or the
Participant, depending on the type of Plan. Generally, a Participant will have a
voting interest under a Contract to the extent of the vested portion of his or
her Account Value. AUL shall send to each Owner or Participant a Fund's proxy
materials and forms of instruction by means of which instructions may be given
to AUL on how to exercise voting rights attributable to the Funds' shares. In
the case of a Contract acquired in connection with an Employee Benefit Plan or
an Employer Sponsored 403(b) Program, AUL may furnish the Owner with sufficient
Fund proxy materials and voting instruction forms for all Participants under a
Contract with any voting interest.
Unless otherwise required by applicable law or under a contract with any of
the Funds, with respect to each of the Funds, the number of Fund shares of a
particular Portfolio as to which voting instructions may be given to AUL is
determined by dividing the value of all of the Accumulation Units of the
corresponding Investment Account attributable to a Contract or a Participant's
Account on a particular date by the net asset value per share of that Portfolio
as of the same date. Fractional votes will be counted. The number of votes as to
which voting instructions may be given will be determined as of the date
coincident with the date established by a Fund for determining shareholders
eligible to vote at the meeting of the Fund. If required by the SEC or under a
contract with any of the Funds, AUL reserves the right to determine in a
different fashion the voting rights attributable to the shares of the Fund.
Voting instructions may be cast in person or by proxy.
Voting rights attributable to the Contracts or Participant Accounts for
which no timely voting instructions are received will be voted by AUL in the
same proportion as the voting instructions which are received in a timely manner
for all Contracts and Participant Accounts participating in that Investment
Account. AUL will vote shares of any Investment Account, if any, that it owns
beneficially in its own discretion, except that if a Fund offers its shares to
any insurance company separate account that funds variable life insurance
contracts or if otherwise required by applicable law, AUL will vote its own
shares in the same proportion as the voting instructions that are received in a
timely manner for Contracts and Participant Accounts participating in the
Investment Account.
Neither the Variable Account nor AUL is under any duty to inquire as to the
instructions received or the authority of Owners or others to instruct the
voting of shares of any of the Funds.
SUBSTITUTION OF INVESTMENTS
AUL reserves the right, subject to compliance with the law as then in
effect, to make additions to, deletions from, substitutions for, or combinations
of the securities that are held by the Variable Account or any Investment
Account or that the Variable Account or any Investment Account may purchase. If
shares of any or all of the Portfolios of a Fund should no longer be available
for investment, or if, in the judgment of AUL's management, further investment
in shares of any or all Portfolios of a Fund should become inappropriate in view
of the purposes of the Contracts, AUL may substitute shares of another Portfolio
of a Fund or of a different fund for shares already purchased, or to be
purchased in the future under the Contracts. AUL may also purchase, through the
Variable Account, other securities for other classes of contracts, or permit a
conversion between classes of contracts on the basis of requests made by Owners
or as permitted by Federal law.
Where required under applicable law, AUL will not substitute any shares
attributable to an Owner's interest in an Investment Account or the Variable
Account without notice, Owner or Participant approval, or prior approval of the
SEC or a state insurance commissioner, and without following the filing or other
procedures established by applicable state insurance regulators.
AUL also reserves the right to establish additional Investment Accounts of
the Variable Account that would invest in a new Portfolio of a Fund or in shares
of another investment company, a series thereof, or other suitable investment
vehicle. New Investment Accounts may be established in the sole discretion of
AUL, and any new Investment Account will be made available to existing Owners on
a basis to be determined by AUL. Not all Investment Accounts may be available
under a particular Contract. AUL may also eliminate or combine one or more
Investment Accounts or cease permitting new allocations to an Investment Account
if, in its sole discretion, marketing, tax, or investment conditions so warrant.
Subject to any required regulatory approvals, AUL reserves the right to
transfer assets of any Investment Account of the Variable Account to another
separate account or Investment Account.
<PAGE>
39
In the event of any such substitution or change, AUL may, by appropriate
endorsement, make such changes in these and other Contracts as may be necessary
or appropriate to reflect such substitution or change. If deemed by AUL to be in
the best interests of persons having voting rights under the Contracts, the
Variable Account may be operated as a management investment company under the
1940 Act or any other form permitted by law, it may be deregistered under that
Act in the event such registration is no longer required, or it may be combined
with other separate accounts of AUL or an affiliate thereof. Subject to
compliance with applicable law, AUL also may combine one or more Investment
Accounts and may establish a committee, board, or other group to manage one or
more aspects of the operation of the Variable Account.
CHANGES TO COMPLY WITH LAW AND AMENDMENTS
AUL reserves the right, without the consent of Owners or Participants, to
make any change to the provisions of the Contracts to comply with, or to give
Owners or Participants the benefit of, any Federal or state statute, rule, or
regulation, including, but not limited to, requirements for annuity contracts
and retirement plans under the Internal Revenue Code and regulations thereunder
or any state statute or regulation.
AUL reserves the right to make certain changes in the Contracts. AUL has
the right at any time to change the Guaranteed Rate of interest credited to
amounts allocated to the Fixed Account for any Participant Accounts established
on or after the effective date of the change, although once a Participant's
Account is established, the Guaranteed Rate may not be changed for the duration
of the Account.
After the fifth anniversary of a Contract, AUL has the right to change any
annuity tables included in the Contract, but any such change shall apply only to
Participant Accounts established on or after the effective date of such a
change. AUL also has the right to change the withdrawal charge and, within the
limits described under "Guarantee of Certain Charges," the administrative
charge.
RESERVATION OF RIGHTS
AUL reserves the right to refuse to accept new contributions under a
Contract and to refuse to accept new Participants under a Contract.
PERIODIC REPORTS
AUL will send quarterly statements showing the number, type, and value of
Accumulation Units credited to the Contract or to the Participant's Account, as
the case may be. AUL will also send statements reflecting transactions in a
Participant's Account as required by applicable law. In addition, every person
having voting rights will receive such reports or Prospectuses concerning the
Variable Account and the Funds as may be required by the 1940 Act and the 1933
Act.
LEGAL PROCEEDINGS
There are no legal proceedings pending to which the Variable Account is a
party, or which would materially affect the Variable Account.
LEGAL MATTERS
Legal matters in connection with the issue and sale of the Contracts
described in this Prospectus and the organization of AUL, its authority to issue
the Contracts under Indiana law, and the validity of the forms of the Contracts
under Indiana law have been passed upon by the Associate General Counsel of AUL.
Legal matters relating to the Federal securities and Federal income tax
laws have been passed upon by Dechert Price & Rhoads, Washington, D.C.
PERFORMANCE INFORMATION
Performance information for the Investment Accounts is shown under
"Performance of the Investment Accounts." Performance information for the
Investment Accounts may also appear in promotional reports and literature to
current or prospective Owners or Participants in the manner described in this
section. Performance information in promotional reports and literature may
include the yield and effective yield of the Investment Account investing in the
AUL American Money Market Portfolio ("Money Market Investment Account"), the
yield of the remaining Investment Accounts, the average annual total return and
the total return of all Investment Accounts.
Current yield for the Money Market Investment Account will be based on
income received by a hypothetical investment over a given 7-day period (less
expenses accrued during the period), and then "annualized" (i.e., assuming that
the 7-day yield would be received for 52 weeks, stated in terms of an annual
percentage return on the investment). "Effective yield" for the Money Market
Investment Account is calculated in a manner similar to that used to calculate
yield, but reflects the compounding effect of earnings.
For the remaining Investment Accounts, quotations of yield will be based on
all investment income per Accumulation Unit earned during a given 30-day period,
less expenses accrued during the period ("net investment income"), and will be
computed by dividing net investment income by the value of an Accumulation Unit
on the last day of the period. Quotations of average annual total return for any
Investment Account will be expressed in terms of the average annual compounded
rate of return on a hypothetical investment in a Contract over a period of one,
five, and ten years (or, if less, up to the life of the Investment Account), and
will reflect the deduction of the applicable withdrawal charge, the mortality
and expense risk
<PAGE>
40
charge, and if applicable, the administrative charge. Hypothetical quotations of
average annual total return may also be shown for an Investment Account for
periods prior to the time that the Investment Account commenced operations,
based upon the performance of the mutual fund portfolio in which that Investment
Account invests, and will reflect the deduction of the applicable withdrawal
charge, the administrative charge, and the mortality and expense risk charge as
if, and to the extent that, such charges had been applicable. Quotations of
total return, actual and hypothetical, may simultaneously be shown that do not
take into account certain contractual charges such as the withdrawal charge and
the administrative charge.
Performance information for an Investment Account may be compared, in
promotional reports and literature, to: (i) the Standard & Poor's 500 Composite
Index ("S & P 500"), Dow Jones Industrial Average ("DJIA"), Donoghue Money
Market Institutional Averages, or other indices measuring performance of a
pertinent group of securities so that investors may compare an Investment
Account's results with those of a group of securities widely regarded by
investors as representative of the securities markets in general; (ii) other
variable annuity separate accounts or other investment products tracked by
Lipper Analytical Services, a widely used independent research firm which ranks
mutual funds and other investment companies by overall performance, investment
objectives, and assets, or tracked by other ratings services, companies,
publications, or persons who rank separate accounts or other investment products
on overall performance or other criteria; and (iii) the Consumer Price Index
(measure for inflation) to assess the real rate of return from an investment in
the Contract. Unmanaged indices may assume the reinvestment of dividends but
generally do not reflect deductions for administrative and management costs and
expenses.
Performance information for any Investment Account reflects only the
performance of a hypothetical Contract under which Account Value is allocated to
an Investment Account during a particular time period on which the calculations
are based. Performance information should be considered in light of the
investment objectives and policies, characteristics, and quality of the
Portfolio of a Fund in which the Investment Account invests, and the market
conditions during the given time period, and should not be considered as a
representation of what may be achieved in the future. For a description of the
methods used to determine yield and total return in promotional reports and
literature for the Investment Accounts, see the Statement of Additional
Information.
Promotional reports and literature may also contain other information
including: (i) the ranking of any Investment Account derived from rankings of
variable annuity separate accounts or other investment products tracked by
Lipper Analytical Services or by other rating services, companies, publications,
or other persons who rank separate accounts or other investment products on
overall performance or other criteria, (ii) the effect of tax-deferred
compounding on an Investment Account's investment returns, or returns in
general, which may be illustrated by graphs, charts, or otherwise, and which may
include a comparison, at various points in time, of the return from an
investment in a Contract (or returns in general) on a tax-deferred basis
(assuming one or more tax rates) with the return on a taxable basis, and (iii)
AUL's rating or a rating of AUL's claim-paying ability by firms that analyze and
rate insurance companies and by nationally recognized statistical rating
organizations.
STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information contains more specific information and
financial statements relating to AUL. The Table of Contents of the Statement of
Additional Information is set forth below:
<TABLE>
<S> <C>
GENERAL INFORMATION AND HISTORY...............................................................................................
DISTRIBUTION OF CONTRACTS.....................................................................................................
CUSTODY OF ASSETS.............................................................................................................
LIMITS ON CONTRIBUTIONS TO RETIREMENT PLANS...................................................................................
403(b) Programs.............................................................................................................
408 Programs................................................................................................................
457 Programs................................................................................................................
Employee Benefit Plans......................................................................................................
INDEPENDENT ACCOUNTANTS.......................................................................................................
PERFORMANCE INFORMATION.......................................................................................................
FINANCIAL STATEMENTS..........................................................................................................
</TABLE>
A Statement of Additional Information may be obtained by calling or writing to
AUL at the telephone number and address set forth in the front of this
Prospectus.
<PAGE>
41
================================================================================
No dealer, salesman or any other person is authorized by the AUL
American Unit Trust or by AUL to give any information or to make any
representation other than as contained in this Prospectus in connection
with the offering described herein.
There has been filed with the Securities and Exchange Commission,
Washington, D.C., a Registration Statement under the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as amended,
with respect to the offering herein described. For further information
with respect to the AUL American Unit Trust, AUL and its variable
annuities, reference is made thereto and the exhibits filed therewith
or incorporated therein, which include all contracts or documents
referred to herein.
================================================================================
AUL AMERICAN UNIT TRUST
Group Variable Annuity Contracts
Sold By
AMERICAN UNITED
LIFE INSURANCE COMPANY(R)
One American Square
Indianapolis, Indiana 46282
PROSPECTUS
Dated: May 1, 1997
================================================================================
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1997
AUL American Unit Trust
Group Variable Annuity Contracts
Offered By
American United Life Insurance Company(R)
One American Square
Indianapolis, Indiana 46282
(800) 634-1629
Annuity Service Office Mail Address:
P.O. Box 6148, Indianapolis, Indiana 46206-6148
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the current Prospectus for AUL American
Unit Trust, dated May 1, 1997.
A Prospectus is available without charge by calling or writing to
American United Life Insurance Company(R) at the telephone number or
address shown above or by mailing the Business Reply Mail card included
in this Statement of Additional Information.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Description Page
GENERAL INFORMATION AND HISTORY............................................................................................
DISTRIBUTION OF CONTRACTS..................................................................................................
CUSTODY OF ASSETS..........................................................................................................
LIMITS ON CONTRIBUTIONS TO RETIREMENT PLANS................................................................................
403(b) Programs..........................................................................................................
408 Programs.............................................................................................................
457 Programs.............................................................................................................
Employee Benefit Plans...................................................................................................
INDEPENDENT ACCOUNTANTS....................................................................................................
PERFORMANCE INFORMATION....................................................................................................
FINANCIAL STATEMENTS.......................................................................................................
</TABLE>
<PAGE>
GENERAL INFORMATION AND HISTORY
For a general description of AUL and AUL American Unit Trust (the "Variable
Account"), see the section entitled "Information about AUL, The Variable
Account, and The Funds" in the Prospectus.
DISTRIBUTION OF CONTRACTS
AUL is the Principal Underwriter for the group variable annuity contracts
(the "Contracts") described in the Prospectus and in this Statement of
Additional Information. AUL is registered with the Securities and Exchange
Commission (the "SEC") as a broker-dealer. The Contracts are currently being
sold in a continuous offering. While AUL does not anticipate discontinuing the
offering of the Contracts, it reserves the right to do so. The Contracts are
sold by registered representatives of AUL who are also licensed insurance
agents.
AUL also has sales agreements with various broker-dealers under which the
Contracts will be sold by registered representatives of the broker-dealers. The
registered representatives are required to be authorized under applicable state
regulations to sell variable annuity contracts. The broker-dealers are required
to be registered with the SEC and members of the National Association of
Securities Dealers, Inc.
AUL serves as the Principal Underwriter without compensation from the
Variable Account.
CUSTODY OF ASSETS
The assets of the Variable Account are held by AUL. The assets are kept
physically segregated and are held separate and apart from the assets of other
separate accounts of AUL and from AUL's General Account assets. AUL maintains
records of all purchases and redemptions of shares of AUL American Series Fund,
Inc., Acacia Capital Corporation, Alger American Fund, American Century Mutual
Funds, Inc., American Century Variable Portfolios, Inc., American Century World
Portfolios, Inc., Fidelity Variable Insurance Products Fund, Fidelity Variable
Insurance Products Fund II, Invesco Dynamics Fund, Inc., Janus Aspen Series,
PBHG Funds, Inc., PBHG Insurance Series Fund, Inc., SAFECO Resource Series
Trust, T. Rowe Price Equity Series, Inc., Vanguard Explorer Fund, Inc., and
Vanguard Fixed Income Securities Fund, Inc., (each a "Fund" and collectively the
"Funds").
LIMITS ON CONTRIBUTIONS TO RETIREMENT PLANS
403(B) PROGRAMS
Contributions to a 403(b) Program are excludable from a Participant's gross
income if they do not exceed the smallest of the limits calculated under
Sections 402(g), 403(b)(2), and 415 of the Internal Revenue Code. Section 402(g)
generally limits a Participant's salary reduction contributions to a 403(b)
Program to $9,500 a year. The $9,500 limit may be reduced by salary reduction
contributions to another type of retirement plan. A Participant with at least 15
years of service for a "qualified employer" (i.e., an educational organization,
hospital, home health service agency, health and welfare service agency, church
or convention or association of churches) generally may exceed the $9,500 limit
by $3,000 per year, subject to an aggregate limit of $15,000 for all years.
Section 403(b)(2) provides an overall limit on Employer and Participant
salary reduction contributions that may be made to a 403(b) Program. Section
403(b)(2) generally provides that the maximum amount of contributions a
Participant may exclude from his gross income in any taxable year is equal to
the excess, if any, of:
(a) the amount determined by multiplying 20% of his includable compensation
by the number of his years of service with his Employer, over
(b) the total amount contributed to retirement plans sponsored by his
Employer, including the Section 403(b) Program, that were excludable from his
gross income in prior years.
Participants employed by "qualified employers" may elect to have certain
alternative limitations apply.
Section 415(c) also provides an overall limit on the amount of Employer and
Participant's salary reduction contributions to a Section 403(b) Program that
will be excludable from an employee's gross income in a given year. The Section
415(c) limit is the lesser of (a) $30,000, or (b) 25% of the Participant's
annual compensation. This limit will be reduced if a Participant also
participates in an Employee Benefit Plan maintained by a business that he or she
controls.
The limits described above do not apply to amounts "rolled over" from
another Section 403(b) Program. A Participant who receives an "eligible rollover
distribution" will be permitted either to roll over such amount to another
Section 403(b) Program or an IRA within 60 days of receipt or to make a direct
rollover to anoth-
<PAGE>
er Section 403(b) Program or an IRA without recognition of income. An "eligible
rollover distribution" means any distribution to a Participant of all or any
taxable portion of the balance to his credit under a Section 403(b) Program,
other than a required minimum distribution to a Participant who has reached age
70 1/2 and excluding any distribution which is one of a series of substantially
equal payments made (1) over the life expectancy of the Participant or his
beneficiary or (2) over a specified period of 10 years or more. Provisions of
the Internal Revenue Code require that 20% of every eligible rollover
distribution that is not directly rolled over be withheld by the payor for
federal income taxes.
408 PROGRAMS
Contributions to the individual retirement account of a Participant under a
408 Program that is described in Section 408(c) of the Internal Revenue Code are
subject to the limits on contributions to individual retirement accounts under
Section 219(b) of the Internal Revenue Code. Under Section 219(b) of the Code,
contributions to an individual retirement account are limited to the lesser of
$2,000 per year or the Participant's annual compensation. For tax years
beginning after 1996, if a married couple files a joint return, each spouse may,
in a great majority of cases, make contributions to his or her IRA up to the
$2,000 limit. The extent to which a Participant may deduct contributions to this
type of 408 Program depends on his or her spouse's gross income for the year and
whether either participate in another employer-sponsored retirement plan.
Contributions to a 408 Program that is a simplified employee pension plan
are subject to limits under Section 402(h) of the Internal Revenue Code. Section
402(h) currently limits Employer contributions and Participant salary reduction
contributions (if permitted) to a simplified employee pension plan to the lesser
of (a) 15% of the Participant's compensation, or (b) $30,000. Salary reduction
contributions, if any, are subject to additional annual limits.
457 PROGRAMS
Deferrals by a Participant to a 457 Program generally are limited under
Section 457(b) of the Internal Revenue Code to the lesser of (a) $7,500 or (b)
33 1/3% of the Participant's includable compensation. If the Participant
participates in more than one 457 Program, the $7,500 limit applies to
contributions to all such programs. The $7,500 limit is reduced by the amount of
any salary reduction contribution the Participant makes to a 403(b) Program, a
408 Program, or an Employee Benefit Program. The Section 457(b) limit is
increased during the last three years ending before the Participant reaches his
normal retirement age under the 457 Program. Effective 1/1/97 the $7,500 limit
on deferrals is indexed in $500 increments.
EMPLOYEE BENEFIT PLANS
The applicable annual limits on contributions to an Employee Benefit Plan
depend upon the type of plan. Total contributions on behalf of a Participant to
all defined contribution plans maintained by an Employer are limited under
Section 415(c) of the Internal Revenue Code to the lesser of (a) $30,000, or (b)
25% of a Participant's annual compensation. Salary reduction contributions to a
cash-or-deferred arrangement under a profit sharing plan are subject to
additional annual limits. Contributions to a defined benefit pension plan are
actuarially determined based upon the amount of benefits the Participants will
receive under the plan formula. The maximum annual benefit any Participant may
receive under an Employer's defined benefit plan is limited under Section 415(b)
of the Internal Revenue Code. The limits determined under Section 415(b) and (c)
of the Internal Revenue Code are further reduced for a Participant who
participates in a defined contribution plan and a defined benefit plan
maintained by the same employer.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., One American Square, Indianapolis, Indiana 46282,
independent accountants, performs certain accounting and auditing services for
AUL and performs the same services for the Variable Account. The AUL financial
statements included in this Statement of Additional Information have been
audited to the extent and for the periods indicated in their report thereon. As
independent accountants, Coopers & Lybrand L.L.P. audits the financial
statements of AUL and reviews its internal accounting controls, and performs the
same services for the Variable Account.
PERFORMANCE INFORMATION
Performance information for the Investment Accounts is shown in the
prospectus under "Performance of the Investment Accounts." Performance
information for the Investment Accounts may also appear in promotional reports
and literature to current or prospective Owners or Participants in the manner
described in this section. Performance information in promotional reports and
literature may include the yield and effective yield of the Investment Account
investing in the AUL American Money Market Portfolio ("Money Market Investment
Account"), the yield of the remaining Investment Accounts, the average annual
total return and the total return of all Investment Accounts.
Current yield for the Money Market Investment Account will be based on the
change in the value of a hypothetical investment (exclusive of capital charges)
over a particular 7-day period, less a pro rata share of the Investment
Account's expenses accrued over that period (the "base period"), and
<PAGE>
stated as a percentage of the investment at the start of the base period (the
"base period return"). The base period return is then annualized by multiplying
by 365/7, with the resulting yield figures carried to at least the nearest
hundredth of one percent.
Calculation of "effective yield" begins with the same "base period return"
used in the calculation of yield, which is then annualized to reflect weekly
compounding pursuant to the following formula:
Effective Yield = [(Base Period Return + 1)**365/7] - 1
For the 7-day period ending December 31, 1996, the current yield for the
AUL Money Market Investment Account was 4.39% and the effective yield was 4.48%.
Quotations of yield for the remaining Investment Accounts will be based on
all investment income per Accumulation Unit earned during a particular 30-day
period, less expenses accrued during the period ("net investment income"), and
will be computed by dividing net investment income by the value of the
Accumulation Unit on the last day of the period, according to the following
formula:
YIELD = 2[((a - b / cd) + 1)**6 - 1]
where a = net investment income earned during the period by the Portfolio
attributable to shares owned by the Investment Account,
b = expenses accrued for the period (net of reimbursements),
c = the average daily number of Accumulation Units outstanding during the
period that were entitled to receive dividends, and
d = the value (maximum offering period) per Accumulation Unit on the last
day of the period.
For the one year period ending December 31, 1996, the yield for the Investment
Accounts corresponding to the Portfolios of the AUL American Series Fund, Inc.
was 0.02% for the Equity Investment Account, 4.65% for the Bond Investment
Account, and 1.86% for the Managed Investment Account.
Quotations of average annual total return for any Investment Account will
be expressed in terms of the average annual compounded rate of return of a
hypothetical investment in a Contract over a period of one, five, and ten years
(or, if less, up to the life of the Investment Account), calculated pursuant to
the following formula: P(1 + T)**n = ERV (where P = a hypothetical initial
payment of $1,000, T = the average annual total return, n = the number of years,
and ERV = the ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the period). Hypothetical quotations of average annual total
return may also be shown for an Investment Account for periods prior to the time
that the Investment Account commenced operations based upon the performance of
the mutual fund portfolio in which that Investment Account invests, as adjusted
for applicable charges. All total return figures reflect the deduction of the
applicable withdrawal charge, the administrative charge, and the mortality and
expense risk charge. Quotations of total return, actual and hypothetical, may
simultaneously be shown that do not take into account certain contractual
charges such as the withdrawal charge and the administrative charge and
quotations of total return may reflect other periods of time.
The average annual total return is calculated from the actual inception
date of the AUL American Investment Accounts and from the inception date of the
corresponding mutual funds for all of the other Investment Accounts. The
reported performance is, therefore, hypothetical to the extent and for the
periods that the Investment Accounts have not been in existence and reflects the
performance that such Investment Accounts would have achieved had they invested
in the corresponding Mutual Funds for those periods. For the periods that an
Investment Account has actually been in existence, however, the performance
represents actual and not hypothetical performance. The average annual return
that the Investment Accounts achieved for the one year, three year, five year,
and the lesser of ten years or since inception for the periods ending December
31, 1996 may be found in the Prospectus.
Performance information for an Investment Account may be compared, in
promotional reports and literature, to: (i) the Standard & Poor's 500 Composite
Index ("S&P 500"), Dow Jones Industrial Average ("DJIA"), Donoghue Money Market
Institutional Averages, or other indices that measure performance of a pertinent
group of securities so that investors may compare an Investment Account's
results with those of a group of securities widely regarded by investors as
representative of the securities markets in general; (ii) other groups of
variable annuity separate accounts or other investment products tracked by
Lipper Analytical Services, a widely used independent research firm which ranks
mutual funds and other investment companies by overall performance, investment
objectives, and assets, or tracked by other services, companies, publications,
or persons who rank such investment companies on overall performance or other
criteria; and (iii) the Consumer Price Index (measure for inflation) to assess
the real rate of return from an investment in the Contract. Unmanaged indices
may assume the reinvestment of dividends but generally do not reflect deductions
for administrative and management costs and expenses.
Performance information for any Investment Account reflects only the
performance of a hypothetical Contract under which a Participant's Account Value
is allocated to an Investment Account during a particular time period on which
the calculations are based. Performance information should be considered in
light of the investment objectives and policies, characteristics and quality of
the Portfolio of the Funds in which the Investment Account invests, and the
market conditions during the given time period, and should not be considered as
a representation of what may be achieved in the future.
Promotional reports and literature may also contain other information
including (i) the ranking of any Investment Account derived from rankings of
variable annuity separate
<PAGE>
accounts or other investment products tracked by Lipper Analytical Services or
by other rating services, companies, publications, or other persons who rank
separate accounts or other investment products on overall performance or other
criteria; (ii) the effect of tax-deferred compounding on an Investment Account's
investment returns, or returns in general, which may be illustrated by graphs,
charts, or otherwise, and which may include a comparison, at various points in
time, of the return from an investment in a Contract (or returns in general) on
a tax-deferred basis (assuming one or more tax rates) with the return on a
taxable basis; and (iii) AUL's rating or a rating of AUL's claim-paying ability
by firms that analyze and rate insurance companies and by nationally recognized
statistical rating organizations.
FINANCIAL STATEMENTS
Financial Statements for the Variable Account, including the Notes thereto,
are incorporated by reference to the Annual Report for the Variable Account
dated as of December 31, 1996.
The financial statements of AUL, which are included in this Statement of
Additional Information, should be considered only as bearing on the ability of
AUL to meet its obligations under the Contracts. They should not be considered
as bearing on the investment performance of the assets held in the Variable
Account.
FINANCIAL STATEMENTS - AUL
The following financial statements relate solely to the condition and operations
of AUL.
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
American United Life Insurance Company(R)
Indianapolis, Indiana
We have audited the accompanying combined balance sheet of American United Life
Insurance Company(R) and affiliates as of December 31, 1996 and 1995, and the
related combined statements of operations, policyowners' surplus and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of American United Life
Insurance Company(R) and affiliates as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
As discussed in Note I to the combined financial statements, the Company adopted
Statement of Financial Accounting Standards No. 120 (SFAS 120) and Financial
Accounting Standards Board Interpretation No. 40 (FIN 40) which required
implementation of several accounting pronouncements not previously adopted. The
effects of adopting SFAS 120 and FIN 40 were retroactively applied to the
Company's previously issued financial statements, consistent with the
implementation guidance of those standards.
The Company previously issued financial statements for 1995 which were presented
in accordance with accounting principles prescribed or permitted by the
Insurance Department of the State of Indiana and which were considered generally
accepted accounting principles for mutual life insurance companies. We
previously issued our report dated February 19, 1996, on such financial
statements.
/s/ Coopers & Lybrand L.L.P.
Indianapolis, Indiana
February 19, 1997
<PAGE>
2
COMBINED BALANCE SHEET
<TABLE>
<S> <C> <C>
December 31,1996, and l995 1996 (in millions) 1995
- -----------------------------------------------------------------------------
Assets
Investments:
Fixed Maturitues:
Available for sale at fair value $1,593.4 $1,628.8
Held to maturity at amortized cost 3,013.6 2,982.4
Equity securities at fair value 15.2 19.0
Mortgage loans 1,114.6 1,124.7
Real estate 52.3 54.5
Policy loans 143.5 141.6
Short term and other invested assets 43.8 69.0
Cash and cash equivalents 20.2 10.9
- -----------------------------------------------------------------------------
Total investments 5,996.6 6,030.9
- -----------------------------------------------------------------------------
Accrued investment income 82.1 86.0
Reinsurance receivables 209.5 191.2
Deferred acquisition costs 348.2 310.2
Property and equipment 54.0 47.3
Insurance premiums in course of collection 47.5 31.2
Other assets 35.7 26.9
Assets held in separate accounts 1,078.7 603.9
- -----------------------------------------------------------------------------
Total assets $7,852.3 $7,327.6
- -----------------------------------------------------------------------------
Liabilities and policyowners'surplus
Liabilities
Policy reserves $5,688.6 $5,755.8
Other policyowner funds 176.2 171.7
Pending policyowner claims 137.6 130.4
Surplus notes 75.0 ---
Other liabilities and accrued expenses 123.4 116.9
Liabilities related to separate accounts 1,078.7 603.9
- -----------------------------------------------------------------------------
Total liabilities 7,279.5 6,778.7
- -----------------------------------------------------------------------------
Unrealized appreciation of securities,
net of deferred income tax 19.0 47.2
Policyowners'surplus 553.8 501.7
- -----------------------------------------------------------------------------
Total policyowners' surplus 572.8 548.9
- -----------------------------------------------------------------------------
Total liabilities and policyowners'surplus $7,852.3 $7,327.6
- -----------------------------------------------------------------------------
</TABLE>
<PAGE>
3
<TABLE>
<S> <C> <C>
COMBINED STATEMENT OF OPERATIONS
for years ended December 31,1996, and l995 1996 (in millions) 1995
- -----------------------------------------------------------------------------
Revenues:
Insurance premiums and other considerations $ 401.1 $ 390.0
Policy and contract charges 46.5 39.8
Net investment income 471.8 478.9
Realized investment gains 6.6 8.2
Other income 3.8 .1
- -----------------------------------------------------------------------------
Total revenues 929.8 917.0
- -----------------------------------------------------------------------------
Benefits and expenses:
Policy benefits $ 381.4 $ 346.7
Interest expense on annuities
and financial products 261.6 283.1
Underwriting, acquisition and insurance
expenses 110.2 100.3
Amortization 49.8 41.2
Dividends to policyowners 26.3 24.7
Interest expense on surplus notes 5.1 ----
Other operating expenses 8.9 42.7
- -----------------------------------------------------------------------------
Total benefits and expenses 843.3 838.7
- -----------------------------------------------------------------------------
Income before income tax expense 86.5 78.3
Income tax expense 34.4 32.7
- -----------------------------------------------------------------------------
Net income $ 52.1 $ 45.6
- -----------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
COMBINED STATEMENT OF POLICYOWNERS' SURPLUS
Policyowners' surplus at beginning of year $548.9 $430.7
Net income 52.1 45.6
Unrealized appreciation
(depreciation) of securities, net (28.2) 72.6
- -----------------------------------------------------------------------------
Policyowners' surplus at end of year $572.8 $548.9
- -----------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
4
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<S> <C> <C>
for years ended December 31,1996, and l995 1996 (in millions) 1995
- -----------------------------------------------------------------------------
Cash flows from operating activities:
- ------------------------------------------------------------------------------
Net Income $ 52.1 $ 45.6
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization 49.8 41.2
Depreciation 9.2 8.6
Deferred taxes 1.8 7.0
Realized investment gains (6.6) (8.2)
Policy acquisition costs (69.3) (61.2)
Interest credited to deposit liabilities 254.7 274.2
Fees charged to deposit liabilities (19.8) (19.5)
Amortization of investment income (6.2) (10.9)
Increase in insurance liabilities 93.9 110.5
Increase in assets (44.4) (72.1)
Increase in liabilities 19.6 14.7
- ------------------------------------------------------------------------------
Net cash provided by operating activities 334.8 329.9
- ------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases:
Fixed maturities, Held to Maturity (194.4) (390.1)
Fixed maturities, Available for Sale (477.7) (234.9)
Equity securities (24.7) (1.1)
Mortgage loans (169.1) (159.9)
Real estate (3.9) (2.2)
Short term and other invested assets (2.6) (.4)
Proceeds from sales, calls or maturities:
Fixed maturities, Held to Maturity 158.8 290.1
Fixed maturities, Available for Sale 466.4 145.7
Equity securities 28.7 14.7
Mortgage loans 175.0 115.7
Real estate 3.1 3.4
Short term and other invested assets 27.6 4.6
- -----------------------------------------------------------------------------
Net cash used by investing activities (12.8) (214.4)
- -----------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of surplus notes 75.0 ---
Deposits to insurance liabilities 595.2 471.7
Withdrawals from insurance liabilities (984.6) (587.8)
Policyowner dividends 3.6 .7
Increase in policy loans (1.9) (3.6)
- ------------------------------------------------------------------------------
Net cash used by financing activities (312.7) (119.0)
- ------------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents 9.3 (3.5)
- ------------------------------------------------------------------------------
Cash and cash equivalents beginning of year 10.9 14.4
- ------------------------------------------------------------------------------
Cash and cash equivalents end of year $ 20.2 $ 10.9
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
5
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Basis of Presentation
American United Life Insurance Company(R) (AUL) is an Indiana-domiciled mutual
life insurance company with headquarters in Indianapolis. AUL is licensed to do
business in 47 states and the District of Columbia. AUL offers individual life
insurance and annuities, group life and disability insurance and pension
products through career agents working in a distribution network of general
agency offices. AUL also offers reinsurance services. The combined financial
statements include the accounts of the Company and its affiliate, The State Life
Insurance Company (State Life). Significant intercompany transactions have been
excluded.
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles (GAAP). As of January 1, 1996, AUL
adopted Financial Accounting Standards Board (FASB) Statement No. 120,
Accounting and Reporting by Mutual Life Insurance Enterprises and by Insurance
Enterprises for Certain Long-Duration Participating Contracts, and Financial
Accounting Standards Board Interpretation No. 40 (FIN40), 'Applicability of
Generally Accepted Accounting Principles for Mutual Life Insurance and Other
Enterprises.' SFAS120 requires financial statements prepared in accordance with
generally accepted accounting principles to apply all applicable authoritative
GAAP pronouncements. The cumulative effect of applying SFAS No. 120 primarily
consists of the initial deferral of acquisition costs, the establishment of
deferred taxes, the change in methodology for insurance reserves, the
elimination of the statutory asset valuation reserve and the effect of
classifying certain fixed maturity investments as available for sale. The effect
of the changes has been reported retroactively through restatement of the
financial information as of January 1, 1994. As a result of restating the 1995
financial statements, combined net income was increased by $1.4 million, and
combined policyowners' surplus increased $239.8 million.
AUL also files financial statements with insurance regulatory authorities which
are prepared on the basis of statutory accounting practices which are
significantly different from financial statements prepared in accordance with
GAAP. These differences are described in detail in Note 9 - Statutory
Information.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
INVESTMENTS
Fixed maturity securities which may be sold to meet liquidity and other needs of
the Company are categorized as available for sale and are stated at fair value.
Fixed maturity securities which the Company has the positive intent and ability
to hold to maturity are categorized as held-to-maturity and are stated at
amortized cost. Equity securities are stated at fair value. Mortgage loans on
real estate are carried at amortized cost less an impairment allowance for
estimated uncollectible amounts. Real estate is reported at cost less allowances
for depreciation. Depreciation is provided (straight line) over the estimated
useful lives of the related assets. Investment real estate is net of accumulated
depreciation of $28.8 million and $28.3 million at December 31, 1996 and 1995,
respectively. Depreciation expense for investment real estate amounted to $2.4
million and $2.6 million for 1996 and 1995, respectively. Policy loans are
carried at their unpaid balance. Other invested assets are reported at cost plus
the Company's equity in undistributed net equity since acquisition. Short term
investments include investments with maturities of one-year or less and are
carried at cost which approximates market. Short term certificates of deposit
and savings certificates are considered to be cash equivalents. The carrying
amount for cash and cash equivalents approximates market.
Realized gains and losses on sale or maturity of investments are based upon
specific identification of the investments sold and do not include amounts
allocable to separate accounts. At the time a decline in value of an investment
is determined to be other than temporary, a provision for loss is recorded which
is included in realized investment gains and losses. Unrealized gains and
losses, resulting from carrying available-for-sale securities at fair value, are
reported in policyowners' surplus, net of deferred income taxes.
DEFERRED POLICY ACQUISITION COSTS
Those costs of acquiring new business, which vary with and are primarily related
to the production of new business, have been deferred to the extent that such
costs are deemed recoverable. Such costs include commissions, certain costs of
policy underwriting and issue and certain variable agency expenses. These costs
are amortized with interest as follows:
For participating whole life insurance products, over the lesser of 30 years or
the lifetime of the policy in relation to the present value of estimated gross
margins from expenses, investments and mortality, discounted using the expected
investment yield.
For universal life-type policies and investment contracts, over the lesser of
the lifetime of the policy or 30 years for life policies or 20 years for other
policies in relation to the present value of estimated gross profits from
surrender charges and investment, mortality and expense margins, discounted
using the interest rate credited to the policy.
For term life insurance products and life reinsurance policies, over the lesser
of the benefit period or 30 years for term life or 20 years for life reinsurance
policies in relation to the ratio of anticipated annual premium revenue to the
anticipated total premium revenue, using the same assumptions used in
calculating policy benefits.
<PAGE>
6
NOTES TO FINANCIAL STATEMENTS
For miscellaneous group life and individual and group health policies, straight
line over the expected life of the policy.
For credit insurance policies, the deferred acquisition cost balance is
primarily equal to the unearned premium reserve multiplied by the ratio of
deferrable commissions to premiums written.
Recoverability of the unamortized balance of deferred policy acquisition costs
is evaluated regularly. For universal life-type contracts, investment contracts
and participating whole life policies, the accumulated amortization is adjusted
(increased or decreased) whenever there is a material change in the estimated
gross profits or gross margins expected over the life of a block of business in
order to maintain a constant relationship between cumulative amortization and
the present value of gross profits or gross margins. For most other contracts,
the unamortized asset balance is reduced by a charge to income only when the
present value of future cash flows, net of the policy liabilities, is not
sufficient to cover such asset balance.
ASSETS HELD IN SEPARATE ACCOUNTS
Separate accounts are funds on which investment income and gains or losses
accrue directly to certain policyholders, primarily variable annuity contracts
and equity-based pension and profit sharing plans. The assets of these accounts
are legally segregated, and are valued at fair value. The related liabilities
are recorded at amounts equal to the underlying assets; the fair value of these
liabilities is equal to their carrying amount.
PROPERTY AND EQUIPMENT
Property and equipment includes real estate owned and occupied by the Company.
Property and equipment is carried at cost, net of accumulated depreciation of
$35.9 million and $30.1 million as of December 31, 1996 and 1995, respectively.
The Company provides for depreciation of property and equipment using the
straight-line method over its estimated useful life. Depreciation expense for
1996 and 1995 was $6.8 million and $6.0 million, respectively.
PREMIUM REVENUE AND BENEFITS TO POLICYHOLDERS
The premiums and benefits for whole life and term insurance products and certain
annuities with life contingencies (immediate annuities) are fixed and
guaranteed. Such premiums are recognized as premium revenue when due. Group
insurance premiums are recognized as premium revenue over the time period to
which the premiums relate. Benefits and expenses are associated with earned
premiums so as to result in recognition of profits over the life of the
contracts. This association is accomplished by means of the provision for
liabilities for future policy benefits and the amortization of deferred policy
acquisition costs.
Universal life policies and investment contracts are policies with terms that
are not fixed and guaranteed. The terms that may be changed could include one or
more of the amounts assessed the policyholder, premiums paid by the policyholder
or interest accrued to policyholder balances. The amounts collected from
policyholders for these policies are considered deposits, and only the
deductions during the period for cost of insurance, policy administration and
surrenders are included in revenue. Policy benefits and claims that are charged
to expense include interest credited to contracts and benefit claims incurred in
the period in excess of related policy account balances.
RESERVES FOR FUTURE POLICY AND CONTRACT BENEFITS
Liabilities for future policy benefits for participating whole life policies are
calculated using the net level premium method and assumptions as to interest and
mortality. The interest rate is the dividend fund interest rate and the
mortality rates are those guaranteed in the calculation of cash surrender values
described in the contract. Liabilities for future policy benefits for term life
insurance and life reinsurance policies are calculated using the net level
premium method and assumptions as to investment yields, mortality and
withdrawals. The assumptions are based on projections of past experience and
include provisions for possible unfavorable deviation. These assumptions are
made at the time the contract is issued. Liabilities for future policy benefits
on universal life and investment contracts consist principally of policy account
values plus certain deferred policy fees which are amortized using the same
assumptions and factors used to amortize the cost of policies produced. If the
future benefits on investment contracts are guaranteed (immediate annuities with
benefits paid for a period certain) the liability for future benefits is the
present value of such guaranteed benefits. Claim liabilities include provisions
for reported claims and etimates based on historical experience, for claims
incurred but not reported.
INCOME TAXES
The provision for income taxes includes amounts currently payable and deferred
income taxes resulting from the temporary differences in the assets and
liabilities determined on a tax and financial reporting basis.
<PAGE>
7
NOTES TO FINANCIAL STATEMENTS
2. Investments:
The amortized cost and fair value of investments in fixed maturity securities by
type of investment wer as follows:
<TABLE>
<S> <C> <C> <C> <C>
December 31, 1996
- ------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------
Available for sale: (in millions)
Obligations of U.S. government, states,
policical subdivisions and foreign governments $ 85.2 $ 1.9 $ 1.3 $ 85.8
Corporate securities 1,000.0 33.9 7.0 1,026.9
Mortgage-backed securities 463.0 19.1 1.4 480.7
- -----------------------------------------------------------------------------------------------------------------
$1,548.2 $ 54.9 $ 9.7 $ 1,593.4
- -----------------------------------------------------------------------------------------------------------------
Held to maturity:
Obligations of U.S. government, states,
political subdivisions and foreign governments $ 132.0 $ 5.5 $ 1.1 $ 136.4
Corporate securities 1,891.1 100.1 14.0 1,977.2
Mortgaged-backed securities 990.5 44.9 4.4 1,031.0
- -----------------------------------------------------------------------------------------------------------------
$3,013.6 $ 150.5 $ 19.5 $ 3,144.6
December 31, 1995
- ------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------
Available for sale: (in millions)
Obligations of U.S. government, states,
policical subdivisions and foreign governments $ 50.7 $ 3.7 $ .1 $ 54.3
Corporate securities 925.3 63.5 2.0 986.8
Mortgage-backed securities 543.2 44.7 .2 587.7
- -----------------------------------------------------------------------------------------------------------------
$1,519.2 $ 111.9 $ 2.3 $ 1,628.8
- -----------------------------------------------------------------------------------------------------------------
Held to maturity:
Obligations of U.S. government, states,
political subdivisions and foreign governments $ 135.0 $ 10.7 $ .3 $ 145.4
Corporate securities 1,817.7 174.8 1.5 1,991.0
Mortgaged-backed securities 1,029.7 89.7 .2 1,119.2
- -----------------------------------------------------------------------------------------------------------------
$2,982.4 $ 275.2 $ 2.0 $ 3,255.6
</TABLE>
<PAGE>
8
NOTES TO FINANCIAL STATEMENTS
The amortized costs and fair value of fixed maturity securities at December 31,
1996, by contractual average maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Available for Sale Held to Maturity Total
Amortized Fair Amortized Fair Amortized Fair
(in millions) Cost Value Cost Value Costs Value
- -----------------------------------------------------------------------------------------------------------------------------
Due in one year or less $ 85.1 $ 85.7 $ 62.7 $ 63.4 $ 147.8 $ 149.1
Due after one year through five years 369.2 370.8 704.0 727.6 1,073.2 1,098.4
Due after five years through ten years 363.0 376.7 800.8 841.8 1,163.8 1,218.5
Due after ten years 267.9 279.5 455.6 480.8 723.5 760.3
- -----------------------------------------------------------------------------------------------------------------------------
1,085.2 1,112.7 2,023.1 2,113.6 3,108.3 3,226.3
Mortgage-backed securities 463.0 480.7 990.5 1,031.0 1,453.5 1,511.7
- -----------------------------------------------------------------------------------------------------------------------------
$1,548.2 $ 1,593.4 $3,013.6 $3,144.6 $ 4,561.8 $ 4,738.0
=============================================================================================================================
</TABLE>
Net investment income consistent of the following:
<TABLE>
<S> <C> <C>
December 31,1996,and l995 1996 (in millions) 1995
- -----------------------------------------------------------------------------
Fixed maturty securities $ 364.0 $ 369.4
Equity securities 2.0 2.9
Mortgage loans 104.4 104.4
Real estate 10.8 10.7
Policy loans 9.0 9.2
Other 6.1 4.5
- -----------------------------------------------------------------------------
Gross investment income 496.3 501.1
Investment expenses 24.5 22.2
- -----------------------------------------------------------------------------
Net investment income $ 471.8 $ 478.9
- -----------------------------------------------------------------------------
</TABLE>
Net realized investment gains and losses include write downs and changes in the
reserve for losses on mortgage loans and foreclosed real estate of $.5 million
and $1.5 million for 1996 and 1995, respectively. Proceeds from the sales,
maturities or calls of investments in fixed maturities during 1996 and 1995 were
approximately $609.0 million and $435.8 million, respectively. Gross gains of
$12.0 million and $9.1 million, and gross losses of $6.9 million and $2.9
million were realized in 1996 and 1995, respectively. The changes in unrealized
appreciation (depreciation) of fixed maturities amounted to approximately
$(64.3) million and $156.5 million in 1996 and 1995, respectively.
At December 31, 1996, the unrealized appreciation on equity securities of
approximately $1.4 million is comprised of $3.0 million in unrealized gains and
$1.6 million of unrealized losses and has been reflected directly in
policyowners' surplus. The change in the unrealized appreciation (depreciation)
of equity securities amounted to approximately $(1.1) million and $1.2 million
in 1996 and 1995, respectively.
The Company maintains a diversified mortgage loan portfolio and exercises
internal limits on concentrations of loans by geographic area, industry, use and
individual mortgagor. Mortgage loans on various properties in nine states
(California, Florida, North Carolina, Indiana, Texas, Illinois, Georgia,
Kentucky and Ohio) account for approximately 62% of the fair value of the
mortgage loan portfolio. Approximately $163.9 million of mortgage loans have
been issued on 67 geographically diversified properties of 8 large retailers.
<PAGE>
9
NOTES TO FINANCIAL STATEMENTS
The Company has outstanding mortgage loan commitments at December 31, 1996, of
approximately $67.9 million.
As of December 31, 1996, the carrying value of investments that produced no
income for the previous twelve month period was $9.7 million.
3. Insurance Liabilities:
At December 31, 1996 and 1995, insurance liabilities consisted of the following:
<TABLE>
<S> <C> <C> <C> <C> <C>
(in millions)
- -------------------------------------------------------------------------------------------------------------------------------
Mortality Interest
Withdrawal or morbidity rate
assumption assumption assumption 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
Future policy benefits:
Participating whole life contracts Company experience Company experience 2.5% to 6.0% $ 554.9 $ 520.0
Universal life-type contracts N/A N/A N/A 352.0 334.9
Other individual life contracts Company experience Company experience 6.8% to 10.0% 183.6 160.3
Accident and health N/A N/A N/A 43.7 43.3
Annuity products N/A N/A N/A 4,397.1 4,546.8
Group life and health N/A N/A N/A 157.3 150.5
Other policyowner funds N/A N/A N/A 176.2 171.7
Pending policy owner claims N/A N/A N/A 137.6 130.4
- -------------------------------------------------------------------------------------------------------------------------------
Total insurance liabilities $ 6,002.4 $ 6,057.9
===============================================================================================================================
</TABLE>
Participating life insurance policies under generally accepted accounting
principles represent approximately 11% and 12% of the total individual life
insurance in force at December 31, 1996 and 1995, respectively. Participating
policies represented approximately 40% of life premium income for both 1996 and
1995. The amount of dividends to be paid is determined annually by the Board of
Directors.
4. Employees' and Agents' Benefit Plans:
The Company has a noncontributory defined benefit pension plan covering
substantially all employees. Company contributions to the employee plan are made
annually in an amount between the minimum ERISA required contribution and the
maximum tax-deductible contribution. Contributions made to the Plan were $2.4
million in 1996 and $2.2 million in 1995. The net periodic pension cost was $.6
million and $1.6 million for the year ended December 31, 1996 and 1995,
respectively. This includes service cost of $3.5 million and $.8 million,
interest cost of $1.4 million and $1.3 million, and return on plan assets of
$4.3 million and $.5 million for the year ended December 31, 1996 and 1995,
respectively.
The following benefit information for the employees' defined benefit plan was
determined by outside actuaries as of January 1, 1996 and 1995, respectively,
the most recent actuarial valuation dates.
<TABLE>
<S> <C> <C>
1996 (in millions) 1995
- -----------------------------------------------------------------------------
Acturarial present value of accumulated benefits
for the employees' defined benefit plan:
Vested $ 20.1 $ 18.2
Nonvested .2 .2
- -----------------------------------------------------------------------------
$ 20.3 $ 18.4
- -----------------------------------------------------------------------------
Related net assets available for plan
benefits $ 28.8 $ 25.1
- ------------------------------------------------------------------------------
</TABLE>
The Company has a defined contribution plan covering employees who have
completed one full calendar year of service. Annual contributions are made by
the Company in amounts based upon the Company's financial results. Company
contributions to the plan during 1996 and 1995 were $1.7 million and $1.2
million, respectively.
<PAGE>
10
NOTES TO FINANCIAL STATEMENTS
The Company has a defined contribution pension plan and a 401(k) plan covering
substantially all of the agents, except general agents. Contributions of 3%
defined commissions (plus 3% for commissions over the Social Security wage base)
are made to the pension plan. An additional contribution of 3% of defined
commissions are made to a 401(k) plan. Company contributions expended for these
plans for 1996 and 1995 were $612,000 and $606,000, respectively.
The funds for all plans are held by the Company under deposit administration and
group annuity contracts.
The Company also provides certain health care and life insurance benefits
(postretirement benefits) for retired employees and certain agents (retirees).
Substantially all employees and agents may become eligible for such benefits if
they reach retirement age while working for the Company.
The net periodic postretirement benefit cost was $956,000 and $986,000 for the
year ended December 31, 1996 and 1995, respectfully. This includes service cost
of $255,000 and $253,000, interest cost of $645,000 and $688,000, amortization
of unrecognized loss of $56,000 and $45,000 for the year ended December 31, 1996
and 1995, respectively.
Accrued postretirement benefits as of December 31 were as follows:
<TABLE>
<S> <C> <C>
1996 (in millions) 1995
- -----------------------------------------------------------------------------
Accumulated postretirement benefit obligation
(APBO):
Retirees and their dependents $ 4.6 $ 5.6
Active employees fully eligible to retire
and receive benefits 2.6 2.4
Active employees not fully eligible 2.7 1.3
Unrecognized loss (1.0) (1.5)
- -----------------------------------------------------------------------------
Total APBO $ 8.9 $ 7.8
- -----------------------------------------------------------------------------
</TABLE>
The assumed discout rate used in determining the accumulated postretirement
benfit was 7.25% and the assumed health care cost trend rate was 10% graded to
6% over 50 years. Compensation rates were assumed to increase 6% at each year
end. The health coverage for retirees and 65 and over is capped in the year
2000. The health care cost trend rate assumption has an effect on the amounts
reported. An increase in the assumed health care cost trend rates by one
percentage point would increase the accumulated postretirement benefit
obligation as of December 31, 1996 by $178,000 and increase the accumulated
postretirement benefit cost for 1996 by $77,000.
5. Federal Income Taxes:
A reconciliation of the income tax attributable to continuing operations
computed at U.S. federal statutory tax rates to the income tax expense included
in the statement of operations follows:
<TABLE>
<S> <C> <C>
for years ended December 31, 1996 and 1995 1996 (in millions) 1995
- -----------------------------------------------------------------------------
Income tax computed at statutory tax rate $ 30.3 $ 27.4
Bond discount accrual and investment (4.0) (4.0)
Mutual company differential earnings amount 7.5 3.4
Other .6 5.9
- -----------------------------------------------------------------------------
Federal income tax $ 34.4 $ 32.7
- -----------------------------------------------------------------------------
</TABLE>
The components of the provision for income taxes on earnings included current
tax provisions of $32.6 million and $25.7 million for the year ended December
31, 1996 and 1995, respectively, and deferred tax expense of $1.8 million and
$7.0 million for the year ended December 31, 1996 and 1995, respectively.
<PAGE>
11
NOTES TO FINANCIAL STATEMENTS
Deferred income tax assets (liabilities):
<TABLE>
<S> <C> <C>
1996 (in millions) 1995
- -----------------------------------------------------------------------------
Deferred policy acquisition costs $(110.9) $ (104.5)
Investmennts (8.1) (16.6)
Insurance liabilities 139.0 132.5
Unrealized appreciation of securities (11.2) (28.6)
Other (4.9) 5.5
- -----------------------------------------------------------------------------
Deferred income tax assets (liabilities) $ 3.9 $ (11.7)
- -----------------------------------------------------------------------------
</TABLE>
Federal income taxes paid were $39.0 million and $18.2 million for 1996 and
1995, respectively.
6. Reinsuance:
The Company is a party to various reinsuance contracts under which it receives
premiums as a reinsurer and reimburses the ceding companies for portions of the
claims incurred. At December 31, 1996 and 1995, life reinsurance assumed was
approximately 67% and 65%, respectively, of life insurance in force.
The Company cedes that portion of the total risk on an individual life in excess
of $1,000,000. For accident and health and disability policies, the Company has
established various limits of coverage it will retain on any one policy owner
and cedes the remainder of such coverage.
Certain statistical data with respect to reinsurance follows:
<TABLE>
<S> <C> <C>
for years ended December 31, 1996 and 1995 1996 (in millions) 1995
- -----------------------------------------------------------------------------
Direct statutory premiums $ 353.1 $ 352.3
Reinsurance assumed 214.8 209.7
Reinsurance ceded 109.8 103.8
- -----------------------------------------------------------------------------
Net premiums 458.1 458.2
- -----------------------------------------------------------------------------
Reinsurance recoveries $ 73.5 $ 77.3
- -----------------------------------------------------------------------------
</TABLE>
The Company accounts for all resinsurance agreements as transfers of risk. If
companies to which reinsurance has been ceded are unable to meet obligations
under the reinsurance agreements, the Company would remain liable. Five
reinsurers account for approximately 64% of the Company's December 31, 1996
ceded reserves for life and accident and health insurance. The remainder of such
ceded reserves is spread among numerous reinsurers.
7. Surplus Notes and Lines of Credit:
On February 16, 1996, the Company issued $75 million of Surplus Notes, due March
30, 2026. Interest is payable semi-annually on March 30, and September 30 at a
7.75% annual rate. Any payment of interest on or principal of the Notes may be
made only with the prior approval of the Commissioner of the Indiana Department
of Insurance. The Surplus Notes may not be redeemed at the option of AUL or any
holder of the Surplus Notes. Interest paid during 1996 was $3.6 million. The
Company has available a $125 million committed credit facility. No amounts have
been drawn as of December 31, 1996.
8. Commitments and Contingencies:
Various lawsuits have arisen in the ordinary course of the Company's business.
In each of the matters, the Company believes the ultimate resolution of such
litigation will not result in any material adverse impact to operations or
financial condition of the Company.
<PAGE>
12
NOTES TO FINANCIAL STATEMENTS
9. Statutory Information:
The Company and its affiliate, State Life, prepare statutory financial satements
in accordance with accounting principles and practices prescribed or permitted
by the Indiana Department of Insurance. Prescribed statutory accounting
practices (SAP) currently include state laws, regulations and general
administrative rules applicable to all insurance enterprises domiciled in a
particular state, as well as practices described in National Association of
Insurance Commissioners' (NAIC) publications.
A reconciliation of SAP surplus to GAAP surplus at December 31 follows:
<TABLE>
<S> <C> <C>
for years ended December 31, 1996 and 1995 1996 (in millions) 1995
- -----------------------------------------------------------------------------
SAP Surplus $ 407.9 $ 309.1
Deferred policy acquisition costs 362.7 343.2
Adjustments to policy reserves (278.3) (285.0)
Asset valuation and interest maintenance
reserves 106.4 105.2
Unrealized gain on invested assets 17.4 49.9
Surplus notes (75.0) ----
Deferred income taxes 16.8 15.6
Other, net 14.9 10.9
- -----------------------------------------------------------------------------
GAAP surplus $ 572.8 $ 548.9
- -----------------------------------------------------------------------------
</TABLE>
A reconciliation of SAP net income to GAAP net income for the years ended
December 31 follows:
<TABLE>
<S> <C> <C>
for years ended December 31, 1996 and 1995 1996 (in millions) 1995
- -----------------------------------------------------------------------------
SAP Income $ 51.4 $ 44.2
Deferred policy acquisition costs 19.5 20.1
Adjustments to policy reserves (15.0) (10.7)
Deferred income taxes (1.5) (6.7)
Other, net (2.3) (1.3)
- -----------------------------------------------------------------------------
GAAP net income $ 52.1 $ 45.6
- -----------------------------------------------------------------------------
</TABLE>
Life insurance companies are required to maintain certain amounts of assets on
deposit with state regulatory authorities. Such assets had an aggregate carrying
value of $4.5 million at December 31, 1996.
10. Fair Value of Financial Instruments:
The disclosure of fair value information about certain financial instruments
based primarily on quoted market prices. The fair values of short-term
investments and accrued investment income approximate the carrying amounts
reported in the balance sheets. Fair values for fixed maturity set and equity
securities, and surplus notes are based on quoted market prices where available.
For fixed maturity securities not actively traded, fair values are estimated
using values obtained from independent pricing services, or in the case of
private placements, are estimated by discounting expected future cash flows
using a current market rate applicable to the yield, credit quality and maturity
of the investments.
The fair value of the aggregate mortgage loan portfolio was estimated by
discounting the future cash flows using current rates at which similar loans
would be made to borrowers with similar credit ratings for similar maturities.
The estimated fair values of the liabilities for policyholder funds approximate
the statement values because interest rates credited to account balances
approximate current rates paid on similar funds are not generally guaranteed
beyond one year. Fair values for other insurance reserves are not required to be
disclosed. However, the estimated fair values for all insurance liabilities are
taken into consideration in the Company's overall management of interest rate
risk, which minimizes exposure to changing interest rates through the matching
of investment maturities with amounts due under insurance contracts. The fair
values of certain financial instruments along with their corresponding carrying
values at December 31, 1996 and 1995 follows.
<TABLE>
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
1996 (in millions) 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
- ---------------------------------------------------------------------------------------------------
Fixed maturity securities:
Available for sale $1,593.4 $1,593.4 $ 1,628.8 $ 1,628.8
Held to Maturity 3,013.6 3,144.6 2,982.4 3,255.6
Equity securities 15.2 15.2 19.0 19.0
Mortgage loans 1,114.6 1,186.3 1,124.7 1,229.1
Policy loans 143.5 143.5 141.6 141.6
Surplus notes 75.0 73.0 --- ----
- -------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
================================================================================
No dealer, salesman or any other person is authorized by the AUL American
Unit Trust to give any information or to make any representation other than as
contained in this Statement of Additional Information in connection with the
offering described herein.
There has been filed with the Securities and Exchange Commission,
Washington, D.C., a Registration Statement under the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, with respect to the
offering herein described. For further information with respect to the AUL
American Unit Trust, AUL and its variable annuities, reference is made thereto
and the exhibits filed therewith or incorporated therein, which include all
contracts or documents referred to herein.
================================================================================
AUL AMERICAN UNIT TRUST
Group Variable Annuity Contracts
Sold By
AMERICAN UNITED
LIFE INSURANCE COMPANY(R)
One American Square
Indianapolis, Indiana 46282
STATEMENT OF ADDITIONAL INFORMATION
Dated: May 1, 1997
================================================================================
<PAGE>
1
Part C: Other Information
Item 24. Financial Statements and Exhibits
(a) FINANCIAL STATEMENTS
1. Included in Prospectus (Part A):
Condensed Financial Information
2. Included in Statement of Additional Information (Part B):
a) Financial Statements of American United Life Insurance Company(R)
Report of Independent Accountants
Combined Balance Sheet - Assets, Liabilities and Policyowners' Surplus
as of December 31, 1996 and 1995
Combined Statement of Operations for the years ended December 31, 1996
and 1995
Combined Statement of Policyowner's Surplus for the years ended Decem-
ber 31, 1996 and 1995
Combined Statement of Cash Flows for the years ended December 31, 1996
and 1995
Notes to Financial Statements
(b) Financial Statements of AUL American Unit Trust
1. Registrant's Annual Report for the year ended December 31, 1996
is incorporated by reference thereto and contains the following
Financial Statements:
Message from the Chairman of the Board and President of AUL
American Series Fund to Participants in AUL American Unit Trust
Report of Independent Accountants
Statement of Net Assets as of December 31, 1996
Statement of Operations and Changes in Net Assets for the years
ended December 31, 1996 and 1995
Notes to Financial Statements
(b) Exhibits
1. Resolution of Executive Committee of American United Life Insurance
Company(R) ("AUL") establishing AUL American Unit Trust(1)
2. Not applicable
3. Not applicable
4. (a) Group Annuity Contract Forms
(1) TDA Multiple-Fund Group Variable Annuity Contract(2)
(2) DCP Multiple-Fund Group Variable Annuity Contract(2)
(3) IRA Multiple-Fund Group Variable Annuity Contract(4)
(4) Employer Sponsored TDA Multiple-Fund Group Variable
Annuity Contract(4)
(5) TDA Multiple-Fund Group Variable Annuity Contract
(Custodial version)(5)
(6) IRA Multiple-Fund Group Variable Annuity Contract
(Custodial version)(5)
(7) TDA Multiple-Fund Group Variable Annuity Contract
(Single Contribution Rollover version)(6)
(8) IRA Multiple-Fund Group Variable Annuity Contract
(Single Contribution Rollover version)(6)
(9) TDA Multiple-Fund Group Variable Annuity Contract
(Other Single Contribution version)(6)
(10) IRA Multiple-Fund Group Variable Annuity Contract
(Other Single Contribution version)(6)
(11) Employer Sponsored TDA Multiple-Fund Group Variable
Annuity Contract (Benefit Responsive version)(6)
(12) Combined Employee Benefit Plan and Employer Sponsored 403(b)
Multiple-Fund Group Variable Annuity Contract(7)
(b) Participant Certificate Forms
(1) TDA Multiple-Fund Group Variable Annuity Participant's
Certificate(3)
(2) DCP Multiple-Fund Group Variable Annuity Participant's
Certificate(3)
(3) IRA Multiple-Fund Group Variable Annuity Participant's
Certificate(3)
(4) Employer Sponsored TDA Multiple-Fund Group Variable Annuity
Participant's Certificate(4)
(5) TDA Multiple-Fund Group Variable Annuity Participant's
Certificate (Custodial version)(5)
(6) IRA Multiple-Fund Group Variable Annuity Participant's
Certificate (Custodial version)(5)
(7) TDA Multiple-Fund Group Variable Annuity Participant's
Certificate (Single Contribution Rollover version)(6)
(8) IRA Multiple-Fund Group Variable Annuity Participant's
Certificate (Single Contribution Rollover version)(6)
(9) TDA Multiple-Fund Group Variable Annuity Participant's
Certificate (Other Single Contribution version)(6)
(10) IRA Multiple-Fund Group Variable Annuity Participant's
Certificate (Other Single Contribution version)(6)
(11) Employer Sponsored TDA Multiple-Fund Group Variable Annuity
Participant's Certificate (Benefit Responsive version)(6)
(12) Combined Employee Benefit Plan and Employer Sponsored 403(b)
Multiple-Fund Group Variable Annuity Certificate(7)
<PAGE>
2
Item 24. FINANCIAL STATEMENTS AND EXHIBITS (CONTINUED)
5. Application forms and other forms:
(a) Application form for IRA, TDA, and Employer Sponsored TDA
Multiple-Fund Group Variable Annuity Contracts(4)
(b) Application form for DCP Multiple-Fund Group Variable Annuity
Contract(4)
(c) Enrollment form for IRA, TDA, and DCP Multiple-Fund Group Variable
Annuity Contracts(8)
(d) Enrollment form for Employer Sponsored TDA Multiple-Fund Group
Variable Annuity Contracts(8)
6. Copies of AUL's certificate of incorporation and by-laws(1)
7. Not applicable
8. (a) Form of Participation Agreement with Variable Insurance Products
Fund and Variable Insurance Products Fund II(7)
(b) Form of Participation Agreement with Dreyfus Variable Investment
Fund and Dreyfus Socially Responsible Growth Fund, Inc.(8)
(c) Form of Participation Agreement with Twentieth Century Investors,
Inc. and Twentieth Century World Investors, Inc.(8)
(d) Copies of Participation Agreement with Alger American Fund, Acacia
Capital Corporation, Invesco Dynamics Funds, Inc., PBHG Funds, Inc.,
T. Rowe Price Equity Series, Inc., Vanguard Explorer Fund, Inc.,
and Vanguard Fixed Income Securities Fund, Inc.(9)
(e) Form of Participation Agreement with Janus Capital Corporation, PBHG
Insurance Series Fund, Inc., and SAFECO Resource Series Trust(12)
9. Opinion and Consent of Senior Counsel of AUL as to the legality of
Contracts being registered(2)
10. (a) Consent of Independent Accountants (12)
(b) Consent of Dechert Price & Rhoads(2)
(c) Powers of Attorney(1) (3) (4) (5) (8) (9) (11)
11. Financial Statements of AUL American Unit Trust (12)
12. Not applicable
13. Schedule for computation of performance quotations(11)
14. Financial Data Schedules (12)
(1) Filed with the Registrant's Registration Statement
(File No. 33-31375) on October 10, 1989, and incorporated by
reference herein.
(2) Filed with Pre-Effective Amendment No. 1 to the Registrant's
Registration Statement, and incorporated by reference herein.
(3) Filed with Post-Effective Amendment No. 1 to the Registrant's
Registration Statement and incorporated by reference herein.
(4) Filed with Post-Effective Amendment No. 2 to the Registrant's
Registration Statement and incorporated by reference herein.
(5) Filed with Post-Effective Amendment No. 3 to the Registrant's
Registration Statement and incorporated by reference herein.
(6) Filed with Post-Effective Amendment No. 4 to the Registrant's
Registration Statement and incorporated by reference herein.
(7) Filed with Post-Effective Amendment No. 6 to the Registrant's
Registration Statement and incorporated by reference herein.
(8) Filed with Post-Effective Amendment No. 7 to the Registrant's
Registration Statement and incorporated by reference herein.
(9) Filed with Post-Effective Amendment No. 10 to the Registrant's
Registration Statement and incorporated by reference herein.
(10) Filed with Post-Effective Amendment No. 11 to the Registrant's
Registration Statement and incorporated by reference herein.
(11) Filed with Post-Effective Amendment No. 13 to the Registrant's
Registration Statement and incorporated by reference herein.
(12) Filed with Post-Effective Amendment No. 14 to the Registrant's
Registration Statement and incorporated by reference herein.
Item 25. DIRECTORS AND OFFICERS OF AUL
Name and Address Positions and Offices with AUL
- ---------------- ------------------------------
John H. Barbre* Senior Vice President
Steven C. Beering M.D. Director
Purdue University
West Lafayette, Indiana
William R. Brown* General Counsel and Secretary
Secretary, State Life Insurance Co.
Arthur L. Bryant Director
P.O. Box 406
Indianapolis, Indiana
James E. Cornelius Director
P.O. Box 44906
Indianapolis, Indiana
- ----------------------------------------------
*One American Square, Indianapolis, Indiana
<PAGE>
3
Item 25. DIRECTORS AND OFFICERS OF AUL (CONTINUED)
Name and Address Positions and Offices with AUL
- ---------------- ------------------------------
James E. Dora Director
P.O. Box 42908
Indianapolis, Indiana
Otto N. Frenzel III Director and Chairman of the Audit Committee
101 W. Washington St.
Suite 400E
Indianapolis, Indiana
David W. Goodrich Director
Box 82055
Indianapolis, Indiana
William P. Johnson Director
P.O. Box 517
Goshen, Indiana
Charles D. Lineback* Senior Vice President
James T. Morris Director
1220 Waterway Boulevard
Indianapolis, Indiana
James W. Murphy* Senior Vice President
Jerry L. Plummer* Senior Vice President
R. Stephen Radcliffe* Director and Executive Vice President
Thomas E. Reilly Jr. Director and Chairman of the Finance Committee
300 N. Meridian St.
Suite 1500
Indianapolis, Indiana
William R. Riggs* Director
G. David Sapp* Senior Vice President
Jerry D. Semler* Chairman of the Board, President, Chief
Executive Officer and Chairman of the Executive
Committee,AUL; Chairman of the Board, Chief
Executive Officer, State Life Insurance Co.
Yvonne H. Shaheen Director
1310 S. Franklin Road
Indianapolis, Indiana
James P. Shanahan* Senior Vice President
Frank D. Walker Director
P.O. Box 80432
Indianapolis, Indiana
Gerald T. Walker* Senior Vice President
- ----------------------------------------------
*One American Square, Indianapolis, Indiana
<PAGE>
4
Item 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
American United Life Insurance Company(R) ("AUL") is a mutual life 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. In accordance with current law, it is anticipated that AUL will request
voting instructions from owners or participants of any Contracts that are funded
by separate accounts that are registered investment companies under the
Investment Company Act of 1940 and will vote shares in any such separate account
attributable to the Contracts in proportion to the voting instructions received.
AUL may vote shares of any Portfolio, if any, that it owns beneficially in its
own discretion.
AUL may also be deemed to control State Life Insurance Company(R) ("State Life")
since a majority of AUL's Directors also serve as Directors of State Life. By
virtue of an agreement between AUL and State Life, AUL provides investment and
other support services for State Life on a contractual basis.
AUL owns a 20% share of the stock of Princeton Reinsurance Managers, LLC, a
limited liability Delaware company. AUL's affiliation provides an alternative
marketing channel for its Reinsurance Division
AUL Equity Sales Corporation ("ESC") is a wholly-owned subsidiary of AUL
organized under the laws of the State of Indiana in 1969 for the purpose of the
sale of mutual funds on an application-way basis only.
Registrant 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 Series Fund, Inc. (the "Fund") was incorporated under the laws of
Maryland on July 26, 1989 and is registered as an open-end, diversified
management investment company under the Investment Company Act of 1940. As a
"series" type of mutual fund, the "Fund" issues shares of common stock relating
to separate investment portfolios. Substantially all of the "Fund's" shares were
originally purchased by AUL in connection with the initial capitalization of the
"Fund." As a result of providing the initial capital for the Portfolios, on
December 31, 1996, AUL owned 10.17% of the outstanding shares of the Fund's
Equity Portfolio, 0% of the Fund's Bond Portfolio, 0% of the Fund's Managed
Portfolio, 0% of the Fund's Money Market Portfolio and 27.17% of the Fund's
Tactical Asset Allocation Portfolio. Therefore, AUL may be able to control the
outcome of any issue submitted generally to the vote of Fund shareholders and
probably would be able to control the outcome of any issue submitted to the vote
of shareholders of the Tactical Asset Allocation Portfolio.
American United Life Pooled Equity Fund B is a separate account of AUL organized
for the purpose of the sale of group variable annuity contracts.
Item 27. NUMBER OF CONTRACTHOLDERS
As of December 31, 1996, AUL has issued 653 qualified contracts with
Participants who have invested funds in the Contracts.
Item 28. INDEMNIFICATION
Article IX, Section 1 of the by-laws of AUL provides as follows:
The corporation shall indemnify any director or officer or former director
or officer of the corporation against expenses actually and reasonably
incurred by him (and for which he is not covered by insurance) in
connection with the defense of any action, suit or proceeding (unless such
action, suit or proceeding is settled) in which he is made a party by
reason of being or having been such director or officer, except in relation
to matters as to which he shall be adjudged in such action, suit or
proceeding, to be liable for negligence or misconduct in the performance of
his duties. The corporation may also reimburse any director or officer or
former director or officer of the corporation for the reasonable costs of
settlement of any such action, suit or proceeding, if it shall be found by
a majority of the directors not involved in the matter in controversy
(whether or not a quorum) that it was to the interest of the corporation
that such settlement be made and that such director or officer was not
guilty of negligence or misconduct. Such rights of indemnification and
reimbursement shall not be exclusive of any other rights to which such
director or officer may be entitled under any By-law, agreement, vote of
members or otherwise.
Item 29. PRINCIPAL UNDERWRITERS
(a) AUL acts as Investment Adviser to American United Life Pooled Equity
Fund B (2-27832) and to AUL American Series Fund, Inc. (33-30156).
(b) For information regarding AUL's Officers and Directors, see Item 25
above.
(c) Not applicable
Item 30. LOCATION OF ACCOUNTS AND RECORDS
The accounts, books and other documents required to be maintained by Registrant
pursuant to Section 31(a) of the Investment Company Act of 1940 and the rules
under that section will be maintained at One American Square, Indianapolis, IN
46282.
<PAGE>
5
Item 31. MANAGEMENT SERVICES
There are no management-related service contracts not discussed in Part A or
Part B.
Item 32. UNDERTAKINGS
The registrant hereby undertakes:
(a) to file a post-effective amendment to this registration statement as
frequently as is necessary to ensure that the audited financial
statements in this registration statement are never more than 16
months old for so long as payments under the variable annuity
contracts may be accepted, unless otherwise permitted.
(b) to include either (1) as part of any application to purchase a
contract offered by the prospectus, a space that an applicant can
check to request a Statement of Additional Information, or (2) a post
card or similar written communication affixed to or included in the
prospectus that the applicant can remove to send for a Statement of
Additional Information.
(c) to deliver any Statement of Additional Information and any financial
statements required to be made available under this Form promptly upon
written or oral request.
Additional Representations:
(a) The Registrant and its Depositor are relying upon Rule 6c-7 under the
Investment Company Act of 1940 (17 CFR 270.6c-7), Exemptions from
Certain Provisions of Sections 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.
(b) The Registrant and its Depositor are relying upon American Council of
Life Insurance, SEC No-Action Letter, SEC Ref. No. IP-6-88 (November
28, 1988) with respect to annuity 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.
(c) 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>
6
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-4) to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Indianapolis and the State of Indiana on the 30th
day of day of April, 1997.
AUL AMERICAN UNIT TRUST (Registrant)
By: American United Life Insurance Company(R)
------------------------------------------------
By: Jerry D. Semler*, Chairman of the
Board, President, and Chief Executive Officer
/s/ Richard A. Wacker
- -------------------------------------------
*By:Richard A. Wacker as Attorney-in-fact
Date: April 30, 1997
Pursuant to the requirements of the Securities Act of 1933, this Post Effective
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
_______________________________ Director April 30, 1997
Steven C. Beering M.D.*
_______________________________ Director April 30, 1997
Arthur L. Bryant*
_______________________________ Director April 30, 1997
James E. Cornelius*
_______________________________ Director April 30, 1997
James E. Dora*
_______________________________ Director April 30, 1997
Otto N. Frenzel III*
_______________________________ Director April 30, 1997
David W. Goodrich*
_______________________________ Director April 30, 1997
William P. Johnson*
_______________________________ Director April 30, 1997
James T. Morris*
<PAGE>
7
Signature Title Date
- --------- ----- ----
______________________________ Principal Financial April 30, 1997
James W. Murphy* and Accounting Officer
______________________________ Director April 30, 1997
R. Stephen Radcliffe*
______________________________ Director April 30, 1997
Thomas E. Reilly Jr*
______________________________ Director April 30, 1997
William R. Riggs*
______________________________ Director April 30, 1997
Yvonne H. Shaheen*
______________________________ Director April 30, 1997
Frank D. Walker*
/s/ Richard A. Wacker
- -------------------------------------------
*By: Richard A. Wacker as Attorney-in-fact
Date: April 30, 1997
<PAGE>
8
EXHIBIT LIST
Exhibit Number Name of Exhibit
- -------------- ---------------
8(e) Form of Participation Agreements
10(a) Consent of Independent Accountants
11 Annual Report of AUL American Unit Trust
for the Period Ended December 31, 1996
14 Financial Data Schedules
JANUS ASPEN SERIES
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT is made this 25th day of February , 1997, between JANUS ASPEN
SERIES, an open-end management investment company organized as a Delaware
business trust (the "Trust"), JANUS CAPITAL CORPORATION (the "Adviser"), a
Colorado corporation and the investment adviser to the Trust, and AMERICAN
UNITED LIFE INSURANCE COMPANY, a life insurance company organized under the laws
of the State of Indiana (the "Company"), on its own behalf and on behalf of each
segregated asset account of the Company set forth on Schedule A, as may be
amended from time to time (the "Accounts").
W I T N E S S E T H:
WHEREAS, the Trust has registered with the Securities and Exchange Commission as
an open-end management investment company under the Investment Company Act of
1940, as amended (the "1940 Act"), and has registered the offer and sale of its
shares under the Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Trust desires to act as an investment vehicle for separate accounts
established for variable life insurance policies and variable annuity contracts
to be offered by insurance companies that have entered into participation
agreements with the Trust (the "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Trust is divided into several series of
shares, each series representing an interest in a particular managed portfolio
of securities and other assets (the "Portfolios"); and
WHEREAS, the Trust has received an order from the Securities and Exchange
Commission granting Participating Insurance Companies and their separate
accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a) and 15(b)
of the 1940 Act, and Rules 6e- 2(b)(15) and 6e-3(T)(b)(15) thereunder, to the
extent necessary to permit shares of the Trust to be sold to and held by
variable annuity and variable life insurance separate accounts of both
affiliated and unaffiliated life insurance companies and certain qualified
pension and retirement plans (the "Exemptive Order"); and
WHEREAS, the Company has registered or will register (unless registration is not
required under applicable law) certain variable life insurance policies and/or
variable annuity contracts under the 1933 Act (the "Contracts"); and
WHEREAS, the Company has registered or will register (unless registration is not
required under applicable law) each Account as a unit investment trust under the
1940 Act; and
WHEREAS, the Adviser is registered with the Securities and Exchange Commission
as
<PAGE>
an investment adviser under the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Company desires to utilize shares of one or more Portfolios as an
investment vehicle of the Accounts;
NOW, THEREFORE, in consideration of their mutual promises, the parties agree as
follows:
ARTICLE I
Sale of Trust Shares
1.1 The Trust and the Adviser shall make shares of the Trust's Portfolios
available to the Accounts at the net asset value next computed after receipt of
such purchase order by the Trust (or its agent), as established in accordance
with the provisions of the then current prospectus of the Trust. Shares of a
particular Portfolio of the Trust shall be ordered in such quantities and at
such times as determined by the Company to be necessary to meet the requirements
of the Contracts. The Trustees of the Trust (the "Trustees") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Trustees
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.2 The Trust will redeem any full or fractional shares of any Portfolio when
requested by the Company on behalf of an Account at the net asset value next
computed after receipt by the Trust (or its agent) of the request for
redemption. Such redemptions shall ordinarily be paid in federal funds or by any
other method mutually agreed upon by the parties hereto by the next Business Day
(as defined below) following receipt by the Trust (or its agent) of notice of
the order for redemption; however, the Fund reserves the right to postpone
payment upon redemption consistent with Section 22(e) of the 1940 Act and any
rules thereunder.
1.3 For the purposes of Sections 1.1 and 1.2, the Trust hereby appoints the
Company as its agent for the limited purpose of receiving and accepting purchase
and redemption orders resulting from investment in and payments under the
Contracts. Receipt by the Company shall constitute receipt by the Trust provided
that i) such orders are received by the Company in good order prior to the time
the net asset value of each Portfolio is priced in accordance with its
prospectus and ii) the Trust receives notice of such orders by 11:00 a.m. New
York time on the next following Business Day. "Business Day" shall mean any day
on which the New York Stock Exchange is open for trading and on which the Trust
calculates its net asset value pursuant to the rules of the Securities and
Exchange Commission.
1.4 Purchase orders that are transmitted to the Trust in accordance with Section
1.3 shall be paid for no later than 12:00 noon New York time on the same
Business Day that the Trust receives notice of the order. Payments shall be made
in federal funds transmitted by wire.
<PAGE>
1.5 Issuance and transfer of the Trust's shares will be by book entry only.
Stock certificates will not be issued to the Company or the Account. Shares
ordered from the Trust will be recorded in the appropriate title for each
Account or the appropriate subaccount of each Account.
1.6 The Trust shall furnish same-day notice to the Company of any income
dividends or capital gain distributions payable on the Trust's shares. The
Company hereby elects to receive all such income dividends and capital gain
distributions as are payable on a Portfolio's shares in additional shares of
that Portfolio. The Company reserves the right to revoke this election in
writing and to receive all such dividends and distributions in cash. The Trust
shall notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.7 The Trust shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated and shall use its best efforts to
make such net asset value per share available by 6 p.m. New York time.
1.8 The Trust and the Adviser agree that the Trust's shares will be sold only to
Participating Insurance Companies and their separate accounts and to certain
qualified pension and retirement plans to the extent permitted by the Exemptive
Order consistent with each Portfolio being adequately diversified pursuant to
Section 817(h) of the Internal Revenue Code of 1986, as amended (the "Code"),
and the regulations thereunder. No shares of any Portfolio will be sold directly
to the general public. The Company agrees that Trust shares will be used only
for the purposes of funding the Contracts and Accounts listed in Schedule A, as
amended from time to time. The Trust and the Adviser will not sell shares of the
Portfolios to any insurance company or separate account unless an agreement
containing provisions required by the Exemptive Order is in effect and governs
such sales.
1.9 The Trust and the Adviser agree that all Participating Insurance Companies
shall have the obligations and responsibilities regarding pass-through voting
and conflicts of interest corresponding to those contained in Section 2.8 and
Article IV of this Agreement.
1.10 Price Errors.
(1) In the event adjustments are required to correct any material error in the
computation of the net asset value of the Trust's shares, the Trust or the
Adviser shall notify the Company as soon as practicable after discovering the
need for those adjustments which result in a reimbursement to an Account in
accordance with the Trust's or the Adviser's then current policies on
reimbursement, which the Trust or the Adviser represents are reasonable and
consistent with applicable standards. Notification may be made via facsimile or
via direct or indirect systems access. Any such notification shall be promptly
followed by a letter written on the Trust's or the Adviser's letterhead stating
for each day for which an error occurred the incorrect price, the correct price,
and, to the extent communicated to
<PAGE>
the Trust's shareholders, the reason for the price change.
(2) If an adjustment is to be made in accordance with subsection (1) above to
correct an error which has caused an Account to receive an amount different than
that to which it is entitled, the Trust or the Adviser shall make all necessary
adjustments to the number of shares owned in the Account and distribute to the
Account the amount of such underpayment for credit to the Contract owners. Upon
the furnishing of an accounting to the Trust or the Adviser by the Company, the
Trust or the Adviser will immediately reimburse to the Company all reasonable
expenses incurred by the Company, including the expense of any organization that
the Company has retained to provide administration or recordkeeping services
under this Agreement, to adjust all Accounts and accounts of Contract owners
affected by such error.
ARTICLE II
Obligations of the Parties
2.1 The Trust and the Adviser shall prepare and be responsible for filing with
the Securities and Exchange Commission and any state regulators requiring such
filing all shareholder reports, notices, proxy materials (or similar materials
such as voting instruction solicitation materials), prospectuses and statements
of additional information of the Trust. The Trust shall bear the costs of
registration and qualification of its shares, preparation and filing of the
documents listed in this Section 2.1 and all taxes to which an issuer is subject
on the issuance and transfer of its shares.
2.2 At the option of the Company, the Trust shall either (a) provide the Company
(at the Company's expense) with as many copies of the Trust's current
prospectus, annual report, semi-annual report and other shareholder
communications, including any amendments or supplements to any of the foregoing,
as the Company shall reasonably request; or (b) provide the Company with a
camera ready copy of such documents in a form suitable for printing. The Trust
shall provide the Company with a copy of its statement of additional information
in a form suitable for duplication by the Company. The Trust (at its expense)
shall provide the Company with copies of any Trust-sponsored proxy materials in
such quantity as the Company shall reasonably require for distribution to
Contract owners.
2.3 The Company shall bear the costs of printing and distributing the Trust's
prospectus, statement of additional information, shareholder reports and other
shareholder communications to owners of and applicants for policies for which
the Trust is serving or is to serve as an investment vehicle. The Company shall
bear the costs of distributing proxy materials (or similar materials such as
voting solicitation instructions) to Contract owners. The Company assumes sole
responsibility for ensuring that such materials are delivered to Contract owners
in accordance with applicable federal and state securities laws.
<PAGE>
2.4 (a) The Company agrees and acknowledges that the Adviser is the sole owner
of the name and mark "Janus" and that all use of any designation comprised in
whole or part of Janus (a "Janus Mark") under this Agreement shall inure to the
benefit of the Adviser. Except as provided in Section 2.5, the Company shall not
use any Janus Mark on its own behalf or on behalf of the Accounts or Contracts
in any registration statement, advertisement, sales literature or other
materials relating to the Accounts or Contracts without the prior written
consent of the Adviser. Upon termination of this Agreement for any reason, the
Company shall cease all use of any Janus Mark(s) as soon as reasonably
practicable.
(b) The Trust and the Adviser agree and acknowledge that the names "American
United Life Insurance Company "AUL", or any derivative thereof or logo
associated with those names ("AUL Mark") is the valuable property of the Company
and its affiliates, and that the Trust shall not use any AUL Mark without the
prior written consent of the Company. Upon termination of this Agreement for any
reason, the Trust and the Adviser shall cease all use of any AUL Mark as soon as
reasonably practicable.
2.5 The Company shall furnish, or cause to be furnished, to the Trust or its
designee, a copy of each Contract prospectus or statement of additional
information in which the Trust or the Adviser is named prior to the filing of
such document with the Securities and Exchange Commission. The Company shall
furnish, or shall cause to be furnished, to the Trust or its designee, each
piece of sales literature or other promotional material in which the Trust or
the Adviser is named, at least ten Business Days prior to its use. No such
material shall be used if the Trust or its designee reasonably objects to such
use within ten Business Days after receipt of such material.
2.6 The Company shall not give any information or make any representations or
statements on behalf of the Trust or concerning the Trust or the Adviser in
connection with the sale of the Contracts other than information or
representations contained in and accurately derived from the registration
statement or prospectus for the Trust shares (as such registration statement and
prospectus may be amended or supplemented from time to time), reports of the
Trust, Trust-sponsored proxy statements, or in sales literature or other
promotional material approved by the Trust or its designee, except as required
by legal process or regulatory authorities or with the written permission of the
Trust or its designee. The Trust or its designee shall use their best efforts to
provide such approval or, if approval is not given, then to provide comments
suggesting appropriate changes to such information or representations as set
forth in Section 2.5 above.
2.7 The Trust and the Adviser shall not give any information or make any
representations or statements on behalf of the Company or concerning the
Company, the Accounts or the Contracts other than information or representations
contained in and accurately derived from the registration statement or
prospectus for the Contracts (as such registration statement and prospectus may
be amended or supplemented from time to time), or in materials approved by the
Company for distribution including sales literature or other promotional
materials, except as required by legal process or regulatory authorities or with
the written permission of the Company.
2.8 If, and to the extent required by the Exemptive Order or that the Securities
and
<PAGE>
Exchange Commission interprets the 1940 Act to require pass-through voting
privileges for variable Contract owners, the Company will provide pass-through
voting privileges to those owners of Contracts subject to the pass-through
voting requirements whose cash values are invested, through the Accounts, in
shares of the Trust. The Trust shall require all Participating Insurance
Companies to calculate voting privileges in the same manner and the Company
shall be responsible for assuring that the Accounts calculate voting privileges
in the manner established by the Trust. With respect to each Account, the
Company will vote shares of the Trust held by the Account and for which no
timely voting instructions from Contract owners are received as well as shares
it owns that are held by that Account, in the same proportion as those shares
for which voting instructions are received. The Company and its agents will in
no way recommend or oppose or interfere with the solicitation of proxies for
Trust shares held by Contract owners without the prior written consent of the
Trust, which consent may be withheld in the Trust's sole discretion.
2.9 The Company shall notify the Trust of any applicable state insurance laws
that restrict the Portfolios' investments or otherwise affect the operation of
the Trust and shall notify the Trust of any changes in such laws.
ARTICLE III
Representations and Warranties
3.1 The Company represents and warrants that it is an insurance company duly
organized and in good standing under the laws of the State of Indiana and that
it has legally and validly established each Account as a segregated asset
account under such law on the date set forth
in Schedule A.
3.2 The Company represents and warrants that each Account (1) has been
registered or, prior to any issuance or sale of the Contracts, will be
registered as a unit investment trust in accordance with the provisions of the
1940 Act or, alternatively (2) has not been registered in proper reliance upon
an exclusion from registration under the 1940 Act.
3.3 The Company represents and warrants that the Contracts or interests in the
Accounts (1) are or, prior to issuance, will be registered as securities under
the 1933 Act or, alternatively (2) are not registered because they are properly
exempt from registration under the 1933 Act or will be offered exclusively in
transactions that are properly exempt from registration under the 1933 Act. The
Company further represents and warrants that the Contracts will be issued and
sold in compliance in all material respects with all applicable federal and
state laws; and the sale of the Contracts shall comply in all material respects
with state insurance suitability requirements.
3.4 The Trust and the Adviser represent and warrant that the Trust is duly
organized and validly existing under the laws of the State of Delaware.
<PAGE>
3.5 The Trust and the Adviser represent and warrant that the Trust shares
offered and sold pursuant to this Agreement are duly authorized for issuance in
accordance with applicable law and will be registered under the 1933 Act and the
Trust shall be registered under the 1940 Act prior to any issuance or sale of
such shares. The Trust shall amend its registration statement under the 1933 Act
and the 1940 Act from time to time as required in order to effect the continuous
offering of its shares. The Trust shall register and qualify its shares for sale
in accordance with the laws of the various states only if and to the extent
deemed advisable by the Trust.
3.6 The Trust and the Adviser will invest assets of the Portfolios in such a
manner to permit the Portfolios to be used for investment by separate accounts
of life insurance companies funding variable annuity and variable life insurance
contracts, whichever is appropriate, under the Code and the regulations
thereunder. Without limiting the scope of the foregoing, the Trust and the
Adviser represent and warrant that the investments of each Portfolio will comply
with the diversification requirements set forth in Section 817(h) of the Code,
and the rules and regulations thereunder and each Portfolio has complied with
such requirements since each Portfolio's commencement of operations.
3.7 The Trust and the Adviser shall maintain qualification of each Portfolio as
a Regulated Investment Company under Subchapter M of the Code (or any successor
or similar provisions) and shall notify the Company immediately upon having a
reasonable basis for believing that a Portfolio has ceased to so qualify or that
it might not so qualify in the future.
3.8 The Trust and the Adviser agree to use their best efforts to ensure that
each Portfolio of the Trust shall be managed consistent with its investment
objective or objectives,
<PAGE>
investment policies, and investment restrictions as described in the Trust's
prospectus and registration statement, as amended or modified from time to time.
ARTICLE IV
Potential Conflicts
4.1 The parties acknowledge that the Trust's shares may be made available for
investment to other Participating Insurance Companies. In such event, the
Trustees will monitor the Trust for the existence of any material irreconcilable
conflict between the interests of the contract owners of all Participating
Insurance Companies. An irreconcilable material conflict may arise for a variety
of reasons, including: (a) an action by any state insurance regulatory
authority; (b) a change in applicable federal or state insurance, tax, or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax, or
securities regulatory authorities; (c) an administrative or judicial decision in
any relevant proceeding; (d) the manner in which the investments of any
Portfolio are being managed; (e) a difference in voting instructions given by
variable annuity contract and variable life insurance contract owners; or (f) a
decision by an insurer to disregard the voting instructions of contract owners.
The Trustees shall promptly inform the Company if they determine that an
irreconcilable material conflict exists and the implications thereof.
4.2 The Company agrees to promptly report any potential or existing conflicts
of which it is aware to the Trustees. The Company will assist the Trustees in
carrying out their responsibilities under the Exemptive Order by providing the
Trustees with all information reasonably necessary for the Trustees to consider
any issues raised including, but not limited to, information as to a decision by
the Company to disregard Contract owner voting instructions.
4.3 If it is determined by a majority of the Trustees, or a majority of its
disinterested Trustees, that a material irreconcilable conflict exists that
affects the interests of Contract owners, the Company shall, in cooperation with
other Participating Insurance Companies whose contract owners are also affected,
at its expense and to the extent reasonably practicable (as determined by the
Trustees) take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, which steps could include: (a) withdrawing the
assets allocable to some or all of the Accounts from the Trust or any Portfolio
and reinvesting such assets in a different investment medium, including (but not
limited to) another Portfolio of the Trust, or submitting the question of
whether or not such segregation should be implemented to a vote of all affected
Contract owners and, as appropriate, segregating the assets of any appropriate
group (i.e., annuity contract owners, life insurance contract owners, or
variable contract owners of one or more Participating Insurance Companies) that
votes in favor of such segregation, or offering to the affected Contract owners
the option of making such a change; and (b) establishing a new registered
management investment company or managed separate account.
<PAGE>
4.4 If a material irreconcilable conflict arises because of a decision by the
Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Trust's election, to withdraw the affected Account's
investment in the Trust and terminate this Agreement with respect to such
Account; provided, however that such withdrawal and termination shall be limited
to the extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested Trustees. Any such withdrawal and
termination must take place within six (6) months after the Trust gives written
notice that this provision is being implemented. Until the end of such six (6)
month period, the Trust shall continue to accept and implement orders by the
Company for the purchase and redemption of shares of the Trust.
4.5 If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state regulators, then the Company will withdraw the affected
Account's investment in the Trust and terminate this Agreement with respect to
such Account within six (6) months after the Trustees inform the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested Trustees. Until the
end of such six (6) month period, the Trust shall continue to accept and
implement orders by the Company for the purchase and redemption of shares of the
Trust.
4.6 For purposes of Sections 4.3 through 4.6 of this Agreement, a majority of
the disinterested Trustees shall determine whether any proposed action
adequately remedies any irreconcilable material conflict, but in no event will
the Company be required to establish a new funding medium for the Contracts if
an offer to do so has been declined by vote of a majority of Contract owners
materially adversely affected by the irreconcilable material conflict. In the
event that the Trustees determine that any proposed action does not adequately
remedy any irreconcilable material conflict, then the Company will withdraw the
Account's investment in the Trust and terminate this Agreement within six (6)
months after the Trustees inform the Company in writing of the foregoing
determination; provided, however, that such withdrawal and termination shall be
limited to the extent required by any such material irreconcilable conflict as
determined by a majority of the disinterested Trustees.
4.7 The Company shall at least annually submit to the Trustees such reports,
materials or data as the Trustees may reasonably request so that the Trustees
may fully carry out the duties imposed upon them by the Exemptive Order, and
said reports, materials and data shall be submitted more frequently if deemed
appropriate by the Trustees.
4.8 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule
6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Exemptive Order) on terms and conditions materially different
from those contained in the Exemptive Order, then the Trust and/or the
Participating Insurance Companies, as appropriate, shall take such steps as may
be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3,
as adopted, to the
<PAGE>
extent such rules are applicable.
ARTICLE V
Indemnification
5.1 Indemnification By the Company. The Company agrees to indemnify and hold
harmless the Trust, the Adviser, and each of their Trustees, Directors,
officers, employees and agents and each person, if any, who controls the Trust
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Article V) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Company) or expenses (including the reasonable costs of
investigating or defending any alleged loss, claim, damage, liability or expense
and reasonable legal counsel fees incurred in connection therewith)
(collectively, "Losses"), to which the Indemnified Parties may become subject
under any statute or regulation, or at common law or otherwise, insofar as such
Losses:
(a) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in a registration statement or
prospectus for the Contracts or in the Contracts themselves or in sales
literature generated or approved by the Company on behalf of the Contracts or
Accounts (or any amendment or supplement to any of the foregoing) (collectively,
"Company Documents" for the purposes of this Article V), or arise out of or are
based upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, provided that this indemnity shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement or omission was
made in reliance upon and was accurately derived from written information
furnished to the Company by or on behalf of the Trust for use in Company
Documents or otherwise for use in connection with the sale of the Contracts or
Trust shares; or
(b) arise out of or result from statements or representations (other than
statements or representations contained in and accurately derived from Trust
Documents as defined in Section 5.2(a)) or wrongful conduct of the Company or
persons under its control, with respect to the sale or acquisition of the
Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or alleged untrue
statement of a material fact contained in Trust Documents as defined in Section
5.2(a) or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading if such statement or omission was made in reliance upon and
accurately derived from written information furnished to the Trust by or on
behalf of the Company; or
(d) arise out of or result from any failure by the Company to provide the
services or furnish the materials required under the terms of this Agreement;
or
(e) arise out of or result from any material breach of any representation and/or
<PAGE>
warranty made by the Company in this Agreement or arise out of or result from
any other material breach of this Agreement by the Company.
5.2 Indemnification By the Adviser. The Adviser agrees to indemnify and hold
harmless the Company and each of its directors, officers, employees and agents
and each person, if any, who controls the Company within the meaning of Section
15 of the 1933 Act, and the Accounts (collectively, the "Indemnified Parties"
for purposes of this Article V) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Adviser) or expenses (including the reasonable costs of investigating or
defending any alleged loss, claim, damage, liability or expense and reasonable
legal counsel fees incurred in connection therewith) (collectively, "Losses"),
to which the Indemnified Parties may become subject under any statute or
regulation, or at common law or otherwise, insofar as such Losses:
(a) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the registration statement or
prospectus or sales literature for the Trust prepared by the Trust or the
Adviser (or any amendment or supplement thereto), (collectively, "Trust
Documents" for the purposes of this Article V), or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, provided that this indemnity shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement or omission was
made in reliance upon and was accurately derived from written information
furnished to the Trust or the Adviser by or on behalf of the Company for use in
Trust Documents or otherwise for use in connection with the sale of the
Contracts or Trust shares; or
(b) arise out of or result from statements or representations (other than
statements or representations contained in and accurately derived from Company
Documents) or wrongful conduct of the Trust or persons under its control, with
respect to the sale or acquisition of the Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or alleged untrue statement
of a material fact contained in Company Documents or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if such statement or
omission was made in reliance upon and accurately derived from written
information furnished to the Company by or on behalf of the Trust; or
(d) arise out of or result from any failure by the Trust to provide the services
or furnish the materials required under the terms of this Agreement; or
(e) arise out of or result from any material breach of any representation and/or
warranty made by the Trust in this Agreement or arise out of or result from any
other material breach of this Agreement by the Trust, including but not limited
to, compliance with the diversification requirements of Section 817(h) of the
Code and qualification of each Portfolio of the Trust as a regulated investment
company under Subchapter M of the
<PAGE>
Code.
5.3 Neither the Company nor the Adviser shall be liable under the
indemnification provisions of Sections 5.1 or 5.2, as applicable, with respect
to any Losses incurred or assessed against an Indemnified Party that arise from
such Indemnified Party's willful misfeasance, bad faith or negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
5.4 Neither the Company nor the Adviser shall be liable under the
indemnification provisions of Sections 5.1 or 5.2, as applicable, with respect
to any claim made against an Indemnified Party unless such Indemnified Party
shall have notified the other party in writing within a reasonable time after
the summons, or other first written notification, giving information of the
nature of the claim shall have been served upon or otherwise received by such
Indemnified Party (or after such Indemnified Party shall have received notice of
service upon or other notification to any designated agent), but failure to
notify the party against whom indemnification is sought of any such claim shall
not relieve that party from any liability which it may have to the Indemnified
Party in the absence of Sections 5.1 and 5.2.
5.5 In case any such action is brought against the Indemnified Parties, the
indemnifying party shall be entitled to participate, at its own expense, in the
defense of such action. The indemnifying party also shall be entitled to assume
the defense thereof, with counsel reasonably satisfactory to the party named in
the action. After notice from the indemnifying party to the Indemnified Party of
an election to assume such defense, the Indemnified Party shall bear the fees
and expenses of any additional counsel retained by it, and the indemnifying
party will not be liable to the Indemnified Party under this Agreement for any
legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
ARTICLE VI
Termination
6.1 This Agreement may be terminated as follows:
(a) by any party for any reason by ninety (90) days advance written notice
delivered to the other parties;
(b) at the option of the Company if shares of the Trust are not reasonably
available to meet the requirements of the Contracts, as determined by the
Company, and upon written notice by the Company to the other parties to this
Agreement;
(c) at the option of the Company upon institution of formal proceedings against
the Trust or the Adviser by the NASD, the SEC, or any state securities or
insurance department or any other regulatory body if the Company shall
determine, in its sole judgement exercised in good faith, that the Trust or the
Adviser has suffered a material
<PAGE>
(d) at the option of the Trust or the Adviser upon institution of formal
proceedings against the Company by the NASD, the SEC, or any state securities or
insurance department or any other regulatory body if the Trust or Adviser shall
determine, in its sole judgement exercised in good faith, that the Company has
suffered a material adverse change in its business, operations, financial
condition, or prospects since the date of this Agreement or is the subject of
material adverse publicity;
(e) at the option of any party to the Agreement upon a determination by a
majority of the Trustees of the Trust, or a majority of disinterested Trustees,
that an irreconcilable material conflict exists;
(f) at the option of the Company if the Trust fails to meet the diversification
requirements under Subchapter M or Section 817(h) of the Code as provided in
this Agreement;
(g) at the option of the Company upon a material breach of this Agreement or of
any representation or warranty herein by the Trust of the Adviser, or at the
option of the Trust or the Adviser upon a material breach of this Agreement or
any representation or warranty herein by the Company.
6.2 Notwithstanding any termination of this Agreement, the Trust shall, at the
option of the Company, continue to make available additional shares of the Trust
(or any Portfolio) pursuant to the terms and conditions of this Agreement for
all Contracts in effect on the effective date of termination of this Agreement,
provided that the Company continues to pay the costs set forth in Section 2.3.
6.3 The provisions of Article V shall survive the termination of this
Agreement, and the provisions of Article IV and Section 2.8 shall survive the
termination of this Agreement as long as shares of the Trust are held on behalf
of Contract owners in accordance with Section 6.2.
ARTICLE VII
Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Trust:
Janus Aspen Series
100 Fillmore Street
<PAGE>
Denver, Colorado 80206
Attention: David C. Tucker, Esq.
General Counsel
If to the Company:
American United Life Insurance Company
One American Square
Indianapolis, Indiana 46206
Attention: Richard A. Wacker
Associate General Counsel
ARTICLE VIII
Miscellaneous
8.1 The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or otherwise
affect their construction or effect.
8.2 This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together shall constitute one and the same instrument.
8.3 If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of the Agreement shall not
be affected thereby.
8.4 This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of State of Colorado.
8.5 The parties to this Agreement acknowledge and agree that all liabilities of
the Trust arising, directly or indirectly, under this Agreement, of any and
every nature whatsoever, shall be satisfied solely out of the assets of the
Trust and that no Trustee, officer, agent or holder of shares of beneficial
interest of the Trust shall be personally liable for any such liabilities.
8.6 Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the Securities and
Exchange Commission, the National Association of Securities Dealers, Inc., and
state insurance regulators) and shall permit such authorities reasonable access
to its books and records in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby.
8.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
8.8 The parties to this Agreement acknowledge and agree that this Agreement
shall not be exclusive in any respect.
<PAGE>
8.9 Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the prior written approval of the other party.
8.10 No provisions of this Agreement may be amended or modified in any manner
except by a written agreement properly authorized and executed by both parties.
8.11 The Trust and the Adviser agree to treat as the property of the Company
any list or compilation of names, addresses, and other information relating to
the owners of the Contracts or prospects for the sale of Contracts acquired in
the course of performing under this Agreement and agree not to use such
information for any purpose without the prior consent of the Company, or except
as required by applicable law.
<PAGE>
IN WITNESS WHEREOF, the parties have caused their duly authorized officers to
execute this Participation Agreement as of the date and year first above
written.
JANUS ASPEN SERIES
By:
Name:
Title:
JANUS CAPITAL CORPORATION
By:
Name:
Title:
AMERICAN UNITED LIFE INSURANCE
COMPANY
By:
Name:
Title:
<PAGE>
Schedule A
Separate Accounts and Associated Contracts
Name of Separate Account and Date Contracts Funded
Established by the AUL Exec. Comm. By Separate Account
- ---------------------------------- -------------------
AUL American Unit Trust Registered 401, 403(b), 457, 408
(established 8/17/89) contracts
Group Retirement Annuity Qualified 401 contracts
Separate Account I
(established 8/17/89)
Group Retirement Annuity Qualified 401 contracts
Separate Account II
(established 8/17/89)
<PAGE>
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT made as of the 1st day of May, 1997, by and between the PBHG
INSURANCE SERIES FUND, INC. ("FUND"), a Maryland corporation, PILGRIM BAXTER &
ASSOCIATES, LTD. ("Adviser"), a Delaware corporation, AMERICAN UNITED LIFE
INSURANCE COMPANY ("LIFE COMPANY"), a life insurance company organized under the
laws of the State of Indiana.
WHEREAS, FUND is registered with the Securities and Exchange Commission ("SEC")
under the Investment Company Act of 1940, as amended (the "40 Act"), as an
open-end, diversified management investment company; and
WHEREAS, FUND is organized as a series fund comprised of several Portfolios
("Portfolios"), with those currently available being listed on Appendix A
hereto; and
WHEREAS, FUND was organized to act as the funding vehicle for certain variable
life insurance and/or variable annuity contracts ("Variable Contracts") offered
by life insurance companies through separate accounts ("Separate Accounts") of
such life insurance companies ("Participating Insurance Companies"); and
WHEREAS, FUND may also offer its shares to certain qualified pension and
retirement plans ("Qualified Plans"); and
WHEREAS, FUND will apply for an order from the SEC, granting Participating
Insurance Companies and their separate accounts exemptions from the provisions
of Sections 9(a), 13(a), 15(a) and 15(b) of the '40 Act, and Rules 6e-2(b)(15)
and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the
Portfolios of the FUND to be sold to and held by Variable Contract separate
accounts of both affiliated and unaffiliated Participating Insurance Companies
and Qualified Plans ("Exemptive Order"); and
WHEREAS, LIFE COMPANY has established or will establish one or more separate
accounts ("Separate Accounts") to offer Variable Contracts and is desirous of
having FUND as one of the underlying funding vehicles for such Variable
Contracts; and
WHEREAS, ADVISER is registered with the SEC as an investment adviser under the
Investment Advisers Act of 1940 and as a broker-dealer under the Securities
Exchange Act of 1934, as amended and acts as the FUND's investment adviser; and
WHEREAS, to the extent permitted by applicable insurance laws and
<PAGE>
2
regulations, LIFE COMPANY intends to purchase shares of FUND to fund the
aforementioned Variable Contracts and FUND is authorized to sell such shares to
LIFE COMPANY at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, LIFE COMPANY, FUND,
and ADVISER agree as follows:
Article I. SALE OF FUND SHARES
1.1 FUND agrees to make available to the Separate Accounts of LIFE COMPANY
shares of the selected Portfolios as listed on Appendix B for investment of
purchase payments of Variable Contracts allocated to the designated Separate
Accounts as provided in FUND's Registration Statement.
1.2 FUND agrees to sell to LIFE COMPANY those shares of the selected Portfolios
of FUND which LIFE COMPANY orders, executing such orders on a daily basis at the
net asset value next computed after receipt by FUND or its designee of the order
for the shares of FUND. For purposes of this Section 1.2, LIFE COMPANY shall be
the designee of FUND for receipt of such orders from the designated Separate
Account and receipt by such designee shall constitute receipt by FUND; provided
that LIFE COMPANY receives the order by 4:00 p.m. New York time and FUND
receives notice from LIFE COMPANY by telephone or facsimile (or by such other
means as FUND and LIFE COMPANY may agree in writing) of such order by 8:30 a.m.
New York time on the next following Business Day. "Business Day" shall mean any
day on which the New York Stock Exchange is open for trading and on which FUND
calculates its net asset value pursuant to the rules of the SEC.
1.3 FUND agrees to redeem on LIFE COMPANY's request, any full or fractional
shares of FUND held by LIFE COMPANY, executing such requests on a daily basis at
the net asset value next computed after receipt by FUND or its designee of the
request for redemption, in accordance with the provisions of this agreement and
FUND's Registration Statement. For purposes of this Section 1.3, LIFE COMPANY
shall be the designee of FUND for receipt of requests for redemption from the
designated Separate Account and receipt by such designee shall constitute
receipt by FUND; provided that LIFE COMPANY receives the request for redemption
by 4:00 p.m. New York time and FUND receives notice from LIFE COMPANY by
telephone or facsimile (or by such other means as FUND and LIFE COMPANY may
agree in writing) of such request for redemption by 8:30 a.m. New York time on
the next following Business Day.
1.4 FUND shall furnish, on or before the ex-dividend date, notice to LIFE
COMPANY of any income dividends or capital gain distributions payable on the
shares of any Portfolio of FUND. LIFE COMPANY hereby elects to receive all such
income
<PAGE>
3
dividends and capital gain distributions as are payable on a Portfolio's shares
in additional shares of the Portfolio. FUND shall notify LIFE COMPANY or its
designee of the number of shares so issued as payment of such dividends and
distributions.
1.5 FUND shall make the net asset value per share for the selected Portfolio(s)
available to LIFE COMPANY on a daily basis as soon as reasonably practicable
after the net asset value per share is calculated but shall use its best efforts
to make such net asset value available by 7:00 p.m. New York time. If FUND
provides LIFE COMPANY with materially incorrect share net asset value
information through no fault of LIFE COMPANY, LIFE COMPANY on behalf of the
Separate Accounts, shall be entitled to an adjustment to the number of shares
purchased or redeemed to reflect the correct share net asset value. Any material
error in the calculation of net asset value per share, dividend or capital gain
information shall be reported promptly upon discovery to LIFE COMPANY.
1.6 At the end of each Business Day, LIFE COMPANY shall use the information
described in Section 1.5 to calculate Separate Account unit values for the day.
Using these unit values, LIFE COMPANY shall process each such Business Day's
Separate Account transactions based on requests and premiums received by it by
the close of trading on the floor of the New York Stock Exchange (currently 4:00
p.m. New York time) to determine the net dollar amount of FUND shares which
shall be purchased or redeemed at that day's closing net asset value per share.
The net purchase or redemption orders so determined shall be transmitted to FUND
by LIFE COMPANY by 8:30 a.m. New York Time on the Business Day next following
LIFE COMPANY's receipt of such requests and premiums in accordance with the
terms of Sections 1.2 and 1.3 hereof.
1.7 If LIFE COMPANY's order requests the purchase of FUND shares, LIFE Company
shall pay for such purchase by wiring federal funds to FUND or its designated
custodial account on the day the order is transmitted by LIFE COMPANY to FUND.
If LIFE COMPANY's order requests a net redemption resulting in a payment of
redemption proceeds to LIFE COMPANY, FUND shall wire the redemption proceeds to
LIFE COMPANY ordinarily on the next Business Day. In any event, proceeds shall
be wired to LIFE COMPANY within three Business Days or such longer period
permitted by the '40 Act or the rules, orders or regulations thereunder and FUND
shall notify the person designated in writing by LIFE COMPANY as the recipient
for such notice of any delay in wiring redemption proceeds beyond the next
Business Day by 3:00 p.m. New York Time the same Business Day that LIFE COMPANY
transmits the redemption order to FUND.
1.8 FUND agrees that all shares of the Portfolios of FUND will be sold only to
Participating Insurance Companies which have agreed to participate in FUND to
fund
<PAGE>
4
their Separate Accounts and/or to Qualified Plans, all in accordance with the
requirements of Section 817(h) of the Internal Revenue Code of 1986, as amended
("Code") and Treasury Regulation 1.817-5. Shares of the Portfolios of FUND will
not be sold directly to the general public.
1.9 FUND may refuse to sell shares of any Portfolio to any person, or suspend or
terminate the offering of the shares of or liquidate any Portfolio of FUND if
such action is required by law or by regulatory authorities having jurisdiction
or is, in the sole discretion of the Board of Directors of the FUND (the
"Board"), acting in good faith and in light of its duties under federal and any
applicable state laws, deemed necessary, desirable or appropriate and in the
best interests of the shareholders of such Portfolios.
1.10 Issuance and transfer of Portfolio shares will be by book entry only. Stock
certificates will not be issued to LIFE COMPANY or the Separate Accounts. Shares
ordered from Portfolio will be recorded in appropriate book entry titles for the
Separate Accounts.
Article II. REPRESENTATIONS AND WARRANTIES
2.1 LIFE COMPANY represents and warrants that it is an insurance company duly
organized and in good standing under the laws of the State of Indiana and that
it has legally and validly established each Separate Account as a segregated
asset account under such laws, and that Life Company, the principal underwriter
for the Variable Contracts, is registered as a broker-dealer under the
Securities Exchange Act of 1934 (the "'34 Act").
2.2 LIFE COMPANY represents and warrants that it has registered or, prior to any
issuance or sale of the Variable Contracts, will register each Separate Account
as a unit investment trust ("UIT") in accordance with the provisions of the '40
Act and cause each Separate Account to remain so registered to serve as a
segregated asset account for the Variable Contracts, unless an exemption from
registration is available.
2.3 LIFE COMPANY represents and warrants that the Variable Contracts will be
registered under the Securities Act of 1933 (the "'33 Act") unless an exemption
from registration is available prior to any issuance or sale of the Variable
Contracts and that the Variable Contracts will be issued and sold in compliance
in all material respects with all applicable federal and state securities laws
and further that the sale of the Variable Contracts shall comply in all material
respects with applicable state insurance law suitability requirements.
2.4 LIFE COMPANY represents and warrants that the Variable Contracts are
currently and at the time of issuance will be treated as life insurance,
endowment or
<PAGE>
5
annuity contracts, as pertinent, under applicable provisions of the Code, that
it will maintain such treatment and that it will notify FUND immediately upon
having a reasonable basis for believing that the Variable Contracts have ceased
to be so treated or that they might not be so treated in the future.
2.5 FUND represents and warrants that the Fund shares offered and sold pursuant
to this Agreement will be registered under the '33 Act and sold in accordance
with all applicable federal and state laws, and FUND shall be registered under
the '40 Act prior to and at the time of any issuance or sale of such shares.
FUND, subject to Section 1.9 above, shall amend its registration statement under
the '33 Act and the '40 Act from time to time as required in order to effect the
continuous offering of its shares. FUND shall register and qualify its shares
for sale in accordance with the laws of the various states only if and to the
extent deemed advisable by FUND.
2.6 FUND represents and warrants that each Portfolio will comply with the
diversification requirements set forth in Section 817(h) of the Code, and the
rules and regulations thereunder, including without limitation Treasury
Regulation 1.817-5, and will notify LIFE COMPANY immediately upon having a
reasonable basis for believing any Portfolio has ceased to comply or might not
so comply and will immediately take all reasonable steps to adequately diversify
the Portfolio to achieve compliance.
2.7 FUND represents and warrants that each Portfolio invested in by the Separate
Account intends to elect to be treated as a "regulated investment company" under
Subchapter M of the Code, and each Portfolio will qualify for such treatment for
each taxable year and will notify LIFE COMPANY immediately upon having a
reasonable basis for believing it has ceased to so qualify or might not so
qualify in the future.
2.8. ADVISER represents and warrants that it is and will remain duly registered
and licensed in all material respects under all applicable federal and state
securities laws and shall perform its obligations hereunder in compliance in all
material respects with any applicable state and federal securities laws. Adviser
represents and warrants that each Portfolio shall be managed consistent of its
investment objective or objectives, investment policies, and investment
restrictions as described in the Fund's prospectus and registration statement,
as amended or modified from time to time.
Article III. PROSPECTUS AND PROXY STATEMENTS
3.1 FUND shall prepare and be responsible for filing with the SEC and any state
regulators requiring such filing all shareholder reports, notices, proxy
materials (or similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional information of FUND. FUND
shall bear the costs of registration
<PAGE>
5
and qualification of shares of the Portfolios, preparation and filing of the
documents listed in this Section 3.1 and all taxes and filing fees to which an
issuer is subject on the issuance and transfer of its shares.
3.2 At least annually, FUND or its designee shall provide LIFE COMPANY, free of
charge, with as many copies of the current prospectus for the shares of the
Portfolios as LIFE COMPANY may reasonably request for distribution to existing
Variable Contract owners whose Variable Contracts are funded by such shares.
FUND or its designee shall provide LIFE COMPANY, at LIFE COMPANY's expense, with
as many copies of the current prospectus for the shares as LIFE COMPANY may
reasonably request for distribution to prospective purchasers of Variable
Contracts. If requested by LIFE COMPANY in lieu thereof, FUND or its designee
shall provide such documentation (including a "camera ready" copy of the new
prospectus as set in type or, at the request of LIFE COMPANY, as a diskette in
the form sent to the financial printer) and other assistance as is reasonably
necessary in order for the parties hereto once a year (or more frequently if the
prospectus for the shares is supplemented or amended) to have the prospectus for
the Variable Contracts and the prospectus for the FUND shares printed together
in one document. The expenses of such printing will be apportioned between (a)
LIFE COMPANY and (b) FUND in proportion to the number of pages of the Variable
Contract and FUND's prospectus, taking account of other relevant factors
affecting the expense of printing, such as covers, columns, graphs and charts;
FUND to bear the cost of printing the FUND's prospectus portion of such document
for distribution only to owners of existing Variable Contracts funded by the
FUND's shares and LIFE COMPANY to bear the expense of printing the portion of
such documents relating to the Separate Account; provided, however, LIFE COMPANY
shall bear all printing expenses of such combined documents where used for
distribution to prospective purchasers or to owners of existing Variable
Contracts not funded by the FUND's shares. In the event that LIFE COMPANY
requests that FUND or its designee provide FUND's prospectus in a "camera ready"
or diskette format, FUND shall be responsible for providing the prospectus in
the format in which it is accustomed to formatting prospectuses and shall bear
the expense of providing the prospectus in such format (e.g. typesetting
expenses), and LIFE COMPANY shall bear the expense of adjusting or changing the
format to conform with any of its prospectuses.
3.3 FUND will provide LIFE COMPANY with at least one complete copy of all
prospectuses, statements of additional information, annual and semi-annual
reports, proxy statements, exemptive applications and all amendments or
supplements to any of the above that relate to the Portfolios promptly after the
filing of each such document with the SEC or other regulatory authority. LIFE
COMPANY will provide FUND with at least one complete copy of all prospectuses,
statements of additional information, annual and semi-annual reports, proxy
statements, exemptive applications and all amendments or supplements to any of
the above that relate to a Separate Account
<PAGE>
7
promptly after the filing of each such document with the SEC or other regulatory
authority.
3.4 The FUND, at its expense, shall provide the LIFE COMPANY with copies of its
proxy materials, periodic reports to shareholders and other communications to
shareholders in such quantity as the LIFE COMPANY shall reasonably require for
purposes of distributing to owners of Variable Contacts issued by the LIFE
COMPANY. The FUND, at the LIFE COMPANY's expense, shall provide the LIFE COMPANY
with copies of its periodic reports to shareholders and other communications to
shareholders in such quantity as the LIFE COMPANY shall reasonably request for
use in connection with offering the Variable Contracts issued by the LIFE
COMPANY. If requested by the LIFE COMPANY in lieu thereof, the FUND shall
provide such documentation (including a final copy of the FUND's proxy
materials, periodic reports to shareholders and other communications to
shareholders, as set in type or in camera-ready copy) and other assistance as
reasonably necessary in order for the LIFE COMPANY to print such shareholder
communications for distribution to owners of Variable Contacts issued by the
LIFE COMPANY.
Article IV. SALES MATERIALS
4.1 LIFE COMPANY will furnish, or will cause to be furnished, to FUND and
ADVISER, each piece of sales literature or other promotional material in which
FUND or ADVISER is named, at least ten (10) Business Days prior to its intended
use. No such material will be used if FUND or ADVISER objects to its use in
writing within ten (10) Business Days after receipt of such material.
Notwithstanding the above, FUND and ADVISER agree that total return information
of the FUND's Portfolios may be used in sales literature or other promotional
material developed by LIFE COMPANY without first furnishing such sales
literature or other promotional material to FUND and ADVISER, provided that such
total return information is derived from the prospectus or registration
statement of the FUND or from reports provided by FUND or ADVISER or the
designee of either to LIFE COMPANY and provided that FUND and ADVISER have been
provided prior to its intended use within the time period described above the
form of the sales literature or other promotional material that contains or will
contain the total return information, and that neither FUND nor ADVISER has
objected to its use in writing and provided further that LIFE COMPANY shall be
responsible for using such total return information in conformity with the
information it is provided.
4.2 FUND and ADVISER will furnish, or will cause to be furnished, to LIFE
COMPANY, each piece of sales literature or other promotional material in which
LIFE COMPANY or its Separate Accounts are named, at least ten (10) Business Days
prior to its intended use. No such material will be used if LIFE COMPANY objects
to its use in writing within ten (10) Business Days after receipt of such
material.
<PAGE>
8
4.3 FUND and its affiliates and agents shall not give any information or make
any representations on behalf of LIFE COMPANY or concerning LIFE COMPANY, the
Separate Accounts, or the Variable Contracts issued by LIFE COMPANY, other than
the information or representations contained in a registration statement or
prospectus for such Variable Contracts, as such registration statement and
prospectus may be amended or supplemented from time to time, or in reports of
the Separate Accounts or reports prepared for distribution to owners of such
Variable Contracts, or in sales literature or other promotional material
approved by LIFE COMPANY or its designee, except with the written permission of
LIFE COMPANY.
4.4 LIFE COMPANY and its affiliates and agents shall not give any information or
make any representations on behalf of FUND or concerning FUND other than the
information or representations contained in a registration statement or
prospectus for FUND, as such registration statement and prospectus may be
amended or supplemented from time to time, or in sales literature or other
promotional material supplied or approved by FUND or its designee, except with
the written permission of FUND or its designee.
4.5 For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without limitation,
advertisements (such as material published, or designed for use, in a newspaper,
magazine or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures or other public media),
sales literature (such as any written communication distributed or made
generally available to customers or the public, including brochures, circulars,
research reports, market letters, form letters, seminar texts, or reprints or
excerpts of any other advertisement, sales literature, or published article),
educational or training materials or other communications distributed or made
generally available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports and
proxy materials, and any other material constituting sales literature or
advertising under National Association of Securities Dealers, Inc. ("NASD")
rules, the '40 Act or the '33 Act.
Article V. POTENTIAL CONFLICTS
5.1 The parties acknowledge that FUND will be filing an application with the SEC
to request an order granting relief from various provisions of the '40 Act and
the rules thereunder to the extent necessary to permit FUND shares to be sold to
and held by Variable Contract separate accounts of both affiliated and
unaffiliated Participating Insurance Companies and Qualified Plans. It is
anticipated that the Exemptive Order, when and if issued, shall require FUND and
each Participating Insurance Company to
<PAGE>
9
comply with conditions and undertakings substantially as provided in this
Section 5. If the Exemptive Order imposes conditions materially different from
those provided for in this Section 5, the conditions and undertakings imposed by
the Exemptive Order of which Life Company is provided with a copy shall govern
this Agreement and the parties hereto agree to amend this Agreement consistent
with the Exemptive Order. The Fund will not enter into a participation agreement
with any other Participating Insurance Company unless it imposes the same
conditions and undertakings as are imposed on LIFE COMPANY hereby.
5.2 The Board will monitor FUND for the existence of any material irreconcilable
conflict between the interests of Variable Contract owners of all separate
accounts investing in FUND. An irreconcilable material conflict may arise for a
variety of reasons, which may include: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling or any similar action by insurance, tax or securities regulatory
authorities; (c) an administrative or judicial decision in any relevant
proceeding; (d) the manner in which the investments of FUND are being managed;
(e) a difference in voting instructions given by Variable Contract owners; (f) a
decision by a Participating Insurance Company to disregard the voting
instructions of Variable Contract owners and (g) if applicable, a decision by a
Qualified Plan to disregard the voting instructions of plan participants.
5.3 LIFE COMPANY will report any potential or existing conflicts to the Board.
LIFE COMPANY will be responsible for assisting the Board in carrying out its
duties in this regard by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. The responsibility
includes, but is not limited to, an obligation by the LIFE COMPANY to inform the
Board whenever it has determined to disregard Variable Contract owner voting
instructions. These responsibilities of LIFE COMPANY will be carried out with a
view only to the interests of the Variable Contract owners.
5.4 If a majority of the Board or majority of its disinterested Directors,
determines that a material irreconcilable conflict exists affecting LIFE
COMPANY, LIFE COMPANY, at its expense and to the extent reasonably practicable
(as determined by a majority of the Board's disinterested Directors), will take
any steps necessary to remedy or eliminate the irreconcilable material conflict,
including; (a) withdrawing the assets allocable to some or all of the Separate
Accounts from FUND or any Portfolio thereof and reinvesting those assets in a
different investment medium, which may include another Portfolio of FUND, or
another investment company; (b) submitting the question as to whether such
segregation should be implemented to a vote of all affected Variable Contract
owners and as appropriate, segregating the assets of any appropriate group (i.e
variable annuity or variable life insurance Contract owners of one
<PAGE>
10
or more Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected Variable Contract owners the option of
making such a change; and (c) establishing a new registered management
investment company (or series thereof) or managed separate account. If a
material irreconcilable conflict arises because of LIFE COMPANY's decision to
disregard Variable Contract owner voting instructions, and that decision
represents a minority position or would preclude a majority vote, LIFE COMPANY
may be required, at the election of FUND, to withdraw the Separate Account's
investment in FUND, and no charge or penalty will be imposed as a result of such
withdrawal. The responsibility to take such remedial action shall be carried out
with a view only to the interests of the Variable Contract owners.
For the purposes of this Section 5.4, a majority of the disinterested members of
the Board shall determine whether or not any proposed action adequately remedies
any irreconcilable material conflict but in no event will FUND or ADVISER (or
any other investment adviser of FUND) be required to establish a new funding
medium for any Variable Contract. Further, LIFE COMPANY shall not be required by
this Section 5.4 to establish a new funding medium for any Variable Contracts if
any offer to do so has been declined by a vote of a majority of Variable
Contract owners materially and adversely affected by the irreconcilable material
conflict.
5.5 The Board's determination of the existence of an irreconcilable material
conflict and its implications shall be made known promptly and in writing to
LIFE COMPANY.
5.6 No less than annually, LIFE COMPANY shall submit to the Board such reports,
materials or data as the Board may reasonably request so that the Board may
fully carry out its obligations. Such reports, materials, and data shall be
submitted more frequently if deemed appropriate by the Board.
Article VI. VOTING
6.1 LIFE COMPANY will provide pass-through voting privileges to all owners of
Variable Contract funded by Separate Accounts that are registered with the SEC
as investment companies so long as the SEC continues to interpret the '40 Act as
requiring pass-through voting privileges for such Variable Contract owners.
Accordingly, LIFE COMPANY, where applicable, will vote shares of the Portfolio
held in its registered Separate Accounts in a manner consistent with voting
instructions timely received from its Variable Contract owners. LIFE COMPANY
will be responsible for following reasonable instructions provided by Fund so
that each of its Separate Accounts that participates in FUND calculates voting
privileges in a manner consistent with other Participating Insurance Companies.
LIFE COMPANY will vote shares held by its registered Separate Accounts for which
it has not received timely voting instructions
<PAGE>
11
in the same proportion as its votes those shares for which it has received
voting instructions.
6.2 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or if Rule 6e-3
is adopted, to provide exemptive relief from any provision of the '40 Act or the
rules thereunder with respect to mixed and shared funding on terms and
conditions materially different from any exemptions granted in the Exemptive
Order, then FUND, and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rule 6e-2 and Rule
6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such Rules are
applicable.
Article VII. INDEMNIFICATION
7.1 Indemnification by LIFE COMPANY. LIFE COMPANY agrees to indemnify and hold
harmless FUND, ADVISER and each of their directors, principals, officers,
employees and agents and each person, if any, who controls FUND or ADVISER
within the meaning of Section 15 of the '33 Act (collectively, the "Indemnified
Parties" for purposes of this Article VII) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of LIFE COMPANY, which consent shall not be unreasonably withheld) or
litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements:
(a) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the Registration Statement or
prospectus for the Variable Contracts or contained in the Variable Contracts (or
any amendment or supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with information furnished
to LIFE COMPANY by or on behalf of FUND or Adviser for use in the registration
statement or prospectus for the Variable Contracts or in the Variable Contracts
or sales literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Variable Contracts or FUND shares; or
(b) arise out of or as a result of statements or representations (other than
statements or representations contained in the registration statement,
prospectus or sales literature of FUND not supplied by LIFE COMPANY,
<PAGE>
12
or persons under its control) or wrongful conduct of LIFE COMPANY or persons
under its control, with respect to the sale or distribution of the Variable
Contracts or FUND shares; or
(c) arise out of any untrue statement or alleged untrue statement of a material
fact contained in a registration statement, prospectus, or sales literature of
FUND or any amendment thereof or supplement thereto or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if such statement or
omission or such alleged statement or omission was made in reliance upon and in
conformity with information furnished to FUND by or on behalf of LIFE COMPANY;
or
(d) arise as a result of any failure by LIFE COMPANY to provide substantially
the services and furnish the materials under the terms of this Agreement; or
(e) arise out of or result from any material breach of any representation and/or
warranty made by LIFE COMPANY in this Agreement or arise out of or result from
any other material breach of this Agreement by LIFE COMPANY.
7.2 LIFE COMPANY shall not be liable under this indemnification provision with
respect to any losses, claims, damages, liabilities or litigation incurred or
assessed against an Indemnified Party as such may arise from such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations or duties under this Agreement.
7.3 LIFE COMPANY shall not be liable under this indemnification provision with
respect to any claim made against an Indemnified Party unless such Indemnified
Party shall have notified LIFE COMPANY in writing within a reasonable time after
the summons or other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify LIFE COMPANY of any such claim shall not relieve
LIFE COMPANY from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against an
Indemnified Party, LIFE COMPANY shall be entitled to participate at its own
expense in the defense of such action. LIFE COMPANY also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from LIFE COMPANY to such party of LIFE COMPANY's election
to
<PAGE>
13
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and LIFE COMPANY will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
7.4 Indemnification by ADVISER. ADVISER agrees to indemnify and hold harmless
LIFE COMPANY and each of its directors, officers, employees, and agents and each
person, if any, who controls LIFE COMPANY within the meaning of Section 15 of
the '33 Act (collectively, the "Indemnified Parties" for the purposes of this
Article VII) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of ADVISER which consent
shall not be unreasonably withheld) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
or regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements:
(a) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement or
prospectus or sales literature of FUND (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to ADVISER or FUND by or on
behalf of LIFE COMPANY for use in the registration statement or prospectus for
FUND or in sales literature (or any amendment or supplement) or otherwise for
use in connection with the sale of the Variable Contracts or FUND shares; or
(b) arise out of or as a result of statements or representations (other than
statements or representations contained in the registration statement,
prospectus or sales literature for the Variable Contracts not supplied by
ADVISER or persons under its control) or wrongful conduct of FUND or ADVISER or
persons under their control, with respect to the sale or distribution of the
Variable Contracts or FUND shares; or
(c) arise out of any untrue statement or alleged untrue statement of a
<PAGE>
14
material fact contained in a registration statement, prospectus, or sales
literature covering the Variable Contracts, or any amendment thereof or
supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with information
furnished to LIFE COMPANY for inclusion therein by or on behalf of FUND; or
(d) arise as a result of (i) a failure by FUND to provide substantially the
services and furnish the materials under the terms of this Agreement; or (ii) a
failure by a Portfolio(s) invested in by the Separate Account to comply with the
diversification requirements of Section 817(h) of the Code; or (iii) a failure
by a Portfolio(s) invested in by the Separate Account to qualify as a "regulated
investment company" under Subchapter M of the Code; or
(e) arise out of or result from any material breach of any representation and/or
warranty made by ADVISER or FUND in this Agreement or arise out of or result
from any other material breach of this Agreement by ADVISER or FUND.
7.5 ADVISER shall not be liable under this indemnification provision with
respect to any losses, claims, damages, liabilities or litigation to which an
Indemnified Party would otherwise be subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement.
7.6 ADVISER shall not be liable under this indemnification provision with
respect to any claim made against an Indemnified Party unless such Indemnified
Party shall have notified ADVISER in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify ADVISER of any such claim shall not relieve
ADVISER from any liability which it may have to the Indemnified Party against
whom such action is brought otherwise than on account of this indemnification
provision. In case any such action is brought against the Indemnified Parties,
ADVISER shall be entitled to participate at its own expense in the defense
thereof. ADVISER also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from ADVISER
to
<PAGE>
15
such party of ADVISER's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and ADVISER will not be liable to such party under this Agreement for any legal
or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
Article VIII. TERM; TERMINATION
8.1 This Agreement shall be effective as of the date hereof and shall continue
in force until terminated in accordance with the provisions herein.
8.2 This Agreement shall terminate in accordance with the following provisions:
(a) At the option of LIFE COMPANY or FUND at any time from the date hereof upon
60 days' notice, unless a shorter time is agreed to by the parties;
(b) At the option of LIFE COMPANY, if FUND shares are not reasonably available
to meet the requirements of the Variable Contracts as determined by LIFE
COMPANY. Prompt notice of election to terminate shall be furnished by LIFE
COMPANY, said termination to be effective ten days after receipt of notice
unless FUND makes available a sufficient number of shares to reasonably meet the
requirements of the Variable Contracts within said ten-day period;
(c) At the option of LIFE COMPANY, upon the institution of formal proceedings
against FUND by the SEC, the NASD, or any other regulatory body, the expected or
anticipated ruling, judgment or outcome of which would, in LIFE COMPANY's
reasonable judgment, materially impair FUND's ability to meet and perform FUND's
obligations and duties hereunder. Prompt notice of election to terminate shall
be furnished by LIFE COMPANY with said termination to be effective upon receipt
of notice;
(d) At the option of FUND, upon the institution of formal proceedings against
LIFE COMPANY by the SEC, the NASD, or any other regulatory body, the expected or
anticipated ruling, judgment or outcome of which would, in FUND's reasonable
judgment, materially impair LIFE COMPANY's ability to meet and perform its
obligations and duties hereunder. Prompt notice of election to terminate shall
be furnished by FUND with said termination to be
<PAGE>
16
effective upon receipt of notice;
(e) In the event FUND's shares are not registered, issued or sold in accordance
with applicable state or federal law, or such law precludes the use of such
shares as the underlying investment medium of Variable Contracts issued or to be
issued by LIFE COMPANY. Termination shall be effective upon such occurrence
without notice;
(f) At the option of FUND if the Variable Contracts cease to qualify as annuity
contracts or life insurance contracts, as applicable, under the Code, or if FUND
reasonably believes that the Variable Contracts may fail to so qualify.
Termination shall be effective upon receipt of notice by LIFE COMPANY;
(g) At the option of LIFE COMPANY, upon FUND's breach of any material provision
of this Agreement, which breach has not been cured to the satisfaction of LIFE
COMPANY within ten days after written notice of such breach is delivered to
FUND;
(h) At the option of FUND, upon LIFE COMPANY's breach of any material provision
of this Agreement, which breach has not been cured to the satisfaction of FUND
within ten days after written notice of such breach is delivered to LIFE
COMPANY;
(i) At the option of FUND, if the Variable Contracts are not registered, issued
or sold in accordance with applicable federal and/or state law. Termination
shall be effective immediately upon such occurrence without notice;
(j) In the event this Agreement is assigned without the prior written consent of
LIFE COMPANY, FUND, and ADVISER, termination shall be effective immediately upon
such occurrence without notice.
(k) At the option of either party, in the event of a material irreconcilable
conflict as provided in Article V.
8.3 Notwithstanding any termination of this Agreement pursuant to Section 8.2
hereof, FUND at its option may elect to continue to make available additional
FUND shares, as provided below, for so long as FUND desires pursuant to the
terms and conditions of this Agreement, for all Variable Contracts in effect on
the effective date of
<PAGE>
17
termination of this Agreement (hereinafter referred to as "Existing Contracts").
Specifically, without limitation, if FUND so elects to make additional FUND
shares available, the owners of the Existing Contracts or LIFE COMPANY,
whichever shall have legal authority to do so, shall be permitted to reallocate
investments in FUND, redeem investments in FUND and/or invest in FUND upon the
payment of additional premiums under the Existing Contracts. In the event of a
termination of this Agreement pursuant to Section 8.2 hereof, FUND and ADVISER,
as promptly as is practicable under the circumstances, shall notify LIFE COMPANY
whether FUND elects to continue to make FUND shares available after such
termination. If FUND shares continue to be made available after such
termination, the provisions of this Agreement shall remain in effect and
thereafter either FUND or LIFE COMPANY may terminate the Agreement, as so
continued pursuant to this Section 8.3, upon sixty (60) days prior written
notice to the other party.
8.4 Except as necessary to implement Variable Contract owner initiated
transactions, or as required by state insurance laws or regulations, LIFE
COMPANY shall not redeem the shares attributable to the Variable Contracts (as
opposed to the shares attributable to LIFE COMPANY's assets held in the Separate
Accounts), and LIFE COMPANY shall not prevent Variable Contract owners from
allocating payments to a Portfolio that was otherwise available under the
Variable Contracts until thirty (30) days after the LIFE COMPANY shall have
notified FUND of its intention to do so.
Article IX. NOTICES
Any notice hereunder shall be given by registered or certified mail return
receipt requested to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify in
writing to the other party.
If to FUND:
PBHG Insurance Series Fund, Inc.
1255 Drummers Lane, Suite 300
Wayne, PA 19087
Attention: Mr. Brian F. Bereznak
With a copy to:
PBHG Insurance Series Fund, Inc.
1255 Drummers Lane, Suite 300
Wayne, PA 19087
Attention: John M. Zerr, Esq.
<PAGE>
18
If to the ADVISER:
PBHG Insurance Series Fund, Inc.
1255 Drummers Lane, Suite 300
Wayne, PA 19087
Attention: Mr. Brian F. Bereznak
With a copy to:
PBHG Insurance Series Fund, Inc.
1255 Drummers Lane, Suite 300
Wayne, PA 19087
Attention: John M. Zerr, Esq.
If to LIFE COMPANY:
American United Life Insurance Company
One American Square
Indianapolis, IN 46282
Attention: Richard A. Wacker, Esq.
Notice shall be deemed given on the date of receipt by the addressee as
evidenced by the return receipt.
Article X. MISCELLANEOUS
10.1 The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or otherwise
affect their construction or effect.
10.2 This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together shall constitute one and the same instrument.
10.3 If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of the Agreement shall not
be affected thereby.
10.4 This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the Commonwealth of Pennsylvania. It
shall
<PAGE>
19
also be subject to the provisions of the federal securities laws and the rules
and regulations thereunder and to any orders of the SEC granting exemptive
relief therefrom and the conditions of such orders.
10.5 It is understood and expressly stipulated that neither the shareholders of
shares of any Portfolio nor the Directors or officers of FUND or any Portfolio
shall be personally liable hereunder. No Portfolio shall be liable for the
liabilities of any other Portfolio. All persons dealing with FUND or a Portfolio
must look solely to the property of FUND or that Portfolio, respectively, for
enforcement of any claims against FUND or that Portfolio. It is also understood
that each of the Portfolios shall be deemed to be entering into a separate
Agreement with LIFE COMPANY so that it is as if each of the Portfolios had
signed a separate Agreement with LIFE COMPANY and that a single document is
being signed simply to facilitate the execution and administration of the
Agreement.
10.6 Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the SEC, the NASD and
state insurance regulators) and shall permit such authorities reasonable access
to its books and records in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby.
10.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
10.8 No provision of this Agreement may be amended or modified in any manner
except by a written agreement properly authorized and executed by FUND, ADVISER
and the LIFE COMPANY.
<PAGE>
20
IN WITNESS WHEREOF, the parties have caused their duly authorized officers to
execute this Fund Participation Agreement as of the date and year first above
written.
PBHG INSURANCE SERIES FUND, INC.
By: /s/ Lee T. Cummings
Name: Lee T. Cummings
Title: Vice President
PILGRIM BAXTER & ASSOCIATES, LTD.
By: /s/ Eric C. Schneider
Name: Eric C. Schneider
Title: CFO
AMERICAN UNITED LIFE INSURANCE COMPANY
By: /s/ Richard A. Wacker
Name: Richard A. Wacker
Title: Associate General Counsel
<PAGE>
Appendix A
PBHG Insurance Series Fund, Inc. - Portfolios*
PBHG Growth II Portfolio
PBHG Technology & Communications Portfolio
* Expected to begin investment operations on May 1, 1997.
<PAGE>
Appendix B
Separate Accounts and Associated Contracts
<TABLE>
<S> <C> <C>
Name of Separate Account and Date Contracts Funded
Established by the AUL Exec. Comm. By Separate Account Selected Portfolios
- ---------------------------------- ------------------- ---------------------
AUL American Unit Trust Registered 401, 403(b), Growth II
(established 8/17/89) 457 & 408 contracts Technology &
Communications
Group Retirement Annuity Separate Qualified 401 contracts Growth II
Account I (established 8/17/89) Technology &
Communications
Group Retirement Annuity Separate Qualified 401 contracts Growth II
Account II (established 8/17/89) Technology &
Communications
</TABLE>
<PAGE>
FUND PARTICIPATION AGREEMENT
American United Life (the "Company"), SAFECO Resource Series Trust, an
unincorporated business trust organized under the laws of the state of Delaware
(the "Trust"), and its investment adviser, SAFECO Asset Management Company, a
Washington corporation ("SAM"), hereby agree to an arrangement whereby shares of
the series funds comprising the Trust (the "Portfolios") shall be made available
to serve as underlying investment media for variable annuity and/or variable
life insurance contracts ("Variable Contracts") to be issued by the Company,
subject to the following provisions:
1. Establishment of Accounts: Availability of Portfolios.
(a) The Company represents that it has established variable annuity accounts and
variable life accounts (the "Accounts"), each of which is a separate account
under the insurance laws of the state of the Company's domicile, and has
registered each of the Accounts as a unit investment trust under the Investment
Company Act of 1940 (the "1940 Act"), unless such Account is exempt from
registration, to serve as an investment vehicle for the Variable Contracts. Each
Variable Contract provides for the allocation of net amounts received by the
Company to an Account for investment in the shares of one or more specified
open-end investment companies available through that Account as underlying
investment media. Selection of a particular underlying investment and changes in
such selection from time to time may be made by the person covered under the
Variable Contract ("Participant") or Variable Contract owner, as applicable
under the particular Variable Contract.
(b) The Trust and SAM represent and warrant that the investments of the
Portfolios will at all times be adequately diversified within the meaning of
Section 817(h) of the Internal Revenue Service Code of 1986, as amended (the
"Code"), and the regulations promulgated thereunder (the "Regulations"), and
that at all times while this Agreement is in effect (i) all beneficial interests
in the Portfolios will be owned by one or more insurance companies or qualified
plans (through trustees), or by any other party permitted under Section
1.817-5(f)(3) of the Regulations, and (ii) no shares of any Portfolio will be
sold to the general public.
(c) SAM represents and warrants that it is registered as an investment adviser
with the Securities and Exchange Commission ("SEC").
<PAGE>
2
2. Marketing and Promotion.
(a) The Company agrees to make every reasonable effort to market its Variable
Contracts, whether directly or through its affiliates. In marketing and
administering the Variable Contracts, the Company and its affiliates will comply
with all applicable State and Federal laws.
(b) SAM agrees to provide the Company with monthly and/or quarterly performance
information with respect to the Portfolios, and such other information as the
parties deem appropriate for the promotion of the Portfolios, within five
business days of the end of each month for monthly information and within ten
days of the end of each calendar quarter for quarterly information.
3. Pricing Information; Orders; Settlement.
(a) SAM will make shares of the Portfolios available to be purchased by the
Company, and will accept redemption orders from the Company, on behalf of each
Account, at the net asset value applicable to each order on each day on which
the Trust calculates its net asset value pursuant to the rules of the SEC.
Portfolio shares shall be purchased and redeemed in such quantity and at such
time determined by the Company to be necessary to meet the requirements of those
Variable Contracts for which the Portfolios serve as underlying investment
media.
(b) SAM will provide to the Company closing net asset value, dividend and
capital gain information at the close of trading each day that the New York
Stock Exchange (the "Exchange") is open (each such day, a "business day"). The
Company hereby elects to reinvest in the Portfolios all dividends and
distributions payable on a Portfolio's shares and to receive such dividends and
distributions in additional shares of such Portfolio. The Company reserves the
right to revoke this election in writing and to receive all such dividends and
distributions in cash.
(c) The Company will send via facsimile transmission to SAM, or to such other
agent as the Trust may specify, orders to purchase and/or redeem Portfolio
shares. Orders from Variable Contract owners or Participants received by the
Company which are sent by the Company prior to the close of the Exchange on any
given business day via facsimile transmission to SAM or such other agent as the
Trust may specify by 8:00 a.m., Pacific Time, the following business day will be
executed by SAM or such agent at the net asset value determined as of the close
of the Exchange on such prior business
<PAGE>
3
day. Any orders received by the Company after the close of the Exchange on such
prior business day (or not meeting the foregoing sentence's requirements) will
be deemed to be received by the Company on the following business day, and will
be executed by SAM at the net asset value determined as of the close of the
Exchange on the next business day following the day such order was received.
Payment for net purchases will be wired by the Company to a custodial account
designated by the Trust to coincide with the order for shares of the Portfolios.
(d) Payments for net redemptions of shares of the Portfolios will be wired from
the Trust's custodial account to an account designated by the Company. Such
redemptions shall ordinarily be paid in federal funds or by any other method
mutually agreed upon by the parties hereto by the next business day following
receipt by the Trust (or its agent) of notice of the order of redemption.
(e) Each party has the right to rely on information or confirmations provided by
the other party (or by any affiliate of the other party), including Portfolio
net asset values provided to the Company by SAM or an affiliate of SAM, and
shall not be liable in the event that an error is a result of any misinformation
supplied by the other party or any such affiliate. If a mistake is caused in
supplying such information or confirmations, which results in a reconciliation
with incorrect information, the amount required to make a Variable Contract
owner's or a Participant's account whole shall be borne by the party providing
the incorrect information.
(f) SAM shall advise the Company on each business day of the net asset value per
share for each Portfolio as soon as reasonably practical after the net asset
value per share is calculated, which is normally by 6 p.m. Eastern Standard time
and shall use its best efforts to make such net asset value per share available
by 9:00 p.m. Eastern Standard time.
(g) Price Errors.
(1) In the event adjustments are required to correct any error in the
computation of the net asset value of a Portfolio's shares, SAM or the Trust
shall notify the Company as soon as practicable after discovering the need for
those adjustments which result in a reimbursement to an Account in accordance
with SAM's or the Trust's then current policies on reimbursement, which SAM or
the Trust, as appropriate, represents are reasonable and consistent with
applicable standards. Notification may be made via facsimile or via direct or
indirect systems access. Any such notification shall be
<PAGE>
4
promptly followed by a letter written on SAM's or the Trust's letterhead stating
for each day for which an error occurred the incorrect price, the correct price,
and, to the extent communicated to the Trust's shareholders, the reason for the
price change.
(2) If an adjustment is to be made in accordance with subsection (1) above to
correct an error which has caused an Account to receive an amount different than
that to which it is entitled, SAM or the Trust shall make all necessary
adjustments to the number of shares owned in the Account and distribute to the
Account the amount of such underpayment for credit to the Contract owners. Upon
the furnishing of an accounting to SAM or the Trust by the Company, SAM or the
Trust will immediately reimburse to the Company all reasonable expenses incurred
by the Company, or any organization that the Company has retained to provide
administration or recordkeeping services under this Agreement to adjust all
Accounts and accounts of Contract owners affected by such error.
4. Expenses.
(a) Except as otherwise provided in this Agreement, all expenses incident to the
performance by the Trust or SAM under this Agreement shall be paid by SAM,
including the cost of registration of the Trust and shares of its Portfolios
with the Securities and Exchange Commission (the "SEC") and in states where
required.
(b) SAM shall distribute to the Company proxy material with respect to the
Trust, periodic reports to shareholders and other material that are required by
law to be sent to Variable Contract owners. In addition, SAM shall provide the
Company with a sufficient quantity of prospectuses for the Trust to be used in
connection with the offerings and transactions contemplated by this Agreement.
Subject to subsection (c) below, the cost of preparing and printing such
materials shall be paid by SAM or its affiliates, and the cost of distributing
such materials shall be paid by the Company. However, if the Trust makes changes
to its prospectus for its own benefit or the benefit of someone other than the
Company resulting in the need to print and distribute one or more supplements to
Variable Contract holders, all costs associated with printing and distributing
any such supplement shall be borne by SAM.
(c) In lieu of SAM providing printed copies of prospectuses and periodic fund
reports to shareholders, the Company shall have the right to request that SAM
provide a copy of such materials in an electronic or camera-ready format, which
the Company may use to have such materials printed together with similar
materials of other Account
<PAGE>
5
funding media that the Company or any distributor will distribute to existing or
prospective Variable Contract owners or Participants.
(d) SAM and the Trust shall provide (1) at the Trust's expense, one copy of the
Trust's current Statement of Additional Information ("SAI") to the Company and
to any owner of a Contract issued by the Company who requests such SAI; (2) at
the Company's expense, such additional copies of the Trust's current SAI as the
Company shall reasonably request and that the Company shall require in
accordance with applicable law in connection with offering the Variable
Contracts issued by the Company.
(e) The Trust currently does not make and does not intend to make any payments
to finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or
otherwise, although it may make such payments in the future. To the extent that
it decides to finance distribution expenses pursuant to Rule 12b-1, the Trust
undertakes to have its board of trustees, a majority of whom are not interested
persons of the Trust, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
5. Representations.
(a) The Company agrees that it and its agents shall not, without the written
consent of SAM, make representations concerning the Trust or the Portfolio
shares except those contained in the then current prospectuses, statement of
additional information and in current printed sales literature of the Trust
previously approved, or provided to the Company, by SAM.
(b) The Company represents and warrants that interests in certain Variable
Contracts are or will be registered under the Securities Act of 1933 ("1933
Act") or are exempt from registration thereunder, that the Variable Contracts
will be issued and sold in compliance in all material respects with all
applicable federal and state laws and that the sale of the Variable Contracts
shall comply in all material respects with state insurance suitability
requirements. The Company further represents and warrants that it is an
insurance company duly organized and in good standing under applicable law and
that it has legally and validly established each Account prior to any issuance
or sale thereof as a segregated asset account and that each Account is or will
be registered as a unit investment trust or will be exempt from registration as
such in accordance with the provisions of the 1940 Act to serve as a segregated
investment account for the Variable Contracts.
<PAGE>
6
(c) The Company represents that the Variable Contracts are currently treated as
annuity and/or life insurance contracts under applicable provisions of the Code
and that it will make every effort to maintain such treatment and that it will
notify SAM and the Trust immediately upon having a reasonable basis for
believing that the Variable Contracts have ceased to be so treated or that they
might not be so treated in the future.
(d) The Company represents and warrants that its directors, officers, and
employees, if any, dealing with the money and/or securities of the Accounts are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Accounts in an amount not less than $2
million. The aforesaid bond shall include coverage for larceny and embezzlement
and shall be issued by a reputable bonding company.
(e) SAM and the Trust make no representation as to whether any aspect of the
Trust's operations (including, but not limited to, fees and expenses and
investment policies) complies with the insurance laws or regulations of the
various states.
(f) SAM represents that shares of the Portfolios will be sold and distributed in
accordance with all applicable federal and state securities laws, including
without limitation, the 1933 Act, the Securities Exchange Act of 1934, and the
1940 Act.
(g) The Trust represents that it is currently qualified as a regulated
investment company under Subchapter M of the Code and SAM and the Trust
represent that they will make every effort to maintain such qualification (under
Subchapter M or any successor or similar provision) and that SAM or the Trust
will notify the Company immediately upon having a reasonable basis for believing
that a Portfolio has ceased to so qualify or might not so qualify in the future.
The Trust and SAM acknowledge that any failure of the Trust to qualify as a
regulated investment company under Subchapter M of the Code would constitute a
breach of their representations and warranties under Item 1(b) of this
Agreement.
(h) The Trust and SAM represent and warrant that the shares of the Portfolios
sold pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with the laws of the State of
Washington and all applicable federal and state securities laws and that the
Portfolios are and shall remain registered under the 1940 Act. The Trust shall
amend the registration statement for such shares under the 1933 Act and 1940 Act
from time to time as required in order to effect the continuous offering of its
shares. The Trust shall also register and qualify its shares
<PAGE>
7
for sale in accordance with the laws of the various states only if and to the
extent deemed advisable by the Trust or SAM.
(i) The Trust represents that it is lawfully organized and validly existing
under the laws of its state of domicile, that the shares of the Portfolios are
duly authorized for issuance in accordance with applicable law, and that it is
and will comply in all material respects with the 1940 Act.
(j) SAM represents and warrants that it is duly organized under the laws of its
state of domicile, and is and shall remain duly registered in all material
respects under any applicable federal and state securities laws, and further
that it shall perform its obligations for the Trust and the Portfolios in
compliance in all material respects with applicable federal and state securities
laws.
(k) The Trust and SAM represent and warrant that all of their respective
directors, officers, and employees dealing with the money and/or securities of
the Trust are and shall continue to be at all times covered by a blanket
fidelity bond or similar coverage for the benefit of the Trust and its
Portfolios in an amount not less than the minimal coverage as required currently
by Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated
from time to time. The aforesaid bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company.
(1) The Trust and SAM agree to use their best efforts to ensure that each
Portfolio of the Trust will be managed consistent with its investment objective
or objectives, investment policies, and investment restrictions as described in
the Trust's prospectus and registration statement, as modified from time to
time.
6. Administration of Accounts.
(a) Administrative services to Variable Contract owners and Participants shall
be the responsibility of the Company and shall not be the responsibility of the
Trust or SAM. SAM recognizes the Company as the sole shareholder of fund shares
issued under this Agreement. From time to time, SAM may pay amounts from its
past profits to the Company for providing certain administrative services for
the Trust or its Portfolios, or for providing Variable Contract owners with
other services that relate to the Trust. These services may include, among other
things, sub-accounting services, answering inquiries of Variable Contract owners
regarding the Portfolios, transmitting, on behalf of the Trust, proxy
statements, annual reports, updated prospectus and other communications to
<PAGE>
8
Variable Contract owners regarding the Trust and its Portfolios and such other
related services as the Trust or a Variable Contract holder may request. In
consideration of the savings resulting from such arrangement, and to compensate
the Company for these services, SAM agrees to pay to the Company an amount equal
to 25 basis points (0.25%) per annum of the average aggregate amount invested by
the Company in the Portfolios under this Agreement. Payment of such amounts by
SAM will not increase the fees paid by the Trust, the Portfolios or their
shareholders.
(b) The parties agree that SAM's payments to the Company are for administrative
services only and do not constitute payment in any manner for investment
advisory services or for costs of distribution.
(c) For the purposes of computing the amount of the administrative fee
contemplated by this Section 6, the average aggregate amount invested by the
Company over a one month period shall be computed by adding the Company's
aggregate investment (share net asset value multiplied by total number of shares
held by the Company) on the first day of each month to the Company's aggregate
investment on the last day of each month and dividing by two.
(d) SAM will calculate the amount of the administrative fee at the end of each
calendar quarter and payment of such fee will be made to the Company within 30
days thereafter. The check for the administrative services will be accompanied
by a statement showing the calculation of the monthly amounts payable by SAM and
such other supporting data as may be reasonably requested by the Company.
7. Termination.
(a) This agreement shall terminate as to the sale and issuance of new Variable
Contracts:
(i) at the option of either the Company or the Trust, upon 60 days advance
written notice to the other;
(ii) at the option of the Company, upon written notice to the Trust if shares of
the Portfolios are not available for any reason to meet the requirements of
Variable Contracts as determined by the Company;
<PAGE>
9
(iii) at the option of either the Company or the Trust, immediately upon
institution of formal proceedings against the broker-dealer or broker-dealers
serving as distributor for the Variable Contracts, the Accounts, the Company,
the Trust, or SAM by the National Association of Securities Dealers, Inc. (the
"NASD"), the SEC or any other regulatory body having jurisdiction over the
operations of such entities. Further, each of SAM, the Trust, and the Company
shall promptly notify the other parties hereto of the institution of any such
formal proceedings;
(iv) upon substitution of shares of the Portfolios with the shares of another
investment company in accordance with the terms of the applicable Variable
Contracts. The Company will give 60 days written notice to SAM of any pending
substitution to replace the Portfolio's shares;
(v) upon assignment of this Agreement, unless made with the written consent of
all other parties hereto;
(vi) if the shares of the Portfolios are not registered, issued or sold in
conformance with Federal law or such law precludes the use of the Portfolios'
shares as underlying investment media for Variable Contracts issued or to be
issued by the Company. Prompt notice shall be given by either party should such
situation occur;
(vii) at the option of any party to the Agreement upon a determination by a
majority of the Trustees of the Trust, or a majority of disinterested Trustees,
that an irreconcilable material conflict exists;
(viii) at the option of the Company if the Trust or a Portfolio fails to meet
the requirements under the Code specified in Section 1(b) hereof;
(ix) at the option of the Company upon a material breach of this agreement or of
any representation or warranty herein by SAM or the Trust, or at the option of
the Trust or SAM upon a material breach of this Agreement or of any
representation or warranty herein by the Company.
(b) If the need for substitution of the shares of another investment company,
pursuant to Section 26(b) of the 1940 Act, arises out of the failure of the
Portfolio shares to be registered, issued or sold in conformance with federal
law, or such law precludes the use of shares of the Portfolios as underlying
investment media for Variable Contracts issued or to be issued by the Company,
the expenses of obtaining such order shall be
<PAGE>
10
reimbursed by SAM. SAM shall cooperate with the Company in connection with such
application.
8. Continuation of Agreement. Termination as the result of any cause listed in
Section 7 shall not affect the obligation of the Trust to furnish shares of the
Portfolios to Variable Contracts then in force for which such shares serve or
may serve as the underlying media unless such further sale of shares of the
Portfolios is proscribed by law or the SEC or other regulatory body.
9. Advertising Materials; Filed Documents.
(a) Advertising and sales literature with respect to the Portfolios prepared by
the Company or its agents for use in marketing its Variable Contracts will be
submitted to SAM for review before such material is submitted to any regulatory
body for review, and in no event less than 10 days prior to its use. The Company
shall not use any such material if SAM or the Trust objects to such use within
10 days after receipt.
(b) SAM or the Trust shall furnish to the Company or its designee each piece of
sales literature or other promotional material in which the Company or its
Accounts are named, and no such material shall be used without the prior
approval of the Company or its designee. SAM and the Trust agree that each and
the affiliates of each shall not give any information or make any representation
on behalf of the Company or concerning the Company, the Accounts, or the
Variable Contracts issued by the Company, other than the information or
representations contained in a registration statement or prospectus for such
contracts, as such registration statement may be amended or supplemented from
time to time, or in reports for the Separate Accounts or prepared for
distribution to owners of such contracts, or in sales literature or other
promotional material approved by the Company or its designee, except with the
prior permission of the Company.
(c) SAM will provide to the Company at least one complete copy of all
registration statements, prospectuses, statements of additional information,
annual and semiannual reports, proxy statements and all amendments or
supplements to any of the above that relate to the Trust and its Portfolios
promptly after the filing of such document with the SEC or other regulatory
authorities. The Trust's prospectus shall state that the statement of additional
information for the Trust is available from the Trust or its designated agent
and shall be provided free of charge to the Company and to any Variable Contract
owner or Participant who requests a copy.
<PAGE>
11
(d) The Company will provide to SAM at least one complete copy of all
registration statements, prospectuses, statements of additional information,
annual and semi-annual reports, proxy statements, and all amendments or
supplements to any of the above that relate to each Account promptly after the
filing of such document with the SEC or other regulatory authority.
10. Proxy Voting.
(a) The Company shall provide pass-through voting privileges on shares of the
Portfolios to all owners and Participants of Variable Contracts funded by
Accounts that are registered as investment companies with the SEC to the extent
the SEC continues to interpret the 1940 Act as requiring such privileges. If
shares are held in any other Account not required to be registered under the
1940 Act, those shares will be voted in the Company's sole discretion.
(b) The Company will distribute to Variable Contract owners and Participants, as
provided for in paragraph 10(a) above, all proxy material furnished by SAM and
will vote shares of the Portfolios in accordance with instructions received from
Variable Contract owners and Participants. The Company, with respect to each
Variable Contract and each Account, shall vote Portfolio shares for which no
instructions have been received in the same proportion as shares for which such
instructions have been received. The Company agrees that it and its affiliates
shall not oppose or interfere with the solicitation of proxies for Portfolio
shares held for such Variable Contract owners and Participants.
11. Indemnification
(a) The Company agrees to indemnify and hold harmless the Trust and its
Portfolios, SAM, and each of their respective directors, officers, employees,
agents and each person, if any, who controls the Trust, its underwriter or
investment adviser within the meaning of the Securities Act of 1933 (the "1933
Act") against any losses, claims, damages or liabilities to which the Trust, the
Portfolios, SAM, or any such director, officer employee, agent, or controlling
person may become subject, under the 1933 Act or otherwise, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon:
(i) Any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, prospectus or sales literature of the
Company, or arising
<PAGE>
12
out of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
or representations therein not misleading (other than statements or
representations contained in the prospectuses or sales literature of the Trust),
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or omission or alleged omission made in such
Registration Statement or prospectus in conformity with written materials
furnished to the Company by the Trust, the Portfolios or SAM specifically for
use either therein or otherwise in connection with the sale of the Variable
Contracts or Trust shares;
(ii) Any untrue statement or alleged untrue statement of a material fact
contained in sales literature pertaining to the Company, the Accounts or the
Variable Contracts which has been prepared by SAM or the underwriter for the
Trust if such statement was made in reliance upon written information furnished
by the Company specifically for use therein; or
(iii) The breach by the Company of any representation or warranty in this
Agreement.
The Company will reimburse any legal or other expenses reasonably incurred by
the indemnified parties in connection with investigating or defending any such
loss, claim, damage, liability or action. This indemnity agreement will be in
addition to any liability which the Company may otherwise have.
(b) The Company shall not be liable under this Section 11 with respect to any
losses, claims, damages or liabilities (or actions in respect thereof) incurred
or assessed against any such indemnified party to the extent such may arise from
such party's willful misfeasance, bad faith, or negligence in the performance of
such party's duties or by reason of such party's reckless disregard of
obligations or duties under this Agreement.
(c) The Trust and SAM agree, jointly and severally, to indemnify and hold
harmless the Company and its directors, officers, employees, the distributor for
the Variable Contracts, the Company's agents and each person, if any, who
controls the Company within the meaning of the 1933 Act, against any losses,
claims, damages or liabilities to which the Company or any such director,
officer, employee, distributor, agent or controlling person may become subject
under the 1933 Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon:
<PAGE>
13
(i) Any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, prospectuses or sales literature of the
Trust, or the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, provided however, that neither SAM, the Trust nor any Portfolio will
be liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon a Registration Statement or
prospectuses which are in conformity with written materials furnished to the
Trust or SAM by the Company specifically for use therein;
(ii) Any untrue statement or alleged untrue statement of a material fact
contained in a registration statement, prospectus, periodic report or sales
literature covering the Variable Contracts issued by the Company, or any
amendment thereof or supplement thereto, if such statement was made in reliance
upon written information furnished by SAM or by or on behalf of the Trust
specifically for use therein; or
(iii) The breach of any representation or warranty in this Agreement by SAM or
the Trust, including but not limited to a finding or claim that the Portfolios
are not adequately diversified within the meaning of Section 817(h) of the Code
and/or that while this Agreement is in effect, all beneficial interests will be
owned by one or more insurance companies or by any other party permitted under
Section 1.817-5(f)(3) of the Regulations promulgated under the Code.
SAM will reimburse any legal or other expenses reasonably incurred by the
Company or any such director, officer, employee, distributor, agent, or
controlling person in connection with investigating or defending any such loss,
claim, damage, liability or action. This indemnity agreement will be in addition
to any liability which SAM or the Trust may otherwise have.
(d) Neither SAM, the Trust nor any Portfolio will be liable under this Section
11 to the Company or other parties covered under Section 11(c) with respect to
any losses, claims, damages or liabilities (or actions in respect thereof)
incurred or assessed against any such party (including the Company) as such may
arise from such party's willful misfeasance, bad faith, or negligence in the
performance of such party's duties or by reason of such party's reckless
disregard of obligations or duties under this Agreement.
(e) Promptly after receipt by an indemnified party hereunder of notice of the
commencement of action, such indemnified party will, if a claim in respect
thereof is to be made against the indemnifying party hereunder, notify the
indemnifying party of the commencement of such action; but the omission so to
notify the indemnifying party will not relieve it from any liability which it
may have to any indemnified party otherwise than under this Section 11. In case
any such action is brought against any indemnified party, and it notifies the
indemnifying party of the
<PAGE>
14
commencement of such action, the indemnifying party will be entitled to
participate in such action and, to the extent that it may wish to, assume the
defense thereof, with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party of its
election to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section 11 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation.
12. Potential Conflicts
(a) The Company has received a copy of an application for exemptive relief, as
amended, filed by Trust and certain affiliates on December 20, 1995 with the SEC
and the order issued by the SEC on January 17, 1996, in response thereto (the
"Shared Funding Exemptive Order"). The Company has reviewed the conditions to
the requested relief set forth in such application for exemptive relief. As set
forth in such application, the Board of Trustees of the Trust (the "Board") will
monitor the Trust for the existence of any material irreconcilable conflict
between the interests of the Variable Contract holders of all separate accounts
("Participating Companies") investing in the Portfolios. An irreconcilable
material conflict may arise for a variety of reasons, including (i) a state
insurance regulatory action; (ii) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax or securities regulatory authorities; (iii) an administrative or
judicial decision in any relevant proceeding; (iv) the manner in which the
investments of a Portfolio are being managed; (v) a difference among voting
instructions given by Variable Contract owners/Participants; or (vi) a decision
by a Participating Company to disregard the voting instructions of Variable
Contract owners or Participants. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications of such conflict.
(b) The Company will report any potential or existing conflicts of which it
becomes aware to the Board. The Company will assist the Board in carrying out
its responsibilities under the Shared Funding Exemptive Order by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This
<PAGE>
15
assistance shall include, but is not limited to, an obligation by the Company
(i) to inform the Board whenever the voting instructions of Variable Contract
owners or Participants are disregarded, and (ii) to submit to the Board such
reports, materials or data as the Board may reasonably request so that the Board
may fully carry out the obligations imposed upon it by the Shared Funding Order,
and such reports, materials and data shall be submitted more frequently if
deemed appropriate by the Board. The Company will carry out its responsibility
under this subsection (b) with a view only to the interests of the Variable
Contract owners and Participants.
(c) If a majority of the Board, or a majority of the disinterested trustees of
the Board ("Independent Trustees"), determine that a material irreconcilable
conflict exists with regard to Variable Contract owner or Participant
investments in the Portfolios, the Board shall give prompt notice to all
Participating Companies. If the Trust or SAM is responsible for causing or
creating such conflict, SAM shall at its sole cost and expense, and to the
extent reasonably practicable (as determined by a majority of the Independent
Trustees), take such action as is necessary to remedy or eliminate the
irreconcilable material conflict. If a majority of the Board or a majority of
the Independent Trustees determine that the Company is responsible for causing
or creating such conflict, the Company shall at its sole cost and expense, and
to the extent reasonably practicable (as determined by a majority of the
Independent Trustees), take whatever steps are necessary to remedy or eliminate
the irreconcilable material conflict. Such necessary action may include but
shall not be limited to:
(i) withdrawing the assets allocable to the Accounts from the Portfolios and
reinvesting those assets in a different investment medium or submitting the
question of whether such segregation should be implemented to a vote of all
affected Variable Contract owners and Participants, and, as appropriate,
segregating the assets of any appropriate group (i.e., annuity contract owners,
life insurance contract owners, or Variable Contract owners of one or more
Participating Companies) that votes in favor of such segregation, or offering to
the affected Variable Contract owners or Participants the option of making such
a change; and/or
(ii) establishing a new registered management investment company or managed
separate account.
(d) If a material irreconcilable conflict arises as a result of a decision by
the Company to disregard the voting instructions of its Variable Contract owners
or Participants, and that decision represents a minority position or would
preclude a
<PAGE>
16
majority vote, the Company at its sole cost, may be required, to withdraw an
Account's investment in the affected Portfolio and no charge or penalty will be
imposed by SAM or the Trust as a result of such withdrawal; provided, however,
that such withdrawal and termination shall be limited to the extent required to
remedy the foregoing material irreconcilable conflict as determined by a
majority of the Independent Trustees. The Company's responsibility under this
subsection (d) shall be carried out with a view only to the interests of the
Variable Contract owners and Participants. In addition, no Variable Contract
owner shall be required to bear, directly or indirectly, the costs of remedial
actions taken to remedy a material irreconcilable conflict
(e) For the purpose of this Section 12, a majority of the Independent Trustees
shall determine whether or not any proposed action adequately remedies any
irreconcilable material conflict, but in no event will the Trust or SAM be
required to establish a new funding medium for any Variable Contract. The
Company shall not be required by this Section 12 to establish a new funding
medium for any Variable Contract if an offer to do so has been declined by vote
of a majority of the Variable Contract owners or Participants materially
affected by the irreconcilable material conflict.
(f) All reports received by the Board regarding potential or existing conflicts,
and all action of the Board with respect to determining the existence of a
conflict, notifying Participating Companies of a conflict, and determining
whether any proposed action adequately remedies a conflict, will be properly
recorded in the minutes or other appropriate records of the Trust.
13. Miscellaneous.
(a) Amendment and Waiver. Neither this Agreement, nor any provision hereof, may
be amended, waived, discharged or terminated orally, but only by an instrument
in writing signed by all parties hereto.
(b) Notices. All notices and other communications hereunder shall be given or
made in writing and shall be delivered personally, or sent by telex, telecopier
or registered or certified mail, postage prepaid, return receipt requested, to
the party or parties to whom they are directed at the following addresses, or at
such other addresses as may be designated by notice from such party to all other
parties.
<PAGE>
17
To the Company: American United Life Insurance Company
One American Square
Indianapolis, IN 46282
Attention: General Counsel
To SAM: SAFECO Asset Management Co.
4333 Brooklyn Avenue N.E.
Seattle, Washington 98105
Attention: Institutional Division
To the Trust: SAFECO Resource Series Trust
4333 Brooklyn Avenue N.E.
Seattle, Washington 98105
Attention: Controller
Any notice, demand or other communication given in a manner prescribed in this
subsection (b) shall be deemed to have been delivered on receipt.
(c) Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective permitted successors and
assigns.
(d) Counterparts. This Agreement may be executed in any number of counterparts,
all of which taken together shall constitute one agreement, and any party hereto
may execute this Agreement by signing any such counterpart.
(e) Severability. In case any one or more of the provisions contained in this
Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
(f) Entire Agreement. This Agreement constitutes the entire agreement and
understanding among the parties hereto and supersedes all prior agreements and
understandings relating to the subject matter hereof.
(g) Governing Law. This Agreement shall be governed and interpreted in
accordance with the laws of the State of Washington.
<PAGE>
18
(h) Cooperation. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities having jurisdiction (including, without
limitation, the SEC, the NASD, and state insurance regulators) and shall permit
such authorities reasonable access to its books and records in connection with
any investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
(i) SEC Rules. The Trust and the Company agree that if and to the extent Rule
6e-2 or 6e- 3(T) under the 1940 Act is amended or if Rule 6e-3 is adopted in
final form, to the extent applicable the Portfolios and the Company shall each
take such steps as may be necessary to comply with such Rules as amended or
adopted in final form.
(j) Name. The Trust and SAM agree and understand that the names "American United
Life Insurance Company", "AUL", or any derivative thereof or logo associated
with those names (an "AUL Mark") is the valuable property of the Company and its
affiliates, and that the Trust and/or SAM shall not use any AUL Mark without the
prior written consent of the Company. Upon termination of this Agreement for any
reason, the Trust and/or SAM shall cease all use of any AUL Mark as soon as
reasonably practicable.
(k) Customers. The Trust and SAM agree to treat as the property of the Company
any list or compilation of names, addresses, and other information relating to
the owners of the Variable Contracts or prospects for the sale of Variable
Contracts acquired in the course of performing under this Agreement and agree
not to use such information for any purpose without the prior consent of the
Company.
(l) Captions. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
(m) Assignment. This Agreement may not be assigned by any party to the Agreement
except with the written consent of the other parties to the Agreement. For
purposes of this provision, the term "assigned" shall include a change in
control of a party to the Agreement.
14. Limitation on Liability of Trustees. This Agreement has been executed on
behalf of the Trust by the undersigned officer of the Trust in his/her capacity
as an officer of the Trust. The obligations of this Agreement that pertain to
the Trust shall be binding only upon the assets and property of the Trust and
shall not be binding upon any individual
<PAGE>
19
trustee, officer or shareholder of the Trust or its Portfolios. This provision
shall not affect the obligations or liabilities of SAM under this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement by their duly
authorized officers as of this 24th day of February, 1997.
SAFECO RESOURCE SERIES TRUST
By ______________________________
Name: Neal A. Fuller
Title: Vice President and Controller
SAFECO ASSET MANAGEMENT COMPANY
By _____________________________
Name: Leslie Eggerling
Title: Vice President
AMERICAN UNITED LIFE INSURANCE COMPANY
By ______________________________
Name:
Title:
<PAGE>
1
EXHIBIT 10(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
Board of Directors
American United Life Insurance Company(R)
Indianapolis, Indiana
We consent to the incorporation by reference in Post Effective Amendment No. 14
to the Registration Statement of the AUL American Unit Trust (the "Trust") on
Form N-4 (File No. 33-31375) of our report dated January 31, 1997, on our audit
of the financial statements of the Trust, for the year ended December 31, 1996
and for the two years in the period then ended, which report is included in the
Annual Report for the Trust.
We also consent to the inclusion in Part B of the Registration Statement of our
report dated February 19, 1997, on our audits of the financial statements of
American United Life Insurance Company (AUL) as of December 31, 1996 and 1995
and for the two years then ended.
We also consent to the reference to our Firm as the independent accountants for
the Trust and as the independent accountants for AUL.
/s/ Coopers & Lybrand L.L.P.
Indianapolis, Indiana
April 30, 1997
<PAGE>
1
EXHIBIT 11
ANNUAL REPORT OF AUL AMERICAN UNIT TRUST
FOR THE PERIOD ENDED DECEMBER 31, 1996
AUL American Unit Trust
Annual Report
December 31, 1996
AUL(R)
This report may be used as sales literature only when accompanied or
preceded by effective prospectuses of AUL American Series Fund, Inc. and AUL
American Unit Trust, which relate sales expense and other pertinent information.
1
<PAGE>
A Message From The Chairman of the Board and President of AUL American
Series Fund, Inc.
To Participants in AUL American Unit Trust
The U.S. economy continued its moderate expansion during 1996. Investors began
the year fearing that the economic growth rate would accelerate, forcing the
Federal Reserve to tighten monetary policy. However, GDP (gross domestic
product) grew at a sustainable pace during the year while core inflation
remained subdued. This seemed to have the effect of calming investors and
reduced prospects for monetary tightening by the Federal Reserve in the near
term.
The stock market experienced another rewarding year in 1996 with the Dow Jones
Industrial Average and the S&P 500 (commonly quoted equity indices) establishing
new highs throughout the year. Throughout 1996, investors continued to react
positively to the combination of slow growth and moderate inflation. However,
not all stocks had identical performance. These major equity indices were driven
by the superior returns of large capitalization growth companies while small and
medium size companies lagged conspicuously.
Long maturity Treasury bonds yielded just below 6% at the beginning of 1996. By
midyear, however, investors were increasingly concerned about the inflationary
impact of rapid employment growth in the U.S. economy. Long maturity Treasury
bond yields increased to more than 7%. Although a brief market rally occurred in
the fourth quarter, year-end intermediate and longer maturity bond yields
remained seventy to eighty basis points above levels at the beginning of the
year. Because of the move to higher interest rates and lower bond prices in
1996, bond market returns were modest, especially relative to stock market
returns.
At the present time, economists are expecting 1997 to be another year of
moderate growth and low inflation. The Federal Reserve is expected to stay on
the sidelines until concrete evidence of excessive economic growth or weakness
surfaces. Interest rates will be highly dependent upon the Federal Reserve
Bank's reaction to the various indicators of economic growth and inflation.
Equity investors have now experienced two back-to-back years of excellent stock
performance. Even after the exuberance of the last two years, the major stock
averages could still post further gains during 1997, but the gains are expected
to be on a more modest scale. The market could also experience increased
volatility as equity concerns heighten. Good bond performance is likely to be
highly dependent on investors' comfort level with the pace of economic growth
and continued moderate inflation.
James W. Murphy
Chairman of the Board of Directors and President
Indianapolis, Indiana
January 15, 1997
<PAGE>
2
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<PAGE>
3
Report of Independent Accountants
================================================================================
The Contract Owners of
AUL American Unit Trust and
Board of Directors of
American United Life Insurance Company(R)
We have audited the accompanying statements of net assets of AUL American
Unit Trust as of December 31, 1996, and the related statements of operations and
changes in net assets for each of the two years in the period then ended. These
financial statements are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1996, by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AUL American Unit Trust as
of December 31, 1996, and the results of its operations and changes in net
assets for each of the two years in the period then ended, in conformity with
generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Indianapolis, Indiana
January 31, 1997
<PAGE>
4
<TABLE>
<CAPTION>
AUL American Unit Trust
STATEMENTS OF NET ASSETS
December 31, 1996
<S> <C> <C> <C> <C> <C> <C>
Series Fund Fidelity
------------------------------------------------- -----------------------
Equity Money Market Bond Managed High Income Growth
------ ------------ ---- ------- ----------- -------
Assets:
Investment at market
value $ 22,318,068 $ 4,836,248 $ 7,327,011 $ 18,542,385 $ 9,663,097 $ 38,471,516
Net Assets $ 22,318,068 $ 4,836,248 $ 7,327,011 $ 18,542,385 $ 9,663,097 $ 38,471,516
============ =========== =========== ============ =========== ============
Units outstanding 10,589,355 3,931,272 4,535,171 10,087,186 6,679,227 22,560,070
========== ========= ========= ========== ========= ==========
Accumulation Unit Value $ 2.11 $ 1.23 $ 1.62 $ 1.84 $ 1.45 $ 1.71
=========== =========== =========== ============ =========== ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
5
<TABLE>
<CAPTION>
AUL American Unit Trust
STATEMENTS OF NET ASSETS (continued)
December 31, 1996
<S> <C> <C> <C> <C> <C> <C>
Fidelity TCI
-------------------------------------------------------------- ----------
Overseas Asset Manager Index 500 Equity-Income Contrafund TCI Growth
-------- ------------- --------- ------------- ---------- ----------
Assets:
Investment at market
value $ 11,408,246 $ 36,766,256 $17,165,451 $5,858,153 $7,059,625 $2,189,442
------------ ------------ ----------- ---------- ---------- ----------
Net Assets $ 11,408,246 $ 36,766,256 $17,165,451 $5,858,153 $7,059,625 $2,189,442
============ ============ =========== ========== ========== =========
Units outstanding 8,245,189 26,868,078 9,841,199 4,243,459 4,656,175 1,785,854
========= ========== ========= ========= ========= =========
Accumulation Unit Value $ 1.38 $ 1.37 $ 1.74 $ 1.38 $ 1.52 $ 1.23
============ ============ =========== ========= ========= =========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
6
<TABLE>
<CAPTION>
<S> <C> <C> <C>
AUL American Unit Trust
STATEMENTS OF NET ASSETS (continued)
December 31, 1996
Alger Calvert T. Rowe Price
--------- ------------ -------------
American Capital
Growth Accumulation Equity Income
--------- ------------ -------------
Assets:
Investment at market value $ 9,407,497 $1,302,913 $6,185,542
----------- --------- ---------
Net Assets $ 9,407,497 $1,302,913 $6,185,542
=========== ======== =========
Units outstanding 6,674,992 970,440 4,259,154
========= ======== =========
Accumulation Unit Value $ 1.41 $ 1.34 $ 1.45
=========== ======== =========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
7
<TABLE>
<CAPTION>
AUL American Unit Trust
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
for the years ended December 31, 1996 and 1995
<S> <C> <C> <C> <C> <C> <C>
Series Fund
-------------------------------------------------------------------------
Equity Money Market Bond
------ ------------ -----
1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- -------
Operations:
Dividend income $ 342,380 $ 484,382 $196,825 $ 90,815 $ 400,603 $ 295,780
Mortality & expense
charges 241,613 180,862 52,481 21,626 81,206 56,947
------- ------- ------ ------ ------ ------
Net Investment Income
(Expense) 100,767 303,520 144,344 69,189 319,397 238,833
------- ------- ------- ------ ------- -------
Gain (Loss) on Investments:
Net realized gain (loss) 757,430 340,866 --- --- (29,008) (41,640)
Net change in
unrealized gain (loss) 2,298,293 1,723,846 --- --- (194,208) 478,688
--------- -------- ------- --------
Net Gain (Loss) 3,055,723 2,064,712 --- --- (223,216) 437,048
--------- -------- ------- --------
Increase (Decrease)
in Assets from
Operations 3,156,490 2,368,232 144,344 69,189 96,181 675,881
--------- ------- ------ ------ ------- --------
Contract Owner Transactions:
Proceeds from units sold 5,750,853 5,109,255 19,881,137 6,141,734 2,965,354 2,165,809
Cost of units redeemed (3,302,017) (2,106,682) (17,646,620) (4,993,063) (1,514,837) (693,221)
---------- ---------- ---------- ---------- -------- --------
Increase 2,448,836 3,002,573 2,234,517 1,148,671 1,450,517 1,472,588
--------- --------- --------- ------- --------- ---------
Net increase 5,605,326 5,370,805 2,378,861 1,217,860 1,546,698 2,148,469
Net Assets, beginning 16,712,742 11,341,937 2,457,387 1,239,527 5,780,313 3,631,844
---------- --------- --------- ------- --------- ---------
Net Assets, ending $ 22,318,068 $16,712,742 $ 4,836,248 $ 2,457,387 $ 7,327,001 $ 5,780,313
============ =========== =========== =========== =========== ===========
Units sold 2,955,925 3,111,938 16,432,700 5,234,868 1,883,899 1,429,982
Units redeemed (1,698,792) (1,250,871) (14,567,921) (4,252,203) (962,211) (457,399)
---------- -------- ---------- ---------- -------- --------
Net increase 1,257,133 1,861,067 1,864,779 982,665 921,688 972,583
Units outstanding, beginning 9,332,222 7,471,155 2,066,493 1,083,828 3,613,483 2,640,900
--------- --------- --------- ------- --------- ---------
Units outstanding, ending 10,589,355 9,332,222 3,931,272 2,066,493 4,535,171 3,613,483
========= ========= ========= ========= ========= =========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
8
<TABLE>
<CAPTION>
AUL American Unit Trust
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (continued)
for the years ended December 31, 1996 and 1995
<S> <C> <C> <C> <C> <C> <C>
Series Fund Fidelity
-------------------------- --------------------------------------------
Managed High Income Growth
------- ----------- ----------------
1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
Operations:
Dividend income $ 601,614 $ 761,412 $ 559,290 $ 245,640 $1,686,076 $ 61,007
Mortality & expense
charges 210,007 168,071 97,295 57,956 384,618 210,009
------- ------- ------ ------ ------- ------
Net Investment Income
(Expense) 391,607 593,341 461,995 187,684 1,301,458 (149,002)
------- ------- ------- ------ -------- --------
Gain (Loss) on Investments:
Net realized gain (loss) 231,999 87,452 147,051 (33,043) 2,576,639 1,311,129
Net change in
unrealized gain (loss) 1,074,348 1,471,188 304,521 608,211 (241,271) 3,092,171
--------- -------- ------- -------- --------- -------
Net Gain (Loss) 1,306,347 1,558,640 451,572 575,168 2,335,368 4,403,300
--------- -------- ------- -------- --------- -------
Increase (Decrease)
in Assets from
Operations 1,697,954 2,151,981 913,567 762,852 3,636,826 4,254,298
--------- -------- ------- ------- --------- ------
Contract Owner Transactions:
Proceeds from units sold 3,787,607 3,348,132 4,302,859 2,876,963 20,256,098 13,359,280
Cost of units redeemed (2,327,899) (1,642,119) (1,616,681) (826,487) (7,954,526) (5,494,211)
---------- ---------- -------- -------- ---------- ----------
Increase 1,459,708 1,706,013 2,686,178 2,050,476 12,301,572 7,865,069
--------- --------- --------- --------- --------- ---------
Net increase 3,157,662 3,857,994 3,599,745 2,813,328 15,938,398 12,119,367
Net Assets, beginning 15,384,723 11,526,729 6,063,352 3,250,024 22,533,118 10,413,751
---------- --------- --------- ------- ---------- ---------
Net Assets, ending $ 18,542,385 $15,384,723 $ 9,663,097 $ 6,063,352 $38,471,516 $22,533,118
============ =========== =========== =========== =========== ===========
Units sold 2,192,882 2,173,072 3,144,988 2,385,562 12,526,388 9,441,745
Units redeemed (1,347,716) (1,078,007) (1,185,689) (679,096) (4,932,924) (3,722,429)
---------- -------- -------- -------- ---------- ----------
Net increase 845,166 1,095,065 1,959,299 1,706,466 7,593,464 5,719,316
Units outstanding, beginning 9,242,020 8,146,955 4,719,928 3,013,462 14,966,606 9,247,290
--------- --------- --------- ------- --------- ---------
Units outstanding, ending 10,087,186 9,242,020 6,679,227 4,719,928 22,560,070 14,966,606
========= ========= ========= ========= ========== =========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
9
<TABLE>
<CAPTION>
AUL American Unit Trust
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (continued)
for the years ended December 31, 1996 and 1995
<S> <C> <C> <C> <C> <C> <C>
Fidelity
-------------------------------------------------------------------------------
Overseas Asset Manager Index 500-
-------- ------------- -------------
1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
Operations:
Dividend income $ 195,920 $ 42,737 $1,858,564 $ 447,091 $ 270,229 $ 42,513
Mortality & expense
charges 119,355 81,781 396,998 302,886 134,447 45,078
------ ------ ------- ------- ------ ------
Net Investment Income
(Expense) 76,565 (39,044) 1,461,566 144,205 135,782 (2,565)
------- ------- ------- ------- ------ -------
Gain (Loss) on Investments:
Net realized gain (loss) 588,813 45,929 304,397 (258,733) 1,142,520 229,280
Net change in
unrealized gain (loss) 428,901 552,120 2,252,257 3,680,015 903,193 813,537
------- -------- --------- ---------- ------- --------
Net Gain (Loss) 1,017,714 598,049 2,556,654 3,421,282 2,045,713 1,042,817
--------- ------- --------- ---------- --------- ---------
Increase (Decrease)
in Assets from
Operations 1,094,279 559,005 4,018,220 3,565,487 2,181,495 1,040,252
--------- -------- --------- ---------- --------- ---------
Contract Owner Transactions:
Proceeds from units sold 8,171,841 5,043,833 9,564,824 8,354,917 13,729,783 3,753,742
Cost of units redeemed (5,759,471) (3,125,876) (4,541,090) (4,648,335) (4,462,861) (1,163,778)
---------- -------- ---------- ---------- ---------- -------
Increase 2,412,370 1,917,957 5,023,734 3,706,582 9,266,922 2,589,964
--------- --------- --------- ---------- --------- ---------
Net increase 3,506,649 2,476,962 9,041,954 7,272,069 11,448,417 3,630,216
Net Assets, beginning 7,901,597 5,424,635 27,724,302 20,452,233 5,717,034 2,086,818
--------- ------- ---------- --------- --------- -------
Net Assets, ending $11,408,246 $ 7,901,597 $ 36,766,256 $ 27,724,302 $17,165,451 $ 5,717,034
=========== ============ ============= ============ =========== ===========
Units sold 6,289,170 4,294,825 7,528,818 7,530,175 8,642,574 2,896,935
Units redeemed (4,429,500) (2,657,590) (3,592,303) (4,138,988) (2,778,057) (887,069)
---------- -------- ---------- ---------- -------- -------
Net increase 1,859,670 1,637,235 3,936,515 3,391,187 5,864,517 2,009,866
Units outstanding, beginning 6,385,519 4,748,284 22,931,563 19,540,376 3,976,682 1,966,816
--------- ------- ---------- --------- --------- -------
Units outstanding, ending 8,245,189 6,385,519 26,868,078 22,931,563 9,841,199 3,976,682
========= ========= ========== ========== ========= =========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
10
<TABLE>
<CAPTION>
AUL American Unit Trust
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (continued)
for the years ended December 31, 1996 and 1995
<S> <C> <C> <C> <C> <C> <C>
FIDELITY TCI
------------------------------------------------ -------------------------
Equity-Income Contrafund TCI Growth
--------------------- -------------------- -------------------------
1996 1995(1) 1996 1995(1) 1996 1995(1)
------- ------- ---- ------- ------- -------
Operations:
Dividend income $ 57,407 $ 4,945 $ 11,446 $ 9,771 $ 158,096 $ 294
Mortality & expense
charges 41,210 1,815 45,564 1,740 20,981 6,369
----- ----- ----- ----- ------- ------
Net Investment Income
(Expense) 16,197 3,130 (34,118) 8,031 137,115 (6,075)
----- ----- ------- ------ ------ ------
Gain (Loss) on Investments:
Net realized gain (loss) 51,857 6,939 169,050 330 50,578 30,332
Net change in
unrealized gain (loss) 366,426 31,816 624,118 2,967 (299,498) 83,561
------ ------- -------- ----- -------- ------
Net Gain (Loss) 418,283 38,755 793,168 3,297 (248,920) 113,893
------ ----- ------- ----- -------- ------
Increase (Decrease)
in Assets from
Operations 434,480 41,885 759,050 11,328 (111,805) 107,818
------ ------ ------- ----- ------- -----
Contract Owner Transactions:
Proceeds from units sold 5,379,426 895,659 6,820,829 902,616 1,647,386 712,144
Cost of units redeemed (887,971) (5,326) (1,395,994) (38,204) (315,880) (104,945)
------ ------- -------- ---- ------- -------
Increase 4,491,455 890,333 5,424,835 864,412 1,331,506 607,199
------- ------- ------- ------- --------- ------
Net increase 4,925,935 932,218 6,183,885 875,740 1,219,701 715,017
Net Assets, beginning 932,218 --- 875,740 --- 969,741 254,724
-------
Net Assets, ending $5,858,153 $ 932,218 $7,059,625 $ 875,740 $ 2,189,442 $ 969,741
========== ========= ========== ========= =========== =========
Units sold 4,163,357 766,531 4,955,599 722,789 1,282,104 573,128
Units redeemed (682,030) (4,399) (991,402) (30,811) (244,029) (79,665)
------ ------- ------- ---- ------- ------
Net increase 3,481,327 762,132 3,964,197 691,978 1,038,075 493,463
Units outstanding, beginning 762,132 --- 691,978 --- 747,779 254,316
--------- ------- ------- ------- --------- -------
Units outstanding, ending 4,243,459 762,132 4,656,175 691,978 1,785,854 747,779
======= ======= ======= ======= ========= ======
<FN>
(1) for the period from March 31, 1995 through December 31, 1995
</FN>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
AUL American Unit Trust
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (continued)
for the years ended December 31, 1996 and 1995
<S> <C> <C> <C> <C> <C> <C>
Alger Calvert T. Rowe Price
------------------------- -------------------- -----------------------
American Capital Equity
Growth Accumulation Income
-------------------------- -------------------- -----------------------
1996 1995(1) 1996 1995(1) 1996 1995(1)
------- -------- ----- ------- ------- --------
Operations:
Dividend income $ 118,973 $ 1 $ 1,665 $ 4,737 $ 129,361 $ 4,044
Mortality & expense
charges 66,741 2,385 8,227 168 35,102 915
------- ------ ------ ------ -------- ------
Net Investment Income
(Expense) 52,232 (2,384) (6,562) 4,569 94,259 3,129
------- ------- ------- ------ -------- ------
Gain (Loss) on Investments:
Net realized gain (loss) 104,611 (2,334) 24,160 311 100,208 7,310
Net change in
unrealized gain (loss) 441,596 (7,041) 21,786 (3,357) 339,665 13,332
------ ----- ------ ----- ------ ------
Net Gain (Loss) 546,207 (9,375) 45,946 (3,046) 439,873 20,642
------ ------ ------- ----- ------ ------
Increase (Decrease)
in Assets from
Operations 598,439 (11,759) 39,384 1,523 534,132 23,771
------ ------ ------- ----- ------- -----
Contract Owner Transactions:
Proceeds from units sold 11,464,782 1,405,304 8,157,650 101,227 6,412,176 465,993
Cost of units redeemed (3,951,097) (98,172) (6,984,043) (12,828) (1,238,837) (11,693)
------ ------- -------- ---- ------- -------
Increase 7,513,685 1,307,132 1,173,607 88,399 5,173,339 454,300
------- ------- ------- ------- --------- ------
Net increase 8,112,124 1,295,373 1,212,991 89,922 5,707,471 478,071
Net Assets, beginning 1,295,373 --- 89,922 --- 478,071 ---
---------- --------- --------- ------- ---------- --------
Net Assets, ending $9,407,497 $1,295,373 $1,302,913 $ 89,922 $ 6,185,542 $ 478,071
========== ========= ========== ========= =========== =========
Units sold 8,577,306 1,105,533 6,165,865 80,855 4,786,484 399,244
Units redeemed (2,931,153) (76,694) (5,266,458) (9,822) (916,062) (10,512)
---------- --------- --------- ------ --------- -------
Net increase 5,646,153 1,028,839 899,407 71,033 3,870,422 388,732
Units outstanding, beginning 1,028,839 --- 71,033 --- 388,732 ---
--------- --------- ------- ------- --------- -------
Units outstanding, ending 6,674,992 1,028,839 970,440 71,033 4,259,154 388,732
======= ======= ======= ======= ========= ======
<FN>
(1) for the period from March 31, 1995 through December 31, 1995
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
<PAGE>
12
(This page left intentionally blank.
<PAGE>
13
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The AUL American Unit Trust (Variable Account) was established by American
United Life Insurance Company(R) (AUL) on August 17, 1989, under procedures
established by Indiana law and is registered as a unit investment trust under
the Investment Company Act of 1940, as amended. The Variable Account is a
segregated investment account for AUL and invests exclusively in shares of
mutual fund portfolios offered by the AUL American Series Fund, Inc. (Series
Fund), Fidelity Investments(R) Variable Insurance Products Fund and Variable
Insurance Products Fund II (Fidelity), TCI Portfolios, Inc. (TCI), Alger
American Fund (Alger), Calvert Group(R) (Calvert), and T. Rowe Price.
SECURITY VALUATION TRANSACTIONS AND RELATED INVESTMENT INCOME
The market value of investments is based on the closing bid prices at
December 31, 1996. Investment transactions are accounted for on the trade date
and dividend income is recorded on the ex-dividend date.
MORTALITY AND EXPENSE RISKS CHARGES
AUL deducts a daily charge as compensation for the mortality and expense
risks assumed by AUL. The charge is equal on an annual basis to 1.25% of the
average daily net assets of each investment account. AUL guarantees that the
mortality and expense charge shall not increase. The charges incurred during the
years ended December 31, 1996 and 1995, were $1,935,845 and $1,138,607,
respectively.
TAXES
Operations of the Variable Account are part of, and are taxed with, the
operations of AUL, which is taxed as a "life insurance company" under the
Internal Revenue Code. Under current 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. The Variable
Account has not been charged for federal and state income taxes since none have
been imposed.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
2. ACCOUNT CHARGES
AUL may assess a premium tax charge based on premium taxes incurred.
Premium taxes currently range between 0% and 3.5%, but are subject to change by
governmental entities.
AUL deducts an annual administrative charge from each participant's account
which may not exceed the lesser of 0.5% of the participant's account value or
$7.50 per quarter. The charge is assessed every quarter on a participant account
if it is in effect on the quarterly contract anniversary, and the charge is
assessed only during the accumulation period. The charges incurred during the
years ended December 31, 1996 and 1995, were $156,705 and $147,379,
respectively.
AUL may assess a withdrawal charge on withdrawals that exceed 10% of the
participant's account value as of the last contract anniversary preceding the
request for the withdrawal. The amount of the charge depends upon the number of
account years the participant's account has been in existence, as follows:
Account Year Withdrawal Charge
------------ -----------------
1 - 5 8%
6 - 10 4%
11 or more 0%
The aggregate withdrawal charges will not exceed 9% of the contributions
made by or on behalf of a participant under a contract. The charges incurred
during the years ended December 31, 1996 and 1995, were $164,250 and $96,562,
respectively.
<PAGE>
14
NOTES TO FINANCIAL STATEMENTS (continued)
3. ACCUMULATION UNIT VALUE
The change in the Accumulation Unit Value for the year ended December 31,
1996, is:
12/31/96 12/31/95 Change
-------- -------- ------
Series Fund:
Equity $ 2.107103 $ 1.790413 17.7%
Money Market 1.229861 1.188967 3.4%
Bond 1.614937 1.599503 1.0%
Managed 1.837513 1.664334 10.4%
Fidelity:
High Income 1.446567 1.284533 12.6%
Growth 1.705274 1.505375 13.3%
Overseas 1.383489 1.237371 11.8%
Asset Manager 1.368222 1.208903 13.2%
Index 500 1.743597 1.437483 21.3%
Equity-Income 1.380472 1.223147 12.9%
Contra 1.516110 1.265540 19.8%
TCI:
TCI Growth 1.225326 1.296724 -5.5%
Alger:
American Growth 1.409348 1.259033 11.9%
Calvert:
Capital Accumulation 1.342590 1.265873 6.1%
T. Rowe Price:
Equity Income 1.452068 1.229793 18.1%
<PAGE>
15
NOTES TO FINANCIAL STATEMENTS (continued)
4. Cost of Investments
The cost of Investments at December 31, 1996 is:
Series Fund: TCI:
Equity $ 18,428,478 TCI Growth $ 2,403,012
Money Market 4,836,248
Bond 7,316,517 Alger:
Managed 16,577,041 American Growth 8,972,942
Fidelity: Calvert:
High Income 8,862,439 Capital Accumulation 1,284,484
Growth 35,477,543
Overseas 10,536,112 T.Rowe Price:
Asset Manager 31,919,462 Equity Income 5,832,546
Index 500 15,438,682
Equity-Income 5,459,911
Contrafund 6,432,540
<TABLE>
<CAPTION>
5. Net Assets
Net Assets at December 31, 1996 are:
Series Fund Fidelity
--------------------------------------------------------- -----------------------
Equity Money Market Bond Managed High Income Growth
<S> <C> <C> <C> <C> <C> <C>
------ ------------ ---- ------- ----------- ------
Proceeds from units sold $ 23,771,887 $29,526,054 $ 9,667,951 $ 20,031,091 $10,837,939 $ 45,075,945
Cost of units redeemed (7,968,288) (24,930,927) (3,117,127) (5,721,966) (2,791,593) (14,630,049)
Net investment income
(expense) 1,261,181 241,121 857,976 1,828,932 729,116 1,262,870
Net realized gain (loss) 1,363,698 --- (92,283) 438,984 86,977) 3,768,777
Unrealized gain (loss) 3,889,590 --- 10,494 1,965,344 800,658 2,993,973
--------- ------- ------- ------- ---------
$ 22,318,068 $ 4,836,248 $ 7,327,011 $ 18,542,385 $ 9,663,097 $ 38,471,516
============ =========== =========== ============ =========== ============
Fidelity TCI
------------------------------------------------------------------------ ----------
Overseas Asset Manager Index 500 Equity-Income Contra TCI Growth
-------- ------------- --------- ------------- ------ ----------
Proceeds from units sold $ 19,015,822 $41,712,410 $19,638,049 $ 6,275,085 $ 7,723,444 $ 2,613,733
Cost of units redeemed (9,196,712) (11,614,410) (5,699,844) (893,297) (1,434,197) (421,346)
Net investment income
(expense) (389) 1,850,205 131,658 19,327 (26,087) 130,202
Net realized gain (loss) 717,391 (28,743) 1,368,819 58,796 169,380 80,423
Unrealized gain (loss) 872,134 4,846,794 1,726,769 398,242 627,085 (213,570)
------- --------- ------- ------ ----- ------
$ 11,408,246 $36,766,256 $17,165,451 $ 5,858,153 $ 7,059,625 $ 2,189,442
============ =========== =========== ============ =========== ============
Alger Calvert T.Rowe Price
---------------------------------------------
American Capital
Growth Accumulation Equity Income
------ ------------ -------------
Proceeds from units sold $ 12,870,085 $8,258,877 $ 6,878,168
Cost of units redeemed (4,049,269) (6,996,872) (1,250,529)
Net investment income
(expense) 49,849 (1,993) 97,389
Net realized gain (loss) 102,277 24,472 107,518
Unrealized gain (loss) 434,555 18,429 352,996
------ ------ ------
$ 9,407,497 $1,302,913 $ 6,185,542
============ ========== ===========
</TABLE>
16
<PAGE>
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<PAGE>
<ARTICLE> 6
<CIK> 0000856341
<NAME> AUL AMERICAN UNIT TRUST
<SERIES>
<NUMBER> 10
<NAME> FIDELITY EQUITY-INCOME
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<S> <C>
<PERIOD-TYPE> YEAR
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000856341
<NAME> AUL AMERICAN UNIT TRUST
<SERIES>
<NUMBER> 6
<NAME> FIDELITY GROWTH
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000856341
<NAME> AUL AMERICAN UNIT TRUST
<SERIES>
<NUMBER> 5
<NAME> FIDELITY HIGH INCOME
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000856341
<NAME> AUL AMERICAN UNIT TRUST
<SERIES>
<NUMBER> 7
<NAME> FIDELITY OVERSEAS
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000856341
<NAME> AUL AMERICAN UNIT TRUST
<SERIES>
<NUMBER> 8
<NAME> FIDELITY ASSET MANAGER
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000856341
<NAME> AUL AMERICAN UNIT TRUST
<SERIES>
<NUMBER> 11
<NAME> FIDELITY CONTRAFUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
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</TABLE>
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<PAGE>
<ARTICLE> 6
<CIK> 0000856341
<NAME> AUL AMERICAN UNIT TRUST
<SERIES>
<NUMBER> 9
<NAME> FIDELITY INDEX 500
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
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