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1
As filed with the Securities and Exchange Commission on March 2, 1999
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. 16
and/or
REGISTRATION STATEMENT UNDER THE
[X] INVESTMENT COMPANY ACT OF 1940
[X] Amendment No. 17
(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) 285-1877
Richard A. Wacker, One American Square, Indianapolis, Indiana 46282
(Name and Address of Agent for Service)
Title of Securities Interests in group variable annuity
Being Registered: contracts
It is proposed that this filing will become effective (Check appropriate Space)
immediately upon filing pursuant to paragraph (b) of Rule 485
on pursuant to paragraph (b) of Rule 485
_____ --------------
X
_____ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
_____ on (date) pursuant to paragraph (a)(1) of Rule 485
_____ 75 days after filing pursuant to paragraph (a)(2)
_____ on (date) pursuant to paragraph (a)(2) of Rule 485
_____ this post-effective amendment designates a new effective date for a
previously filed amendment.
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2
<TABLE>
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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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<S> <C>
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
<S> <C>
Statement of Additional Statement of Additional
Information Item of Form N-4 Information Caption
- ---------------------------- -------------------
15. Cover Page ...........................Cover Page
16. Table of Contents ....................Table of Contents
17. General Information and History ......General Information and History
18. Services .............................Custody of Assets; Independent
Accountants
19. Purchase of Securities Being Offered .Distribution of Contracts;
(Prospectus) Charges and
Deductions
20. Underwriters .........................Distribution of Contracts
21. Calculation of Performance Data ......Performance Information
22. Annuity Payments .....................(Prospectus) 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
Signatures................................Signatures
</TABLE>
<PAGE>
PROSPECTUS
for
AUL American Unit Trust
AUL American Series Fund, Inc.
Dated May 1, 1999
Sponsored by:
AUL (LOGO)
American United Life Insurance Company(R)
P.O. Box 6148, Indianapolis, Indiana 46206-6148
http://www.aul.com
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1
Prospectus
AUL American Unit Trust
GROUP VARIABLE ANNUITY CONTRACTS
Offered By
American United Life Insurance Company(R)
One American Square
Indianapolis, Indiana 46282
(800) 249-6269
Annuity Service Office Mailing Address:
P.O. Box 6148, Indianapolis, Indiana 46206-6148
The date of this Prospectus is May 1, 1999
This Prospectus describes group annuity contracts ("Contracts") offered by
American United Life Insurance Company(R) ("AUL" or the "Company"). AUL designed
the Contracts generally for use with group retirement plans that qualify for
favorable tax-deferred treatment as retirement programs under the Internal
Revenue Code. Any employer, association, or other group may enter into the
Contracts and specialized plans that do not qualify for favorable tax treatment,
such as non-qualified Section 457 plans may also be sold.
This Prospectus describes contracts that allow ongoing contributions that
can vary in amount and frequency ("Recurring Contribution Contracts") and
contracts that allow only a single contribution to be made ("Single Contribution
Contracts"). AUL currently offers Single Contribution Contracts 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.
A Participant may allocate contributions to the AUL American Unit Trust, a
separate account of AUL (the "Variable Account"). The Variable Account, in turn,
invests in shares of mutual fund portfolios. The Participant does not own shares
of the mutual fund, only units in the Variable Account. The Variable Account is
divided into Investment Accounts. These Investment Accounts invest in the
corresponding Portfolios offered by the mutual funds. For example, if a
Participant decides to allocate his contributions to the AUL American Equity
Investment Account, those contributions would buy units of the Variable Account
which, in turn, would buy shares of the AUL American Series Fund Equity
Portfolio. Contributions allocated to a variable Investment Account of the
Variable Account fluctuate in value depending on the investment performance of
the corresponding mutual fund portfolio. These amounts are not guaranteed. In
the alternative, a participant may allocate contributions to AUL's Fixed
Account. These contributions will earn interest at rates that are paid by AUL as
described in "The Fixed Account." A Participant may allocate contributions to
one or more of the Investment Accounts, but not all of the Investment Accounts
may be available under a specific Contract.
The Mutual Funds and Portfolios that may be offered under the contracts are:
<TABLE>
<CAPTION>
<S> <C>
AUL American Series Fund Inc. Portfolios Fidelity Variable Insurance Products Fund
Equity Portfolio Fidelity High Income
Bond Portfolio Fidelity Overseas
Managed Portfolio Fidelity Variable Insurance Products Fund II
Money Market Portfolio Fidelity Asset Manager
Tactical Asset Allocation Portfolio Fidelity Contrafund
Conservative Investor Portfolio Fidelity Index 500
Moderate Investor Portfolio Janus Aspen Series
Aggressive Investor Portfolio Janus Flexible Income
Alger American Fund, Inc. Janus Growth
Alger American Growth PBHG Insurance Series Fund, Inc.
American Century Variable Portfolios, Inc. PBHG Growth II
American Century VP Capital Appreciation PBHG Technology & Communication
Calvert Variable Series SAFECO Resource Series Trust
Calvert Social Mid Cap Growth SAFECO Equity
Fidelity Variable Insurance Products Fund SAFECO Growth
Fidelity Equity-Income T. Rowe Price Equity Series, Inc.
Fidelity Growth T. Rowe Price Equity Income
</TABLE>
This Prospectus provides information about the Contracts and the Variable
Account that a prospective investor should know before investing. Additional
information is contained in a Statement of Additional Information ("SAI") dated
May 1, 1999, which has been filed with the Securities and Exchange Commission
(the "SEC"). The SAI is incorporated by reference into this Prospectus. A
prospective investor may obtain a copy of the SAI without charge by calling or
writing AUL at the telephone number or address indicated above. The table of
contents of the SAI is located at the end of this Prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of the Prospectus. Any represention to the contrary is a
criminal offense.
This Prospectus should be accompanied by a current Prospectus for each fund
being considered. Each of these prospectuses should be read carefully and
retained for future reference.
The date of this Prospectus is May 1, 1999.
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2
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......................... 13-15
PERFORMANCE OF THE INVESTMENT
ACCOUNTS.............................................. 15-16
INFORMATION ABOUT AUL, THE VARIABLE
ACCOUNT, AND THE FUNDS................................ 17-20
American United Life Insurance Company(R)............. 17
Variable Account...................................... 17
The Funds............................................. 17
AUL American Series Fund, Inc........................ 18
Alger American Fund.................................. 19
American Century Variable Portfolios, Inc............ 19
Calvert Variable Series.............................. 19
Fidelity Variable Insurance Products Fund............ 19
Fidelity Variable Insurance Products Fund II......... 19
Janus Aspen Series................................... 20
PBHG Insurance Series Fund, Inc...................... 20
SAFECO Resource Series Trust......................... 20
T. Rowe Price Equity Series, Inc..................... 20
THE CONTRACTS........................................... 21
General............................................... 21
CONTRIBUTIONS AND CONTRACT VALUES
DURING THE ACCUMULATION PERIOD........................ 21-24
Contributions under the Contracts..................... 21
Ten-Day Free Look..................................... 21
Initial and Single Contributions...................... 21
Allocation of Contributions........................... 22
Subsequent Contributions Under Recurring
Contribution Contracts............................... 22
Transfers of Account Value............................ 22
Participant's Variable Account Value.................. 22
Accumulation Units................................... 22
Accumulation Unit Value.............................. 22
Net Investment Factor................................ 23
DOLLAR COST AVERAGING................................... 23
CASH WITHDRAWALS AND THE DEATH
BENEFIT............................................... 24-27
Cash Withdrawals...................................... 24
Systematic Withdrawal Service for 403(b) and
408 Programs......................................... 24
Constraints on Withdrawals............................ 25
General.............................................. 25
403(b) Programs...................................... 25
Texas Optional Retirement Program.................... 25
The Death Benefit..................................... 25
Termination by the Owner.............................. 26
Termination by AUL.................................... 27
Payments from the Variable Account.................... 27
CHARGES AND DEDUCTIONS.................................. 27-29
Premium Tax Charge.................................... 27
Withdrawal Charge..................................... 27
Mortality and Expense Risk Charge..................... 28
Variable Investment Plus Factor....................... 28
Administrative Charge................................. 29
Other Charges......................................... 29
Variations in Charges................................. 29
Guarantee of Certain Charges.......................... 29
Expenses of the Funds................................. 29
ANNUITY PERIOD.......................................... 29-30
General............................................... 29
Annuity Options....................................... 30
Option 1 - Life Annuity.............................. 30
Option 2 - Certain and Life Annuity.................. 30
Option 3 - Survivorship Annuity...................... 30
Option 4 - Installment Refund Life Annuity........... 30
Option 5 - Fixed Periods............................. 30
Selection of an Option................................ 30
THE FIXED ACCOUNT....................................... 31-33
Interest.............................................. 31
Withdrawals and Transfers............................. 31
Transfer of Interest Option........................... 32
Contract Charges...................................... 32
Payments from the Fixed Account....................... 32
Loans from the Fixed Account.......................... 32
MORE ABOUT THE CONTRACTS................................ 33
Designation and Change of Beneficiary................. 33
Assignability......................................... 33
Proof of Age and Survival............................. 33
Misstatements......................................... 33
Acceptance of New Participants or Contributions....... 33
FEDERAL TAX MATTERS..................................... 34-37
Introduction.......................................... 34
Tax Status of the Company and
the Variable Account................................. 34
Tax Treatment of Retirement Programs.................. 34
Employee Benefit Plans................................ 34
403(b) Programs....................................... 35
408 Programs.......................................... 35
457 Programs.......................................... 35
Tax Penalty........................................... 35
Withholding........................................... 36
Effect of Tax-Deferred Accumulation................... 36
OTHER INFORMATION....................................... 37-38
Voting of Shares of the Funds......................... 37
Substitution of Investments........................... 37
Changes to Comply with Law and Amendments............. 38
Reservation of Rights................................. 38
Periodic Reports...................................... 38
Legal Proceedings..................................... 38
Legal Matters......................................... 38
YEAR 2000 READINESS DISCLOSURE.......................... 38-39
PERFORMANCE INFORMATION................................. 39
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, 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.
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., Alger American Fund, American Century
Variable Portfolios, Inc., Calvert Variable Series, Fidelity Variable Insurance
Products Fund, Fidelity Variable Insurance Products Fund II, Janus Aspen
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5
Series, PBHG Insurance Series Fund, Inc., SAFECO Resource Series Trust, and T.
Rowe Price Equity Series. 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., Alger American
Fund, American Century Variable Portfolios, Inc., Calvert Variable Series,
Fidelity Variable Insurance Products Fund, Fidelity Variable Insurance Products
Fund II, Janus Aspen Series, PBHG Insurance Series Fund, Inc., SAFECO Resource
Series Trust, and T. Rowe Price Equity Series, Inc. Not all of the Investment
Accounts may be available under a particular Contract and some of the Investment
Accounts are not available for certain types of Contracts.
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. Certain
457 plans that do not qualify for favorable tax treatment under Section 457,
such as Plans for highly compensated employees, may be referred to as
non-qualified 457 Plans.
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6
SUMMARY
This summary is intended to provide a brief overview of the more
significant aspects of the Contracts. Later sections of this Prospectus, the
Statement of Additional Information, and the Contracts themselves provide
further detail. Unless the context indicates otherwise, the discussion in this
summary and the remainder of the Prospectus relates to the portion of the
Contracts involving the Variable Account. The pertinent Contract and "The Fixed
Account" section of this Prospectus briefly describe the Fixed Account.
PURPOSE OF THE CONTRACTS
AUL offers the group variable annuity contracts ("Contracts") described in
this Prospectus 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, the "Plans"). A Contract presents a dynamic concept in retirement
planning designed to give employers and employees and other Participants in
Plans flexibility to attain their 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 allocate contributions to the various Investment Accounts of the
Variable Account or to the Fixed Account. See the Section "The Contracts" later
in this Prospectus.
TYPES OF CONTRACTS
AUL offers several types of contracts that are described in this
Prospectus. With recurring contribution contracts, 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 $25,000. Currently, single contribution
contracts are only available 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
AUL will allocate contributions designated to accumulate on a variable
basis to the Variable Account. See the Section "Variable Account" later in this
Prospectus. The Variable Account is currently divided into subaccounts referred
to as Investment Accounts. Each Investment Account invests exclusively in shares
of one of the portfolios of the following mutual funds:
<TABLE>
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Investment Accounts and
Corresponding Mutual Fund
Portfolios Mutual Fund Investment Adviser
- -------------------------- ----------- ------------------
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 American 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 VP Capital Appreciation American Century Variable Portfolios, Inc. American Century Investment Management, Inc.
Calvert Social Mid Cap Growth Calvert Variable Series Calvert Asset 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
Janus Aspen Series Flexible Income Janus Aspen Series Janus Capital Corporation
Janus Aspen Series Worldwide Growth Janus Aspen Series Janus Capital Corporation
PBHG Growth II PBHG Insurance Series Fund, Inc. Pilgrim Baxter & Associates, Ltd.
PBHG Technology & Communications 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.
</TABLE>
Each of the Funds has a different investment objective. A Participant may
allocate contributions to one or more of the Investment Accounts available under
a Contract. Contributions allocated to a particular Investment Account will
increase or decrease in dollar value depending upon the investment performance
of the corresponding mutual fund portfolio in which the Investment Account
invests. These amounts are not guaranteed. The Participant bears the investment
risk for amounts allocated to an Investment Account of the Variable Account.
FIXED ACCOUNT
The Participant may allocate contributions 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. These rates are guaranteed to
be at least an effective annual rate of either 3% or 4%, depending on the
Contract. See the Section "The Fixed Account" later in this Prospectus.
CONTRIBUTIONS
For Recurring Contribution Contracts, contributions may vary in amount and
frequency. A Plan may impose maximum and minimum contribution limits depending
on the type of Plan. In a Single Contribution Contract, Participants must make
contributions of at least $25,000. See the Section "Contributions under the
Contracts" later in this Prospectus.
TRANSFERS
A Participant may transfer his or her Variable Account Value among the
Investment Accounts or to the Fixed Account at any time during the Accumulation
Period. A Participant may transfer part of his or her Fixed Account Value to one
or more of the available Investment Accounts during the Accumulation Period,
subject to certain restrictions. The minimum transfer amount from any one
Investment Account or from the Fixed Account is $500. If the Account Value in an
Investment Account or the Fixed Account prior to a transfer is less than $500,
then the minimum transfer amount is the Participant's remaining Account Value in
that account. If, after any transfer, the remaining Account Value would be less
than $500, then AUL will treat that request as a request for a transfer of the
entire Account Value in that account. 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 may 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.
In certain contracts the 20% restriction on transfers may be waived if certain
conditions are met. For a more detailed explanation, please refer to the Section
"Transfers of Account Value" later in this Prospectus.
WITHDRAWALS
The Participant may surrender or take a partial withdrawal from the Account
Value at any time before the Annuity Commencement Date. Withdrawals and
surrender are subject to the limitations under any applicable Plan, the Contract
and applicable law. The minimum withdrawal amount from any one Investment
Account or from the Fixed Account is $500. If the Account Value in an Investment
Account or the Fixed Account prior to a withdrawal is less than $500, then the
minimum withdrawal amount is the Participant's remaining Account Value in that
account. If, after any withdrawal, the remaining Account Value would be less
than $500 in that account, then AUL will treat that request as a request for a
withdrawal of the entire Account Value in that account. See the Section "Cash
Withdrawals" later in this Prospectus.
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 the Section "Tax Penalty" later in this Prospectus.
A withdrawal or surrender may also be subject to a withdrawal charge. See the
Section "Withdrawal Charge" later in this Prospectus.
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. A death benefit will not
be payable if the Participant dies on or after the Annuity Commencement Date,
except as may be provided under the Annuity Option elected. See the Sections
"The Death Benefit" and "Annuity Options" later in this Prospectus.
ANNUITY OPTIONS
The Contracts provide for several fixed Annuity Options, any one of which
may be elected if permitted by the applicable Plan and applicable law. AUL will
pay fixed and guaranteed payments under the Annuity Options. See the Section
"Annuity Period" later in this Prospectus.
CHARGES
AUL will deduct certain charges 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
Participant makes a cash withdrawal or surrenders the contract, AUL may assess a
withdrawal charge (which may also be referred to as a contingent deferred sales
charge) where the Participant's Account has not been in existence for a certain
period of time (see chart below). AUL will not assess a withdrawal charge upon
the payment of a death benefit under a Contract. Under certain Contracts known
as "benefit responsive" Contracts, AUL will not impose withdrawal charges under
certain circumstances. See the Section "Withdrawal Charge" later in this
Prospectus.
<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>
8
For the first two Contract Years that a Participant's Account exists, AUL
will not subject 10% of the Account Value plus contributions made during the
year to withdrawal charges. After the first two Contract Years, and until the
withdrawal charge has decreased to 0%, AUL will not subject 10% of the Account
Value to withdrawal charges.
If a non-benefit responsive benefit is paid causing a surrender or a
withdrawal in excess of this 10% allowable amount, AUL will assess a withdrawal
charge on the amount in excess of the 10% allowable. 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 the Section "Withdrawal Charge" later
in this Prospectus.
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
the Section "Premium Tax Charge" later in this Prospectus.
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. Certain contracts may elect to
have a portion of this charge offset in the form of a credit of Accumulation
Units to Participant Accounts, provided certain conditions are met. See the
Sections "Mortality and Expense Risk Charge" and "Variable Investment Plus
Option" later in this Prospectus.
ADMINISTRATIVE CHARGE - Under some 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. AUL will
assess the charge every quarter on a Participant Account if the account exists
on the quarterly Contract Anniversary. The charge is only assessed during the
Accumulation Period. Benefit Responsive Contracts that are converted to no-load
Section 408 IRA Contracts will be assessed an Administrative Charge of $3 each
quarter if the value of Participant's Account is less than $10,000 on that date.
Except for this type of Contract, there are no Administrative Charges applied to
Single Contribution Contracts and on some types of Recurring Contribution
Contracts. See the Section "Administrative Charge" later in this Prospectus.
EXPENSES OF THE FUNDS - Each Investment Account of the Variable Account
purchases shares of the corresponding Portfolio of one of the Funds. The price
of the shares reflect 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 AUL will fully
refund any contributions.
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
payment options. Under one option, AUL will assess an Investment Liquidation
Charge (or in some Contracts, a Market Value Adjustment) on a Participants'
Fixed Account Withdrawal Value. Under the second payment option, AUL will not
assess an Investment Liquidation Charge or Market Value Adjustment. 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
equal annual installments, depending on the Contract. For more information on
termination by an Owner, including information on the payment options and the
Investment Liquidation Charge (or the Market Value Adjustment), see the Section
"Termination by the Owner" later in this Prospectus.
<PAGE>
9
CONTACTING AUL
Individuals should direct all inquiries, notices, and forms required under
these Contracts 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 the Section "Premium Tax
Charge" later in this Prospectus. 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" later in this Prospectus. 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) 0.16% -- 0.66%
Bond Portfolio 0.50%(5) 0.17% -- 0.67%
Managed Portfolio 0.50%(5) 0.17% -- 0.67%
Money Market Portfolio 0.40%(5) 0.16% -- 0.56%
Tactical Asset Allocation Portfolio 0.68%(5) 0.32% -- 1.00%
Conservative Investor Portfolio ____%(5) ____% -- 0.__%
Moderate Investor Portfolio ____%(5) ____% -- 0.__%
Aggressive Investor Portfolio ____%(5) ____% -- 0.__%
<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 (a) the total of all contributions made
during the year that the withdrawal is being made, plus (b) 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 the Section
"Withdrawal Charge" later in this Prospectus.
(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 (a) the total of all contributions made
during the year that the withdrawal is being made, plus (b) 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. See the
Section "Withdrawal Charge" later in this Prospectus.
(3) The Administrative Charge may be less than $30.00 per year, based on the
type of Contract or on the size of the Participant's Account. Generally, the
maximum charge imposed will be the lesser of 0.5% of the Participant's Account
Value or $30.00 per year. Benefit Responsive Contracts that are converted to
no-load Section 408 IRA Contracts will be assessed an Administrative Charge of
$3 each quarter if the value of Participant's Account is less than $10,000 on
that date. Except for this type of Contract, there are no Administrative Charges
applied to Single Contribution Contracts and on some types of 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 type of Contract purchased.
(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. During 1998, none of the
Portfolios had expenses exceeding 1% of the average daily net asset value.
</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
- --------- ------------ -------- ----- --------
Alger American Fund
Alger American Growth Portfolio 0.75% 0.04% -- 0.79%
American Century Variable Portfolios, Inc.
VP Capital Appreciation 1.00% 0.00% -- 1.00%
Calvert Variable Series
Calvert Social Mid Cap Growth Portfolio 0.90%(6) 0.15% -- 1.05%
Fidelity Variable Insurance Products Fund
Equity-Income Portfolio 0.50% 0.08% -- 0.58%(7)
Growth Portfolio 0.60% 0.09% -- 0.69%(7)
High Income Portfolio 0.59% 0.12% -- 0.71%
Overseas Portfolio 0.75% 0.17% -- 0.92%(7)
Fidelity Variable Insurance Products Fund II
Asset Manager Portfolio 0.55% 0.10% -- 0.65%(7)
Contrafund Portfolio 0.60% 0.11% -- 0.71%(7)
Index 500 Portfolio 0.24% 0.04% -- 0.28%(8)
Janus Aspen Series
Flexible Income 0.65% 0.10% -- 0.75%
Worldwide Growth 0.66% 0.08% -- 0.74%(9)
PBHG Insurance Series Fund, Inc.
Growth II 0.00% 1.20% -- 1.20%(10)
Technology & Communications 0.00% 1.20% -- 1.20%(10)
SAFECO Resource Series Trust
Equity 0.73% 0.02% -- 0.75%
Growth 0.74% 0.03% -- 0.77%
T. Rowe Price Equity Series, Inc.
T. Rowe Price Equity Income 0.85% 0.00% -- 0.85%
<FN>
(6) The figures above are based on expenses for fiscal year 1997, and have been
restated to reflect an increase in transfer agency expenses of 0.01% for the
Portfolio expected to be incurred in 1998. 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 0.97%. Management and Advisory expenses
for the Portfolio include an administrative service fee of 0.10%, paid to
Adviser's affiliate.
(7) A portion of the brokerage commissions that certain funds pay was used to
reduce funds expenses. In addition, certain funds have entered into arrangements
with their custodian whereby credits realized, as a result of uninvested cash
balances were used to reduce custodian expenses. Including these reductions, the
total operating expenses presented in the table would have been 0.57% for the
Equity-Income portfolio, 0.67% for the Growth portfolio, 0.90% for the Overseas
portfolio, 0.64% for the Asset Manager portfolio, and 0.68% for the Contrafund
portfolio.
(8) 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
0.27%, 0.13%, and 0.40% respectively.
(9) Management fees for the Worldwide Growth Portfolio reflect a reduced fee
schedule effective July 1, 1997. The management fee reflects the new rate
applied to net assets as of December 31, 1997. Other expenses are based on gross
expenses of the shares before expense offset arrangements for the fiscal year
ended December 31, 1997. The information is net of fee waivers or reductions
from Janus Capital. Fee reductions for the Worldwide Growth Portfolio reduce the
management fee to the level of the corresponding Janus retail fund. Other
waivers, if applicable, are first applied against the management fee and then
against other expenses. Without such waivers or reductions, the Management Fee,
Other Expenses and Total Operating Expenses for the Shares would have been
0.72%, 0.09% and 0.81% for the Worldwide Growth Portfolio. Janus Capital may
modify or terminate the waivers or reductions at any time upon at least 90 days'
notice to the Trustees.
(10) The Investment Adviser agreed to reimburse a portion of the funds' expenses
during the period. Without this reimbursement, the funds' management fee, other
expenses and total expenses would have been 0.85%, 3.53%, and 4.38%,
respectively, for the PBHG Growth II Portfolio and 0.85%, 4.24% and 5.09%,
respectively, for the PBHG Technology and Communications Portfolio.
</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 $ 96.31 $ 77.82 $ 22.35
3 years 146.69 107.67 68.65
5 years 199.55 137.77 117.18
10 years 296.38 249.18 249.18
AUL American Bond
1 year 96.41 77.92 22.46
3 years 146.99 107.99 68.98
5 years 200.06 138.32 117.74
10 years 297.45 250.31 250.31
AUL American Managed
1 year 96.41 77.92 22.46
3 years 146.99 107.99 68.98
5 years 200.06 138.32 117.74
10 years 297.45 250.31 250.31
AUL American Money Market
1 year 96.31 77.82 22.35
3 years 146.69 107.67 68.65
5 years 199.55 137.77 117.18
10 years 296.38 249.18 249.18
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
AUL American Conservative Investor
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
AUL American Moderate Investor
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
AUL American Aggressive Investor
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
<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 Social Mid Cap Growth
1 year 99.93 81.51 26.27
3 years 157.55 118.99 80.43
5 years 217.62 157.05 136.86
10 years 334.02 288.66 288.66
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 98.75 80.31 24.99
3 years 154.01 115.30 76.59
5 years 211.75 150.79 130.47
10 years 321.89 275.93 275.93
Fidelity VIP II Asset Manager
1 year 96.24 77.75 22.28
3 years 146.48 107.46 68.43
5 years 199.21 137.41 116.81
10 years 295.66 248.42 248.42
Fidelity VIP II Contrafund
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 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
Janus Flexible Income
1 year 97.15 78.68 23.27
3 years 149.24 110.33 71.42
5 years 203.81 142.31 121.82
10 years 305.32 258.55 258.55
Janus Worldwide Growth
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
<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
PBHG Growth II
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
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 97.15 78.68 23.27
3 years 149.24 110.33 71.42
5 years 203.81 142.31 121.82
10 years 305.32 258.55 258.55
SAFECO Growth
1 year 97.32 78.86 23.45
3 years 149.75 110.86 71.97
5 years 204.65 143.22 122.74
10 years 307.10 260.42 260.42
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
</TABLE>
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, 1998. 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, 1998. The Variable Account's financial statements have been
audited by PricewaterhouseCoopers LLP, the Variable Account's independent
accountants.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year End December 31,
---------------------
Investment Account 1998 1997 1996 1995 1994 1993 1992 1991 1990(1)
- ------------------ ---- ---- ---- ---- ---- ---- ---- ---- -------
AUL American Equity
Unit Value at beginning of
period 2.107 1.790 1.518 1.497 1.321 1.215 0.980 1.000
Unit Value at end of period 2.698 2.107 1.790 1.518 1.497 1.321 1.215 0.980
Number of Units outstanding
at end of period (000's) 12,586.036 10,589.355 9,332.222 7,471.155 3,727.950 2,576.500 620.180 3.471
AUL American Bond
Unit Value at beginning of
period 1.615 1.600 1.375 1.444 1.321 1.247 1.085 1.000
Unit Value at end of period 1.720 1.615 1.600 1.375 1.444 1.321 1.247 1.085
Number of Units outstanding
at end of period (000's) 4,937.428 4,535.171 3,613.483 2,640.900 784.086 544.295 191.389 1.023
AUL American Managed
Unit Value at beginning of
period 1.838 1.664 1.415 1.446 1.296 1.215 1.054 1.000
Unit Value at end of period 2.197 1.838 1.664 1.415 1.446 1.296 1.215 1.054
Number of Units outstanding
at end of period (000's) 10,816.324 10,087.186 9,242.020 8,146.955 2,935.365 1,979.513 399.535 1.612
<PAGE>
14
CONDENSED FINANCIAL INFORMATION (CONTINUED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year End December 31,
---------------------
Investment Account 1998 1997 1996 1995 1994 1993 1992 1991 1990(1)
- ------------------ ---- ---- ---- ---- ---- ---- ---- ---- -------
AUL American Money Market
Unit Value at beginning of
period 1.230 1.189 1.144 1.118 1.107 1.088 1.042 1.000
Unit Value at end of period 1.275 1.230 1.189 1.144 1.118 1.107 1.088 1.042
Number of Units outstanding
at end of period (000's) 5,765.433 3,931.272 2,066.492 1,083.828 253.762 161.750 81.498 2.051
AUL American Tactical Asset Allocation(2)
Unit Value at beginning of
period 1.000 N.A. N.A. N.A. N.A. N.A. N.A. N.A.
Unit Value at end of period 1.120 N.A. N.A. N.A. N.A. N.A. N.A. N.A.
Number of units outstanding
at end of period (000's) 0.100 N.A. N.A. N.A. N.A. N.A. N.A. N.A.
AUL American Conservative Investor(2)
Unit Value at beginning of
period 0.000 N.A. N.A. N.A. N.A. N.A. N.A. N.A.
Unit Value at end of period 0.000 N.A. N.A. N.A. N.A. N.A. N.A. N.A.
Number of units outstanding
at end of period (000's) 0.100 N.A. N.A. N.A. N.A. N.A. N.A. N.A.
AUL American Moderate Investor(2)
Unit Value at beginning of
period 0.000 N.A. N.A. N.A. N.A. N.A. N.A. N.A.
Unit Value at end of period 0.000 N.A. N.A. N.A. N.A. N.A. N.A. N.A.
Number of units outstanding
at end of period (000's) 0.100 N.A. N.A. N.A. N.A. N.A. N.A. N.A.
AUL American Aggressive Investor(2)
Unit Value at beginning of
period 0.000 N.A. N.A. N.A. N.A. N.A. N.A. N.A.
Unit Value at end of period 0.000 N.A. N.A. N.A. N.A. N.A. N.A. N.A.
Number of units outstanding
at end of period (000's) 0.100 N.A. N.A. N.A. N.A. N.A. N.A. N.A.
Alger American Growth(2)
Unit value at beginning of
period 1.409 1.259 1.000 N.A. N.A. N.A. N.A. N.A.
Unit value at end of period 1.750 1.409 1.259 N.A. N.A. N.A. N.A. N.A.
Number of units outstanding
at end of period (000's) 10,920.405 6,674.992 1,028.839 N.A. N.A. N.A. N.A. N.A.
American Century VP Capital Appreciation(2)
Unit Value at beginning of
period 1.225 1.297 1.002 1.000 N.A. N.A. N.A. N.A.
Unit Value at end of period 1.172 1.225 1.297 1.002 N.A. N.A. N.A. N.A.
Number of units outstanding
at end of period (000's) 1,970.129 1,785.854 747.779 254.316 N.A. N.A. N.A. N.A.
Calvert Social Mid Cap Growth(2)
Unit value at beginning of
period 1.343 1.266 1.000 N.A. N.A. N.A. N.A. N.A.
Unit value at end of period 1.639 1.343 1.266 N.A. N.A. N.A. N.A. N.A.
Number of units outstanding
at end of period (000's) 1,070.537 970.440 71.033 N.A. N.A. N.A. N.A. N.A.
Fidelity VIP Equity-Income(2)
Unit value at beginning of
period 1.380 1.223 1.000 N.A. N.A. N.A. N.A. N.A.
Unit value at end of period 1.750 1.380 1.223 N.A. N.A. N.A. N.A. N.A.
Number of units outstanding
at end of period (000's) 6,959.675 4,243.458 762.132 N.A. N.A. N.A. N.A. N.A.
Fidelity VIP Growth(2)
Unit Value at beginning of
period 1.705 1.505 1.126 1.138 1.000 N.A. N.A. N.A.
Unit Value at end of period 2.080 1.705 1.505 1.126 1.138 N.A. N.A. N.A.
Number of Units outstanding
at end of period (000's) 26,493.376 22,560.070 14,966.606 9,247.290 2,051.512 N.A. N.A. N.A.
Fidelity VIP High Income(2)
Unit Value at beginning of
period 1.447 1.285 1.078 1.108 1.000 N.A. N.A. N.A.
Unit Value at end of period 1.681 1.447 1.285 1.078 1.108 N.A. N.A. N.A.
Number of Units outstanding
at end of period (000's) 8,053.332 6,679.227 4,719.928 3,013.462 598.051 N.A. N.A. N.A.
Fidelity VIP Overseas(2)
Unit Value at beginning of
period 1.383 1.237 1.142 1.136 1.000 N.A. N.A. N.A.
Unit Value at end of period 1.524 1.383 1.237 1.142 1.136 N.A. N.A. N.A.
Number of units outstanding
at end of period (000's) 9,308.550 8,245.189 6,385.519 4,748.284 872.248 N.A. N.A. N.A.
Fidelity VIP II Asset Manager(2)
Unit Value at beginning of
period 1.368 1.209 1.047 1.129 1.000 N.A. N.A. N.A.
Unit Value at end of period 1.631 1.368 1.209 1.047 1.129 N.A. N.A. N.A.
Number of units outstanding
at end of period (000's) 30,831.927 26,868.078 22,931.562 19,540.376 5,859.606 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 Social Mid
Cap Growth (then known as Calvert Capital Accumulation), Fidelity Contrafund and
Equity-Income, and the T. Rowe Price Equity Income Investment Accounts first
became available on April 28, 1995. The AUL American Tactical Asset Allocation,
The Janus Aspen Series Flexible Income, Janus Aspen Series Worldwide Growth,
PBHG Growth II, PBHG Technology & Communications, SAFECO Equity and SAFECO
Growth Investment Accounts first became available on May 1, 1997. The
Conservative, Moderate, and Aggressive Investor Portfolios first became
available on May 1, 1998. Therefore, for these portfolios, there is no
information available for any period prior to these dates, respectively.
</FN>
<PAGE>
15
<CAPTION>
CONDENSED FINANCIAL INFORMATION (CONTINUED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year End December 31,
---------------------
Investment Account 1998 1997 1996 1995 1994 1993 1992 1991 1990(1)
- ------------------ ---- ---- ---- ---- ---- ---- ---- ---- -------
Fidelity VIP II Contrafund(2)
Unit value at beginning of
period 1.516 1.266 1.000 N.A. N.A. N.A. N.A. N.A.
Unit value at end of period 1.859 1.516 1.266 N.A. N.A. N.A. N.A. N.A.
Number of units outstanding
at end of period (000's) 8,965.623 4,656.175 691.978 N.A. N.A. N.A. N.A. N.A.
Fidelity VIP II Index 500(2)
Unit Value at beginning of
period 1.744 1.437 1.061 1.068 1.000 N.A. N.A. N.A.
Unit Value at end of period 2.286 1.744 1.437 1.061 1.068 N.A. N.A. N.A.
Number of units outstanding
at end of period (000's) 18,374.733 9,841.199 3,976.682 1,966.816 507.196 N.A. N.A. N.A.
Janus Aspen Series Flexible Income(2)
Unit Value at beginning of
period 1.000 N.A. N.A. N.A. N.A. N.A. N.A. N.A.
Unit Value at end of period 1.184 N.A. N.A. N.A. N.A. N.A. N.A. N.A.
Number of units outstanding
at end of period (000's) 289.354 N.A. N.A. N.A. N.A. N.A. N.A. N.A.
Janus Aspen Series Worldwide Growth(2)
Unit Value at beginning of
period 1.000 N.A. N.A. N.A. N.A. N.A. N.A. N.A.
Unit Value at end of period 1.142 N.A. N.A. N.A. N.A. N.A. N.A. N.A.
Number of units outstanding
at end of period (000's) 2,126.372 N.A. N.A. N.A. N.A. N.A. N.A. N.A.
PBHG Growth II(2)
Unit Value at beginning of
period 1.000 N.A. N.A. N.A. N.A. N.A. N.A. N.A.
Unit Value at end of period 1.066 N.A. N.A. N.A. N.A. N.A. N.A. N.A.
Number of units outstanding
at end of period (000's) 58.505 N.A. N.A. N.A. N.A. N.A. N.A. N.A.
PBHG Technology & Communications(2)
Unit Value at beginning of
period 1.000 N.A. N.A. N.A. N.A. N.A. N.A. N.A.
Unit Value at end of period 1.032 N.A. N.A. N.A. N.A. N.A. N.A. N.A.
Number of units outstanding
at end of period (000's) 101.585 N.A. N.A. N.A. N.A. N.A. N.A. N.A.
SAFECO Equity(2)
Unit Value at beginning of
period 1.000 N.A. N.A. N.A. N.A. N.A. N.A. N.A.
Unit Value at end of period 1.161 N.A. N.A. N.A. N.A. N.A. N.A. N.A.
Number of units outstanding
at end of period (000's) 186.090 N.A. N.A. N.A. N.A. N.A. N.A. N.A.
SAFECO Growth(2)
Unit Value at beginning of
period 1.000 N.A. N.A. N.A. N.A. N.A. N.A. N.A.
Unit Value at end of period 1.408 N.A. N.A. N.A. N.A. N.A. N.A. N.A.
Number of units outstanding
at end of period (000's) 1,069.115 N.A. N.A. N.A. N.A. N.A. N.A. N.A.
T. Rowe Price Equity Income(2)
Unit value at beginning of
period 1.452 1.230 1.000 N.A. N.A. N.A. N.A. N.A.
Unit value at end of period 1.848 1.452 1.230 N.A. N.A. N.A. N.A. N.A.
Number of units outstanding
at end of period (000's) 11,646.682 4,259.154 388.732 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 Social Mid
Cap Growth (then known as Calvert Capital Accumulation), Fidelity Contrafund and
Equity-Income, and the T. Rowe Price Equity Income Investment Accounts first
became available on April 28, 1995. The AUL American Tactical Asset Allocation,
The Janus Aspen Series Flexible Income, Janus Aspen Series Worldwide Growth,
PBHG Growth II, PBHG Technology & Communications, SAFECO Equity and SAFECO
Growth Investment Accounts first became available on May 1, 1997. The
Conservative, Moderate, and Aggressive Investor Portfolios first became
available on May 1, 1998. Therefore, for these portfolios, there is no
information available for any period prior to these dates, respectively.
</FN>
</TABLE>
<PAGE>
16
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 12/31/98 12/31/98 12/31/98 Since Inception Inception
- ------- ---- ------- -------- -------- -------- --------------- ---------
AUL American Equity 04/10/90 04/12/90
AUL American Bond 04/10/90 04/12/90
AUL American Managed 04/10/90 04/12/90
AUL American Money Market 04/10/90 04/12/90
AUL American Tactical Asset Allocation 08/01/95 05/01/97
AUL American Conservative Investor 03/31/98 05/01/98
AUL American Moderate Investor 03/31/98 05/01/98
AUL American Aggressive Investor 03/31/98 05/01/98
Alger American Growth 01/09/89 04/28/95
American Century VP Capital Appreciation 11/20/87 05/01/94
Calvert Social Mid Cap Growth 07/16/91 04/28/95
Fidelity VIP Equity-Income 10/09/86 04/28/95
Fidelity VIP Growth 10/09/86 05/01/93
Fidelity VIP High Income 09/19/85 05/01/93
Fidelity VIP Overseas 01/28/87 05/01/93
Fidelity VIP II Asset Manager 09/06/89 05/01/93
Fidelity VIP II Contrafund 01/03/95 04/28/95
Fidelity VIP II Index 500 08/27/92 05/01/93
Janus Flexible Income 09/13/93 05/01/97
Janus Worldwide Growth 09/13/93 05/01/97
PBHG Growth II 05/01/97 05/01/97
PBHG Technology & Communications 05/01/97 05/01/97
SAFECO Equity 07/21/87 05/01/97
SAFECO Growth 01/07/93 05/01/97
T. Rowe Price Equity Income 03/31/94 04/28/95
<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 12/31/98 12/31/98 12/31/98 Since Inception Inception
- ------- ---- ------- -------- -------- -------- --------------- ---------
AUL American Equity 04/10/90 04/12/90
AUL American Bond 04/10/90 04/12/90
AUL American Managed 04/10/90 04/12/90
AUL American Money Market 04/10/90 04/12/90
AUL American Tactical Asset Allocation 08/01/95 05/01/97
AUL American Conservative Investor 03/31/98 05/01/98
AUL American Moderate Investor 03/31/98 05/01/98
AUL American Aggressive Investor 03/31/98 05/01/98
Alger American Growth 01/09/89 04/28/95
American Century VP Capital Appreciation 11/20/87 05/01/94
Calvert Social Mid Cap Growth 07/16/91 04/28/95
Fidelity VIP Equity-Income 10/09/86 04/28/95
Fidelity VIP Growth 10/09/86 05/01/93
Fidelity VIP High Income 09/19/85 05/01/93
<FN>
(2) These figures reflect deduction of the withdrawal charge and a pro-rata
portion of the administrative charge.
</FN>
<PAGE>
17
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 12/31/98 12/31/98 12/31/98 Since Inception Inception
- ------- ---- ------- -------- -------- -------- --------------- ---------
Fidelity VIP Overseas 01/28/87 05/01/93
Fidelity VIP II Asset Manager 09/06/89 05/01/93
Fidelity VIP II Contrafund 01/03/95 04/28/95
Fidelity VIP II Index 500 08/27/92 05/01/93
Janus Flexible Income 09/13/93 05/01/97
Janus Worldwide Growth 09/13/93 05/01/97
PBHG Growth II 05/01/97 05/01/97
PBHG Technology & Communications 05/01/97 05/01/97
SAFECO Equity 07/21/87 05/01/97
SAFECO Growth 01/07/97 05/01/97
T. Rowe Price Equity Income 03/31/94 04/28/95
<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 48 states and the District of Columbia. As a mutual company,
it is owned by and operated exclusively for the benefit of its policyowners. AUL
has its principal business office located at One American Square, Indianapolis,
Indiana 46282.
AUL conducts a conventional life insurance, reinsurance, and annuity
business. At December 31, 1998, AUL had admitted assets of $___________________
and a policyowners' surplus of $_____________.
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 not available for
certain types of Contracts. 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 eight separate investment portfolios
that it offers to the Variable Account, namely: the Equity, Bond, Managed, Money
Market, Tactical Asset Allocation, Conservative Investor, Moderate Investor, and
Aggressive Investor. The Alger American Fund offers the Alger American Growth
Portfolio. American Century Variable Portfolios, Inc. offers the VP Capital
Appreciation Portfolio. Calvert Variable Series offers the Calvert Social Mid
Cap Growth Portfolio. The Fidelity Variable Insurance Products Fund offers the
Equity-Income, Growth, High Income, and Overseas Portfolios. The Fidelity
<PAGE>
18
Variable Insurance Products Fund II offers the Asset Manager, Contrafund, and
Index 500 Portfolios. The Janus Aspen Series offers the Worldwide Growth and
Flexible Income Portfolios. 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. 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 American Century Variable Portfolios, Inc., Calvert
Variable Series, Fidelity Management & Research Company, Janus Capital
Corporation, Pilgrim Baxter & Associates, SAFECO Asset Management Company, and
T. Rowe Price Equity Series, Inc., under which AUL has agreed to render certain
services and to provide information about these funds to its 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 Management, Inc. acts as investment
adviser to American Century Variable Portfolios, Inc. Calvert Asset Management
Corporation acts as investment adviser to the Calvert Variable Series. Fidelity
Management & Research Company acts as investment adviser to the Fidelity
Variable Insurance Products Fund and to the Fidelity Variable Insurance Products
Fund II. Janus Capital Corporation acts as investment adviser to the Janus Aspen
Series. Pilgrim Baxter & Associates, Inc. acts as investment adviser to PBHG
Insurance Series Fund, Inc. T. Rowe Price & Associates, Inc. acts as investment
adviser to T. Rowe Price Equity Series, 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 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 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 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.
AUL AMERICAN CONSERVATIVE INVESTOR PORTFOLIO
The investment objective of the AUL American Conservative Investor
Portfolio is high current income, with opportunities for capital appreciation.
The Portfolio seeks this objective by investing in a strategically allocated
portfolio consisting primarily of bond and money market instruments with the
remainder of the Portfolio invested in equities. The Portfolio's emphasis on
bonds and money market securities is intended to help provide gains through
income accumulation and a measure of principal protection in the event that the
stock market is in decline.
AUL AMERICAN MODERATE INVESTOR PORTFOLIO
The investment objective of the AUL American Moderate Investor Portfolio is
a blend of capital appreciation and income. The Portfolio seeks this objective
by investing in a strategically allocated portfolio of equities, bonds and money
market instruments with a weighting that normally is slightly heavier in
equities. The asset mix for this Portfolio is intended to provide long-term
growth and some regular income, while helping to moderate losses in the event of
stock market declines.
<PAGE>
19
AUL AMERICAN AGGRESSIVE INVESTOR PORTFOLIO
The investment objective of the AUL American Aggressive Investor Portfolio
is long-term capital appreciation. The Portfolio seeks this objective by
investing in a strategically allocated portfolio consisting primarily of
equities. Current income is not a primary consideration. The asset mix for this
Portfolio is intended to provide long-term growth, together with a small amount
of income to help cushion the volatility of the equity securities.
FOR ADDITIONAL INFORMATION CONCERNING AUL AMERICAN SERIES FUND, INC. AND ITS
PORTFOLIOS, PLEASE SEE THE AUL AMERICAN SERIES FUND, INC. PROSPECTUS, WHICH
SHOULD BE READ CAREFULLY BEFORE INVESTING.
ALGER AMERICAN FUND
ALGER AMERICAN GROWTH PORTFOLIO
The Alger American Growth Portfolio is a growth portfolio that seeks to
obtain long-term capital appreciation by investing in a diversified, actively
managed portfolio of equity securities. Except during temporary defensive
periods, the Portfolio invests at least 65% of its total assets in equity
securities of companies that at the time of purchase have a total market
capitalization of one billion dollars or greater.
FOR ADDITIONAL INFORMATION CONCERNING THE ALGER AMERICAN FUND AND ITS PORTFOLIO,
PLEASE SEE THE ALGER AMERICAN FUND PROSPECTUS, WHICH SHOULD BE READ CAREFULLY
BEFORE INVESTING.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
AMERICAN CENTURY VP 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 VARIABLE PORTFOLIOS, INC.
AND ITS PORTFOLIO, PLEASE SEE THE AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
PROSPECTUS, WHICH SHOULD BE READ CAREFULLY BEFORE INVESTING.
CALVERT VARIABLE SERIES
CALVERT SOCIAL MID CAP GROWTH PORTFOLIO
The Calvert Social Mid Cap Growth Portfolio is a socially responsible
growth Portfolio that seeks long-term capital appreciation by investing
primarily in the stock of medium sized companies. To the extent possible,
investments are made in enterprises that make a significant contribution to
society through their products and services and through the way they do
business.
FOR ADDITIONAL INFORMATION CONCERNING CALVERT VARIABLE SERIES AND THE CALVERT
SOCIAL MID CAP GROWTH PORTFOLIO, PLEASE SEE THE CALVERT VARIABLE SERIES
PROSPECTUS, WHICH SHOULD BE READ CAREFULLY BEFORE INVESTING.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
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 money market instruments.
CONTRAFUND
The Contrafund Portfolio seeks capital appreciation by investing primarily
in securities of companies that the investment adviser believes are not fully
recognized 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 a broad range 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.
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 INSURANCE SERIES FUND, INC.
PBHG GROWTH II PORTFOLIO
The investment objective of the PBHG Growth II Portfolio seeks 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 is co-managed by Gary Pilgrim, CFA, who manages the PBHG Growth Fund
of the PBHG Funds, Inc., and Jeffrey A. Wrona, CFA, who is responsible for
managing other mid-cap institutional accounts.
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 is managed by John Force, CFA, who co-manages the PBHG Technology
& Communications Fund of the PBHG Funds, Inc.
FOR MORE COMPLETE INFORMATION, INCLUDING INFORMATION ON CHARGES AND EXPENSES,
CONCERNING THE PBHG INSURANCE SERIES FUND, INC. PLEASE CALL (800) 433-0051 OR
WRITE THE PBHG INSURANCE SERIES FUND, INC. FOR A PROSPECTUS, WHICH SHOULD BE
READ CAREFULLY BEFORE INVESTING.
SAFECO RESOURCE SERIES TRUST
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 selected for long-term appreciation and/or dividend
potential.
GROWTH PORTFOLIO
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 preponderance of its assets in common
stocks selected for potential appreciation.
FOR ADDITIONAL INFORMATION CONCERNING SAFECO RESOURCE SERIES TRUST AND ITS
PORTFOLIOS, PLEASE SEE THE SAFECO RESOURCE SERIES TRUST PROSPECTUS, WHICH SHOULD
BE READ CAREFULLY BEFORE INVESTING.
T. ROWE PRICE EQUITY SERIES, INC.
T. ROWE PRICE EQUITY INCOME PORTFOLIO
The T. Rowe Price Equity Income Portfolio seeks to provide substantial
dividend income as well as long-term capital appreciation through investments in
common stocks of established companies.
FOR ADDITIONAL INFORMATION CONCERNING T.ROWE PRICE EQUITY SERIES, INC. AND ITS
PORTFOLIO, PLEASE SEE THE T. ROWE PRICE EQUITY SERIES, INC. PROSPECTUS, WHICH
SHOULD BE READ CAREFULLY BEFORE INVESTING.
<PAGE>
21
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. Some
Contracts may also be made available to plans that do not qualify for favorable
tax treatment, such as unfunded deferred compensation Plans for highly
compensated employees, which may be referred to as non-qualified 457 Plans.
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
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 under the Plan. In Single Contribution
Contracts, the minimum contribution for each Participant is $25,000. AUL may
establish 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
<PAGE>
22
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. Depending on the type of
Contract, 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 or to a Suspense Account in AUL's General Account. A Participant's
Account Value that has been initially allocated to the Money Market Investment
Account or to a Suspense 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. Neither the Fixed Account nor all of the
Investment Accounts may be available under a particular Contract. In addition,
some of the Investment Accounts are not available for certain types of
Contracts.
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 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 (if available) as described
above in "Allocation of Contributions." Contributions (other than the initial
contribution for each Participant) are credited 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 (if available under a Contract) 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. The 20% restriction on
transfers during any given Contract Year from the Fixed Account to an Investment
Account shall not apply to Employer Sponsored 403(b) Programs, Employee Benefit
Plans, Employee Benefit Plans in a combined Contract for an Employee Benefit
Plan and Employer Sponsored 403(b) Plan, or 408 SEP or Simple IRA Contracts if:
(1) the Owner (or Plan Sponsor) selects the Fixed Interest Account as an
Investment Option to Participants under the Contract; (2) the Owner (or Plan
Sponsor) does not select the AUL American Money Market Investment Account as an
available Investment Option to Participants under the Contract, and (3)
following a transfer from the Fixed Account to the Variable Account by a
Participant, a transfer to the Fixed Account shall be allowed only after 90 days
have elapsed since the previous transfer from the Fixed Account. Except as noted
previously, generally, 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
<PAGE>
23
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 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 (if available under the
Contract) 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 $100, 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
<PAGE>
24
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 Participant'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 of the Investment Account.
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 (a) the total of all contributions made during the year that the
withdrawal is being made, plus (b) 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).
However, even in benefit responsive or modified benefit responsive
contracts, withdrawal charges will be applied to any withdrawal to pay a Plan
benefit prior to notification of Contract termination if the benefit is payable
because of, or the underlying reason for payment of the benefit
<PAGE>
25
results in, the termination or partial termination of the Plan, as determined
under applicable IRS guidelines.
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, separates from service, dies, becomes disabled, or
incurs a hardship. Furthermore, distributions of income or gains attributable to
such contributions accrued after December 31, 1988 may not be made on account of
hardship. Hardship, for this purpose, is generally defined as an immediate and
heavy financial need, such as paying for medical expenses, the purchase of a
principal residence, or paying certain tuition expenses.
A Participant in a Contract purchased as a tax-deferred Section 403(b)
annuity contract will not, therefore, be entitled to exercise the right of
surrender or withdrawal, as described in this Prospectus, in order to receive
his or her 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
<PAGE>
26
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)
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 ("ILC") for a 457 Program or plus or minus any
Market Value Adjustment ("MVA") for Employee Benefit Plans. The ILC or MVA
applies only to Participants' Fixed Account Values under these Contracts. The
ILC or MVA 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 ILC 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. The MVA percentage is determined by the
following formula: When "x" is greater than "y", the MVA percentage is 5(x-y),
and is deducted from the amount paid. When "y" is greater than "x", the MVA
percentage is 4(x-y), and is added to the amount paid. 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 six annual installments over five years. Until all
<PAGE>
27
funds have been paid by AUL, the average Current Rates of interest, as
determined by AUL on the first installment payment date, less 1%, will be
credited to the remaining Withdrawal Values. Interest shall be paid with each
installment payment.
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 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 $25,000.
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 (1)
disposal of securities held by the Variable Account is not reasonably
practicable, or (2) 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.
<PAGE>
28
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>
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).
However, even in benefit responsive or modified benefit responsive
contracts, withdrawal charges will be applied to any withdrawal to pay a Plan
benefit prior to notification of Contract termination if the benefit is payable
because of, or the underlying reason for payment of the benefit results in, the
termination or partial termination of the Plan, as determined under applicable
IRS guidelines.
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
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> <C>
Month End Aggregate Annual Monthly
Participant Variable Plus Equivalent of
Investment Assets Factor Plus Factor
--------------------- ------- -------------
Up to $500,000 0.00% 0.00000%
$500,001-$1,000,000 0.25% 0.02081%
$1,000,001-$3,000,000 0.35% 0.02912%
$3,000,001-$5,000,000 0.40% 0.03327%
$5,000,001-$6,000,000 0.50% 0.04157%
Over $6,000,000 0.75% 0.06229%
</TABLE>
Under this Option, the appropriate Plus Factor for aggregate Participant
Variable Investment Assets of less than $500,000 is
<PAGE>
29
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, a monthly
Plus Factor of .02081% would be applied to the next $500,000 and the ratio of
$104.05/$1,000,000 or 0.0001041 would be multiplied by each Participant's
month-end Variable Account Value for each Variable Investment Option and the
resulting amount for each Variable Investment Option would be applied by AUL to
purchase Accumulation Units in each Variable Investment Option for that
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 contributions after the first contract year
must be at least $50,000 per year.
Under different Contracts for Employer Sponsored 403(b) and 457 Programs,
the VIP Option may require different minimum contributions during the first
contract year and for subsequent years. As an example, some Contracts will only
require a minimum of $40,000 in contributions during the first contract year and
$30,000 in ongoing subsequent contributions. Up to 10% of any assets transferred
into a Contract of this type may qualify to meet the required first year
contribution minimum and ongoing contributions after the first contract year
must be at least $30,000. For larger Contractholders, a different option
requires a minimum of $1,000,000 in first year contributions and $75,000
contributions in subsequent years. In this instance, 100% of any assets
transferred into a Contract may qualify to meet the required first year
contribution minimum and $25,000 in subsequent contributions will be required
annually thereafter. Various Contractholder fees may be required under these
Contracts including Installation Fees, Annual Administrative Fees, Form 5500
Reporting Assistance Fees, and a fee for not using electronic means for
Participant contributions. The amount of the VIP Factor for different options
will vary, based on the amount of the contributions (both first year and for
subsequent years) and the scale of the Withdrawal Charge under the Contract.
Generally, if a Contract has a lower Withdrawal Charge scale, the amount of the
VIP Factor will be lower than for Contracts with a higher Withdrawal Charge
scale.
AUL reserves the right at any time to change the aggregate investment
amounts, the Plus Factor and the underwriting minimums.
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 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. 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. Benefit Responsive Contracts that are converted to no-load
Section 408 IRA Contracts will be assessed an Administrative Charge of $3 each
quarter if the value of Participant's Account is less than $10,000 on that date.
Except for this type of Contract, there are no Administrative Charges applied to
Single Contribution Contracts and on some types of recurring contribution
contracts. 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.
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 or a Market Value Adjustment 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, the
administrative charge, or the mortality and expense risk charge for a Contract
where the expenses associated with the sale of the Contract or the
administrative costs associated with the Contract are reduced. A reduction in
the mortality and expense risk charge will generally be made by offsetting the
charge by applying the Variable Investment Plus Option. As an example, these
charges may be reduced in connection with acquisition of the Contract in
exchange for another annuity contract or in exchange for another annuity
contract issued by AUL. AUL may also reduce or waive these charges 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.
Generally, the Contracts provide for five annuity options, 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
<PAGE>
30
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 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 the amount
specified in the Contract. 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 General 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 - INSTALLMENT 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.
<PAGE>
31
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 either 3% or 4% per year ("Guaranteed Rate") depending on the Contract. 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, 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. 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.
For certain Contracts, 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 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
<PAGE>
32
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.
The 20% restriction on transfers during any given Contract Year from the Fixed
Account to an Investment Account shall not apply to Employer Sponsored 403(b)
Programs, Employee Benefit Plans, Employee Benefit Plans in a combined Contract
for an Employee Benefit Plan and Employer Sponsored 403(b) Plan, or 408 SEP or
Simple IRA Contracts if: (1) the Owner (or Plan Sponsor) selects the Fixed
Interest Account as an Investment Option to Participants under the Contract; (2)
the Owner (or Plan Sponsor) does not select the AUL American Money Market
Investment Account as an available Investment Option to Participants under the
Contract, and (3) following a transfer from the Fixed Account to the Variable
Account by a Participant, a transfer to the Fixed Account shall be allowed only
after 90 days have elapsed since the previous transfer from the Fixed Account.
Except as noted previously, generally, 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. 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 or Market Value Adjustment, depending on
the 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."
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 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
<PAGE>
33
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.
<PAGE>
34
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.
Each of the Funds in which the Variable Account invests has advised AUL
that it intends to qualify as a "regulated investment company" under the Code.
AUL does not guarantee that any Fund will so qualify. If the requirements of the
Code are met, a Fund will not be taxed on amounts distributed on a timely basis
to the Variable Account. Were such a Fund not to so qualify, the tax status of
the Contracts as annuities might be lost, which could result in immediate
taxation of amounts earned under the Contracts (except those held in Employee
Benefit Plans and 408 Programs).
Under regulations promulgated under Code Section 817(h), each Investment
Account must meet certain diversification standards. Generally, compliance with
these standards is determined by taking into account an Investment Account's
share of assets of the appropriate underlying Fund. To meet this test, on the
last day of each calendar quarter, no more than 55% of the total assets of a
Fund may be represented by any one investment, no more than 70% may be
represented by any two investments, no more than 80% may be represented by any
three investments, and no more than 90% may be represented by any four
investments. For the purposes of Section 817(h), securities of a single issuer
generally are treated as one investment, but obligations of the U.S. Treasury
and each U.S. Governmental agency or instrumentality generally are treated as
securities of separate issuers.
TAX TREATMENT OF 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.
<PAGE>
35
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.
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.
If a Contract is used in connection with an unqualified, unfunded deferred
compensation benefits to a select group of employees, contributions to the Plan
are includible in the employee's gross income when these amounts are paid or
otherwise made available to the employee.
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% penalty 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 a penalty tax. Certain amounts paid for
medical care also may not be subject to a penalty 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."
<PAGE>
36
WITHHOLDING
Distributions from an Employee Benefit Plan under Code Section 401(a) or a
403(b) Program to an employee, surviving spouse, or former spouse who is an
alternate payee under a qualified domestic relations order, in the form of a
lump-sum settlement or periodic annuity payments for a fixed period of fewer
than 10 years are subject to mandatory federal income tax withholding of 20% of
the taxable amount of the distribution, unless the distributee directs the
transfer of such amounts to another Employee Benefit Plan or 403(b) Program or
to an Individual Retirement Account under Code Section 408. The taxable amount
is the amount of the distribution, less the amount allocable to after-tax
contributions.
All other types of distributions from Employee Benefit Plans and 403(b)
Programs, and all distributions from Individual Retirement Accounts, are subject
to federal income tax withholding on the taxable amount unless the distributee
elects not to have the withholding apply. The amount withheld is based on the
type of distribution. Federal tax will be withheld from annuity payments (other
than those subject to mandatory 20% withholding) pursuant to the recipient's
withholding certificate. If no withholding certificate is filed with AUL, tax
will be withheld on the basis that the payee is married with three withholding
exemptions. Tax on all surrenders and lump-sum distributions from Individual
Retirement Accounts will be withheld at a flat 10% rate.
Withholding on annuity payments and other distributions from the Contract
will be made in accordance with regulations of the Internal Revenue 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 and the values shown for Tax Deferred Accumulation After Tax
would be lower if these charges were included. 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
<PAGE>
37
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.
OTHER INFORMATION
VOTING OF SHARES OF THE FUNDS
AUL is the legal owner of the shares of the Portfolios of the Funds held by
the Investment Accounts of the Variable Account. In accordance with its view of
present applicable law, AUL will exercise voting rights attributable to the
shares of the Funds held in the Investment Accounts at any regular and special
meetings of the shareholders of the Funds on matters requiring shareholder
voting under the 1940 Act.
AUL will exercise these voting rights based on instructions received from
persons having the voting interest in corresponding Investment Accounts of the
Variable Account and consistent with any requirements imposed on AUL under
contracts with any of the Funds, or under applicable law. However, if the 1940
Act or any regulations thereunder should be amended, or if the present
interpretation thereof should change, and as a result AUL determines that it is
permitted to vote the shares of the Funds in its own right, it may elect to do
so.
The person having the voting interest under a Contract is the 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
<PAGE>
38
Investment Accounts or cease permitting new allocations to an Investment Account
if, in its sole discretion, marketing, tax, or investment conditions so warrant.
Subject to any required regulatory approvals, AUL reserves the right to
transfer assets of any Investment Account of the Variable Account to another
separate account or Investment Account.
In the event of any such substitution or change, AUL may, by appropriate
endorsement, make such changes in these and other Contracts as may be necessary
or appropriate to reflect such substitution or change. 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.
YEAR 2000 READINESS DISCLOSURE
In recent years, the Year 2000 problem has received extensive publicity.
The problem arises because most computer systems and programs were written with
dates expressed as a 2 digit code. Unless corrective steps are taken, on January
1, 2000, many systems may read the year "2000" as "1900" and date-related
computations either would not be processed or would be processed incorrectly.
This could have a material and adverse effect on financial institutions, such as
banks and insurance companies with unit investment trusts such as the AUL
American Unit Trust, as well as on the contractholders and participants under
the Contracts sold by AUL. To prevent this, AUL began assessing the potential
impact in early 1996 and adopted a detailed written work plan in June, 1997 to
deal with Year 2000 issues in AUL's systems, as well as those of service
providers who deal with AUL.
Due to the complexity of this issue and the ever-increasing
interrelationships of computer systems in the United States, it would be
extremely difficult for any company to state that it has or will achieve
complete Year 2000 compliance or to guarantee that its systems will not be
affected in any way on January 1, 2000. However, AUL currently believes that all
critical computer systems and software (those systems or software, which would
cause great disruption to AUL if they were inoperable for any length of time or
if they were to generate erroneous data) will, before January 1, 2000, be able
to function after that date. AUL is addressing its Year 2000 issues by using
both internal staff and external consultants to make necessary system changes,
by replacing hardware, operating systems, and application software, and by
remediating current application software. Although AUL has no reason to believe
that these steps will not be sufficient to avoid any material adverse impact
from Year 2000 issues, there can be no assurance that AUL's efforts will be
sufficient to avoid any adverse impact. This project is currently expected to
<PAGE>
39
require more than 285,000 hours of labor at a cost of approximately $17,000,000,
which will be expensed against current operating funds.
As a part of its plan, AUL has also surveyed other primary service
providers to be sure that steps have been taken to address the Year 2000 issues.
Of course, there can be no assurances that the service providers will completely
address all challenges posed by Year 2000 issues. AUL will continue to
periodically monitor the status of such Year 2000 efforts.
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 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: (1) 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; (2) 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 (3) 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: (1) 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, (2) 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 (3)
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.
<PAGE>
40
STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information contains more specific information and
financial statements relating to AUL. The Table of Contents of the Statement of
Additional Information is set forth below:
<TABLE>
<S> <C>
GENERAL INFORMATION AND HISTORY............................................................................................... 3
DISTRIBUTION OF CONTRACTS..................................................................................................... 3
CUSTODY OF ASSETS............................................................................................................. 3
LIMITS ON CONTRIBUTIONS TO RETIREMENT PLANS................................................................................... 3-4
403(b) Programs............................................................................................................. 3
408 Programs................................................................................................................ 4
457 Programs................................................................................................................ 4
Employee Benefit Plans...................................................................................................... 4
INDEPENDENT ACCOUNTANTS....................................................................................................... 4
PERFORMANCE INFORMATION....................................................................................................... 4-6
FINANCIAL STATEMENTS.......................................................................................................... 6-17
</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.
AUL has filed a Registration Statement with the Securities and
Exchange Commission, Washington, D.C. For further information
regarding the AUL American Unit Trust, AUL and its variable annuities,
please reference the Registration statement and the exhibits filed
with it or incorporated into it. All contracts referred to in this
prospectus are also included in that filing.
================================================================================
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, 1999
================================================================================
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1999
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, 1999.
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>
2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Description Page
GENERAL INFORMATION AND HISTORY............................................................................................ 3
DISTRIBUTION OF CONTRACTS.................................................................................................. 3
CUSTODY OF ASSETS.......................................................................................................... 3
LIMITS ON CONTRIBUTIONS TO RETIREMENT PLANS................................................................................ 3-4
403(b) Programs.......................................................................................................... 3
408 Programs............................................................................................................. 4
457 Programs............................................................................................................. 4
Employee Benefit Plans................................................................................................... 4
INDEPENDENT ACCOUNTANTS.................................................................................................... 4
PERFORMANCE INFORMATION.................................................................................................... 4-6
FINANCIAL STATEMENTS....................................................................................................... 6-17
</TABLE>
<PAGE>
3
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., Alger American Fund, American Century Variable Portfolios, Inc., Calvert
Variable Series, Fidelity Variable Insurance Products Fund, Fidelity Variable
Insurance Products Fund II, Janus Aspen Series, PBHG Insurance Series Fund,
Inc., SAFECO Resource Series Trust, and T. Rowe Price Equity Series, 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 $10,000 a year. The $10,000 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 $10,000 limit
by $3,000 per year, subject to an aggregate limit of $15,000 for all years.
Section 403(b)(2) provides an overall limit on Employer and 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 another 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
<PAGE>
4
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 January 1, 1997 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
PricewaterhouseCoopers LLP, One American Square, Indianapolis, Indiana
46282, independent accountants, performs certain accounting and auditing
services for AUL and performs similar services for the Variable Account. The AUL
financial statements included in this Statement of Additional Information have
been audited to the extent and for the periods indicated in their report thereon
and its internal accounting controls have been reviewed.
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 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:
<PAGE>
5
Effective Yield = [(Base Period Return + 1)**365/7] - 1
For the 7-day period ending December 31, 1998, the current yield for the
AUL Money Market Investment Account was ____% and the effective yield was ____%.
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, 1998, the yield for the Investment
Accounts corresponding to the Portfolios of the AUL American Series Fund, Inc.
was ____% for the Equity Investment Account, ____% for the Bond Investment
Account, ____% for the Managed Investment Account, and ____% for the Tactical
Asset Allocation Account. The LifeStyle Investment Accounts consisting of the
Conservative, Moderate and Aggressive Investor Investment Accounts commenced
operations May 1, 1998, and therefore has not been in operation for a one year
period.
Quotations of average annual total return for any Investment Account will
be expressed in terms of the average annual compounded rate of return of a
hypothetical investment in a Contract over a period of one, five, and ten years
(or, if less, up to the life of the Investment Account), calculated pursuant to
the following formula: P(1 + T)**n = ERV (where P = a hypothetical initial
payment of $1,000, T = the average annual total return, n = the number of years,
and ERV = the ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the period). Hypothetical quotations of average 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, 1998 may be found in the Prospectus.
Performance information for an Investment Account may be compared, in
promotional reports and literature, to: (1) 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; (2) 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 (3) 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 (1) 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; (2) 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
<PAGE>
6
return on a taxable basis; and (3) 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, 1998.
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
To the Board of Directors
American United Life Insurance Company
Indianapolis, Indiana
We have audited the accompanying combined balance sheet of American United Life
Insurance Company(R) and affiliates as of December 31, 1998 and 1997, and the
related combined statements of operations, policyholders' 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, 1998 and 1997, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ PricewaterhouseCoopers LLP
Indianapolis, Indiana
February ___, 1999
<PAGE>
7
COMBINED BALANCE SHEET
December 31, 1997 and 1996 1997(in millions)1996
-------------------------------------------------------------------------
Assets
Investments:
Fixed Maturities:
Available for sale at fair value ........... $ 1,653.8 $ 1,593.4
Held to maturity at amortized cost ......... 2,902.2 3,013.6
Equity securities at fair value ............. 18.6 15.2
Mortgage loans .............................. 1,120.4 1,114.6
Real estate ................................. 52.1 52.3
Policy loans ................................ 143.1 143.5
Short term and other invested assets ........ 102.0 43.8
Cash and cash equivalents ................... 41.2 20.2
-------------------------------------------------------------------------
Total investments ........................... 6,033.4 5,996.6
Accrued investment income ................... 79.3 82.1
Reinsurance receivables ..................... 244.3 209.5
Deferred acquisition costs .................. 421.2 348.2
Property and equipment ...................... 55.5 54.0
Insurance premiums in course of collection .. 72.9 47.5
Other assets ................................ 17.2 35.7
Assets held in separate accounts ............ 1,674.0 1,078.7
-------------------------------------------------------------------------
Total assets ................................ $ 8,597.8 $ 7,852.3
-------------------------------------------------------------------------
Liabilities and policyholders' surplus
Liabilities
Policy reserves ............................ $ 5,642.9 $ 5,688.6
Other policyholder funds ................... 175.2 176.2
Pending policyholder claims ................ 164.3 137.6
Surplus notes .............................. 75.0 75.0
Other liabilities and accrued expenses ..... 201.8 123.4
Liabilities related to separate accounts ... 1,674.0 1,078.7
-------------------------------------------------------------------------
Total liabilities ........................... 7,933.2 7,279.5
-------------------------------------------------------------------------
Unrealized appreciation of securities,
net of deferred income tax ................. 36.5 19.0
Policyholders' surplus ...................... 628.1 553.8
-------------------------------------------------------------------------
Total policyholders' surplus ................ 664.6 572.8
-------------------------------------------------------------------------
Total liabilities and policyholders' surplus $ 8,597.8 $ 7,852.3
-------------------------------------------------------------------------
COMBINED STATEMENT
OF POLICYHOLDERS' SURPLUS
Policyholders' surplus at beginning of year .... $ 572.8 $ 548.9
Net income ..................................... 74.3 52.1
Change in unrealized appreciation (depreciation)
of securities, net ............................. 17.5 (28.2)
- ----------------------------------------------------------------------------
Policyholders' surplus at end of year .......... $ 664.6 $ 572.8
- ----------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
8
COMBINED STATEMENT OF OPERATIONS
December 31, 1997 and 1996 1997(in millions)1996
- ---------------------------------------------------------------------------
Revenues:
Insurance premiums and other
considerations ............................... $ 413.9 $ 401.1
Policy and contract charges ................... 69.3 50.4
Net investment income ......................... 464.9 471.8
Realized investment gains ..................... 13.7 6.6
Other income .................................. 5.9 1.2
- ----------------------------------------------------------------------------
Total revenues ................................. 967.7 931.1
- ----------------------------------------------------------------------------
Benefits and expenses:
Policy benefits ............................... $ 386.2 $ 381.9
Interest expense on annuities and
financial products ........................... 257.3 261.6
Underwriting, acquisition and
insurance expenses ........................... 126.6 111.2
Amortization of deferred acquisition costs .... 53.2 49.8
Dividends to policyholders .................... 25.0 26.3
Interest expense on surplus notes ............. 5.8 5.1
Other operating expenses ...................... 9.5 8.7
- ----------------------------------------------------------------------------
Total benefits and expenses ................... 863.6 844.6
- ----------------------------------------------------------------------------
Income before income tax expense .............. 104.1 86.5
Income tax expense ............................ 29.8 34.4
- ----------------------------------------------------------------------------
Net income .................................... $ 74.3 $ 52.1
- ----------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
9
COMBINED STATEMENT OF CASH FLOWS
December 31, 1997 and 1996 1997(in millions)1996
- ---------------------------------------------------------------------------
Cash flows from operating activities:
- ---------------------------------------------------------------------------
Net Income ..................................... $ 74.3 $ 52.1
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of deferred acquisition costs ..... 53.2 49.8
Depreciation ................................... 10.1 9.2
Deferred taxes ................................. 7.3 1.8
Realized investment gains ...................... (13.7) (6.6)
Policy acquisition costs capitalized ........... (90.8) (69.3)
Interest credited to deposit liabilities ....... 252.1 254.7
Fees charged to deposit liabilities ............ (32.9) (19.8)
Amortization and accrual of investment income .. (8.2) (6.2)
Increase in insurance liabilities .............. 140.2 93.9
Increase in noninvested assets ................. (66.3) (44.4)
Increase in other liabilities .................. 35.1 19.6
Net cash provided by operating activities ...... 360.4 334.8
Cash flows from investing activities:
Purchases:
Fixed maturities, Held to Maturity ............. (120.8) (194.4)
Fixed maturities, Available for Sale ........... (348.3) (477.7)
Equity securities .............................. (9.4) (24.7)
Mortgage loans ................................. (155.4) (169.1)
Real estate .................................... (1.9) (3.9)
Short term and other invested assets ........... (43.3) (2.6)
Proceeds from sales, calls or maturities:
Fixed maturities, Held to Maturity ............. 241.2 158.8
Fixed maturities, Available for Sale ........... 335.1 466.4
Equity securities .............................. 7.2 28.7
Mortgage loans ................................. 149.7 175.0
Real estate .................................... 4.3 3.1
Short term and other invested assets ........... 1.6 27.6
Net cash provided (used) by investing activities 60.0 (12.8)
Cash flows from financing activities:
Proceeds from issuance of surplus notes ........ 0 75.0
Deposits to insurance liabilities .............. 713.6 595.2
Withdrawals from insurance liabilities ......... (1,112.5) (984.6)
Change in policyholder dividend liability ...... (.9) 3.6
Decrease (increase) in policy loans ............ .4 (1.9)
Net cash used by financing activities .......... (399.4) (312.7)
Net increase in cash and cash equivalents ...... 21.0 9.3
Cash and cash equivalents beginning of year .... 20.2 10.9
Cash and cash equivalents end of year .......... $ 41.2 $ 20.2
The accompanying notes are an integral part of the financial statements.
<PAGE>
10
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Basis of Presentation
American United Life Insurance Company (AUL) is an Indiana domiciled mutual life
insurance company with headquarters in Indianapolis. AUL is licensed to do
business in 48 states and the District of Columbia and is an authorized
reinsurer in all states. AUL offers individual life and annuity products through
its career agent distribution system. AUL's qualified group retirement plans,
tax deferred annuities and other non-medical group products are marketed through
independent agents and brokers, as well as career agents who are supported by 29
regional sales offices located throughout the country. Life and pooled
reinsurance is marketed directly to other insurance companies. In 1997, AUL
International began operations to develop reinsurance partners in Central and
South America. The combined Company financial statements include the accounts of
AUL and its affiliate, The State Life Insurance Company (State Life).
Significant intercompany transactions have been excluded.
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles (GAAP). AUL and State Life file
separate financial statements with insurance regulatory authorities which are
prepared on the basis of statutory accounting practices which are significantly
different from financial statements prepared in accordance with GAAP. These
differences are described in detail in Note 9 - Statutory Information.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Investments
Fixed maturity securities which may be sold to meet liquidity and other needs of
the Company are categorized as available for sale and are stated at fair value.
Fixed maturity securities which the Company has the positive intent and ability
to hold to maturity are categorized as held-to-maturity and are stated at
amortized cost. Equity securities are stated at fair value. Mortgage loans on
real estate are carried at amortized cost less an impairment allowance for
estimated uncollectible amounts. Real estate is reported at cost less allowances
for depreciation. Depreciation is provided (straight line) over the estimated
useful lives of the related assets. Investment real estate is net of accumulated
depreciation of $31.7 million and $28.8 million at December 31, 1997 and 1996,
respectively. Depreciation expense for investment real estate amounted to $2.5
million and $2.4 million for 1997 and 1996, respectively. Policy loans are
carried at their unpaid balance. Other invested assets are reported at cost plus
the Company's equity in undistributed net equity since acquisition. Short term
investments include investments with maturities of one-year or less and are
carried at cost which approximates market. Short term certificates of deposit
and savings certificates are considered to be cash equivalents. The carrying
amount for cash and cash equivalents approximates market.
Realized gains and losses on sale or maturity of investments are based upon
specific identification of the investments sold and do not include amounts
allocable to separate accounts. At the time a decline in value of an investment
is determined to be other than temporary, a provision for loss is recorded which
is included in realized investment gains and losses. Unrealized gains and
losses, resulting from carrying available-for-sale securities at fair value, are
reported in policyholders' surplus, net of deferred taxes.
Deferred Policy Acquisition Costs
Those costs of acquiring new business, which vary with and are primarily related
to the production of new business, have been deferred to the extent that such
costs are deemed recoverable. Such costs include commissions, certain costs of
policy underwriting and issue and certain variable agency expenses. These costs
are amortized with interest as follows:
For participating whole life insurance products, over the lesser of 30
years or the lifetime of the policy in relation to the present value of
estimated gross margins from expenses, investments and mortality,
discounted using the expected investment yield.
For universal life-type policies and investment contracts, over the lesser
of the lifetime of the policy or 30 years for life policies or 20 years for
other policies in relation to the present value of estimated gross profits
from surrender charges and investment, mortality and expense margins,
discounted using the interest rate credited to the policy.
For term life insurance products and life reinsurance policies, over the
lesser of the benefit period or 30 years for term life or 20 years for life
reinsurance policies in relation to the ratio of anticipated annual premium
revenue to the anticipated total premium revenue, using the same
assumptions used in calculating policy benefits.
For miscellaneous group life and individual and group health policies,
straight line over the expected life of the policy.
For credit insurance policies, the deferred acquisition cost balance is
primarily equal to the unearned premium reserve multiplied by the ratio of
deferrable commissions to premiums written.
Recoverability of the unamortized balance of deferred policy acquisition costs
is evaluated regularly. For universal life-type contracts, investment contracts
and participating whole life policies, the accumulated amortization is adjusted
(increased or decreased) whenever there is a material change in the estimated
gross profits or gross margins expected over the life of a block of business in
order to maintain a constant relationship between cumulative amortization and
the present value of gross profits or gross margins. For most other contracts,
the unamortized asset balance is reduced by a charge to income only when the
present value of future cash flows, net of the policy liabilities, is not
sufficient to cover such asset balance.
<PAGE>
11
NOTES TO FINANCIAL STATEMENTS
Assets Held in Separate Accounts
Separate accounts are funds on which investment income and gains or losses
accrue directly to certain policies, primarily variable annuity contracts 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
$41.6 million and $37.2 million as of December 31, 1997 and 1996, respectively.
The Company provides for depreciation of property and equipment using the
straight-line method over its estimated useful life. Depreciation expense for
1997 and 1996 was $7.6 million and $6.8 million, respectively.
Premium Revenue and Benefits to Policyholders
The premiums and benefits for whole life and term insurance products and certain
annuities with life contingencies (immediate annuities) are fixed and
guaranteed. Such premiums are recognized as premium revenue when due. Group
insurance premiums are recognized as premium revenue over the time period to
which the premiums relate. Benefits and expenses are associated with earned
premiums so as to result in recognition of profits over the life of the
contracts. This association is accomplished by means of the provision for
liabilities for future policy benefits and the amortization of deferred policy
acquisition costs.
Universal life policies and investment contracts are policies with terms that
are not fixed and guaranteed. The terms that may be changed could include one or
more of the amounts assessed the policyholder, premiums paid by the policyholder
or interest accrued to policyholder balances. The amounts collected from
policyholders for these policies are considered deposits, and only the
deductions during the period for cost of insurance, policy administration and
surrenders are included in revenue. Policy benefits and claims that are charged
to expense include interest credited to contracts and benefit claims incurred in
the period in excess of related policy account balances.
Reserves for Future Policy and Contract Benefits
Liabilities for future policy benefits for participating whole life policies are
calculated using the net level premium method and assumptions as to interest and
mortality. The interest rate is the dividend fund interest rate and the
mortality rates are those guaranteed in the calculation of cash surrender values
described in the contract. Liabilities for future policy benefits for term life
insurance and life reinsurance policies are calculated using the net level
premium method and assumptions as to investment yields, mortality and
withdrawals. The assumptions are based on projections of past experience and
include provisions for possible unfavorable deviation. These assumptions are
made at the time the contract is issued. Liabilities for future policy benefits
on universal life and investment contracts consist principally of policy account
values plus certain deferred policy fees which are amortized using the same
assumptions and factors used to amortize the deferred policy acquisition costs.
If the future benefits on investment contracts are guaranteed (immediate
annuities with benefits paid for a period certain) the liability for future
benefits is the present value of such guaranteed benefits. Claim liabilities
include provisions for reported claims and estimates based on historical
experience, for claims incurred but not reported.
Income Taxes
The provision for income taxes includes amounts currently payable and deferred
income taxes resulting from the temporary differences in the assets and
liabilities determined on a tax and financial reporting basis.
<PAGE>
12
NOTES TO FINANCIAL STATEMENTS
2. Investments:
The book value and fair value of investments in fixed maturity securities by
type of investment were as follows:
<TABLE>
<CAPTION>
December 31, 1997
- ----------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------
Available for sale: (in millions)
<S> <C> <C> <C> <C>
Obligations of U.S. government states,
political subdivisions end foreign governments $ 47.8 $ 4.0 $0.0 $ 51.8
Corporate securities ......................... 1,064.1 55.5 1.8 1,117.8
Mortgage-backed securities ................... 456.8 27.6 0.2 484.2
- ----------------------------------------------------------------------------------------------------------------
$ 1,568.7 $ 87.1 $2.0 $ 1,653.8
- ----------------------------------------------------------------------------------------------------------------
Held to maturity
Obligations of U.S. government, states,
political subdivisions and foreign governments $ 124.2 $ 6.2 $0.3 $ 130.1
Corporate securities ......................... 1,854.4 123.4 3.6 1,9742
Mortgage-backed securities ................... 923.6 55.5 0.2 978.9
- ----------------------------------------------------------------------------------------------------------------
$ 2,902.2 $185.1 $4.1 $ 3,083.2
- ----------------------------------------------------------------------------------------------------------------
December 31, 1997
- ----------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------
Available for sale: (in millions)
<S> <C> <C> <C> <C>
Obligations of U.S. government, states,
political subdivisions end 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
Mortgage-backed securities ................... 990.5 44.9 4.4 1,031.0
- ----------------------------------------------------------------------------------------------------------------
$ 3,013.6 $ 150.5 $ 19.5 $ 3,144.6
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
13
NOTES TO FINANCIAL STATEMENTS
The amortized cost and fair value of fixed maturity securities at December
31,1997, 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 Cost Value
- -----------------------------------------------------------------------------------------------------------
Due in one year or less .............. $ 127.0 $ 127.2 $ 60.8 $ 61.5 $ 187.8 $ 188.7
Due after one year through five years 311.6 318.4 768.5 798.0 1,080.1 1,116.4
Due after five years through ten years 368.9 388.5 738.9 794.7 1,107.8 1,183.2
Due after ten years .................. 304.4 335.5 410.4 450.1 714.8 785.6
- -----------------------------------------------------------------------------------------------------------
1,111.9 1,169.6 1,978.6 2,104.3 3,090.5 3,273.9
Mortgage-backed securities ........... 456.8 484.2 923.6 978.9 1,380.4 1,463.1
- -----------------------------------------------------------------------------------------------------------
$ 1,568.7 $ 1,653.8 $ 2,902.2 $ 3,083.2 $ 4,470.9 $ 4,737.0
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Net investment income consisted of the following:
for years ended December 31 1997(in millions)1996
- ----------------------------------------------------------------------------
Fixed maturity securities $359.4 $364.0
Equity securities 2.5 2.0
Mortgage loans 100.9 104.4
Real estate 11.5 10.8
Policy loans 8.8 9.0
Other 7.3 6.1
- ----------------------------------------------------------------------------
Gross investment income 490.4 496.3
Investment expenses 25.5 24.5
- ----------------------------------------------------------------------------
Net investment income $464.9 $471.8
- ----------------------------------------------------------------------------
Net realized investment gains and (losses) include write downs and changes in
the reserve for losses on mortgage loans and foreclosed real estate of $(1.3)
million and $.5 million for 1997 and 1996, respectively. Proceeds from the
sales, maturities or calls of investments in fixed maturities during 1997 and
1996 were approximately $576.3 million and $625.2 million, respectively. Gross
gains of $11.6 million and $12.0 million, and gross losses of $1.3 million and
$6.9 million were realized in 1997 and 1996, respectively. The changes in
unrealized appreciation (depreciation) of fixed maturities amounted to
approximately $39.9 million and $(64.3) million in 1997 and 1996, respectively.
At December 31, 1997, the unrealized appreciation on equity securities of
approximately $2.3 million is comprised of $3.8 million in unrealized gains and
$1.5 million of unrealized losses and has been reflected directly in
policyholders' surplus. The change in the unrealized appreciation (depreciation)
of equity securities amounted to approximately $.9 million and $(1.1)million in
1997 and 1996, respectively.
The Company maintains a diversified mortgage loan portfolio and exercises
internal limits on concentrations of loans by geographic area, industry, use and
individual mortgagor. At December 31, 1997, the largest geographic concentration
of commercial mortgage loans was in California, Indiana, and Florida where
approximately 33% of the portfolio was invested. A total of 40% of the mortgage
loans have been issued on retail properties, primarily backed by long term
leases or guarantees from strong credits.
The Company has outstanding mortgage loan commitments at December 31, 1997, of
approximately $117.2 million. As of December 31, 1997, the carrying value of
investments that produced no income for the previous twelve month period was
$1.8 million.
<PAGE>
14
NOTES TO FINANCIAL STATEMENTS
3. Insurance Liabilities:
At December 31, 1997 and 1996, insurance liabilities consisted of the following:
<TABLE>
<CAPTION>
(in millions)
- ------------------------------------------------------------------------------------------------------------------------------------
Withdrawal Mortality or morbidity Interest rate
assumption assumption assumption 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Future policy benefits:
Participating whole life contracts ........... Company Company 2.5% to 6.0% $ 594.5 $ 554.9
experience experience
Universal life-type contracts ................ n/a n/a n/a 376.4 352.0
Other individual life contracts .............. Company Company 6.8% to 10.0% 216.4 183.6
experience experience
Accident and health .......................... n/a n/a n/a 51.0 43.7
Annuity products ............................. n/a n/a n/a 4,213.6 4,397.1
Group life and health ........................ n/a n/a n/a 191.0 157.3
Other policyholder funds ..................... n/a n/a n/a 175.2 176.2
Pending policyholder claims .................. n/a n/a n/a 164.3 137.6
- ------------------------------------------------------------------------------------------------------------------------------------
Total insurance liabilities $ 5,982.4 $6,002.4
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Participating life insurance policies under generally accepted accounting
principles represent approximately 9% and 11 % of the total individual life
insurance in force at December 31, 1997 and 1996, respectively. Participating
policies represented approximately 39% and 40% of life premium income for 1997
and 1996, respectively. The amount of dividends to be paid is determined
annually by the Board of Directors.
4. Employees' and Agents' Benefit Plans:
The Company has a noncontributory defined benefit pension plan covering
substantially all employees. Company contributions to the employee plan are made
annually in an amount between the minimum ERISA required contribution and the
maximum tax-deductible contribution. Contributions made to the Plan were $2.6
million in 1997 and $2.4 million in 1996. The net periodic pension cost was
$(.5) million and $.6 million for the years ended December 31, 1997 and 1996,
respectively. This includes service cost of $2.2 million and $3.5 million,
interest cost of $1.6 million and $1.4 million, and return on plan assets of
$4.3 million, and $4.3 million for the years ended December 31, 1997 and 1996,
respectively.
The following benefit information for the employees' defined benefit plan was
determined by independent actuaries as of January 1, 1997 and 1996,
respectively, the most recent actuarial valuation dates:
1997 (in millions) 1996
Actuarial present value of accumulated benefits
for the employees' defined benefit plan:
Vested $20.5 $20.1
Nonvested 2.0 .2
- --------------------------------------------------------------------------------
Total accumulated benefits $22.5 $20.3
- --------------------------------------------------------------------------------
Related net assets available for plan benefits $34.0 $28.8
- --------------------------------------------------------------------------------
The Company has a defined contribution plan and a 401(k) 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 1997 and 1996 were $1.4 million and
$1.7 million, respectively.
<PAGE>
15
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% of
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 expensed for these
plans for 1997 and 1996 were $268,000 and $612,000, 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 (post
retirement benefits) for retired employees and certain agents (retirees).
Employees and agents with at least 10 years of plan participation may become
eligible for such benefits if they reach retirement age while working for the
Company.
The net periodic post retirement benefit cost was $1,035,000 and $956,000 for
the year ended December 31, 1997 and 1996, respectively. This includes service
cost of $336,000 and $255,000, interest cost of $697,000 and $645,000,
amortization of unrecognized loss of $2,000 and $56,000 for the years ended
December 31, 1997 and 1996, respectively.
Accrued post retirement benefits as of December 31: 1997(in millions) 1996
- --------------------------------------------------------------------------------
Accumulated post retirement benefit obligation (APBO):
Retirees and their dependents $5.2 $ 4.6
Active employees fully eligible to retire and
receive benefits 3.1 2.6
Active employees not fully eligible 2.6 2.7
Unrecognized loss (1.6) (1.0)
- --------------------------------------------------------------------------------
Total APBO $9.3 $ 8.9
- --------------------------------------------------------------------------------
The assumed discount rate used in determining the accumulated post retirement
benefit was 7.00% and the assumed health care cost trend rate was 10% graded to
5% until 2004. Compensation rates were assumed to increase 6% at each year end.
The health coverage for retirees 65 and over is capped in the year 2000. The
health care cost trend rate assumption has an effect on the amounts reported. An
increase in the assumed health care cost trend rates by one percentage point
would increase the accumulated post retirement benefit obligation as of December
31, 1997, by $885,000 and increase the accumulated post retirement benefit cost
for 1997 by $126,000.
5. Federal Income Taxes:
A reconciliation of the income tax attributable to continuing operations
computed at U.S. federal statutory tax rates to the income tax expense included
in the statement of operations follows:
for years ended December 31 1997 (in millions) 1996
- --------------------------------------------------------------------------------
Income tax computed at statutory tax rate $36.3 $30.3
Tax exempt income (1.5) (1.6)
Mutual company differential earnings amount 6.1 7.5
Prior year differential earnings amount (3.7) (5.6)
Other (7.4) 3.8
- --------------------------------------------------------------------------------
Federal income tax $29.8 $34.4
- --------------------------------------------------------------------------------
The components of the provision for income taxes on earnings included current
tax provisions of $22.5 million and $32.6 million for the years ended December
31, 1997 and 1996, respectively, and deferred tax expense of $7.3 million and
$1.8 million for the years ended December 31, 1997 and 1996, respectively.
<PAGE>
16
NOTES TO FINANCIAL STATEMENTS
Deferred income tax assets (liabilities)
as of December 31: 1997 1996
- --------------------------------------------------------------------------------
(in millions)
Deferred policy acquisition costs $(137.0) $(110.9)
Investments (12.0) (8.1)
Insurance liabilities 154.7 139.0
Unrealized appreciation of securities (21.9) (11.2)
Other (4.7) (4.9)
- --------------------------------------------------------------------------------
Deferred income tax assets (liabilities) $ (20.9) $ 3.9
- --------------------------------------------------------------------------------
Federal income taxes paid were $28.6 million and $39.0 million for 1997 and
1996, respectively.
6. Reinsurance:
The Company is a party to various reinsurance contracts under which it receives
premiums as a reinsurer and reimburses the ceding companies for portions of the
claims incurred. At December 31,1997 and 1996, life Reinsurance assumed was
approximately 71% and 67%, respectively, of life insurance in force.
The Company cedes that portion of the total risk on an individual life in excess
of $1,500,000. 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:
for years ended December 31 1997 1996
- --------------------------------------------------------------------------------
(in millions)
Direct statutory premiums $369.4 $353.1
Reinsurance assumed 253.9 214.8
Reinsurance ceded 132.3 109.8
- --------------------------------------------------------------------------------
Net premiums 491.0 458.1
- --------------------------------------------------------------------------------
Reinsurance recoveries $103.4 $ 73.5
- --------------------------------------------------------------------------------
The Company accounts for all reinsurance agreements as transfers of risk. If
companies to which reinsurance has been ceded are unable to meet obligations
under the reinsurance agreements, the Company would remain liable. Six
reinsurers account for approximately 57% of the Company's December 31, 1997,
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 1997 was $5.8 million. The
Company has available a $125 million committed credit facility. No amounts have
been drawn as of December 31, 1997.
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.
Pursuant to an Investment Agreement with Indianapolis Life Insurance Company and
the Indianapolis Life Group of Companies (IL Group), the Company has agreed to
purchase from IL Group $27 million of common stock. As of December 31,1997, $8.9
million of this stock was purchased, with an additional $18.1 million committed
to be purchased upon the approval of the Insurance Departments of various
states. Upon purchase of the full commitment, the Company will own 25% of IL
Group's issued and outstanding stock.
<PAGE>
17
NOTES TO FINANCIAL STATEMENTS
9. Statutory Information:
AUL and State Life prepare statutory financial statements in accordance with
accounting Principles and practices prescribed or permitted by the Indiana
Department of Insurance. Prescribed statutory accounting practices (SAP)
currently include state laws, regulations and general administrative rules
applicable to all insurance enterprises domiciled in a particular state, as well
as practices described in National Association of Insurance Commissioners'
(NAIC) publications.
A reconciliation of SAP surplus to GAAP surplus at December 31 follows:
for years ended December 31 1997 (in millions) 1996
- --------------------------------------------------------------------------------
SAP surplus $464.2 $407.9
Deferred policy acquisition costs 447.4 362.7
Adjustments to policy reserves (303.1) (278.3)
Asset valuation and interest maintenance reserves 86.1 106.4
Unrealized gain on invested assets, net 36.5 19.0
Surplus notes (75.0) (75 0)
Deferred income taxes 1.0 16.8
Other, net 7.5 13.3
- --------------------------------------------------------------------------------
GAAP surplus $664.6 $572.8
- --------------------------------------------------------------------------------
A reconciliation of SAP net income to GAAP net income for the years ended
December 31 follows:
for years ended December 31 1997 (in millions) 1996
- --------------------------------------------------------------------------------
SAP income $41.8 $ 51.4
Deferred policy acquisition costs 37.6 19.5
Adjustments to policy reserves (9.2) (15.0)
Deferred income taxes (7.3) (1.8)
Other, net 11.4 (2.0)
- --------------------------------------------------------------------------------
GAAP net income $74.3 $ 52.1
- --------------------------------------------------------------------------------
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 31,1997.
10. Fair Value of Financial Instruments:
The disclosure of fair value information about certain financial instruments is
based primarily on quoted market prices. The fair values of short-term
investments and accrued investment income approximate the carrying amounts
reported in the balance sheets. Fair values for fixed maturity and equity
securities, and surplus notes are based on quoted market prices where available.
For fixed maturity securities not actively traded, fair values are estimated
using values obtained from independent pricing services, or in the case of
private placements, are estimated by discounting expected future cash flows
using a current market rate applicable to the yield, credit quality and maturity
of the investments. The fair value of the aggregate mortgage loan portfolio was
estimated by discounting the future cash flows using current rates at which
similar loans would be made to borrowers with similar credit ratings for similar
maturities.
The estimated fair values of the liabilities for policyholder funds approximate
the statement values because interest rates credited to account balances
approximate current rates paid on similar funds and are not generally guaranteed
beyond one year. Fair values for other insurance reserves are not required to be
disclosed. However, the estimated fair values for all insurance liabilities are
taken into consideration in the Company's overall management of interest rate
risk, which minimizes exposure to changing interest rates through the matching
of investment maturities with amounts due under insurance contracts. The fair
values of certain financial instruments along with their corresponding carrying
values at December 31,1997 and 1996 follow.
- --------------------------------------------------------------------------------
1997 (in millions) 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
- --------------------------------------------------------------------------------
Fixed maturity securities:
Available for sale $1,653.8 $1,653.8 $1,593 4 $1,593.4
Held to Maturity 2,902.2 3,083.2 3,013.6 3,144.6
Equity securities 18.6 18.6 15.2 15.2
Mortgage loans 1,120.4 1,201.0 1,114.6 1,186.3
Policy loans 143.1 143.1 143.5 143.5
Surplus notes 75.0 79.5 75.0 73.0
- --------------------------------------------------------------------------------
<PAGE>
18
================================================================================
No dealer, salesman or any other person is authorized by the AUL American
Unit Trust to give any information or to make any representation other than as
contained in this Statement of Additional Information in connection with the
offering described herein.
AUL has filed a Registration Statement with the Securities and Exchange
Commission, Washington, D.C. For further information regarding the AUL American
Unit Trust, AUL and its variable annuities, please reference the Registration
statement and the exhibits filed with it or incorporated into it. All contracts
referred to in this prospectus are also included in that filing.
================================================================================
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, 1999
================================================================================
<PAGE>
1
Part C: Other Information
Item 24. Financial Statements and Exhibits
(a) FINANCIAL STATEMENTS
1. Included in Prospectus (Part A):
Condensed Financial Information(3)
2. Included in Statement of Additional Information (Part B):
a) Financial Statements of American United Life Insurance Company(R)(3)
Report of Independent Accountants
Combined Balance Sheet - Assets, Liabilities and Policyowners' Surplus
as of December 31, 1998 and 1997
Combined Statement of Operations for the years ended December 31, 1998
and 1997
Combined Statement of Policyowner's Surplus for the years ended Decem-
ber 31, 1998 and 1997
Combined Statement of Cash Flows for the years ended December 31, 1998
and 1997
Notes to Financial Statements
(b) Financial Statements of AUL American Unit Trust(3)
1. Registrant's Annual Report for the year ended December 31, 1998
is incorporated by reference thereto and contains the following
Financial Statements:(3)
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, 1998
Statement of Operations and Changes in Net Assets for the years
ended December 31, 1998 and 1997
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. Group Annuity Contract Forms:
4.1 TDA Voluntary Contract, Form P-12511(1)
4.2 TDA Employer Sponsored Contract, Form P-12621(1)
4.3 TDA Employer Sponsored Benefit Responsive Contract,
Form P-12621BR(1)
4.4 TDA Custodial SPL Contract, Form P-12833(1)
4.5 TDA Custodial Contract, Form P-12833(1)
4.6 TDA Employer Sponsored and Qualified Conv. Multiple Fund VA
Contract, Form P-14020(1)
4.7 TDA Employer Sponsored and Qualified New Multiple Fund VA
Contract, Form P-14020(1)
4.8 IRA Non-Custodial Contract, Form P-12566(1)
4.9 IRA Custodial Contract, Form P-12867(1)
4.10 DCP Contract, Form P-12518(1)
(1) Re-filed with the Registrant's Post-Effective Amendment No. 15
(File No. 33-31375) on April 30, 1998.
(2) Filed with the Registrant's Post-Effective Amendment No. 15
(File No. 33-31375) on April 30, 1998.
(3) To be filed by Registrant's Post-Effective Amendment No. 17
(File No. 33-31375 on or before May 1, 1999.
<PAGE>
2
Item 24. FINANCIAL STATEMENTS AND EXHIBITS (CONTINUED)
5. Application Forms and other forms:
5.1 AUL American Series Enrollment Form P-12464(1)
5.2. Employer Sponsored TDA Enrollment Form P-12477(1)
5.3 AUL Select Annuity Enrollment Form P-14009(1)
6. Certificate of Incorporation and By-Laws of the Depositor
6.1 Articles of Merger between American Central Life Insurance Company
and United Mutual Life Insurance Company(1)
6.2 Certification of the Secretary of State as to the filing
of the Articles of Merger between American Central Life Insurance
Company and United Mutual Life Insurance Company(1)
6.3 Code of By-Laws of American United Life Insurance Company(R)(1)
7. Not applicable
8. Form of Participation Agreements:
8.1 Form of Participation Agreement with Alger American Fund(1)
8.2 Form of Participation Agreement with American Century Variable
Portfolios, Inc.(1)
8.3 Form of Participation Agreement with Calvert Variable Series(1)
8.4 Form of Participation Agreement with Fidelity Variable
Insurance Products Fund(1)
8.5 Form of Participation Agreement with Fidelity Variable Insurance
Products Fund II(1)
8.6 Form of Participation Agreement with Janus Aspen Series(1)
8.7 Form of Participation Agreement with PBHG Funds, Inc.(1)
8.8 Form of Participation Agreement with SAFECO Resource Series Trust(1)
8.9. Form of Participation Agreement with T. Rowe Price Equity
Series, Inc.(1)
9. Opinion and Consent of Senior Counsel of AUL as to the legality of
Contracts being registered(1)
10. Miscellaneous Consents
10.1 Consent of Independent Accountants (3)
10.2 Consent of Dechert Price & Rhoads(1)
10.3 Powers of Attorney(1)(2)
11. Financial Statements of AUL American Unit Trust(3)
12. Not applicable
13. Computation of performance quotations(1)
14. Financial Data Schedules (3)
(1) Re-filed with the Registrant's Post-Effective Amendment No. 15
(File No. 33-31375) on April 30, 1998.
(2) Filed with the Registrant's Post-Effective Amendment No. 15
(File No. 33-31375) on April 30, 1998.
(3) To be filed by Registrant's Post-Effective Amendment No. 17
(File No. 33-31375 on or before May 1, 1999.
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, AUL
Secretary, State Life Insurance Co.
Arthur L. Bryant Director
141 E. Washington St.
Indianapolis, Indiana
James M. Cornelius Director
P.O. Box 44906
Indianapolis, Indiana
- ----------------------------------------------
*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
101 W. Washington St., Suite 400E Committee
Indianapolis, Indiana
David W. Goodrich Director
One American Square, Suite 2500
Indianapolis, Indiana
William P. Johnson Director
P.O. Box 517
Goshen, Indiana
Scott A. Kincaid* Senior Vice President
Charles D. Lineback* Senior Vice President
James T. Morris Director
1220 Waterway Boulevard
Indianapolis, Indiana
James W. Murphy* Senior Vice President
Jerry L. Plummer* Senior Vice President
R. Stephen Radcliffe* Director and Executive Vice President
Thomas E. Reilly Jr. Director and Chairman of the Finance
300 N. Meridian, Suite 1500 Committee
Indianapolis, Indiana
William R. Riggs Director
P.O. Box 82001
Indianapolis, Indiana
G. David Sapp* Senior Vice President
John C. Scully Director
2636 Ocean Dr., # 505
Vero Beach, Florida
Jerry D. Semler* Chairman of the Board, President, Chief
Executive Officer and Chairman of the
Executive Committee, Chairman the Board,
Chief Executive Officer, State Life
Insurance Co.
Yvonne H. Shaheen Director
1310 S. Franklin Road
Indianapolis, Indiana
William L. Tindall* Senior Vice President
Frank D. Walker Director
P.O. Box 40972
Indianapolis, Indiana
Gerald T. Walker* Senior Vice President
- ----------------------------------------------
*One American Square, Indianapolis, Indiana
<PAGE>
4
Item 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
In accordance with current law, it is anticipated that American United Life
Insurance Company(R) ("AUL") will request voting instructions from owners or
participants of any Contracts that are funded by separate accounts that are
registered investment companies under the Investment Company Act of 1940 and
will vote shares in any such separate account attributable to the Contracts in
proportion to the voting instructions received. AUL may vote shares of any
Portfolio, if any, that it owns beneficially in its own discretion.
Registrant and AUL American Individual Unit Trust are separate accounts of AUL,
organized for the purpose of the respective sale of group and individual
variable annuity contracts.
AUL American Individual Variable Life Unit Trust is a separate account of AUL,
organized for the purpose of the sale of individual variable life contracts.
American United Life Pooled Equity Fund B is a separate account of AUL organized
for the purpose of the sale of group variable annuity contracts.
AUL Equity Sales Corp. is a wholly owned subsidiary of AUL, organized under the
laws of the State of Indiana in 1969 as a broker-dealer to market mutual funds.
AUL may also be deemed to control State Life Insurance Company(R) ("State Life")
since a majority of AUL's Directors also serve as Directors of State Life. By
virtue of an agreement between AUL and State Life, AUL provides investment and
other support services for State Life on a contractual basis.
AUL owns a 20% share of the stock of Princeton Reinsurance Managers, LLC, a
limited liability Delaware company. AUl's affiliation provides an alternative
marketing channel for its Reinsurance Division.
AUL American Series Fund, Inc. (the "Fund") was incorporated under the laws of
Maryland on July 26, 1989 and is registered as an open-end, diversified
management investment company under the Investment Company Act of 1940. As a
"series" type of mutual Fund, the Fund issues shares of common stock relating to
separate investment portfolios. Substantially all of the Fund's shares were
originally purchased by AUL in connection with the initial capitalization of the
Fund. On December 31, 1997, AUL owned 8.11% of the outstanding shares of the
Fund's Equity portfolio and 13.97% of the Fund's Tactical Asset Allocation
Portfolio. At a meeting of the Board of Directors held on November 19, 1997, the
Board approved the addition of three new Portfolios to the Fund, namely, the AUL
American Conservative Investor Portfolio, the AUL American Moderate Investor
Portfolio and the AUL American Aggressive Investor Portfolio, collectively
referred to as the LifeStyle Portfolios. On March 31, 1998, AUL provided the
initial capitalization for the LifeStyle Portfolios and therefore, would be able
to control any issue submitted to the vote of shareholders of the LifeStyle
Portfolios.
Indianapolis Life Insurance company ("IL") is an Indiana domestic mutual
insurance company, whose principal business is the sale of life insurance and
annuity contracts. On November 3, 1997, AUL entered into an agreement with IL to
invest $27 million in its wholly owned downstream holding company, Indianapolis
Life Group of Companies, Inc., in exchange for a 25% equity interest. AUL paid
the balance of the $27 million on March 30, 1998; therefore, AUL currently owns
a 25% equity interest in Indianapolis Group of Companies, Inc.
Item 27. NUMBER OF CONTRACTHOLDERS
As of January 31, 1999, AUL has issued ___ 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 duly caused
this Post-Effective Amendment to the Registration Statement (Form N-1A) to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Indianapolis and the State of Indiana on this 2nd day of March, 1999.
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: March 2, 1999
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 March 2, 1998
Steven C. Beering M.D.*
_______________________________ Director March 2, 1999
Arthur L. Bryant*
_______________________________ Director March 2, 1999
James M. Cornelius*
_______________________________ Director March 2, 1999
James E. Dora*
_______________________________ Director March 2, 1999
Otto N. Frenzel III*
_______________________________ Director March 2, 1999
David W. Goodrich*
_______________________________ Director March 2, 1999
William P. Johnson*
_______________________________ Director March 2, 1999
James T. Morris*
<PAGE>
7
Signature Title Date
- --------- ----- ----
______________________________ Principal Financial March 2, 1999
James W. Murphy* and Accounting Officer
______________________________ Director March 2, 1999
R. Stephen Radcliffe*
______________________________ Director March 2, 1999
Thomas E. Reilly Jr*
______________________________ Director March 2, 1999
William R. Riggs*
______________________________ Director March 2, 1999
John C. Scully*
______________________________ Director March 2, 1999
Yvonne H. Shaheen*
______________________________ Director March 2, 1999
Frank D. Walker*
/s/ Richard A. Wacker
- -------------------------------------------
*By: Richard A. Wacker as Attorney-in-fact
Date: March 2, 1999
