As filed with the Securities and Exchange Commission on April 30, 1996
File No. 33-79562
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. 4
and/or
REGISTRATION STATEMENT UNDER THE
[X] INVESTMENT COMPANY ACT OF 1940
[X] Amendment No. 5
(Check appropriate box or boxes)
AUL AMERICAN INDIVIDUAL UNIT TRUST
(Exact Name of Registrant)
AMERICAN UNITED LIFE INSURANCE COMPANY(R)
(Name of Depositor)
One American Square, Indianapolis, Indiana 46204
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number: (317) 263-1877
Richard A. Wacker, One American Square, Indianapolis, Indiana 46204
(Name and Address of Agent for Service)
Title of Securities Being Registered: Interests in individual variable annuity
contracts
Declaration Pursuant to Rule 24f-2: Pursuant to Rule 24f-2 under the Investment
Company Act of 1940, the Registrant has registered an indefinite number or
amount of securities under the Securities Act of 1933. Registrant will file its
notice pursuant to Rule 24f-2 for its fiscal year ending December 31, 1995 on or
before February 28, 1997.
It is proposed that this filing will become effective (Check appropriate Space)
immediately upon filing pursuant to paragraph (b) of Rule 485
X on May 1, 1996 pursuant to paragraph (b) of Rule 485
- ------ ------------
60 days after filing pursuant to paragraph (a)(i) of Rule 485
on (date) pursuant to paragraph (a)(1) of Rule 485
75 days after filing pursuant to paragraph (a)(ii)
on (date) pursuant to paragraph (a) (ii) of Rule 485
this post-effective amendment designates a new effective date for a
previously filed amendment.
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CROSS REFERENCE SHEET
Pursuant to Rule 495
Showing Location in Part A (Prospectus) and Part B (Statement of Additional Information)
of Registration Statement of Information Required by Form N-4
PART A - PROSPECTUS
Item of Form N-4 Prospectus Caption
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1. Cover Page ........................... Cover Page
2. Definitions .......................... Definitions
3. Synopsis ............................. Summary; Expense Table
4. Condensed Financial Information ...... Not Applicable
5. General Description .................. Information About AUL, The Variable
Account, and the Funds; Voting of
Shares of the Funds
6. Deductions and Expenses .............. Charges and Deductions
7. General Description of Variable
Annuity Contracts .................... The Contracts; Premiums and Contract
Values During the Accumulation
Period; Cash Withdrawals and
Death Proceeds; Summary; Annuity
Period
8. Annuity Period ....................... Annuity Period
9. Death Benefit ........................ Cash Withdrawals and The Death
Proceeds
10. Purchase and Policy Values ........... Premiums and Contract Values During
the Accumulation Period
11. Redemptions .......................... Cash Withdrawals and The Death
Proceeds
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
Statement of Additional Information Statement of Additional Information
Item of Form N-4 Caption
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15. Cover Page ........................... Cover Page
16. Table of Contents .................... Table of Contents
17. General Information and History ...... General Information and History
18. Services ............................. Custody of Assets; Independent
Accountants
19. Purchase of Securities Being Offered . Distribution of Contracts;
(Prospectus) Charges and Deductions
20. Underwriters ......................... Distribution of Contracts
21. Calculation of Performance Data ...... Performance Information
22. Annuity Payments ..................... (Prospectus) 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 Registrant........ Persons Controlled By or Under
Common Control of 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
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1
PROSPECTUS
for
AUL American Individual Unit Trust
AUL American Series Fund, Inc.
Dated May 1, 1996
Sponsored by:
American United Life Insurance Company(R)
P.O. Box 7127
Indianapolis, Indiana 46209-7127
AUL
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Prospectus
AUL American Individual Unit Trust
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
Offered By
American United Life Insurance Company(R)
One American Square
Indianapolis, Indiana 46204
(317) 263-1877
Individual Annuity Service Office:
P.O. Box 7127, Indianapolis, Indiana 46209-7127
(800) 863-9354
This Prospectus describes individual variable annuity contracts (the
"Contracts") offered by American United Life Insurance Company(R) ("AUL" or the
"Company"). The Contracts are designed for use in connection with non-tax
qualified retirement plans for individuals ("Non-Qualified Plans") and also for
use by individuals in connection with retirement plans that meet the
requirements of Sections 401, 403(b), or 408 of the Internal Revenue Code
("Qualified Plans").
This Prospectus describes two variations of Contracts, including Contracts for
which premiums may vary in amount and frequency, subject to certain limitations
("Flexible Premium Contracts") and Contracts for which premiums may vary in
amount and frequency, subject to certain limitations in the first Contract Year
only ("One Year Flexible Premium Contracts"). Both Contracts provide for the
accumulation of values on either a variable basis, a fixed basis, or both. The
Contracts also provide several options for fixed annuity payments to begin on a
future date.
Premiums designated to accumulate on a variable basis may be allocated to one
or more of the Investment Accounts of a separate account of AUL called the AUL
American Individual Unit Trust (the "Variable Account"). Each Investment Account
of the Variable Account invests in shares of one of the following mutual funds:
AUL American Series Fund, Inc. which offers the Equity, Bond, Money Market,
Managed and Tactical Asset Allocation Portfolios; Acacia Capital Corporation,
which offers the Calvert Capital Accumulation Fund; Alger American Portfolio,
which offers the Alger American Growth Portfolio; Fidelity Variable Insurance
Products Fund ("VIP"), which offers the Equity-Income, Growth, High Income and
Overseas Portfolios; Fidelity Variable Insurance Products Fund II ("VIP II"),
which offers the Asset Manager, Contrafund, and Index 500 Portfolios; TCI
Portfolios, Inc., which offers the Growth and International Portfolios; and T.
Rowe Price Equity Series, Inc., which offers the T. Rowe Price Equity Income
Portfolio. AUL acts as the investment adviser to the portfolios of the AUL
American Series Fund, Inc., and Dean Investment Associates acts as the
Sub-Adviser to the Tactical Asset Allocation Portfolio. T. Rowe Price
Associates, Inc. acts as the investment adviser to the T. Rowe Price Equity
Series, Inc. Fidelity Management & Research Company ("FMR") acts as the
investment adviser to the VIP and VIP II Funds. Investors Research Corporation
acts as the investment adviser to TCI Portfolios, Inc. Calvert Management
Corporation acts as the investment adviser to the Acacia Capital Corporation.
Fred Alger & Company acts as the investment adviser to the Alger American Fund.
Premiums allocated to an Investment Account of the Variable Account will
increase or decrease in dollar value depending on the investment performance of
the corresponding Fund in which the Investment Account invests. These amounts
are not guaranteed. Premiums designated to accumulate on a fixed basis may be
allocated to AUL's Fixed Account and will earn interest at rates that are paid
by AUL as described in "The Fixed Account."
This Prospectus concisely sets forth information about the Contracts and the
Variable Account that a prospective investor should know before investing.
Certain additional information is contained in a "Statement of Additional
Information," dated May 1, 1996, which has been filed with the Securities and
Exchange Commission (the "SEC"). The Statement of Additional Information is
incorporated by reference into this Prospectus. A copy may be obtained without
charge by calling or writing to AUL at the telephone number or address indicated
above. The table of contents of the Statement of Additional Information is
located at the end of this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION. NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS SHOULD BE ACCOMPANIED BY THE CURRENT PROSPECTUSES
FOR THE FUND OR FUNDS BEING CONSIDERED. EACH OF THESE PROSPECTUSES
SHOULD BE READ CAREFULLY AND RETAINED FOR FUTURE REFERENCE.
The date of this Prospectus is May 1, 1996.
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2
TABLE OF CONTENTS
Description Page
DEFINITIONS............................................. 3
SUMMARY................................................. 5
Purpose of the Contracts.............................. 5
Types of Contracts.................................... 5
The Variable Account and the Funds.................... 5
Fixed Account......................................... 5
Premiums.............................................. 5
Transfers............................................. 5
Withdrawals........................................... 6
The Death Benefit..................................... 6
Charges............................................... 6
Free Look Right....................................... 6
Dollar Cost Averaging................................. 6
Contacting AUL........................................ 6
EXPENSE TABLE........................................... 6
CONDENSED FINANCIAL INFORMATION......................... 9
PERFORMANCE OF THE INVESTMENT
ACCOUNTS................................................ 11
INFORMATION ABOUT AUL, THE VARIABLE
ACCOUNT, AND THE FUNDS.................................. 12
American United Life Insurance Company(R)............. 12
Variable Account...................................... 12
The Funds............................................. 12
AUL American Series Fund, Inc......................... 13
AUL American Equity Portfolio........................ 13
AUL American Bond Portfolio.......................... 13
AUL American Money Market Portfolio.................. 13
AUL American Managed Portfolio....................... 13
AUL American Tactical Asset
Allocation Portfolio.............................. 13
Acacia Capital Corporation............................ 13
Calvert Capital Accumulation Portfolio............... 13
Alger American Fund................................... 13
Alger American Growth Portfolio...................... 13
Fidelity Variable Insurance Products Fund............. 13
Equity-Income Portfolio.............................. 13
Growth Portfolio..................................... 13
High Income Portfolio................................ 14
Overseas Portfolio................................... 14
Fidelity Variable Insurance Products Fund II.......... 14
Asset Manager Portfolio.............................. 14
Contrafund Portfolio................................. 14
Index 500 Portfolio.................................. 14
TCI Portfolios, Inc................................... 14
TCI Growth........................................... 14
TCI International.................................... 14
T. Rowe Price Equity Series, Inc...................... 14
T. Rowe Price Equity Income.......................... 14
THE CONTRACTS........................................... 14
General............................................... 14
PREMIUMS AND CONTRACT VALUES
DURING THE ACCUMULATION PERIOD.......................... 15
Application for a Contract............................ 15
Premiums under the Contracts.......................... 15
Free Look Period...................................... 15
Allocation of Premiums................................ 15
Transfers of Account Value............................ 15
Dollar Cost Averaging Program......................... 16
Contract Owner's Variable Account Value............... 17
Accumulation Units................................... 17
Accumulation Unit Value.............................. 17
Net Investment Factor................................ 17
CASH WITHDRAWALS AND THE DEATH PROCEEDS................. 17
Cash Withdrawals...................................... 17
The Death Proceeds.................................... 18
Payments from the Variable Account.................... 18
CHARGES AND DEDUCTIONS.................................. 18
Premium Tax Charge.................................... 18
Withdrawal Charge..................................... 19
Mortality and Expense Risk Charge..................... 19
Administrative Fee.................................... 19
Other Charges......................................... 19
Variations in Charges................................. 20
Guarantee of Certain Charges.......................... 20
Expenses of the Funds................................. 20
ANNUITY PERIOD.......................................... 20
General............................................... 20
Annuity Options....................................... 20
Option 1-Income for a Fixed Period................... 20
Option 2-Life Annuity................................ 21
Option 3-Survivorship Annuity........................ 21
Selection of an Option............................... 21
THE FIXED ACCOUNT....................................... 21
Interest.............................................. 21
Withdrawals........................................... 21
Transfers............................................. 22
Contract Charges...................................... 22
Payments from the Fixed Account....................... 22
MORE ABOUT THE CONTRACTS................................ 22
Designation and Change of Beneficiary................. 22
Assignability......................................... 22
Proof of Age and Survival............................. 22
Misstatements......................................... 22
Acceptance of New Premiums............................ 22
FEDERAL TAX MATTERS..................................... 23
Introduction.......................................... 23
Diversification Standards............................. 23
Taxation of Annuities in General-
Non-Qualified Plans.................................. 23
Additional Considerations............................. 24
Qualified Plans....................................... 24
403(b) Programs-Constraints on Withdrawals............ 26
OTHER INFORMATION....................................... 26
Voting of Shares of the Funds......................... 26
Substitution of Investments........................... 26
Changes to Comply with Law and Amendments............. 27
Reservation of Rights................................. 27
Periodic Reports...................................... 27
Legal Proceedings..................................... 27
Legal Matters......................................... 27
Financial Statements.................................. 27
PERFORMANCE INFORMATION ................................ 28
STATEMENT OF ADDITIONAL
INFORMATION TABLE OF CONTENTS........................... 28
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3
DEFINITIONS
Various terms commonly used in this Prospectus are defined as follows:
ACCUMULATION PERIOD - The period commencing on the Contract Date and terminating
when the Contract is terminated, 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 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 payment of death proceeds, if any,
payable upon the death of the Contract Owner during the Accumulation Period, and
the person having the right to benefits, if any, payable upon the death of an
Annuitant during the Annuity Period under any Annuity Option other than a
survivorship option (i.e., Option 3-under which the contingent Annuitant has the
right to benefits payable upon the death of an Annuitant).
BUSINESS DAY - A day on which AUL's Home Office is customarily open for
business. Traditionally, in addition to federal holidays, AUL is not open for
business on the day after Thanksgiving and either the day before or after
Christmas or Independence Day.
CONTRACT ANNIVERSARY - The yearly anniversary of the Contract Date.
CONTRACT DATE - The date shown as the Contract Date in a Contract. It will not
be later than the date the initial premium is accepted under a Contract, and it
is the date used to determine Contract Months, Contract Years, and Contract
Anniversaries.
CONTRACT OWNER OR OWNER - The person entitled to the ownership rights under the
Contract and in whose name the Contract is issued. A trustee or custodian may be
designated to exercise an Owner's rights and responsibilities under a Contract
in connection with a retirement plan that meets the requirements of Section 401
or 408 of the Internal Revenue Code. An administrator, custodian, or other
person performing similar functions may be designated to exercise an Owner's
responsibilities under a Contract in connection with a 403(b) Program. The term
"Owner," as used in this Prospectus, shall include, where appropriate, such a
trustee, custodian, or administrator.
CONTRACT VALUE - The current value of a Contract, which is equal to the sum of
Fixed Account Value and Variable Account Value. Initially, it is equal to the
initial premium and thereafter will reflect the net result of premiums,
investment experience, charges deducted, and any partial withdrawals taken.
CONTRACT YEAR - A period beginning with one Contract Anniversary, or, in the
case of the first Contract Year, beginning on the Contract Date, and ending the
day before the next Contract Anniversary.
DEATH PROCEEDS - The amount payable to the Beneficiary by reason of the death of
the Annuitant or Owner in accordance with the terms of the Contract.
EMPLOYEE BENEFIT PLAN - A pension or profit sharing plan established by an
Employer for the benefit of its employees and which is qualified under Section
401 of the Internal Revenue Code.
FIXED ACCOUNT - An account that is part of AUL's General Account in which all or
a portion of a Owner's Contract Value may be held for accumulation at fixed
rates of interest paid by AUL.
FIXED ACCOUNT VALUE - The total value under a Contract allocated to the Fixed
Account.
403(b) PROGRAM - An arrangement by a public school organization or an
organization that is described in Section 501(c)(3) of the Internal Revenue
Code, including certain charitable, educational and scientific organizations,
under which employees are permitted to take advantage of the Federal income tax
deferral benefits provided for in Section 403(b) of the Internal Revenue Code.
408 PROGRAM - A plan of individual retirement accounts or annuities, including a
simplified employee pension plan established by an employer, that meets the
requirements of Section 408 of the Internal Revenue Code.
FREE WITHDRAWAL AMOUNT - The amount that may be with-
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4
drawn without incurring withdrawal charges, which is 12% of the Contract
Value at the time the first withdrawal in a given Contract Year is requested.
FUNDS - Acacia Capital Corporation, which offers the Calvert Capital
Accumulation Fund; Alger American Portfolio, which offers the Alger American
Growth Portfolio; AUL American Series Fund, Inc., which offers the Equity, Bond,
Money Market, Managed, and Tactical Asset Allocation Portfolios; Fidelity
Variable Insurance Products Fund ("VIP"), which offers the Equity-Income,
Growth, High Income and Overseas Portfolios; Fidelity Variable Insurance
Products Fund II ("VIP II"), which offers the Asset Manager, Contrafund, and
Index 500 Portfolios; TCI Portfolios, Inc., which offers the Growth and
International Portfolios; and T. Rowe Price Equity Series, Inc., which offers
the T. Rowe Price Equity Income Portfolio. Each of the Funds is a diversified,
open-end management investment company commonly referred to as a mutual fund, or
a portfolio thereof.
GENERAL ACCOUNT - All assets of AUL other than those allocated to the Variable
Account or to any other separate account of AUL.
HOME OFFICE - The Individual Annuity Service Office at AUL's principal business
office, One American Square, Indianapolis, Indiana 46204.
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 one of the Funds.
INVESTMENT ACCOUNT - A sub-account of the Variable Account that invests in
shares of one of the Funds.
NET PURCHASE PAYMENTS - The premiums paid less any applicable premium tax.
PREMIUMS - The amounts paid to AUL as consideration for the Contract. In those
states that require the payment of premium tax upon receipt of a premium by AUL,
the term "premium" shall refer to the amount received by AUL net of the amount
deducted for premium tax.
QUALIFIED PLANS - Employee Benefit Plans, 403(b) Programs and 408 Programs.
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 VALUE - The total value under a Contract allocated to the
Investment Accounts of the Variable Account.
WITHDRAWAL VALUE - An Owner's Contract Value minus the applicable withdrawal
charge.
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5
SUMMARY
This summary is intended to provide a brief overview of the more significant
aspects of the Contracts. Further detail is provided in this Prospectus, the
Statement of Additional Information, and the Contracts. Unless the context
indicates otherwise, the discussion in this summary and the remainder of the
Prospectus relates to the portion of the Contracts involving the Variable
Account. The Fixed Account is briefly described under "The Fixed Account" and in
the pertinent Contract.
PURPOSE OF THE CONTRACTS
The individual variable annuity contracts ("Contracts") described in this
Prospectus are offered for use in connection with non-tax qualified retirement
plans for individuals ("Non-Qualified Plans") and also for use by individuals in
connection with retirement plans that meet the requirements of Sections 401,
403(b) or 408 of the Internal Revenue Code (collectively "Qualified Plans"). A
Contract presents a dynamic concept in retirement planning designed to give
Contract Owners flexibility in attaining investment goals. A Contract provides
for the accumulation of values on a variable basis, a fixed basis, or both, and
provides several options for fixed annuity payments. During the Accumulation
Period, a Contract Owner can allocate premiums to the various Investment
Accounts of the Variable Account or to the Fixed Account. See "The Contracts."
TYPES OF CONTRACTS
AUL offers two variations of contracts that are described in this Prospectus.
Under Flexible Premium Contracts, premiums may vary in amount and frequency,
subject to the limitations described below. Under One Year Flexible Premium
Contracts, premiums may vary in amount and frequency but may be made during the
first Contract Year only.
THE VARIABLE ACCOUNT AND THE FUNDS
Premiums designated to accumulate on a variable basis are allocated to the
Variable Account. See "Variable Account." The Variable Account is currently
divided into subaccounts referred to as Investment Accounts. Each Investment
Account invests exclusively in shares of one of the following mutual Funds: AUL
American Series Fund, Inc. which offers the Equity, Bond, Money Market, Managed,
and Tactical Asset Allocation Portfolios; Acacia Capital Corporation, which
offers the Calvert Capital Accumulation Fund; Alger American Portfolio, which
offers the Alger American Growth Portfolio; Fidelity Variable Insurance Products
Fund ("VIP"), which offers the Equity-Income, Growth, High Income, and Overseas
Portfolios; Fidelity Variable Insurance Products Fund II ("VIP II"), which
offers the Asset Manager, Contrafund, and Index 500 Portfolios; TCI Portfolios,
Inc., which offers the Growth and International Portfolios; and T. Rowe Price
Equity Series, Inc., which offers the T. Rowe Price Equity Income Portfolio. AUL
acts as the investment adviser to the portfolios of the AUL American Series
Fund, Inc. Dean Investment Associates acts as Sub-Adviser to the Tactical Asset
Allocation Portfolio. Calvert Management Corporation acts as the investment
adviser to the Acacia Capital Corporation. Fred Alger & Company acts as the
investment adviser to the Alger American Fund. Fidelity Management & Research
Company ("FMR") acts as the investment adviser to the VIP and VIP II Funds.
Investors Research Corporation acts as the investment adviser to TCI Portfolios,
Inc. T. Rowe Price Associates, Inc. acts as the investment adviser to the T.
Rowe Price Equity Series, Inc.
Each of the Funds has a different investment objective or objectives. Premiums
may be allocated to one or more Investment Accounts available under a Contract.
The value of the Accumulation Units held in an Investment Account will increase
or decrease in dollar value depending on the investment performance of the
corresponding Fund in which the Investment Account invests. The Contract Owner
bears the investment risk for amounts allocated to an Investment Account of the
Variable Account.
FIXED ACCOUNT
Premiums designated to accumulate on a fixed basis may be allocated to the
Fixed Account, which is part of AUL's General Account. Amounts allocated to the
Fixed Account earn interest at rates periodically determined by AUL that are
guaranteed to be at least an effective annual rate of 3%. See "The Fixed
Account."
PREMIUMS
For Flexible Premium Contracts, premiums may vary in amount and frequency, but
each premium payment must be at least $50. For the first three Contract Years,
premiums must total, on a cumulative basis, at least $300 each Contract Year.
For One Year Flexible Premium Contracts, premiums may be paid only during the
first Contract Year, and each premium must be at least $500. See "Premiums under
the Contracts."
TRANSFERS
A Contract Owner's Variable Account Value may be transferred among the
Investment Accounts of the Variable Account that are available under the
Contract or to the Fixed Account at any time during the Accumulation Period.
Part of a Contract Owner's Fixed Account Value may be transferred to one or more
available Investment Accounts of the Variable Account during the Accumulation
Period, subject to certain restrictions. The minimum amount that may be
transferred from any one Investment Account or from the Fixed Account is $500
or, if less than $500, the Contract Owner's remaining Contract Value in an
Investment Account or the Fixed Account, provided however, that amounts
transferred from the Fixed Account to an Investment Account during any given
Contract Year cannot exceed 20% of the Owner's Fixed Account Value as of the
beginning of that Contract Year. If, after any transfer, the
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6
remaining Contract 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 Contract Value. See "Transfers of Account Value."
WITHDRAWALS
At any time before the Annuity Date and during the lifetime of the Contract
Owner and subject to the limitations under any applicable Qualified Plan and
applicable law, a Contract may be surrendered or a partial withdrawal may be
taken from the Contract Value. The minimum amount that may be withdrawn from an
Owner's Contract Value is $200 for Flexible Premium Contracts and $500 for One
Year Flexible Premium Contracts.
Certain retirement programs, such as 403(b) Programs, are subject to
constraints on withdrawals and full surrenders. See "403(b) Programs-Constraints
on Withdrawals." See "Cash Withdrawals" for more information, including the
possible charges and tax consequences of full and partial withdrawals.
THE DEATH BENEFIT
The Contracts provide for a death benefit upon the death of the Annuitant or
Contract Owner during the Accumulation Period. See "Death Benefit" for more
information. The Contracts provide for several optional fixed Annuity Options,
any one of which may be elected if permitted by any applicable Qualified Plan
and applicable law. Payments under the Annuity Options will be fixed and
guaranteed by AUL. See "Annuity Period."
CHARGES
Certain charges will be deducted in connection with the operation of the
Contracts and the Variable Account including a withdrawal charge that is
assessed upon partial withdrawal or surrender, a mortality and expense risk
charge, a premium tax charge, and an administrative fee. In addition, investment
advisory fees and other expenses are paid by the Funds. For further information
on these charges and expenses, see "Charges and Deductions."
FREE LOOK RIGHT
The Owner has the right to return the Contract for any reason within ten days
of receipt (or a longer period if required by state law). If this right is
exercised, the Contract will be considered void from its inception and AUL will
refund to the Owner the greater of (1) premium payments or (2) any Contract
Value as of the end of the Valuation Period in which AUL receives the Contract
plus any amounts deducted for premium taxes.
DOLLAR COST AVERAGING
Owners who wish to purchase units of an Investment Account over a period of
time may do so through the Dollar Cost Averaging ("DCA") Program. Under a DCA
Program, the owner authorizes AUL to transfer a specific dollar amount from the
AUL American Money Market Investment Account into one or more other Investment
Accounts at the unit values determined on the dates of the transfers. This may
be done monthly, quarterly, semi-annually, or annually. These transfers will
continue automatically until AUL receives notice to discontinue the Program, or
until there is not enough money in the Money Market Investment Account to
continue the Program, whichever occurs first. Currently, the minimum required
amount for each transfer is $500, although AUL reserves the right to change this
minimum transfer amount in the future. To participate in the Program, a minimum
deposit of $10,000 is required. For further information, see the explanation
under "Dollar Cost Averaging Program."
CONTACTING AUL
All written requests, notices, and forms required by the Contracts, and any
questions or inquiries should be directed to AUL's Individual Annuity Office
shown in the front of this Prospectus.
EXPENSE TABLE
The purpose of the following table is to assist investors in understanding the
various costs and expenses that Contract Owners bear directly and indirectly.
The table reflects expenses of the Variable Account as well as the Funds. The
fees in this expense table have been provided by the Funds and have not been
independently verified by AUL. The table does not reflect AUL's charges for
premium taxes that may be imposed by various jurisdictions. See "Premium Tax
Charge." The information contained in the table is not generally applicable to
amounts allocated to the Fixed Account or to annuity payments under an Annuity
Option.
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7
EXPENSE TABLE (continued)
For a complete description of a Contract's costs and expenses, see "Charges
and Deductions." For a more complete description of the Funds' costs and
expenses, see the Funds' Prospectuses..
<TABLE>
<CAPTION>
CONTRACT OWNER TRANSACTION EXPENSES
SALES CHARGE (ALSO REFERRED TO AS A "WITHDRAWAL CHARGE")(1)
Charge on Withdrawal Exceeding 12% Free Withdrawal Amount(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Contract Year 1 2 3 4 5 6 7 8 9 10 11 or more
Flexible Premium
Contracts 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0%
One Year Flexible
Premium Contracts 7% 6% 5% 4% 3% 2% 1% 0% 0% 0% 0%
Annual Contract Fee
Maximum administrative fee (per year)(2)..................................................................................... $30
Variable Account Annual Expenses (as a percentage of average account value)
Mortality and expense risk fee............................................................................................... 1.25%
</TABLE>
<TABLE>
FUND ANNUAL EXPENSES (as a percentage of net assets of each Fund)
<S> <C> <C> <C>
Management/ Other Total Fund
Portfolio Advisory Fee Expenses Annual Expenses
AUL American Series Fund, Inc.
Equity Portfolio 0.50%(3) 0.20% 0.70%
Bond Portfolio 0.50%(3) 0.20% 0.70%
Managed Portfolio 0.50%(3) 0.20% 0.70%
Money Market Portfolio 0.50%(3) 0.23% 0.73%
Tactical Asset Allocation Portfolio 0.80%(3) 0.20% 1.00%
Acacia Capital Corporation:
Calvert Capital Accumulation Portfolio 0.90%(4) 0.66% 1.56%
Alger American Fund Alger American Growth Portfolio 0.75% 0.10% 0.85%
Fidelity Variable Insurance Products Fund
Equity-Income Portfolio 0.51% 0.10% 0.61%
Growth Portfolio 0.61% 0.09% 0.70%
High Income Portfolio 0.60% 0.11% 0.71%(5)
Overseas Portfolio 0.76% 0.15% 0.91%
Fidelity Variable Insurance Products Fund II
Asset Manager Portfolio 0.71% 0.08% 0.79%(5)
Contrafund Portfolio 0.61% 0.11% 0.72%(5)
Index 500 Portfolio 0.00% 0.28% 0.28%(6)
TCI Portfolios, Inc.
TCI Growth 1.00% 0.00% 1.00%
TCI International 1.50% 0.00% 1.50%
T. Rowe Price Equity Series, Inc.
T. Rowe Price Equity Income 0.85% 0.00% 0.85%
<FN>
(1) An amount withdrawn during a Contract Year referred to as the Free
Withdrawal Amount will not be subject to a withdrawal charge. The Free
Withdrawal Amount is 12% of the Contract Value at the time of the first
withdrawal in any Contract Year in which the withdrawal is made. See "Withdrawal
Charge."
(2)The administrative charge may be less than $30.00 per year, based on the
Owner's Contract Value. The maximum charge imposed will be the lesser of 2% of
the Owner's Contract Value or $30.00 per year. The administrative charge is
waived if the Contract Value equals or exceeds $50,000 on a Contract
Anniversary.
(3)AUL has currently agreed to waive its advisory fee if the ordinary
expenses of a Portfolio exceed 1% and, to the extend 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 1995, expenses
did not exceed 1% of the average daily net asset value.
(4)The Management and Advisory Fees are subject to a performance
adjustment, after January 31, 1997, which could cause the fee to be as high as
0.95% or as low as 0.85%, depending on performance. The figures set forth have
been restated to reflect anticipated expenses for 1996 due to an elimination of
the waiver of the 0.10% administrative services fee, which is included under
Management and Advisory expenses and is paid to the Advisor's affiliate. "Other
Expenses" reflect an indirect fee of 0.21%. Net fund operating expenses after
reduction for fees paid indirectly would be 1.35%.
(5) A portion of the brokerage commissions the fund paid was used to reduce
its expenses. Without this reduction total operating expenses would have been
for High Income: 0.71%; for Asset Manager: 0.81%; and for Contrafund: 0.73%.
(6)The fund's expenses were voluntarily reduced by the fund's investment
adviser. Absent such reimbursement, management fee, other expenses, and total
expenses would have been 0.28%, 0.19% and 0.47%, respectively for the Index 500
portfolio.
</FN>
</TABLE>
<PAGE>
8
EXAMPLES (for any Investment Account)
The following examples show expenses that a Contract Owner would pay at the
end of one, three, five, or ten years if at the end of those time periods, the
Contract is (1) surrendered, (2) annuitized, or (3) not surrendered or
annuitized. The information below represents expenses on a $1,000 premium and
assumes a 5% return per year. For a Contract that is surrendered, and for a
Contract that is annuitized, the example shows expenses for Flexible Premium
Contracts and One Year Flexible Premium Contracts. Expenses will be the same for
both Contracts if not surrendered or annuitized. Column (2) reflects an
assumption that a life annuity or survivorship annuity is elected. Under certain
circumstances, a withdrawal charge may apply upon annuitization. See "Withdrawal
Charge." These examples should not be considered a representation of past or
future expenses. Because Fund expenses may vary, actual expenses may be greater
or less than those shown. The assumed 5% return is hypothetical and should not
be considered a representation of past or future returns, which may be greater
or less than the assumed amount.
<TABLE>
<CAPTION>
(1) If Your Contract (2) If your Contract (3) If your Contract
is Surrendered is Annuitized is not Surrendered or
Annuitized
<S> <C> <C> <C> <C> <C>
Flexible Premium One Year Flexible Flexible One Year Flexible
Premium Contracts Premium Contracts Premium Contracts Premium Contracts All Contracts
Investment Account
AUL American Equity
1 year 107.78 86.03 107.78 22.78 22.78
3 years 146.15 117.57 146.15 69.94 69.94
5 years 179.63 149.49 119.34 119.34 119.34
10 years 265.06 253.57 253.57 253.57 253.57
AUL American Bond
1 year 107.78 86.03 107.78 22.78 22.78
3 years 146.15 117.57 146.15 69.94 69.94
5 years 179.63 149.49 119.34 119.34 119.34
10 years 265.06 253.57 253.57 253.57 253.57
AUL American Money Market
1 year 108.07 86.30 108.07 23.07 23.07
3 years 146.97 118.42 146.97 70.82 70.82
5 years 181.03 150.92 120.82 120.82 120.82
10 years 268.03 256.57 256.57 256.57 256.57
AUL American Managed
1 year 107.78 86.03 107.78 22.78 22.78
3 years 146.15 117.57 146.15 69.94 69.94
5 years 179.63 149.49 119.34 119.34 119.34
10 years 265.06 253.57 253.57 253.57 253.57
Tactical Asset Allocation
1 year 110.78 88.84 110.78 25.78 25.78
3 years 154.51 126.18 154.51 78.98 78.98
5 years 193.83 164.14 134.44 134.44 134.44
10 years 295.03 283.88 283.88 283.88 283.88
Alger American Growth
1 year 109.28 87.43 109.28 24.28 24.28
3 years 150.34 121.89 150.34 74.47 74.47
5 years 186.76 156.84 126.92 126.92 126.92
10 years 280.17 268.85 268.85 268.85 268.85
Calvert Capital Accumulation
1 year 116.40 94.10 116.40 31.40 31.40
3 years 169.99 142.14 169.99 95.73 95.73
5 years 219.90 191.04 162.18 162.18 162.18
10 years 348.70 338.17 338.17 338.17 338.17
Fidelity VIP Equity-Income
1 year 106.90 85.20 106.90 21.90 21.90
3 years 143.69 115.04 143.69 67.28 67.28
5 years 175.43 145.15 114.88 114.88 114.88
10 years 256.11 244.51 244.51 244.51 244.51
Fidelity VIP Growth
1 year 107.78 86.03 107.78 22.78 22.78
3 years 146.15 117.57 146.15 69.94 69.94
5 years 179.63 149.49 119.34 119.34 119.34
10 years 265.06 253.57 253.57 253.57 253.57
<PAGE>
9
Examples (for any Investment Account) (continued)
<CAPTION>
(1) If Your Contract (2) If your Contract (3) If your Contract
is Surrendered is Annuitized is not Surrendered or
Annuitized
<S> <C> <C> <C> <C> <C>
Flexible Premium One Year Flexible Flexible One Year Flexible
Premium Contracts Premium Contracts Premium Contracts Premium Contracts All Contracts
Investment Account
Fidelity VIP High Income
1 year 107.89 86.13 107.89 22.89 22.89
3 years 146.46 117.89 146.46 70.27 70.27
5 years 180.15 150.03 119.90 119.90 119.90
10 years 266.18 254.70 254.70 254.70 254.70
Fidelity VIP Overseas
1 year 109.90 88.02 109.90 24.90 24.90
3 years 152.07 123.67 152.07 76.34 76.34
5 years 189.70 1.87 130.05 130.05 130.05
10 years 286.36 275.11 275.11 275.11 275.11
Fidelity VIP II Asset
1 year 108.70 86.88 108.70 23.70 23.70
3 years 148.71 120.21 148.71 72.70 72.70
5 years 183.98 153.98 123.97 123.97 123.97
10 years 274.30 262.91 262.91 262.91 262.91
Fidelity VIP II Contrafund
1 year 108.00 86.23 108.00 23.00 23.00
3 years 146.77 118.21 146.77 70.60 70.60
5 years 180.68 150.57 120.45 120.45 120.45
10 years 267.29 255.82 255.82 255.82 255.82
Fidelity VIP II Index 500
1 year 103.55 82.07 103.55 18.55 18.55
3 years 134.31 105.36 134.31 57.12 57.12
5 years 159.34 128.55 97.76 97.76 97.76
10 years 221.35 209.36 209.36 209.36 209.36
TCI Growth
1 year 110.78 88.84 110.78 25.78 25.78
3 years 154.51 126.18 154.51 78.98 78.98
5 years 193.83 164.14 134.44 134.44 134.44
10 years 295.03 283.88 283.88 283.88 283.88
TCI International
1 year 115.78 93.52 115.78 30.78 30.78
3 years 168.29 140.39 168.29 93.89 93.89
5 years 217.06 188.11 159.15 159.15 159.15
10 years 324.94 332.34 332.34 332.34 332.34
T. Rowe Price Equity Income
1 year 109.28 87.43 109.28 24.28 24.28
3 years 150.34 121.89 150.34 74.47 74.47
5 years 186.76 156.84 126.92 126.92 126.92
10 years 280.17 268.85 268.85 268.85 268.85
</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 November 21, 1994 to December 31, 1995. The following
tables 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, 1995. The Variable Account's financial statements have been
audited by Coopers & Lybrand L.L.P., the Variable Account's independent
accountant.
<TABLE>
<S> <C> <C>
Investment Account 1995 1994
AUL American Equity
Unit Value at beginning of period $5.010 $5.000
Unit Value at end of period 5.911 5.010
Number of units outstanding at end of period 169,738.465 15,959.218
<PAGE>
10
CONDENSED FINANCIAL INFORMATION (continued)
<S> <C> <C>
Investment Account 1995 1994
AUL American Bond
Unit Value at beginning of period $5.062 $5.000
Unit Value at end of period 5.888 5.062
Number of units outstanding at end of period 81,914.403 118.883
AUL American Money Market
Unit Value at beginning of period $1.004 $1.000
Unit Value at end of period 1.044 1.004
Number of units outstanding at end of period 1,582,630.174 626,535.146
AUL American Managed
Unit Value at beginning of period $5.034 $5.000
Unit Value at end of period 5.923 5.034
Number of units outstanding at end of period 119,092.277 664.550
AUL Tactical Asset Allocation
Unit Value at beginning of period (7/31/95) $5.000 N.A.
Unit Value at end of period 5.297
Number of units outstanding at end of period 18,030.022
Alger American Growth
Unit Value at beginning of period (4/28/95) $5.000 N.A.
Unit Value at end of period 6.003
Number of units outstanding at end of period 208,236.470
Calvert Capital Accumulation
Unit Value at beginning of period (4/48/95) $5.000 N.A.
Unit Value at end of period 6.211
Number of units outstanding at end of period 24,090.888
Fidelity VIP Equity-Income
Unit Value at beginning of period (4/28/95) $5.000 N.A.
Unit Value at end of period 5.974
Number of units outstanding at end of period 162,252.393
Fidelity VIP Growth
Unit Value at beginning of period $5.028 $5.000
Unit Value at end of period 6.723 5.028
Number of units outstanding at end of period 382,748.411 17,303.821
Fidelity VIP High Income
Unit Value at beginning of period $4.988 $5.000
Unit Value at end of period 5.942 4.988
Number of units outstanding at end of period 124,255.921 12,229.340
Fidelity VIP Overseas
Unit Value at beginning of period $4.915 $5.000
Unit Value at end of period 5.324 4.915
Number of units outstanding at end of period 66,675.195 3,238.060
Fidelity VIP II Asset Manager
Unit Value at beginning of period $4.883 $5.000
Unit Value at end of period 5.641 4.883
Number of units outstanding at end of period 246,331.760 14,681.732
Fidelity VIP II Contrafund
Unit Value at beginning of period (4/28/95) $5.000 N.A.
Unit Value at end of period 6.030
Number of units outstanding at end of period 121,824.755
Fidelity VIP II Index 500
Unit Value at beginning of period $5.020 $5.000
Unit Value at end of period 6.802 5.020
Number of units outstanding at end of period 130,390.078 20.000
TCI Growth
Unit Value at beginning of period $5.010 $5.000
Unit Value at end of period 6.486 5.010
Number of units outstanding at end of period 128,270.148 2,809.564
<PAGE>
11
CONDENSED FINANCIAL INFORMATION (continued)
<S> <C> <C>
Investment Account 1995 1994
TCI International
Unit Value at beginning of period $4.840 $5.000
Unit Value at end of period 5.364 4.840
Number of units outstanding at end of period 74,261.271 831.382
T. Rowe Price Equity Income
Unit Value at beginning of period $5.000 N.A.
Unit Value at end of period 6.016
Number of units outstanding at end of period 163,043.483
</TABLE>
PERFORMANCE OF THE INVESTMENT ACCOUNTS
The following tables present the return on investment for each of the
Investment Accounts. The return on investment represents a change in an
Accumulation Unit allocated to an Investment Account and takes into account
Variable Account charges such as the mortality and expense risk charges. The
return on investment figures in the first table (excluding charges) do not
reflect either the deduction of the withdrawal charge or a pro rata portion of
the administrative charge. The return on investment figures in the second and
third tables (including charges) reflect the deduction of the withdrawal charge
and a pro rata portion of the administrative charge. For the periods that a
particular investment account has not been in operation, the results presented
represent 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" column) then the performance is actual performance and not hypothetical
in nature.
<TABLE>
<CAPTION>
Performance (excluding charges) for All Contracts
Average Average Average Average
Annual Annual Annual Annual Cumulative
Return on Return on Return on Return on Return on
Inception Inception Investment Investment Investment Investment Investment for
Date of Date of for Year for 3 Years for 5 Years for lesser of lesser of 10
Mutual Investment ending ending ending 10 Years or Years or Since
Investment Account Fund Account 12/31/95 12/31/95 12/31/95 Since Inception Inception
- ------------------ ---- ------- -------- -------- -------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
AUL American Equity 4/10/90 11/21/94 17.97% 10.67% 12.81% 10.74% 79.22%
AUL American Bond 4/10/90 11/21/94 16.32% 6.59% 8.06% 8.58% 60.13%
AUL American Money Market 4/10/90 11/21/94 3.97% 2.42% 2.67% 3.08% 18.95%
AUL American Managed 4/10/90 11/21/94 17.65% 8.70% 9.56% 9.33% 66.56%
AUL American Tactical
Asset Allocation 7/31/95 7/31/95 n.a. n.a. n.a. n.a. 2.45%
Alger American Growth 1/09/89 4/28/95 34.68% 17.75% 20.24% 17.64% 210.72%
Calvert Capital Accumulation 7/16/91 4/28/95 37.79% 9.20% n.a. 10.76% 57.74%
Fidelity VIP Equity-Income 10/09/86 4/28/95 33.40% 18.13% 19.83% 11.91% 182.48%
Fidelity VIP Growth 10/09/86 11/21/94 33.68% 15.88% 19.28% 13.53% 222.54%
Fidelity VIP High Income 9/19/85 11/21/94 19.10% 11.25% 17.46% 10.10% 161.74%
Fidelity VIP Overseas 1/28/87 11/21/94 8.31% 13.86% 6.78% 5.99% 68.09%
Fidelity VIP II Asset Manager 9/06/89 11/21/94 15.50% 8.64% 11.36% 10.02% 82.79%
Fidelity VIP II Contrafund 1/03/95 4/28/95 n.a. n.a. n.a. n.a. 37.77%
Fidelity VIP II Index 500 8/27/92 11/21/94 35.48% 13.57% n.a. 14.02% 55.13%
TCI Growth 11/20/87 11/21/94 29.47% 11.24% 13.46% 12.18% 154.10%
TCI International 5/01/94 11/21/94 10.81% n.a. n.a. 2.62% 19.44%
T. Rowe Price Equity Income 3/31/94 4/28/95 33.08% n.a. n.a. 21.83% 41.28%
<CAPTION>
Performance (including charges) for Flexible Premium Contracts
Average Average Average Average
Annual Annual Annual Annual Cumulative
Return on Return on Return on Return on Return on
Inception Inception Investment Investment Investment Investment Investment for
Date of Date of for Year for 3 Years for 5 Years for lesser of lesser of 10
Mutual Investment ending ending ending 10 Years or Years or Since
Investment Account Fund Account 12/31/95 12/31/95 12/31/95 Since Inception Inception
- ------------------ ---- ------- -------- -------- -------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
AUL American Equity 4/10/90 11/21/94 5.85% 7.32% 11.09% 9.41% 67.26%
AUL American Bond 4/10/90 11/21/94 4.37% 3.36% 6.41% 7.27% 49.39%
AUL American Money Market 4/10/90 11/21/94 (6.71%) (0.68%) 1.11% 1.83% 10.93%
AUL American Managed 4/10/90 11/21/94 5.57% 5.40% 7.89% 8.01% 55.38%
AUL American Tactical
Asset Allocation 7/31/95 7/31/95 n.a. n.a. n.a. n.a. (2.11%)
Alger American Growth 1/09/89 4/28/95 20.85% 14.18% 18.41% 16.60% 192.05%
Calvert Capital Accumulation 7/16/91 4/28/95 23.64% 5.89% n.a. 8.84% 45.90%
Fidelity VIP Equity-Income 10/09/86 4/28/95 19.70% 14.54% 18.00% 11.42% 171.27%
Fidelity VIP Growth 10/09/86 11/21/94 19.95% 12.36% 17.46% 13.03% 209.67%
Fidelity VIP High Income 9/19/85 11/21/94 6.87% 7.88% 15.66% 9.66% 151.47%
Fidelity VIP Overseas 1/28/87 11/21/94 (2.81%) 10.41% 5.15% 5.43% 60.33%
Fidelity VIP II Asset Manager 9/06/89 11/21/94 3.64% 5.35% 9.67% 8.75% 69.87%
Fidelity VIP II Contrafund 1/03/95 4/28/95 n.a. n.a. n.a. n.a. 23.66%
Fidelity VIP II Index 500 8/27/92 11/21/94 21.57% 10.12% n.a. 11.16% 42.49%
TCI Growth 11/20/87 11/21/94 16.17% 7.86% 11.73% 11.38% 139.77%
TCI International 5/01/94 11/21/94 (0.57%) n.a. n.a. (3.38%) (5.61%)
T. Rowe Price Equity Income 3/31/94 4/28/95 19.42% n.a. n.a. 15.04% 27.79%
<PAGE>
12
<CAPTION>
PERFORMANCE OF THE INVESTMENT ACCOUNTS (continued)
Performance (including charges) for One Year Flexible Premium Contracts
Average Average Average Average
Annual Annual Annual Annual Cumulative
Return on Return on Return on Return on Return on
Inception Inception Investment Investment Investment Investment Investment for
Date of Date of for Year for 3 Years for 5 Years for lesser of lesser of 10
Mutual Investment ending ending ending 10 Years or Years or Since
Investment Account Fund Account 12/31/95 12/31/95 12/31/95 Since Inception Inception
- ------------------ ---- ------- -------- -------- -------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
AUL American Equity 4/10/90 11/21/94 9.38% 8.47% 11.79% 10.00% 72.48%
AUL American Bond 4/10/90 11/21/94 7.85% 4.47% 7.08% 7.85% 54.07%
AUL American Money Market 4/10/90 11/21/94 (3.60%) 0.39% 1.74% 2.39% 14.46%
AUL American Managed 4/10/90 11/21/94 9.09% 6.53% 8.57% 8.60% 60.30%
AUL American Tactical Asset
Allocation 7/31/95 7/31/95 n.a. n.a. n.a. n.a. (0.75%)
Alger American Growth 1/09/89 4/28/95 24.87% 15.41% 19.15% 17.12% 201.26%
Calvert Capital Accumulation 7/16/91 4/28/95 27.76% 7.03% n.a. 9.62% 50.62%
Fidelity VIP Equity-Income 10/09/86 4/28/95 23.69% 15.78% 18.75% 11.54% 173.98%
Fidelity VIP Growth 10/09/86 11/21/94 23.95% 13.57% 18.20% 13.15% 212.72%
Fidelity VIP High Income 9/19/85 11/21/94 10.43% 9.04% 16.39% 9.77% 154.00%
Fidelity VIP Overseas 1/28/87 11/21/94 0.43% 11.59% 5.81% 5.67% 63.62%
Fidelity VIP II Asset Manager 9/06/89 11/21/94 7.09% 6.48% 10.36% 9.30% 75.37%
Fidelity VIP II Contrafund 1/03/95 4/28/95 n.a. n.a. n.a. n.a. 37.77%
Fidelity VIP II Index 500 8/27/92 11/21/94 25.62% 11.31% n.a. 12.23% 47.13%
TCI Growth 11/20/87 11/21/94 20.04% 9.02% 12.43% 11.80% 147.20%
TCI International 5/01/94 11/21/94 2.75% n.a. n.a. (1.48%) (2.47%)
T. Rowe Price Equity Income 3/31/94 4/28/95 23.40% n.a. n.a. 17.20% 32.02%
</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 46 states and the District of Columbia. AUL has its principal
business office located at One American Square, Indianapolis, Indiana 46204.
AUL conducts a conventional life insurance, reinsurance, and annuity business.
At December 31, 1995, AUL had admitted assets of $6,453,558,834 and a policy
owners' surplus of $289,363,821.
The principal underwriter for the Contracts is AUL, which is registered with
the SEC as a broker-dealer.
VARIABLE ACCOUNT
AUL American Individual Unit Trust was established by AUL on April 14, 1994,
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. Assets
in the Variable Account attributable to the reserves and other liabilities under
the Contracts are not chargeable with liabilities arising from any other
business that AUL conducts. AUL owns the assets in the Variable Account and is
required to maintain sufficient assets in the Variable Account to meet all
Variable Account obligations under the Contracts. AUL may transfer to its
General Account assets that exceed anticipated obligations of the Variable
Account. All obligations arising under the Contracts are general corporate
obligations of AUL. AUL may invest its own assets in the Variable Account, and
may accumulate in the Variable Account proceeds from Contract charges and
investment results applicable to those assets.
The Variable Account is currently divided into sub-accounts referred to as
Investment Accounts. Each Investment Account invests exclusively in shares of
one of the Funds. Premiums may be allocated to one or more Investment Accounts
available under a Contract. AUL may in the future establish additional
Investment Accounts of the Variable Account, which may invest in other
securities, mutual funds, or investment vehicles.
The Variable Account is registered with the SEC as a unit investment trust
under the Investment Company Act of 1940 (the "1940 Act"). Registration with the
SEC does not involve supervision by the SEC of the administration or investment
practices of the Variable Account or of AUL.
THE FUNDS
Each of the Funds is a diversified, open-end management investment company
commonly referred to as a mutual fund, or a portfolio thereof. Each of the Funds
is registered with the SEC under the 1940 Act. Such registration does not
involve supervision by the SEC of the investments or investment policies or
practices of the Fund. Each Fund has its own investment objective or objectives
and policies. The shares of a Fund are purchased by AUL for the corresponding
Investment Account at the Fund's net asset value per share, i.e., without any
sales load. All dividends and capital gain distributions received from a Fund
are automatically reinvested in such Fund at net asset value, unless otherwise
instructed by AUL. AUL has entered into agreements with the
Distributors/Advisers of Acacia Capital Corporation and TCI Portfolios, Inc.,
under which AUL has agreed to render certain services and to provide information
<PAGE>
13
about these funds to its Contract Owners and/or Participants who invest in these
funds. Under these agreements and for providing these services, AUL receives
compensation from the Distributor/Advisor of these funds.
The investment advisers of the Funds are identified on page 5. All of the in-
vestment advisers are registered with the SEC as investment advisers.
A summary of the investment objective or objectives of each Fund is provided
below. There can be no assurance that any Fund will achieve its objective or
objectives. More detailed information is contained in the Prospectus for the
Funds, including information on the risks associated with the investments and
investment techniques of each Fund.
AUL AMERICAN SERIES FUND, INC.
AUL AMERICAN EQUITY PORTFOLIO
The primary investment objective of the AUL American Equity Portfolio is
long-term capital appreciation. The Fund seeks current investment income as a
secondary objective. The Fund attempts to achieve these objectives by investing
primarily in equity securities selected on the basis of fundamental investment
research for their long-term growth prospects.
AUL AMERICAN BOND PORTFOLIO
The primary investment objective of the AUL American Bond Portfolio is to
provide a high level of income consistent with prudent investment risk. As a
secondary objective, the Fund seeks to provide capital appreciation to the
extent consistent with the primary objective. The Fund attempts to achieve these
objectives by investing primarily in corporate bonds and other debt securities.
AUL AMERICAN MONEY MARKET PORTFOLIO
The investment objective of the AUL American Money Market Portfolio is to
provide a high level of current income while preserving assets and maintaining
liquidity and investment quality. The Fund attempts to achieve this objective by
investing in short-term money market instruments that are of the highest
quality.
AUL AMERICAN MANAGED PORTFOLIO
The investment objective of the AUL American Managed Portfolio is to provide a
high total return consistent with prudent investment risk. The Fund attempts to
achieve this objective through a fully managed investment policy utilizing
publicly traded common stock, debt securities (including convertible
debentures), and money market securities.
AUL AMERICAN TACTICAL ASSET ALLOCATION PORTFOLIO
The investment objective of the Tactical Asset Allocation Portfolio is
preservation of capital and competitive investment returns. The Portfolio seeks
to achieve its objective by investing primarily in stocks, United States
Treasury bonds, notes and bills, and money market funds.
FOR ADDITIONAL INFORMATION CONCERNING AUL AMERICAN SERIES FUND, INC. AND ITS
PORTFOLIOS, PLEASE SEE THE AUL AMERICAN SERIES FUND, INC. PROSPECTUS, WHICH
SHOULD BE READ CAREFULLY BEFORE INVESTING.
ACACIA CAPITAL CORPORATION
CALVERT CAPITAL ACCUMULATION PORTFOLIO
The Calvert Capital Accumulation Portfolio is a socially responsible growth
Portfolio that seeks long-term capital appreciation by investing primarily in
the stock of small to medium sized companies. To the extent possible,
investments are made in enterprises that make a significant contribution to
society through their products and services and through the way they do
business.
FOR ADDITIONAL INFORMATION CONCERNING ACACIA CAPITAL CORPORATION AND THE CALVERT
CAPITAL ACCUMULATION PORTFOLIO, PLEASE SEE THE ACACIA CAPITAL CORPORATION
PROSPECTUS, WHICH SHOULD BE READ CAREFULLY BEFORE INVESTING.
ALGER AMERICAN FUND
ALGER AMERICAN GROWTH PORTFOLIO
The Alger American Growth Portfolio is a growth portfolio that seeks to obtain
long-term capital appreciation by investing in a diversified, actively managed
portfolio of equity securities. Except during temporary defensive periods, the
Portfolio invests at least 85% of its net assets in equity securities and at
least 65% of its net assets in equity securities of companies that 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.
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
<PAGE>
14
the Portfolio's investments are not restricted to any one type of security.
Capital appreciation may also be found in other types of securities, including
bonds and preferred stocks.
HIGH INCOME PORTFOLIO
The High Income Portfolio seeks to obtain a high level of current income by
investing primarily in high-yielding, lower-rated, fixed-income securities,
while also considering growth of capital. These include securities commonly
referred to as junk bonds, the risks of which are described in the prospectus
for the Fund.
OVERSEAS PORTFOLIO
The Overseas Portfolio seeks long-term growth of capital primarily through
investments in foreign securities. The Overseas Portfolio provides a means for
investors to diversify their own portfolios by participating in companies and
economies outside of the United States.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
ASSET MANAGER PORTFOLIO
The Asset Manager Portfolio seeks high total return with reduced risk over the
long-term by allocating its assets among domestic and foreign stocks, bonds and
short-term fixed income instruments.
CONTRAFUND
The Contrafund Portfolio seeks capital appreciation by investing primarily in
companies that the investment adviser believes to be undervalued due to an
overly pessimistic appraisal by the public.
INDEX 500 PORTFOLIO
The Index 500 Portfolio seeks to provide investment results that correspond to
the total return (i.e., the combination of capital changes and income) of common
stocks publicly traded in the United States. In seeking this objective, the
Portfolio attempts to duplicate the composition and total return of the Standard
& Poor's Composite Index of 500 Stocks.
FOR ADDITIONAL INFORMATION CONCERNING VARIABLE INSURANCE PRODUCTS FUND ("VIP")
AND VARIABLE INSURANCE PRODUCTS FUND II ("VIP II") AND THEIR PORTFOLIOS, PLEASE
SEE THE VIP AND VIP II PROSPECTUS, WHICH SHOULD BE READ CAREFULLY BEFORE
INVESTING.
TCI PORTFOLIOS, INC.
TCI GROWTH
The TCI Growth 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.
TCI INTERNATIONAL
The TCI International Portfolio seeks to achieve its investment objective of
capital growth by investing primarily in securities of foreign companies that
meet certain fundamental and technical standards of selection and have, in the
opinion of the investment manager, potential for appreciation. The Fund will
invest primarily in common stocks (defined to include depository receipts for
common stocks and other equity equivalents) of such companies. Investment in
securities of foreign issuers typically involves a greater degree of risk than
investment in domestic securities.
FOR ADDITIONAL INFORMATION CONCERNING TCI PORTFOLIOS, INC. AND THE GROWTH AND
INTERNATIONAL PORTFOLIOS, PLEASE SEE THE TCI PORTFOLIOS, INC. PROSPECTUS, WHICH
SHOULD BE READ CAREFULLY BEFORE INVESTING.
T. ROWE PRICE EQUITY SERIES, INC.
T. ROWE PRICE EQUITY INCOME PORTFOLIO
The T. Rowe Price Equity Income Portfolio seeks to provide substantial
dividend income as well as long-term capital appreciation through investments in
common stocks of established companies.
FOR ADDITIONAL INFORMATION CONCERNING T. ROWE PRICE EQUITY SERIES, INC. AND ITS
PORTFOLIO, PLEASE SEE THE T. ROWE PRICE EQUITY SERIES, INC. PROSPECTUS, WHICH
SHOULD BE READ CAREFULLY BEFORE INVESTING.
THE CONTRACTS
GENERAL
The Contracts are offered for use in connection with non-tax qualified
retirement plans by an individual. The Contracts are also eligible for use in
connection with certain tax qualified retirement plans that meet the
requirements of Sections 401, 403(b) or 408 of the Internal Revenue Code.
Certain Federal tax advantages are currently available to retirement plans that
qualify as (1) self-employed individuals' retirement plans under Section 401,
such as HR-10 Plans, (2) pension or profit-sharing plans established by an
employer for the benefit of its employees under Section 401, (3) Section 403(b)
annuity pur-
<PAGE>
15
chase plans for employees of public schools or a charitable, educational, or
scientific organization described under Section 501(c)(3), and (4) individual
retirement accounts or annuities, including those established by an employer as
a simplified employee pension plan under Section 408.
PREMIUMS AND CONTRACT VALUES DURING THE ACCUMULATION PERIOD
APPLICATION FOR A CONTRACT
Any person wishing to purchase a Contract must submit an application and an
initial premium to AUL, and provide any other form or information that AUL may
require. AUL reserves the right to reject an application or premium for any
reason, subject to AUL's underwriting standards and guidelines.
PREMIUMS UNDER THE CONTRACTS
Premiums under Flexible Premium Contracts may be made at any time during the
Contract Owner's life and before the Contract's Annuity Date. Premiums for
Flexible Premium Contracts may vary in amount and frequency but each premium
payment must be at least $50. Premiums must accumulate a total of at least $300
each Contract Year for the first three Contract Years. Premiums may not total
more than $12,000 in any one Contract Year unless otherwise agreed to by AUL.
For One Year Flexible Premium Contracts, premiums may vary in amount and
frequency except that additional premiums will only be accepted during the first
Contract Year. Each such premium payment must be at least $500; premiums must
total at least $5,000 in the first Contract Year for non-qualified plans and
$2,000 in the first Contract Year for qualified plans, and all premiums combined
may not exceed $1,000,000 unless otherwise agreed to by AUL.
If the minimum premium amounts under Flexible Premium or One Year Flexible
Premium Contracts are not met, AUL may, after 60 days notice, terminate the
Contract and pay an amount equal to the Contract Value as of the close of
business on the effective date of termination. AUL may change the minimum
premiums permitted under a Contract, and may waive any minimum required premium
at its discretion.
Annual premiums under any Contract purchased in connection with a Qualified
Plan will be subject to maximum limits imposed by the Internal Revenue Code and
possibly by the terms of the Qualified Plan. See the Statement of Additional
Information for a discussion of these limits or consult the pertinent Qualified
Plan document. Such limits may change without notice.
Initial premiums must be credited to a Contract no later than the end of the
second Business Day after it is received by AUL at its Home Office if it is
preceded or accompanied by a completed application that contains all the
information necessary for issuing the Contract and properly crediting the
premium. If AUL does not receive a complete application, AUL will notify the
applicant that AUL does not have the necessary information to issue a Contract.
If the necessary information is not provided to AUL within five Business Days
after the Business Day on which AUL first receives an initial premium or if AUL
determines it cannot otherwise issue a Contract, AUL will return the initial
premium to the applicant, unless consent is received to retain the initial
premium until the application is made complete.
Subsequent premiums (other than initial premiums) are credited as of the end
of the Valuation Period in which they are received by AUL at its Home Office.
FREE LOOK PERIOD
The Owner has the right to return the Contract for any reason within the Free
Look Period which is a ten day period beginning when the Owner receives the
Contract. If a particular state requires a longer Free Look Period, then
eligible Owners in that state will be allowed the longer statutory period in
which to return the Contract. The returned Contract will be deemed void and AUL
will refund the greater of (1) premium payments and (2) any Contract Value as of
the end of the Valuation Period in which AUL receives the Contract plus any
amounts deducted for premium taxes.
ALLOCATION OF PREMIUMS
Initial premiums will be allocated among the Investment Accounts of the
Variable Account or to the Fixed Account as instructed by the Contract Owner.
Allocation to the Investment Accounts and the Fixed Account must be made in
increments of 5%.
A Contract Owner may change the allocation instructions at any time by giving
proper written notice of the change to AUL at its Home Office and such
allocation will continue in effect until subsequently changed. Any such change
in allocation instructions will be effective upon receipt of the change in
allocation instructions by AUL at its Home Office. Changes in the allocation of
future premiums have no effect on premiums already paid. 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."
TRANSFERS OF ACCOUNT VALUE
All or part of an Owner's Contract Value may be transferred among the
Investment Accounts of the Variable Account or to the Fixed Account at any time
during the Accumulation Period upon receipt of a proper written request by AUL
at its Home Office. Transfers may be made by telephone if a Telephone
<PAGE>
16
Authorization Form has been properly completed and received by AUL at its Home
Office. However, telephone transfer is not available as of the date of this
Prospectus. The minimum amount that may be transferred from any one Investment
Account is $500 or, if less than $500, the Owner's remaining Contract Value in
the Investment Account, provided however, that amounts transferred from the
Fixed Account to an Investment Account during any given Contract Year cannot
exceed 20% of the Owner's Fixed Account Value as of the beginning of that
Contract Year. If, after any transfer, the Owner's remaining Contract 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 Contract
Value. Currently, there are no limitations on the number of transfers between
Investment Accounts available under a Contract or the Fixed Account. In
addition, no charges are currently imposed upon transfers. AUL reserves the
right, however, at a future date, to change the limitation on the minimum
transfer, to assess transfer charges, to change the limit on remaining balances,
to limit the number and frequency of transfers, and to suspend the transfer
privilege or the telephone transfer authorization. Any transfer from an
Investment Account of the Variable Account shall be effected as of the end of
the Valuation Date in which AUL receives the request in proper form. AUL has
established procedures to confirm that instructions communicated by telephone
are genuine, which include the use of personal identification numbers and
recorded telephone calls. Neither AUL nor its agents, will be liable for acting
upon instructions believed by AUL or its agents to be genuine, provided AUL has
complied with its procedures.
Part of a Contract Owner's Fixed Account Value may be transferred to one or
more Investment Accounts of the Variable Account during the Accumulation Period
subject to certain limitations as described in "The Fixed Account."
DOLLAR COST AVERAGING PROGRAM
Owners who wish to purchase units of an Investment Account over a period of
time may do so through the Dollar Cost Averaging ("DCA") Program. The theory of
dollar cost averaging is that greater numbers of Accumulation Units are
purchased at times when the unit prices are relatively low than are purchased
when the prices are higher. This has the effect, when purchases are made at
different prices, of reducing the aggregate average cost per Accumulation Unit
to less than the average of the Accumulation Unit prices on the same purchase
dates. However, participation in the Dollar Cost Averaging Program does not
assure a Contract Owner of greater profits from the purchases under the Program,
nor will it prevent or necessarily alleviate losses in a declining market.
For example, assume that a Contract Owner requests that $1,000 per month be
transferred from the Money Market Investment Account to the AUL American Equity
Investment Account. The following table illustrates the effect of dollar cost
averaging over a six month period.
<TABLE>
<CAPTION>
Transfer Unit Units
Month Amount Value Purchased
<S> <C> <C> <C>
1 $1,000 $20 50
2 $1,000 $25 40
3 $1,000 $30 33.333
4 $1,000 $40 25
5 $1,000 $35 28.571
6 $1,000 $30 33.333
</TABLE>
The average price per unit for these purchases is the sum of the prices ($180)
divided by the number of monthly transfers (6) or $30. The average cost per
Accumulation Unit for these purchases is the total amount transferred ($6,000)
divided by the total number of Accumulation Units purchased (210.237) or $28.54.
THIS TABLE IS FOR ILLUSTRATIVE PURPOSES ONLY AND IS NOT REPRESENTATIVE OF FUTURE
RESULTS.
Under a DCA Program, the owner deposits premiums into the AUL American Money
Market Investment Account and then authorizes AUL to transfer a specific dollar
amount from the Money Market Investment Account into one or more other
Investment Accounts at the unit values determined on the dates of the transfers.
This may be done monthly, quarterly, semi-annually, or annually. These transfers
will continue automatically until AUL receives notice to discontinue the
Program, or until there is not enough money in the Money Market Investment
Account to continue the Program, whichever occurs first.
Currently, the minimum required amount of each transfer is $500, although AUL
reserves the right to change this minimum transfer amount in the future.
Transfers to or from the Fixed 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 at no charge and the
Company reserves the right to temporarily discontinue, terminate, or change the
Program at any time. Contract Owners may change the frequency of scheduled
transfers, or may increase or decrease the amount of scheduled transfers, or may
discontinue participation in the Program at any time by providing written notice
to AUL, provided that AUL must receive written notice of such a change at least
five days before a previously scheduled transfer is to occur.
Contract Owners may initially elect to participate in the DCA Program, and if
this election is made at the time the Contract is applied for, the Program will
take effect on the first monthly, quarterly, semi-annual, or annual transfer
date following the premium receipt by AUL at its Home Office. The Contract Owner
may select the particular date of the month, quarter, or year that the transfers
are to be made and such transfers will automatically be performed on such date,
provided that such date selected is a day that AUL is open for business and
provided further that such date is a Valuation Date. If the date selected is not
a Business Day or is not a Valuation Date, then the transfer will be made on the
next succeeding Valuation Date. To participate in the Program, a minimum deposit
of $10,000 is required.
<PAGE>
17
CONTRACT OWNER'S VARIABLE ACCOUNT VALUE
ACCUMULATION UNITS
Premiums allocated to the Investment Accounts available under a Contract are
credited to the Contract in the form of Accumulation Units. The number of
Accumulation Units to be credited is determined by dividing the dollar amount
allocated to the particular Investment Account by the Accumulation Unit value
for the particular Investment Account as of the end of the Valuation Period in
which the premium is credited. The number of Accumulation Units so credited to
the Contract shall not be changed by a subsequent change in the value of an
Accumulation Unit, but the dollar value of an Accumulation Unit may vary from
Valuation Date to Valuation Date depending upon the investment experience of the
Investment Account and charges against the Investment Account.
ACCUMULATION UNIT VALUE
AUL determines the Accumulation Unit value for each Investment Account of the
Variable Account on each Valuation Date. The Accumulation Unit value for each
Investment Account was initially set at one dollar $1 for the Money Market
Investment Account and $5 for all other Investment Accounts. Subsequently, on
each Valuation Date, the Accumulation Unit value for each Investment Account is
determined by multiplying the Net Investment Factor determined as of the end of
the Valuation Date for the particular Investment Account by the Accumulation
Unit value for the Investment Account as of the immediately preceding Valuation
Period. The Accumulation Unit value for each Investment Account may increase,
decrease, or remain the same from Valuation Period to Valuation Period in
accordance with the Net Investment Factor.
NET INVESTMENT FACTOR
The Net Investment Factor is used to measure the investment performance of an
Investment Account from one Valuation Period to the next. For any Investment
Account for a Valuation Period, the Net Investment Factor is determined by
dividing (a) by (b) and then subtracting (c) from the result where:
(a) is equal to:
(1) the net asset value per share of the Fund in which the Investment
Account invests, determined as of the end of the Valuation Period, plus
(2) the per share amount of any dividend or other distribution, if any,
paid by the Fund during the Valuation Period, plus or minus
(3) a credit or charge with respect to taxes if any, paid or reserved for
AUL during the Valuation Period that are determined by AUL to be attributable to
the operation of the Investment Account (although no Federal income taxes are
applicable under present law and no such charge is currently assessed);
(b) is the net asset value per share of the Fund determined as of the end
of the preceding Valuation Period; 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.
CASH WITHDRAWALS AND THE DEATH PROCEEDS
CASH WITHDRAWALS
During the lifetime of the Annuitant, at any time before the Annuity Date and
subject to the limitations under any applicable Qualified Plan and applicable
law, a Contract may be surrendered or a partial withdrawal may be taken from a
Contract. A surrender or withdrawal request will be effective as of the end of
the Valuation Date that a proper written request in a form acceptable to AUL is
received by AUL at its Home Office.
A full surrender of a Contract will result in a withdrawal payment equal to
the Owner's Contract Value allocated to the Variable Account 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 an Owner's
Contract 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 Owner's Contract Value will be reduced by an amount equal to the
payment and any applicable withdrawal charge. Requests for a partial withdrawal
that would leave a Contract Value of less than $5000 for a non-qualified One
Year Flexible Premium Contract ($2,000 for a qualified contract) and less than
the required cumulative minimum for a Flexible Premium Contract will be treated
as a request for a full surrender. AUL may change or waive this provision at its
discretion.
The minimum amount that may be withdrawn from a Contract Owner's Contract
Value is $200 for Flexible Premium Contracts and $500 for One Year Flexible
Premium Contracts. If the remaining Contract Value is less than these amounts, a
request for a withdrawal will be treated as a surrender of the Contract. In
addition, the Contracts may be issued in connection with certain retirement
programs that are subject to constraints on withdrawals and full surrenders.
The amount of a partial withdrawal will be taken from the Investment Accounts
and the Fixed Account as instructed, and if the Owner does not specify, in
proportion to the Owner's Contract Value in the various Investment Accounts and
the Fixed Account. 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 deduc-
<PAGE>
18
tion of a withdrawal charge, described below, and may be subject to a premium
tax charge for any tax on premiums that may be imposed by various states and
municipalities. See "Premium Tax Charge." A surrender or withdrawal that results
in receipt of proceeds by a Contract Owner may result in receipt of taxable
income to the Contract Owner and, in some instances, in a tax penalty. In
addition, distributions under certain Qualified Plans may result in a tax
penalty. See "Tax Penalty." Owners of Contracts used in connection with a
Qualified Plan should refer to the terms of the applicable Qualified Plan for
any limitations or restrictions on cash withdrawals. The tax consequences of a
surrender or withdrawal under the Contracts should be carefully considered. See
"Federal Tax Matters."
THE DEATH PROCEEDS
If a Contract Owner dies at or after age 76, the amount of the Death Proceeds
is equal to the Contract Owner's Contract Value as of the end of the Valuation
Period in which due proof of death and instructions regarding payment are
received by AUL at its Home Office. If a Contract Owner or, as described below,
an Annuitant, dies before age 76, the Death Proceeds will be the greater of the
Contract Value as of the end of the Valuation Period in which due proof of death
and instructions regarding payment are received by AUL at its Home Office or the
value given by (a)-(b)-(c)+(d) where: (a) is the net premiums; (b) is any
amounts withdrawn (including any withdrawal charges) prior to death; (c) is the
annual fees assessed prior to death; and (d) is the interest earned on
(a)-(b)-(c), credited at an annual effective rate of 4% until the date of death.
If the Contract Owner dies before the Annuity Date and the Beneficiary is not
the Contract Owner's surviving spouse, the Death Proceeds will be paid to the
Beneficiary. Such Death Proceeds will be paid in a lump-sum, unless the
Beneficiary elects to have this value applied under a settlement option. If a
settlement option is elected, the Beneficiary must be named the Annuitant and
payments must begin within one year of the Contract Owner's death. The option
also must have payments which are payable over the life of the Beneficiary or
over a period which does not extend beyond the life expectancy of the
Beneficiary.
If the Contract Owner dies before the Annuity Date and the Beneficiary is the
Contract Owner's surviving spouse, the surviving spouse will become the new
Contract Owner. The Contract will continue with its terms unchanged and the
Contract Owner's spouse will assume all rights as Contract Owner. Within 120
days of the original Contract Owner's death, the Contract Owner's spouse may
elect to receive the Death Proceeds or withdraw any of the Contract Value
without any early withdrawal charge. However, depending upon the circumstances,
a tax penalty may be imposed upon such a withdrawal.
Any amount payable under a Contract will not be less than the minimum required
by the law of the state where the Contract is delivered.
If the Annuitant dies before the Annuity Date and the Annuitant is not also
the Contract Owner, then: (1) if the Contract Owner is not an individual, the
Death Proceeds will be paid to the Contract Owner in a lump-sum; or (2) if the
Contract Owner is an individual, a new Annuitant may be named and the Contract
will continue. If a new Annuitant is not named within 120 days of the
Annuitant's death, the Contract Value, less any withdrawal charges, will be paid
to the Contract Owner in a lump-sum.
The death benefit will be paid to the Beneficiary or Contract Owner, as
appropriate, in a single sum or under one of the Annuity Options, as directed by
the Contract Owner or as elected by the Beneficiary. If the Beneficiary is to
receive annuity payments under an Annuity Option, there may be limits under
applicable law on the amount and duration of payments that the Beneficiary may
receive, and requirements respecting timing of payments. A tax adviser should be
consulted in considering payout options.
PAYMENTS FROM THE VARIABLE ACCOUNT
Payment of an amount from the Variable Account resulting from a surrender,
partial withdrawal, transfer from an Owner's Contract Value allocated to the
Variable Account, or payment of the Death Proceeds, normally 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 weekend and holiday closings; (b) during which trading on the New York
Stock Exchange is restricted, as determined by the SEC; (c) during which an
emergency, as determined by the SEC, exists as a result of which (i) disposal of
securities held by the Variable Account is not reasonably practicable, or (ii)
it is not reasonably practicable to determine the value of the assets of the
Variable Account; or (d) for such other periods as the SEC may by order permit
for the protection of investors. For information concerning payment of an amount
from the Fixed Account, see "The Fixed Account."
CHARGES AND DEDUCTIONS
PREMIUM TAX CHARGE
Various states and municipalities impose a tax on premiums received by
insurance companies. Whether or not a premium tax is imposed will depend upon,
among other things, the Owner's state of residence, the Annuitant's state of
residence, the insurance tax laws, and AUL's status in a particular state. AUL
assesses a premium tax charge to reimburse itself for pre-
<PAGE>
19
mium taxes that it incurs. This charge will be deducted as premium taxes are
incurred by AUL, which is usually when an annuity is effected. Premium tax rates
currently range from 0% to 3.5%, but are subject to change.
WITHDRAWAL CHARGE
No deduction for sales charges is made from premiums for a Contract. However,
if a cash withdrawal is made or the Contract is surrendered by the Owner, then
depending on the type of Contract, a withdrawal charge (which may also be
referred to as a contingent deferred sales charge), may be assessed by AUL on
the amount withdrawn if the Contract has not been in existence for a certain
period of time. An amount withdrawn during a Contract Year referred to as the
Free Withdrawal Amount will not be subject to an otherwise applicable withdrawal
charge. The Free Withdrawal Amount is 12% of Contract Value at the time of the
first withdrawal in any Contract Year in which the withdrawal is being made. Any
transfer of Contract Value from the Fixed Account to the Variable Account will
reduce the Free Withdrawal Amount by the amount transferred. The chart below
illustrates the amount of the withdrawal charge that applies to both variations
of Contracts based on the number of years that the Contract has been in
existence.
<TABLE>
<CAPTION>
Charge on Withdrawal Exceeding 12% Free Withdrawal Amount
Charge on Withdrawal Exceeding 12% Free Withdrawal Amount(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Contract Year 1 2 3 4 5 6 7 8 9 10 11 or more
Flexible Premium
Contracts 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0%
One Year Flexible
Premium Contracts 7% 6% 5% 4% 3% 2% 1% 0% 0% 0% 0%
</TABLE>
In no event will the amount of any withdrawal charge, when added to any
withdrawal charges previously assessed against any amount withdrawn from a
Contract, exceed 8.5% of the total premiums paid on a Flexible Premium Contract
or 8% of the total premiums paid on a One Year Flexible Premium Contract. In
addition, no withdrawal charge will be imposed upon payment of Death Proceeds
under the Contract.
A withdrawal charge may be assessed upon annuitization of a Contract. For a
Flexible Premium Contract, no withdrawal charge will apply if the Contract is in
its fifth Contract Year or later and a life annuity or survivorship annuity
option is selected. For a One Year Flexible Premium Contract, no withdrawal
charge will apply if a life annuity or survivorship option is selected or if the
Contract is in its fourth Contract Year or later and the fixed income option for
a period of 10 or more years is chosen. Otherwise, the withdrawal charge will
apply.
The withdrawal charge will be used to recover certain expenses relating to
sales of the Contracts, including commissions paid to sales personnel and other
promotional costs. AUL reserves the right to increase or decrease the withdrawal
charge for any Contracts established on or after the effective date of the
change, but the withdrawal charge will not exceed 8.5% of the total premiums
paid on a Flexible Premium Contract or 8% of the total premiums paid on a One
Year Flexible Premium Contract.
MORTALITY AND EXPENSE RISK CHARGE
AUL deducts a 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 is based on original estimates of 0.40% for
expense risk and 0.85% 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 the Annuitants, as a group, will live longer than the AUL's actuarial
tables predict. AUL may ultimately realize a profit from this charge to the
extent it is not needed to address mortality and administrative expenses, but
AUL may realize a loss to the extent the charge is not sufficient. AUL may use
any profit derived from this charge for any lawful purpose, including any
distribution expenses not covered by the withdrawal charge.
ADMINISTRATIVE FEE
AUL deducts an annual administrative fee from each Owner's Contract Value
equal to the lesser of 2.0% of the Contract Value or $30 a year. The fee is
assessed every year on a Contract if the Contract is in effect on the Contract
Anniversary, and is assessed only during the Accumulation Period. The
administrative fee is waived on each Contract Anniversary when the Contract
Value, at the time the charge would otherwise have been imposed, exceeds
$50,000. When a Contract Owner annuitizes or surrenders on any day other than a
Contract Anniversary, a pro rata portion of the charge for that portion of the
year will not be assessed. The charge is deducted proportionately from the
Contract Value allocated among the Investment Accounts and the Fixed Account.
The purpose of this fee is to reimburse AUL for the expenses associated with
administration of the Contracts and operation of the Variable Account. AUL does
not expect to profit from this fee.
OTHER CHARGES
AUL may charge the Investment Accounts of the Variable Account for the
federal, state, or local income taxes incurred by
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AUL that are attributable to the Variable Account and its Investment Accounts.
No such charge is currently assessed.
VARIATIONS IN CHARGES
AUL may reduce or waive the amount of the withdrawal charge and administrative
charge for a Contract where the expenses associated with the sale of the
Contract or the administrative costs associated with the Contract are reduced.
For example, the withdrawal and/or administrative charge may be reduced in
connection with acquisition of the Contract in exchange for another annuity
contract issued by AUL. AUL may also reduce or waive the withdrawal charge and
administrative charge on Contracts sold to the directors or employees of AUL or
any of its affiliates or to directors or any employees of any of the Funds.
GUARANTEE OF CERTAIN CHARGES
AUL guarantees that the mortality and expense risk charge shall not increase.
AUL may increase the administrative fee, but only to the extent necessary to
recover the expenses associated with administration of the Contracts and
operations 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 Fund. The net asset value reflects the
investment advisory fee and other expenses that are deducted from the assets of
the Fund. The advisory fees and other expenses are not fixed or specified under
the terms of the Contract and are described in the Funds' Prospectuses.
ANNUITY PERIOD
GENERAL
On the Annuity Date, the adjusted value of the Owner's Contract Value 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 Owner's Contract Value as of
the Annuity Date, reduced by any applicable premium or similar taxes, and any
applicable withdrawal charge. For a Flexible Premium Contract, no withdrawal
charge will apply if the Contract is in its fifth Contract Year or later and a
life annuity or survivorship annuity option is selected. For a One Year Flexible
Premium Contract, no withdrawal charge will apply if a life annuity or
survivorship annuity option is selected or if the Contract is in its fourth
Contract Year or later and the fixed income option for a period of 10 or more
years is chosen. Otherwise, the withdrawal charge will apply.
The Contracts provide for three Annuity Options, any one of which may be
elected, except as otherwise noted. A lump-sum distribution may also be elected.
Other Annuity Options may be available upon request at the discretion of AUL.
All Annuity Options are fixed and the annuity payments are based upon annuity
rates that vary with the Annuity Option selected and the age of the Annuitant
(as adjusted), except that in the case of Option 1, the Income for a Fixed
Period Option, age is not a consideration. The annuity rates are based upon an
assumed interest rate of 3%, compounded annually. Generally, if no Annuity
Option has been selected for a Contract Owner, annuity payments will be made to
the Annuitant under Option 2, the life annuity with 120 guaranteed payments. For
Contracts used in connection with certain Employee Benefit Plans and employer
sponsored 403(b) programs, annuity payments to Contract Owners who are married
will be made under Option 3, with the Contract Owner's spouse as contingent
Annuitant, unless the Contract Owner otherwise elects and obtains his or her
spouse's consent.
Once annuity payments have commenced, a Contract Owner 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 $100
each, AUL has the right to make either a lump-sum settlement or to make larger
payments on a less frequent basis. AUL also reserves the right to change the
minimum payment amount.
Annuity payments will begin as of the Annuity Date.
A Contract Owner may designate an Annuity Date, Annuity Option, contingent
Annuitant, and Beneficiary on an Annuity Election Form that must be received by
AUL at its Home Office prior to the Annuity Date. AUL may also require
additional information before annuity payments commence. If the Contract Owner
is an individual, the Annuitant may be changed at any time prior to the Annuity
Date. The Annuitant must also be an individual and must be the Contract Owner,
or someone chosen from among the Contract Owner's spouse, parents, brothers,
sisters, and children. Any other choice requires AUL's consent. If the Contract
Owner is not an individual, a change in the Annuitant will not be permitted
without AUL's consent. The Beneficiary, if any, may be changed at any time and
the Annuity Date and Annuity Option may also be changed at any time prior to the
Annuity Date. For Contracts used in connection with a Qualified Plan, reference
should be made to the terms of the Qualified Plan for pertinent limitations
regarding annuity dates and options. To help ensure timely receipt of the first
annuity payment, a transfer of a Contract Owner's Contract Value in the Variable
Account should be made to the Fixed Account at least two weeks prior to the
Annuity Date.
ANNUITY OPTIONS
OPTION 1 - INCOME FOR A FIXED PERIOD
An annuity payable monthly for a fixed period (not more than 20 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.
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21
OPTION 2 - 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. A minimum number of
payments can be guaranteed such as 120 or the number of payments required to
refund the proceeds applied.
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%, 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
Contract Owner or the contingent Annuitant dies before the Annuity Date.
SELECTION OF AN OPTION
Contract Owners should carefully review the Annuity Options with their
financial or tax advisers. For Contracts used in connection with a Qualified
Plan, reference should be made to the terms of the applicable Qualified Plan for
pertinent limitations respecting the form of annuity payments, the commencement
of distributions, and other matters. For instance, annuity payments under a
Qualified Plan generally must begin no later than April 1 of the calendar year
following the calendar year in which the Contract Owner reaches age 70 1/2. For
Option 1, 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 100% election specified above
may not be available.
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.
INTEREST
A Contract Owner'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 ("Current Rate"), which
are guaranteed to be at least an annual effective rate of 3% ("Guaranteed
Rate"). AUL will determine a Current Rate from time to time, and any Current
Rate that exceeds the Guaranteed Rate will be in effect for a period of at least
one year. If AUL determines a Current Rate in excess of the Guaranteed Rate,
premiums allocated or transfers to the Fixed Account under a Contract during the
time the Current Rate is in effect are guaranteed to earn interest at that
particular Current Rate for at least one year.
Amounts contributed or transferred to the Fixed Account earn interest at the
Current Rate then in effect. 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 Contract Owner'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 Contract Owner's Fixed Account Values
and for paying interest at the Current Rate on amounts allocated to the Fixed
Account.
WITHDRAWALS
A Contract Owner may make a full surrender or a partial withdrawal from his or
her Fixed Account Value subject to the provisions of the Contract. A full
surrender of a Contract Owner's Fixed Account Value will result in a withdrawal
payment equal to the value of the Contract Owner's Fixed Account Value as of the
day the surrender is effected, minus any applicable withdrawal charge. A partial
withdrawal may be requested for a specified percentage or dollar amount of the
Contract Owner's Fixed Account Value. For a further discussion of surrenders and
partial withdrawals as generally applicable to a Contract Owner's Variable
Account Value and Fixed Account Value, see "Cash Withdrawals."
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22
TRANSFERS
A Contract Owner's Fixed Account Value may be transferred from the Fixed
Account to the Variable Account subject to certain limitations. The minimum
amount that may be transferred from the Fixed Account is $500 or, if the Fixed
Account Value is less than $500 after the transfer, the Contract Owner's
remaining Fixed Account Value. If the amount remaining in the Fixed Account
after a transfer would be less than $500, the remaining amount will be
transferred with the amount that has been requested. The maximum amount that may
be transferred in any one Contract Year is the lesser of 20% of a Contract
Owner's Fixed Account Value as of the last Contract Anniversary preceding the
request, or the Contract Owner's entire Fixed Account Value if it would be less
than $500 after the transfer. Transfers and withdrawals of a Contract Owner's
Fixed Account Value will be effected on a last-in first-out basis. For a
discussion of transfers as generally applicable to a Contract Owner's Variable
Account Value and Fixed Account Value, see "Transfers of Account Value."
CONTRACT CHARGES
The withdrawal charge will be the same for amounts surrendered or withdrawn
from a Contract Owner's Fixed Account Value as for amounts surrendered or
withdrawn from a Contract Owner's Variable Account Value. In addition, the
annual fee will be the same whether or not a Owner's Contract 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
Contract Owners to the extent the Contract Value is allocated to the Fixed
Account; however, such Contract Owners will not participate in the investment
experience of the Variable Account. See "Charges and Deductions."
PAYMENTS FROM THE FIXED ACCOUNT
Surrenders, withdrawals, and transfers from the Fixed Account and payment of
Death Proceeds based upon a Contract Owner'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 Contract Owner's
Fixed Account Value.
MORE ABOUT THE CONTRACTS
DESIGNATION AND CHANGE OF BENEFICIARY
The Beneficiary designation contained in an application for the Contracts will
remain in effect until changed. A Beneficiary may only be named if the Contract
Owner is an individual. The interests of a Beneficiary who dies before the
Contract Owner will pass to any surviving Beneficiary, unless the Contract Owner
specifies otherwise. Unless otherwise provided, if no designated Beneficiary is
living upon the death of the Contract Owner prior to the Annuity Date, the
Contract Owner's estate is the Beneficiary. Unless otherwise provided, if no
designated Beneficiary under an Annuity Option is living after the Annuity Date,
upon the death of the Annuitant, the 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
Contract Owner is living by filing with AUL a written beneficiary designation or
revocation in such form as AUL may require. The change or revocation will not be
binding upon AUL until it is received by AUL at its Home Office. When it is so
received, the change or revocation will be effective as of the date on which the
beneficiary designation or revocation was signed, but the change or revocation
will be without prejudice to AUL if any payment has been made or any action has
been taken by AUL prior to receiving the change or revocation.
For Contracts issued in connection with Qualified Plans, reference should be
made to the terms of the particular Qualified Plan, if any, and any applicable
law for any restrictions on the beneficiary designation. For instance, under an
Employee Benefit Plan, the Beneficiary (or contingent Annuitant) must be the
Contract Owner's spouse if the Contract Owner is married, unless the spouse
properly consents to the designation of a Beneficiary (or contingent Annuitant)
other than the spouse.
ASSIGNABILITY
A Contract Owner may assign a Contract, but the rights of the Contract Owner
and any Beneficiary will be secondary to the interests of the assignee. AUL
assumes no responsibility for the validity of an assignment. Any assignment will
not be binding upon AUL until received in writing at its Home Office. Because an
assignment may be a taxable event, Contract Owners should consult a tax advisor
as to the tax consequences resulting from such an assignment.
PROOF OF AGE AND SURVIVAL
AUL may require proof of age, sex, or survival of any person on whose life
annuity payments depend.
MISSTATEMENTS
If the age or sex of an Annuitant or contingent Annuitant has been misstated,
the correct amount paid or payable by AUL shall be such as the Contract would
have provided for the correct age and sex.
ACCEPTANCE OF NEW PREMIUMS
AUL reserves the right to refuse to accept new premiums for a Contract at any
time.
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FEDERAL TAX MATTERS
INTRODUCTION
The Contracts described in this Prospectus are designed for use in connection
with non-tax qualified retirement plans for individuals and for use by
individuals in connection with retirement plans under the provisions of Sections
401, 403(b), or 408 of the Internal Revenue Code ("Code"). The ultimate effect
of Federal income taxes on values under a Contract, on annuity payments, and on
the economic benefits to the Owner, the Annuitant, and the Beneficiary or other
payee, may depend upon the type of Qualified Plan for which the Contract is
purchased and a number of different factors. The discussion contained herein and
in the Statement of Additional Information is general in nature. It is based
upon AUL's understanding of the present Federal income tax laws as currently
interpreted by the Internal Revenue Service ("IRS"), and is not intended as tax
advice. No representation is made regarding the likelihood of continuation of
the present Federal income tax laws or of the current interpretations by the
IRS. Future legislation may affect annuity contracts adversely. Moreover, no
attempt is made to consider any applicable state or other laws. Because of the
inherent complexity of such laws and the fact that tax results will vary
according to the terms of the Qualified Plan and the particular circumstances of
the individual involved, any person contemplating the purchase of a Contract, or
receiving annuity payments under a Contract, should consult a qualified tax
adviser.
AUL DOES NOT MAKE ANY GUARANTEE REGARDING THE TAX STATUS OF ANY CONTRACT OR ANY
TRANSACTION INVOLVING THE CONTRACTS. CONSULT YOUR TAX ADVISOR.
DIVERSIFICATION STANDARDS
Treasury Department regulations under Section 817(h) of the Code prescribe
asset diversification requirements which are expected to be met by the
investment companies whose shares are sold to the Investment Accounts. Failure
to meet these requirements would jeopardize the tax status of the Contracts. See
the Statement of Additional Information for additional details.
In connection with the issuance of the regulations governing diversification
under Section 817(h) of the Code, the Treasury Department announced that it
would issue future regulations or rulings addressing the circumstances in which
a variable contract owner's control of the investments of a separate account may
cause the contract owner, rather than the insurance company, to be treated as
the owner of the assets held by the separate account.
If the variable contract owner is considered the owner of the securities
underlying the separate account, income and gains produced by those securities
would be included currently in a contract owner's gross income. It is not clear,
at present, what these regulations or rulings may provide. It is possible that
when the regulations or rulings are issued, the Contracts may need to be
modified in order to remain in compliance. AUL intends to make reasonable
efforts to comply with any such regulations or rulings so that the Contracts
will be treated as annuity contracts for Federal income tax purposes and
reserves the right to make such changes as it deems appropriate for that
purpose.
TAXATION OF ANNUITIES IN GENERAL-NON-QUALIFIED PLANS
Section 72 of the Code governs taxation of annuities. In general, a Contract
Owner is not taxed on increases in value under an annuity contract until some
form of distribution is made under the contract. However, the increase in value
may be subject to tax currently under certain circumstances. See "Contracts
Owned by Non-Natural Persons" below and "Diversification Standards" above.
1. Surrenders or Withdrawals Prior to the Annuity Date
Code Section 72 provides that amounts received upon a total or partial
surrender or withdrawal from a contract prior to the annuity date generally will
be treated as gross income to the extent that the cash value of the contract
(determined without regard to any surrender charge in the case of a partial
withdrawal) exceeds the "investment in the contract." In general, the
"investment in the contract" is that portion, if any, of premiums paid under a
contract less any distributions received previously under the contract that are
excluded from the recipient's gross income. The taxable portion is taxed at
ordinary income tax rates. For purposes of this rule, a pledge or assignment of
a contract is treated as a payment received on account of a partial withdrawal
of a contract. Similarly, loans under a contract generally are treated as
distributions under the contract.
2. Surrenders or Withdrawals on or after the Annuity Date
Upon receipt of a lump-sum payment or an annuity payment under an annuity
contract, the recipient is taxed if the cash value of the contract exceeds the
investment in the contract. For fixed annuity payments, the taxable portion of
each payment is determined by using a formula known as the "exclusion ratio,"
which establishes the ratio that the investment in the contract bears to the
total expected amount of annuity payments for the term of the contract. That
ratio is then applied to each payment to determine the non-taxable portion of
the payment. That remaining portion of each payment is taxed at ordinary income
rates. Once the excludable portion of annuity payments to date equals the
investment in the contract, the balance of the annuity payments will be fully
taxable.
Withholding of Federal income taxes on all distributions may be required
unless a recipient who is eligible elects not to have any amounts withheld and
properly notifies AUL of that
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24
election. Special rules apply to withholding on distributions from Employee
Benefit Plans that are qualified under Section 401(a) of the Internal Revenue
Code.
3. Penalty Tax on Certain Surrenders and Withdrawals
With respect to amounts withdrawn or distributed before the recipient reaches
age 59 1/2, a penalty tax is imposed equal to 10% of the portion of such
amount which is includable in gross income. However, the penalty tax is not
applicable to withdrawals: (i) made on or after the death of the owner (or where
the owner is not an individual, the death of the "primary annuitant," who is
defined as the individual the events in whose life are of primary importance in
affecting the timing and amount of the payout under the contract); (ii)
attributable to the recipient's becoming totally disabled within the meaning of
Code Section 72(m)(7); or (iii) which are part of a series of substantially
equal periodic payments (not less frequently than annually) made for the life
(or life expectancy) of the recipient, or the joint lives (or joint life
expectancies) of the recipient and his beneficiary. The 10% penalty also does
not apply in certain other circumstances described in Code Section 72.
If the penalty tax does not apply to a surrender or withdrawal as a result of
the application of item (iii) above, and the series of payments are subsequently
modified (other than by reason of death or disability), the tax for the first
year in which the modification occurs will be increased by an amount (determined
in accordance with IRS regulations) equal to the tax that would have been
imposed but for item (iii) above, plus interest for the deferral period, if the
modification takes place (a) before the close of the period which is five years
from the date of the first payment and after the recipient attains age 59 1/2,
or (b) before the recipient reaches age 59 1/2.
ADDITIONAL CONSIDERATIONS
1. Distribution-at-Death Rules
In order to be treated as an annuity contract, a contract must provide the
following two distribution rules: (a) if the owner dies on or after the Annuity
Commencement Date, and before the entire interest in the contract has been
distributed, the remaining interest must be distributed at least as quickly as
the method in effect on the owner's death; and (b) if the owner dies before the
Annuity Date, the entire interest in the contract must generally be distributed
within five years after the date of death, or, if payable to a designated
beneficiary, must be annuitized over the life of that designated beneficiary or
over a period not extending beyond the life expectancy of that beneficiary,
commencing within one year after the date of death of the owner. If the
designated beneficiary is the spouse of the owner, the contract may be continued
in the name of the spouse as owner.
For purposes of determining the timing of distributions under the foregoing
rules, where the owner is not an individual, the primary annuitant is considered
the owner. In that case, a change in the primary annuitant will be treated as
the death of the owner. Finally, in the case of joint owners, the
distribution-at-death rules will be applied by treating the death of the first
owner as the one to be taken into account in determining how generally
distributions must commence, unless the sole surviving owner is the deceased
owner's spouse.
2. Gift of Annuity Contracts
Generally, gifts of contracts (not purchased in connection with a Qualified
Plan) before the Annuity Commencement Date will trigger income tax on the gain
on the contract, with the donee getting a stepped-up basis for the amount
included in the donor's income. This provision does not apply to certain
transfers incident to a divorce. The 10% penalty tax on pre-age 59 1/2
withdrawals and distributions and gift tax also may be applicable.
3. Contracts Owned by Non-Natural Persons
If the contract is held by a non-natural person (for example, a corporation)
the income on that contract (generally the net surrender value less the premium
payments) is includable in taxable income each year. Other taxes (such as the
alternative minimum tax and the environmental tax imposed under Code Section
59A) may also apply. The rule does not apply where the contract is acquired by
the estate of a decedent, where the contract is held by certain types of
retirement plans, where the contract is a qualified funding asset for structured
settlements, where the contract is purchased on behalf of an employee upon
termination of an Employee Benefit Plan, and in the case of a so-called
immediate annuity. Code Section 457 (deferred compensation) plans for employees
of state and local governments and tax-exempt organizations are not within the
purview of the exceptions. However, the income of state and local governments
and tax-exempt organizations generally is exempt from federal income tax.
4. Multiple Contract Rule
For purposes of determining the amount of any distribution under Code Section
72(e) (amounts not received as annuities) that is includable in gross income,
all annuity contracts issued by the same insurer to the same contract owner
during any calendar year must be aggregated and treated as one contract. Thus,
any amount received under any such contract prior to the contract's Annuity
Commencement Date, such as a partial surrender, dividend, or loan, will be
taxable (and possibly subject to the 10% penalty tax) to the extent of the
combined income in all such contracts. In addition, the Treasury Department has
broad regulatory authority in applying this provision to prevent avoidance of
the purposes of this new rule.
QUALIFIED PLANS
The Contract may be used with certain types of Qualified Plans as described
under "The Contracts." The tax rules applicable to participants in such
Qualified Plans vary accord-
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25
ing to the type of plan and the terms and conditions of the plan itself. No
attempt is made herein to provide more than general information about the use of
the Contract with the various types of Qualified Plans. Contract Owners,
Annuitants, and Beneficiaries, are cautioned that the rights of any person to
any benefits under such Qualified Plans will be subject to the terms and
conditions of the plans themselves and may be limited by applicable law,
regardless of the terms and conditions of the Contract issued in connection
therewith. For example, AUL may accept beneficiary designations and payment
instructions under the terms of the Contract without regard to any spousal
consents that may be required under the Code or the Employee Retirement Income
Securities Act of 1974 ("ERISA"). Consequently, a Contract Owner's Beneficiary
designation or elected payment option may not be enforceable.
The following are brief descriptions of the various types of Qualified Plans
and the use of the Contract therewith:
1. Individual Retirement Annuities
Code Section 408 permits an eligible individual to contribute to an individual
retirement program through the purchase of Individual Retirement Annuities
("IRAs"). The Contract may be purchased as an IRA. IRAs are subject to
limitations on the amount that may be contributed, the persons who may be
eligible, and on the time when distributions must commence. Depending upon the
circumstances of the individual, contributions to an IRA may be made on a
deductible or non-deductible basis. IRAs may not be transferred, sold, assigned,
discounted, or pledged as collateral for a loan or other obligation. The annual
premium for an IRA may not exceed $2,000. Any refund of premium must be applied
to payment of future premiums or the purchase of additional benefits. In
addition, distributions from certain other types of Qualified Plans may be
placed on a tax-deferred basis into an IRA.
2. Corporate Pension and Profit Sharing Plans
Code Section 401(a) permits corporate employers to establish various types of
retirement plans for their employees. For this purpose, self-employed
individuals (proprietors or partners operating a trade or business) are treated
as employees eligible to participate in such plans. Such retirement plans may
permit the purchase of Contracts to provide benefits thereunder.
In order for a retirement plan to be "qualified" under Code Section 401, it
must: (i) meet certain minimum standards with respect to participation, coverage
and vesting; (ii) not discriminate in favor of "highly compensated" employees;
(iii) provide contributions or benefits that do not exceed certain limitations;
(iv) prohibit the use of plan assets for purposes other than the exclusive
benefit of the employees and their beneficiaries covered by the plan; (v)
provide for distributions that comply with certain minimum distribution
requirements; (vi) provide for certain spousal survivor benefits; and (vii)
comply with numerous other qualification requirements.
A retirement plan qualified under Code Section 401 may be funded by employer
contributions, employee contributions or a combination of both. Plan
participants are not subject to tax on employer contributions until such amounts
are actually distributed from the plan. Depending upon the terms of the
particular plan, employee contributions may be made on a pre-tax or after-tax
basis. In addition, plan participants are not taxed on plan earnings derived
from either employer or employee contributions until such earnings are
distributed.
3. Tax-Deferred Annuities
Section 403(b) of the Code permits the purchase of "tax-deferred annuities" by
public schools and organizations described in Section 501(c)(3) of the Code,
including certain charitable, educational and scientific organizations. These
qualifying employers may pay premiums under the Contracts for the benefit of
their employees. Such premiums are not includible in the gross income of the
employee until the employee receives distributions from the Contract. The amount
of premiums to the tax-deferred annuity is limited to certain maximums imposed
by the Code. Furthermore, the Code sets forth additional restrictions governing
such items as transferability, distributions, nondiscrimination and withdrawals.
Any employee should obtain competent tax advice as to the tax treatment and
suitability of such an investment.
The above description of the Federal income tax consequences of the different
types of Qualified Plans which may be funded by the Contract offered by this
Prospectus is only a brief summary and is not intended as tax advice. The rules
governing the provisions of Qualified Plans are extremely complex and often
difficult to comprehend. Anything less than full compliance with the applicable
rules, all of which are subject to change, may have adverse tax consequences. A
prospective Contract Owner considering adoption of a Qualified Plan and purchase
of a Contract in connection therewith should first consult a qualified and
competent tax adviser, with regard to the suitability of the Contract as an
investment vehicle for the Qualified Plan.
Periodic distributions (e.g., annuities and installment payments) from a
Qualified Plan that will last for a period of ten or more years are generally
subject to voluntary income tax withholding. The amount withheld on such
periodic distributions is determined at the rate applicable to wages. The
recipient of a periodic distribution may generally elect not to have withholding
apply.
Nonperiodic distributions (e.g., lump-sums and annuities or installment
payments of less than 10 years) from a Qualified Plan (other than IRAs) are
generally subject to mandatory 20% income tax withholding. However, no
withholding is imposed if the distribution is transferred directly to another
eligible Qualified Plan or IRA. Nonperiodic distributions from an IRA are
subject to income tax withholding at a flat 10% rate. The recipient of such a
distribution may elect not to have withholding apply.
<PAGE>
26
403(B) PROGRAMS-CONSTRAINTS ON WITHDRAWALS
Section 403(b) of the Internal Revenue Code permits public school employees
and employees of organizations specified in Section 501(c)(3) of the Internal
Revenue Code, such as certain types of charitable, educational, and scientific
organizations, to purchase annuity contracts, and subject to certain
limitations, to exclude the amount of purchase payments from gross income for
federal tax purposes. Section 403(b) imposes restrictions on certain
distributions from tax-sheltered annuity contracts meeting the requirements of
Section 403(b) that apply to tax years beginning on or after January 1, 1989.
Section 403(b) requires that distributions from Section 403(b) tax-sheltered
annuities that are attributable to employee contributions made after December
31, 1988 under a salary reduction agreement not begin before the employee
reaches age 59 1/2, separates from service, dies, becomes disabled, or incurs
a hardship. Furthermore, distributions of income or gains attributable to such
contributions accrued after December 31, 1988 may not be made on account of
hardship. Hardship, for this purpose, is generally defined as an immediate and
heavy financial need, such as paying for medical expenses, the purchase of a
principal residence, or paying certain tuition expenses.
An Owner of a Contract purchased as a tax-sheltered Section 403(b) annuity
contract will not, therefore, be entitled to exercise the right of surrender or
withdrawal, as described in this Prospectus, in order to receive his or her
Contract Value attributable to premiums paid under a salary reduction agreement
or any income or gains credited to such Contract Owner under the Contract unless
one of the above-described conditions has been satisfied, or unless the
withdrawal is otherwise permitted under applicable federal tax law. In the case
of transfers of amounts accumulated in a different Section 403(b) contract to
this Contract under a Section 403(b) Program, the withdrawal constraints
described above would not apply to the amount transferred to the Contract
attributable to a Contract Owner's December 31, 1988 account balance under the
old contract, provided that the amounts transferred between contracts meets
certain conditions. An Owner's Contract may be able to be transferred to certain
other investment or funding alternatives meeting the requirements of Section
403(b) that are available under an employer's Section 403(b) arrangement.
OTHER INFORMATION
VOTING OF SHARES OF THE FUNDS
AUL is the legal owner of the shares of the Funds held by the Investment
Accounts of the Variable Account. In accordance with its view of present
applicable law, AUL will exercise voting rights attributable to the shares of
each Fund held in the Investment Accounts at any regular and special meetings of
the shareholders of the Funds on matters requiring shareholder voting under the
1940 Act. AUL will exercise these voting rights based on instructions received
from persons having the voting interest in corresponding Investment Accounts of
the Variable Account and consistent with any requirements imposed on AUL under
contracts with any of the Funds, or under applicable law. However, if the 1940
Act or any regulations thereunder should be amended, or if the present
interpretation thereof should change, and as a result AUL determines that it is
permitted to vote the shares of the Funds in its own right, it may elect to do
so.
The person having the voting interest under a Contract is the Contract Owner.
AUL or the pertinent Fund shall send to each Contract Owner a Fund's proxy
materials and forms of instruction by means of which instructions may be given
to AUL on how to exercise voting rights attributable to the Fund's shares.
Unless otherwise required by applicable law or under a contract with any of
the Funds, with respect to each of the Funds, the number of Fund shares as to
which voting instructions may be given to AUL is determined by dividing the
value of all of the Accumulation Units of the corresponding Investment Account
attributable to a Contract on a particular date by the net asset value per share
of that Fund as of the same date. Fractional votes will be counted. The number
of votes as to which voting instructions may be given will be determined as of
the date coincident with the date established by a Fund for determining
shareholders eligible to vote at the meeting of the Fund. If required by the SEC
or under a contract with any of the Funds, AUL reserves the right to determine
in a different fashion the voting rights attributable to the shares of the Fund.
Voting instructions may be cast in person or by proxy.
Voting rights attributable to the Contracts for which no timely voting
instructions are received will be voted by AUL in the same proportion as the
voting instructions which are received in a timely manner for all Contracts
participating in that Investment Account. AUL will vote shares of any Investment
Account, if any, that it owns beneficially in its own discretion, except that if
a Fund offers it shares to any insurance company separate account that funds
variable life insurance contracts or if otherwise required by applicable law or
contract, AUL will vote its own shares in the same proportion as the voting
instructions that are received in a timely manner for Contracts participating in
the Investment Account.
Neither the Variable Account nor AUL is under any duty to inquire as to the
instructions received or the authority of Owners or others to instruct the
voting of shares of any of the Funds.
SUBSTITUTION OF INVESTMENTS
AUL reserves the right, subject to compliance with the law as then in effect,
to make additions to, deletions from, substi-
<PAGE>
27
tutions 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 Funds should no longer be
available for investment, or if, in the judgment of AUL's management, further
investment in shares of any or all of the Funds should become inappropriate in
view of the purposes of the Contracts, AUL may substitute shares of another fund
for shares already purchased, or to be purchased in the future under the
Contracts. AUL may also purchase, through the Variable Account, other securities
for other classes of contracts, or permit a conversion between classes of
contracts on the basis of requests made by Contract Owners or as permitted by
Federal law.
Where required under applicable law, AUL will not substitute any shares
attributable to a Contract Owner's interest in an Investment Account or the
Variable Account without notice, Contract Owner approval, or prior approval of
the SEC or a state insurance commissioner, and without following the filing or
other procedures established by applicable state insurance regulators.
AUL also reserves the right to establish additional Investment Accounts of the
Variable Account that would invest in another investment company, a series
thereof, or other suitable investment vehicle. New Investment Accounts may be
established in the sole discretion of AUL, and any new Investment Account will
be made available to existing Contract Owners on a basis to be determined by
AUL. AUL may also eliminate or combine one or more Investment Accounts or cease
permitting new allocations to an Investment Account if, in its sole discretion,
marketing, tax, or investment conditions so warrant.
Subject to any required regulatory approvals, AUL reserves the right to
transfer assets of any Investment Account of the Variable Account to another
separate account or Investment Account.
In the event of any such substitution or change, AUL may, by appropriate
endorsement, make such changes in these and other Contracts as may be necessary
or appropriate to reflect such substitution or change. AUL reserves the right to
operate the Variable Account as a management investment company under the 1940
Act or any other form permitted by law, an Investment Account may be
deregistered under that Act in the event such registration is no longer
required, or it may be combined with other separate accounts of AUL or an
affiliate thereof. Subject to compliance with applicable law, AUL also may
combine one or more Investment Accounts and may establish a committee, board, or
other group to manage one or more aspects of the operation of the Variable
Account.
CHANGES TO COMPLY WITH LAW AND AMENDMENTS
AUL reserves the right, without the consent of Contract Owners, to make any
change to the provisions of the Contracts to comply with, or to give Contract
Owners the benefit of, any Federal or state statute, rule, or regulation,
including, but not limited to, requirements for annuity contracts and retirement
plans under the Internal Revenue Code and regulations thereunder or any state
statute or regulation.
RESERVATION OF RIGHTS
AUL reserves the right to refuse to accept new premiums under a Contract and
to refuse to accept any application for a Contract.
PERIODIC REPORTS
AUL will send quarterly statements showing the number, type, and value of
Accumulation Units credited to the Contract. AUL will also send statements
reflecting transactions in a Contract Owner's Account as required by applicable
law. In addition, every person having voting rights will receive such reports or
Prospectuses concerning the Variable Account and the Funds as may be required by
the 1940 Act and the 1933 Act.
LEGAL PROCEEDINGS
There are no legal proceedings pending to which the Variable Account is a
party, or which would materially affect the Variable Account.
LEGAL MATTERS
Legal matters in connection with the issue and sale of the Contracts described
in this Prospectus and the organization of AUL, its authority to issue the
Contracts under Indiana law, and the validity of the forms of the Contracts
under Indiana law have been passed upon by the Associate General Counsel of AUL.
Legal matters relating to the Federal securities and Federal income tax laws
have been passed upon by Dechert Price & Rhoads, Washington, D.C.
FINANCIAL STATEMENTS
Financial statements of AUL as of December 31, 1995, are included in the
Statement of Additional Information.
<PAGE>
28
PERFORMANCE INFORMATION
Performance information for the Investment Accounts is shown under
"Performance of the Investment Accounts." Performance information for the
Investment Accounts may also appear in promotional reports and sales literature
to current or prospective Contract Owners in the manner described in this
section. Performance information in promotional reports and literature may
include the yield and effective yield of the Investment Account investing in the
Money Market Investment Account, the yield of the remaining Investment Accounts,
the average annual total return and the total return of all Investment Accounts.
For information on the calculation of current yield and effective yield, see the
Statement of Additional Information.
Quotations of average annual total return for any Investment Account will be
expressed in terms of the average annual compounded rate of return on a
hypothetical investment in a Contract over a period of one, five and ten years
(or, if less, up to the life of the Investment Account), and will reflect the
deduction of the applicable withdrawal charge, the mortality and expense risk
charge, and if applicable, the administrative charge. Hypothetical quotations of
average annual total return may also be shown for an Investment Account for
periods prior to the time that the Investment Account commenced operations based
upon the performance of the mutual fund portfolio in which that Investment
Account invests, and will reflect the deduction of the applicable withdrawal
charge, the administrative charge, and the mortality and expense risk charge as
if, and to the extent, that such charges had been applicable. Quotations of
total return, actual and hypothetical, may simultaneously be shown that do not
take into account certain contractual charges such as the withdrawal charge and
the administrative charge and may be shown for different periods.
Performance information for any Investment Account reflects only the
performance of a hypothetical Contract under which Contract Value is allocated
to an Investment Account during a particular time period on which the
calculations are based. Performance information should be considered in light of
the investment objectives and policies, characteristics, and quality of the Fund
in which the Investment Account invests, and the market conditions during the
given time period, and should not be considered as representation of what may be
achieved in the future. For a description of the methods used to determine yield
and total return in promotional reports and literature for the Investment
Accounts, information on possible uses for performance, and other information,
see the Statement of Additional Information.
STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information contains more specific information and
financial statements relating to AUL. The Table of Contents of the Statement of
Additional Information is set forth below:
<TABLE>
<S> <C>
GENERAL INFORMATION AND HISTORY............................................................................................... 3
DISTRIBUTION OF CONTRACTS..................................................................................................... 3
CUSTODY OF ASSETS............................................................................................................. 3
TAX STATUS OF AUL AND THE VARIABLE ACCOUNT.................................................................................... 3
TAX TREATMENT OF AND LIMITS ON PREMIUMS UNDER RETIREMENT PLANS................................................................ 3-6
403(b) Programs............................................................................................................. 4
408 Programs................................................................................................................ 4
Employee Benefit Plans...................................................................................................... 5
Tax Penalty for All Annuity Contracts....................................................................................... 5
Withholding for Employee Benefit Plans and Tax-Deferred Annuities........................................................... 6
INDEPENDENT ACCOUNTANTS....................................................................................................... 6
PERFORMANCE INFORMATION....................................................................................................... 6-7
FINANCIAL STATEMENTS.......................................................................................................... 8-18
</TABLE>
A Statement of Additional Information may be obtained without charge by calling
or writing to AUL at the telephone number and address set forth in the front of
this Prospectus.
<PAGE>
29
================================================================================
No dealer, salesman or any other person is authorized by the AUL
American Individual Unit Trust or by AUL to give any information or to
make any representation other than as contained in this Prospectus in
connection with the offering described herein.
There has been filed with the Securities and Exchange Commission,
Washington, D.C., a Registration Statement under the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as amended,
with respect to the offering herein described. For further information
with respect to the AUL American Individual Unit Trust, AUL and its
variable annuities, reference is made thereto and the exhibits filed
therewith or incorporated therein, which include all contracts or
documents referred to herein.
================================================================================
AUL AMERICAN INDIVIDUAL UNIT TRUST
Individual Variable Annuity Contracts
Sold By
AMERICAN UNITED
LIFE INSURANCE COMPANY(R)
One American Square
Indianapolis, Indiana 46204
PROSPECTUS
Dated: May 1, 1996
================================================================================
<PAGE>
1
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1996
AUL American Individual Unit Trust
Individual Variable Annuity Contracts
Offered By
American United Life Insurance Company(R)
One American Square
Indianapolis, Indiana 46204
(317) 263-4045
Individual Annuity Service Office Mail Address:
P.O. Box 7127, Indianapolis, Indiana 46206-7127
(800) 863-9354
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the current Prospectus for AUL American
Individual Unit Trust, dated May 1, 1996.
A Prospectus is available without charge by calling the number listed
above or by mailing the Business Reply Mail card included in this
Statement of Additional Information to American United Life Insurance
Company(R) ("AUL") at the address listed above.
<PAGE>
2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Description Page
<S> <C>
GENERAL INFORMATION AND HISTORY............................................................................................ 3
DISTRIBUTION OF CONTRACTS.................................................................................................. 3
CUSTODY OF ASSETS.......................................................................................................... 3
TAX STATUS OF AUL AND THE VARIABLE ACCOUNT................................................................................. 3
TAX TREATMENT OF AND LIMITS ON PREMIUMS UNDER RETIREMENT PROGRAMS.......................................................... 3-6
403(b) Programs.......................................................................................................... 4
408 Programs............................................................................................................. 5
Employee Benefit Plans................................................................................................... 5
Tax Penalty for All Annuity Contracts.................................................................................... 6
Withholding for Employee Benefit Plans and Tax-Deferred Annuities........................................................ 6
INDEPENDENT ACCOUNTANTS.................................................................................................... 6
PERFORMANCE INFORMATION.................................................................................................... 6-7
FINANCIAL STATEMENTS....................................................................................................... 8-18
</TABLE>
<PAGE>
3
GENERAL INFORMATION AND HISTORY
For a general description of AUL and AUL American Individual Unit Trust (the
"Variable Account"), see the section entitled "Information about AUL, The
Variable Account, and The Funds" in the Prospectus. Defined terms used in this
Statement of Additional Information have the same meaning as terms defined in
the Prospectus.
DISTRIBUTION OF CONTRACTS
AUL is the Principal Underwriter for the variable annuity contracts (the
"Contracts") described in the Prospectus and in this Statement of Additional
Information. AUL is registered with the Securities and Exchange Commission (the
"SEC") as a broker-dealer. The Contracts are currently being sold in a
continuous offering. While AUL does not anticipate discontinuing the offering of
the Contracts, it reserves the right to do so. The Contracts are sold by
registered representatives of AUL who are also licensed insurance agents.
AUL also has sales agreements with various broker-dealers under which the
Contracts will be sold by registered representatives of the broker-dealers. The
registered representatives are required to be authorized under applicable state
regulations to sell variable annuity contracts. The broker-dealers are required
to be registered with the SEC and members of the National Association of
Securities Dealers, Inc.
AUL serves as the Principal Underwriter without compensation from the Variable
Account.
CUSTODY OF ASSETS
The assets of the Variable Account are held by AUL. The assets are maintained
separate and apart from the assets of other separate accounts of AUL and from
AUL's General Account assets. AUL maintains records of all purchases and
redemptions of shares of the Funds.
TAX STATUS OF AUL AND THE VARIABLE ACCOUNT
The operations of the Variable Account form a part of AUL, so AUL will be
responsible for any Federal income and other taxes that become payable with
respect to the income of the Variable Account. Each Investment Account will bear
its allocable share of such liabilities, but under current law, no dividend,
interest income, or realized capital gain attributable, at a minimum, to
appreciation of the Investment Accounts will be taxed to AUL to the extent it is
applied to increase reserves under the Contracts.
Each of the Funds in which the Variable Account invests has advised AUL that
it intends to qualify as a "regulated investment company" under the Code. AUL
does not guarantee that any Fund will so qualify. If the requirements of the
Code are met, a Fund will not be taxed on amounts distributed on a timely basis
to the Variable Account. Were such a Fund not to so qualify, the tax status of
the Contracts as annuities might be lost, which could result in immediate
taxation of amounts earned under the Contracts (except those held in Employee
Benefit Plans and 408 Programs).
Under regulations promulgated under Code Section 817(h), each Investment
Account must meet certain diversification standards. Generally, compliance with
these standards is determined by taking into account an Investment Account's
share of assets of the appropriate underlying Fund. To meet this test, on the
last day of each calendar quarter, no more than 55% of the total assets of a
Fund may be represented by any one investment, no more than % may be
represented by any two investments, no more than 80% may be represented by any
three investments, and no more than 90% may be represented by any four
investments. For the purposes of Section 817(h), securities of a single issuer
generally are treated as one investment, but obligations of the U.S. Treasury
and each U.S. Governmental agency or instrumentality generally are treated as
securities of separate issuers.
TAX TREATMENT OF AND LIMITS ON PREMIUMS UNDER RETIREMENT PROGRAMS
The Contracts may be offered for use with several types of qualified or
non-qualified retirement programs as described in the Prospectus. The tax rules
applicable to Owners of Contracts used in connection with qualified retirement
programs vary according to the type of retirement plan and its terms and
conditions. Therefore, no attempt is made herein to provide more than general
information about the use of the Contracts with the various types of qualified
retirement programs.
Owners, Annuitants, Beneficiaries and other payees are cautioned that the
rights of any person to any benefits under these programs may be subject to the
terms and conditions of the Qualified Plans themselves, regardless of the terms
and conditions of the Contracts issued in connection therewith.
Generally, no taxes are imposed on the increases in the value of a Contract by
reason of investment experience or employer contributions until a distribution
occurs, either as a lump-sum
<PAGE>
4
payment or annuity payments under an elected Annuity Option or in the form of
cash withdrawals, surrenders, or other distributions prior to the Annuity Date.
The amount of premiums that may be paid under a Contract issued in connection
with a Qualified Plan are subject to limitations that may vary depending on the
type of Qualified Plan. In addition, early distributions from most Qualified
Plans may be subject to penalty taxes, or in the case of distributions of
amounts contributed under salary reduction agreements, could cause the Qualified
Plan to be disqualified. Furthermore, distributions from most Qualified Plans
are subject to certain minimum distribution rules. Failure to comply with these
rules could result in disqualification of the Qualified Plan or subject the
Annuitant to penalty taxes. As a result, the minimum distribution rules could
limit the availability of certain Annuity Options to Contract Owners and their
Beneficiaries.
Below are brief descriptions of various types of qualified retirement programs
and the use of the Contracts in connection therewith. Unless otherwise indicated
in the context of the description, these descriptions reflect the assumption
that the Contract Owner is a participant in the retirement program. For Employee
Benefit Plans that are defined benefit plans, a Contract generally would be
purchased by a Participant, but only by the plan itself.
403(B) PROGRAMS
Premiums paid pursuant to a 403(b) Program are excludable from a Contract
Owner's gross income if they do not exceed the smallest of the limits calculated
under Sections 402(g), 403(b)(2), and 415 of the Internal Revenue Code. Section
402(g) generally limits a Contract Owner's salary reduction premiums to a 403(b)
Program to $9,500 a year. The $9,500 limit may be reduced by salary reduction
premiums to another type of retirement plan. A Contract Owner with at least 15
years of service for a "qualified employer" (i.e., an educational organization,
hospital, home health service agency, health and welfare service agency, church
or convention or association of churches) generally may exceed the $9,500 limit
by $3,000 per year, subject to an aggregate limit of $15,000 for all years.
Section 403(b)(2) provides an overall limit on employer and Contract Owner
salary reduction premiums that may be made to a 403(b) Program. Section
403(b)(2) generally provides that the maximum amount of premiums a Contract
Owner may exclude from his gross income in any taxable year is equal to the
excess, if any, of:
(a) the amount determined by multiplying 20% of his includable compensation
by the number of his years of service with his employer, over
(b) the total amount contributed to retirement plans sponsored by his
employer, including the Section 403(b) Program, that were excludable from his
gross income in prior years.
Contract Owners employed by "qualified employers" may elect to have certain
alternative limitations apply.
Section 415(c) also provides an overall limit on the amount of employer and
Contract Owner's salary reduction premiums to a Section 403(b) Program that will
be excludable from an employee's gross income in a given year. The Section
415(c) limit is the lesser of (a) $30,000, or (b) 25% of the Contract Owner's
annual compensation (reduced by his salary reduction premiums to the 403(b)
Program and certain other employee plans). This limit will be reduced if a
Contract Owner also participates in an Employee Benefit Plan maintained by a
business that he or she controls.
The limits described above do not apply to amounts "rolled over" from another
Section 403(b) Program. With respect to the distributions made prior to 1993,
Section 403(b)(8) of the Internal Revenue Code permits a Contract Owner who
receives a "total distribution" and certain partial distributions from a Section
403(b) Program to transfer the proceeds (excluding amounts previously included
in his gross income) to another Section 403(b) Program within 60 days of receipt
without recognizing income on the distribution. A "total distribution" is a
distribution of the balance of the credit of a Contract Owner under a Section
403(b) Program (and all other Section 403(b) Programs in which he has
participated in connection with his employment with his employer) (a) on account
of his death, disability, or termination of employment, or (b) after he reached
age 59 1/2. Beginning in 1993, a Contract Owner who receives an "eligible
rollover distribution" will be permitted either to roll over such amount to
another Section 403(b) Program or an IRA within 60 days of receipt or to make a
direct rollover to another Section 403(b) Program or an IRA without recognition
of income. An "eligible rollover distribution" means any distribution to a
Contract Owner of all or any taxable portion of the balance of his credit under
a Section 403(b) Program, other than a required minimum distribution to a
Contract Owner who has reached age 70 1/2 and excluding any distribution which
is one of a series of substantially equal payments made (1) over the life
expectancy of the Contract Owner or the joint life expectancy of the Contract
Owner and his beneficiary or (2) over a specified period of 10 years or more.
Provisions of the Internal Revenue Code require that 20% of every eligible
rollover distribution that is not directly rolled over be withheld by the payor
for federal income taxes.
408 PROGRAMS
Code Sections 219 and 408 permit eligible individuals to contribute to an in-
dividual retirement program, including a Simplified Employee Pension Plan and an
Employer Association Established Individual Retirement Account Trust, 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 IRAs may be
subject to special requirements
<PAGE>
5
imposed by the Internal Revenue Service. Purchasers of the Contracts for such
purposes will be provided with such supplementary information as may be required
by the Internal Revenue Service or other appropriate agency, and will have the
right to revoke the Contract under certain circumstances.
If an Owner of a Contract issued in connection with a 408 Program surrenders
the Contract or makes a partial withdrawal, the Contract Owner will realize
income taxable at ordinary tax rates on the amount received to the extent that
amount exceeds the 408 premiums that were not excludable from the taxable income
of the employee when paid.
Premiums paid to the individual retirement account of a Contract Owner under a
408 Program that is described in Section 408(c) of the Internal Revenue Code are
subject to the limits on premiums paid to individual retirement accounts under
Section 219(b) of the Internal Revenue Code. Under Section 219(b) of the Code,
premiums paid to an individual retirement account are limited to the lesser of
$2,000 per year or the Contract Owner's annual compensation. An additional $250
may be paid if the Contract Owner has a spouse with little or no compensation
for the year, provided separate accounts are maintained for the Contract Owner
and his spouse, and no more than $2,000 is contributed to either account in any
one year. The extent to which a Contract Owner may deduct premiums paid in
connection with this type of 408 Program depends on his and his spouse's gross
income for the year and whether either participate in another employer-sponsored
retirement plan.
Premiums paid in connection with a 408 Program that is a simplified employee
pension plan are subject to limits under Section 402(h) of the Internal Revenue
Code. Section 402(h) currently limits premiums paid in connection with a
simplified employee pension plan to the lesser of (a) 15% of the Contract
Owner's compensation, or (b) $30,000. Premiums paid through salary reduction are
subject to additional annual limits.
EMPLOYEE BENEFIT PLANS
Code Section 401 permits business employers and certain associations to
establish various types of retirement plans for employees. Such retirement plans
may permit the purchase of Contracts to provide benefits thereunder.
If an Owner of a Contract issued in connection with an Employee Benefit Plan
who is a participant in the Plan receives a lump-sum distribution, the portion
of the distribution equal to any premiums that were taxable to the Contract
Owner in the year when paid is generally received tax free. The balance of the
distribution will generally be treated as ordinary income. Special five-year
forward averaging provisions under Code Section 402 may be utilized on the
amount subject to ordinary income tax treatment, provided that the Contract
Owner has reached age 59 1/2, has not previously elected forward averaging for a
distribution from any Employee Benefit Plan after reaching age 59 1/2, and has
not rolled over a distribution from the Employee Benefit Plan or a similar plan
into another Employee Benefit Plan or an individual retirement account or
annuity. Special ten-year averaging and a capital-gains election may be
available to a Contract Owner who reached age 50 before 1986.
Under an Employee Benefit Plan under Section 401 of the Code, when annuity
payments commence (as opposed to a lump-sum distribution), under Section 72 of
the Code, the portion of each payment attributable to premiums that were taxable
to the participant in the year made, if any, is excluded from gross income as a
return of the participant's investment. The portion so excluded is determined at
the time the payments commence by dividing the participant's investment in the
Contract by the expected return. The periodic payments in excess of this amount
are taxable as ordinary income. Once the participant's investment has been
recovered, the full annuity payment will be taxable. If the annuity should stop
before the investment has been received, the unrecovered portion is deductible
on the Annuitant's final return. If the Contract Owner paid no premiums that
were taxable to the Contract Owner in the year made, there would be no portion
excludable.
The applicable annual limits on premiums paid in connection with an Employee
Benefit Plan depend upon the type of plan. Total premiums paid on behalf of a
Contract Owner who is a participant to all defined contribution plans maintained
by an Employer are limited under Section 415(c) of the Internal Revenue Code to
the lesser of (a) $30,000, or (b) 25% of a participant's annual compensation.
Premiums paid through salary reduction to a cash-or-deferred arrangement under a
profit sharing plan are subject to additional annual limits. Premiums paid to a
defined benefit pension plan are actuarially determined based upon the amount of
benefits the participant will receive under the plan formula. The maximum annual
benefit any participant may receive under an Employer's defined benefit plan is
limited under Section 415(b) of the Internal Revenue Code. The limits determined
under Section 415(b) and (c) of the Internal Revenue Code are further reduced
for a participant who participates in a defined contribution plan and a defined
benefit plan maintained by the same employer.
TAX PENALTY FOR ALL ANNUITY CONTRACTS
Any distribution made to a Contract Owner who is a participant from an
Employee Benefit Plan or a 408 Program other than on account of one or more of
the following events will be subject to a 10% penalty tax on the amount
distributed:
(a) the Contract Owner has attained age 59 1/2;
(b) the Contract Owner has died; or
(c) the Contract Owner is disabled.
In addition, a distribution from an Employee Benefit Plan will not be subject
to a 10% excise tax on the amount distributed if the Contract Owner is 55 and
has separated from service. Distributions that are received as a life annuity
where payment is made at least annually will not be subject to an excise tax.
Certain amounts paid for medical care also may not be subject to an excise tax.
<PAGE>
6
WITHHOLDING FOR EMPLOYEE BENEFIT PLANS AND
TAX-DEFERRED ANNUITIES
Distributions from an Employee Benefit Plan to an employee, surviving spouse,
or former spouse who is an alternate payee under a qualified domestic relations
order, in the form a lump-sum settlement or periodic annuity payments for a
fixed period of fewer than 10 years are subject to mandatory federal income tax
withholding of 20% of the taxable amount of the distribution, unless the
distributee directs the transfer of such amounts to another Employee Benefit
Plan or to an Individual Retirement Account under Code Section 408. The taxable
amount is the amount of the distribution, less the amount allocable to after-tax
premiums.
All other types of distributions from Employee Benefit Plans and all
distributions from Individual Retirement Accounts, are subject to federal income
tax withholding on the taxable amount unless the distributee elects not to have
the withholding apply. The amount withheld is based on the type of distribution.
Federal tax will be withheld from annuity payments (other than those subject to
mandatory 20% withholding) pursuant to the recipient's withholding certificate.
If no withholding certificate is filed with AUL, tax will be withheld on the
basis that the payee is married with three withholding exemptions. Tax on all
surrenders and lump-sum distributions from Individual Retirement Accounts will
be withheld at a flat 10% rate.
Withholding on annuity payments and other distributions from the Contract will
be made in accordance with regulations of the Internal Revenue Service.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., independent accountants, performs certain accounting
and auditing services for AUL and performs the same services for the Variable
Account. The AUL financial statements included in this Statement of Additional
Information have been audited to the extent and for the periods indicated in
their report thereon. As independent accountants, Coopers & Lybrand L.L.P.
audits the financial statements of AUL and reviews its internal accounting
controls, and performs the same services for the Variable Account.
PERFORMANCE INFORMATION
Performance information for the Investment Accounts is shown in the prospectus
under "Performance of the Investment Accounts." Performance information for the
Investment Accounts may also appear in promotional reports and literature to
current or prospective Contract Owners in the manner described in this section.
Performance information in promotional reports and literature may include the
yield and effective yield of the Investment Account investing in the AUL
American Money Market Portfolio ("Money Market Investment Account"), the yield
of the remaining Investment Accounts, the average annual total return and the
total return of all Investment Accounts.
Current yield for the Money Market Investment Account will be based on the
change in the value of a hypothetical investment (exclusive of capital changes)
over a particular 7-day period, less a pro rata share of the Investment
Account's expenses accrued over that period (the "base period"), and stated as a
percentage of the investment at the start of the base period (the "base period
return"). The base period return is then annualized by multiplying by 365/7,
with the resulting yield figures carried to at least the nearest hundredth of
one percent.
Calculation of "effective yield" begins with the same "base period return"
used in the calculation of yield, which is then annualized to reflect weekly
compounding pursuant to the following formula:
Effective Yield = [(Base Period Return + 1)**365/7] - 1
Quotations of yield for the remaining Investment Accounts will be based on all
investment income per Accumulation Unit earned during a particular 30-day
period, less expenses accrued during the period ("net investment income"), and
will be computed by dividing net investment income by the value of the
Accumulation Unit on the last day of the period, according to the following
formula:
YIELD = 2[( a-b/cd + 1)**6 - 1]
where a = net investment income earned during the period by the Portfolio
attributable to shares owned by the Investment Account
b = expenses accrued for the period (net of reimbursements),
c = the average daily number of Accumulation Units outstanding during the
period that were entitled to receive dividends, and
d = the value (maximum offering period) per Accumulation Unit on the last
day of the period.
Quotations of average annual total return for any Investment Account will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in a Contract over a period of one, five, and ten years
(or, if less, up to the life of the Investment Account), calculated pursuant to
the following formula: P(1 + T)**n = ERV (where P = a hypothetical initial
payment of $1,000, T = the average annual total return, n = the number of years,
and ERV = the ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the period). Hypothetical quotations of average total return
may also be shown for an Investment Account
<PAGE>
7
for periods prior to the time that the Investment Account commenced operations
based upon the performance of the mutual fund portfolio in which that Investment
Account invests, as adjusted for applicable charges. All total return figures
reflect the deduction of the applicable withdrawal charge, the administrative
charge, and the mortality and expense risk charge. Quotations of total return,
actual and hypothetical, may simultaneously be shown that do not take into
account certain contractual charges such as the withdrawal charge and the
administrative charge and quotations of total return may reflect other periods
of time.
The average annual return that the Investment Accounts achieved for the one
year, three year, five year, and the lesser of ten years or since inception for
the periods ending December 31, 1995 under a Flexible Premium Contract and a One
Year Flexible Premium Contract (assuming the withdrawal charge is taken into
account in computing the ending redeemable value) and all Contracts (assuming
the withdrawal charge is not taken into account in computing the ending
redeemable value) may be found in the Prospectus.
Performance information for an Investment Account may be compared, in
promotional reports and literature, to: (i) the Standard & Poor's 500 Composite
Index ("S&P 500"), Dow Jones Industrial Average ("DJIA"), Donoghue Money Market
Institutional Averages, or other indices that measure performance of a pertinent
group of securities so that investors may compare an Investment Account's
results with those of a group of securities widely regarded by investors as
representative of the securities markets in general; (ii) other groups of
variable annuity separate accounts or other investment products tracked by
Lipper Analytical Services, a widely used independent research firm which ranks
mutual funds and other investment companies by overall performance, investment
objectives, and assets, or tracked by other services, companies, publications,
or persons who rank such investment companies on overall performance or other
criteria; and (iii) the Consumer Price Index (measure for inflation) to assess
the real rate of return from an investment in the Contract. Unmanaged indices
may assume the reinvestment of dividends but generally do not reflect deductions
for administrative and management costs and expenses.
Performance information for any Investment Account reflects only the
performance of a hypothetical Contract under which an Owner's Contract Value is
allocated to an Investment Account during a particular time period on which the
calculations are based. Performance information should be considered in light of
the investment objectives and policies, characteristics and quality of the Funds
in which the Investment Account invests, and the market conditions during the
given time period, and should not be considered as a representation of what may
be achieved in the future.
Promotional reports and literature may also contain other information
including (i) the ranking of any Investment Account derived from rankings of
variable annuity separate accounts or other investment products tracked by
Lipper Analytical Services or by other rating services, companies, publications,
or other persons who rank separate accounts or other investment products on
overall performance or other criteria; (ii) the effect of tax-deferred
compounding on an Investment Account's investment returns, or returns in
general, which may include a comparison, at various points in time, of the
return from an investment in a Contract (or returns in general) on a
tax-deferred basis; (assuming one or more tax rates) with the return on a
taxable basis; and (iii) AUL's rating or a rating of AUL's claim-paying ability
by firms that analyze and rate insurance companies and by nationally recognized
statistical rating organizations.
<PAGE>
8
FINANCIAL STATEMENTS
The financial statements of AUL, which are included in this Statement of
Additional Information, should be considered only as bearing on the ability of
AUL to meet its obligations under the Contracts. They should not be considered
as bearing on the investment performance of the assets held in the Variable
Account.
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
American United Life Insurance Company(R)
Indianapolis, Indiana
We have audited the accompanying balance sheet of American United Life Insurance
Company(R) as of December 31, 1995 and 1994, and the related statements of
operations, policyowners' surplus, and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American United Life Insurance
Company(R) as of December 31, 1995 and 1994, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Indianapolis, Indiana
February 19, 1996
<PAGE>
9
<TABLE>
<CAPTION>
AMERICAN UNITED LIFE INSURANCE COMPANY(R)
BALANCE SHEET
================================================================================
<S> <C> <C>
December 31,
------------
1995 1994
---- ----
ASSETS
BONDS, at amortized cost...................................... $ 4,262,508,169 $ 4,082,347,294
STOCKS:
Preferred, at cost.......................................... 4,324,024 3,390,328
Common, at market........................................... 14,728,108 26,762,298
---------- ----------
19,052,132 30,152,626
MORTGAGE LOANS ............................................... 1,090,969,184 1,051,896,715
SHORT-TERM INVESTMENTS, at cost.............................. 65,040,000 69,482,580
OTHER INVESTED ASSETS......................................... 23,855,487 3,841,848
REAL ESTATE:
Investment properties, net.................................. 51,254,647 52,938,109
Home office, net............................................ 28,503,705 27,347,204
---------- ----------
79,758,352 80,285,313
OTHER:
Policy loans................................................ 120,283,198 117,708,964
Cash and cash equivalents................................... 7,169,522 8,816,165
Premiums deferred and uncollected........................... 46,789,680 38,751,657
Accrued investment income................................... 81,783,739 80,065,880
Other assets................................................ 52,451,849 41,025,151
Separate Account assets..................................... 603,897,522 351,336,512
----------- -----------
912,375,510 637,704,329
$ 6,453,558,834 $ 5,955,710,705
================= ==================
</TABLE>
<PAGE>
10
<TABLE>
<CAPTION>
AMERICAN UNITED LIFE INSURANCE COMPANY(R)
BALANCE SHEET
================================================================================
<S> <C> <C>
December 31,
------------
1995 1994
---- ----
LIABILITIES AND POLICYOWNERS' SURPLUS
POLICY RESERVES
Deposit administration and supplementary contracts.......... $ 3,758,646,460 $ 3,672,096,982
Life and annuities......................................... 1,350,657,146 1,237,321,589
Accident and health......................................... 70,844,333 85,463,733
---------- ----------
5,180,147,939 4,994,882,304
POLICY AND CONTRACT LIABILITIES
Policy claims in process of settlement...................... 88,830,660 74,603,465
Policy dividends on deposit at interest..................... 59,460,245 59,504,981
Policy dividends payable in following year.................. 21,457,630 20,543,858
Other policy and contract liabilities....................... 40,590,059 37,262,603
---------- ----------
210,338,594 191,914,907
GENERAL LIABILITIES AND OTHER RESERVES
Accrued commissions and general expenses.................... 4,235,635 4,492,396
Taxes, including federal income taxes....................... 27,123,089 17,900,917
Unearned interest and rents................................. 2,829,903 2,860,495
Other liabilities........................................... 37,288,056 46,869,894
Asset valuation reserve..................................... 71,760,102 70,496,028
Interest maintenance reserve................................ 26,220,419 23,820,990
Contingent liability for reinsurance........................ 353,754 841,508
Separate Account liabilities................................ 603,897,522 351,336,512
----------- -----------
773,708,480 518,618,740
TOTAL LIABILITIES 6,164,195,013 5,705,415,951
POLICYOWNERS' SURPLUS 289,363,821 250,294,754
----------- -----------
$ 6,453,558,834 $ 5,955,710,705
================= ==================
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
11
<TABLE>
<CAPTION>
AMERICAN UNITED LIFE INSURANCE COMPANY(R)
STATEMENT OF OPERATIONS
================================================================================
<S> <C> <C>
December 31,
------------
1995 1994
---- ----
PREMIUM AND OTHER INCOME
Life and annuities.......................................... $ 340,990,486 $ 306,862,818
Accident and health......................................... 105,010,525 101,189,449
Deposit administration and supplementary contracts.......... 402,954,222 351,114,943
Net investment income....................................... 462,475,312 434,202,321
----------- -----------
1,311,430,545 1,193,369,531
BENEFITS AND EXPENSES
Death benefits.............................................. 124,196,772 109,503,889
Accident and health and disability benefits................. 76,726,189 75,377,072
Annuity benefits............................................ 95,615,467 88,718,053
Surrender benefits and other fund withdrawals............... 381,395,809 288,847,121
Supplementary contracts and endowments...................... 1,827,156 1,699,279
Other benefits.............................................. 8,060,901 7,863,187
Increase in policy reserves:
Deposit administration and supplementary contracts......... 96,222,658 166,030,251
Life and annuities......................................... 101,804,514 104,415,453
Accident and health........................................ (14,619,400) 9,139,619
Separate accounts.......................................... 160,395,977 150,228,191
General expenses............................................ 84,398,348 76,019,074
Commissions and service fees................................ 80,923,848 75,300,197
Taxes, licenses and fees.................................... 9,447,928 11,074,820
Dividends to policyowners................................... 22,715,891 21,039,163
Reserve adjustment on reinsurance assumed................... 26,064,924 (39,550,876)
Other....................................................... (10,187,186) (7,867,686)
----------- ----------
1,244,989,796 1,137,836,807
Net gain from operations before federal income taxes..... 66,440,749 55,532,724
Federal income taxes........................................ 21,726,053 27,058,888
---------- ----------
Net gain from operations before net realized
capital losses.......................................... 44,714,696 28,473,836
Net realized capital losses net of taxes.................... (2,799,506) (477,559)
NET INCOME.............................................. $ 41,915,190 $ 27,996,277
=============== ====================
</TABLE>
<TABLE>
<CAPTION>
AMERICAN UNITED LIFE INSURANCE COMPANY(R)
STATEMENT OF POLICYOWNERS' SURPLUS
================================================================================
<S> <C> <C>
December 31,
------------
1995 1994
---- ----
Policyowners' surplus, beginning of year...................... $ 50,294,754 $ 228,730,815
Add (deduct):
Net income.................................................. 41,915,190 27,996,277
Change in statement value of investments.................... 1,938,555 (3,504,915)
Change in contingent liability for reinsurance.............. 487,753 1,966,134
Change in asset valuation reserve........................... (1,264,074) (1,131,669)
Other....................................................... (4,008,357) (3,761,888)
---------- ----------
Policyowners' surplus, end of year............................ $ 289,363,821 $ 250,294,754
=============== ==============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
12
<TABLE>
<CAPTION>
AMERICAN UNITED LIFE INSURANCE COMPANY(R)
STATEMENT OF CASH FLOWS
================================================================================
<S> <C> <C>
December 31,
------------
1995 1994
---- ----
CASH FROM OPERATIONS:
Premiums and other policy considerations.................... $ 840,800,579 $ 755,594,547
Investment income........................................... 451,918,023 425,976,111
----------- -----------
1,292,718,602 1,181,570,658
Benefits.................................................... 859,631,292 702,526,336
Commissions and general expenses............................ 176,222,502 122,334,264
Federal income taxes........................................ 13,786,561 23,674,736
Increase (decrease) in policy loans......................... 2,574,234 5,733,167
Dividends to policyowners................................... 21,802,118 18,715,837
---------- ----------
1,074,016,707 872,984,340
NET CASH FROM OPERATIONS 218,701,895 308,586,318
Proceeds from investments sold, redeemed or matured:
Bonds....................................................... 409,344,079 525,799,172
Stocks...................................................... 14,694,984 4,073,265
Mortgage loans.............................................. 112,116,067 131,105,341
Real estate................................................. 3,433,133 605,533
Other invested assets....................................... 66,355 79,704
Tax on capital gains, including amounts in asset
and interest maintenance reserves.......................... (3,833,936) (4,551,265)
Other sources............................................... 7,384,150 26,156,329
--------- ----------
TOTAL CASH PROVIDED 761,906,727 991,854,397
Cost of investments acquired:
Bonds....................................................... 572,352,611 801,182,111
Stocks...................................................... 972,093 759,415
Mortgage loans.............................................. 155,180,674 111,872,905
Real estate................................................. 4,597,372 2,391,763
Other uses.................................................... 34,893,200 28,856,549
---------- ----------
TOTAL CASH APPLIED 767,995,950 945,062,743
----------- -----------
Net change in cash and short-term investments................. (6,089,223) 46,791,654
Cash and short-term investments, beginning of year............ 78,298,745 31,507,091
Cash and short-term investments, end of year.................. $ 72,209,522 $ 78,298,745
=============== ==============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
13
NOTES TO FINANCIAL STATEMENTS
AMERICAN UNITED LIFE INSURANCE COMPANY(R)
================================================================================
1. NATURE OF OPERATIONS:
American United Life Insurance Company(R) (AUL) is an Indiana-domiciled
mutual life insurance company founded in 1877 with headquarters in Indianapolis.
It is currently licensed to sell business in 46 states and the District of
Columbia. AUL offers individual life insurance and annuities, group life and
disability insurance, pension products, and reinsurance services.
2. ACCOUNTING POLICIES:
a. BASIS OF PRESENTATION: The financial statements have been prepared on
the basis of accounting practices prescribed or permitted by the Insurance
Department of the State of Indiana, which practices are regarded as generally
accepted accounting principles (GAAP) for mutual life insurance companies.
In January 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 120, Accounting and
Reporting by Mutual Life Insurance Enterprises and by Insurance Enterprises for
Certain Long-Duration Participating Contracts. This Statement, effective for
fiscal years beginning after December 15, 1995, extends the requirements of SFAS
Nos. 60, 97, and 113 to mutual life insurance companies. It also defers the
effective date of Interpretation 40, previously issued by the FASB in 1993, for
fiscal years beginning after December 15, 1995. Interpretation 40 indicated that
financial statements of mutual life insurance companies prepared on a statutory
basis will no longer be considered in conformity with GAAP. In addition, the
American Institute of Certified Public Accountants has issued Statement of
Position (SOP) 95-1, Accounting for Certain Insurance Activities of Mutual Life
Insurance Enterprises, which is also effective for fiscal years beginning after
December 15, 1995. This SOP establishes accounting for certain participating
life insurance contracts.
The effect of initially applying, SFAS No. 120, Interpretation 40, and SOP
95-1, is to be reported through restatement of all previously issued annual
financial statements presented for comparative purposes for fiscal years
beginning after December 15, 1992. Management has determined it will initiate
the accounting changes; the effect of which has not yet been determined.
However, management expects an increase in policyowners' surplus upon adoption
of these statements.
b. INVESTMENTS: Bonds, mortgage loans, and other invested assets are
reported principally at amortized cost; preferred stocks are reported at cost
(market value was $4,224,000 and $3,251,000 at December 31, 1995 and 1994,
respectively); common stocks are reported at market (cost was $12,041,000 and
$25,269,000 at December 31, 1995 and 1994, respectively); short-term investments
include investments with maturities of one year or less and are reported at
cost, which approximates market; policy loans are reported at unpaid balances
and real estate is reported at cost less allowances for depreciation.
Depreciation is provided over the estimated useful lives of the related assets
using the straight-line method.
Market values of bonds, common stocks, and preferred stocks, that are
publicly traded, are determined based on published market values. For bonds not
publicly traded, the market value is based on discounted cash flows using
current yields of comparable publicly traded securities.
Realized gains and losses on sale or maturity of investments are determined
on the basis of specific identification. Unrealized gains and losses are
reported as a component of surplus without recognizing the effect of related
income taxes. Realized gains, including those deferred in the interest
maintenance reserve, were reduced by federal taxes of approximately $3,834,000
and $4,551,000 in 1995 and 1994, respectively.
c. ASSET VALUATION AND INTEREST MAINTENANCE RESERVE: The asset valuation
reserve is provided from policyowners' surplus in accordance with statutory
accounting requirements. The interest maintenance reserve, reduced by federal
income taxes, defers the recognition of net gains realized on the sale of fixed
maturity investments, resulting from changes in interest rates. Such gains are
amortized to income over the remaining lives of the assets sold.
d. SEPARATE ACCOUNTS: The assets of the Separate Accounts shown in the
balance sheet are based on market value and represent funds which are segregated
primarily for variable annuity contracts and equity-based pension and profit
sharing plans. Separate Account income is offset by payments and provisions for
benefits and services, thus having no effect on net income or policyowners'
surplus.
e. POLICY RESERVES: Policy Reserves are based on mortality, morbidity and
interest assumptions prescribed by regulatory authorities.
Claim liabilities include provisions for reported claims and estimates
based on historical experience, for claims incurred but not reported. Claim
liabilities have been reduced at December 31, 1995 and 1994 by approximately
$40,072,000 and $32,055,000, respectively, for reinsurance ceded.
The Company received written approval from the Insurance Department of the
State of Indiana to record a "Separate Account Transfer Credit" for the
difference between reserves maintained in the General Account and reserves
maintained in the Separate Account after the transfer of funds. As of December
31, 1995 and 1994, that permitted transaction increased statutory surplus by
approximately $22,500,000 and $14,000,000, respectively.
f. FEDERAL INCOME TAXES: Generally, no provision is made for deferred
income taxes due to timing differences that may exist between financial
reporting and taxable income.
<PAGE>
14
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
2. ACCOUNTING POLICIES (Continued)
g. REVENUES AND EXPENSES: Premium income is recognized over the premium
paying period. Costs of acquiring new business are expensed when incurred and
credit is not taken, other than by statutory reserve modification methods
applicable to some policies, for the expectation that such costs will be
recovered from future premium income. Policyowner dividends are determined by
crediting each participating policy with its share of the surplus as apportioned
by the Company.
h. RETIREMENT PLANS: Annual provisions for employees' and agents'
retirement plans are computed actuarially and include amortization of past
service cost over approximately 20 years.
i. ESTIMATES: The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
j. RECLASSIFICATIONS: Certain amounts in the 1994 financial statements have
been reclassified to conform to the 1995 presentation.
3. INVESTMENTS:
The admitted values (principally amortized cost) and estimated market
values of investments in bonds and short-term investments at December 31,
1995 and 1994 are as follows:
<TABLE>
December 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Gross Estimated
Admitted Unrealized Unrealized Market
Value Gains Losses Value
----- ----- ------ -----
U.S. Treasury securities and obligations
of U.S. government agencies
and corporations $ 41,793,493 $ 4,247,221 $ 50,398 $ 45,990,316
Obligations of states and
political subdivisions 49,232,212 2,627,925 108,799 51,751,338
Debt securities issued by
foreign governments 60,007,780 4,141,435 162,798 63,986,417
Corporate securities 2,680,567,616 226,636,579 3,370,216 2,903,833,979
Mortgage-backed securities 1,495,947,068 130,038,900 368,652 1,625,617,316
------------- ----------- ------- -------------
$ 4,327,548,169 $ 367,692,060 $ 4,060,863 $ 4,691,179,366
=============== ============== =============== ===============
December 31, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Gross Estimated
Admitted Unrealized Unrealized Market
Value Gains Losses Value
----- ----- ------ -----
U.S. Treasury securities and obligations
of U.S. government agencies
and corporations $ 52,764,874 $ 19,491 $ 1,833,537 $ 50,950,828
Obligations of states and
political subdivisions 101,141,851 500,600 2,496,531 99,145,919
Debt securities issued by
foreign governments 87,740,434 931,396 5,796,978 82,874,852
Corporate securities 2,537,870,822 44,908,139 112,059,750 2,470,719,212
Mortgage-backed securities 1,372,311,893 20,531,761 64,300,906 1,328,542,748
------------- ---------- ---------- -------------
$ 4,151,829,874 $ 66,891,387 $ 186,487,702 $ 4,032,233,559
=============== ============== =============== ===============
Issues of various public utilities account for approximately 19% of the admitted value of the Company's corporate securities.
</TABLE>
<PAGE>
15
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
3. INVESTMENTS (CONTINUED):
The admitted value and estimated market value of bonds and short-term
investments at December 31, 1995, by contractual average maturity, are
shown below. Actual 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>
Estimated
Admitted Market
Value Value
----- -----
Due in one year or less $ 111,679,502 $ 111,912,745
Due after one year through five years 918,343,831 958,694,535
Due after five years through ten years 1,183,641,359 1,285,402,290
Due after ten years 617,936,409 709,552,480
----------- -----------
2,831,601,101 3,065,562,050
Mortgage-backed securities 1,495,947,068 1,625,617,316
------------- -------------
$ 4,327,548,169 $ 4,691,179,366
================= ==================
</TABLE>
Proceeds from sales, maturities, or calls of investments in bonds during
1995 were approximately $409,344,000. Gross gains of $8,849,000 and gross losses
of $2,554,0000 were realized. Capital gains of approximately $6,282,000 were
transferred to the Interest Maintenance Reserve (IMR).
Proceeds from sales, maturities, or calls of investments in bonds during
1994 were approximately $525,799,000. Gross gains of $10,353,000 and gross
losses of $3,025,000 were realized. Capital gains of approximately $7,538,000
were transferred to IMR.
Net investment income consists of the following:
<TABLE>
<S> <C> <C>
1995 1994
Interest $ 462,588,923 $ 434,173,570
Dividends 2,604,911 1,831,811
Rents 13,408,632 13,431,856
Other 4,487,817 4,275,265
--------- ---------
483,090,283 453,712,502
Less investment expenses 20,614,971 19,510,181
---------- ----------
Net investment income $ 462,475,312 $ 434,202,321
================= ================
</TABLE>
At December 31, 1995, the preferred stock unrealized depreciation of
approximately $100,000 has not been reflected in the financial statements. The
change in the unrealized depreciation of preferred stocks amounted to
approximately $39,000 of appreciation and $24,000 of depreciation in 1995 and
1994, respectively. At December 31, 1995, the common stock unrealized
appreciation of approximately $2,629,000 is comprised of $2,633,000 of
unrealized gains and $4,000 of unrealized losses and has been reflected directly
in policyowners' surplus. The change in the unrealized appreciation of common
stocks amounted to approximately $1,136,000 and $1,512,000 of depreciation in
1995 and 1994, respectively.
The Company maintains a diversified mortgage loan portfolio and exercises
internal limits on concentrations of loans by geographic area, industry, use and
individual mortgagor. Mortgage loans on various properties in nine states
(California, Florida, North Carolina, Indiana, Texas, Illinois, Georgia,
Kentucky and Ohio) account for approximately 62% of the total amortized cost of
the Company's mortgage loans. The remaining mortgage loans relate to properties
located throughout the United States. A total of approximately $158,306,000 of
mortgage loans have been issued on approximately 100 geographically diversified
properties of eight large retailers. The fair value of the aggregate mortgage
loan portfolio approximates $1,184,000,000 and 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 Company has outstanding mortgage loan commitments at December 31, 1995
of approximately $90,731,000. The Company has made no financial guarantees other
than those described in Note 10.
4. REAL ESTATE:
The Company owns its home office and occupies approximately 36% of the
complex; the remaining space is available for lease to third parties. Real
estate is recorded net of accumulated depreciation of $26,923,113 and
$24,474,746 for investment properties and $11,855,147 and $10,633,240 for home
office at December 31, 1995 and 1994, respectively. Depreciation expense on real
estate amounted to $3,606,104 and $4,488,377 in 1995 and 1994, respectively.
<PAGE>
16
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================================
5. POLICY RESERVES
Reserves for life policies are computed principally by the net level and
modified preliminary term methods on the basis of interest rates (21 1/42% to
6%) and mortality assumptions (1941, 1958 and 1980 CSO Tables) prescribed by
state regulatory authorities. Reserves for annuities and deposit administration
contacts are computed on the basis of interest rates ranging from 21 1/42% to
10%. At December 31, 1995 and 1994 these reserves consisted of the following:
<TABLE>
<S> <C> <C>
1995 1994
---- ----
Individual, group and credit life policies $ 763,291,221 $ 719,787,943
Annuities and deposit administration funds 4,352,392,299 4,199,320,853
Accident and health and other reserves 190,271,181 166,873,578
Less reinsurance ceded (125,806,762) (91,100,070)
------------ -----------
$ 5,180,147,939 $ 4,994,882,304
================ ================
</TABLE>
The statement values of the reserves for annuities and deposit
administration funds approximate the estimated fair values at December 31, 1995.
The estimated fair values of the reserves approximate the statement values
because interest rates credited to account balances approximate current rates
paid on similar investments 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 of liabilities for all insurance liabilities
are taken into consideration in the Company's overall management of interest
rate risk.
6. 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. Such amounts are expensed as contributed.
Contributions made to the plan were $2,230,000 in 1995 and $2,215,000 in 1994.
The following benefit information for the employees' defined benefit plan was
determined by outside actuaries as of January 1, 1995 and 1994, respectively,
the most recent actuarial valuation dates:
<TABLE>
<S> <C> <C>
1995 1994
---- ----
Actuarial present value of
accumulated benefits for the
employees' defined benefit plan:
Vested................................... $ 18,186,000 $ 17,138,000
Nonvested................................. 1,747,000 291,000
--------- -------
$ 19,933,000 $ 17,429,000
================ =============
Related net assets available for
plan benefits $ 25,111,000 $ 23,595,000
================ =============
</TABLE>
The Company has a defined contribution plan covering employees who have
completed one full calendar year of service. Annual contributions are made by
the Company in amounts based upon the Company's financial results. Company
contributions to the plan during 1995 and 1994 were $1,165,000 and $1,265,000,
respectively.
The Company has entered into deferred compensation agreements with several
directors, key management employees, agents and general agents. These deferred
amounts are payable according to the terms and subject to the conditions of said
agreements.
The Company also 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 1995 and 1994 are as follows:
<TABLE>
<S> <C> <C>
1995 1994
---- ----
Agents' pension plan $ 334,000 $ 349,000
Agents' 401(k) plan 272,000 262,000
------- -------
$ 606,000 $ 611,000
============== ===========
</TABLE>
The funds for all plans are held by the Company under deposit
administration and group annuity contracts.
In addition to providing pension benefits, the Company provides certain
health care and life insurance benefits (postretirement benefits) for retired
employees and certain agents (retirees). Substantially all employees and agents
may become eligible for such benefits if they reach retirement age while working
for the Company.
<PAGE>
17
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
6. EMPLOYEES' AND AGENTS' BENEFIT PLANS (CONTINUED):
Net periodic postretirement benefit costs for the year ended December 31,
1995 and 1994 were as follows:
<TABLE>
<S> <C> <C>
1995 1994
---- ----
Service cost $ 253,000 $ 252,000
Interest cost 688,000 594,000
Amortization of unrecognized loss 45,000 42,000
------ ------
Net postretirement benefit cost $ 986,000 $ 888,000
=========== ===========
</TABLE>
Company-paid premiums in 1995 were $788,000. Claims incurred in 1995 for
benefits was not significantly different than the above provision. Accrued
postretirement benefits as of December 31, 1995 were as follows:
<TABLE>
<S> <C> <C>
1995 1994
---- ----
Accumulated postretirement benefit obligation (APBO):
Retirees and their dependents $ 5,606,000 $ 5,620,000
Active employees fully eligible to retire and
receive benefits 2,439,000 2,523,000
Active employees not fully eligible 1,288,000 843,000
Unrecognized loss (1,523,000) (1,374,000)
---------- ----------
Total APBO $ 7,810,000 $ 7,612,000
=========== ===========
</TABLE>
The assumed discount rate used in determining the accumulated
postretirement benefit was 7.25% and the assumed health care cost trend rate was
10% graded to 6% over 50 years. Compensation rates were assumed to increase 6%
at each year end. The health coverage for retirees age 65 and over is capped in
the year 2000.
The health care cost trend rate assumption has a significant effect on the
amounts reported. An increase in the assumed health care cost trend rates by one
percentage point would increase the accumulated postretirement benefit
obligation as of December 31, 1995 by $296,000 and increase the net periodic
postretirement benefit cost for 1995 by $77,000.
7. FEDERAL INCOME TAXES:
Following is a reconciliation between the amount of tax computed at the
federal statutory rate of 35% in 1995 and 1994, respectively, and the federal
income tax provision reflected in the statement of operations:
<TABLE>
<S> <C> <C>
1995 1994
---- ----
Income tax computed at statutory rate........... $ 23,254,262 $ 19,436,453
Increases (decreases) in taxes resulting from:
Bond discount accrual......................... (1,789,195) (917,099)
Reserve adjustments........................... 278,993 476,495
Tax-exempt income............................. (1,963,294) (1,990,012)
Accelerated depreciation...................... (960,499) (822,622)
Policyowner dividends......................... 356,271 1,006,132
Deferred acquisition costs.................... 66,703 4,160,043
Change in mortality and morbidity fluctuation
reserve..................................... (2,065,764) 518,468
Change in discounting of accident and health
reserves.................................... 43,030 (131,267)
Change in interest maintenance reserve........ (757,607) (897,837)
Mutual company differential earnings amount,
Current year................................ 3,163,669 10,295,733
Changes in prior period estimates............. 114,143 (4,263,100)
Other......................................... 1,985,341 187,501
--------- -------
Federal income taxes............................ $ 21,726,053 $ 27,058,888
============ =============
</TABLE>
<PAGE>
18
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
8. 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, 1995 and 1994, life reinsurance
assumed was approximately 65% and 62%, respectively, of life insurance in force.
Premiums on life reinsurance assumed were approximately 44% and 43% of life
insurance premium income in 1995 and 1994, respectively. Premiums on accident
and health reinsurance assumed were approximately 57% and 53% of accident and
health premium income in 1995 and 1994, respectively.
The Company cedes that portion of the total risk on an individual life in
excess of $1,000,000. For accident and health and disability policies, the
Company has established various limits of coverage it will retain on any one
policyowner and cedes the remainder of such coverage. Certain statistical data
with respect to reinsurance ceded follows:
<TABLE>
<S> <C> <C>
1995 1994
---- ----
Reinsurance ceded on ordinary life in force..... $ 8,615,497,000 $ 6,248,499,000
Reinsurance ceded on group and credit
life in force................................. 1,457,917,000 1,631,068,000
Life reinsurance premiums ceded................. 29,776,000 26,562,000
Accident and health reinsurance premiums ceded.. 69,468,000 71,318,000
</TABLE>
The Company accounts for all reinsurance agreements as transfers of risk.
Premiums for policies reinsured with other companies have been reported as a
reduction of premium income and amounts applicable to reinsurance ceded for
policy reserves and claim liabilities have been reported as reductions of these
items. If companies to which reinsurance has been ceded are unable to meet
obligations under the reinsurance agreements, the Company would remain liable.
Changes in such contingent liabilities are reflected directly to policyowners'
surplus.
Six reinsurers account for approximately 71% of the Company's December 31,
1995 ceded reserves for life and accident and health insurance. The remainder of
such ceded reserves is spread among numerous reinsurers.
9. CONTINGENCY:
Various lawsuits have arisen in the ordinary course of the Company's
business. In each of the matters, the Company believes its defenses are
meritorious and that the eventual outcome will not have a material effect on the
Company's financial position.
10. STRATEGIC ALLIANCE:
In September 1994, the Company and State Life Insurance Company (State
Life) entered into a strategic alliance (the alliance). The Company and State
Life will remain separate entities, in that each will retain its own assets,
liabilities, surplus, policies, and policyowners. There will also be separate
but common boards of directors.
In accordance with the alliance, the Company has guaranteed the insurance
liabilities of State Life to its policyholders, including present policyholders
and those acquired during the period of the alliance (initially ten years), in
the event State Life becomes unable to honor such insurance liabilities. As of
December 31, 1995, the Company has not recorded any liabilities relating to this
guarantee.
11. SUBSEQUENT EVENT:
On February 16, 1996, the Company issued $75 million of 7.75% Surplus
Notes, due March 30, 2026.
19
<PAGE>
================================================================================
No dealer, salesman or any other person is authorized by the AUL
American Individual Unit Trust to give any information or to make any
representation other than as contained in this Statement of Additional
Information in connection with the offering described herein.
There has been filed with the Securities and Exchange Commission,
Washington, D.C., a Registration Statement under the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as amended,
with respect to the offering herein described. For further information
with respect to the AUL American Individual Unit Trust, AUL and its
variable annuities, reference is made thereto and the exhibits filed
therewith or incorporated therein, which include all contracts or
documents referred to herein.
================================================================================
AUL AMERICAN INDIVIDUAL UNIT TRUST
Individual Variable Annuity Contracts
Sold By
AMERICAN UNITED
LIFE INSURANCE COMPANY(R)
One American Square
Indianapolis, Indiana 46204
STATEMENT OF ADDITIONAL INFORMATION
Dated: May 1, 1996
================================================================================
1
<PAGE>
Part C: Other Information
Item 24. Financial Statements and Exhibits
(a) Financial Statements
1. Included in Prospectus (Part A):
Condensed Financial Information
2. Included in Statement of Additional Information (Part B):
(a) Financial Statements of American United Life Insurance Company(R)
Report of Independent Accountants
Balance Sheet - Assets, Liabilities and Policyowners' Surplus as of
December 31, 1995 and 1994
Statement of Operations for the years ended December 31, 1995 and
1994
Statement of Policyowners' Surplus for the years ended December 31,
1995 and 1994
Statement of Cash Flows for the years ended December 31, 1995 and
1994
Notes to Financial Statements
(b) Financial Statements of AUL American Individual Unit Trust
(1) Registrant's Annual Report for the year ended December 31, 1995
is incorporated by reference thereto and contains the following
Financial Statements:
Report of Independent Accountants
Statement of Net Assets as of December 31, 1995
Statement of Operations and Changes in Net Assets for the years
ended December 31, 1995 and December 31, 1994
Notes to Financial Statements
(b) Exhibits
1. Resolution of Executive Committee of American United Life Insurance
Company(R) ("AUL") establishing AUL American Individual Unit
Trust(1)
2. Not applicable
3. Broker-Dealer Supervisory and Selling Agreement(1)
4. (a) Flexible Premium Variable Annuity Contract(1)
(b) One Year Flexible Premium Variable Annuity Contract(1)
5. Application for Individual Variable Annuity(1)
6. Copies of AUL's certificate of incorporation and by-laws(2)
7. Not applicable
8. (a) Form of Participation Agreement with Variable Annuity Products
Fund and Variable Annuity Products Fund II(3)
(b) Form of Participation Agreement with TCI Portfolios, Inc.(1)
(c) Form of Participation Agreement with T. Rowe Price Equity
Series, Inc., Alger American Series Fund and Acacia Capital
Corporation(6)
9. Opinion and Consent of Associate General Counsel of AUL as to the
legality of the Contracts being registered(5)
10. (a) Consent of Independent Accountants(8)
(b) Consent of Dechert Price & Rhoads(5)
(c) Powers of Attorney(4)(8)
11. Financial Statements of AUL American Individual Unit Trust(8)
12. Not applicable
13. Schedule for Computation of Performance Quotations(8)
14. Financial Data Schedule(8)
(1) Originally filed with the Registrant's Registration Statement (File No.
33-79562) on May 31, 1994, and incorporated by reference herein.
(2) Filed with AUL American Unit Trust's Registration Statement (File No.
33-31375) and incorporated by reference herein.
(3) Filed with Post-Effective Amendment No. 6 to AUL American Unit Trust's
Registration Statement (File No. 33-31375) and incorporated by reference
herein.
(4) Filed with AUL American Unit Trust's Registration Statement (File No.
33-31375) and Post-Effective Amendment Nos. 1, 2, 3, 7, and 10, and
incorporated by reference herein.
(5) Filed with Registrant's Pre-Effective Amendment No. 1 and incorporated by
reference herein.
(6) Filed with Registrant's Post-Effective Amendment No. 1 and incorporated by
reference herein.
(7) Filed with Registrant's Post-Effective Amendment No. 2 and incorporated by
reference herein.
(8) Filed with Registrant's Post-Effective Amendment No. 4 and incorporated by
reference herein.
<TABLE>
<CAPTION>
Item 25. Directors and Officers of AUL
<S> <C>
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.
- ---------------------------------------------
*One American Square, Indianapolis, Indiana
2
<PAGE>
Item 25. Directors and Officers of AUL (Continued)
Name and Address Positions and Offices with AUL
- ---------------- ------------------------------
Arthur L. Bryant Director
P.O. Box 406
Indianapolis, Indiana
James E. Cornelius Director
P.O. Box 44906
Indianapolis, Indiana
James E. Dora Director
P.O. Box 42908
Indianapolis, Indiana
Otto N. Frenzel III Director and Chairman of the Audit
101 W. Washington St., Suite 400E Committee
Indianapolis, Indiana
David W. Goodrich Director
Box 82055
Indianapolis, Indiana
William P. Johnson Director
P.O. Box 517
Goshen, Indiana
Charles D. Lineback* Senior Vice President
James T. Morris Director
1220 Waterway Boulevard
Indianapolis, Indiana
James W. Murphy* Senior Vice President
Jerry L. Plummer* Senior Vice President
R. Stephen Radcliffe* Director and Executive Vice President
Jack E. Reich* Emeritus Chairman of the Board
Thomas E. Reilly Jr. Director
300 N. Meridian, Suite 1500
Indianapolis, Indiana
William R. Riggs* Director
G. David Sapp* Senior Vice President
Leonard D Schutt Director and Chairman of the Finance
5853 Wycombe Lane Committee
Indianapolis, Indiana
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
James P. Shanahan* Senior Vice President
Frank D. Walker Director
P.O. Box 80432
Indianapolis, Indiana
Gerald T. Walker* Senior Vice President
- ----------------------------------------------
*One American Square, Indianapolis, Indiana
3
<PAGE>
Item 25. Directors and Officers of AUL (Continued)
Name and Address Positions and Offices with AUL
- ---------------- ------------------------------
James R. Zapapas Director
5025 Plantation Drive
Indianapolis, Indiana
</TABLE>
Item 26. Persons Controlled by or Under Common Control with Registrant
American United Life Insurance Company(R) ("AUL") is a mutual life insurance
company organized under the laws of the State of Indiana. As a mutual company,
AUL has no shareholders and therefore no one individual controls as much as 10%
of AUL. In accordance with current law, it is anticipated that AUL will request
voting instructions from owners or participants of any Contracts that are funded
by separate accounts that are registered investment companies under the
Investment Company Act of 1940 and will vote shares in any such separate account
attributable to the Contracts in proportion to the voting instructions received.
AUL may vote shares of any Portfolio, if any, that it owns beneficially in its
own discretion.
AUL may also be deemed to control State Life Insurance Company(R) ("State
Life"), since a majority of AUL's Directors also serve as Directors of State
Life. By virtue of an agreement between AUL and State Life, AUL provides
investment and other support services for State Life on a contractual basis.
AUL Equity Sales Corporation ("ESC") is a wholly-owned subsidiary of AUL
organized under the laws of the State of Indiana in 1969 for the purpose of the
sale of mutual funds on an application-way basis only.
Registrant and AUL American Unit Trust are separate accounts of AUL, organized
for the purpose of the sale of individual and group variable annuity contracts,
respectively.
AUL American Series Fund, Inc. (the "Fund") was incorporated under the laws of
Maryland on July 26, 1989 and is registered as an open-end, diversified
management investment company under the Investment Company Act of 1940. As a
"series" type of mutual fund, the "Fund" issues shares of common stock relating
to separate investment portfolios. Substantially all of the "Fund's" shares were
originally purchased by AUL in connection with the initial capitalization of the
"Fund." As a result of providing the initial capital for the Portfolios, on
December 31, 1995, AUL owned 12.5% of the outstanding shares of the Fund's
Equity Portfolio, 25.2% of the Fund's Bond Portfolio, 6.1% of the Fund's Managed
Portfolio, 0.0% of the Fund's Money Market Portfolio, and 45.8% of the Fund's
Tactical Asset Allocation Portfolio. Therefore, AUL may be able to control the
outcome of any issue submitted generally to the vote of Fund shareholders and
would be able to control the outcome of any issue submitted to the vote of
shareholders of the Tactical Asset Allocation Portfolio.
American United Life Pooled Equity Fund B is a separate account of AUL organized
for the purpose of the sale of group variable annuity contracts.
Item 27. Number of Contractholders
As of December 31, 1995, AUL has issued 1,150 Individual variable annuity
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
(File No. 2-27832) and to AUL American Series Fund, Inc. (File No. 33-30156)
(b) For information regarding AUL's Officers and Directors, see Item 25 above.
(c) Not applicable
4
<PAGE>
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
46204.
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 American Council of
Life Insurance, SEC No-Action Letter, SEC Ref. No. IP-6-88 (November
28, 1988) with respect to annuity contract offered as funding vehicles
for retirement plans meeting the requirements of Section 403(b) of the
Internal Revenue Code, and the provisions of paragraphs (1) - (4) of
this letter have been complied with.
5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) of the Securities Act of 1933 and
has duly caused this Post-Effective Amendment to the Registration Statement
(Form N-4) to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Indianapolis and the State of Indiana on this twenty
sixth day of April, 1996.
AUL AMERICAN INDIVIDUAL UNIT TRUST
(Registrant)
By: American United Life Insurance Company(R)
------------------------------------------
By: Jerry D. Semler*, Chairman of the Board,
President, and Chief Executive Officer
/s/ Richard A. Wacker
*By: Richard A. Wacker as Attorney-in-fact
Date: April 26, 1996
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.
<TABLE>
<S> <C> <C>
Signature Title Date
- --------- ----- ----
_______________________________________________ Director April___, 1996
Steven C. Beering M.D.*
_______________________________________________ Director April___, 1996
Arthur L. Bryant*
_______________________________________________ Director April___, 1996
James E. Cornelius*
_______________________________________________ Director April___, 1996
James E. Dora*
_______________________________________________ Director April___, 1996
Otto N. Frenzel III*
_______________________________________________ Director April___, 1996
David W. Goodrich*
_______________________________________________ Director April___, 1996
William P. Johnson*
_______________________________________________ Director April___, 1996
James T. Morris*
6
<PAGE>
SIGNATURES (Continued)
Signature Title Date
- --------- ----- ----
_______________________________________________ Principal April___, 1996
James W. Murphy* Financial and
Accounting Officer
_______________________________________________ Director April___, 1996
R. Stephen Radcliffe*
_______________________________________________ Emeritus Chairman April___, 1996
Jack E. Reich* of the Board
_______________________________________________ Director April___, 1996
Thomas E. Reilly Jr*
_______________________________________________ Director April___, 1996
William R. Riggs*
_______________________________________________ Director April___, 1996
Leonard D Schutt*
_______________________________________________ Director April___, 1996
Yvonne H. Shaheen*
_______________________________________________ Director April____, 1996
Frank D. Walker*
_______________________________________________ Director April___, 1996
James R. Zapapas*
</TABLE>
/s/ Richard A. Wacker
*By: Richard A. Wacker as Attorney-in-fact
Date: April 26, 1996
* Powers of Attorney filed with AUL American Unit Trust's Registration
Statement (File No. 33-31375) and Post- Effective Amendment Nos. 1, 2, 3, 7, 10,
and 13 and incorporated by reference thereto.
7
<PAGE>
EXHIBIT LIST
<TABLE>
<S> <C>
Exhibit Number Name of Exhibit
10(a) CONSENT OF INDEPENDENT ACCOUNTANTS
10(c) POWER OF ATTORNEY
11 ANNUAL REPORT OF AUL AMERICAN INDIVIDUAL UNIT TRUST FOR THE
PERIOD ENDED DECEMBER 31, 1995
13 COMPUTATION OF PERFORMANCE DATA
14 FINANCIAL DATA SCHEDULE
</TABLE>
EXHIBIT 10(a)
Consent of Independent Accountants
9
<PAGE>
Consent of Independent Accountants
Board of Directors
American United Life Insurance Company(R)
Indianapolis, Indiana
We consent to the incorporation by reference in Post Effective Amendment No. 4
to the Registration Statement of the AUL American Individual Unit Trust (the
"Trust") on Form N- 4 (File No. 33-79562) of our report dated January 27, 1996,
on our audit of the financial statements of the "Trust", for the year ended
December 31, 1995.
We also consent to the inclusion in Part B of the Registration Statement of our
report dated February 19, 1996, on our audits of the financial statements of
American United Life Insurance Company(R) ("AUL") as of December 31, 1995 and
1994 and for the two years then ended.
We also consent to the reference to our Firm as the independent accountants for
the "Trust" and as the independent accountants for "AUL".
/s/ Coopers & Lybrand L.L.P.
Indianapolis, Indiana
April 23, 1996
<PAGE>
10
EXHIBIT 10(c)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes and
appoints Richard A. Wacker and William R. Brown, and each of them his true and
lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution for him in his name, place and stead to sign any and all
Registration Statements (including Registration Statements or any Amendments
thereto arising from any reorganization of a Separate Account with any other
Separate Account) applicable to Separate Accounts established for funding
variable annuity contracts of American United Life Insurance Company(R) and any
Amendments or supplements thereto, and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent may lawfully do or cause to be done by virtue hereof.
Dated: February 15, 1996
/s/ James M. Cornelius
- -----------------------
Printed: James M. Cornelius
10
<PAGE>
EXHIBIT 11
ANNUAL REPORT OF AUL AMERICAN INDIVIDUAL UNIT
TRUST FOR THE PERIOD ENDED DECEMBER 31, 1995
11
<PAGE>
Report of Independent Accountants
The Contract Owners and
Board of Directors
American United Life Insurance Company
We have audited the accompanying statement of net assets of AUL American
Individual Unit Trust as of December 31, 1995, and the related statements of
operations and changes in net assets for the year ended December 31, 1995 and
for the period from November 21, 1994 through December 31, 1994. These financial
statements are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian. 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 financial statements referred to above present fairly, in
all material respects, the financial position of AUL American Individual Unit
Trust as of December 31, 1995, and the results of its operations and changes in
net assets for the year ended December 31, 1995 and for the period from November
21, 1994 through December 31, 1994, in conformity with generally accepted
accounting principles.
/s/ Coopers & Lybrand L.L.P.
Indianapolis, Indiana
January 27, 1996
12
<PAGE>
<TABLE>
<CAPTION>
AUL American Individual Unit Trust
STATEMENT OF NET ASSETS
December 31, 1995
Series Fund Fidelity
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Equity Money Bond Managed Tactical High Income
Equity Market Asset
Assets:
Investment at market
value $1,003,260 $1,651,825 $482,305 $705,326 $95,507 $738,305
Net Assets $1,003,260 $1,651,825 $482,305 $705,326 $95,507 $738,305
Units outstanding 169,738 1,582,630 81,914 119,092 18,030 124,256
Net Asset Value per unit $ 5.91 $ 1.04 $ 5.89 $ 5.92 $ 5.30 $ 5.94
The accompanying notes are an integral part of the financial statements.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
AUL American Individual Unit Trust
STATEMENT OF NET ASSETS (continued)
December 31, 1995
Fidelity
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Asset Index Equity-
Growth Overseas Manager 500 Income Contrafund
Assets:
Investment at market
value $2,573,042 $ 354,951 $ 1,389,485 $ 886,860 $ 969,355 $ 734,595
Net Assets $2,573,042 $ 354,951 $ 1,389,485 $ 886,860 $ 969,355 $ 734,595
Units outstanding 382,748 66,675 246,332 130,390 162,252 121,825
Net Asset Value per unit $ 6.72 $ 5.32 $ 5.64 $ 6.80 $ 5.97 $ 6.03
The accompanying notes are an integral part of the financial statements.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
AUL American Individual Unit Trust
STATEMENT OF NET ASSETS (continued)
December 31, 1995
<S> <C> <C> <C> <C> <C>
Alger Calvert
TCI TCI American Capital T. Rowe Price
Growth International Growth Accumulation Equity Income
Assets:
Investment at market
value $ 831,975 $ 398,333 $ 1,250,097 $ 149,633 $ 980,800
Net Assets $ 831,975 $ 398,333 $ 1,250,097 $ 149,633 $ 980,800
Units outstanding 128,270 74,261 208,236 24,091 163,043
Net Asset Value per unit $ 6.49 $ 5.36 $ 6.00 $ 6.21 $ 6.02
The accompanying notes are an integral part of the financial statements.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
AUL American Individual Unit Trust
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
for the year ended December 31, 1995 and period from November 21, 1994 through December 31, 1994
Series Fund
- ---------------------------------------------------------------------------------------------------------------------------
Equity Money Market Bond
<S> <C> <C> <C> <C> <C> <C>
1995 1994 1995 1994 1995 1994
Operations:
Dividend income $ 24,156 $ 3,643 $ 35,085 $ 1,014 $ 14,930 $ 10
Mortality & expense
charges 7,143 21 8,469 254 2,320 --
Net Investment Income
(Expense) 17,013 3,622 26,616 760 12,610 10
Gain on Investments:
Net realized gain (loss) 3,397 -- -- -- 3,026 --
Net unrealized gain (loss) 69,299 (2,592) -- -- 9,713 (9)
Net Gain (Loss) 72,696 (2,592) -- -- 12,739 (9)
Increase 89,709 1,030 26,616 760 25,349 1
Contract Owner Transactions:
Proceeds from units sold 869,356 78,936 13,858,429 962,176 501,910 601
Cost of units redeemed (35,771) -- (12,862,189) (333,967) (45,556) --
Increase 833,585 78,936 996,240 628,209 456,354 601
Net increase 923,294 79,966 1,022,856 628,969 481,703 602
Net Assets, beginning 79,966 -- 628,969 -- 602 --
Net Assets, ending $ 1,003,260 $ 79,966 $ 1,651,825 $ 628,969 $ 482,305 $ 602
Units sold 174,411 15,959 13,487,828 959,389 91,041 119
Units redeemed (20,632) -- (12,531,733) (332,854) (9,246)
Net increase 153,779 15,959 956,095 626,535 81,796 119
Units outstanding, beginning 15,959 -- 626,535 -- 119 --
Units outstanding, ending 169,738 15,959 1,582,630 626,535 81,914 119
The accompanying notes are an integral part of the financial statements.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
AUL American Individual Unit Trust
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS (continued)
for the year ended December 31, 1995 and period from November 21, 1994 through December 31, 1994
Series Fund Fidelity
Managed Tactical High Income
Asset
<S> <C> <C> <C> <C> <C>
1995 1994 1995(1) 1995 1994
Operations:
Dividend income $ 25,580 $ 81 $ 1,374 $ 7,711 $ --
Mortality & expense
charges 4,163 -- 104 4,816 15
Net Investment Income
(Expense) 21,417 81 1,270 2,895 (15)
Gain on Investments:
Net realized gain (loss) 5,649 -- 528 (1,263)
Net unrealized gain (loss) 21,145 (70) (333) 54,330 278
Net Gain (Loss) 26,794 (70) 195 53,067 278
Increase 48,211 11 1,465 55,962 263
Contract Owner Transactions:
Proceeds from units sold 683,302 3,334 95,934 707,107 60,743
Cost of units redeemed (29,532) -- (1,892) (85,770) --
Increase 653,770 3,334 94,042 621,337 60,743
Net increase 701,981 3,345 95,507 677,299 61,006
Net Assets, beginning 3,345 -- -- 61,006 --
Net Assets, ending $ 705,326 $ 3,345 $ 95,507 $ 738,305 $ 1,006
Units sold 123,620 665 18,390 128,372 12,229
Units redeemed (5,193) -- (360) (16,345) --
Net increase 118,427 665 18,030 112,027 12,229
Units outstanding, beginning 665 -- -- 12,229 --
Units outstanding, ending 119,092 665 18,030 124,256 12,229
<FN>
(1) for the period from July 31, 1995 through December 31, 1995
</FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
AUL American Individual Unit Trust
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS (continued)
for the year ended December 31, 1995 and period from November 21, 1994 through December 31, 1994
Fidelity
Growth Overseas Asset Manager
<S> <C> <C> <C> <C> <C> <C>
1995 1994 1995 1994 1995 1994
Operations:
Dividend income $ 1,308 $ -- $ 920 $ -- $ 8,652 $ --
Mortality & expense
charges 14,630 18 3,218 4 10,713 16
Net Investment Income
(Expense) (13,322) (18) (2,298) (4) (2,061)
(16)
Gain on Investments:
Net realized gain (loss) 30,318 -- 6,731 -- 14,205 --
Net unrealized gain (loss) 196,926 946 24,775 111 127,044
37
Net Gain (loss) 227,244 946 31,506 111 141,249
37
Increase 213,922 928 29,208 107 139,188 21
Contract Owner Transactions:
Proceeds from units sold 2,492,131 86,075 445,508 15,807 1,440,553 71,675
Cost of units redeemed (220,014) -- (135,679) -- (261,952) --
Increase 2,272,117 86,075 309,829 15,807 1,178,601 71,675
Net increase 2,486,039 87,003 339,037 15,914 1,317,789 71,696
Net Assets, beginning 87,003 -- 15,914 -- 71,696 --
Net Assets, ending $ 2,573,042 $ 87,003 $ 354,951 $ 15,914 $ 1,389,485 $ 71,696
Units sold 404,210 17,304 90,444 3,238 286,115 14,682
Units redeemed (38,766) -- (27,007) -- (54,465) --
Net increase 365,444 17,304 63,437 3,238 231,650 14,682
Units outstanding, beginning 17,304 -- 3,238 -- 14,682 --
Units outstanding, ending 382,748 17,304 66,675 3,238 246,332 14,682
The accompanying notes are an integral part of the financial statements
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
AUL American Individual Unit Trust
STATEMENT OF OPERATIONS AND CHANGES NET IN ASSETS
for the year ended December 31, 1995 and period from November 21, 1994 through December 31, 1994
Fidelity TCI
Index 500 Equity- Contrafund Growth
Income
<S> <C> <C> <C> <C> <C> <C>
1995 1994 1995(2) 1995(2) 1995 1994
Operations:
Dividend income $ 852 $-- $ 7,398 $ 8,934 $ 35 $ --
Mortality & expense
charges 3,923 -- 3,129 2,719 5,495 3
Net Investment Income
(Expense) (3,071) -- 4,269 6,215 (5,460)
(3)
Gain on Investments:
Net realized gain (loss) 5,555 -- 3,381 1,068 8,559 --
Net unrealized gain (loss) 79,090 1 56,632 24,117 84,124
42
Net Gain (Loss) 84,645 1 60,013 25,185 92,683
42
Increase 81,574 1 64,282 31,400 87,223 39
Contract Owner Transactions:
Proceeds from units sold 833,980 100 935,579 708,239 798,976
14,036
Cost of units redeemed (28,795) -- (30,506) (5,044) (68,299) --
Increase 805,185 100 905,073 703,195 730,677 14,036
Net increase 886,759 101 969,355 734,595 817,900 14,075
Net Assets, beginning 101 -- -- -- 14,075 --
Net Assets, ending $ 886,860 $101 $ 969,355 $ 734,595 $ 831,975 $ 14,075
Units sold 134,987 20 167,566 122,672 137,785 2,810
Units redeemed (4,617) -- (5,314) (847) (12,325) --
Net increase 130,370 20 162,252 121,825 125,460 2,810
Units outstanding, beginning 20 -- -- -- 2,810 --
Units outstanding, ending 130,390 20 162,252 121,825 128,270 2,810
<FN>
(2) for the period from April 28, 1995 through December 31, 1995
</FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
AUL American Individual Unit Trust
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS (continued)
for the year ended December 31, 1995 and period from November 21, 1994 through December 31, 1994
Alger Calvert
TCI American Capital T.Rowe Price
International Growth Accumulation Equity Income
<S> <C> <C> <C> <C> <C>
1995 1994 1995(2) 1995(2) 1995(2)
Operations:
Dividend income $ -- $ -- $ 1 $ 7,823 $ 14,875
Mortality & expense
charges 2,961 -- 3,743 570 3,528
Net Investment Income
(Expense) (2,961) -- (3,742) 7,253 11,347
Gain on Investments:
Net realized gain (loss) 4,225 -- 5,210 190 4,723
Net unrealized gain (loss) 33,996 21 8,939 (267) 68,278
Net Gain (Loss) 38,221 21 14,149 (77) 73,001
Increase 35,260 21 10,407 7,176 84,348
Contract Owner Transactions:
Proceeds from units sold 395,275 4,003 1,260,890 142,896 931,503
Cost of units redeemed (36,226) -- (21,200) (439) (35,051)
Increase 359,049 4,003 1,239,690 142,457 896,452
Net increase 394,309 4,024 1,250,097 149,633 980,800
Net Assets, beginning 4,024 -- -- -- --
Net Assets, ending $ 398,333 $4,024 $ 1,250,097 $ 149,633 $ 980,800
Units sold 80,369 831 211,706 24,163 169,153
Units redeemed (6,939) -- (3,470) (72) (6,110)
Net Increase 73,430 831 208,236 24,091 163,043
Units outstanding, beginning 831 -- -- -- --
Units outstanding, ending 74,261 831 208,236 24,091 163,043
<FN>
(2) for the period from April 28, 1995 through December 31, 1995.
</FN>
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
The AUL American Individual Unit Trust (Variable Account) was
established by American United Life Insurance Company(R) (AUL) on April 14,
1994, under procedures established by Indiana law and is registered as a unit
investment trust under the Investment Company Act of 1940, as amended. The
Variable Account is a segregated investment account for individual annuity
contracts issued by AUL and invests exclusively in shares of mutual fund
portfolios offered by the AUL American Series Fund, Inc. (Series Fund), Fidelity
Investments(R) Variable Insurance Products Fund and Variable Insurance Products
Fund II (Fidelity), Twentieth Century(R) (TCI), Alger American Fund (Alger),
Calvert Group(R) (Calvert), and T. Rowe Price. Security Valuation Transactions
and Related Income The market value of investments is based on the closing bid
prices at December 29, 1995. Investment transactions are accounted for on the
trade date and dividend income is recorded on the ex-dividend date. Mortality
and Expense Risks Charges AUL deducts a daily charge as compensation for the
mortality and expense risks assumed by AUL. The charge is equal on an annual
basis to 1.25% of the average daily net assets of each investment account. AUL
guarantees that the mortality and expense charge shall not increase. The charges
incurred during the year, ended December 31, 1995 and 1994 were $81,649 and
$331, respectively. Taxes Operations of the Variable Account are part of, and
are taxed with, the operations of AUL, which is taxed as a "life insurance
company" under the Internal Revenue Code. Under current law, investment income,
including realized and unrealized capital gains of the investment accounts, is
not taxed to AUL to the extent it is applied to increase reserves under the
contracts. The Variable Account has not been charged for federal and state
income taxes since none have been imposed. Estimates The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. Account Charges
AUL may assess a premium tax charge based on premium taxes incurred.
Premium taxes currently range between 0% and 3.5%, but are subject to change by
governmental entities.
AUL deducts an annual administrative charge from each contract equal to the
lesser of 2% of the contract value or $30. The fee is assessed every year on the
contract anniversary date during the accumulation period but is waived if the
contract value exceeds $50,000 on the contract anniversary date. The charges
incurred during the years ended December 31, 1995 and 1994 were $729 and $0,
respectively. AUL may assess a withdrawal charge on withdrawals that exceed 12%
of the contract value at the time of the first withdrawal in a contract year.
The amount of the charge depends upon the type of contract and the length of
time the contract has existed, as follows:
<TABLE>
<CAPTION>
Flexible Premium Contract One Year Flexible Premium Contract
Contract Year Withdrawal Charge Contract Year Withdrawal Charge
<S> <C> <C> <C>
1 10% 1 7%
2 9% 2 6%
3 8% 3 5%
4 7% 4 4%
5 6% 5 3%
6 5% 6 2%
7 4% 7 1%
8 3% 8 0%
9 2%
10 1%
11 0%
The aggregrate withdrawal charges will not exceed 8.5% of the total premiums
paid on a Flexible Premium Contract or 8% of the total premiums paid on a One
Year Flexible Premium Contract. There were no withdrawal charges assessed during
the years ended December 31, 1995 and 1994.
NOTES TO FINANCIAL STATEMENTS (continued)
</TABLE>
3. Net Asset Value per Unit
The change in the Net Asset Value per unit for the year ended December 31,
1995, or from commencement of operations, April 28 and July 31, 1995 through
December 31, 1995, is:
<TABLE>
<S> <C> <C> <C>
12/31/95 12/31/94 Change
Series Fund:
Equity $ 5.910622 $ 5.010288 18.0%
Money Market 1.044437 1.003909 4.0%
Bond 5.887919 5.061935 16.3%
Managed 5.922513 5.033906 17.7%
Fidelity:
High Income 5.941806 4.988506 19.1%
Growth 6.722540 5.027935 33.7%
Overseas 5.323589 4.914740 8.3%
Asset Manager 5.640705 4.883362 15.5%
Index 500 6.801594 5.019943 35.5%
TCI:
Growth 6.486115 5.009474 29.5%
International 5.363939 4.840287 10.8%
<S> <C> <C> <C>
12/31/95 4/28/95 Change
Fidelity:
Equity Income $ 5.974362 $ 5.000000 19.5%
Contrafund 6.029929 5.000000 21.6%
Alger:
American Growth 6.003257 5.000000 20.1%
Calvert:
Capital
Accumulation 6.211190 5.000000 24.2%
T. Rowe Price:
Equity Income 6.015571 5.000000 20.3%
<S> <C> <C> <C>
12/31/95 7/31/95 Change
Series Fund:
Tactical Asset $ 5.297110 $ 5.000000 5.9%
</TABLE>
notes to financial statements (continued)
4. Cost of Investments
<TABLE>
<S> <C>
Series Fund:
Equity $ 936,553
Money Market 1,651,825
Bond 472,601
Managed 684,250
Tactical Asset 95,840
Fidelity:
High Income 683,696
Growth 2,375,169
Overseas 330,066
Asset Manager 1,262,403
Index 500 807,770
Equity-Income 912,722
Contrafund 710,477
TCI:
Growth $ 747,809
International 364,315
Alger:
American Growth 1,241,158
Calvert:
Capital Accumulation 149,900
T. Rowe Price:
Equity Income 912,521
</TABLE>
5. Net Assets
<TABLE>
<CAPTION>
Series Fund Fidelity
<S> <C> <C> <C> <C> <C> <C>
Money Tactical High
Equity Market Bond Managed Asset Income Growth
Proceeds from units sold $ 948,292 $ 14,820,605 $ 502,512 $ 686,636 $ 95,934 $ 767,849 $ 2,578,206
Cost of units redeemed (35,771) (13,196,155) (45,556) (29,532) (1,892) (85,770) (220,014)
Net investment income
(expense) 20,635 27,375 12,618 21,498 1,270 2,880 (13,341)
Net realized gain (loss) 3,397 -- 3,027 5,649 528 (1,263) 30,318
Unrealized gain (loss)
on investments 66,707 -- 9,704 21,075 (333) 54,609 197,873
$ 1,003,260 $ 1,651,825 $ 482,305 $ 705,326 $ 95,507 $ 738,305 $ 2,573,042
Fidelity
<S> <C> <C> <C> <C> <C>
Asset Index Equity-
Overseas Manager 500 Income Contrafund
Proceeds from units sold $ 461,315 $ 1,512,228 $ 834,081 $ 935,579 $ 708,239
Cost of units redeemed (135,679) (261,952) (28,795) (30,506) (5,044)
Net investment income
(expense) (2,302) (2,078) (3,072) 4,269 6,215
Net realized gain (loss) 6,731 14,205 5,555 3,381 1,068
Unrealized gain (loss)
on investments 24,886 127,082 79,091 56,632 24,117
$ 354,951 $ 1,389,485 $ 886,860 $ 969,355 $ 734,595
<CAPTION>
<S> <C> <C> <C> <C> <C>
Alger Calvert
TCI TCI American Capital T.Rowe Price
Growth Internationa Growth Accumulation Equity-Income
Proceeds from units sold $ 813,013 $ 399,279 $ 1,260,890 $ 142,896 $ 931,503
Cost of units redeemed (68,299) (36,226) (21,200) (439) (35,052)
Net investment income
(expense) (5,464) (2,963) (3,742) 7,253 11,348
Net realized gain (loss) 8,559 4,225 5,210 190 4,723
Unrealized gain (loss)
on investments 84,166 34,018 8,939 (267) 68,278
$ 831,975 $ 398,333 $ 1,250,097 $ 149,633 $ 980,800
</TABLE>
20
<PAGE>
EXHIBIT 13
COMPUTATION OF PERFORMANCE QUOTATIONS
21
<PAGE>
Computation of Performance Quotations
1. Current Yield for the Money Market Investment Account:
As stated in the Statement of Additional Information, current yield for the
Money Market Investment Account will be based on the seven day period
ending December 31, 1995, and is computed by determining the net change in
the value of a hypothetical investment (exclusive of capital charges) of a
pre-existing account having a balance of one Accumulation Unit at the
beginning of the period [.00122658], subtracting a hypothetical charge
reflecting deductions from contractowner accounts [.00026033], and dividing
the difference by the value of the account at the beginning of the base
period [$1.188087] to obtain the base period return [.0008132827], and then
multiplying the base period return by (365/7) with the resulting yield
figure carried to at least the nearest hundredth of one percent [.000813 x
365/7] = .04240 or 4.24%.
2. Effective Yield for the Money Market Investment Account is based on the
seven day period ending December 31, 1995, carried to at least the nearest
hundredth of one percent, computed by determining the net change, exclusive
of capital charges, in the value of a hypothetical pre-existing account
having a balance of one Accumulation Unit at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from contractowner
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
compounding the base period return by adding "1", raising the sum to a
power equal to 365 divided by 7, and subtracting "1" from the result,
pursuant to the following formula:
Effective Yield = [(Base Period Return + 1)**365/7] -1
Effective Yield = [(.000813 + 1)**365/7] -1
Effective Yield = [(1.000813)**365/7] -1
Effective Yield = 1.043301 - 1 = 0.04330 or 4.33%
3. Yield Calculations
(a) For the Equity Investment Account:
For the year ending December 31, 1995, yield is based on a 30 day period
ending December 31, 1995, and is computed by dividing the net investment
income per Accumulation Unit earned during the period by the maximum
offering price per unit on December 31, 1995, according to the following
formula:
Yield = 2[(a-b/cd +1)**6 -1]
where "a" = net investment income earned during the period 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; and
"d" = the maximum offering price per Accumulation Unit on December 31,
1994.
For the Equity Investment Account:
According to the formula stated above, where:
"a" = $1,500.19 "b" = $1,030.97 "c" = 165,948.550 and "d" = $1.7904
Yield = 2[(469.22/297,116.44 + 1)**6 -1]
Yield = 2[(1.001579246)**6 -1]
Yield = 2[.009512966] = 0.019026 or 1.90%
22
<PAGE>
(b) For the Bond Investment Account:
According to the formula stated in 3(a) above, where:
"a" = $2,370.58 "b" = $497.41 "c" = 80,017.660 and "d" = $1.5995
Yield = 2[(1,873.17/127,988.49)**6 -1]
Yield = 2[(1.014635457)**6 -1]
Yield = 2[.091089081] = 0.182178 or 18.22%
(c) For the Managed Investment Account:
According to the formula stated in 3(a) above, where:
"a" = $1,901.34 "b" = $683.35 "c" = 111,742.950 and "d" = $1.6643
Yield = 2[(1,217.99/185,977.59 + 1)**6 -1]
Yield = 2[(1.006549122)**6 -1]
Yield = 2[.039943745] = 0.079887 or 7.99%
(d) For the Tactical Asset Allocation Investment Account:
According to the formula stated in 3(a) above, where:
"a" = $273.20 "b" = $43.00 "c" = 11,803.110 and "d" = $5.2972
Yield = 2[(230.20/62,523.13 + 1)**6 -1]
Yield = 2[(1.00368184)**6 -1]
Yield = 2[.02229537] = 0.044591 or 4.46%
For the Individual Flexible Premium Deferred Variable Annuity
4. Quotations of average annual total return for an Investment Account will be
expressed in terms of the compounded rate of return of a hypothetical
investment in the Investment Account for periods of one, five, and ten
years, or since the Fund's inception, if less. The average annual total
return for an Investment Account will be calculated pursuant to the
following formula: P (1 + T)**n = ERV (where P = a hypothetical initial
payment of $1,000, T = the 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.) All total return figures reflect the deduction of
a proportional share of Investment Account expenses on an annual basis, and
assume that all dividends and distributions are reinvested when paid.
FOR THE YEAR ENDING DECEMBER 31, 1995
(a) For the Equity Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,059; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.0585 or 5.85%
(b) For the Bond Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,044; and n = 1
ERV = $1,000 (1 + T)*1
T = 0.0437 or 4.37%
(c) For the Money Market Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $933; and n = 1
ERV = $1,000(1 + T)**1
T = -0.0671 or (6.71%)
(d) For the Managed Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,056; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.0557 or 5.57%
(e) The Tactical Asset Allocation Investment Account has not been in
operation for the relevant time period.
23
<PAGE>
(f) For the VIP High Income Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,069; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.0687 or 6.87%
(g) For the VIP Growth Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,200; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.1995 or 19.95%
(h) For the VIP Overseas Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $972; and n = 1
ERV = $1,000 (1 + T)**1
T = -0.0281 or (2.81%)
(i) For the VIP II Asset Manager Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,036; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.0364 or 3.64%
(j) For the VIP II Index 500 Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,216; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.2157 or 21.57%
(k) For the Twentieth Century Growth Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,162; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.1617 or 16.17%
(l) For the TCI International Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $994; and n = 1
ERV = $1,000 (1 + T)**1
T = -0.0057 or (0.57%)
(m) For the Fidelity Equity Income Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,197; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.1970 or 19.70%
(n) The Fidelity Contrafund Investment Account has not been in operation
for the relevant time period.
(o) For the Alger American Growth Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,208; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.2085 or 20.85%
(p) For the Calvert Capital Accumulation Investment Account, according to
the formula expressed above, where:
P = $1,000; ERV = $1,236; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.2364 or 23.64%
(q) For the T. Rowe Price Equity Income Investment Account, according to
the formula expressed above, where:
P = $1,000; ERV = $1,194; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.1942 or 19.42%
FOR THE PERIOD JANUARY 1, 1990 THROUGH DECEMBER 31, 1995
(a) For the Equity Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,691; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.1109 or 11.09%
24
<PAGE>
(b) For the Bond Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,364; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.0641 or 6.41%
(c) For the Money Market Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,057; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.0111 or 1.11%
(d) For the Managed Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,462; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.0789 or 7.89%
(e) For the Tactical Asset Allocation Investment Account was not in
operation for the relevant time period.
(f) For the VIP High Income Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $2,070; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.1566 or 15.66%
(g) For the VIP Growth Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $2,236; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.1746 or 17.46%
(h) For the VIP Overseas Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,285; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.0515 or 5.15%
(i) For the VIP II Asset Manager Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,586; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.0967 or 9.67%
(j) The VIP II Index 500 Investment Account has not been in operation for
the relevant time period.
(k) For the Twentieth Century Growth Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,741; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.1173 or 11.73%
(l) The TCI International Investment Account has not been in operation for
the relevant time period.
(m) For the Fidelity Equity Income Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $2,288; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.1800 or 18.00%
(n) The Fidelity Contra Fund Investment Account has not been in operation
for the relevant time period.
(o) For the Alger American Growth Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $2,328; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.1841 or 18.41%
(p) The Calvert Capital Accumulation Investment Account has not been in
operation for the relevant time period.
(q) The T. Rowe Price Equity Income Investment Account has not been in
operation for the relevant time period.
25
<PAGE>
FOR THE PERIOD JANUARY 1, 1986 THROUGH DECEMBER 31, 1995 OR FROM INCEPTION,
IF LESS
(a) For the Equity Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,673; and n = 5.7194
ERV = $1,000 (1 + T)**5.7194
T = 0.0941 or 9.41%
(b) For the Bond Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,494; and n = 5.7194
ERV = $1,000 (1 + T)**5.7194
T = 0.0727 or 7.27%
(c) For the Money Market Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,109; and n = 5.7194
ERV = $1,000 (1 + T)**5.7194
T = 0.0183 or 1.83%
(d) For the Managed Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,554; and n = 5.7194
ERV = $1,000 (1 + T)**5.7194
T = 0.0801 or 8.01%
(e) For the Tactical Asset Allocation Portfolio was not in operation for
the relevant time period.
(f) For the VIP High Income Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $2,515; and n = 10
ERV = $1,000 (1 + T)**10
T = 0.0966 or 9.66%
(g) For the VIP Growth Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $3,097; and n = 9.2285
ERV = $1,000 (1 + T)9.2285
T = 0.1303 or 13.03%
(h) For the VIP Overseas Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,603; and n = 8.9274
ERV = $1,000 (1 + T)**8.9274
T = 0.0543 or 5.43%
(i) For the VIP II Asset Manager Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,699; and n = 6.3167
ERV = $1,000 (1 + T)**6.3167
T = 0.0875 or 8.75%
(j) For the VIP II Index 500 Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,425; and n = 3.3468
ERV = $1,000 (1 + T)**3.3468
T = 0.1116 or 11.16%
(k) For the Twentieth Century Growth Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $2,398; and n = 8.1139
ERV = $1,000 (1 + T)**8.1139
T = 0.1138 or 11.38%
(l) The TCI International has not been in operation for the relevant time
period.
P = $1,000; ERV = $944; and n = 1.6640
ERV = $1,000 (1 + T)**1.6640
T = -0.0338 or (3.38%)
(m) For the Fidelity Equity Income Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $2,713; and n = 9.2285
ERV = $1,000 (1 + T)**9.2285
T = 0.1142 or 11.42%
26
<PAGE>
(n) The Fidelity Contra Fund Investment Account has not been in operation
for the relevant time period.
(o) For the Alger American Growth Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $2,920; and n = 6.9785
ERV = $1,000 (1 + T)**6.9785
T = 0.1660 or 16.60%
(p) For the Calvert Capital Accumulation Investment Account, according to
the formula expressed above, where:
P = $1,000; ERV = $1,459; and n = 4.4597
ERV = $1,000 (1 + T)**4.4597
T = 0.0884 or 8.84%
(q) For the T. Rowe Price Equity Income Investment Account, according to
the formula expressed above, where:
P = $1,000; ERV = $1,278; and n = 1.7527
ERV = $1,000 (1 + T)**1.7527
T = 0.1504 or 15.04%
For the Individual One Year Flexible Premium Deferred Variable Annuity
5. Quotations of average annual total return for an Investment Account
will be expressed in terms of the compounded rate of return of a
hypothetical investment in the Investment Account for periods of one,
five, and ten years, or since the Fund's inception, if less. The
average annual total return for an Investment Account will be
calculated pursuant to the following formula: P (1 + T)**n = ERV
(where P = a hypothetical initial payment of $1,000, T = the 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.)
All total return figures reflect the deduction of a proportional share
of Investment Account expenses on an annual basis, and assume that all
dividends and distributions are reinvested when paid.
FOR THE YEAR ENDING DECEMBER 31, 1995
(a) For the Equity Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,094; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.0938 or 9.38%
(b) For the Bond Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,079; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.0785 or 7.85%
(c) For the Money Market Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $964; and n = 1
ERV = $1,000 (1 + T)**1
T = -0.0360 or (3.60%)
(d) For the Managed Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,091; and n = 1
ERV = $1,000 (1 + T)1
T = 0.0909 or 9.09%
(e) The Tactical Asset Allocation Investment Account has not been in
operation for the relevant time period.
(f) For the VIP High Income Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,104; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.1043 or 10.43%
(g) For the VIP Growth Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,240; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.2395 or 23.95%
27
<PAGE>
(h) For the VIP Overseas Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,004; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.0043 or 0.43%
(i) For the VIP II Asset Manager Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,071; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.0709 or 7.09%
(j) For the VIP II Index 500 Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,256; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.2562 or 25.62%
(k) For the Twentieth Century Growth Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,200; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.2004 or 20.04%
(l) The TCI International has not been in operation for the relevant time
period.
P = $1,000; ERV = $1,028; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.275 or 2.75%
(m) For the Fidelity Equity Income Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,237; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.2369 or 23.69%
(n) The Fidelity Contra Fund Investment Account has not been in operation
for the relevant time period.
(o) For the Alger American Growth Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,249; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.2487 or 24.87%
(p) For the Calvert Capital Accumulation Investment Account, according to
the formula expressed above, where:
P = $1,000; ERV = $1,278; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.2776 or 27.76%
(q) The T. Rowe Price Equity Income Investment Account has not been in
operation for the relevant time period.
P = $1,000; ERV = $1,234; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.2340 or 23.40%
FOR THE PERIOD JANUARY 1, 1990 THROUGH DECEMBER 31, 1995
(a) For the Equity Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,746; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.1179 or 11.79%
(b) For the Bond Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,408; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.0708 or 7.08%
28
<PAGE>
(c) For the Money Market Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,090; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.0174 or 1.74%
(d) For the Managed Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,508; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.0857 or 8.57%
(e) The Tactical Asset Allocation Investment Account was not in operation
for the relevant time period.
(f) For the VIP High Income Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $2,136; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.1639 or 16.39%
(g) For the VIP Growth Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $2,307; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.1820 or 18.20%
(h) For the VIP Overseas Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,326; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.0581 or 5.81%
(i) For the VIP II Asset Manager Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,637; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.1036 or 10.36%
(j) The VIP II Index 500 Investment Account has not been in operation for
the relevant time period.
(k) For the Twentieth Century Growth Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,796; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.1173 or 11.73%
(l) The TCI International Investment Account has not been in operation for
the relevant time period.
(m) For the Fidelity Equity Income Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $2,361; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.1875 or 18.75%
(n) The Fidelity Contra Fund Investment Account has not been in operation
for the relevant time period.
(o) For the Alger American Growth Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $2,401; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.1915 or 19.15%
(p) The Calvert Capital Accumulation Investment Account has not been in
operation for the relevant time period.
(q) The T. Rowe Price Equity Income Investment Account has not been in
operation for the relevant time period.
FOR THE PERIOD JANUARY 1, 1985 THROUGH DECEMBER 31, 1994 OR FROM INCEPTION,
IF LESS
(a) For the Equity Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,725; and n = 5.7194
ERV = $1,000 (1 + T)**5.7194
T = 0.1000 or 10.00%
29
<PAGE>
(b) For the Bond Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,541; and n = 5.7194
ERV = $1,000 (1 + T)**5.7194
T = 0.0785 or 7.85%
(c) For the Money Market Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,145; and n = 5.7194
ERV = $1,000 (1 + T)**5.7194
T = 0.0239 or 2.39%
(d) For the Managed Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,603; and n = 5.7194
ERV = $1,000 (1 + T)**5.7194
T = 0.0860 or 8.60%
(e) The Tactical Asset Allocation Investment Account was not in
operation for the relevant time period.
(f) For the VIP High Income Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $2,540; and n = 10
ERV = $1,000 (1 + T)**10
T = 0.0977 or 9.77%
(g) For the VIP Growth Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $3,127; and n = 9.2285
ERV = $1,000 (1 + T)**9.2285
T = 0.1315 or 13.15%
(h) For the VIP Overseas Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,636; and n = 8.9274
ERV = $1,000 (1 + T)**8.9274
T = 0.0567 or 5.67%
(i) For the VIP II Asset Manager Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,754; and n = 6.3167
ERV = $1,000 (1 + T)**6.3167
T = 0.0930 or 9.30%
(j) For the VIP II Index 500 Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,471; and n = 3.3468
ERV = $1,000 (1 + T)**3.3468
T = 0.1223 or 12.23%
(k) For the Twentieth Century Growth Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $2,472; and n = 8.1139
ERV = $1,000 (1 + T)**8.1139
T = 0.1180 or 11.80%
(l) The TCI International has not been in operation for the relevant time
period.
P = $1,000; ERV = $975; and n = 1.6640
ERV = $1,000 (1 + T)**1.6640
T = -0.0148 or (1.48%)
(m) For the Fidelity Equity Income Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $2,740; and n = 9.2285
ERV = $1,000 (1 + T)**9.2285
T = 0.1154 or 11.54%
(n) The Fidelity Contra Fund Investment Account has not been in operation
for the relevant time period.
(o) For the Alger American Growth Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $3,013; and n = 6.9785
ERV = $1,000 (1 + T)**6.9785
T = 0.1712 or 17.12%
30
<PAGE>
(p) For the Calvert Capital Accumulation Investment Account, according to
the formula expressed above, where:
P = $1,000; ERV = $1,506; and n = 4.4597
ERV = $1,000 (1 + T)**4.4597
T = 0.0962 or 9.62%
(q) The T. Rowe Price Equity Income Investment Account has not been in
operation for the relevant time period.
P = $1,000; ERV = $1,321; and n = 1.7527
ERV = $1,000 (1 + T)**1.7527
T = 0.1720 or 17.20%
For both the Individual Flexible Premium Deferred Variable Annuity Contract and
the Individual One Year Flexible Premium Deferred Variable Annuity Contract
6. Quotations of average annual total return for an Investment Accountant
will be expressed in terms of the compounded rate of return of a
hypothetical investment in the Investment Account for periods of one,
five, and ten years, or since the Fund's inception, if less. The
average annual total return for an Investment Account will be
calculated pursuant to the following formula: P (1 +T)**n = ERV (where
P = a hypothetical initial payment of $1,000, T = the 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, but
not including the surrender charge, which is a maximum of 10% for the
Individual Flexible Premium Deferred Variable Annuity Contract and 7%
for the One Year Flexible Premium Deferred Variable Annuity Contract).
All total return figures reflect the deduction of a proportional share
of Investment Account expenses on an annual basis, and assume that all
dividends and distributions are reinvested when paid.
FOR THE YEAR ENDING DECEMBER 31, 1995
(a) For the Equity Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,080; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.1797 or 17.97%
(b) For the Bond Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,163; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.1632 or 16.32%
(c) For the Money Market Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,040; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.0397 or 3.97%
(d) For the Managed Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,177; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.1765 or 17.65%
(e) The Tactical Asset Allocation Portfolio was not in operation for the
relevant time period.
(f) For the VIP High Income Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,191; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.1910 or 19.10%
(g) For the VIP Growth Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,337; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.3368 or 33.68%
(h) For the VIP Overseas Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,083; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.0831 or 8.31%
31
<PAGE>
(i) For the VIP II Asset Manager Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,155; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.1550 or 15.50%
(j) For the VIP II Index 500 Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,355; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.3548 or 35.48%
(k) For the Twentieth Century Growth Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,295; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.2947 or 29.47%
(l) For the TCI International Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,108; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.1049 or 10.49%
(m) For the Fidelity Equity Income Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,334; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.3340 or 33.40%
(n) The Fidelity Contra Fund Investment Account has not been in operation
for the relevant time period.
(o) For the Alger American Growth Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,347; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.3468 or 34.68%
(p) For the Calvert Capital Accumulation Investment Account, according to
the formula expressed above, where:
P = $1,000; ERV = $1,378; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.3779 or 37.79%
(q) The T. Rowe Price Equity Income Investment Account has not been in
operation for the relevant time period.
P = $1,000; ERV = $1,331; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.3308 or 33.08%
FOR THE PERIOD JANUARY 1, 1991 THROUGH DECEMBER 31, 1995
(a) The Equity Investment Account was not in operation for the relevant
time period.
P = $1,000; ERV = $1,827; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.1281 or 12.81%
(b) The Bond Investment Account was not in operation for the relevant time
period.
P = $1,000; ERV = $1,473; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.0806 or 8.06%
(c) The Money Market Investment Account was not in operation for the
relevant time period.
P = $1,000; ERV = $1,141; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.0267 or 2.67%
32
<PAGE>
(d) The Managed Investment Account was not in operation for the relevant
time period.
P = $1,000; ERV = $1,579; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.0956 or 9.56%
(e) The Tactical Asset Allocation Investment Account was not in operation
for the relevant time period.
(f) For the VIP High Income Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $2,236; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.1746 or 17.46%
(g) For the VIP Growth Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $2,415; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.1928 or 19.28%
(h) For the VIP Overseas Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,388; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.0678 or 6.78%
(i) For the VIP II Asset Manager Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,713; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.1136 or 11.36%
(j) The VIP II Index 500 Investment Account has not been in operation for
the relevant time period.
(k) For the Twentieth Century Growth Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,880; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.1346 or 13.46%
(l) The TCI International Investment Account has not been in operation for
the relevant time period.
(m) For the Fidelity Equity Income Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $2,471; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.1983 or 19.83%
(n) The Fidelity Contra Fund Investment Account has not been in operation
for the relevant time period.
(o) For the Alger American Growth Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $2,513; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.2024 or 20.24%
(p) The Calvert Capital Accumulation Investment Account has not been in
operation for the relevant time period.
(q) The T. Rowe Price Equity Income Investment Account has not been in
operation for the relevant time period.
FOR THE PERIOD JANUARY 1, 1986 THROUGH DECEMBER 31, 1995 OR FROM INCEPTION,
IF LESS
(a) For the Equity Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,792; and n = 5.7194
ERV = $1,000 (1 + T)**5.7194
T = 0.1074 or 10.74%
33
<PAGE>
(b) For the Bond Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,601; and n = 5.7194
ERV = $1,000 (1 + T)**5.7194
T = 0.0858 or 8.58%
(c) For the Money Market Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,189; and n = 5.7194
ERV = $1,000 (1 + T)**5.7194
T = 0.0308 or 3.08%
(d) For the Managed Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,666; and n = 5.7194
ERV = $1,000 (1 + T)**5.7194
T = 0.0933 or 9.33%
(e) The Tactical Asset Allocation Investment Account was not in operation
for the relevant time period.
(f) For the VIP High Income Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $2,617; and n = 10
ERV = $1,000 (1 + T)**10
T = 0.1010 or 10.10%
(g) For the VIP Growth Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $3,225; and n = 9.2285
ERV = $1,000 (1 + T)**9.2285
T = 0.1353 or 13.53%
(h) For the VIP Overseas Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,681; and n = 8.9274
ERV = $1,000 (1 + T)**8.9274
T = 0.599 or 5.99%
(i) For the VIP II Asset Manager Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,828; and n = 6.3167
ERV = $1,000 (1 + T)**6.3167
T = 0.1002 or 10.02%
(j) For the VIP II Index 500 Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,551; and n = 3.3468
ERV = $1,000 (1 + T)**3.3468
T = 0.1402 or 14.02%
(k) For the Twentieth Century Growth Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $2,541; and n = 8.1139
ERV = $1,000 (1 + T)**8.1139
T = 0.1218 or 12.18%
(l) The TCI International , according to the formula expressed above,
where:
P = $1,000; ERV = $1,044; and n = 1.6640
ERV = $1,000 (1 + T)**1.6640
T = 0.1117 or 11.17%
(m) For the Fidelity Equity Income Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $2,825; and n = 9.2285
ERV = $1,000 (1 + T)**9.2285
T = 0.1191 or 11.91%
(n) The Fidelity Contra Fund Investment Account has not been in operation
for the relevant time period.
34
<PAGE>
(o) For the Alger American Growth Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $3,107; and n = 6.9785
ERV = $1,000 (1 + T)**6.9785
T = 0.1764 or 17.64%
(p) For the Calvert Capital Accumulation Investment Account, according to
the formula expressed above, where:
P = $1,000; ERV = $1,577; and n = 4.4597
ERV = $1,000 (1 + T)**4.4597
T = 0.1076 or 10.76%
(q) The T. Rowe Price Equity Income Investment Account has not been in
operation for the relevant time period.
P = $1,000; ERV = $1,414; and n = 1.7527
ERV = $1,000 (1 + T)**1.7527
T = 0.2183 or 21.83%
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<NET-ASSETS> 980,800
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<EXPENSES-NET> 3,528
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<REALIZED-GAINS-CURRENT> 4,723
<APPREC-INCREASE-CURRENT> 68,278
<NET-CHANGE-FROM-OPS> 84,348
<EQUALIZATION> 0
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<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 169,153
<NUMBER-OF-SHARES-REDEEMED> (6,110)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 980,800
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,528
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<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
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<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.02
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
