As filed with the Securities and Exchange Commission on April 30, 1997
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. 5
and/or
REGISTRATION STATEMENT UNDER THE
[X] INVESTMENT COMPANY ACT OF 1940
[X] Amendment No. 6
(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 46282
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number: (317) 263-1877
Richard A. Wacker, One American Square, Indianapolis, Indiana 46282
(Name and Address of Agent for Service)
Title of Securities Being Registered: Interests in 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, 1997 on or
before February 28, 1998.
It is proposed that this filing will become effective (Check appropriate Space)
_____ immediately upon filing pursuant to paragraph (b) of Rule 485
X on May 1, 1997 pursuant to paragraph (b) of Rule 485
_____ ------------
_____ 60 days after filing pursuant to paragraph (a)(i) of Rule 485
_____ on (date) pursuant to paragraph (a)(1) of Rule 485
_____ 75 days after filing pursuant to paragraph (a)(ii)
_____ on (date) pursuant to paragraph (a) (ii) of Rule 485
_____ this post-effective amendment designates a new effective date for a
previously filed amendment.
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CROSS REFERENCE SHEET
Pursuant to Rule 495
Showing Location in Part A (Prospectus) and Part B (Statement of Additional Information)
of Registration Statement of Information Required by Form N-4
PART A - PROSPECTUS
Item of Form N-4 Prospectus Caption
- ---------------- ------------------
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1. Cover Page ........................... Cover Page
2. Definitions .......................... Definitions
3. Synopsis ............................. Summary; Expense Table
4. Condensed Financial Information ...... Not Applicable
5. General Description of Registrant,
Depositor, and Portfolio Companies.... 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. Purchases and Contract 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 the Depositor or
Registrant............................ Persons Controlled By or Under
Common Control of Depositor or
Registrant
27. Number of Contractowners ............. 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, 1997
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 46282
(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 and deferred compensation 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; American Century
Variable Portfolios, Inc., which offers the VP Capital Appreciation and VP
International 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; PBHG Insurance Series Fund, Inc.,
which offers the Growth II and Technology & Communications 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. American Century
Investment Management, Inc. acts as the investment adviser to the American
Century Variable Portfolios, Inc. Calvert Management Corporation acts as the
investment adviser to the Acacia Capital Corporation. Fidelity Management &
Research Company ("FMR") acts as the investment adviser to the VIP and VIP II
Funds. Fred Alger & Company acts as the investment adviser to the Alger American
Fund. Pilgrim Baxter & Associates, LTD. acts as the investment adviser to PBHG
Insurance Series Fund, Inc. T. Rowe Price Associates, Inc. acts as the
investment adviser to the T. Rowe Price Equity Series, Inc.
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, 1997, which has been filed with the Securities and
Exchange Commission (the "SEC"). The Statement of Additional Information is
incorporated by reference into this Prospectus. A copy may be obtained without
charge by calling or writing to AUL at the telephone number or address indicated
above. The table of contents of the Statement of Additional Information is
located at the end of this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION. NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS 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, 1997.
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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......................... 10
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............................................. 13
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............................ 14
Calvert Capital Accumulation Portfolio............... 14
Alger American Fund................................... 14
Alger American Growth Portfolio...................... 14
American Century Variable Portfolios, Inc............. 14
VP Capital Appreciation Portfolio.................... 14
VP International Portfolio........................... 14
Fidelity Variable Insurance Products Fund............. 14
Equity-Income Portfolio.............................. 14
Growth Portfolio..................................... 14
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
PBHG Insurance Series Fund, Inc....................... 15
Growth II Portfolio.................................. 15
Technology & Communications Portfolio................ 15
T. Rowe Price Equity Series, Inc...................... 15
T. Rowe Price Equity Income.......................... 15
THE CONTRACTS........................................... 15
General............................................... 15
PREMIUMS AND CONTRACT VALUES
DURING THE ACCUMULATION PERIOD.......................... 15
Application for a Contract............................ 15
Premiums under the Contracts.......................... 15
Free Look Period...................................... 16
Allocation of Premiums................................ 16
Transfers of Account Value............................ 16
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................. 18
Cash Withdrawals...................................... 18
The Death Proceeds.................................... 18
Payments from the Variable Account.................... 19
CHARGES AND DEDUCTIONS.................................. 19
Premium Tax Charge.................................... 19
Withdrawal Charge..................................... 19
Mortality and Expense Risk Charge..................... 20
Administrative Fee.................................... 20
Other Charges......................................... 20
Variations in Charges................................. 20
Guarantee of Certain Charges.......................... 20
Expenses of the Funds................................. 20
ANNUITY PERIOD.......................................... 21
General............................................... 21
Annuity Options....................................... 21
Option 1-Income for a Fixed Period................... 21
Option 2-Life Annuity................................ 21
Option 3-Survivorship Annuity........................ 21
Selection of an Option............................... 21
THE FIXED ACCOUNT....................................... 22
Interest.............................................. 22
Withdrawals........................................... 22
Transfers............................................. 22
Contract Charges...................................... 22
Payments from the Fixed Account....................... 23
MORE ABOUT THE CONTRACTS................................ 23
Designation and Change of Beneficiary................. 23
Assignability......................................... 23
Proof of Age and Survival............................. 23
Misstatements......................................... 23
Acceptance of New Premiums............................ 23
FEDERAL TAX MATTERS..................................... 23
Introduction.......................................... 23
Diversification Standards............................. 24
Taxation of Annuities in General-
Non-Qualified Plans.................................. 24
Additional Considerations............................. 25
Qualified Plans....................................... 25
403(b) Programs-Constraints on Withdrawals............ 26
OTHER INFORMATION....................................... 27
Voting of Shares of the Funds......................... 27
Substitution of Investments........................... 27
Changes to Comply with Law and Amendments............. 28
Reservation of Rights................................. 28
Periodic Reports...................................... 28
Legal Proceedings..................................... 28
Legal Matters......................................... 28
Financial Statements.................................. 28
PERFORMANCE INFORMATION ................................ 28
STATEMENT OF ADDITIONAL
INFORMATION TABLE OF CONTENTS........................... 29
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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 or SIMPLE IRA 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 - 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
Fund, which offers the Alger American Growth Portfolio; American Century
Variable Portfolios, Inc. which offers the VP Capital Appreciation and VP
International 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; PBHG Insurance Series Fund, Inc.,
which offers the Growth II and the Technology & Communications 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 46282.
HR-10 PLAN - An Employee Benefit Plan established by a self-employed person in
accordance with Section 401 of the Internal Revenue Code. Investment Account - A
sub-account of the Variable Account that invests in shares of 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.
NON-TAX QUALIFIED DEFERRED COMPENSATION PLAN - An unfunded arrangement in which
an employer makes agreements with management or highly compensated employees to
make payments in the future in exchange for their current services.
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 and deferred compensation 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 Fund, which offers
the Alger American Growth Portfolio; American Century Variable Portfolios, Inc.,
which offers the VP Capital Appreciation Portfolio and the VP International
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; PBHG Insurance Series Fund, Inc., which
offers the Growth II and the Technology & Communications Portfolio; 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. American Century Investment Management,
Inc. acts as the investment adviser to the American Century Variable Portfolios,
Inc. Calvert Management Corporation acts as the investment adviser to the Acacia
Capital Corporation. Fidelity Management & Research Company ("FMR") acts as the
investment adviser to the VIP and VIP II Funds. Fred Alger & Company acts as the
investment adviser to the Alger American Fund. Pilgrim Baxter & Associates, LTD.
acts as the investment adviser to PBHG Insurance Series Fund, 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
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6
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 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. Expenses of the Variable Account shown under "Contract Owner Transaction
Expenses" (including the withdrawal charge and annual contract fee) and
"Variable Account Annual Expenses" are fixed and specified under the terms of
the Contract. Expenses of the Funds as shown under "Fund Annual Expenses" are
not fixed or specified under the terms of the Contract, and may vary from year
to year. The fees in this expense table have been provided by the Funds and have
not been independently verified by AUL. The table does not reflect 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.
<PAGE>
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) 0.21% 0.71%
Managed Portfolio 0.50%(3) 0.20% 0.70%
Money Market Portfolio 0.50%(3) 0.20% 0.70%
Tactical Asset Allocation Portfolio 0.68%(3) 0.32% 1.00%
Acacia Capital Corporation:
Calvert Capital Accumulation Portfolio 0.90%(4) 0.46% 1.36%
Alger American Fund Alger American Growth Portfolio 0.75% 0.04% 0.79%
American Century Variable Portfolios, Inc.
American Century VP Capital Appreciation 1.00% 0.00% 1.00%
American Century VP International 1.50% 0.00% 1.50%
Fidelity Variable Insurance Products Fund
Equity-Income Portfolio 0.51% 0.07% 0.58%(5)
Growth Portfolio 0.61% 0.08% 0.69%(5)
High Income Portfolio 0.59% 0.12% 0.71%
Overseas Portfolio 0.76% 0.17% 0.93%(5)
Fidelity Variable Insurance Products Fund II
Asset Manager Portfolio 0.64% 0.10% 0.74%(5)
Contrafund Portfolio 0.61% 0.13% 0.74%(5)
Index 500 Portfolio 0.13% 0.15% 0.28%(6)
PBHG Insurance Series Fund, Inc.
Growth II Portfolio 0.85% 0.30% 1.15%
Technology & Communications Portfolio 0.61% 0.59% 1.20%
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. With the exception of
the Tactical Asset Allocation Portfolio, during 1996, expenses did not exceed 1%
of the average daily net asset value.
(4)The figures above are based on expenses for fiscal year 1996, and have
been restated to reflect an increase in transfer agency expenses of 0.03%
expected to be incurred in 1997. Management and Advisory Expenses includes a
performance adjustment, which depending on performance, could cause the fee to
be as high as 0.95% or as low as 0.85%. "Other Expenses" reflect an indirect
fee. Net fund operating expenses after reductions for fees paid indirectly
(again, restated) would be 1.03%. Management and Advisory expenses for CRI
Capital Accumulation includes an administrative service fee of 0.10%, paid to
Advisory's affiliate.
(5) A portion of the brokerage commissions that certain funds pay was used
to reduce funds expenses. In addition, certain funds have entered into
arrangements with their custodian and transfer agent whereby interest earned on
uninvested cash balances was used to reduce custodian and transfer agent
expenses. Including these reductions, the total operating expenses presented in
the table would have been 0.56% for the Equity-Income portfolio, 0.67% for the
Growth portfolio, 0.92% for the Overseas portfolio, 0.73% for the Asset Manager
portfolio, and 0.71% for the Contrafund portfolio.
(6) Fidelity Management & Research Company agreed to reimburse a portion of
Index 500 portfolio's expenses during the period. Without this reimbursement,
the fund's management fee, other expenses and total expenses would have been
0.28%, 0.15%, and 0.43% respectively for Index 500 Portfolio on an annualized
basis.
</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 107.89 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
AUL American Money Market
1 year 107.08 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 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
AUL American 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 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
American Century VP Capital Appreciation
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
American Century VP 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 342.94 332.34 332.34 332.34 332.34
Calvert Capital Accumulation
1 year 114.40 92.22 114.40 29.40 29.40
3 years 164.49 136.47 164.49 89.78 89.78
5 years 210.68 181.52 152.36 152.36 152.36
10 years 321.91 319.16 319.16 319.16 319.16
<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 Equity-Income
1 year 106.57 84.89 106.57 21.57 21.57
3 years 142.77 114.09 142.77 66.28 66.28
5 years 173.85 143.52 113.20 113.20 113.20
10 years 252.72 241.09 241.09 241.09 241.09
Fidelity VIP Growth
1 year 107.71 85.96 107.71 22.71 22.71
3 years 145.96 117.36 145.95 69.72 69.72
5 years 179.28 149.13 118.97 118.97 118.97
10 years 264.32 252.82 252.82 252.82 252.82
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 110.09 88.19 110.09 25.09 25.09
3 years 152.58 124.19 152.58 76.89 76.89
5 years 190.56 160.76 130.94 130.96 130.96
10 years 288.17 276.94 276.94 276.94 276.94
Fidelity VIP II Asset
1 year 108.18 86.40 108.18 23.18 23.18
3 years 147.28 120.21 147.28 71.16 71.16
5 years 181.55 151.46 121.38 121.38 121.38
10 years 269.14 257.69 257.69 257.69 257.69
Fidelity VIP II Contrafund
1 year 108.18 86.40 108.18 23.18 23.18
3 years 147.28 118.73 147.28 71.16 71.16
5 years 181.55 151.46 121.38 121.38 121.38
10 years 269.14 257.69 257.69 257.69 257.69
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
PBHG Growth II
1 year 112.32 90.28 112.32 27.32 27.32
3 years 158.76 130.56 158.76 83.57 83.57
5 years 201.02 171.55 142.09 142.09 142.09
10 years 310.00 299.02 299.02 299.02 299.02
PBHG Technology & Communications
1 year 112.79 90.72 112.79 27.79 29.79
3 years 160.07 131.91 160.07 84.99 84.99
5 years 203.23 173.84 144.44 144.44 144.44
10 years 314.58 303.65 303.65 303.65 303.65
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>
<PAGE>
10
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, 1996. 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, 1996. The Variable Account's financial statements have
been audited by Coopers & Lybrand L.L.P., the Variable Account's independent
accountant.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Investment Account 1996 1995 1994
------------------ ---- ---- ----
AUL American Equity
Unit Value at beginning of period 5.911 $5.010 $5.000
Unit Value at end of period 6.956 5.911 5.010
Number of units outstanding at end of period 528,267.190 169,738.465 15,959.218
AUL American Bond
Unit Value at beginning of period $5.888 $5.062 $5.000
Unit Value at end of period 5.945 5.888 5.062
Number of units outstanding at end of period 327,311.392 81,914.403 118.883
AUL American Money Market
Unit Value at beginning of period $1.044 $1.004 $1.000
Unit Value at end of period 1.080 1.044 1.004
Number of units outstanding at end of period 2,487,983.053 1,582,630.174 626,535.146
AUL American Managed
Unit Value at beginning of period $5.923 $5.034 $5.000
Unit Value at end of period 6.539 5.923 5.034
Number of units outstanding at end of period 499,400.967 119,092.277 664.550
AUL Tactical Asset Allocation
Unit Value at beginning of period $5.297 $5.000 (7/31/95) N.A.
Unit Value at end of period 6.051 5.297 N.A.
Number of units outstanding at end of period 161,866.199 18,030.022 N.A.
Alger American Growth
Unit Value at beginning of period $6.003 $5.000 (4/28/95) N.A.
Unit Value at end of period 6.720 6.003 N.A.
Number of units outstanding at end of period 1,256,069.865 208,236.470 N.A.
American Century VP Capital Appreciation
Unit Value at beginning of period $6.486 $5.010 $5.000
Unit Value at end of period 6.128 6.486 5.010
Number of units outstanding at end of period 145,117.247 128,270.148 2,809.564
American Century VP International
Unit Value at beginning of period $5.364 $4.840 $5.000
Unit Value at end of period 6.060 5.364 4.840
Number of units outstanding at end of period 372,018.867 74,261.271 831.382
Calvert Capital Accumulation
Unit Value at beginning of period $6.211 $5.000 (4/48/95) N.A.
Unit Value at end of period 6.587 6.211 N.A.
Number of units outstanding at end of period 202,261.345 24,090.888 N.A.
Fidelity VIP Equity-Income
Unit Value at beginning of period $5.974 $5.000 (4/28/95) N.A.
Unit Value at end of period 6.743 5.974 N.A.
Number of units outstanding at end of period 842,213.457 162,252.393 N.A.
Fidelity VIP Growth
Unit Value at beginning of period $6.723 $5.028 $5.000
Unit Value at end of period 7.615 6.723 5.028
Number of units outstanding at end of period 1,131,117.169 382,748.411 17,303.821
Fidelity VIP High Income
Unit Value at beginning of period $5.942 $4.988 $5.000
Unit Value at end of period 6.691 5.942 4.988
Number of units outstanding at end of period 310,543.860 124,255.921 12,229.340
Fidelity VIP Overseas
Unit Value at beginning of period $5.324 $4.915 $5.000
Unit Value at end of period 5.952 5.324 4.915
Number of units outstanding at end of period 178,473.714 66,675.195 3,238.060
<PAGE>
11
CONDENSED FINANCIAL INFORMATION (continued)
<S> <C> <C> <C>
Investment Account 1996 1995 1994
------------------ ---- ---- ----
Fidelity VIP II Asset Manager
Unit Value at beginning of period $5.641 $4.883 $5.000
Unit Value at end of period 6.384 5.641 4.883
Number of units outstanding at end of period 938,554.934 246,331.760 14,681.732
Fidelity VIP II Contrafund
Unit Value at beginning of period $6.030 $5.000 (4/28/95) N.A.
Unit Value at end of period 7.224 6.030 N.A.
Number of units outstanding at end of period 861,470.661 121,824.755 N.A.
Fidelity VIP II Index 500
Unit Value at beginning of period $6.802 $5.020 $5.000
Unit Value at end of period 8.250 6.802 5.020
Number of units outstanding at end of period 815,021.928 130,390.078 20.000
T. Rowe Price Equity Income
Unit Value at beginning of period $6.016 $5.000 N.A.
Unit Value at end of period 7.104 6.016 N.A.
Number of units outstanding at end of period 1,081,375.512 163,043.483 N.A.
</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 12/31/96 12/31/96 12/31/96 Since Inception Inception
- ------------------ ---- ------- -------- -------- -------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
AUL American Equity 4/10/90 11/21/94 17.69% 12.06% 11.63% 11.75% 110.96%
AUL American Bond 4/10/90 11/21/94 0.96% 3.80% 5.30% 7.41% 61.66%
AUL American Money Market 4/10/90 11/21/94 3.44% 3.22% 2.49% 3.13% 23.01%
AUL American Managed 4/10/90 11/21/94 10.41% 8.31% 8.62% 9.49% 83.90%
AUL American Tactical
Asset Allocation 7/31/95 7/31/95 14.23% n.a. n.a. 14.41% 21.05%
Alger American Growth 1/09/89 4/28/95 11.94% 14.74% 15.20% 16.91% 247.82%
American Century VP Capital
Appreciation 11/20/87 11/21/94 (5.51%) 6.09% 4.85% 10.08% 139.95%
American Century VP
International 5/01/94 11/21/94 12.98% n.a. n.a. 6.39% 17.94%
Calvert Capital Accumulation 7/16/91 4/28/95 6.06% 9.15% 9.18% 9.87% 67.18%
Fidelity VIP Equity-Income 10/09/86 4/28/95 12.86% 16.77% 16.52% 12.33% 219.86%
Fidelity VIP Growth 10/09/86 11/21/94 13.28% 14.43% 13.73% 13.73% 262.03%
Fidelity VIP High Income 9/19/85 11/21/94 12.61% 9.28% 13.54% 9.75% 153.54%
Fidelity VIP Overseas 1/28/87 11/21/94 11.81% 6.80% 7.79% 6.56% 87.91%
Fidelity VIP II Asset Manager 9/06/89 11/21/94 13.18% 6.60% 9.88% 10.45% 106.93%
Fidelity VIP II Contrafund 1/03/95 4/28/95 19.80% n.a. n.a. 30.90% 71.22%
Fidelity VIP II Index 500 8/27/92 11/21/94 21.30% 17.74% n.a. 15.66% 88.21%
PBHG Growth II 5/01/97 5/01/97 n.a. n.a. n.a. n.a.
PBHG Technology
& Communications 5/01/97 5/01/97 n.a. n.a. n.a. n.a.
T. Rowe Price Equity Income 3/31/94 4/28/95 18.07% n.a. n.a. 20.45% 66.81%
<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 12/31/96 12/31/96 12/31/96 Since Inception Inception
- ------------------ ---- ------- -------- -------- -------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
AUL American Equity 4/10/90 11/21/94 5.60% 8.66% 9.93% 10.55% 96.20%
AUL American Bond 4/10/90 11/21/94 (9.40%) 0.65% 3.69% 6.25% 50.28%
AUL American Money Market 4/10/90 11/21/94 (7.18%) 0.09% 0.93% 2.03% 14.46%
<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 12/31/96 12/31/96 12/31/96 Since Inception Inception
- ------------------ ---- ------- -------- -------- -------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
AUL American Managed 4/10/90 11/21/94 (0.93%) 5.03% 6.96% 8.32% 71.09%
AUL American Tactical
Asset Allocation 7/31/95 7/31/95 2.50% n.a. n.a. 5.76% 8.27%)
Alger American Growth 1/09/89 4/28/95 0.44% 11.26% 13.44% 15.95% 225.67%
American Century VP Capital
Appreciation 11/20/87 11/21/94 (15.21%) 2.87% 3.25% 9.47% 128.10%
American Century VP
International 5/01/94 11/21/94 1.38% n.a. n.a. 3.60% 9.88%)
Calvert Capital Accumulation 7/16/91 4/28/95 (4.83%) 5.84% 7.51% 8.26% 54.24%
Fidelity VIP Equity-Income 10/09/86 4/28/95 1.27% 13.23% 14.74% 11.88% 207.27%
Fidelity VIP Growth 10/09/86 11/21/94 1.65% 10.96% 11.99% 13.28% 247.96%
Fidelity VIP High Income 9/19/85 11/21/94 1.05% 5.97% 11.80% 9.31% 143.56%
Fidelity VIP Overseas 1/28/87 11/21/94 0.33% 3.56% 6.14% 6.02% 78.66%
Fidelity VIP II Asset Manager 9/06/89 11/21/94 1.56% 3.37% 8.20% 9.47% 93.87%
Fidelity VIP II Contrafund 1/03/95 4/28/95 7.50% n.a. n.a. 23.51% 52.46%
Fidelity VIP II Index 500 8/27/92 11/21/94 8.84% 14.17% n.a. 13.35% 72.41%
PBHG Growth II 5/01/97 5/01/97 n.a. n.a. n.a. n.a. n.a.
PBHG Technology
& Communications 5/01/97 5/01/97 n.a. n.a. n.a. n.a. n.a.
T. Rowe Price Equity Income 3/31/94 4/28/95 5.95%% n.a. n.a. 16.01% 50.44%
<CAPTION>
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 12/31/96 12/31/96 12/31/96 Since Inception Inception
- ------------------ ---- ------- -------- -------- -------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
AUL American Equity 4/10/90 11/21/94 9.12% 9.83% 10.62% 11.07% 102.48%
AUL American Bond 4/10/90 11/21/94 (6.38%) 1.74% 4.35% 6.75% 55.10%
AUL American Money Market 4/10/90 11/21/94 (4.09%) 1.16% 1.56% 2.50% 18.05%
AUL American Managed 4/10/90 11/21/94 2.37% 6.16% 7.63% 8.82% 76.47%
AUL American Tactical Asset
Allocation 7/31/95 7/31/95 5.91% n.a. n.a. 8.24% 11.89%)
Alger American Growth 1/09/89 4/28/95 3.79% 12.46% 14.15% 16.41% 236.13%
American Century VP Capital
Appreciation 11/20/87 11/21/94 (12.38%) 3.98% 3.91% 9.84% 135.23%
American Century VP
International 5/01/94 11/21/94 4.76% n.a. n.a. 4.82% 13.36%)
Calvert Capital Accumulation 7/16/91 4/28/95 (1.66%) 6.98% 8.19% 8.89% 59.20%
Fidelity VIP Equity-Income 10/09/86 4/28/95 4.65% 14.44% 15.46% 12.00% 210.58%
Fidelity VIP Growth 10/09/86 11/21/94 5.03% 12.15% 12.70% 13.39% 251.36%
Fidelity VIP High Income 9/19/85 11/21/94 4.42% 7.11% 12.51% 9.42% 146.02%
Fidelity VIP Overseas 1/28/87 11/21/94 3.67% 4.67% 6.81% 6.35% 84.26%
Fidelity VIP II Asset Manager 9/06/89 11/21/94 4.94% 4.48% 8.88% 9.93% 99.91%
Fidelity VIP II Contrafund 1/03/95 4/28/95 11.08% n.a. n.a. 25.64% 57.76%
Fidelity VIP II Index 500 8/27/92 11/21/94 12.47% 15.40% n.a. 14.18% 77.96%
PBHG Growth II 5/01/97 5/01/97 n.a. n.a. n.a. n.a. n.a.
PBHG Technology
& Communications 5/01/97 5/01/97 n.a. n.a. n.a. n.a. n.a.
T. Rowe Price Equity Income 3/31/94 4/28/95 9.48% n.a. n.a. 17.39% 55.41%
</TABLE>
INFORMATION ABOUT AUL, THE VARIABLE ACCOUNT, AND THE FUNDS
AMERICAN UNITED LIFE INSURANCE COMPANY(R)
AUL is a legal reserve mutual life insurance company existing under the
laws of the State of Indiana. It was originally incorporated as a fraternal
society on November 7, 1877, under the laws of the Federal government, and
reincorporated under the laws of the State of Indiana in 1933. It is qualified
to do business in 47 states and the District of Columbia. AUL has its principal
business office located at One American Square, Indianapolis, Indiana 46282.
AUL conducts a conventional life insurance, reinsurance, and annuity
business. At December 31, 1996, AUL had admitted assets of $7,852,292,848 and a
policy owners' surplus of $572,825,650.
The principal underwriter for the Contracts is AUL, which is registered
with the SEC as a broker-dealer.
VARIABLE ACCOUNT
AUL American 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 loss-
<PAGE>
13
es 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, American Century Variable
Portfolios, Inc., Fidelity Investments, and Pilgrim Baxter & Associates, under
which AUL has agreed to render certain services and to provide information 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, ranging from zero
basis points until a certain level of Fund assets have been purchased to 15
basis points on the net average aggregate deposits made.
The investment advisers of the Funds are identified on page 5. All of the
investment 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.
<PAGE>
14
ACACIA CAPITAL CORPORATION
CALVERT CAPITAL ACCUMULATION PORTFOLIO
The Calvert Capital Accumulation Portfolio is a socially responsible growth
Portfolio that seeks long-term capital appreciation by investing primarily in
the stock of small to medium sized companies. To the extent possible,
investments are made in enterprises that make a significant contribution to
society through their products and services and through the way they do
business.
FOR ADDITIONAL INFORMATION CONCERNING ACACIA CAPITAL CORPORATION AND THE CALVERT
CAPITAL ACCUMULATION PORTFOLIO, PLEASE SEE THE ACACIA CAPITAL CORPORATION
PROSPECTUS, WHICH SHOULD BE READ CAREFULLY BEFORE INVESTING.
ALGER AMERICAN FUND
ALGER AMERICAN GROWTH PORTFOLIO
The Alger American Growth Portfolio is a growth portfolio that seeks to
obtain long-term capital appreciation by investing in a diversified, actively
managed portfolio of equity securities. Except during temporary defensive
periods, the Portfolio invests at least 65% of its total assets in equity
securities of companies that, at the time of purchase, have a total market
capitalization of one billion dollars or greater.
FOR ADDITIONAL INFORMATION CONCERNING THE ALGER AMERICAN FUND AND ITS PORTFOLIO,
PLEASE SEE THE ALGER AMERICAN FUND PROSPECTUS, WHICH SHOULD BE READ CAREFULLY
BEFORE INVESTING.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
VP CAPITAL APPRECIATION
The VP Capital Appreciation Portfolio seeks capital growth by investing
primarily in common stocks (including securities convertible into common stocks
and other equity equivalents) and other securities that meet certain fundamental
and technical standards of selection and have, in the opinion of the Fund's
investment manager, better than average potential for appreciation. The Fund
tries to stay fully invested in such securities, regardless of the movement of
prices generally.
VP INTERNATIONAL
The VP 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 AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
AND ITS PORTFOLIOS, PLEASE SEE THE AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
PROSPECTUS, WHICH SHOULD BE READ CAREFULLY BEFORE INVESTING.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
EQUITY-INCOME PORTFOLIO
The Equity-Income Portfolio seeks reasonable income by investing primarily
in income-producing equity securities; the fund will also consider the potential
for capital appreciation.
GROWTH PORTFOLIO
The Growth Portfolio seeks to achieve capital appreciation. The Portfolio
normally purchases common stocks, although the Portfolio's investments are not
restricted to any one type of security. Capital appreciation may also be found
in other types of securities, including bonds and preferred stocks.
HIGH INCOME PORTFOLIO
The High Income Portfolio seeks to obtain a high level of current income by
investing primarily in high-yielding, lower-rated, fixed-income securities,
while also considering growth of capital. These include securities commonly
referred to as junk bonds, the risks of which are described in the prospectus
for the Fund.
OVERSEAS PORTFOLIO
The Overseas Portfolio seeks long-term growth of capital primarily through
investments in foreign securities. The Overseas Portfolio provides a means for
investors to diversify their own portfolios by participating in companies and
economies outside of the United States.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
ASSET MANAGER PORTFOLIO
The Asset Manager Portfolio seeks high total return with reduced risk over
the long-term by allocating its assets among domestic and foreign stocks, bonds
and short-term fixed income instruments.
CONTRAFUND
The Contrafund Portfolio seeks capital appreciation by investing primarily
in companies that the investment adviser believes to be undervalued due to an
overly pessimistic appraisal by the public.
INDEX 500 PORTFOLIO
The Index 500 Portfolio seeks to provide investment results that correspond
to the total return (i.e., the combination of cap-
<PAGE>
15
ital 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 FIDELITY'S 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.
PBHG INSURANCE SERIES FUNDS, INC.
PBHG GROWTH II PORTFOLIO
The investment objective of the PBHG Growth II Portfolio is capital
appreciation. The Portfolio normally will be invested in common stocks and
convertible securities of small and medium-sized companies (market
capitalization or annual revenues up to $4 billion) which, in the Adviser's
opinion, have an outlook for strong earnings growth. The PBHG Growth II
Portfolio will be co-managed by Gary Pilgrim, CFA, who manages the PBHG Growth
Fund, of the PBHG Funds, Inc., and Bruce Muzina. Mr. Muzina has managed
institutional growth and mid-cap growth separate accounts for Pilgrim Baxter &
Associates, Ltd., the Fund's investment adviser, since 1985.
PBHG TECHNOLOGY & COMMUNICATIONS PORTFOLIO
The primary objective of the PBHG Technology & Communication Portfolio is
long-term growth of capital. The Portfolio will seek out companies which rely
extensively on technology or communications in their product development or
operations, or those which are experiencing exceptional growth in sales and
earnings driven by technology or communications related products and services.
The Portfolio will be managed by John Force, CFA, who manages the PBHG
Technology & Communications Fund, of the PBHG Funds, Inc.
FOR ADDITIONAL INFORMATION CONCERNING THE PBHG INSURANCE SERIES FUND, INC. AND
ITS PORTFOLIOS, PLEASE SEE THE PBHG INSURANCE SERIES FUND, INC. PROSPECTUS,
WHICH SHOULD BE READ CAREFULLY BEFORE INVESTING.
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 purchase 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 or SIMPLE IRA 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
<PAGE>
16
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
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
<PAGE>
17
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.
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
<PAGE>
18
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 deduction 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.
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19
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 premium taxes that it
incurs. This charge will be deducted as premium taxes are incurred by AUL, which
is usually when an annuity is effected. Premium tax rates currently range from
0% to 3.5%, but are subject to change.
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>
<PAGE>
20
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 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.
<PAGE>
21
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.
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 if
the Par-
<PAGE>
22
ticipant is no longer employed. 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 and declared in advance
("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."
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
<PAGE>
23
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.
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 indi-
<PAGE>
24
vidual 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 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
<PAGE>
25
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
in connection with its non-tax qualified deferred compensation plan) 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 according 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
<PAGE>
26
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 includable 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.
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.
<PAGE>
27
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, substitutions for, or combinations
of the securities that are held by the Variable Account or any Investment
Account or that the Variable Account or any Investment Account may purchase. If
shares of any or all of the 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 invest-
<PAGE>
28
ment 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, 1996, are included in the
Statement of Additional Information.
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
<PAGE>
29
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...............................................................................................
DISTRIBUTION OF CONTRACTS.....................................................................................................
CUSTODY OF ASSETS.............................................................................................................
TAX STATUS OF AUL AND THE VARIABLE ACCOUNT....................................................................................
TAX TREATMENT OF AND LIMITS ON PREMIUMS UNDER RETIREMENT PLANS................................................................
403(b) Programs.............................................................................................................
408 Programs................................................................................................................
Employee Benefit Plans......................................................................................................
Tax Penalty for All Annuity Contracts.......................................................................................
Withholding for Employee Benefit Plans and Tax-Deferred Annuities...........................................................
INDEPENDENT ACCOUNTANTS.......................................................................................................
PERFORMANCE INFORMATION.......................................................................................................
FINANCIAL STATEMENTS..........................................................................................................
</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>
30
================================================================================
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 46282
PROSPECTUS
Dated: May 1, 1997
================================================================================
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1997
AUL American Individual Unit Trust
Individual Variable Annuity Contracts
Offered By
American United Life Insurance Company(R)
One American Square
Indianapolis, Indiana 46282
(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, 1997.
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>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Description Page
<S> <C>
GENERAL INFORMATION AND HISTORY............................................................................................
DISTRIBUTION OF CONTRACTS..................................................................................................
CUSTODY OF ASSETS..........................................................................................................
TAX STATUS OF AUL AND THE VARIABLE ACCOUNT.................................................................................
TAX TREATMENT OF AND LIMITS ON PREMIUMS UNDER RETIREMENT PROGRAMS..........................................................
403(b) Programs..........................................................................................................
408 Programs.............................................................................................................
Employee Benefit Plans...................................................................................................
Tax Penalty for All Annuity Contracts....................................................................................
Withholding for Employee Benefit Plans and Tax-Deferred Annuities........................................................
INDEPENDENT ACCOUNTANTS....................................................................................................
PERFORMANCE INFORMATION....................................................................................................
FINANCIAL STATEMENTS.......................................................................................................
</TABLE>
<PAGE>
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>
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 owned 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. 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
individual 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>
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. For
tax years beginning after 1996, if a married couple files a joint return, each
spouse may, in the great majority of cases, make contributions to his or her IRA
up to the $2,000 limit. 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 received at least annually as
part of a series of substantially equal periodic payments made for the life of
the Participant will not be subject to an excise tax. Certain amounts paid for
medical care also may not be subject to an excise tax.
<PAGE>
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>
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, 1996 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>
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
To the Board of Directors
American United Life Insurance Company
Indianapolis, Indiana
We have audited the accompanying combined balance sheet of American United Life
Insurance Company(R) and affiliates as of December 31, 1996 and 1995, and the
related combined statements of operations, policyowners' surplus and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of American United Life
Insurance Company(R) and affiliates as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
As discussed in Note I to the combined financial statements, the Company adopted
Statement of Financial Accounting Standards No. 120 (SFAS 120) and Financial
Accounting Standards Board Interpretation No. 40 (FIN 40) which required
implementation of several accounting pronouncements not previously adopted. The
effects of adopting SFAS 120 and FIN 40 were retroactively applied to the
Company's previously issued financial statements, consistent with the
implementation guidance of those standards.
The Company previously issued financial statements for 1995 which were presented
in accordance with accounting principles prescribed or permitted by the
Insurance Department of the State of Indiana and which were considered generally
accepted accounting principles for mutual life insurance companies. We
previously issued our report dated February 19, 1996, on such financial
statements.
/s/ Coopers & Lybrand L.L.P.
Indianapolis, Indiana
February 19, 1997
<PAGE>
COMBINED BALANCE SHEET
<TABLE>
<S> <C> <C>
December 31,1996, and l995 1996 (in millions) 1995
- -----------------------------------------------------------------------------
Assets
Investments:
Fixed Maturities:
Available for sale at fair value $1,593.4 $1,628.8
Held to maturity at amortized cost 3,013.6 2,982.4
Equity securities at fair value 15.2 19.0
Mortgage loans 1,114.6 1,124.7
Real estate 52.3 54.5
Policy loans 143.5 141.6
Short term and other invested assets 43.8 69.0
Cash and cash equivalents 20.2 10.9
- -----------------------------------------------------------------------------
Total investments 5,996.6 6,030.9
- -----------------------------------------------------------------------------
Accrued investment income 82.1 86.0
Reinsurance receivables 209.5 191.2
Deferred acquisition costs 348.2 310.2
Property and equipment 54.0 47.3
Insurance premiums in course of collection 47.5 31.2
Other assets 35.7 26.9
Assets held in separate accounts 1,078.7 603.9
- -----------------------------------------------------------------------------
Total assets $7,852.3 $7,327.6
- -----------------------------------------------------------------------------
Liabilities and policyowners' surplus
Liabilities
Policy reserves $5,688.6 $5,755.8
Other policyowner funds 176.2 171.7
Pending policyowner claims 137.6 130.4
Surplus notes 75.0 ---
Other liabilities and accrued expenses 123.4 116.9
Liabilities related to separate accounts 1,078.7 603.9
- -----------------------------------------------------------------------------
Total liabilities 7,279.5 6,778.7
- -----------------------------------------------------------------------------
Unrealized appreciation of securities,
net of deferred income tax 19.0 47.2
Policyowners' surplus 553.8 501.7
- -----------------------------------------------------------------------------
Total policyowners' surplus 572.8 548.9
- -----------------------------------------------------------------------------
Total liabilities and policyowners' surplus$7,852.3 $7,327.6
- -----------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
COMBINED STATEMENT OF OPERATIONS
for years ended December 31,1996, and l995 1996 (in millions) 1995
- -----------------------------------------------------------------------------
Revenues:
Insurance premiums and other considerations $ 401.1 $ 390.0
Policy and contract charges 46.5 39.8
Net investment income 471.8 478.9
Realized investment gains 6.6 8.2
Other income 3.8 .1
- -----------------------------------------------------------------------------
Total revenues 929.8 917.0
- -----------------------------------------------------------------------------
Benefits and expenses:
Policy benefits $ 381.4 $ 346.7
Interest expense on annuities
and financial products 261.6 283.1
Underwriting, acquisition and insurance
expenses 110.2 100.3
Amortization 49.8 41.2
Dividends to policyowners 26.3 24.7
Interest expense on surplus notes 5.1 ----
Other operating expenses 8.9 42.7
- -----------------------------------------------------------------------------
Total benefits and expenses 843.3 838.7
- -----------------------------------------------------------------------------
Income before income tax expense 86.5 78.3
Income tax expense 34.4 32.7
- -----------------------------------------------------------------------------
Net income $ 52.1 $ 45.6
- -----------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
COMBINED STATEMENT OF POLICYOWNERS' SURPLUS
Policyowners' surplus at beginning of year $548.9 $430.7
Net income 52.1 45.6
Unrealized appreciation
(depreciation) of securities, net (28.2) 72.6
- -----------------------------------------------------------------------------
Policyowners' surplus at end of year $572.8 $548.9
- -----------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<S> <C> <C>
for years ended December 31,1996, and l995 1996 (in millions) 1995
- -----------------------------------------------------------------------------
Cash flows from operating activities:
- ------------------------------------------------------------------------------
Net Income $ 52.1 $ 45.6
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization 49.8 41.2
Depreciation 9.2 8.6
Deferred taxes 1.8 7.0
Realized investment gains (6.6) (8.2)
Policy acquisition costs (69.3) (61.2)
Interest credited to deposit liabilities 254.7 274.2
Fees charged to deposit liabilities (19.8) (19.5)
Amortization of investment income (6.2) (10.9)
Increase in insurance liabilities 93.9 110.5
Increase in assets (44.4) (72.1)
Increase in liabilities 19.6 14.7
- ------------------------------------------------------------------------------
Net cash provided by operating activities 334.8 329.9
- ------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases:
Fixed maturities, Held to Maturity (194.4) (390.1)
Fixed maturities, Available for Sale (477.7) (234.9)
Equity securities (24.7) (1.1)
Mortgage loans (169.1) (159.9)
Real estate (3.9) (2.2)
Short term and other invested assets (2.6) (.4)
Proceeds from sales, calls or maturities:
Fixed maturities, Held to Maturity 158.8 290.1
Fixed maturities, Available for Sale 466.4 145.7
Equity securities 28.7 14.7
Mortgage loans 175.0 115.7
Real estate 3.1 3.4
Short term and other invested assets 27.6 4.6
- -----------------------------------------------------------------------------
Net cash used by investing activities (12.8) (214.4)
- -----------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of surplus notes 75.0 ---
Deposits to insurance liabilities 595.2 471.7
Withdrawals from insurance liabilities (984.6) (587.8)
Policyowner dividends 3.6 .7
Increase in policy loans (1.9) (3.6)
- ------------------------------------------------------------------------------
Net cash used by financing activities (312.7) (119.0)
- ------------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents 9.3 (3.5)
- ------------------------------------------------------------------------------
Cash and cash equivalents beginning of year 10.9 14.4
- ------------------------------------------------------------------------------
Cash and cash equivalents end of year $ 20.2 $ 10.9
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Basis of Presentation
American United Life Insurance Company(R) (AUL) is an Indiana-domiciled mutual
life insurance company with headquarters in Indianapolis. AUL is licensed to do
business in 47 states and the District of Columbia. AUL offers individual life
insurance and annuities, group life and disability insurance and pension
products through career agents working in a distribution network of general
agency offices. AUL also offers reinsurance services. The combined financial
statements include the accounts of the Company and its affiliate, The State Life
Insurance Company (State Life). Significant intercompany transactions have been
excluded.
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles (GAAP). As of January 1, 1996, AUL
adopted Financial Accounting Standards Board (FASB) Statement No. 120,
Accounting and Reporting by Mutual Life Insurance Enterprises and by Insurance
Enterprises for Certain Long-Duration Participating Contracts, and Financial
Accounting Standards Board Interpretation No. 40 (FIN40), 'Applicability of
Generally Accepted Accounting Principles for Mutual Life Insurance and Other
Enterprises.' SFAS120 requires financial statements prepared in accordance with
generally accepted accounting principles to apply all applicable authoritative
GAAP pronouncements. The cumulative effect of applying SFAS No. 120 primarily
consists of the initial deferral of acquisition costs, the establishment of
deferred taxes, the change in methodology for insurance reserves, the
elimination of the statutory asset valuation reserve and the effect of
classifying certain fixed maturity investments as available for sale. The effect
of the changes has been reported retroactively through restatement of the
financial information as of January 1, 1994. As a result of restating the 1995
financial statements, combined net income was increased by $1.4 million, and
combined policyowners' surplus increased $239.8 million.
AUL also files financial statements with insurance regulatory authorities which
are prepared on the basis of statutory accounting practices which are
significantly different from financial statements prepared in accordance with
GAAP. These differences are described in detail in Note 9 - Statutory
Information.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
INVESTMENTS
Fixed maturity securities which may be sold to meet liquidity and other needs of
the Company are categorized as available for sale and are stated at fair value.
Fixed maturity securities which the Company has the positive intent and ability
to hold to maturity are categorized as held-to-maturity and are stated at
amortized cost. Equity securities are stated at fair value. Mortgage loans on
real estate are carried at amortized cost less an impairment allowance for
estimated uncollectible amounts. Real estate is reported at cost less allowances
for depreciation. Depreciation is provided (straight line) over the estimated
useful lives of the related assets. Investment real estate is net of accumulated
depreciation of $28.8 million and $28.3 million at December 31, 1996 and 1995,
respectively. Depreciation expense for investment real estate amounted to $2.4
million and $2.6 million for 1996 and 1995, respectively. Policy loans are
carried at their unpaid balance. Other invested assets are reported at cost plus
the Company's equity in undistributed net equity since acquisition. Short term
investments include investments with maturities of one-year or less and are
carried at cost which approximates market. Short term certificates of deposit
and savings certificates are considered to be cash equivalents. The carrying
amount for cash and cash equivalents approximates market.
Realized gains and losses on sale or maturity of investments are based upon
specific identification of the investments sold and do not include amounts
allocable to separate accounts. At the time a decline in value of an investment
is determined to be other than temporary, a provision for loss is recorded which
is included in realized investment gains and losses. Unrealized gains and
losses, resulting from carrying available-for-sale securities at fair value, are
reported in policyowners' surplus, net of deferred income taxes.
DEFERRED POLICY ACQUISITION COSTS
Those costs of acquiring new business, which vary with and are primarily related
to the production of new business, have been deferred to the extent that such
costs are deemed recoverable. Such costs include commissions, certain costs of
policy underwriting and issue and certain variable agency expenses. These costs
are amortized with interest as follows:
For participating whole life insurance products, over the lesser of 30 years or
the lifetime of the policy in relation to the present value of estimated gross
margins from expenses, investments and mortality, discounted using the expected
investment yield.
For universal life-type policies and investment contracts, over the lesser of
the lifetime of the policy or 30 years for life policies or 20 years for other
policies in relation to the present value of estimated gross profits from
surrender charges and investment, mortality and expense margins, discounted
using the interest rate credited to the policy.
For term life insurance products and life reinsurance policies, over the lesser
of the benefit period or 30 years for term life or 20 years for life reinsurance
policies in relation to the ratio of anticipated annual premium revenue to the
anticipated total premium revenue, using the same assumptions used in
calculating policy benefits.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
For miscellaneous group life and individual and group health policies, straight
line over the expected life of the policy.
For credit insurance policies, the deferred acquisition cost balance is
primarily equal to the unearned premium reserve multiplied by the ratio of
deferrable commissions to premiums written.
Recoverability of the unamortized balance of deferred policy acquisition costs
is evaluated regularly. For universal life-type contracts, investment contracts
and participating whole life policies, the accumulated amortization is adjusted
(increased or decreased) whenever there is a material change in the estimated
gross profits or gross margins expected over the life of a block of business in
order to maintain a constant relationship between cumulative amortization and
the present value of gross profits or gross margins. For most other contracts,
the unamortized asset balance is reduced by a charge to income only when the
present value of future cash flows, net of the policy liabilities, is not
sufficient to cover such asset balance.
ASSETS HELD IN SEPARATE ACCOUNTS
Separate accounts are funds on which investment income and gains or losses
accrue directly to certain policyholders, primarily variable annuity contracts
and equity-based pension and profit sharing plans. The assets of these accounts
are legally segregated, and are valued at fair value. The related liabilities
are recorded at amounts equal to the underlying assets; the fair value of these
liabilities is equal to their carrying amount.
PROPERTY AND EQUIPMENT
Property and equipment includes real estate owned and occupied by the Company.
Property and equipment is carried at cost, net of accumulated depreciation of
$35.9 million and $30.1 million as of December 31, 1996 and 1995, respectively.
The Company provides for depreciation of property and equipment using the
straight-line method over its estimated useful life. Depreciation expense for
1996 and 1995 was $6.8 million and $6.0 million, respectively.
PREMIUM REVENUE AND BENEFITS TO POLICYHOLDERS
The premiums and benefits for whole life and term insurance products and certain
annuities with life contingencies (immediate annuities) are fixed and
guaranteed. Such premiums are recognized as premium revenue when due. Group
insurance premiums are recognized as premium revenue over the time period to
which the premiums relate. Benefits and expenses are associated with earned
premiums so as to result in recognition of profits over the life of the
contracts. This association is accomplished by means of the provision for
liabilities for future policy benefits and the amortization of deferred policy
acquisition costs.
Universal life policies and investment contracts are policies with terms that
are not fixed and guaranteed. The terms that may be changed could include one or
more of the amounts assessed the policyholder, premiums paid by the policyholder
or interest accrued to policyholder balances. The amounts collected from
policyholders for these policies are considered deposits, and only the
deductions during the period for cost of insurance, policy administration and
surrenders are included in revenue. Policy benefits and claims that are charged
to expense include interest credited to contracts and benefit claims incurred in
the period in excess of related policy account balances.
RESERVES FOR FUTURE POLICY AND CONTRACT BENEFITS
Liabilities for future policy benefits for participating whole life policies are
calculated using the net level premium method and assumptions as to interest and
mortality. The interest rate is the dividend fund interest rate and the
mortality rates are those guaranteed in the calculation of cash surrender values
described in the contract. Liabilities for future policy benefits for term life
insurance and life reinsurance policies are calculated using the net level
premium method and assumptions as to investment yields, mortality and
withdrawals. The assumptions are based on projections of past experience and
include provisions for possible unfavorable deviation. These assumptions are
made at the time the contract is issued. Liabilities for future policy benefits
on universal life and investment contracts consist principally of policy account
values plus certain deferred policy fees which are amortized using the same
assumptions and factors used to amortize the cost of policies produced. If the
future benefits on investment contracts are guaranteed (immediate annuities with
benefits paid for a period certain) the liability for future benefits is the
present value of such guaranteed benefits. Claim liabilities include provisions
for reported claims and estimates based on historical experience, for claims
incurred but not reported.
INCOME TAXES
The provision for income taxes includes amounts currently payable and deferred
income taxes resulting from the temporary differences in the assets and
liabilities determined on a tax and financial reporting basis.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
2. Investments:
The amortized cost and fair value of investments in fixed maturity securities by
type of investment were as follows:
<TABLE>
<S> <C> <C> <C> <C>
December 31, 1996
- ------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------
Available for sale: (in millions)
Obligations of U.S. government, states,
political subdivisions and foreign governments $ 85.2 $ 1.9 $ 1.3 $ 85.8
Corporate securities 1,000.0 33.9 7.0 1,026.9
Mortgage-backed securities 463.0 19.1 1.4 480.7
- -----------------------------------------------------------------------------------------------------------------
$1,548.2 $ 54.9 $ 9.7 $ 1,593.4
- -----------------------------------------------------------------------------------------------------------------
Held to maturity:
Obligations of U.S. government, states,
political subdivisions and foreign governments $ 132.0 $ 5.5 $ 1.1 $ 136.4
Corporate securities 1,891.1 100.1 14.0 1,977.2
Mortgaged-backed securities 990.5 44.9 4.4 1,031.0
- -----------------------------------------------------------------------------------------------------------------
$3,013.6 $ 150.5 $ 19.5 $ 3,144.6
December 31, 1995
- ------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------
Available for sale: (in millions)
Obligations of U.S. government, states,
political subdivisions and foreign governments $ 50.7 $ 3.7 $ .1 $ 54.3
Corporate securities 925.3 63.5 2.0 986.8
Mortgage-backed securities 543.2 44.7 .2 587.7
- -----------------------------------------------------------------------------------------------------------------
$1,519.2 $ 111.9 $ 2.3 $ 1,628.8
- -----------------------------------------------------------------------------------------------------------------
Held to maturity:
Obligations of U.S. government, states,
political subdivisions and foreign governments $ 135.0 $ 10.7 $ .3 $ 145.4
Corporate securities 1,817.7 174.8 1.5 1,991.0
Mortgaged-backed securities 1,029.7 89.7 .2 1,119.2
- -----------------------------------------------------------------------------------------------------------------
$2,982.4 $ 275.2 $ 2.0 $ 3,255.6
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
The amortized costs and fair value of fixed maturity securities at December 31,
1996, by contractual average maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Available for Sale Held to Maturity Total
Amortized Fair Amortized Fair Amortized Fair
(in millions) Cost Value Cost Value Costs Value
- -----------------------------------------------------------------------------------------------------------------------------
Due in one year or less $ 85.1 $ 85.7 $ 62.7 $ 63.4 $ 147.8 $ 149.1
Due after one year through five years 369.2 370.8 704.0 727.6 1,073.2 1,098.4
Due after five years through ten years 363.0 376.7 800.8 841.8 1,163.8 1,218.5
Due after ten years 267.9 279.5 455.6 480.8 723.5 760.3
- -----------------------------------------------------------------------------------------------------------------------------
1,085.2 1,112.7 2,023.1 2,113.6 3,108.3 3,226.3
Mortgage-backed securities 463.0 480.7 990.5 1,031.0 1,453.5 1,511.7
- -----------------------------------------------------------------------------------------------------------------------------
$1,548.2 $ 1,593.4 $3,013.6 $3,144.6 $ 4,561.8 $ 4,738.0
=============================================================================================================================
</TABLE>
Net investment income consistent of the following:
<TABLE>
<S> <C> <C>
December 31,1996,and l995 1996 (in millions) 1995
- -----------------------------------------------------------------------------
Fixed maturity securities $ 364.0 $ 369.4
Equity securities 2.0 2.9
Mortgage loans 104.4 104.4
Real estate 10.8 10.7
Policy loans 9.0 9.2
Other 6.1 4.5
- -----------------------------------------------------------------------------
Gross investment income 496.3 501.1
Investment expenses 24.5 22.2
- -----------------------------------------------------------------------------
Net investment income $ 471.8 $ 478.9
- -----------------------------------------------------------------------------
</TABLE>
Net realized investment gains and losses include write downs and changes in the
reserve for losses on mortgage loans and foreclosed real estate of $.5 million
and $1.5 million for 1996 and 1995, respectively. Proceeds from the sales,
maturities or calls of investments in fixed maturities during 1996 and 1995 were
approximately $609.0 million and $435.8 million, respectively. Gross gains of
$12.0 million and $9.1 million, and gross losses of $6.9 million and $2.9
million were realized in 1996 and 1995, respectively. The changes in unrealized
appreciation (depreciation) of fixed maturities amounted to approximately
$(64.3) million and $156.5 million in 1996 and 1995, respectively.
At December 31, 1996, the unrealized appreciation on equity securities of
approximately $1.4 million is comprised of $3.0 million in unrealized gains and
$1.6 million of unrealized losses and has been reflected directly in
policyowners' surplus. The change in the unrealized appreciation (depreciation)
of equity securities amounted to approximately $(1.1) million and $1.2 million
in 1996 and 1995, respectively.
The Company maintains a diversified mortgage loan portfolio and exercises
internal limits on concentrations of loans by geographic area, industry, use and
individual mortgagor. Mortgage loans on various properties in nine states
(California, Florida, North Carolina, Indiana, Texas, Illinois, Georgia,
Kentucky and Ohio) account for approximately 62% of the fair value of the
mortgage loan portfolio. Approximately $163.9 million of mortgage loans have
been issued on 67 geographically diversified properties of 8 large retailers.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
The Company has outstanding mortgage loan commitments at December 31, 1996, of
approximately $67.9 million.
As of December 31, 1996, the carrying value of investments that produced no
income for the previous twelve month period was $9.7 million.
3. Insurance Liabilities:
At December 31, 1996 and 1995, insurance liabilities consisted of the following:
<TABLE>
<S> <C> <C> <C> <C> <C>
(in millions)
- -------------------------------------------------------------------------------------------------------------------------------
Mortality Interest
Withdrawal or morbidity rate
assumption assumption assumption 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
Future policy benefits:
Participating whole life contracts Company experience Company experience 2.5% to 6.0% $ 554.9 $ 520.0
Universal life-type contracts N/A N/A N/A 352.0 334.9
Other individual life contracts Company experience Company experience 6.8% to 10.0% 183.6 160.3
Accident and health N/A N/A N/A 43.7 43.3
Annuity products N/A N/A N/A 4,397.1 4,546.8
Group life and health N/A N/A N/A 157.3 150.5
Other policyowner funds N/A N/A N/A 176.2 171.7
Pending policy owner claims N/A N/A N/A 137.6 130.4
- -------------------------------------------------------------------------------------------------------------------------------
Total insurance liabilities $ 6,002.4 $ 6,057.9
===============================================================================================================================
</TABLE>
Participating life insurance policies under generally accepted accounting
principles represent approximately 11% and 12% of the total individual life
insurance in force at December 31, 1996 and 1995, respectively. Participating
policies represented approximately 40% of life premium income for both 1996 and
1995. The amount of dividends to be paid is determined annually by the Board of
Directors.
4. Employees' and Agents' Benefit Plans:
The Company has a noncontributory defined benefit pension plan covering
substantially all employees. Company contributions to the employee plan are made
annually in an amount between the minimum ERISA required contribution and the
maximum tax-deductible contribution. Contributions made to the Plan were $2.4
million in 1996 and $2.2 million in 1995. The net periodic pension cost was $.6
million and $1.6 million for the year ended December 31, 1996 and 1995,
respectively. This includes service cost of $3.5 million and $.8 million,
interest cost of $1.4 million and $1.3 million, and return on plan assets of
$4.3 million and $.5 million for the year ended December 31, 1996 and 1995,
respectively.
The following benefit information for the employees' defined benefit plan was
determined by outside actuaries as of January 1, 1996 and 1995, respectively,
the most recent actuarial valuation dates.
<TABLE>
<S> <C> <C>
1996 (in millions) 1995
- -----------------------------------------------------------------------------
Actuarial present value of accumulated benefits
for the employees' defined benefit plan:
Vested $ 20.1 $ 18.2
Nonvested .2 .2
- -----------------------------------------------------------------------------
$ 20.3 $ 18.4
- -----------------------------------------------------------------------------
Related net assets available for plan
benefits $ 28.8 $ 25.1
- ------------------------------------------------------------------------------
</TABLE>
The Company has a defined contribution plan covering employees who have
completed one full calendar year of service. Annual contributions are made by
the Company in amounts based upon the Company's financial results. Company
contributions to the plan during 1996 and 1995 were $1.7 million and $1.2
million, respectively.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
The Company has a defined contribution pension plan and a 401(k) plan covering
substantially all of the agents, except general agents. Contributions of 3%
defined commissions (plus 3% for commissions over the Social Security wage base)
are made to the pension plan. An additional contribution of 3% of defined
commissions are made to a 401(k) plan. Company contributions expended for these
plans for 1996 and 1995 were $612,000 and $606,000, respectively.
The funds for all plans are held by the Company under deposit administration and
group annuity contracts.
The Company also provides certain health care and life insurance benefits
(postretirement benefits) for retired employees and certain agents (retirees).
Substantially all employees and agents may become eligible for such benefits if
they reach retirement age while working for the Company.
The net periodic postretirement benefit cost was $956,000 and $986,000 for the
year ended December 31, 1996 and 1995, respectfully. This includes service cost
of $255,000 and $253,000, interest cost of $645,000 and $688,000, amortization
of unrecognized loss of $56,000 and $45,000 for the year ended December 31, 1996
and 1995, respectively.
Accrued postretirement benefits as of December 31 were as follows:
<TABLE>
<S> <C> <C>
1996 (in millions) 1995
- -----------------------------------------------------------------------------
Accumulated postretirement benefit obligation
(APBO):
Retirees and their dependents $ 4.6 $ 5.6
Active employees fully eligible to retire
and receive benefits 2.6 2.4
Active employees not fully eligible 2.7 1.3
Unrecognized loss (1.0) (1.5)
- -----------------------------------------------------------------------------
Total APBO $ 8.9 $ 7.8
- -----------------------------------------------------------------------------
</TABLE>
The assumed discount rate used in determining the accumulated postretire-
ment benefit was 7.25% and the assumed health care cost trend rate was 10%
graded to 6% over 50 years. Compensation rates were assumed to increase 6% at
each year end. The health coverage for retirees and 65 and over is capped in
the year 2000. The health care cost trend rate assumption has an effect on the
amounts reported. An increase in the assumed health care cost trend rates
by one percentage point would increase the accumulated postretirement benefit
obligation as of December 31, 1996 by $178,000 and increase the accumulated
postretirement benefit cost for 1996 by $77,000.
5. Federal Income Taxes:
A reconciliation of the income tax attributable to continuing operations
computed at U.S. federal statutory tax rates to the income tax expense included
in the statement of operations follows:
<TABLE>
<S> <C> <C>
for years ended December 31, 1996 and 1995 1996 (in millions) 1995
- -----------------------------------------------------------------------------
Income tax computed at statutory tax rate $ 30.3 $ 27.4
Bond discount accrual and investment (4.0) (4.0)
Mutual company differential earnings amount 7.5 3.4
Other .6 5.9
- -----------------------------------------------------------------------------
Federal income tax $ 34.4 $ 32.7
- -----------------------------------------------------------------------------
</TABLE>
The components of the provision for income taxes on earnings included current
tax provisions of $32.6 million and $25.7 million for the year ended December
31, 1996 and 1995, respectively, and deferred tax expense of $1.8 million and
$7.0 million for the year ended December 31, 1996 and 1995, respectively.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
Deferred income tax assets (liabilities):
<TABLE>
<S> <C> <C>
1996 (in millions) 1995
- -----------------------------------------------------------------------------
Deferred policy acquisition costs $(110.9) $ (104.5)
Investments (8.1) (16.6)
Insurance liabilities 139.0 132.5
Unrealized appreciation of securities (11.2) (28.6)
Other (4.9) 5.5
- -----------------------------------------------------------------------------
Deferred income tax assets (liabilities) $ 3.9 $ (11.7)
- -----------------------------------------------------------------------------
</TABLE>
Federal income taxes paid were $39.0 million and $18.2 million for 1996 and
1995, respectively.
6. Reinsurance:
The Company is a party to various reinsurance contracts under which it receives
premiums as a reinsurer and reimburses the ceding companies for portions of the
claims incurred. At December 31, 1996 and 1995, life reinsurance assumed was
approximately 67% and 65%, respectively, of life insurance in force.
The Company cedes that portion of the total risk on an individual life in excess
of $1,000,000. For accident and health and disability policies, the Company has
established various limits of coverage it will retain on any one policy owner
and cedes the remainder of such coverage.
Certain statistical data with respect to reinsurance follows:
<TABLE>
<S> <C> <C>
for years ended December 31, 1996 and 1995 1996 (in millions) 1995
- -----------------------------------------------------------------------------
Direct statutory premiums $ 353.1 $ 352.3
Reinsurance assumed 214.8 209.7
Reinsurance ceded 109.8 103.8
- -----------------------------------------------------------------------------
Net premiums 458.1 458.2
- -----------------------------------------------------------------------------
Reinsurance recoveries $ 73.5 $ 77.3
- -----------------------------------------------------------------------------
</TABLE>
The Company accounts for all reinsurance agreements as transfers of risk. If
companies to which reinsurance has been ceded are unable to meet obligations
under the reinsurance agreements, the Company would remain liable. Five
reinsurers account for approximately 64% of the Company's December 31, 1996
ceded reserves for life and accident and health insurance. The remainder of such
ceded reserves is spread among numerous reinsurers.
7. Surplus Notes and Lines of Credit:
On February 16, 1996, the Company issued $75 million of Surplus Notes, due March
30, 2026. Interest is payable semi-annually on March 30, and September 30 at a
7.75% annual rate. Any payment of interest on or principal of the Notes may be
made only with the prior approval of the Commissioner of the Indiana Department
of Insurance. The Surplus Notes may not be redeemed at the option of AUL or any
holder of the Surplus Notes. Interest paid during 1996 was $3.6 million. The
Company has available a $125 million committed credit facility. No amounts have
been drawn as of December 31, 1996.
8. Commitments and Contingencies:
Various lawsuits have arisen in the ordinary course of the Company's business.
In each of the matters, the Company believes the ultimate resolution of such
litigation will not result in any material adverse impact to operations or
financial condition of the Company.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
9. Statutory Information:
The Company and its affiliate, State Life, prepare statutory financial state-
ments in accordance with accounting principles and practices prescribed or per-
mitted by the Indiana Department of Insurance. Prescribed statutory ac-
counting practices (SAP) currently include state laws, regulations and general
administrative rules applicable to all insurance enterprises domiciled in a par-
ticular state, as well as practices described in National Association of In-
surance Commissioners'(NAIC) publications.
A reconciliation of SAP surplus to GAAP surplus at December 31 follows:
<TABLE>
<S> <C> <C>
for years ended December 31, 1996 and 1995 1996 (in millions) 1995
- -----------------------------------------------------------------------------
SAP Surplus $ 407.9 $ 309.1
Deferred policy acquisition costs 362.7 343.2
Adjustments to policy reserves (278.3) (285.0)
Asset valuation and interest maintenance
reserves 106.4 105.2
Unrealized gain on invested assets 17.4 49.9
Surplus notes (75.0) ----
Deferred income taxes 16.8 15.6
Other, net 14.9 10.9
- -----------------------------------------------------------------------------
GAAP surplus $ 572.8 $ 548.9
- -----------------------------------------------------------------------------
</TABLE>
A reconciliation of SAP net income to GAAP net income for the years ended
December 31 follows:
<TABLE>
<S> <C> <C>
for years ended December 31, 1996 and 1995 1996 (in millions) 1995
- -----------------------------------------------------------------------------
SAP Income $ 51.4 $ 44.2
Deferred policy acquisition costs 19.5 20.1
Adjustments to policy reserves (15.0) (10.7)
Deferred income taxes (1.5) (6.7)
Other, net (2.3) (1.3)
- -----------------------------------------------------------------------------
GAAP net income $ 52.1 $ 45.6
- -----------------------------------------------------------------------------
</TABLE>
Life insurance companies are required to maintain certain amounts of assets on
deposit with state regulatory authorities. Such assets had an aggregate carrying
value of $4.5 million at December 31, 1996.
10. Fair Value of Financial Instruments:
The disclosure of fair value information about certain financial instruments
based primarily on quoted market prices. The fair values of short-term
investments and accrued investment income approximate the carrying amounts
reported in the balance sheets. Fair values for fixed maturity set and equity
securities, and surplus notes are based on quoted market prices where available.
For fixed maturity securities not actively traded, fair values are estimated
using values obtained from independent pricing services, or in the case of
private placements, are estimated by discounting expected future cash flows
using a current market rate applicable to the yield, credit quality and maturity
of the investments.
The fair value of the aggregate mortgage loan portfolio was estimated by
discounting the future cash flows using current rates at which similar loans
would be made to borrowers with similar credit ratings for similar maturities.
The estimated fair values of the liabilities for policyholder funds approximate
the statement values because interest rates credited to account balances
approximate current rates paid on similar funds are not generally guaranteed
beyond one year. Fair values for other insurance reserves are not required to be
disclosed. However, the estimated fair values for all insurance liabilities are
taken into consideration in the Company's overall management of interest rate
risk, which minimizes exposure to changing interest rates through the matching
of investment maturities with amounts due under insurance contracts. The fair
values of certain financial instruments along with their corresponding carrying
values at December 31, 1996 and 1995 follows.
<TABLE>
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
1996 (in millions) 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
- ---------------------------------------------------------------------------------------------------
Fixed maturity securities:
Available for sale $1,593.4 $1,593.4 $ 1,628.8 $ 1,628.8
Held to Maturity 3,013.6 3,144.6 2,982.4 3,255.6
Equity securities 15.2 15.2 19.0 19.0
Mortgage loans 1,114.6 1,186.3 1,124.7 1,229.1
Policy loans 143.5 143.5 141.6 141.6
Surplus notes 75.0 73.0 --- ----
- -------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
================================================================================
No dealer, salesman or any other person is authorized by the AUL
American 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 46282
STATEMENT OF ADDITIONAL INFORMATION
Dated: May 1, 1997
================================================================================
<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
Combined Balance Sheet - Assets, Liabilities and Policyowners'
Surplus as of December 31, 1996 and 1995
Combined Statement of Operations for the years ended December 31,
1996 and 1995
Combined Statement of Policyowners' Surplus for the years ended
December 31, 1996 and 1995
Combined Statement of Cash Flows for the years ended December 31,
1996 and 1995
Notes to Financial Statements
(b) Financial Statements of AUL American Individual Unit Trust
Registrant's Annual Report for the year ended December 31, 1996
is incorporated by reference thereto and contains the following
Financial Statements:
Message from the Chairman of the Board and President of AUL
American Series Fund to Participants in AUL American Individual
Unit Trust
Report of Independent Accountants
Statements of Net Assets as of December 31, 1996
Statements of Operations and Changes in Net Assets for the years
ended December 31, 1996 and December 31, 1995
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)
(d) Form of Participation Agreement with PBHG Insurance Series
Fund, Inc. (9)
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(9)
(b) Consent of Dechert Price & Rhoads(5)
(c) Powers of Attorney(4)(8)
11. Financial Statements of AUL American Individual Unit Trust(9)
12. Not applicable
13. Schedule for Computation of Performance Quotations(9)
14. Financial Data Schedule(9)
(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.
(9) Filed with Registrant's Post-Effective Amendment No. 5 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
Thomas E. Reilly Jr. Director and Chairman of the Finance
300 N. Meridian, Suite 1500 Committee
Indianapolis, Indiana
William R. Riggs* Director
G. David Sapp* Senior Vice President
Jerry D. Semler* Chairman of the Board, President, Chief
Executive Officer and Chairman of the
Executive Committee, 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>
</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 owns a 20% share of the stock of Princeton Reinsurance Managers, LLC, a
limited liability Delaware company. AUL's affiliation provides an alternative
marketing channel for its Reinsurance Division.
AUL Equity Sales Corporation ("ESC") is a wholly-owned subsidiary of AUL
organized under the laws of the State of Indiana in 1969 for the purpose of the
sale of mutual funds on an application-way basis only.
Registrant and AUL American 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 manage-
ment 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 separ-
ate investment portfolios. Substantially all of the "Fund's" shares were ori-
ginally purchased by AUL in connection with the initial capitalization of the
"Fund." As a result of providing the initial capital for the Portfolios, on
December 31, 1996, AUL owned 10.2% of the outstanding shares of the Fund's
Equity Portfolio and 27.2% of the Fund's Tactical Asset Allocation Portfolio.
Therefore, AUL may be able to control the outcome of any issue submitted to the
vote of shareholders of the Tactical Asset Allocation Portfolio.
American United Life Pooled Equity Fund B is a separate account of AUL organized
for the purpose of the sale of group variable annuity contracts.
Item 27. Number of Contractholders
As of December 31, 1996, AUL has issued 4,122 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 de-
fense 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 ad-
judged in such action, suit or proceeding, to be liable for negligence or mis-
conduct 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 corpor-
ation that such settlement be made and that such director or officer was not
guilty of negligence or misconduct. Such rights of indemnification and reim-
bursement 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 other-
wise.
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
46282.
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.
(b) The Registrant represents that the aggregate fees and charges deducted
under the variable annuity contracts are reasonable in relation
to the services rendered, the expenses expected to be incurred, and the
risks assumed by the Insurance Company.
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 30th
day of April, 1997.
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 30, 1997
Pursuant to the requirements of the Securities Act of 1933, this Post Effective
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Signature Title Date
- --------- ----- ----
_______________________________________________ Director April___, 1997
Steven C. Beering M.D.*
_______________________________________________ Director April___, 1997
Arthur L. Bryant*
_______________________________________________ Director April___, 1997
James E. Cornelius*
_______________________________________________ Director April___, 1997
James E. Dora*
_______________________________________________ Director April___, 1997
Otto N. Frenzel III*
_______________________________________________ Director April___, 1997
David W. Goodrich*
_______________________________________________ Director April___, 1997
William P. Johnson*
_______________________________________________ Director April___, 1997
James T. Morris*
6
<PAGE>
SIGNATURES (Continued)
Signature Title Date
- --------- ----- ----
_______________________________________________ Principal April___, 1997
James W. Murphy* Financial and
Accounting Officer
_______________________________________________ Director April___, 1997
R. Stephen Radcliffe*
_______________________________________________ Director April___, 1997
Thomas E. Reilly Jr*
_______________________________________________ Director April___, 1997
William R. Riggs*
_______________________________________________ Director April___, 1997
Yvonne H. Shaheen*
_______________________________________________ Director April____, 1997
Frank D. Walker*
</TABLE>
/s/ Richard A. Wacker
_____________________________________
*By: Richard A. Wacker as Attorney-in-fact
Date: April 30, 1997
* Powers of Attorney filed with AUL American Unit Trust's Registration
Statement (File No. 33-31375) and Post-Effective Amendment Nos. 1, 2, 3, 7, 10,
and 13 and incorporated by reference thereto.
7
<PAGE>
EXHIBIT LIST
Exhibit Number Name of Exhibit
-------------- ---------------
8(d) FORM OF PARTICIPATION AGREEMENT WITH
PBHG INSURANCE SERIES FUND, INC.
10(a) CONSENT OF INDEPENDENT ACCOUNTANTS
11 ANNUAL REPORT OF AUL AMERICAN INDIVIDUAL UNIT
TRUST FOR THE PERIOD ENDED DECEMBER 31, 1996
14 FINANCIAL DATA SCHEDULES
EXHIBIT 8(d)
FORM OF PARTICIPATION AGREEMENT WITH
PBHG INSURANCE SERIES FUND, INC.
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT made as of the 1st day of May, 1997, by and between the PBHG
INSURANCE SERIES FUND, INC. ("FUND"), a Maryland corporation, PILGRIM BAXTER &
ASSOCIATES, LTD. ("Adviser"), a Delaware corporation, AMERICAN UNITED LIFE
INSURANCE COMPANY ("LIFE COMPANY"), a life insurance company organized under the
laws of the State of Indiana.
WHEREAS, FUND is registered with the Securities and Exchange Commission ("SEC")
under the Investment Company Act of 1940, as amended (the "40 Act"), as an
open-end, diversified management investment company; and
WHEREAS, FUND is organized as a series fund comprised of several Portfolios
("Portfolios"), with those currently available being listed on Appendix A
hereto; and
WHEREAS, FUND was organized to act as the funding vehicle for certain variable
life insurance and/or variable annuity contracts ("Variable Contracts") offered
by life insurance companies through separate accounts ("Separate Accounts") of
such life insurance companies ("Participating Insurance Companies"); and
WHEREAS, FUND may also offer its shares to certain qualified pension and
retirement plans ("Qualified Plans"); and
WHEREAS, FUND will apply for an order from the SEC, granting Participating
Insurance Companies and their separate accounts exemptions from the provisions
of Sections 9(a), 13(a), 15(a) and 15(b) of the '40 Act, and Rules 6e-2(b)(15)
and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the
Portfolios of the FUND to be sold to and held by Variable Contract separate
accounts of both affiliated and unaffiliated Participating Insurance Companies
and Qualified Plans ("Exemptive Order"); and
WHEREAS, LIFE COMPANY has established or will establish one or more separate
accounts ("Separate Accounts") to offer Variable Contracts and is desirous of
having FUND as one of the underlying funding vehicles for such Variable
Contracts; and
WHEREAS, ADVISER is registered with the SEC as an investment adviser under the
Investment Advisers Act of 1940 and as a broker-dealer under the Securities
Exchange Act of 1934, as amended and acts as the FUND's investment adviser; and
WHEREAS, to the extent permitted by applicable insurance laws and
<PAGE>
2
regulations, LIFE COMPANY intends to purchase shares of FUND to fund the
aforementioned Variable Contracts and FUND is authorized to sell such shares to
LIFE COMPANY at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, LIFE COMPANY, FUND,
and ADVISER agree as follows:
Article I. SALE OF FUND SHARES
1.1 FUND agrees to make available to the Separate Accounts of LIFE COMPANY
shares of the selected Portfolios as listed on Appendix B for investment of
purchase payments of Variable Contracts allocated to the designated Separate
Accounts as provided in FUND's Registration Statement.
1.2 FUND agrees to sell to LIFE COMPANY those shares of the selected Portfolios
of FUND which LIFE COMPANY orders, executing such orders on a daily basis at the
net asset value next computed after receipt by FUND or its designee of the order
for the shares of FUND. For purposes of this Section 1.2, LIFE COMPANY shall be
the designee of FUND for receipt of such orders from the designated Separate
Account and receipt by such designee shall constitute receipt by FUND; provided
that LIFE COMPANY receives the order by 4:00 p.m. New York time and FUND
receives notice from LIFE COMPANY by telephone or facsimile (or by such other
means as FUND and LIFE COMPANY may agree in writing) of such order by 8:30 a.m.
New York time on the next following Business Day. "Business Day" shall mean any
day on which the New York Stock Exchange is open for trading and on which FUND
calculates its net asset value pursuant to the rules of the SEC.
1.3 FUND agrees to redeem on LIFE COMPANY's request, any full or fractional
shares of FUND held by LIFE COMPANY, executing such requests on a daily basis at
the net asset value next computed after receipt by FUND or its designee of the
request for redemption, in accordance with the provisions of this agreement and
FUND's Registration Statement. For purposes of this Section 1.3, LIFE COMPANY
shall be the designee of FUND for receipt of requests for redemption from the
designated Separate Account and receipt by such designee shall constitute
receipt by FUND; provided that LIFE COMPANY receives the request for redemption
by 4:00 p.m. New York time and FUND receives notice from LIFE COMPANY by
telephone or facsimile (or by such other means as FUND and LIFE COMPANY may
agree in writing) of such request for redemption by 8:30 a.m. New York time on
the next following Business Day.
1.4 FUND shall furnish, on or before the ex-dividend date, notice to LIFE
COMPANY of any income dividends or capital gain distributions payable on the
shares of any Portfolio of FUND. LIFE COMPANY hereby elects to receive all such
income
<PAGE>
3
dividends and capital gain distributions as are payable on a Portfolio's shares
in additional shares of the Portfolio. FUND shall notify LIFE COMPANY or its
designee of the number of shares so issued as payment of such dividends and
distributions.
1.5 FUND shall make the net asset value per share for the selected Portfolio(s)
available to LIFE COMPANY on a daily basis as soon as reasonably practicable
after the net asset value per share is calculated but shall use its best efforts
to make such net asset value available by 7:00 p.m. New York time. If FUND
provides LIFE COMPANY with materially incorrect share net asset value
information through no fault of LIFE COMPANY, LIFE COMPANY on behalf of the
Separate Accounts, shall be entitled to an adjustment to the number of shares
purchased or redeemed to reflect the correct share net asset value. Any material
error in the calculation of net asset value per share, dividend or capital gain
information shall be reported promptly upon discovery to LIFE COMPANY.
1.6 At the end of each Business Day, LIFE COMPANY shall use the information
described in Section 1.5 to calculate Separate Account unit values for the day.
Using these unit values, LIFE COMPANY shall process each such Business Day's
Separate Account transactions based on requests and premiums received by it by
the close of trading on the floor of the New York Stock Exchange (currently 4:00
p.m. New York time) to determine the net dollar amount of FUND shares which
shall be purchased or redeemed at that day's closing net asset value per share.
The net purchase or redemption orders so determined shall be transmitted to FUND
by LIFE COMPANY by 8:30 a.m. New York Time on the Business Day next following
LIFE COMPANY's receipt of such requests and premiums in accordance with the
terms of Sections 1.2 and 1.3 hereof.
1.7 If LIFE COMPANY's order requests the purchase of FUND shares, LIFE Company
shall pay for such purchase by wiring federal funds to FUND or its designated
custodial account on the day the order is transmitted by LIFE COMPANY to FUND.
If LIFE COMPANY's order requests a net redemption resulting in a payment of
redemption proceeds to LIFE COMPANY, FUND shall wire the redemption proceeds to
LIFE COMPANY ordinarily on the next Business Day. In any event, proceeds shall
be wired to LIFE COMPANY within three Business Days or such longer period
permitted by the '40 Act or the rules, orders or regulations thereunder and FUND
shall notify the person designated in writing by LIFE COMPANY as the recipient
for such notice of any delay in wiring redemption proceeds beyond the next
Business Day by 3:00 p.m. New York Time the same Business Day that LIFE COMPANY
transmits the redemption order to FUND.
1.8 FUND agrees that all shares of the Portfolios of FUND will be sold only to
Participating Insurance Companies which have agreed to participate in FUND to
fund
<PAGE>
4
their Separate Accounts and/or to Qualified Plans, all in accordance with the
requirements of Section 817(h) of the Internal Revenue Code of 1986, as amended
("Code") and Treasury Regulation 1.817-5. Shares of the Portfolios of FUND will
not be sold directly to the general public.
1.9 FUND may refuse to sell shares of any Portfolio to any person, or suspend or
terminate the offering of the shares of or liquidate any Portfolio of FUND if
such action is required by law or by regulatory authorities having jurisdiction
or is, in the sole discretion of the Board of Directors of the FUND (the
"Board"), acting in good faith and in light of its duties under federal and any
applicable state laws, deemed necessary, desirable or appropriate and in the
best interests of the shareholders of such Portfolios.
1.10 Issuance and transfer of Portfolio shares will be by book entry only. Stock
certificates will not be issued to LIFE COMPANY or the Separate Accounts. Shares
ordered from Portfolio will be recorded in appropriate book entry titles for the
Separate Accounts.
Article II. REPRESENTATIONS AND WARRANTIES
2.1 LIFE COMPANY represents and warrants that it is an insurance company duly
organized and in good standing under the laws of the State of Indiana and that
it has legally and validly established each Separate Account as a segregated
asset account under such laws, and that Life Company, the principal underwriter
for the Variable Contracts, is registered as a broker-dealer under the
Securities Exchange Act of 1934 (the "'34 Act").
2.2 LIFE COMPANY represents and warrants that it has registered or, prior to any
issuance or sale of the Variable Contracts, will register each Separate Account
as a unit investment trust ("UIT") in accordance with the provisions of the '40
Act and cause each Separate Account to remain so registered to serve as a
segregated asset account for the Variable Contracts, unless an exemption from
registration is available.
2.3 LIFE COMPANY represents and warrants that the Variable Contracts will be
registered under the Securities Act of 1933 (the "'33 Act") unless an exemption
from registration is available prior to any issuance or sale of the Variable
Contracts and that the Variable Contracts will be issued and sold in compliance
in all material respects with all applicable federal and state securities laws
and further that the sale of the Variable Contracts shall comply in all material
respects with applicable state insurance law suitability requirements.
2.4 LIFE COMPANY represents and warrants that the Variable Contracts are
currently and at the time of issuance will be treated as life insurance,
endowment or
<PAGE>
5
annuity contracts, as pertinent, under applicable provisions of the Code, that
it will maintain such treatment and that it will notify FUND immediately upon
having a reasonable basis for believing that the Variable Contracts have ceased
to be so treated or that they might not be so treated in the future.
2.5 FUND represents and warrants that the Fund shares offered and sold pursuant
to this Agreement will be registered under the '33 Act and sold in accordance
with all applicable federal and state laws, and FUND shall be registered under
the '40 Act prior to and at the time of any issuance or sale of such shares.
FUND, subject to Section 1.9 above, shall amend its registration statement under
the '33 Act and the '40 Act from time to time as required in order to effect the
continuous offering of its shares. FUND shall register and qualify its shares
for sale in accordance with the laws of the various states only if and to the
extent deemed advisable by FUND.
2.6 FUND represents and warrants that each Portfolio will comply with the
diversification requirements set forth in Section 817(h) of the Code, and the
rules and regulations thereunder, including without limitation Treasury
Regulation 1.817-5, and will notify LIFE COMPANY immediately upon having a
reasonable basis for believing any Portfolio has ceased to comply or might not
so comply and will immediately take all reasonable steps to adequately diversify
the Portfolio to achieve compliance.
2.7 FUND represents and warrants that each Portfolio invested in by the Separate
Account intends to elect to be treated as a "regulated investment company" under
Subchapter M of the Code, and each Portfolio will qualify for such treatment for
each taxable year and will notify LIFE COMPANY immediately upon having a
reasonable basis for believing it has ceased to so qualify or might not so
qualify in the future.
2.8. ADVISER represents and warrants that it is and will remain duly registered
and licensed in all material respects under all applicable federal and state
securities laws and shall perform its obligations hereunder in compliance in all
material respects with any applicable state and federal securities laws. Adviser
represents and warrants that each Portfolio shall be managed consistent of its
investment objective or objectives, investment policies, and investment
restrictions as described in the Fund's prospectus and registration statement,
as amended or modified from time to time.
Article III. PROSPECTUS AND PROXY STATEMENTS
3.1 FUND shall prepare and be responsible for filing with the SEC and any state
regulators requiring such filing all shareholder reports, notices, proxy
materials (or similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional information of FUND. FUND
shall bear the costs of registration
<PAGE>
5
and qualification of shares of the Portfolios, preparation and filing of the
documents listed in this Section 3.1 and all taxes and filing fees to which an
issuer is subject on the issuance and transfer of its shares.
3.2 At least annually, FUND or its designee shall provide LIFE COMPANY, free of
charge, with as many copies of the current prospectus for the shares of the
Portfolios as LIFE COMPANY may reasonably request for distribution to existing
Variable Contract owners whose Variable Contracts are funded by such shares.
FUND or its designee shall provide LIFE COMPANY, at LIFE COMPANY's expense, with
as many copies of the current prospectus for the shares as LIFE COMPANY may
reasonably request for distribution to prospective purchasers of Variable
Contracts. If requested by LIFE COMPANY in lieu thereof, FUND or its designee
shall provide such documentation (including a "camera ready" copy of the new
prospectus as set in type or, at the request of LIFE COMPANY, as a diskette in
the form sent to the financial printer) and other assistance as is reasonably
necessary in order for the parties hereto once a year (or more frequently if the
prospectus for the shares is supplemented or amended) to have the prospectus for
the Variable Contracts and the prospectus for the FUND shares printed together
in one document. The expenses of such printing will be apportioned between (a)
LIFE COMPANY and (b) FUND in proportion to the number of pages of the Variable
Contract and FUND's prospectus, taking account of other relevant factors
affecting the expense of printing, such as covers, columns, graphs and charts;
FUND to bear the cost of printing the FUND's prospectus portion of such document
for distribution only to owners of existing Variable Contracts funded by the
FUND's shares and LIFE COMPANY to bear the expense of printing the portion of
such documents relating to the Separate Account; provided, however, LIFE COMPANY
shall bear all printing expenses of such combined documents where used for
distribution to prospective purchasers or to owners of existing Variable
Contracts not funded by the FUND's shares. In the event that LIFE COMPANY
requests that FUND or its designee provide FUND's prospectus in a "camera ready"
or diskette format, FUND shall be responsible for providing the prospectus in
the format in which it is accustomed to formatting prospectuses and shall bear
the expense of providing the prospectus in such format (e.g. typesetting
expenses), and LIFE COMPANY shall bear the expense of adjusting or changing the
format to conform with any of its prospectuses.
3.3 FUND will provide LIFE COMPANY with at least one complete copy of all
prospectuses, statements of additional information, annual and semi-annual
reports, proxy statements, exemptive applications and all amendments or
supplements to any of the above that relate to the Portfolios promptly after the
filing of each such document with the SEC or other regulatory authority. LIFE
COMPANY will provide FUND with at least one complete copy of all prospectuses,
statements of additional information, annual and semi-annual reports, proxy
statements, exemptive applications and all amendments or supplements to any of
the above that relate to a Separate Account
<PAGE>
7
promptly after the filing of each such document with the SEC or other regulatory
authority.
3.4 The FUND, at its expense, shall provide the LIFE COMPANY with copies of its
proxy materials, periodic reports to shareholders and other communications to
shareholders in such quantity as the LIFE COMPANY shall reasonably require for
purposes of distributing to owners of Variable Contacts issued by the LIFE
COMPANY. The FUND, at the LIFE COMPANY's expense, shall provide the LIFE COMPANY
with copies of its periodic reports to shareholders and other communications to
shareholders in such quantity as the LIFE COMPANY shall reasonably request for
use in connection with offering the Variable Contracts issued by the LIFE
COMPANY. If requested by the LIFE COMPANY in lieu thereof, the FUND shall
provide such documentation (including a final copy of the FUND's proxy
materials, periodic reports to shareholders and other communications to
shareholders, as set in type or in camera-ready copy) and other assistance as
reasonably necessary in order for the LIFE COMPANY to print such shareholder
communications for distribution to owners of Variable Contacts issued by the
LIFE COMPANY.
Article IV. SALES MATERIALS
4.1 LIFE COMPANY will furnish, or will cause to be furnished, to FUND and
ADVISER, each piece of sales literature or other promotional material in which
FUND or ADVISER is named, at least ten (10) Business Days prior to its intended
use. No such material will be used if FUND or ADVISER objects to its use in
writing within ten (10) Business Days after receipt of such material.
Notwithstanding the above, FUND and ADVISER agree that total return information
of the FUND's Portfolios may be used in sales literature or other promotional
material developed by LIFE COMPANY without first furnishing such sales
literature or other promotional material to FUND and ADVISER, provided that such
total return information is derived from the prospectus or registration
statement of the FUND or from reports provided by FUND or ADVISER or the
designee of either to LIFE COMPANY and provided that FUND and ADVISER have been
provided prior to its intended use within the time period described above the
form of the sales literature or other promotional material that contains or will
contain the total return information, and that neither FUND nor ADVISER has
objected to its use in writing and provided further that LIFE COMPANY shall be
responsible for using such total return information in conformity with the
information it is provided.
4.2 FUND and ADVISER will furnish, or will cause to be furnished, to LIFE
COMPANY, each piece of sales literature or other promotional material in which
LIFE COMPANY or its Separate Accounts are named, at least ten (10) Business Days
prior to its intended use. No such material will be used if LIFE COMPANY objects
to its use in writing within ten (10) Business Days after receipt of such
material.
<PAGE>
8
4.3 FUND and its affiliates and agents shall not give any information or make
any representations on behalf of LIFE COMPANY or concerning LIFE COMPANY, the
Separate Accounts, or the Variable Contracts issued by LIFE COMPANY, other than
the information or representations contained in a registration statement or
prospectus for such Variable Contracts, as such registration statement and
prospectus may be amended or supplemented from time to time, or in reports of
the Separate Accounts or reports prepared for distribution to owners of such
Variable Contracts, or in sales literature or other promotional material
approved by LIFE COMPANY or its designee, except with the written permission of
LIFE COMPANY.
4.4 LIFE COMPANY and its affiliates and agents shall not give any information or
make any representations on behalf of FUND or concerning FUND other than the
information or representations contained in a registration statement or
prospectus for FUND, as such registration statement and prospectus may be
amended or supplemented from time to time, or in sales literature or other
promotional material supplied or approved by FUND or its designee, except with
the written permission of FUND or its designee.
4.5 For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without limitation,
advertisements (such as material published, or designed for use, in a newspaper,
magazine or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures or other public media),
sales literature (such as any written communication distributed or made
generally available to customers or the public, including brochures, circulars,
research reports, market letters, form letters, seminar texts, or reprints or
excerpts of any other advertisement, sales literature, or published article),
educational or training materials or other communications distributed or made
generally available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports and
proxy materials, and any other material constituting sales literature or
advertising under National Association of Securities Dealers, Inc. ("NASD")
rules, the '40 Act or the '33 Act.
Article V. POTENTIAL CONFLICTS
5.1 The parties acknowledge that FUND will be filing an application with the SEC
to request an order granting relief from various provisions of the '40 Act and
the rules thereunder to the extent necessary to permit FUND shares to be sold to
and held by Variable Contract separate accounts of both affiliated and
unaffiliated Participating Insurance Companies and Qualified Plans. It is
anticipated that the Exemptive Order, when and if issued, shall require FUND and
each Participating Insurance Company to
<PAGE>
9
comply with conditions and undertakings substantially as provided in this
Section 5. If the Exemptive Order imposes conditions materially different from
those provided for in this Section 5, the conditions and undertakings imposed by
the Exemptive Order of which Life Company is provided with a copy shall govern
this Agreement and the parties hereto agree to amend this Agreement consistent
with the Exemptive Order. The Fund will not enter into a participation agreement
with any other Participating Insurance Company unless it imposes the same
conditions and undertakings as are imposed on LIFE COMPANY hereby.
5.2 The Board will monitor FUND for the existence of any material irreconcilable
conflict between the interests of Variable Contract owners of all separate
accounts investing in FUND. An irreconcilable material conflict may arise for a
variety of reasons, which may include: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling or any similar action by insurance, tax or securities regulatory
authorities; (c) an administrative or judicial decision in any relevant
proceeding; (d) the manner in which the investments of FUND are being managed;
(e) a difference in voting instructions given by Variable Contract owners; (f) a
decision by a Participating Insurance Company to disregard the voting
instructions of Variable Contract owners and (g) if applicable, a decision by a
Qualified Plan to disregard the voting instructions of plan participants.
5.3 LIFE COMPANY will report any potential or existing conflicts to the Board.
LIFE COMPANY will be responsible for assisting the Board in carrying out its
duties in this regard by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. The responsibility
includes, but is not limited to, an obligation by the LIFE COMPANY to inform the
Board whenever it has determined to disregard Variable Contract owner voting
instructions. These responsibilities of LIFE COMPANY will be carried out with a
view only to the interests of the Variable Contract owners.
5.4 If a majority of the Board or majority of its disinterested Directors,
determines that a material irreconcilable conflict exists affecting LIFE
COMPANY, LIFE COMPANY, at its expense and to the extent reasonably practicable
(as determined by a majority of the Board's disinterested Directors), will take
any steps necessary to remedy or eliminate the irreconcilable material conflict,
including; (a) withdrawing the assets allocable to some or all of the Separate
Accounts from FUND or any Portfolio thereof and reinvesting those assets in a
different investment medium, which may include another Portfolio of FUND, or
another investment company; (b) submitting the question as to whether such
segregation should be implemented to a vote of all affected Variable Contract
owners and as appropriate, segregating the assets of any appropriate group (i.e
variable annuity or variable life insurance Contract owners of one
<PAGE>
10
or more Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected Variable Contract owners the option of
making such a change; and (c) establishing a new registered management
investment company (or series thereof) or managed separate account. If a
material irreconcilable conflict arises because of LIFE COMPANY's decision to
disregard Variable Contract owner voting instructions, and that decision
represents a minority position or would preclude a majority vote, LIFE COMPANY
may be required, at the election of FUND, to withdraw the Separate Account's
investment in FUND, and no charge or penalty will be imposed as a result of such
withdrawal. The responsibility to take such remedial action shall be carried out
with a view only to the interests of the Variable Contract owners.
For the purposes of this Section 5.4, a majority of the disinterested members of
the Board shall determine whether or not any proposed action adequately remedies
any irreconcilable material conflict but in no event will FUND or ADVISER (or
any other investment adviser of FUND) be required to establish a new funding
medium for any Variable Contract. Further, LIFE COMPANY shall not be required by
this Section 5.4 to establish a new funding medium for any Variable Contracts if
any offer to do so has been declined by a vote of a majority of Variable
Contract owners materially and adversely affected by the irreconcilable material
conflict.
5.5 The Board's determination of the existence of an irreconcilable material
conflict and its implications shall be made known promptly and in writing to
LIFE COMPANY.
5.6 No less than annually, LIFE COMPANY shall submit to the Board such reports,
materials or data as the Board may reasonably request so that the Board may
fully carry out its obligations. Such reports, materials, and data shall be
submitted more frequently if deemed appropriate by the Board.
Article VI. VOTING
6.1 LIFE COMPANY will provide pass-through voting privileges to all owners of
Variable Contract funded by Separate Accounts that are registered with the SEC
as investment companies so long as the SEC continues to interpret the '40 Act as
requiring pass-through voting privileges for such Variable Contract owners.
Accordingly, LIFE COMPANY, where applicable, will vote shares of the Portfolio
held in its registered Separate Accounts in a manner consistent with voting
instructions timely received from its Variable Contract owners. LIFE COMPANY
will be responsible for following reasonable instructions provided by Fund so
that each of its Separate Accounts that participates in FUND calculates voting
privileges in a manner consistent with other Participating Insurance Companies.
LIFE COMPANY will vote shares held by its registered Separate Accounts for which
it has not received timely voting instructions
<PAGE>
11
in the same proportion as its votes those shares for which it has received
voting instructions.
6.2 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or if Rule 6e-3
is adopted, to provide exemptive relief from any provision of the '40 Act or the
rules thereunder with respect to mixed and shared funding on terms and
conditions materially different from any exemptions granted in the Exemptive
Order, then FUND, and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rule 6e-2 and Rule
6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such Rules are
applicable.
Article VII. INDEMNIFICATION
7.1 Indemnification by LIFE COMPANY. LIFE COMPANY agrees to indemnify and hold
harmless FUND, ADVISER and each of their directors, principals, officers,
employees and agents and each person, if any, who controls FUND or ADVISER
within the meaning of Section 15 of the '33 Act (collectively, the "Indemnified
Parties" for purposes of this Article VII) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of LIFE COMPANY, which consent shall not be unreasonably withheld) or
litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements:
(a) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the Registration Statement or
prospectus for the Variable Contracts or contained in the Variable Contracts (or
any amendment or supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with information furnished
to LIFE COMPANY by or on behalf of FUND or Adviser for use in the registration
statement or prospectus for the Variable Contracts or in the Variable Contracts
or sales literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Variable Contracts or FUND shares; or
(b) arise out of or as a result of statements or representations (other than
statements or representations contained in the registration statement,
prospectus or sales literature of FUND not supplied by LIFE COMPANY,
<PAGE>
12
or persons under its control) or wrongful conduct of LIFE COMPANY or persons
under its control, with respect to the sale or distribution of the Variable
Contracts or FUND shares; or
(c) arise out of any untrue statement or alleged untrue statement of a material
fact contained in a registration statement, prospectus, or sales literature of
FUND or any amendment thereof or supplement thereto or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if such statement or
omission or such alleged statement or omission was made in reliance upon and in
conformity with information furnished to FUND by or on behalf of LIFE COMPANY;
or
(d) arise as a result of any failure by LIFE COMPANY to provide substantially
the services and furnish the materials under the terms of this Agreement; or
(e) arise out of or result from any material breach of any representation and/or
warranty made by LIFE COMPANY in this Agreement or arise out of or result from
any other material breach of this Agreement by LIFE COMPANY.
7.2 LIFE COMPANY shall not be liable under this indemnification provision with
respect to any losses, claims, damages, liabilities or litigation incurred or
assessed against an Indemnified Party as such may arise from such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations or duties under this Agreement.
7.3 LIFE COMPANY shall not be liable under this indemnification provision with
respect to any claim made against an Indemnified Party unless such Indemnified
Party shall have notified LIFE COMPANY in writing within a reasonable time after
the summons or other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify LIFE COMPANY of any such claim shall not relieve
LIFE COMPANY from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against an
Indemnified Party, LIFE COMPANY shall be entitled to participate at its own
expense in the defense of such action. LIFE COMPANY also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from LIFE COMPANY to such party of LIFE COMPANY's election
to
<PAGE>
13
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and LIFE COMPANY will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
7.4 Indemnification by ADVISER. ADVISER agrees to indemnify and hold harmless
LIFE COMPANY and each of its directors, officers, employees, and agents and each
person, if any, who controls LIFE COMPANY within the meaning of Section 15 of
the '33 Act (collectively, the "Indemnified Parties" for the purposes of this
Article VII) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of ADVISER which consent
shall not be unreasonably withheld) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
or regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements:
(a) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement or
prospectus or sales literature of FUND (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to ADVISER or FUND by or on
behalf of LIFE COMPANY for use in the registration statement or prospectus for
FUND or in sales literature (or any amendment or supplement) or otherwise for
use in connection with the sale of the Variable Contracts or FUND shares; or
(b) arise out of or as a result of statements or representations (other than
statements or representations contained in the registration statement,
prospectus or sales literature for the Variable Contracts not supplied by
ADVISER or persons under its control) or wrongful conduct of FUND or ADVISER or
persons under their control, with respect to the sale or distribution of the
Variable Contracts or FUND shares; or
(c) arise out of any untrue statement or alleged untrue statement of a
<PAGE>
14
material fact contained in a registration statement, prospectus, or sales
literature covering the Variable Contracts, or any amendment thereof or
supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with information
furnished to LIFE COMPANY for inclusion therein by or on behalf of FUND; or
(d) arise as a result of (i) a failure by FUND to provide substantially the
services and furnish the materials under the terms of this Agreement; or (ii) a
failure by a Portfolio(s) invested in by the Separate Account to comply with the
diversification requirements of Section 817(h) of the Code; or (iii) a failure
by a Portfolio(s) invested in by the Separate Account to qualify as a "regulated
investment company" under Subchapter M of the Code; or
(e) arise out of or result from any material breach of any representation and/or
warranty made by ADVISER or FUND in this Agreement or arise out of or result
from any other material breach of this Agreement by ADVISER or FUND.
7.5 ADVISER shall not be liable under this indemnification provision with
respect to any losses, claims, damages, liabilities or litigation to which an
Indemnified Party would otherwise be subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement.
7.6 ADVISER shall not be liable under this indemnification provision with
respect to any claim made against an Indemnified Party unless such Indemnified
Party shall have notified ADVISER in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify ADVISER of any such claim shall not relieve
ADVISER from any liability which it may have to the Indemnified Party against
whom such action is brought otherwise than on account of this indemnification
provision. In case any such action is brought against the Indemnified Parties,
ADVISER shall be entitled to participate at its own expense in the defense
thereof. ADVISER also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from ADVISER
to
<PAGE>
15
such party of ADVISER's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and ADVISER will not be liable to such party under this Agreement for any legal
or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
Article VIII. TERM; TERMINATION
8.1 This Agreement shall be effective as of the date hereof and shall continue
in force until terminated in accordance with the provisions herein.
8.2 This Agreement shall terminate in accordance with the following provisions:
(a) At the option of LIFE COMPANY or FUND at any time from the date hereof upon
60 days' notice, unless a shorter time is agreed to by the parties;
(b) At the option of LIFE COMPANY, if FUND shares are not reasonably available
to meet the requirements of the Variable Contracts as determined by LIFE
COMPANY. Prompt notice of election to terminate shall be furnished by LIFE
COMPANY, said termination to be effective ten days after receipt of notice
unless FUND makes available a sufficient number of shares to reasonably meet the
requirements of the Variable Contracts within said ten-day period;
(c) At the option of LIFE COMPANY, upon the institution of formal proceedings
against FUND by the SEC, the NASD, or any other regulatory body, the expected or
anticipated ruling, judgment or outcome of which would, in LIFE COMPANY's
reasonable judgment, materially impair FUND's ability to meet and perform FUND's
obligations and duties hereunder. Prompt notice of election to terminate shall
be furnished by LIFE COMPANY with said termination to be effective upon receipt
of notice;
(d) At the option of FUND, upon the institution of formal proceedings against
LIFE COMPANY by the SEC, the NASD, or any other regulatory body, the expected or
anticipated ruling, judgment or outcome of which would, in FUND's reasonable
judgment, materially impair LIFE COMPANY's ability to meet and perform its
obligations and duties hereunder. Prompt notice of election to terminate shall
be furnished by FUND with said termination to be
<PAGE>
16
effective upon receipt of notice;
(e) In the event FUND's shares are not registered, issued or sold in accordance
with applicable state or federal law, or such law precludes the use of such
shares as the underlying investment medium of Variable Contracts issued or to be
issued by LIFE COMPANY. Termination shall be effective upon such occurrence
without notice;
(f) At the option of FUND if the Variable Contracts cease to qualify as annuity
contracts or life insurance contracts, as applicable, under the Code, or if FUND
reasonably believes that the Variable Contracts may fail to so qualify.
Termination shall be effective upon receipt of notice by LIFE COMPANY;
(g) At the option of LIFE COMPANY, upon FUND's breach of any material provision
of this Agreement, which breach has not been cured to the satisfaction of LIFE
COMPANY within ten days after written notice of such breach is delivered to
FUND;
(h) At the option of FUND, upon LIFE COMPANY's breach of any material provision
of this Agreement, which breach has not been cured to the satisfaction of FUND
within ten days after written notice of such breach is delivered to LIFE
COMPANY;
(i) At the option of FUND, if the Variable Contracts are not registered, issued
or sold in accordance with applicable federal and/or state law. Termination
shall be effective immediately upon such occurrence without notice;
(j) In the event this Agreement is assigned without the prior written consent of
LIFE COMPANY, FUND, and ADVISER, termination shall be effective immediately upon
such occurrence without notice.
(k) At the option of either party, in the event of a material irreconcilable
conflict as provided in Article V.
8.3 Notwithstanding any termination of this Agreement pursuant to Section 8.2
hereof, FUND at its option may elect to continue to make available additional
FUND shares, as provided below, for so long as FUND desires pursuant to the
terms and conditions of this Agreement, for all Variable Contracts in effect on
the effective date of
<PAGE>
17
termination of this Agreement (hereinafter referred to as "Existing Contracts").
Specifically, without limitation, if FUND so elects to make additional FUND
shares available, the owners of the Existing Contracts or LIFE COMPANY,
whichever shall have legal authority to do so, shall be permitted to reallocate
investments in FUND, redeem investments in FUND and/or invest in FUND upon the
payment of additional premiums under the Existing Contracts. In the event of a
termination of this Agreement pursuant to Section 8.2 hereof, FUND and ADVISER,
as promptly as is practicable under the circumstances, shall notify LIFE COMPANY
whether FUND elects to continue to make FUND shares available after such
termination. If FUND shares continue to be made available after such
termination, the provisions of this Agreement shall remain in effect and
thereafter either FUND or LIFE COMPANY may terminate the Agreement, as so
continued pursuant to this Section 8.3, upon sixty (60) days prior written
notice to the other party.
8.4 Except as necessary to implement Variable Contract owner initiated
transactions, or as required by state insurance laws or regulations, LIFE
COMPANY shall not redeem the shares attributable to the Variable Contracts (as
opposed to the shares attributable to LIFE COMPANY's assets held in the Separate
Accounts), and LIFE COMPANY shall not prevent Variable Contract owners from
allocating payments to a Portfolio that was otherwise available under the
Variable Contracts until thirty (30) days after the LIFE COMPANY shall have
notified FUND of its intention to do so.
Article IX. NOTICES
Any notice hereunder shall be given by registered or certified mail return
receipt requested to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify in
writing to the other party.
If to FUND:
PBHG Insurance Series Fund, Inc. 1255 Drummers Lane, Suite 300 Wayne, PA 19087
Attention: Mr. Brian F. Bereznak
With a copy to:
PBHG Insurance Series Fund, Inc. 1255 Drummers Lane, Suite 300 Wayne, PA 19087
Attention: John M. Zerr, Esq.
<PAGE>
18
If to the ADVISER:
PBHG Insurance Series Fund, Inc. 1255 Drummers Lane, Suite 300 Wayne, PA 19087
Attention: Mr. Brian F. Bereznak
With a copy to:
PBHG Insurance Series Fund, Inc. 1255 Drummers Lane, Suite 300 Wayne, PA 19087
Attention: John M. Zerr, Esq.
If to LIFE COMPANY:
American United Life Insurance Company One American Square Indianapolis, IN
46282 Attention: Richard A. Wacker, Esq.
Notice shall be deemed given on the date of receipt by the addressee as
evidenced by the return receipt.
Article X. MISCELLANEOUS
10.1 The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or otherwise
affect their construction or effect.
10.2 This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together shall constitute one and the same instrument.
10.3 If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of the Agreement shall not
be affected thereby.
10.4 This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the Commonwealth of Pennsylvania. It
shall
<PAGE>
19
also be subject to the provisions of the federal securities laws and the rules
and regulations thereunder and to any orders of the SEC granting exemptive
relief therefrom and the conditions of such orders.
10.5 It is understood and expressly stipulated that neither the shareholders of
shares of any Portfolio nor the Directors or officers of FUND or any Portfolio
shall be personally liable hereunder. No Portfolio shall be liable for the
liabilities of any other Portfolio. All persons dealing with FUND or a Portfolio
must look solely to the property of FUND or that Portfolio, respectively, for
enforcement of any claims against FUND or that Portfolio. It is also understood
that each of the Portfolios shall be deemed to be entering into a separate
Agreement with LIFE COMPANY so that it is as if each of the Portfolios had
signed a separate Agreement with LIFE COMPANY and that a single document is
being signed simply to facilitate the execution and administration of the
Agreement.
10.6 Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the SEC, the NASD and
state insurance regulators) and shall permit such authorities reasonable access
to its books and records in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby.
10.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
10.8 No provision of this Agreement may be amended or modified in any manner
except by a written agreement properly authorized and executed by FUND, ADVISER
and the LIFE COMPANY.
<PAGE>
20
IN WITNESS WHEREOF, the parties have caused their duly authorized officers to
execute this Fund Participation Agreement as of the date and year first above
written.
PBHG INSURANCE SERIES FUND, INC.
By: /s/ Lee T. Cummings
Name: Lee T. Cummings
Title: Vice President
PILGRIM BAXTER & ASSOCIATES, LTD.
By: /s/ Eric C. Schneider
Name: Eric C. Schneider
Title: CFO
AMERICAN UNITED LIFE
INSURANCE COMPANY
By: /s/ Richard A. Wacker
Name: Richard A. Wacker
Title: Associate General Counsel
<PAGE>
Appendix A
PBHG Insurance Series Fund, Inc. - Portfolios*
PBHG Growth II Portfolio
PBHG Technology & Communications Portfolio
* Expected to begin investment operations on May 1, 1997.
<PAGE>
Appendix B
Separate Accounts and Associated Contracts
<TABLE>
<S> <C> <C>
Name of Separate Account and Date Contracts Funded
Established by the AUL Exec. Comm. By Separate Account Selected Portfolios
- ---------------------------------- ------------------- ---------------------
AUL American Unit Trust Registered 401, 403(b), Growth II
(established 8/17/89) 457 & 408 contracts Technology &
Communications
Group Retirement Annuity Separate Qualified 401 contracts Growth II
Account I (established 8/17/89) Technology &
Communications
Group Retirement Annuity Separate Qualified 401 contracts Growth II
Account II (established 8/17/89) Technology &
Communications
</TABLE>
<PAGE>
8
EXHIBIT 10(a)
Consent of Independent Accountants
Board of Directors
American United Life Insurance Company(R)
Indianapolis, Indiana
We consent to the incorporation by reference in Post Effective Amendment No. 5
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 31, 1997,
on our audit of the financial statements of the Trust, for the year ended
December 31, 1996 and for the two years in the period then ended which report is
is included in the annual report for the Trust.
We also consent to the inclusion in Part B of the Registration Statement of our
report dated February 19, 1997, on our audits of the financial statements of
American United Life Insurance Company(R) (AUL) as of December 31, 1996 and 1995
and for the two years then ended.
We also consent to the reference to our Firm as the independent accountants for
the Trust and as the independent accountants for AUL.
/s/ Coopers & Lybrand L.L.P.
Indianapolis, Indiana
April 30, 1997
10
<PAGE>
AUL AMERICAN INDIVIDUAL UNIT TRUST
ANNUAL REPORT
DECEMBER 31, 1996
AUL (R)
This report may be used as sales literature only when accompanied or preceded by
effective prospectuses of AUL American Series Fund, Inc. and AUL American
Individual Unit Trust, which relate sales expense and other pertinent
information.
<PAGE>
1
A Message from
The Chairman of the Board and President of
AUL American Series Fund, Inc.
To Participants in AUL American Individual Unit Trust
The U.S. economy continued its moderate expansion during 1996. Investors
began the year fearing that the economic growth rate would accelerate, forcing
the Federal Reserve to tighten monetary policy. However, GDP (gross domestic
product) grew at a sustainable pace during the year while core inflation
remained subdued. This seemed to have the effect of calming investors and
reduced prospects for monetary tightening by the Federal Reserve in the near
term.
The stock market experienced another rewarding year in 1996 with the Dow
Jones Industrial Average and the S&P 500 (commonly quoted equity indices)
establishing new highs throughout the year. Throughout 1996, investors continued
to react positively to the combination of slow growth and moderate inflation.
However, not all stocks had identical performance. These major equity indices
were driven by the superior returns of large capitalization growth companies
while small and medium size companies lagged conspicuously.
Long maturity Treasury bonds yielded just below 6% at the beginning of
1996. By midyear, however, investors were increasingly concerned about the
inflationary impact of rapid employment growth in the U.S. economy. Long
maturity Treasury bond yields increased to more than 7%. Although a brief market
rally occurred in the fourth quarter, year-end intermediate and longer maturity
bond yields remained seventy to eighty basis points above levels at the
beginning of the year. Because of the move to higher interest rates and lower
bond prices in 1996, bond market returns were modest, especially relative to
stock market returns.
At the present time, economists are expecting 1997 to be another year of
moderate growth and low inflation. The Federal Reserve is expected to stay on
the sidelines until concrete evidence of excessive economic growth or weakness
surfaces. Interest rates will be highly dependent upon the Federal Reserve
Bank's reaction to the various indicators of economic growth and inflation.
Equity investors have now experienced two back-to-back years of excellent
stock performance. Even after the exuberance of the last two years, the major
stock averages could still post further gains during 1997, but the gains are
expected to be on a more modest scale. The market could also experience
increased volatility as equity concerns heighten. Good bond performance is
likely to be highly dependent on investors' comfort level with the pace of
economic growth and continued moderate inflation.
James W. Murphy
Chairman of the Board of Directors and President
Indianapolis, Indiana
January 15, 1997
<PAGE>
2
(This page is intentionally blank.)
<PAGE>
3
Report of Independent Accountants
================================================================================
The Contract Owners of
AUL American Individual Unit Trust and
Board of Directors of
American United Life Insurance Company(R)
We have audited the accompanying statement of net assets of AUL American
Individual Unit Trust as of December 31, 1996, and the related statements of
operations and changes in net assets for each of the two years in the period
then ended. These financial statements are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1996, by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AUL American Individual Unit
Trust as of December 31, 1996, and the results of its operations and changes in
net assets for each of the two years in the period then ended, in conformity
with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Indianapolis, Indiana
January 31, 1997
<PAGE>
4
<TABLE>
<CAPTION>
AUL American Individual Unit Trust
STATEMENTS OF NET ASSETS
December 31, 1996
Series Fund Fidelity
----------------------------------------------------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Equity Money Bond Managed Tactical High Income
Market Asset
------------ ----------- ---------- ---------- -------- -------------
Assets:
Investment at market
value $3,674,588 $2,686,771 $1,945,983 $3,265,685 $979,464 $2,078,002
---------- ---------- ---------- ---------- -------- ----------
Net Assets $3,674,588 $2,686,771 $1,945,983 $3,265,685 $979,464 $2,078,002
========== ========== ========== ========== ======== ==========
Units outstanding 528,267 2,487,983 327,311 499,401 161,866 310,544
========== ========== ========= ========= ======= ========
Accumulation Unit Values $ 6.96 $ 1.08 $ 5.94 $ 6.54 $ 6.05 $ 6.69
========== ========== ======== ======== ======= ========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
5
<TABLE>
<CAPTION>
AUL American Individual Unit Trust
STATEMENTS OF NET ASSETS (continued)
December 31, 1996
Fidelity
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Asset Index Equity-
Growth Overseas Manager 500 Income Contrafund
------------ ---------- ----------- ---------- ---------- ------------
Assets:
Investment at market
value $8,613,807 $1,062,338 $ 5,991,767 $6,723,977 $5,678,892 $6,223,216
---------- ---------- ----------- ---------- ---------- ----------
Net Assets $8,613,807 $1,062,338 $ 5,991,767 $6,723,977 $5,678,892 $6,223,216
========== ========== =========== ========== ========== ==========
Units outstanding 1,131,117 178,474 938,555 815,022 842,213 861,471
========== ========== =========== ========== ========== ==========
Accumulation Unit Value $ 7.61 $ 5.95 $ 6.38 $ 8.25 $ 6.74 $ 7.22
========== ========= =========== ========== ========== ==========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
6
<TABLE>
<CAPTION>
AUL American Individual Unit Trust
STATEMENTS OF NET ASSETS (continued)
December 31, 1996
<S> <C> <C> <C> <C> <C>
TCI Alger Calvert T. Rowe Price
-------------------------- --------- ------------- ---------------
TCI TCI American Capital
Growth International Growth Accumulation Equity Income
--------- -------------- --------- ------------- ---------------
Assets:
Investment at market
value $2,279,864 $ 879,507 $ 8,440,581 $1,332,507 $7,681,960
---------- --------- ----------- ---------- ----------
Net Assets $2 279,864 $ 879,507 $ 8,440,581 $1,332,507 $7,681,960
========== ========= =========== ========== ==========
Units outstanding 372,019 145,117 1,256,070 202,261 1,081,376
========== ========= =========== ========= =========
Accumulation Unit Value $ 6.13 $ 6.06 $ 6.72 $ 6.59 $ 7.10
========= ========= =========== ========= =========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
7
<TABLE>
<CAPTION>
AUL American Individual Unit Trust
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
for the years ended December 31, 1996 and 1995
Series Fund
--------------------------------------------------------------------------------
Equity Money Market Bond
------------------------- ------------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
1996 1995 1996 1995 1996 1995
-------------- ---------- ------------- ----------- ---------- -----------
Operations:
Dividend income $ 45,758 $ 24,156 $ 115,215 $ 35,085 $ 92,504 $ 14,930
Mortality & expense
charges 29,591 7,143 30,590 8,469 16,617 2,320
------------ -------- ------------ --------- --------- -------
Net Investment Income
(Expense) 16,167 17,013 84,625 26,616 75,887 12,610
------------ -------- ------------ -------- ------- ------
Gain (Loss) on Investments:
Net realized gain (loss) 34,024 3,397 -- -- (2,048) 3,026
Net change in
unrealized gain (loss) 344,982 69,299 -- -- (18,274) 9,713
---------- --------- ----------- --------- -------- ------
Net Gain (Loss) 379,006 72,696 -- -- (20,322) 12,739
---------- --------- ----------- --------- -------- ------
Increase (Decrease)
in Assets from
Operations 395,173 89,709 84,625 26,616 55,565 25,349
--------- -------- ----------- -------- ------ ------
Contract Owner Transactions:
Proceeds from units sold 2,342,416 869,356 21,617,520 13,858,429 1,594,898 501,910
Cost of units redeemed (66,261) (35,771) (20,667,199) (12,862,189) (186,785) (45,556)
--------- -------- ----------- ---------- ---------- --------
Increase 2,276,155 833,585 950,321 996,240 1,408,113 456,354
--------- -------- ----------- ---------- --------- --------
Net increase 2,671,328 923,294 1,034,946 1,022,856 1,463,678 481,703
Net Assets, beginning 1,003,260 79,966 1,651,825 628,969 482,305 602
--------- -------- ----------- --------- --------- --------
Net Assets, ending $ 3,674,588 $1,003,260 $ 2,686,771 $ 1,651,825 $1,945,983 $ 482,305
=========== ========== ============ =========== ========== ========
Units sold 368,904 174,411 20,521,606 13,487,828 277,366 91,041
Units redeemed (10,375) (20,632) (19,616,253) (12,531,733) (31,969) (9,246)
----------- ---------- ------------ ----------- ---------- ---------
Net increase 358,529 153,779 905,353 956,095 245,397 81,796
Units outstanding, beginning 169,738 15,959 1,582,630 626,535 81,914 119
----------- --------- ------------ ---------- --------- --------
Units outstanding, ending 528,267 169,738 2,487,983 1,582,630 327,311 81,914
=========== ========= ============ ========== ========= =========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
8
<TABLE>
<CAPTION>
AUL American Individual Unit Trust
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (continued)
for the years ended December 31, 1996 and 1995
Series Fund Fidelity
------------------------------------------- -----------------------
Managed Tactical High Income
Asset
--------------------- -------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
1996 1995 1996 1995(1) 1996 1995
--------- ---------- --------- --------- ---------- --------
Operations:
Dividend income $ 81,813 $ 25,580 $ 28,262 $ 1,374 $ 69,242 $ 7,711
Mortality & expense
charges 25,095 4,163 7,553 104 17,670 4,816
--------- --------- -------- --------- --------- ----------
Net Investment Income
(Expense) 56,718 21,417 20,709 1,270 51,572 2,895
--------- --------- -------- --------- --------- ----------
Gain (Loss) on Investments:
Net realized gain (loss) 25,509 5,649 2,694 528 26,834 (1,263)
Net change in
unrealized gain (loss) 159,770 21,145 64,663 (333) 83,401 54,330
--------- --------- -------- ---------- --------- --------
Net Gain (Loss) 185,279 26,794 67,357 195 110,235 53,067
--------- --------- -------- --------- --------- --------
Increase (Decrease)
in Assets from
Operations 241,997 48,211 88,066 1,465 161,807 55,962
--------- --------- ------- --------- --------- --------
Contract Owner Transactions:
Proceeds from units sold 2,460,594 683,302 824,922 95,934 1,356,038 707,107
Cost of units redeemed (142,232) (29,532) (29,031) (1,892) (178,148) (85,770)
--------- --------- --------- --------- ---------- -------
Increase 2,318,362 653,770 795,891 94,042 1,177,890 621,337
--------- --------- --------- --------- ---------- -------
Net increase 2,560,359 701,981 883,957 95,507 1,339,697 677,299
Net Assets, beginning 705,326 3,345 95,507 --- 738,305 61,006
--------- -------- -------- -------- ---------- -------
Net Assets, ending $3,265,685 $ 705,326 $ 979,464 $ 95,507 $ 2,078,002 $ 738,305
Units sold 403,449 123,620 150,337 18,390 214,596 128,372
Units redeemed (23,140) (5,193) (6,501) (360) (28,308) (16,345)
---------- -------- -------- --------- ----------- --------
Net increase 380,309 118,427 143,836 18,030 186,288 112,027
Units outstanding, beginning 119,092 665 18,030 --- 124,256 12,229
---------- -------- -------- -------- ---------- --------
Units outstanding, ending 499,401 119,092 161,866 18,030 310,544 124,256
========== ======== ======== ======== ========== =======
<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>
<PAGE>
9
<TABLE>
<CAPTION>
AUL American Individual Unit Trust
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (continued)
for the years ended December 31, 1996 and 1995
Fidelity
-------------------------------------------------------------------------------
Growth Overseas Asset Manager
----------------------- ---------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
1996 1995 1996 1995 1996 1995
---------- --------- ---------- ---------- ----------- ---------
Operations:
Dividend income $ 206,470 $ 1,308 $ 9,445 $ 920 $ 98,943 $ 8,652
Mortality & expense
charges 71,907 14,630 9,283 3,218 44,655 10,713
----------- --------- --------- --------- ----------- ------------
Net Investment Income
(Expense) 134,563 (13,322) 162 (2,298) 54,288 (2,061)
----------- --------- --------- --------- ----------- ------------
Gain (Loss) on Investments:
Net realized gain (loss) 211,891 30,318 19,409 6,731 58,343 14,205
Net change in
unrealized gain (loss) 311,416 196,926 62,848 24,775 390,495 127,044
----------- ---------- --------- ---------- ----------- ------------
Net Gain (loss) 523,307 227,244 82,257 31,506 448,838 141,249
----------- ---------- --------- ---------- ----------- ------------
Increase (Decrease)
in Assets from
Operations 657,870 213,922 82,419 29,208 503,126 139,188
----------- ---------- -------- ----------- ----------- ------------
Contract Owner Transactions:
Proceeds from units sold 5,798,270 2,492,131 716,922 445,508 4,311,179 1,440,553
Cost of units redeemed (415,375) (220,014) (91,954) (135,679) (212,023) (261,952)
----------- ---------- --------- ----------- ------------ ------------
Increase 5,382,895 2,272,117 624,968 309,829 4,099,156 1,178,601
----------- ---------- --------- ------------ ------------ ------------
Net increase 6,040,765 2,486,039 707,387 339,037 4,602,282 1,317,789
Net Assets, beginning 2,573,042 87,003 354,951 15,914 1,389,485 71,696
----------- --------- --------- ----------- ----------- -----------
Net Assets, ending $ 8,613,807 $2,573,042 $1,062,338 $ 354,951 $ 5,991,767 $ 1,389,485
=========== ========== ========== =========== =========== ============
Units sold 805,777 404,210 128,049 90,444 727,908 286,115
Units redeemed (57,408) (38,766) (16,250) (27,007) (35,685) (54,465)
----------- --------- --------- ---------- ---------- -----------
Net increase 748,369 365,444 111,799 63,437 692,223 231,650
Units outstanding, beginning 382,748 17,304 66,675 3,238 246,332 14,682
----------- --------- --------- ---------- ---------- -----------
Units outstanding, ending 1,131,117 382,748 178,474 66,675 938,555 246,332
=========== ========= ========= ========== ========= ===========
The accompanying notes are an integral part of the financial statements
</TABLE>
<TABLE>
<PAGE>
10
<CAPTION>
AUL American Individual Unit Trust
STATEMENTS OF OPERATIONS AND CHANGES NET IN ASSETS
for the years ended December 31, 1996 and 1995
Fidelity
--------------------------------------------------------------------------
Index 500 Equity-Income Contrafund
---------------- ---------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
1996 1995 1996 1995(2) 1996 1995(2)
------- ------- -------- ----------- ---------- ----------
Operations:
Dividend income $ 45,109 $ 852 $ 59,196 $ 7,398 $ 10,399 $ 8,934
Mortality & expense
charges 45,637 3,923 44,959 3,129 43,120 2,719
--------- -------- --------- --------- --------- -----------
Net Investment Income
(Expense) 472 (3,071) 14,237 4,269 (32,721) 6,215
--------- ------- --------- --------- ----------- ----------
Gain (Loss) on Investments:
Net realized gain (loss) 122,509 5,555 38,790 3,381 80,913 1,068
Net change in
unrealized gain (loss) 638,522 79,090 396,053 56,632 666,789 24,117
---------- ------- --------- --------- --------- --------
Net Gain (Loss) 761,031 84,645 434,843 60,013 747,702 25,185
---------- ------- --------- --------- --------- --------
Increase (Decrease)
in Assets from
Operations 761,503 81,574 449,080 64,282 714,981 31,400
---------- ------- --------- --------- --------- --------
Contract Owner Transactions:
Proceeds from units sold 5,347,903 833,980 4,547,863 935,579 4,960,020 708,239
Cost of units redeemed (272,289) (28,795) (287,406) (30,506) (186,380) (5,044)
---------- -------- --------- --------- --------- -------
Increase 5,075,614 805,185 4,260,457 905,073 4,773,640 703,195
---------- -------- --------- --------- --------- -------
Net increase 5,837,117 886,759 4,709,537 969,355 5,488,621 734,595
Net Assets, beginning 886,860 101 969,355 -- 734,595 --
---------- -------- --------- --------- --------- -------
Net Assets, ending $ 6,723,977 $ 886,860 $5,678,892 $ 969,355 $6,223,216 $ 734,595
=========== ========= ========== ========= ========== =========
Units sold 721,534 134,987 725,735 167,566 767,503 122,672
Units redeemed (36,902) (4,617) (45,774) (5,314) (27,857) (847)
----------- -------- ---------- ---------- --------- ----------
Net increase 684,632 130,370 679,961 162,252 739,646 121,825
Units outstanding, beginning 130,390 20 162,252 -- 121,825 ---
----------- -------- ---------- --------- --------- ---------
Units outstanding, ending 815,022 130,390 842,213 162,252 861,471 121,825
=========== ======== ========== ========= ========= =========
<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>
<TABLE>
<PAGE>
11
<CAPTION>
AUL American Individual Unit Trust
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (continued)
for the years ended December 31, 1996 and 1995
TCI ALGER
---------------------------------------------- -------------------------
TCI Growth TCI International American Growth
------------------- ---------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
1996 1995 1996 1995 1996 1995(2)
------- ------- -------- ----------- ---------- ----------
Operations:
Dividend income $ 138,502 $ 35 $ 13,386 $ ---- $ 131,042 $ 1
Mortality & expense
charges 21,010 5,495 7,924 2,961 64,041 3,743
--------- -------- --------- --------- --------- -----------
Net Investment Income
(Expense) 117,492 (5,460) 5,462 (2,961) 67,001 (3,742)
--------- ------- --------- --------- ----------- ----------
Gain (Loss) on Investments:
Net realized gain (loss) 29,651 8,559 14,675 4,225 57,997 5,210
Net change in
unrealized gain (loss) (267,775) 84,124 65,251 33,996 429,314 8,939
---------- ------- --------- --------- --------- --------
Net Gain (Loss) (238,124) 92,683 79,926 38,221 487,311 14,149
---------- ------- --------- --------- --------- --------
Increase (Decrease)
in Assets from
Operations (120,632) 87,223 85,388 35,260 554,312 10,407
---------- ------- --------- --------- --------- --------
Contract Owner Transactions:
Proceeds from units sold 1,732,790 798,976 433,643 395,275 7,105,908 1,260,890
Cost of units redeemed (164,269) (68,299) (37,857) (36,226) (469,736) (21,200)
---------- -------- --------- --------- --------- -------
Increase 1,568,521 730,677 395,786 359,049 6,636,172 1,239,690
---------- -------- --------- --------- --------- -------
Net increase 1,447,889 817,900 481,174 394,309 7,190,484 1,250,097
Net Assets, beginning 831,975 14,075 398,333 4,024 1,250,097 --
---------- -------- --------- --------- --------- -------
Net Assets, ending $ 2,279,864 $ 831,975 $ 879,507 $ 398,333 $8,440,581 $ 1,250,097
=========== ========= ========== ========= ========== ==========
Units sold 268,925 137,785 77,615 80,369 1,122,887 211,706
Units redeemed (25,176) (12,325) (6,759) (6,939) (75,053) (3,470)
----------- -------- ---------- ---------- --------- ----------
Net increase 243,749 125,460 70,856 73,430 1,047,834 208,236
Units outstanding, beginning 128,270 2,810 74,261 831 208,236 ---
----------- -------- ---------- --------- --------- ---------
Units outstanding, ending 372,019 128,270 145,117 74,261 1,256,070 208,236
=========== ======== ========== ========= ========= =========
<FN>
(2) for the period from April 28, 1995 through December 31, 1995.
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
<PAGE>
12
<TABLE>
<CAPTION>
AUL American Individual Unit Trust
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (continued)
for the years ended December 31, 1996 and 1995
<S> <C> <C>
Calvert T.Rowe Price
--------------------- ---------------------
Capital Accumulation Equity Income
--------------------- ---------------------
<C> <C> <C> <C>
1996 1995(2) 1996 1995(2)
------- ------- -------- --------
Operations:
Dividend income $ 2,162 $ 7,823 $ 175,556 $ 14,875
Mortality & expense
charges 8,980 570 51,751 3,528
--------- -------- --------- ---------
Net Investment Income
(Expense) (6,818) 7,253 123,805 11,347
--------- ------- --------- ---------
Gain (Loss) on Investments:
Net realized gain (loss) 8,363 190 124,056 4,723
Net change in
unrealized gain (loss) 44,730 (267) 515,833 68,278
---------- ------- --------- ---------
Net Gain (Loss) 53,093 (77) 639,889 73,001
---------- ------- --------- ---------
Increase (Decrease)
in Assets from
Operations 46,275 7,176 763,694 84,348
---------- ------- --------- --------
Contract Owner Transactions:
Proceeds from units sold 1,178,357 142,896 6,202,566 931,503
Cost of units redeemed (41,758) (439) (265,100) (35,051)
---------- -------- --------- ---------
Increase 1,136,599 142,457 5,937,466 896,452
---------- -------- --------- ---------
Net increase 1,182,874 149,633 6,701,160 980,800
Net Assets, beginning 149,633 --- 980,800 ---
---------- -------- --------- ---------
Net Assets, ending $ 1,332,507 $ 149,633 $7,681,960 $ 980,800
=========== ========= ========== =========
Units sold 184,348 24,163 958,454 169,153
Units redeemed (6,178) (72) (40,121) (6,110
----------- -------- ---------- ---------
Net increase 178,170 24,091 918,333 163,043
Units outstanding, beginning 24,091 --- 163,043
----------- -------- ---------- ---------
Units outstanding, ending 202,261 24,091 1,081,376 163,043
=========== ======== ========== =========
<FN>
(2) for the period from April 28, 1995 through December 31, 1995.
The accompanying notes are an integral part of the financial statements.
</FN>
</TABLE>
<PAGE>
13
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),
TCI Portfolios, Inc. (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
31, 1996. Investment transactions are accounted for on the trade date and
dividend income is recorded on the ex-dividend date.
MORTALITY AND EXPENSE RISKS CHARGES
AUL deducts a daily charge as compensation for the mortality and expense risks
assumed by AUL. The charge is equal on an annual basis to 1.25% of the average
daily net assets of each investment account. AUL guarantees that the mortality
and expense charge shall not increase. The charges incurred during the years
ended December 31, 1996 and 1995 were $539,383 and $81,649, 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, 1996 and 1995 were $21,722 and
$729, 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 aggregate 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.
<PAGE>
14
NOTES TO FINANCIAL STATEMENTS (continued)
</TABLE>
3. Accumulation Unit Value
The change in the Accumulation Unit Value per unit for the year ended
December 31, 1996, is:
<TABLE>
<S> <C> <C> <C>
12/31/96 12/31/95 Change
--------------- ---------------- --------------
Series Fund:
Equity $ 6.955832 $ 5.910622 17.7%
Money Market 1.079623 1.044437 3.4%
Bond 5.944584 5.887919 1.0%
Managed 6.538610 5.922513 10.4%
Tactical Asset 6.050897 5.297110 14.2%
Fidelity:
High Income 6.690998 5.941506 12.6%
Growth 7.614970 6.722540 13.3%
Overseas 5.951929 5.323589 11.8%
Asset Manager 6.383686 5.640705 13.2%
Index 500 8.249673 6.801594 21.3%
Equity Income 6.742581 5.974362 12.9%
Contrafund 7.223554 6.029929 19.8%
TCI:
TCI Growth 6.128474 6.486115 -5.5%
TCI International 6.060122 5.363969 13.0%
Alger:
American Growth 6.719732 6.003257 11.9%
Calvert:
Capital Accumulation 6.587155 6.211190 6.1%
T. Rowe Price:
Equity Income 7.104109 6.015571 18.1%
</TABLE>
4. Cost of Investments
The Cost of investments at December 31, 1996 is:
<TABLE>
<S> <C>
Series Fund:
Equity $ 3,262,899
Money Market 2,686,771
Bond 1,954,554
Managed 3,084,840
Tactical Asset 915,133
Fidelity:
High Income 1,939,992
Growth 8,104,518
Overseas 974,604
Asset Manager 5,474,190
Index 500 6,006,364
Equity-Income 5,226,206
Contrafund 5,532,309
TCI:
TCI Growth 2,463,473
TCI International 780,238
Alger:
American Growth 8,002,328
Calvert:
Capital Accumulation 1,288,044
T. Rowe Price:
Equity Income 7,097,849
</TABLE>
<PAGE>
15
5. Net Assets
Net Assets at December 31, 1996, are:
<TABLE>
<CAPTION>
Series Fund
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Money Tactical
Equity Market Bond Managed Asset
-------------- -------------- ----------- ----------- -------------
Proceeds from units sold $ 3,290,709 $ 36,104,918 $2,097,410 $3,147,230 $920,856
Cost of units redeemed (102,032) (33,529,388) (232,341) (171,764) (30,923)
Net investment income 36,801 111,241 88,506 78,215 21,978
Net realized gain 37,421 0 979 31,159 3,222
Unrealized gain (loss)
on investments 411,689 0 (8,571) 180,845 64,331
----------- ----------- ---------- ---------- ---------
$ 3,674,588 $ 2,686,771 $ 1,945,983 $3,265,685 $979,464
============ ============ ============ ========== =========
Fidelity
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Asset
High Income Growth Overseas Manager Index 500
-------------- -------------- ----------- ----------- -------------
Proceeds from units sold $ 2,123,887 $ 8,376,476 $1,178,236 $5,823,409 $6,181,984
Cost of units redeemed (263,918) (635,390) (227,632) (473,975) (301,084)
Net investment income 54,451 121,222 (2,140) 52,209 (2,598)
Net realized gain 25,572 242,210 26,140 72,547 128,062
Unrealized gain (loss)
on investments 138,010 509,289 87,734 517,577 717,613
----------- ----------- ---------- ---------- ---------
$ 2,078,002 $ 8,613,807 $ 1,062,338 $5,991,767 $6,723,977
============ ============ ============ ========== =========
Fidelity TCI ALGER
---------------------------- --------------------------- -------------
<S> <C> <C> <C> <C> <C>
TCI
Equity Income Contrafund TCI Growth International Index 500
-------------- -------------- ----------- ------------- -------------
Proceeds from units sold $ 5,483,440 $ 5,668,258 $2,545,802 $ 832,923 $8,366,800
Cost of units redeemed (317,911) (191,424) (232,568) (74,083) (490,936)
Net investment income 18,505 (26,506) 112,029 2,499 63,257
Net realized gain 42,172 81,981 38,210 18,899 63,207
Unrealized gain (loss)
on investments 452,686 690,907 (183,609) 99,269 438,253
----------- ----------- ---------- ---------- ---------
$ 5,678,892 $ 6,223,216 $ 2,279,864 $ 879,507 $8,440,581
============ ============ ============ ========== =========
Calvert T.Rowe Price
------------- -------------
<S> <C> <C>
Capital
Accumulation Equity Income
-------------- --------------
Proceeds from units sold $ 1,321,252 $ 7,134,070
Cost of units redeemed (42,197) (300,152)
Net investment income 435 135,152
Net realized gain 8,554 128,779
Unrealized gain (loss)
on investments 44,463 584,111
----------- -----------
$ 1,332,507 $ 7,681,960
============ ============
</TABLE>
<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>
Money Tactical
Equity Market Bond Managed Asset High Income
------ ------ ---- ------- ----- -----------
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
----------- --------
Tactical High
Managed Asset Income
------- ----- ------
<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 aggregate 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> <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 International 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>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000923353
<NAME> AUL AMERICAN INDIVIDUAL UNIT TRUST
<SERIES>
<NUMBER> 1
<NAME> AUL AMERICAN EQUITY PORTFOLIO
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 3,262,899
<INVESTMENTS-AT-VALUE> 3,674,588
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,674,588
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 36,801
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 37,421
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 411,689
<NET-ASSETS> 3,674,588
<DIVIDEND-INCOME> 45,758
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 29,591
<NET-INVESTMENT-INCOME> 16,167
<REALIZED-GAINS-CURRENT> 34,024
<APPREC-INCREASE-CURRENT> 344,982
<NET-CHANGE-FROM-OPS> 395,173
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 368,904
<NUMBER-OF-SHARES-REDEEMED> (10,375)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,671,328
<ACCUMULATED-NII-PRIOR> 20,635
<ACCUMULATED-GAINS-PRIOR> 3,397
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 29,591
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 5.91
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.96
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000923353
<NAME> AUL AMERICAN INDIVIDUAL UNIT TRUST
<SERIES>
<NUMBER> 3
<NAME> AUL AMERICAN BOND PORTFOLIO
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 1,954,554
<INVESTMENTS-AT-VALUE> 1,945,983
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,945,983
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 88,506
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 979
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (8,571)
<NET-ASSETS> 1,945,983
<DIVIDEND-INCOME> 92,504
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 16,617
<NET-INVESTMENT-INCOME> 75,887
<REALIZED-GAINS-CURRENT> (2,048)
<APPREC-INCREASE-CURRENT> (18,274)
<NET-CHANGE-FROM-OPS> 55,565
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 277,366
<NUMBER-OF-SHARES-REDEEMED> (31,969)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,463,678
<ACCUMULATED-NII-PRIOR> 12,618
<ACCUMULATED-GAINS-PRIOR> 3,027
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 16,617
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 5.89
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 5.94
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000923353
<NAME> AUL AMERICAN INDIVIDUAL UNIT TRUST
<SERIES>
<NUMBER> 16
<NAME> CALVERT CAPITAL ACCUMULATION PORTFOLIO
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 1,288,044
<INVESTMENTS-AT-VALUE> 1,332,507
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,332,507
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 435
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8,554
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 44,463
<NET-ASSETS> 1,332,507
<DIVIDEND-INCOME> 2,162
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 8,980
<NET-INVESTMENT-INCOME> (6,818)
<REALIZED-GAINS-CURRENT> 8,363
<APPREC-INCREASE-CURRENT> 44,730
<NET-CHANGE-FROM-OPS> 46,275
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 184,348
<NUMBER-OF-SHARES-REDEEMED> (6,178)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,182,874
<ACCUMULATED-NII-PRIOR> 7,253
<ACCUMULATED-GAINS-PRIOR> 190
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8,980
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 6.21
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.59
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
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