As filed with the Securities and Exchange Commission on April 30, 1998
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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. 6
and/or
REGISTRATION STATEMENT UNDER THE
[X] INVESTMENT COMPANY ACT OF 1940
[X] Amendment No. 7
(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
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, 1998 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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PROSPECTUS
for
AUL American Individual Unit Trust
AUL American Series Fund, Inc.
Dated May 1, 1998
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), 457 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; 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; Calvert Variable Series, which offers the Calvert Social Mid Cap
Growth Fund; 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 Asset Management Corporation acts as
the investment adviser to the Calvert Variable Series. 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, 1998, 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, 1998.
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TABLE OF CONTENTS
Description Page
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DEFINITIONS............................................. 3-4
SUMMARY................................................. 5-6
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........................................... 6-9
CONDENSED FINANCIAL INFORMATION......................... 10-11
PERFORMANCE OF THE INVESTMENT
ACCOUNTS................................................ 11-12
INFORMATION ABOUT AUL, THE VARIABLE
ACCOUNT, AND THE FUNDS.................................. 12-15
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
Alger American Fund................................... 14
Alger American Growth Portfolio...................... 14
American Century Variable Portfolios, Inc............. 14
VP Capital Appreciation Portfolio.................... 14
VP International Portfolio........................... 14
Calvert Variable Series............................... 14
Calvert Social Mid Cap Growth Fund .................. 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.......................... 15-17
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................. 18-19
Cash Withdrawals...................................... 18
The Death Proceeds.................................... 18
Payments from the Variable Account.................... 19
CHARGES AND DEDUCTIONS.................................. 19-20
Premium Tax Charge.................................... 19
Withdrawal Charge..................................... 19
Mortality and Expense Risk Charge..................... 19
Administrative Fee.................................... 20
Other Charges......................................... 20
Variations in Charges................................. 20
Guarantee of Certain Charges.......................... 20
Expenses of the Funds................................. 20
ANNUITY PERIOD.......................................... 20-21
General............................................... 20
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....................................... 21-22
Interest.............................................. 21
Withdrawals........................................... 22
Transfers............................................. 22
Contract Charges...................................... 22
Payments from the Fixed Account....................... 22
MORE ABOUT THE CONTRACTS................................ 22-23
Designation and Change of Beneficiary................. 22
Assignability......................................... 23
Proof of Age and Survival............................. 23
Misstatements......................................... 23
Acceptance of New Premiums............................ 23
FEDERAL TAX MATTERS..................................... 23-26
Introduction.......................................... 23
Diversification Standards............................. 23
Taxation of Annuities in General-
Non-Qualified Plans.................................. 23
Additional Considerations............................. 24
Qualified Plans....................................... 25
403(b) Programs-Constraints on Withdrawals............ 26
OTHER INFORMATION....................................... 26-27
Voting of Shares of the Funds......................... 26
Substitution of Investments........................... 27
Changes to Comply with Law and Amendments............. 27
Reservation of Rights................................. 27
Periodic Reports...................................... 27
Legal Proceedings..................................... 27
Legal Matters......................................... 27
Financial Statements.................................. 27
YEAR 2000 ISSUES AND READINESS.......................... 28
PERFORMANCE INFORMATION ................................ 28
STATEMENT OF ADDITIONAL
INFORMATION TABLE OF CONTENTS........................... 29
2
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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) or 457 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.
457 PROGRAM - A plan established by a unit of a state or local government or
a tax-exempt organization under Section 457 of the Internal Revenue Code.
FREE WITHDRAWAL AMOUNT - The amount that may be withdrawn without incurring
withdrawal charges, which is 12% of the Contract Value at the time the first
withdrawal in a given Contract Year is requested.
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FUNDS - AUL American Series Fund, Inc., which offers the Equity, Bond, Money
Market, Managed, and Tactical Asset Allocation Portfolios; Calvert Variable
Series, which offers the Calvert Social Mid Cap Growth 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, 457 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.
4
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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), 457, 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; 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; Calvert Variable Series, which offers the Calvert Social Mid Cap
Growth Fund; 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 Asset Management Corporation acts as the investment adviser to the
Calvert Variable Series. 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 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
5
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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.
6
<PAGE>
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) 0.16% 0.66%
Bond Portfolio 0.50%(3) 0.17% 0.67%
Managed Portfolio 0.50%(3) 0.17% 0.67%
Money Market Portfolio 0.50%(3) 0.16% 0.66%
Tactical Asset Allocation Portfolio 0.68%(3) 0.32% 1.00%
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%
Calvert Variable Series:
Calvert Social Mid Cap Growth Portfolio 0.90%(4) 0.15% 1.05%
Fidelity Variable Insurance Products Fund
Equity-Income Portfolio 0.50% 0.08% 0.58%(5)
Growth Portfolio 0.60% 0.09% 0.69%(5)
High Income Portfolio 0.59% 0.12% 0.71%
Overseas Portfolio 0.75% 0.17% 0.92%(5)
Fidelity Variable Insurance Products Fund II
Asset Manager Portfolio 0.55% 0.10% 0.65%(5)
Contrafund Portfolio 0.60% 0.11% 0.71%(5)
Index 500 Portfolio 0.24% 0.04% 0.28%(6)
PBHG Insurance Series Fund, Inc.
Growth II Portfolio 0.00% 1.20% 1.20%
Technology & Communications Portfolio 0.00% 1.20% 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 extent necessary, assume any
expenses in excess of its advisory fee so that the expenses of each Portfolio,
including the advisory fee but excluding extraordinary expenses, will not exceed
1% of the Portfolio's average daily net asset value per year. The Adviser may
terminate the policy of reducing its fee and/or assuming Fund expenses upon 30
days written notice to the Fund and such policy will be terminated automatically
by the termination of the Investment Advisory Agreement. With the exception of
the Tactical Asset Allocation Portfolio, during 1997, expenses did not exceed 1%
of the average daily net asset value.
(4)The figures above are based on expenses for fiscal year 1997, and have
been restated to reflect an increase in transfer agency expenses of 0.01% for
the Portfolio expected to be incurred in 1998. Management and Advisory Expenses
includes a performance adjustment, which depending on performance, could cause
the fee to be as high as 0.95% or as low as 0.85%. "Other Expenses" reflect an
indirect fee. Net fund operating expenses after reductions for fees paid
indirectly (again, restated) would be 0.97%. Management and Advisory expenses
for the Portfolio include an administrative service fee of 0.10%, paid to
Advisor'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 whereby credits realized, as a result of
uninvested cash balances were used to reduce custodian expenses. Including these
reductions, the total operating expenses presented in the table would have been
0.57% for the Equity-Income portfolio, 0.67% for the Growth portfolio, 0.90% for
the Overseas portfolio, 0.64% for the Asset Manager portfolio, and 0.68% for the
Contrafund portfolio.
(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
0.27%, 0.13%, and 0.40% respectively for Index 500 Portfolio on an annualized
basis.
</FN>
</TABLE>
7
<PAGE>
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 $107.38 $ 85.65 $107.38 $ 22.38 $ 22.38
3 years 145.03 116.41 145.03 68.72 68.72
5 years 177.71 147.50 117.30 117.30 117.30
10 years 260.97 249.43 249.43 249.43 249.43
AUL American Bond
1 year 107.49 85.75 107.49 22.49 22.49
3 years 145.33 116.73 145.33 69.05 69.05
5 years 178.23 148.04 117.85 117.85 117.85
10 years 262.09 250.56 250.56 250.56 250.56
AUL American Money Market
1 year 107.38 85.65 107.38 22.38 22.38
3 years 145.03 116.41 145.03 68.72 68.72
5 years 177.71 147.50 117.30 117.30 117.30
10 years 260.97 249.43 249.43 249.43 249.43
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 Social Mid Cap Growth
1 year 111.29 89.32 111.29 26.29 26.29
3 years 155.93 127.64 155.93 80.51 80.51
5 years 196.23 166.62 137.00 137.00 137.00
10 years 300.04 288.95 288.95 288.95 288.95
8
<PAGE>
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 145.95 117.36 145.95 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 110.01 88.12 110.01 25.01 25.01
3 years 152.37 123.99 152.37 76.67 76.67
5 years 190.22 160.41 130.60 130.60 130.60
10 years 287.45 276.21 276.21 276.21 276.21
Fidelity VIP II Asset Manager
1 year 107.30 85.58 107.30 22.30 22.30
3 years 144.82 116.20 144.82 68.50 68.50
5 years 177.36 147.14 116.92 116.92 116.92
10 years 260.22 248.67 248.67 248.67 248.67
Fidelity VIP II Contrafund
1 year 108.00 86.23 108.00 23.00 23.00
3 years 146.77 118.21 146.77 70.60 70.60
5 years 180.68 150.57 120.45 120.45 120.45
10 years 267.29 255.82 255.82 255.82 255.82
Fidelity VIP II Index 500
1 year 103.55 82.07 103.55 18.55 18.55
3 years 134.31 105.36 134.31 57.12 57.12
5 years 159.34 128.55 97.76 97.76 97.76
10 years 221.35 209.36 209.36 209.36 209.36
PBHG Growth II
1 year 112.79 90.72 112.79 27.79 27.79
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
PBHG Technology & Communications
1 year 112.79 90.72 112.79 27.79 27.79
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>
9
<PAGE>
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, 1997. 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, 1997. 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> <C>
Investment Account 1997 1996 1995 1994
------------------ ---- ---- ---- ----
AUL American Equity
Unit Value at beginning of period $6.956 $5.911 $5.010 $5.000
Unit Value at end of period 8.902 6.956 5.911 5.010
Number of units outstanding at end of period 1,008,286.648 528,267.190 169,738.465 15,959.218
AUL American Bond
Unit Value at beginning of period $5.945 $5.888 $5.062 $5.000
Unit Value at end of period 6.331 5.945 5.888 5.062
Number of units outstanding at end of period 373,790.804 327,311.392 81,914.403 118.883
AUL American Managed
Unit Value at beginning of period $6.539 $5.923 $5.034 $5.000
Unit Value at end of period 7.809 6.539 5.923 5.034
Number of units outstanding at end of period 791,100.951 499,400.967 119,092.277 664.550
AUL American Money Market
Unit Value at beginning of period $1.080 $1.044 $1.004 $1.000
Unit Value at end of period 1.118 1.080 1.044 1.004
Number of units outstanding at end of period 4,549,403.805 2,487,983.053 1,582,630.174 626,535.146
AUL American Tactical Asset Allocation
Unit Value at beginning of period $6.051 $5.297 $5.000 (7/31/95) N.A.
Unit Value at end of period 6.900 6.051 5.297 N.A.
Number of units outstanding at end of period 459,162.276 161,866.199 18,030.022 N.A.
Alger American Growth
Unit Value at beginning of period $6.720 $6.003 $5.000 (4/28/95) N.A.
Unit Value at end of period 8.344 6.720 6.003 N.A.
Number of units outstanding at end of period 1,748,167.113 1,256,069.865 208,236.470 N.A.
American Century VP Capital Appreciation
Unit Value at beginning of period $6.128 $6.486 $5.010 $5.000
Unit Value at end of period 5.855 6.128 6.486 5.010
Number of units outstanding at end of period 312,676.383 145,117.247 128,270.148 2,809.564
American Century VP International
Unit Value at beginning of period $6.060 $5.364 $4.840 $5.000
Unit Value at end of period 7.100 6.060 5.364 4.840
Number of units outstanding at end of period 371,155.699 372,018.867 74,261.271 831.382
Calvert Social Mid Cap Growth
Unit Value at beginning of period $6.587 $6.211 $5.000 (4/48/95) N.A.
Unit Value at end of period 8.041 6.587 6.211 N.A.
Number of units outstanding at end of period 231,352.822 202,261.345 24,090.888 N.A.
Fidelity VIP Equity-Income
Unit Value at beginning of period $6.743 $5.974 $5.000 (4/28/95) N.A.
Unit Value at end of period 8.530 6.743 5.974 N.A.
Number of units outstanding at end of period 1,186,973.297 842,213.457 162,252.393 N.A.
Fidelity VIP Growth
Unit Value at beginning of period $7.615 $6.723 $5.028 $5.000
Unit Value at end of period 9.286 7.615 6.723 5.028
Number of units outstanding at end of period 1,393,042.116 1,131,117.169 382,748.411 17,303.821
Fidelity VIP High Income
Unit Value at beginning of period $6.691 $5.942 $4.988 $5.000
Unit Value at end of period 7.776 6.691 5.942 4.988
Number of units outstanding at end of period 297,194.608 310,543.860 124,255.921 12,229.340
Fidelity VIP Overseas
Unit Value at beginning of period $5.952 $5.324 $4.915 $5.000
Unit Value at end of period 6.557 5.952 5.324 4.915
Number of units outstanding at end of period 577,023.227 178,473.714 66,675.195 3,238.060
10
<PAGE>
CONDENSED FINANCIAL INFORMATION (continued)
<S> <C> <C> <C> <C>
Investment Account 1997 1996 1995 1994
------------------ ---- ---- ---- ----
Fidelity VIP II Asset Manager
Unit Value at beginning of period $6.384 $5.641 $4.883 $5.000
Unit Value at end of period 7.606 6.384 5.641 4.883
Number of units outstanding at end of period 1,581,638.720 938,554.934 246,331.760 14,681.732
Fidelity VIP II Contrafund
Unit Value at beginning of period $7.224 $6.030 $5.000 (4/28/95) N.A.
Unit Value at end of period 8.855 7.224 6.030 N.A.
Number of units outstanding at end of period 1,310,233.857 861,470.661 121,824.755 N.A.
Fidelity VIP II Index 500
Unit Value at beginning of period $8.250 $6.802 $5.020 $5.000
Unit Value at end of period 10.811 8.250 6.802 5.020
Number of units outstanding at end of period 1,836,588.504 815,021.928 130,390.078 20.000
PBHG Growth II
Unit Value at beginning of period $5.000 (5/1/97) N.A. N.A. N.A.
Unit Value at end of period 5.330 N.A. N.A. N.A.
Number of units outstanding at end of period 97,880.906 N.A. N.A. N.A.
PBHG Technology & Communications
Unit Value at beginning of period $5.000 (5/1/97) N.A. N.A. N.A.
Unit Value at end of period 5.162 N.A. N.A. N.A.
Number of units outstanding at end of period 78,547.885 N.A. N.A. N.A.
T. Rowe Price Equity Income
Unit Value at beginning of period $7.104 $6.016 $5.000 N.A.
Unit Value at end of period 9.040 7.104 6.016 N.A.
Number of units outstanding at end of period 2,226,490.645 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 12/31/97 12/31/97 12/31/97 Since Inception Inception
- ------------------ ---- ------- -------- -------- -------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
AUL American Equity 4/10/90 11/21/94 27.98% 21.12% 15.35% 13.73% 169.97%
AUL American Bond 4/10/90 11/21/94 6.50% 7.74% 5.42% 7.29% 72.15%
AUL American Managed 4/10/90 11/21/94 19.44% 15.77% 11.11% 10.74% 119.79%
AUL American Money Market 4/10/90 11/21/94 3.63% 3.68% 2.87% 3.20% 27.53%
AUL American Tactical
Asset Allocation 7/31/95 7/31/95 14.05% n.a. n.a. 14.26% 38.06%
Alger American Growth 1/09/89 4/28/95 24.18% 23.25% 17.81% 17.70% 331.98%
American Century VP Capital
Appreciation 11/20/87 11/21/94 (4.46%) 5.34% 4.44% 7.34% 103.06%
American Century VP
International 5/01/94 11/21/94 17.16% 13.62% n.a. 9.22% 38.15%
Calvert Social Mid Cap Growth 7/16/91 4/28/95 22.08% 21.28% 11.01% 11.69% 104.25%
Fidelity VIP Equity-Income 10/09/86 4/28/95 26.52% 23.96% 18.67% 15.28% 314.51%
Fidelity VIP Growth 10/09/86 11/21/94 21.95% 22.69% 16.54% 15.74% 331.35%
Fidelity VIP High Income 9/19/85 11/21/94 16.20% 15.94% 12.50% 11.41% 194.61%
Fidelity VIP Overseas 1/28/87 11/21/94 10.17% 10.09% 12.70% 8.26% 121.15%
Fidelity VIP II Asset Manager 9/06/89 11/21/94 19.15% 15.92% 11.58% 11.47% 146.72%
Fidelity VIP II Contrafund 1/03/95 4/28/95 22.60% n.a. n.a. 27.99% 109.53%
Fidelity VIP II Index 500 8/27/92 11/21/94 31.05% 29.14% 18.42% 18.40% 146.72%
PBHG Growth II 5/01/97 5/01/97 n.a. n.a. n.a. 6.61%
PBHG Technology
& Communications 5/01/97 5/01/97 n.a. n.a. n.a. 3.23%
T. Rowe Price Equity Income 3/31/94 4/28/95 27.25% 25.98% n.a. 22.23% 112.28%
11
<PAGE>
<CAPTION>
PERFORMANCE OF THE INVESTMENT ACCOUNTS (continued)
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 12/31/97 12/31/97 12/31/97 Since Inception Inception
- ------------------ ---- ------- -------- -------- -------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
AUL American Equity 4/10/90 11/21/94 14.84% 17.45% 13.59% 12.63% 150.46%
AUL American Bond 4/10/90 11/21/94 (4.43%) 4.48% 3.81% 6.25% 59.68%
AUL American Managed 4/10/90 11/21/94 7.18% 12.25% 9.42% 9.66% 103.77%
AUL American Money Market 4/10/90 11/21/94 (7.02%) 0.53% 1.30% 2.19% 18.20%
AUL American Tactical
Asset Allocation 7/31/95 7/31/95 2.34% n.a. n.a. 9.98% 25.88%
Alger American Growth 1/09/89 4/28/95 11.43% 19.51% 16.01% 17.08% 311.98%
American Century VP Capital
Appreciation 11/20/87 11/21/94 (14.27%) 2.14% 2.85% 6.92% 95.25%
American Century VP
International 5/01/94 11/21/94 5.13% 10.97% n.a. 6.73% 26.95%
Calvert Social Mid Cap Growth 7/16/91 4/28/95 9.54% 17.61% 9.32% 10.62% 91.93%
Fidelity VIP Equity-Income 10/09/86 4/28/95 13.52% 20.20% 16.86% 14.82% 298.27%
Fidelity VIP Growth 10/09/86 11/21/94 9.42% 18.97% 14.76% 15.27% 314.16%
Fidelity VIP High Income 9/19/85 11/21/94 4.27% 12.43% 10.78% 10.97% 183.18%
Fidelity VIP Overseas 1/28/87 11/21/94 (1.15%) 6.75% 10.98% 7.72% 110.36%
Fidelity VIP II Asset Manager 9/06/89 11/21/94 6.91% 12.40% 9.87% 10.70% 132.90%
Fidelity VIP II Contrafund 1/03/95 4/28/95 10.01% n.a. n.a. 24.00% 90.55%
Fidelity VIP II Index 500 8/27/92 11/21/94 17.59% 25.22% 16.36% 16.87% 130.14%
PBHG Growth II 5/01/97 5/01/97 n.a. n.a. n.a. n.a. (4.34%)
PBHG Technology
& Communications 5/01/97 5/01/97 n.a. n.a. n.a. n.a. (7.37%)
T. Rowe Price Equity Income 3/31/94 4/28/95 14.18% 21.72% n.a. 19.50% 95.04%
<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 12/31/97 12/31/97 12/31/97 Since Inception Inception
- ------------------ ---- ------- -------- -------- -------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
AUL American Equity 4/10/90 11/21/94 18.67% 18.71% 14.30% 13.08% 158.29%
AUL American Bond 4/10/90 11/21/94 (1.25%) 5.60% 4.47% 6.67% 64.62%
AUL American Money Market 4/10/90 11/21/94 (3.92%) 1.61% 1.93% 2.61% 22.01%
AUL American Managed 4/10/90 11/21/94 10.75% 13.46% 10.11% 10.10% 110.17%
AUL American Tactical Asset
Allocation 7/31/95 7/31/95 5.75% n.a. n.a. 11.45% 29.99%
Alger American Growth 1/09/89 4/28/95 15.14% 20.80% 16.74% 17.35% 320.59%
American Century VP Capital
Appreciation 11/20/87 11/21/94 (11.42%) 3.24% 3.49% 7.02% 97.08%
American Century VP
International 5/01/94 11/21/94 8.63% 12.14% n.a. 7.66% 31.05%
Calvert Social Mid Cap Growth 7/16/91 4/28/95 13.19% 18.87% 10.01% 11.15% 97.95%
Fidelity VIP Equity-Income 10/09/86 4/28/95 17.31% 21.49% 17.60% 14.94% 302.45%
Fidelity VIP Growth 10/09/86 11/21/94 13.07% 20.25% 15.48% 15.39% 318.49%
Fidelity VIP High Income 9/19/85 11/21/94 7.74% 13.64% 11.48% 11.08% 186.00%
Fidelity VIP Overseas 1/28/87 11/21/94 2.15% 7.90% 11.68% 8.05% 116.89%
Fidelity VIP II Asset Manager 9/06/89 11/21/94 10.48% 13.61% 10.57% 11.10% 139.99%
Fidelity VIP II Contrafund 1/03/95 4/28/95 13.67% n.a. n.a. 25.37% 96.93%
Fidelity VIP II Index 500 8/27/92 11/21/94 21.51% 26.57% 17.10% 17.56% 137.50%
PBHG Growth II 5/01/97 5/01/97 n.a. n.a. n.a. n.a. (1.15%)
PBHG Technology
& Communications 5/01/97 5/01/97 n.a. n.a. n.a. n.a. (4.28%)
T. Rowe Price Equity Income 3/31/94 4/28/95 17.99% 23.04% n.a. 20.52% 101.36%
</TABLE>
INFORMATION ABOUT AUL, THE VARIABLE ACCOUNT, AND THE FUNDS
AMERICAN UNITED LIFE INSURANCE COMPANY(R)
AUL is a legal reserve mutual life insurance company existing under the
laws of the State of Indiana. It was originally incorporated as a fraternal
society on November 7, 1877, under the laws of the Federal government, and
reincorporated under the laws of the State of Indiana in 1933. It is qualified
to do business in 48 states and the District of Columbia. 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, 1997, AUL had admitted assets of $8,597,755,587 and a
policy owners' surplus of $664,638,385.
The principal underwriter for the Contracts is AUL, which is registered
with the SEC as a broker-dealer.
VARIABLE ACCOUNT
AUL American Individual Unit Trust was established by AUL on April 14,
1994, under procedures established under Indiana law. The income, gains, or
losses of the Variable Account are credited to or charged against the assets of
the Variable Account without regard to other income, gains, or losses of
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<PAGE>
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 American Century Variable Portfolios, Inc., Calvert
Variable Series, Fidelity Investments, Pilgrim Baxter & Associates, and T. Rowe
Price Equity Series, Inc. under which AUL has agreed to render certain services
and to provide information about these funds to its 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 25 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 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 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 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.
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<PAGE>
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.
CALVERT VARIABLE SERIES
CALVERT SOCIAL MID CAP GROWTH
The Calvert Social Mid Cap Growth Portfolio is a socially responsible
growth Portfolio that seeks long-term capital appreciation by investing
primarily in the stock of medium sized companies. To the extent possible,
investments are made in enterprises that make a significant contribution to
society through their products and services and through the way they do
business.
FOR ADDITIONAL INFORMATION CONCERNING CALVERT VARIABLE SERIES AND THE CALVERT
SOCIAL MID CAP GROWTH PORTFOLIO, PLEASE SEE THE CALVERT VARIABLE SERIES
PROSPECTUS, WHICH SHOULD BE READ CAREFULLY BEFORE INVESTING.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
EQUITY-INCOME PORTFOLIO
The Equity-Income Portfolio seeks reasonable income by investing primarily
in income-producing equity securities; the fund will also consider the potential
for capital appreciation.
GROWTH PORTFOLIO
The Growth Portfolio seeks to achieve capital appreciation. The Portfolio
normally purchases common stocks, although the Portfolio's investments are not
restricted to any one type of security. Capital appreciation may also be found
in other types of securities, including bonds and preferred stocks.
HIGH INCOME PORTFOLIO
The High Income Portfolio seeks to obtain a high level of current income by
investing primarily in high-yielding, lower-rated, fixed-income securities,
while also considering growth of capital. These include securities commonly
referred to as junk bonds, the risks of which are described in the prospectus
for the Fund.
OVERSEAS PORTFOLIO
The Overseas Portfolio seeks long-term growth of capital primarily through
investments in foreign securities. The Overseas Portfolio provides a means for
investors to diversify their own portfolios by participating in companies and
economies outside of the United States.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
ASSET MANAGER PORTFOLIO
The Asset Manager Portfolio seeks high total return with reduced risk over
the long-term by allocating its assets among domestic and foreign stocks, bonds
and short-term money market instruments.
CONTRAFUND
The Contrafund Portfolio seeks capital appreciation by investing primarily
in securities of companies that the investment adviser believes are not fully
recognized by the public.
INDEX 500 PORTFOLIO
The Index 500 Portfolio seeks to provide investment results that correspond
to the total return (i.e., the combination of capital changes and income) of a
broad range of common stocks publicly traded in the United States. In seeking
this objective, the Portfolio attempts to duplicate the composition and total
return of the Standard & Poor's 500 Composite Stock Price Index.
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<PAGE>
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 seeks capital
appreciation. The Portfolio normally will be invested in common stocks and
convertible securities of small and medium-sized companies (market
capitalization or annual revenues up to $4 billion) which, in the Adviser's
opinion, have an outlook for strong earnings growth. The PBHG Growth II
Portfolio is co-managed by Gary Pilgrim, CFA, who manages the PBHG Growth Fund,
of the PBHG Funds, Inc., and Jeffrey A. Wrona, CFA, who is responsible for
managing other mid-cap institutional accounts.
PBHG TECHNOLOGY & COMMUNICATIONS PORTFOLIO
The primary objective of the PBHG Technology & Communications Portfolio is
long-term growth of capital. The Portfolio will seek out companies which rely
extensively on technology or communications in their product development or
operations, or those which are experiencing exceptional growth in sales and
earnings driven by technology or communications related products and services.
The Portfolio is managed by John Force, CFA, who co-manages the PBHG Technology
& Communications Fund of the PBHG Funds, Inc.
FOR 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), 457 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, or (5) deferred compensation plans for employees established by a
unit of a state or local government or by a tax-exempt organization under
Section 457
PREMIUMS AND CONTRACT VALUES DURING THE ACCUMULATION PERIOD
APPLICATION FOR A CONTRACT
Any person or, in the case of Qualified Plans, any qualified organization,
wishing to purchase a Contract must submit an application and an initial premium
to AUL, and provide any other form or information that AUL may require. AUL
reserves the right to reject an application or premium for any reason, subject
to AUL's underwriting standards and guidelines.
PREMIUMS UNDER THE CONTRACTS
Premiums under Flexible Premium Contracts may be made at any time during
the Contract Owner's life and before the Contract's Annuity Date. Premiums for
Flexible Premium Contracts may vary in amount and frequency but each premium
payment must be at least $50. Premiums must accumulate a total of at least $300
each Contract Year for the first three Contract Years. Premiums may not total
more than $12,000 in any one Contract Year unless otherwise agreed to by AUL.
For One Year Flexible Premium Contracts, premiums may vary in amount and
frequency except that additional premiums will only be accepted during the first
Contract Year. Each such premium payment must be at least $500; premiums must
total at least $5,000 in the first Contract Year for non-qualified plans and
$2,000 in the first Contract Year for qualified plans, and all premiums combined
may not exceed $1,000,000 unless otherwise agreed to by AUL.
If the minimum premium amounts under Flexible Premium or One Year Flexible
Premium Contracts are not met, AUL may, after 60 days notice, terminate the
Contract and pay an amount equal to the Contract Value as of the close of
business on the effective date of termination. AUL may change the
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<PAGE>
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% or 33 1/3%.
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. The minimum amount that may be transferred from any one Investment
Account is $500 or, if less than $500, the Owner's remaining Contract Value in
the Investment Account, provided however, that amounts transferred from the
Fixed Account to an Investment Account during any given Contract Year cannot
exceed 20% of the Owner's Fixed Account Value as of the beginning of that
Contract Year. If, after any transfer, the Owner's remaining Contract Value in
an Investment Account or in the Fixed Account would be less than $500, then such
request will be treated as a request for a transfer of the entire Contract
Value. Currently, there are no limitations on the number of transfers between
Investment Accounts available under a Contract or the Fixed Account. In
addition, no charges are currently imposed upon transfers. AUL reserves the
right, however, at a future date, to change the limitation on the minimum
transfer, to assess transfer charges, to change the limit on remaining balances,
to limit the number and frequency of transfers, and to suspend the transfer
privilege or the telephone transfer authorization. Any transfer from an
Investment Account of the Variable Account shall be effected as of the end of
the Valuation Date in which AUL receives the request in proper form. AUL has
established procedures to confirm that instructions communicated by telephone
are genuine, which include the use of personal identification numbers and
recorded telephone calls. Neither AUL nor its agents, will be liable for acting
upon instructions believed by AUL or its agents to be genuine, provided AUL has
complied with its procedures.
Part of a Contract Owner's Fixed Account Value may be transferred to one or
more Investment Accounts of the Variable Account during the Accumulation Period
subject to certain limitations as described in "The Fixed Account."
DOLLAR COST AVERAGING PROGRAM
Owners who wish to purchase units of an Investment Account over a period of
time may do so through the Dollar Cost Averaging ("DCA") Program. The theory of
dollar cost averaging is that greater numbers of Accumulation Units are
purchased at times when the unit prices are relatively low than are purchased
when the prices are higher. This has the effect, when purchases are made at
different prices, of reducing the aggregate average cost per Accumulation Unit
to less than the average of the Accumulation Unit prices on the same purchase
dates. However, participation in the Dollar Cost Averaging Program does not
assure a Contract Owner of greater profits from the purchases under the Program,
nor will it prevent or necessarily alleviate losses in a declining market.
For example, assume that a Contract Owner requests that $1,000 per month be
transferred from the Money Market Investment Account to the AUL American Equity
Investment
16
<PAGE>
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 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.
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<PAGE>
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, a tax penalty. In addition,
distributions under certain Qualified Plans may result in a tax penalty. See
"Tax Penalty." Owners of Contracts used in connection with a Qualified Plan
should refer to the terms of the applicable Qualified Plan for any limitations
or restrictions on cash withdrawals. The tax consequences of a surrender or
withdrawal under the Contracts should be carefully considered. See "Federal Tax
Matters."
THE DEATH PROCEEDS
If a Contract Owner dies at or after age 76, the amount of the Death
Proceeds is equal to the Contract Owner's Contract Value as of the end of the
Valuation Period in which due proof of death and instructions regarding payment
are received by AUL at its Home Office. If a Contract Owner or, as described
below, an Annuitant, dies before age 76, the Death Proceeds will be the greater
of the Contract Value as of the end of the Valuation Period in which due proof
of death and instructions regarding payment are received by AUL at its Home
Office or the value given by (a)-(b)-(c)+(d) where: (a) is the net premiums; (b)
is any amounts withdrawn (including any withdrawal charges) prior to death; (c)
is the annual fees assessed prior to death; and (d) is the interest earned on
(a)-(b)-(c), credited at an annual effective rate of 4% until the date of death.
If the Contract Owner dies before the Annuity Date and the Beneficiary is
not the Contract Owner's surviving spouse, the Death Proceeds will be paid to
the Beneficiary. Such Death Proceeds will be paid in a lump-sum, unless the
Beneficiary elects to have this value applied under a settlement option. If a
settlement option is elected, the Beneficiary must be named the Annuitant and
payments must begin within one year of the Contract Owner's death. The option
also must have payments which are payable over the life of the Beneficiary or
over a period which does not extend beyond the life expectancy of the
Beneficiary.
If the Contract Owner dies before the Annuity Date and the Beneficiary is
the Contract Owner's surviving spouse, the surviving spouse will become the new
Contract Owner. The Contract will continue with its terms unchanged and the
Contract Owner's spouse will assume all rights as Contract Owner. Within 120
days of the original Contract Owner's death, the Contract Owner's spouse may
elect to receive the Death Proceeds or withdraw any of the Contract Value
without any early withdrawal charge. However, depending upon the circumstances,
a tax penalty may be imposed upon such a withdrawal.
Any amount payable under a Contract will not be less than the minimum
required by the law of the state where the Contract is delivered.
If the Annuitant dies before the Annuity Date and the Annuitant is not also
the Contract Owner, then: (1) if the Contract Owner is not an individual, the
Death Proceeds will be paid to the Contract Owner in a lump-sum; or (2) if the
Contract Owner is an individual, a new Annuitant may be named and the Contract
will continue. If a new Annuitant is not named within 120 days of the
Annuitant's death, the Contract Value, less any withdrawal charges, will be paid
to the Contract Owner in a lump-sum.
The death benefit will be paid to the Beneficiary or Contract Owner, as
appropriate, in a single sum or under one of the Annuity Options, as directed by
the Contract Owner or as
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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 the Contract Value at
the time of the first withdrawal in any Contract Year in which the withdrawal is
being made. Any transfer of Contract Value from the Fixed Account to the
Variable Account will reduce the Free Withdrawal Amount by the amount
transferred. The chart below illustrates the amount of the withdrawal charge
that applies to both variations of Contracts based on the number of years that
the Contract has been in existence.
<TABLE>
<CAPTION>
Charge on Withdrawal Exceeding 12% Free Withdrawal Amount
Charge on Withdrawal Exceeding 12% Free Withdrawal Amount(1)
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Contract Year 1 2 3 4 5 6 7 8 9 10 11 or more
Flexible Premium
Contracts 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0%
One Year Flexible
Premium Contracts 7% 6% 5% 4% 3% 2% 1% 0% 0% 0% 0%
</TABLE>
In no event will the amount of any withdrawal charge, when added to any
withdrawal charges previously assessed against any amount withdrawn from a
Contract, exceed 8.5% of the total premiums paid on a Flexible Premium Contract
or 8% of the total premiums paid on a One Year Flexible Premium Contract. In
addition, no withdrawal charge will be imposed upon payment of Death Proceeds
under the Contract.
A withdrawal charge may be assessed upon annuitization of a Contract. For a
Flexible Premium Contract, no withdrawal charge will apply if the Contract is in
its fifth Contract Year or later and a life annuity or survivorship annuity
option is selected. For a One Year Flexible Premium Contract, no withdrawal
charge will apply if a life annuity or survivorship option is selected or if the
Contract is in its fourth Contract Year or later and the fixed income option for
a period of 10 or more years is chosen. Otherwise, the withdrawal charge will
apply.
The withdrawal charge will be used to recover certain expenses relating to
sales of the Contracts, including commissions paid to sales personnel and other
promotional costs. AUL reserves the right to increase or decrease the withdrawal
charge for any Contracts established on or after the effective date of the
change, but the withdrawal charge will not exceed 8.5% of the total premiums
paid on a Flexible Premium Contract or 8% of the total premiums paid on a One
Year Flexible Premium Contract.
MORTALITY AND EXPENSE RISK CHARGE
AUL deducts a daily charge from the assets of each Investment Account for
mortality and expense risks assumed by AUL. The charge is equal to an annual
rate of 1.25% of the average daily net assets of each Investment Account. This
amount is intended to compensate AUL for certain mortality and expense risks AUL
assumes in offering and administering the Contracts and in operating the
Variable Account. The 1.25% charge is based on original estimates of 0.40% for
expense risk and 0.85% for mortality risk.
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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 per 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.
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.
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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 Participant 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.
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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 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.
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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.
However, under certain Qualified Plans, no benefit or privilege under a
Contract may be sold, assigned, discounted, or pledged as collateral for a loan
or as security for the performance of an obligation or for any other purpose to
any person or entity other than AUL.
PROOF OF AGE AND SURVIVAL
AUL may require proof of age, 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), 457, or 408 of the Internal Revenue Code ("Code"). The
ultimate effect of Federal income taxes on values under a Contract, on annuity
payments, and on the economic benefits to the Owner, the Annuitant, and the
Beneficiary or other payee, may depend upon the type of Qualified Plan for which
the Contract is purchased and a number of different factors. The discussion
contained herein and in the Statement of Additional Information is general in
nature. It is based upon AUL's understanding of the present Federal income tax
laws as currently interpreted by the Internal Revenue Service ("IRS"), and is
not intended as tax advice. No representation is made regarding the likelihood
of continuation of the present Federal income tax laws or of the current
interpretations by the IRS. Future legislation may affect annuity contracts
adversely. Moreover, no attempt is made to consider any applicable state or
other laws. Because of the inherent complexity of such laws and the fact that
tax results will vary according to the terms of the Qualified Plan and the
particular circumstances of the individual involved, any person contemplating
the purchase of a Contract, or receiving annuity payments under a Contract,
should consult a qualified tax adviser.
AUL DOES NOT MAKE ANY GUARANTEE REGARDING THE TAX STATUS OF ANY CONTRACT OR ANY
TRANSACTION INVOLVING THE CONTRACTS. CONSULT YOUR TAX ADVISOR.
DIVERSIFICATION STANDARDS
Treasury Department regulations under Section 817(h) of the Code prescribe
asset diversification requirements which are expected to be met by the
investment companies whose shares are sold to the Investment Accounts. Failure
to meet these requirements would jeopardize the tax status of the Contracts. See
the Statement of Additional Information for additional details.
In connection with the issuance of the regulations governing
diversification under Section 817(h) of the Code, the Treasury Department
announced that it would issue future regulations or rulings addressing the
circumstances in which a variable contract owner's control of the investments of
a separate account may cause the contract owner, rather than the insurance
company, to be treated as the owner of the assets held by the separate account.
If the variable contract owner is considered the owner of the securities
underlying the separate account, income and gains produced by those securities
would be included currently in a contract owner's gross income. It is not clear,
at present, what these regulations or rulings may provide. It is possible that
when the regulations or rulings are issued, the Contracts may need to be
modified in order to remain in compliance. AUL intends to make reasonable
efforts to comply with any such regulations or rulings so that the Contracts
will be treated as annuity contracts for Federal income tax purposes and
reserves the right to make such changes as it deems appropriate for that
purpose.
TAXATION OF ANNUITIES IN GENERAL - NON-QUALIFIED PLANS
Section 72 of the Code governs taxation of annuities. In general, a
Contract Owner is not taxed on increases in value under an annuity contract
until some form of distribution is made under the contract. However, the
increase in value may be subject to tax currently under certain circumstances.
See "Contracts Owned by Non-Natural Persons" below and "Diversification
Standards" above.
1. Surrenders or Withdrawals Prior to the Annuity Date
Code Section 72 provides that amounts received upon a total or partial
surrender or withdrawal from a contract prior to the annuity date generally will
be treated as gross income to the extent that the cash value of the contract
(determined without regard to any surrender charge in the case of a partial
withdrawal) exceeds the "investment in the contract." In general, the
"investment in the contract" is that portion, if any, of premiums paid under a
contract less any distributions received previously under the contract that are
excluded from the recipient's gross income. The taxable portion is taxed at
ordinary income tax rates. For purposes of this rule, a pledge or assignment of
a contract is treated as a payment received on account of a partial withdrawal
of a contract. Similarly, loans under a
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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 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 cal-
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<PAGE>
endar 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 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.
4. Deferred Compensation Plans
Section 457 of the Code permits employees of state and local governments
and units and agencies of state and local governments as well as tax-exempt
organizations described in Section 501(c)(3) of the Code to defer a portion of
their compensation without paying current taxes. The employees must be
Participants in an eligible deferred compensation plan.
If the Employer sponsoring a 457 Program requests and receives a withdrawal
for an eligible employee in connection with a 457 Program, then the amount
received by the employee will be taxed as ordinary income. Since, under a 457
Program, contributions are excludable from the taxable income of the employee,
the full amount received will be taxable as ordinary income when annuity
payments commence or other distribution is made.
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
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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.
An Owner of a Contract purchased as a tax-deferred Section 403(b) annuity
contract will not, therefore, be entitled to exercise the right of surrender or
withdrawal, as described in this Prospectus, in order to receive his or her
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 Portfolios of the Funds held by
the Investment Accounts of the Variable Account. In accordance with its view of
present applicable law, AUL will exercise voting rights attributable to the
shares of the Funds held in the Investment Accounts at any regular and special
meetings of the shareholders of the Funds on matters requiring shareholder
voting under the 1940 Act. AUL will exercise these voting rights based on
instructions received from persons having the voting interest in corresponding
Investment Accounts of the Variable Account and consistent with any requirements
imposed on AUL under contracts with any of the Funds, or under applicable law.
However, if the 1940 Act or any regulations thereunder should be amended, or if
the present interpretation thereof should change, and as a result AUL determines
that it is permitted to vote the shares of the Funds in its own right, it may
elect to do so.
The person having the voting interest under a Contract is the 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
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the Variable Account or any Investment Account or that the Variable Account or
any Investment Account may purchase. If shares of any or all of the Funds should
no longer be available for investment, or if, in the judgment of AUL's
management, further investment in shares of any or all of the Funds should
become inappropriate in view of the purposes of the Contracts, AUL may
substitute shares of another fund for shares already purchased, or to be
purchased in the future under the Contracts. AUL may also purchase, through the
Variable Account, other securities for other classes of contracts, or permit a
conversion between classes of contracts on the basis of requests made by
Contract Owners or as permitted by Federal law.
Where required under applicable law, AUL will not substitute any shares
attributable to a Contract Owner's interest in an Investment Account or the
Variable Account without notice, Contract Owner approval, or prior approval of
the SEC or a state insurance commissioner, and without following the filing or
other procedures established by applicable state insurance regulators.
AUL also reserves the right to establish additional Investment Accounts of
the Variable Account that would invest in another investment company, a series
thereof, or other suitable investment vehicle. New Investment Accounts may be
established in the sole discretion of AUL, and any new Investment Account will
be made available to existing Contract Owners on a basis to be determined by
AUL. AUL may also eliminate or combine one or more Investment Accounts or cease
permitting new allocations to an Investment Account if, in its sole discretion,
marketing, tax, or investment conditions so warrant.
Subject to any required regulatory approvals, AUL reserves the right to
transfer assets of any Investment Account of the Variable Account to another
separate account or Investment Account.
In the event of any such substitution or change, AUL may, by appropriate
endorsement, make such changes in these and other Contracts as may be necessary
or appropriate to reflect such substitution or change. AUL reserves the right to
operate the Variable Account as a management investment company under the 1940
Act or any other form permitted by law, an Investment Account may be
deregistered under that Act in the event such registration is no longer
required, or it may be combined with other separate accounts of AUL or an
affiliate thereof. Subject to compliance with applicable law, AUL also may
combine one or more Investment Accounts and may establish a committee, board, or
other group to manage one or more aspects of the operation of the Variable
Account.
CHANGES TO COMPLY WITH LAW AND AMENDMENTS
AUL reserves the right, without the consent of Contract Owners, to make any
change to the provisions of the Contracts to comply with, or to give Contract
Owners the benefit of, any Federal or state statute, rule, or regulation,
including, but not limited to, requirements for annuity contracts and retirement
plans under the Internal Revenue Code and regulations thereunder or any state
statute or regulation.
RESERVATION OF RIGHTS
AUL reserves the right to refuse to accept new premiums under a Contract
and to refuse to accept any application for a Contract.
PERIODIC REPORTS
AUL will send quarterly statements showing the number, type, and value of
Accumulation Units credited to the Contract. AUL will also send statements
reflecting transactions in a Contract Owner's Account as required by applicable
law. In addition, every person having voting rights will receive such reports or
Prospectuses concerning the Variable Account and the Funds as may be required by
the 1940 Act and the 1933 Act.
LEGAL PROCEEDINGS
There are no legal proceedings pending to which the Variable Account is a
party, or which would materially affect the Variable Account.
LEGAL MATTERS
Legal matters in connection with the issue and sale of the Contracts
described in this Prospectus and the organization of AUL, its authority to issue
the Contracts under Indiana law, and the validity of the forms of the Contracts
under Indiana law have been passed upon by the Associate General Counsel of AUL.
Legal matters relating to the Federal securities and Federal income tax
laws have been passed upon by Dechert Price & Rhoads, Washington, D.C.
FINANCIAL STATEMENTS
Financial statements of AUL as of December 31, 1997, are included in the
Statement of Additional Information.
YEAR 2000 ISSUES AND READINESS
In recent years, the Year 2000 problem has received extensive publicity.
The problem arises because most computer systems and programs were written with
dates expressed as a 2 digit code. Unless steps are taken, on January 1, 2000,
many systems may read the year "2000" as "1900" and date-related computations
either would not be processed or would be processed incorrectly. This could have
a material and adverse effect on financial institutions such as banks and
insurance companies like AUL. To prevent this, AUL began assessing the potential
impact in early 1996 and adopted a detailed written work plan in June, 1997 to
deal with Year 2000 issues.
Due to the complexity of this issue and the ever-increasing
interrelationships of computer systems in the United States, it would be
extremely difficult for any company to state that it has or will achieve
complete Year 2000 compliance or to guar-
27
<PAGE>
antee that its systems will not be affected in any way on January 1, 2000.
However, AUL currently believes that all critical computer systems and software
(those systems or software, which would cause great disruption to the Company if
they were inoperable for any length of time or if they were to generate
erroneous data) will, before January 1, 2000, be Year 2000 compliant. Although
AUL has no reason to believe that these steps will not be sufficient to avoid
any material adverse impact from Year 2000 issues and is addressing its Year
2000 issues by using both internal staff and external consultants, by replacing
hardware, operating systems, and application software, and by remediating
current application software, there can be no assurance that the Company's
efforts will be sufficient to avoid any adverse impact. This project is
currently expected to require more than 285,000 hours of labor at a cost of
approximately $17,000,000, which will be expensed against current operating
funds.
As a part of its plan, the Company has surveyed its primary service
providers to be sure that such providers have taken steps to address the Year
2000 issues. AUL will continue to periodically monitor the status of all service
providers' Year 2000 efforts.
PERFORMANCE INFORMATION
Performance information for the Investment Accounts is shown under
"Performance of the Investment Accounts." Performance information for the
Investment Accounts may also appear in promotional reports and sales literature
to current or prospective Contract Owners in the manner described in this
section. Performance information in promotional reports and literature may
include the yield and effective yield of the Investment Account investing in the
Money Market Investment Account, the yield of the remaining Investment Accounts,
the average annual total return and the total return of all Investment Accounts.
For information on the calculation of current yield and effective yield, see the
Statement of Additional Information.
Quotations of average annual total return for any Investment Account will
be expressed in terms of the average annual compounded rate of return on a
hypothetical investment in a Contract over a period of one, five and ten years
(or, if less, up to the life of the Investment Account), and will reflect the
deduction of the applicable withdrawal charge, the mortality and expense risk
charge, and if applicable, the administrative charge. Hypothetical quotations of
average annual total return may also be shown for an Investment Account for
periods prior to the time that the Investment Account commenced operations based
upon the performance of the mutual fund portfolio in which that Investment
Account invests, and will reflect the deduction of the applicable withdrawal
charge, the administrative charge, and the mortality and expense risk charge as
if, and to the extent, that such charges had been applicable. Quotations of
total return, actual and hypothetical, may simultaneously be shown that do not
take into account certain contractual charges such as the withdrawal charge and
the administrative charge and may be shown for different periods.
Performance information for any Investment Account reflects only the
performance of a hypothetical Contract under which Contract Value is allocated
to an Investment Account during a particular time period on which the
calculations are based. Performance information should be considered in light of
the investment objectives and policies, characteristics, and quality of the Fund
in which the Investment Account invests, and the market conditions during the
given time period, and should not be considered as representation of what may be
achieved in the future. For a description of the methods used to determine yield
and total return in promotional reports and literature for the Investment
Accounts, information on possible uses for performance, and other information,
see the Statement of Additional Information.
STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information contains more specific information
and financial statements relating to AUL. The Table of Contents of the Statement
of Additional Information is set forth below:
<TABLE>
<S> <C>
GENERAL INFORMATION AND HISTORY.................................................................. 3
DISTRIBUTION OF CONTRACTS........................................................................ 3
CUSTODY OF ASSETS................................................................................ 3
TAX STATUS OF AUL AND THE VARIABLE ACCOUNT....................................................... 3
TAX TREATMENT OF AND LIMITS ON PREMIUMS UNDER RETIREMENT PLANS................................... 3-6
403(b) Programs................................................................................ 4
408 Programs................................................................................... 4
Employee Benefit Plans......................................................................... 5
Tax Penalty for All Annuity Contracts.......................................................... 5
Withholding for Employee Benefit Plans and Tax-Deferred Annuities.............................. 5
INDEPENDENT ACCOUNTANTS.......................................................................... 6
PERFORMANCE INFORMATION.......................................................................... 6-7
FINANCIAL STATEMENTS............................................................................. 8-19
</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.
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<PAGE>
================================================================================
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, 1998
================================================================================
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<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1998
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, 1998.
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................................................................. 3
DISTRIBUTION OF CONTRACTS....................................................................... 3
CUSTODY OF ASSETS............................................................................... 3
TAX STATUS OF AUL AND THE VARIABLE ACCOUNT...................................................... 3
TAX TREATMENT OF AND LIMITS ON PREMIUMS UNDER RETIREMENT PROGRAMS............................... 3-6
403(b) Programs............................................................................... 4
408 Programs.................................................................................. 4
Employee Benefit Plans........................................................................ 5
Tax Penalty for All Annuity Contracts......................................................... 5
Withholding for Employee Benefit Plans and Tax-Deferred Annuities............................. 5
INDEPENDENT ACCOUNTANTS......................................................................... 6
PERFORMANCE INFORMATION......................................................................... 6-7
FINANCIAL STATEMENTS............................................................................ 8-19
</TABLE>
2
<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 70% may be
represented by any two investments, no more than 80% may be represented by any
three investments, and no more than 90% may be represented by any four
investments. For the purposes of Section 817(h), securities of a single issuer
generally are treated as one investment, but obligations of the U.S. Treasury
and each U.S. Governmental agency or instrumentality generally are treated as
securities of separate issuers.
TAX TREATMENT OF 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
3
<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 $10,000 a year. The $10,000 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 $10,000 limit
by $3,000 per year, subject to an aggregate limit of $15,000 for all years.
Section 403(b)(2) provides an overall limit on employer and 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 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
4
<PAGE>
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.
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.
5
<PAGE>
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 similar services for the
Variable Account. The AUL financial statements included in this Statement of
Additional Information have been audited to the extent and for the periods
indicated in their report thereon and its internal accounting controls have been
reviewed.
PERFORMANCE INFORMATION
Performance information for the Investment Accounts is shown in the
prospectus under "Performance of the Investment Accounts." Performance
information for the Investment Accounts may also appear in promotional reports
and literature to current or prospective 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 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
6
<PAGE>
December 31, 1997 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.
7
<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, 1997 and 1996, and the
related combined statements of operations, policyholders' surplus and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of American United Life
Insurance Company(R) and affiliates as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Indianapolis, Indiana
February 27, 1998
8
<PAGE>
COMBINED BALANCE SHEET
December 31, 1997 and 1996 1997(in millions)1996
-------------------------------------------------------------------------
Assets
Investments:
Fixed Maturities:
Available for sale at fair value ........... $ 1,653.8 $ 1,593.4
Held to maturity at amortized cost ......... 2,902.2 3,013.6
Equity securities at fair value ............. 18.6 15.2
Mortgage loans .............................. 1,120.4 1,114.6
Real estate ................................. 52.1 52.3
Policy loans ................................ 143.1 143.5
Short term and other invested assets ........ 102.0 43.8
Cash and cash equivalents ................... 41.2 20.2
-------------------------------------------------------------------------
Total investments ........................... 6,033.4 5,996.6
Accrued investment income ................... 79.3 82.1
Reinsurance receivables ..................... 244.3 209.5
Deferred acquisition costs .................. 421.2 348.2
Property and equipment ...................... 55.5 54.0
Insurance premiums in course of collection .. 72.9 47.5
Other assets ................................ 17.2 35.7
Assets held in separate accounts ............ 1,674.0 1,078.7
-------------------------------------------------------------------------
Total assets ................................ $ 8,597.8 $ 7,852.3
-------------------------------------------------------------------------
Liabilities and policyholders' surplus
Liabilities
Policy reserves ............................ $ 5,642.9 $ 5,688.6
Other policyholder funds ................... 175.2 176.2
Pending policyholder claims ................ 164.3 137.6
Surplus notes .............................. 75.0 75.0
Other liabilities and accrued expenses ..... 201.8 123.4
Liabilities related to separate accounts ... 1,674.0 1,078.7
-------------------------------------------------------------------------
Total liabilities ........................... 7,933.2 7,279.5
-------------------------------------------------------------------------
Unrealized appreciation of securities,
net of deferred income tax ................. 36.5 19.0
Policyholders' surplus ...................... 628.1 553.8
-------------------------------------------------------------------------
Total policyholders' surplus ................ 664.6 572.8
-------------------------------------------------------------------------
Total liabilities and policyholders' surplus $ 8,597.8 $ 7,852.3
-------------------------------------------------------------------------
COMBINED STATEMENT
OF POLICYHOLDERS' SURPLUS
Policyholders' surplus at beginning of year .... $ 572.8 $ 548.9
Net income ..................................... 74.3 52.1
Change in unrealized appreciation (depreciation)
of securities, net ............................. 17.5 (28.2)
- ----------------------------------------------------------------------------
Policyholders' surplus at end of year .......... $ 664.6 $ 572.8
- ----------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
8
COMBINED STATEMENT OF OPERATIONS
December 31, 1997 and 1996 1997(in millions)1996
- ---------------------------------------------------------------------------
Revenues:
Insurance premiums and other
considerations ............................... $ 413.9 $ 401.1
Policy and contract charges ................... 69.3 50.4
Net investment income ......................... 464.9 471.8
Realized investment gains ..................... 13.7 6.6
Other income .................................. 5.9 1.2
- ----------------------------------------------------------------------------
Total revenues ................................. 967.7 931.1
- ----------------------------------------------------------------------------
Benefits and expenses:
Policy benefits ............................... $ 386.2 $ 381.9
Interest expense on annuities and
financial products ........................... 257.3 261.6
Underwriting, acquisition and
insurance expenses ........................... 126.6 111.2
Amortization of deferred acquisition costs .... 53.2 49.8
Dividends to policyholders .................... 25.0 26.3
Interest expense on surplus notes ............. 5.8 5.1
Other operating expenses ...................... 9.5 8.7
- ----------------------------------------------------------------------------
Total benefits and expenses ................... 863.6 844.6
- ----------------------------------------------------------------------------
Income before income tax expense .............. 104.1 86.5
Income tax expense ............................ 29.8 34.4
- ----------------------------------------------------------------------------
Net income .................................... $ 74.3 $ 52.1
- ----------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
9
COMBINED STATEMENT OF CASH FLOWS
December 31, 1997 and 1996 1997(in millions)1996
- ---------------------------------------------------------------------------
Cash flows from operating activities:
- ---------------------------------------------------------------------------
Net Income ..................................... $ 74.3 $ 52.1
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of deferred acquisition costs ..... 53.2 49.8
Depreciation ................................... 10.1 9.2
Deferred taxes ................................. 7.3 1.8
Realized investment gains ...................... (13.7) (6.6)
Policy acquisition costs capitalized ........... (90.8) (69.3)
Interest credited to deposit liabilities ....... 252.1 254.7
Fees charged to deposit liabilities ............ (32.9) (19.8)
Amortization and accrual of investment income .. (8.2) (6.2)
Increase in insurance liabilities .............. 140.2 93.9
Increase in noninvested assets ................. (66.3) (44.4)
Increase in other liabilities .................. 35.1 19.6
Net cash provided by operating activities ...... 360.4 334.8
Cash flows from investing activities:
Purchases:
Fixed maturities, Held to Maturity ............. (120.8) (194.4)
Fixed maturities, Available for Sale ........... (348.3) (477.7)
Equity securities .............................. (9.4) (24.7)
Mortgage loans ................................. (155.4) (169.1)
Real estate .................................... (1.9) (3.9)
Short term and other invested assets ........... (43.3) (2.6)
Proceeds from sales, calls or maturities:
Fixed maturities, Held to Maturity ............. 241.2 158.8
Fixed maturities, Available for Sale ........... 335.1 466.4
Equity securities .............................. 7.2 28.7
Mortgage loans ................................. 149.7 175.0
Real estate .................................... 4.3 3.1
Short term and other invested assets ........... 1.6 27.6
Net cash provided (used) by investing activities 60.0 (12.8)
Cash flows from financing activities:
Proceeds from issuance of surplus notes ........ 0 75.0
Deposits to insurance liabilities .............. 713.6 595.2
Withdrawals from insurance liabilities ......... (1,112.5) (984.6)
Change in policyholder dividend liability ...... (.9) 3.6
Decrease (increase) in policy loans ............ .4 (1.9)
Net cash used by financing activities .......... (399.4) (312.7)
Net increase in cash and cash equivalents ...... 21.0 9.3
Cash and cash equivalents beginning of year .... 20.2 10.9
Cash and cash equivalents end of year .......... $ 41.2 $ 20.2
The accompanying notes are an integral part of the financial statements.
<PAGE>
10
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Basis of Presentation
American United Life Insurance Company (AUL) is an Indiana domiciled mutual life
insurance company with headquarters in Indianapolis. AUL is licensed to do
business in 48 states and the District of Columbia and is an authorized
reinsurer in all states. AUL offers individual life and annuity products through
its career agent distribution system. AUL's qualified group retirement plans,
tax deferred annuities and other non-medical group products are marketed through
independent agents and brokers, as well as career agents who are supported by 29
regional sales offices located throughout the country. Life and pooled
reinsurance is marketed directly to other insurance companies. In 1997, AUL
International began operations to develop reinsurance partners in Central and
South America. The combined Company financial statements include the accounts of
AUL and its affiliate, The State Life Insurance Company (State Life).
Significant intercompany transactions have been excluded.
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles (GAAP). AUL and State Life file
separate financial statements with insurance regulatory authorities which are
prepared on the basis of statutory accounting practices which are significantly
different from financial statements prepared in accordance with GAAP. These
differences are described in detail in Note 9 - Statutory Information.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Investments
Fixed maturity securities which may be sold to meet liquidity and other needs of
the Company are categorized as available for sale and are stated at fair value.
Fixed maturity securities which the Company has the positive intent and ability
to hold to maturity are categorized as held-to-maturity and are stated at
amortized cost. Equity securities are stated at fair value. Mortgage loans on
real estate are carried at amortized cost less an impairment allowance for
estimated uncollectible amounts. Real estate is reported at cost less allowances
for depreciation. Depreciation is provided (straight line) over the estimated
useful lives of the related assets. Investment real estate is net of accumulated
depreciation of $31.7 million and $28.8 million at December 31, 1997 and 1996,
respectively. Depreciation expense for investment real estate amounted to $2.5
million and $2.4 million for 1997 and 1996, respectively. Policy loans are
carried at their unpaid balance. Other invested assets are reported at cost plus
the Company's equity in undistributed net equity since acquisition. Short term
investments include investments with maturities of one-year or less and are
carried at cost which approximates market. Short term certificates of deposit
and savings certificates are considered to be cash equivalents. The carrying
amount for cash and cash equivalents approximates market.
Realized gains and losses on sale or maturity of investments are based upon
specific identification of the investments sold and do not include amounts
allocable to separate accounts. At the time a decline in value of an investment
is determined to be other than temporary, a provision for loss is recorded which
is included in realized investment gains and losses. Unrealized gains and
losses, resulting from carrying available-for-sale securities at fair value, are
reported in policyholders' surplus, net of deferred taxes.
Deferred Policy Acquisition Costs
Those costs of acquiring new business, which vary with and are primarily related
to the production of new business, have been deferred to the extent that such
costs are deemed recoverable. Such costs include commissions, certain costs of
policy underwriting and issue and certain variable agency expenses. These costs
are amortized with interest as follows:
For participating whole life insurance products, over the lesser of 30
years or the lifetime of the policy in relation to the present value of
estimated gross margins from expenses, investments and mortality,
discounted using the expected investment yield.
For universal life-type policies and investment contracts, over the lesser
of the lifetime of the policy or 30 years for life policies or 20 years for
other policies in relation to the present value of estimated gross profits
from surrender charges and investment, mortality and expense margins,
discounted using the interest rate credited to the policy.
For term life insurance products and life reinsurance policies, over the
lesser of the benefit period or 30 years for term life or 20 years for life
reinsurance policies in relation to the ratio of anticipated annual premium
revenue to the anticipated total premium revenue, using the same
assumptions used in calculating policy benefits.
For miscellaneous group life and individual and group health policies,
straight line over the expected life of the policy.
For credit insurance policies, the deferred acquisition cost balance is
primarily equal to the unearned premium reserve multiplied by the ratio of
deferrable commissions to premiums written.
Recoverability of the unamortized balance of deferred policy acquisition costs
is evaluated regularly. For universal life-type contracts, investment contracts
and participating whole life policies, the accumulated amortization is adjusted
(increased or decreased) whenever there is a material change in the estimated
gross profits or gross margins expected over the life of a block of business in
order to maintain a constant relationship between cumulative amortization and
the present value of gross profits or gross margins. For most other contracts,
the unamortized asset balance is reduced by a charge to income only when the
present value of future cash flows, net of the policy liabilities, is not
sufficient to cover such asset balance.
<PAGE>
11
NOTES TO FINANCIAL STATEMENTS
Assets Held in Separate Accounts
Separate accounts are funds on which investment income and gains or losses
accrue directly to certain policies, primarily variable annuity contracts and
equity-based pension and profit sharing plans. The assets of these accounts are
legally segregated, and are valued at fair value. The related liabilities are
recorded at amounts equal to the underlying assets; the fair value of these
liabilities is equal to their carrying amount.
Property and Equipment
Property and equipment includes real estate owned and occupied by the Company.
Property and equipment is carried at cost, net of accumulated depreciation of
$41.6 million and $37.2 million as of December 31, 1997 and 1996, respectively.
The Company provides for depreciation of property and equipment using the
straight-line method over its estimated useful life. Depreciation expense for
1997 and 1996 was $7.6 million and $6.8 million, respectively.
Premium Revenue and Benefits to Policyholders
The premiums and benefits for whole life and term insurance products and certain
annuities with life contingencies (immediate annuities) are fixed and
guaranteed. Such premiums are recognized as premium revenue when due. Group
insurance premiums are recognized as premium revenue over the time period to
which the premiums relate. Benefits and expenses are associated with earned
premiums so as to result in recognition of profits over the life of the
contracts. This association is accomplished by means of the provision for
liabilities for future policy benefits and the amortization of deferred policy
acquisition costs.
Universal life policies and investment contracts are policies with terms that
are not fixed and guaranteed. The terms that may be changed could include one or
more of the amounts assessed the policyholder, premiums paid by the policyholder
or interest accrued to policyholder balances. The amounts collected from
policyholders for these policies are considered deposits, and only the
deductions during the period for cost of insurance, policy administration and
surrenders are included in revenue. Policy benefits and claims that are charged
to expense include interest credited to contracts and benefit claims incurred in
the period in excess of related policy account balances.
Reserves for Future Policy and Contract Benefits
Liabilities for future policy benefits for participating whole life policies are
calculated using the net level premium method and assumptions as to interest and
mortality. The interest rate is the dividend fund interest rate and the
mortality rates are those guaranteed in the calculation of cash surrender values
described in the contract. Liabilities for future policy benefits for term life
insurance and life reinsurance policies are calculated using the net level
premium method and assumptions as to investment yields, mortality and
withdrawals. The assumptions are based on projections of past experience and
include provisions for possible unfavorable deviation. These assumptions are
made at the time the contract is issued. Liabilities for future policy benefits
on universal life and investment contracts consist principally of policy account
values plus certain deferred policy fees which are amortized using the same
assumptions and factors used to amortize the deferred policy acquisition costs.
If the future benefits on investment contracts are guaranteed (immediate
annuities with benefits paid for a period certain) the liability for future
benefits is the present value of such guaranteed benefits. Claim liabilities
include provisions for reported claims and estimates based on historical
experience, for claims incurred but not reported.
Income Taxes
The provision for income taxes includes amounts currently payable and deferred
income taxes resulting from the temporary differences in the assets and
liabilities determined on a tax and financial reporting basis.
<PAGE>
12
NOTES TO FINANCIAL STATEMENTS
2. Investments:
The book value and fair value of investments in fixed maturity securities by
type of investment were as follows:
<TABLE>
<CAPTION>
December 31, 1997
- ----------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------
Available for sale: (in millions)
<S> <C> <C> <C> <C>
Obligations of U.S. government states,
political subdivisions end foreign governments $ 47.8 $ 4.0 $0.0 $ 51.8
Corporate securities ......................... 1,064.1 55.5 1.8 1,117.8
Mortgage-backed securities ................... 456.8 27.6 0.2 484.2
- ----------------------------------------------------------------------------------------------------------------
$ 1,568.7 $ 87.1 $2.0 $ 1,653.8
- ----------------------------------------------------------------------------------------------------------------
Held to maturity
Obligations of U.S. government, states,
political subdivisions and foreign governments $ 124.2 $ 6.2 $0.3 $ 130.1
Corporate securities ......................... 1,854.4 123.4 3.6 1,9742
Mortgage-backed securities ................... 923.6 55.5 0.2 978.9
- ----------------------------------------------------------------------------------------------------------------
$ 2,902.2 $185.1 $4.1 $ 3,083.2
- ----------------------------------------------------------------------------------------------------------------
December 31, 1997
- ----------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------
Available for sale: (in millions)
<S> <C> <C> <C> <C>
Obligations of U.S. government, states,
political subdivisions end foreign governments $ 85.2 $ 1.9 $ 1.3 $ 85.8
Corporate securities ......................... 1,000.0 33.9 7.0 1,026.9
Mortgage-backed securities ................... 463.0 19.1 1.4 480.7
- ----------------------------------------------------------------------------------------------------------------
$ 1,548.2 $ 54.9 $ 9.7 $ 1,593.4
- ----------------------------------------------------------------------------------------------------------------
Held to maturity:
Obligations of U.S. government, states,
political subdivisions and foreign governments $ 132.0 $ 5.5 $ 1.1 $ 136.4
Corporate securities ......................... 1,891.1 100.1 14.0 1,977.2
Mortgage-backed securities ................... 990.5 44.9 4.4 1,031.0
- ----------------------------------------------------------------------------------------------------------------
$ 3,013.6 $ 150.5 $ 19.5 $ 3,144.6
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
13
NOTES TO FINANCIAL STATEMENTS
The amortized cost and fair value of fixed maturity securities at December
31,1997, by contractual average maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Available for Sale Held to Maturity Total
Amortized Fair Amortized Fair Amortized Fair
(in millions) Cost Value Cost Value Cost Value
- -----------------------------------------------------------------------------------------------------------
Due in one year or less .............. $ 127.0 $ 127.2 $ 60.8 $ 61.5 $ 187.8 $ 188.7
Due after one year through five years 311.6 318.4 768.5 798.0 1,080.1 1,116.4
Due after five years through ten years 368.9 388.5 738.9 794.7 1,107.8 1,183.2
Due after ten years .................. 304.4 335.5 410.4 450.1 714.8 785.6
- -----------------------------------------------------------------------------------------------------------
1,111.9 1,169.6 1,978.6 2,104.3 3,090.5 3,273.9
Mortgage-backed securities ........... 456.8 484.2 923.6 978.9 1,380.4 1,463.1
- -----------------------------------------------------------------------------------------------------------
$ 1,568.7 $ 1,653.8 $ 2,902.2 $ 3,083.2 $ 4,470.9 $ 4,737.0
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Net investment income consisted of the following:
for years ended December 31 1997(in millions)1996
- ----------------------------------------------------------------------------
Fixed maturity securities $359.4 $364.0
Equity securities 2.5 2.0
Mortgage loans 100.9 104.4
Real estate 11.5 10.8
Policy loans 8.8 9.0
Other 7.3 6.1
- ----------------------------------------------------------------------------
Gross investment income 490.4 496.3
Investment expenses 25.5 24.5
- ----------------------------------------------------------------------------
Net investment income $464.9 $471.8
- ----------------------------------------------------------------------------
Net realized investment gains and (losses) include write downs and changes in
the reserve for losses on mortgage loans and foreclosed real estate of $(1.3)
million and $.5 million for 1997 and 1996, respectively. Proceeds from the
sales, maturities or calls of investments in fixed maturities during 1997 and
1996 were approximately $576.3 million and $625.2 million, respectively. Gross
gains of $11.6 million and $12.0 million, and gross losses of $1.3 million and
$6.9 million were realized in 1997 and 1996, respectively. The changes in
unrealized appreciation (depreciation) of fixed maturities amounted to
approximately $39.9 million and $(64.3) million in 1997 and 1996, respectively.
At December 31, 1997, the unrealized appreciation on equity securities of
approximately $2.3 million is comprised of $3.8 million in unrealized gains and
$1.5 million of unrealized losses and has been reflected directly in
policyholders' surplus. The change in the unrealized appreciation (depreciation)
of equity securities amounted to approximately $.9 million and $(1.1)million in
1997 and 1996, respectively.
The Company maintains a diversified mortgage loan portfolio and exercises
internal limits on concentrations of loans by geographic area, industry, use and
individual mortgagor. At December 31, 1997, the largest geographic concentration
of commercial mortgage loans was in California, Indiana, and Florida where
approximately 33% of the portfolio was invested. A total of 40% of the mortgage
loans have been issued on retail properties, primarily backed by long term
leases or guarantees from strong credits.
The Company has outstanding mortgage loan commitments at December 31, 1997, of
approximately $117.2 million. As of December 31, 1997, the carrying value of
investments that produced no income for the previous twelve month period was
$1.8 million.
<PAGE>
14
NOTES TO FINANCIAL STATEMENTS
3. Insurance Liabilities:
At December 31, 1997 and 1996, insurance liabilities consisted of the following:
<TABLE>
<CAPTION>
(in millions)
- ------------------------------------------------------------------------------------------------------------------------------------
Withdrawal Mortality or morbidity Interest rate
assumption assumption assumption 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Future policy benefits:
Participating whole life contracts ........... Company Company 2.5% to 6.0% $ 594.5 $ 554.9
experience experience
Universal life-type contracts ................ n/a n/a n/a 376.4 352.0
Other individual life contracts .............. Company Company 6.8% to 10.0% 216.4 183.6
experience experience
Accident and health .......................... n/a n/a n/a 51.0 43.7
Annuity products ............................. n/a n/a n/a 4,213.6 4,397.1
Group life and health ........................ n/a n/a n/a 191.0 157.3
Other policyholder funds ..................... n/a n/a n/a 175.2 176.2
Pending policyholder claims .................. n/a n/a n/a 164.3 137.6
- ------------------------------------------------------------------------------------------------------------------------------------
Total insurance liabilities $ 5,982.4 $6,002.4
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Participating life insurance policies under generally accepted accounting
principles represent approximately 9% and 11 % of the total individual life
insurance in force at December 31, 1997 and 1996, respectively. Participating
policies represented approximately 39% and 40% of life premium income for 1997
and 1996, respectively. The amount of dividends to be paid is determined
annually by the Board of Directors.
4. Employees' and Agents' Benefit Plans:
The Company has a noncontributory defined benefit pension plan covering
substantially all employees. Company contributions to the employee plan are made
annually in an amount between the minimum ERISA required contribution and the
maximum tax-deductible contribution. Contributions made to the Plan were $2.6
million in 1997 and $2.4 million in 1996. The net periodic pension cost was
$(.5) million and $.6 million for the years ended December 31, 1997 and 1996,
respectively. This includes service cost of $2.2 million and $3.5 million,
interest cost of $1.6 million and $1.4 million, and return on plan assets of
$4.3 million, and $4.3 million for the years ended December 31, 1997 and 1996,
respectively.
The following benefit information for the employees' defined benefit plan was
determined by independent actuaries as of January 1, 1997 and 1996,
respectively, the most recent actuarial valuation dates:
1997 (in millions) 1996
Actuarial present value of accumulated benefits
for the employees' defined benefit plan:
Vested $20.5 $20.1
Nonvested 2.0 .2
- --------------------------------------------------------------------------------
Total accumulated benefits $22.5 $20.3
- --------------------------------------------------------------------------------
Related net assets available for plan benefits $34.0 $28.8
- --------------------------------------------------------------------------------
The Company has a defined contribution plan and a 401(k) plan covering employees
who have completed one full calendar year of service. Annual contributions are
made by the Company in amounts based upon the Company's financial results.
Company contributions to the plan during 1997 and 1996 were $1.4 million and
$1.7 million, respectively.
<PAGE>
15
NOTES TO FINANCIAL STATEMENTS
The Company has a defined contribution pension plan and a 401(k) plan covering
substantially all of the agents, except general agents. Contributions of 3% of
defined commissions (plus 3% for commissions over the Social Security wage base)
are made to the pension plan. An additional contribution of 3% of defined
commissions are made to a 401(k) plan. Company contributions expensed for these
plans for 1997 and 1996 were $268,000 and $612,000, respectively.
The funds for all plans are held by the Company under deposit administration and
group annuity contracts.
The Company also provides certain health care and life insurance benefits (post
retirement benefits) for retired employees and certain agents (retirees).
Employees and agents with at least 10 years of plan participation may become
eligible for such benefits if they reach retirement age while working for the
Company.
The net periodic post retirement benefit cost was $1,035,000 and $956,000 for
the year ended December 31, 1997 and 1996, respectively. This includes service
cost of $336,000 and $255,000, interest cost of $697,000 and $645,000,
amortization of unrecognized loss of $2,000 and $56,000 for the years ended
December 31, 1997 and 1996, respectively.
Accrued post retirement benefits as of December 31: 1997(in millions) 1996
- --------------------------------------------------------------------------------
Accumulated post retirement benefit obligation (APBO):
Retirees and their dependents $5.2 $ 4.6
Active employees fully eligible to retire and
receive benefits 3.1 2.6
Active employees not fully eligible 2.6 2.7
Unrecognized loss (1.6) (1.0)
- --------------------------------------------------------------------------------
Total APBO $9.3 $ 8.9
- --------------------------------------------------------------------------------
The assumed discount rate used in determining the accumulated post retirement
benefit was 7.00% and the assumed health care cost trend rate was 10% graded to
5% until 2004. Compensation rates were assumed to increase 6% at each year end.
The health coverage for retirees 65 and over is capped in the year 2000. The
health care cost trend rate assumption has an effect on the amounts reported. An
increase in the assumed health care cost trend rates by one percentage point
would increase the accumulated post retirement benefit obligation as of December
31, 1997, by $885,000 and increase the accumulated post retirement benefit cost
for 1997 by $126,000.
5. Federal Income Taxes:
A reconciliation of the income tax attributable to continuing operations
computed at U.S. federal statutory tax rates to the income tax expense included
in the statement of operations follows:
for years ended December 31 1997 (in millions) 1996
- --------------------------------------------------------------------------------
Income tax computed at statutory tax rate $36.3 $30.3
Tax exempt income (1.5) (1.6)
Mutual company differential earnings amount 6.1 7.5
Prior year differential earnings amount (3.7) (5.6)
Other (7.4) 3.8
- --------------------------------------------------------------------------------
Federal income tax $29.8 $34.4
- --------------------------------------------------------------------------------
The components of the provision for income taxes on earnings included current
tax provisions of $22.5 million and $32.6 million for the years ended December
31, 1997 and 1996, respectively, and deferred tax expense of $7.3 million and
$1.8 million for the years ended December 31, 1997 and 1996, respectively.
<PAGE>
16
NOTES TO FINANCIAL STATEMENTS
Deferred income tax assets (liabilities)
as of December 31: 1997 1996
- --------------------------------------------------------------------------------
(in millions)
Deferred policy acquisition costs $(137.0) $(110.9)
Investments (12.0) (8.1)
Insurance liabilities 154.7 139.0
Unrealized appreciation of securities (21.9) (11.2)
Other (4.7) (4.9)
- --------------------------------------------------------------------------------
Deferred income tax assets (liabilities) $ (20.9) $ 3.9
- --------------------------------------------------------------------------------
Federal income taxes paid were $28.6 million and $39.0 million for 1997 and
1996, respectively.
6. Reinsurance:
The Company is a party to various reinsurance contracts under which it receives
premiums as a reinsurer and reimburses the ceding companies for portions of the
claims incurred. At December 31,1997 and 1996, life Reinsurance assumed was
approximately 71% and 67%, respectively, of life insurance in force.
The Company cedes that portion of the total risk on an individual life in excess
of $1,500,000. For accident and health and disability policies, the Company has
established various limits of coverage it will retain on any one policy owner
and cedes the remainder of such coverage.
Certain statistical data with respect to reinsurance follows:
for years ended December 31 1997 1996
- --------------------------------------------------------------------------------
(in millions)
Direct statutory premiums $369.4 $353.1
Reinsurance assumed 253.9 214.8
Reinsurance ceded 132.3 109.8
- --------------------------------------------------------------------------------
Net premiums 491.0 458.1
- --------------------------------------------------------------------------------
Reinsurance recoveries $103.4 $ 73.5
- --------------------------------------------------------------------------------
The Company accounts for all reinsurance agreements as transfers of risk. If
companies to which reinsurance has been ceded are unable to meet obligations
under the reinsurance agreements, the Company would remain liable. Six
reinsurers account for approximately 57% of the Company's December 31, 1997,
ceded reserves for life and accident and health insurance. The remainder of such
ceded reserves is spread among numerous reinsurers.
7. Surplus Notes and Lines of Credit:
On February 16, 1996, the Company issued $75 million of Surplus Notes, due March
30, 2026. Interest is payable semi-annually on March 30, and September 30 at a
7.75% annual rate. Any payment of interest on or principal of the Notes may be
made only with the prior approval of the Commissioner of the Indiana Department
of Insurance. The Surplus Notes may not be redeemed at the option of AUL or any
holder of the Surplus Notes. Interest paid during 1997 was $5.8 million. The
Company has available a $125 million committed credit facility. No amounts have
been drawn as of December 31, 1997.
8. Commitments and Contingencies:
Various lawsuits have arisen in the ordinary course of the Company's business.
In each of the matters, the Company believes the ultimate resolution of such
litigation will not result in any material adverse impact to operations or
financial condition of the Company.
Pursuant to an Investment Agreement with Indianapolis Life Insurance Company and
the Indianapolis Life Group of Companies (IL Group), the Company has agreed to
purchase from IL Group $27 million of common stock. As of December 31,1997, $8.9
million of this stock was purchased, with an additional $18.1 million committed
to be purchased upon the approval of the Insurance Departments of various
states. Upon purchase of the full commitment, the Company will own 25% of IL
Group's issued and outstanding stock.
<PAGE>
17
NOTES TO FINANCIAL STATEMENTS
9. Statutory Information:
AUL and State Life prepare statutory financial statements in accordance with
accounting Principles and practices prescribed or permitted by the Indiana
Department of Insurance. Prescribed statutory accounting practices (SAP)
currently include state laws, regulations and general administrative rules
applicable to all insurance enterprises domiciled in a particular state, as well
as practices described in National Association of Insurance Commissioners'
(NAIC) publications.
A reconciliation of SAP surplus to GAAP surplus at December 31 follows:
for years ended December 31 1997 (in millions) 1996
- --------------------------------------------------------------------------------
SAP surplus $464.2 $407.9
Deferred policy acquisition costs 447.4 362.7
Adjustments to policy reserves (303.1) (278.3)
Asset valuation and interest maintenance reserves 86.1 106.4
Unrealized gain on invested assets, net 36.5 19.0
Surplus notes (75.0) (75 0)
Deferred income taxes 1.0 16.8
Other, net 7.5 13.3
- --------------------------------------------------------------------------------
GAAP surplus $664.6 $572.8
- --------------------------------------------------------------------------------
A reconciliation of SAP net income to GAAP net income for the years ended
December 31 follows:
for years ended December 31 1997 (in millions) 1996
- --------------------------------------------------------------------------------
SAP income $41.8 $ 51.4
Deferred policy acquisition costs 37.6 19.5
Adjustments to policy reserves (9.2) (15.0)
Deferred income taxes (7.3) (1.8)
Other, net 11.4 (2.0)
- --------------------------------------------------------------------------------
GAAP net income $74.3 $ 52.1
- --------------------------------------------------------------------------------
Life insurance companies are required to maintain certain amounts of assets on
deposit with state regulatory authorities. Such assets had an aggregate carrying
value of $4.5 million at December 31,1997.
10. Fair Value of Financial Instruments:
The disclosure of fair value information about certain financial instruments is
based primarily on quoted market prices. The fair values of short-term
investments and accrued investment income approximate the carrying amounts
reported in the balance sheets. Fair values for fixed maturity and equity
securities, and surplus notes are based on quoted market prices where available.
For fixed maturity securities not actively traded, fair values are estimated
using values obtained from independent pricing services, or in the case of
private placements, are estimated by discounting expected future cash flows
using a current market rate applicable to the yield, credit quality and maturity
of the investments. The fair value of the aggregate mortgage loan portfolio was
estimated by discounting the future cash flows using current rates at which
similar loans would be made to borrowers with similar credit ratings for similar
maturities.
The estimated fair values of the liabilities for policyholder funds approximate
the statement values because interest rates credited to account balances
approximate current rates paid on similar funds and are not generally guaranteed
beyond one year. Fair values for other insurance reserves are not required to be
disclosed. However, the estimated fair values for all insurance liabilities are
taken into consideration in the Company's overall management of interest rate
risk, which minimizes exposure to changing interest rates through the matching
of investment maturities with amounts due under insurance contracts. The fair
values of certain financial instruments along with their corresponding carrying
values at December 31,1997 and 1996 follow.
- --------------------------------------------------------------------------------
1997 (in millions) 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
- --------------------------------------------------------------------------------
Fixed maturity securities:
Available for sale $1,653.8 $1,653.8 $1,593 4 $1,593.4
Held to Maturity 2,902.2 3,083.2 3,013.6 3,144.6
Equity securities 18.6 18.6 15.2 15.2
Mortgage loans 1,120.4 1,201.0 1,114.6 1,186.3
Policy loans 143.1 143.1 143.5 143.5
Surplus notes 75.0 79.5 75.0 73.0
- --------------------------------------------------------------------------------
19
<PAGE>
================================================================================
No dealer, salesman or any other person is authorized by the AUL
American Individual Unit Trust to give any information or to make any
representation other than as contained in this Statement of Additional
Information in connection with the offering described herein.
There has been filed with the Securities and Exchange Commission,
Washington, D.C., a Registration Statement under the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as amended,
with respect to the offering herein described. For further information
with respect to the AUL American Individual Unit Trust, AUL and its
variable annuities, reference is made thereto and the exhibits filed
therewith or incorporated therein, which include all contracts or
documents referred to herein.
================================================================================
AUL AMERICAN INDIVIDUAL UNIT TRUST
Individual Variable Annuity Contracts
Sold By
AMERICAN UNITED
LIFE INSURANCE COMPANY(R)
One American Square
Indianapolis, Indiana 46282
STATEMENT OF ADDITIONAL INFORMATION
Dated: May 1, 1998
================================================================================
20
<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, 1997 and 1996
Combined Statement of Operations for the years ended December 31,
1997 and 1996
Combined Statement of Policyowners' Surplus for the years ended
December 31, 1997 and 1996
Combined Statement of Cash Flows for the years ended December 31,
1997 and 1996
Notes to Financial Statements
(b) Financial Statements of AUL American Individual Unit Trust
Registrant's Annual Report for the year ended December 31, 1997
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, 1997
Statements of Operations and Changes in Net Assets for the years
ended December 31, 1997 and December 31, 1996
Notes to Financial Statements
(b) Exhibits
1. Resolution of the Executive Committee of American United Life
Insurance Company(R) ("AUL") establishing AUL American Individual
Unit Trust(1)
2. Not applicable
3. Not applicable
4. Individual Variable Annuity Contract Forms
4.1 Flexible Premium Variable Annuity Contract LA-28(1)
4.2 One Year Flexible Premium Variable Annuity Contract LA-27(1)
5. Individual Variable Annuity Enrollment Form(1)
6. Certificate of Incorporation and By-Laws of the Depositor
6.1 Articles of Merger between American Central Life Insurance
Company and United Mutual Life Insurance Company(1)
6.2 Certification of the Indiana Secretary of State as to the filing
of the Articles of Merger between American Central Life
Insurance Company and United Mutual Life Insurance Company(1)
6.3 Code of By-Laws of American United Life Insurance Company(R)(1)
7. Not applicable
8. Form of Participation Agreements:
8.1 Form of Participation Agreement with Alger American Fund(1)
8.2 Form of Participation Agreement with American Century Variable
Portfolios(1)
8.3 Form of Participation Agreement with Calvert Variable Series(1)
8.4 Form of Participation Agreement with Fidelity Variable Insurance
Products Fund(1)
8.5 Form of Participation Agreement with Fidelity Variable Insurance
Products Fund II(1)
8.6 Form of Participation Agreement with PBHG Funds, Inc.(1)
8.7 Form of Participation Agreement with T. Rowe Price Equity
Series, Inc.(1)
9. Opinion and Consent of Associate General Counsel of AUL as to the
legality of the Contracts being registered(5)
10. Miscellaneous Consents
10.1 Consent of Independent Accountants(2)
10.2 Consent of Dechert Price & Rhoads(1)
10.3 Powers of Attorney(1)(2)
11. Financial Statements of AUL American Individual Unit Trust(2)
12. Not applicable
13. Computation of Performance Quotations(1)
14. Financial Data Schedules(2)
(1) Re-filed with the Registrant's Post-Effective Amendment No. 6
(File No. 033-79562) on April 30, 1998.
(2) Filed with the Registrant's Post-Effective Amendment No. 6
(File No. 033-79562) on April 30, 1998.
<TABLE>
<PAGE>
<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.
Arthur L. Bryant Director
141 E. Washington St.
Indianapolis, Indiana
James M. 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
One American Square, Suite 2500
Indianapolis, Indiana
William P. Johnson Director
P.O. Box 517
Goshen, Indiana
Scott A. Kincaid* Senior Vice President
Charles D. Lineback* Senior Vice President
James T. Morris Director
1220 Waterway Boulevard
Indianapolis, Indiana
James W. Murphy* Senior Vice President
Jerry L. Plummer* Senior Vice President
R. Stephen Radcliffe* Director and Executive Vice President
Thomas E. Reilly Jr. Director and Chairman of the Finance
300 N. Meridian, Suite 1500 Committee
Indianapolis, Indiana
William R. Riggs Director
P.O. Box 82001
Indianapolis, Indiana
G. David Sapp* Senior Vice President
John C. Scully Director
2636 Ocean Dr., # 505
Vero Beach, Florida
Jerry D. Semler* Chairman of the Board, President, Chief
Executive Officer and Chairman of the
Executive Committee, Chairman the Board,
Chief Executive Officer, State Life
Insurance Co.
- ---------------------------------------------
*One American Square, Indianapolis, Indiana
2
<PAGE>
Item 25. Directors and Officers of AUL (Continued)
Name and Address Positions and Offices with AUL
- ---------------- ------------------------------
Yvonne H. Shaheen Director
1310 S. Franklin Road
Indianapolis, Indiana
William L. Tindall* Senior Vice President
Frank D. Walker Director
P.O. Box 40972
Indianapolis, Indiana
Gerald T. Walker* Senior Vice President
- ----------------------------------------------
*One American Square, Indianapolis, Indiana
</TABLE>
Item 26. Persons Controlled by or Under Common Control with Registrant
In accordance with current law, it is anticipated that American United Life
Insurance Company(R) ("AUL") will request voting instructions from owners or
participants of any Contracts that are funded by separate accounts that are
registered investment companies under the Investment Company Act of 1940 and
will vote shares in any such separate account attributable to the Contracts in
proportion to the voting instructions received. AUL may vote shares of any
Portfolio, if any, that it owns beneficially in its own discretion.
Registrant and AUL American Unit Trust are separate accounts of AUL, organized
for the purpose of the respective sale of individual and group variable annuity
contracts.
AUL American Individual Variable Life Unit Trust is a separate account of AUL,
organized for the purpose of the sale of individual variable life contracts.
American United Life Pooled Equity Fund B is a separate account of AUL organized
for the purpose of the sale of group variable annuity contracts.
AUL Equity Sales Corp. is a wholly owned subsidiary of AUL, organized under the
laws of the State of Indiana in 1969 as a broker-dealer to market mutual funds.
AUL may also be deemed to control State Life Insurance Company(R) ("State Life")
since a majority of AUL's Directors also serve as Directors of State Life. By
virtue of an agreement between AUL and State Life, AUL provides investment and
other support services for State Life on a contractual basis.
AUL owns a 20% share of the stock of Princeton Reinsurance Managers, LLC, a
limited liability Delaware company. AUL's affiliation provides an alternative
marketing channel for its Reinsurance Division.
AUL American Series Fund, Inc. (the "Fund") was incorporated under the laws of
Maryland on July 26, 1989 and is registered as an open-end, diversified
management investment company under the Investment Company Act of 1940. As a
"series" type of mutual Fund, the Fund issues shares of common stock relating to
separate investment portfolios. Substantially all of the Fund's shares were
originally purchased by AUL in connection with the initial capitalization of the
Fund. On December 31, 1997, AUL owned 8.11% of the outstanding shares of the
Fund's Equity portfolio and 13.97% of the Fund's Tactical Asset Allocation
Portfolio. At a meeting of the Board of Directors held on November 19, 1997, the
Board approved the addition of three new Portfolios to the Fund, namely, the AUL
American Conservative Investor Portfolio, the AUL American Moderate Investor
Portfolio and the AUL American Aggressive Investor Portfolio, collectively
referred to as the LifeStyle Portfolios. On March 31, 1998, AUL provided the
initial capitalization for the LifeStyle Portfolios and therefore, would be able
to control any issue submitted to the vote of shareholders of the LifeStyle
Portfolios.
Indianapolis Life Insurance company ("IL") is an Indiana domestic mutual
insurance company, whose principal business is the sale of life insurance and
annuity contracts. On November 3, 1997, AUL entered into an agreement with IL to
invest $27 million in its wholly owned downstream holding company, Indianapolis
Life Group of Companies, Inc., in exchange for a 25% equity interest. AUL paid
the balance of the $27 million on March 30, 1998; therefore, AUL currently owns
a 25% equity interest in Indianapolis Group of Companies, Inc.
3
<PAGE>
Item 27. Number of Contractholders
As of December 31, 1997, AUL has issued 6,146 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
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.
4
<PAGE>
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, 1998.
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, 1998
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 30, 1998
Steven C. Beering M.D.*
_______________________________________________ Director April 30, 1998
Arthur L. Bryant*
_______________________________________________ Director April 30, 1998
James E. Cornelius*
_______________________________________________ Director April 30, 1998
James E. Dora*
_______________________________________________ Director April 30, 1998
Otto N. Frenzel III*
_______________________________________________ Director April 30, 1998
David W. Goodrich*
_______________________________________________ Director April 30, 1998
William P. Johnson*
_______________________________________________ Director April 30, 1998
James T. Morris*
<PAGE>
SIGNATURES (Continued)
Signature Title Date
- --------- ----- ----
_______________________________________________ Principal April 30, 1998
James W. Murphy* Financial and
Accounting Officer
_______________________________________________ Director April 30, 1998
R. Stephen Radcliffe*
_______________________________________________ Director April 30, 1998
Thomas E. Reilly Jr*
_______________________________________________ Director April 30, 1998
William R. Riggs*
_______________________________________________ Director April 30, 1998
John C. Scully*
_______________________________________________ Director April 30, 1998
Yvonne H. Shaheen*
_______________________________________________ Director April 30_, 1998
Frank D. Walker*
</TABLE>
/s/ Richard A. Wacker
_____________________________________
*By: Richard A. Wacker as Attorney-in-fact
Date: April 30, 1998
* Powers of Attorney have been refiled in electronic format in this
Post-Effective Amendment to Registrant's Registration Statement.
<PAGE>
<TABLE>
EXHIBIT LIST
<S> <C> <C>
Exhibit Exhibit
Number in Form Numbering
N-4, Item 24(b) Value Name of Exhibit
- ---------------- --------- ---------------
1 EX-99.B1 Resolution of the Executive Committee of
American United Life Insurance Company(R)
establishing the AUL American Individual
Unit Trust
4.1 EX-99.B4.1 Flexible Premium Variable Annuity
Contract LA-28
4.2 EX-99.B4.2 One Year Flexible Premium Variable
Annuity Contract LA-27
5 EX-99.B5 Individual Variable Annuity Enrollment Form
6.1 EX-99.B6.1 Articles of Merger between American Central Life
Insurance Company and United Mutual Life Insurance
Company
6.2 EX-99.B6.2 Certification of the Indiana Secretary of State as
to the filing of the Articles of Merger between American
Central Life Insurance Company and United Mutual Life
Insurance Company
6.3 EX-99.B6.3 Code of By-Laws of American United Life Insurance Company(R)
8.1 EX-99.B8.1 Form of Participation Agreement with
Alger American Fund
8.2 EX-99.B8.2 Form of Participation Agreement with
American Century Variable Portfolios
8.3 EX-99.B8.3 Form of Participation Agreement with
Calvert Variable Series
8.4 EX-99.B8.4 Form of Participation Agreement with
Fidelity Variable Insurance Products Fund
8.5 EX-99.B8.5 Form of Participation Agreement with
Fidelity Variable Insurance Products
Fund II
8.6 EX-99.B8.6 Form of Participation Agreement with
PBHG Funds, Inc.
8.7 EX-99.B8.7 Form of Participation Agreement with
T. Rowe Price Equity Series, Inc.
9 EX-99.B9 Opinion and Consent of Associate General
Counsel of AUL as to the legality of
Contracts being registered
10.1 EX-99.B10.1 Consent of Independent Accountants
10.2 EX-99.B10.2 Consent of Dechert Price & Rhoads
10.3 EX-99.B10.3 Powers of Attorney
11 EX-99.B11 Annual Report of AUL American Individual
Unit Trust for the Period Ended December 31, 1997
13 EX-99.B13 Computation of Performance Quotations
14 EX-27 Financial Data Schedules
</TABLE>
- --------------------------------------------------------------------------------
EXHIBIT 1
RESOLUTION OF THE EXECUTIVE COMMITTEE OF AMERICAN UNITED LIFE
INSURANCE COMPANY ESTABLISHING THE AUL AMERICAN INDIVIDUAL UNIT TRUST
- --------------------------------------------------------------------------------
AMERICAN UNITED LIFE INSURANCE COMPANY
CORPORATE RESOLUTIONS
(As excerpted from the Minutes of a meeting of the Executive Committee of
American United Life Insurance Company held on July 10, 1997.)
BE IT RESOLVED, that American United Life Insurance Company (the
"Company"), pursuant to the provisions of Section 27-1-5-1 Class 1(c) of the
Indiana Insurance Code, hereby establishes a separate account which shall be
known as the AUL American Individual Separate Account (hereinafter "Separate
Account") as hereinafter set forth:
FURTHER RESOLVED, that the Separate Account is established for the purpose
of providing for the funding of individual variable annuity contracts
("Contracts") to be issued by the Company and shall constitute a separate
account into which allocated amounts are paid to or held by the Company under
such Contracts; and
FURTHER RESOLVED, that the income, gains, and losses, whether or not
realized, from assets allocated to the Separate Account shall, in accordance
with the Contracts, be credited to or charged against such Separate Account
without regard to other income, gains, or losses of the Company; and
FURTHER RESOLVED, that the Separate Account may be divided into a number of
Variable Accounts to which net payments under the Contracts will be allocated in
accordance with instructions received from contract owners, and that the
President or a Senior Vice President be, and hereby is, authorized to establish,
increase, or decrease the number of Variable Accounts in the Separate Account as
such officer may deem necessary or appropriate; and
FURTHER RESOLVED, that each such Variable Account shall invest only in the
shares of an open-end management investment company, a single portfolio of an
open-end management investment company organized as a series fund, or other
investment vehicle designated in the Contract; and
FURTHER RESOLVED, that the appropriate officers of the Company, with the
assistance of counsel, be, and they hereby are, authorized to take any and all
actions necessary to sponsor and promote an open-end management investment
company that will serve as the investment vehicle for the Contracts and will be
eligible for investment by the Separate Account; and
FURTHER RESOLVED, that the President or a Senior Vice President of the
Company be, and hereby is, authorized to establish and change the designation of
the Separate Account and any Variable Account thereof to such designation as
such officer may deem appropriate; and
FURTHER RESOLVED, that the appropriate officers of the Company, with such
assistance from the Company's auditors, legal counsel, or others as such
officers may determine are appropriate, be, and they hereby are, authorized and
directed to take all action necessary to: (a) register the Separate Account as a
unit investment trust under the Investment Company Act of 1940, as amended; (b)
register the Contracts or interests therein in such amounts, which may be an
indefinite amount, as the officers of the Company shall form time to time deem
appropriate under the Securities Act of 1933; and (c) take all other actions
which are necessary in connection with the offering of said Contracts for sale
and the operation of the Separate Account in order to comply with
-1-
<PAGE>
the Investment Company Act of 1940, the Securities Exchange Act of 1934, the
Securities Act of 1933, and other applicable federal laws, including the filing
of any amendments to registration statements, the seeking of any interpretations
that are necessary or advisable from the Securities and Exchange Commission or
any other agency of the U.S. government, the provision of any undertakings, and
seeking of any applications for exemptions from the Investment Company Act of
1940 or other applicable federal laws as the officers of the Company shall deem
necessary or appropriate; and
FURTHER RESOLVED, that the appropriate officers of the Company be, and they
hereby are, authorized on behalf of the Separate Account and on behalf of the
Company to take any and all action that they may deem necessary or advisable to
register, file, or qualify the Contracts for sale, including the preparation and
filing of any registrations or filings, and seeking the qualification of the
Company, its officers, agents, and employees, and the Contracts under any
applicable insurance, securities, or other laws of any of the states of the
United States or other jurisdictions, and in connection therewith to prepare,
execute, deliver, and file all such applications, reports, covenants,
resolutions, applications for exemptions, consents to service or process, surety
bonds, and other papers and instruments as may be required under such laws, to
pay all necessary fees and expenses, and to take any and all further action
which said officers or counsel of the Company may deem necessary or desirable
(including entering into whatever agreements and contracts may be necessary) in
order to maintain such registrations or qualifications for as long as said
officers deem it to be appropriate; and
FURTHER RESOLVED, that the President or any Senior Vice President of the
Company is hereby authorized to execute such agreement or agreements as are
deemed necessary and appropriate (a) with any qualified entity under which such
entity will be appointed principal underwriter and distributor for the Contracts
and (b) with one or more qualified banks or other qualified entities to provide
administrative and/or custodial services in connection with the establishment
and maintenance of the Separate Account and the design, issuance, and
administration of the Contracts; and
FURTHER RESOLVED, that, since it is expected that the Separate Account will
invest in the securities issued by one or more investment companies, the
President or any Senior Vice President of the Company is hereby authorized to
execute whatever agreement or agreements as may be necessary or appropriate to
enable such investments to be made; and
FINALLY RESOLVED, that the appropriate officers of the Company are hereby
authorized and directed, on behalf of the Company and the Separate Account, to
take whatever action may be necessary or advisable to do or cause to be done all
such acts and things to carry out the foregoing resolutions and the intent and
purposes thereof, to execute and file all requisite papers and documents,
including but not limited to registration statements, notifications of
registration, agreements, applications, reports, surety bonds, irrevocable
consents, powers of attorneys, and appointment of agents for service of process,
and to pay all necessary fees and expenses as in such officer's judgment may be
necessary or advisable.
-2-
- --------------------------------------------------------------------------------
EXHIBIT 4.1
FLEXIBLE PREMIUM VARIABLE ANNUITY CONTRACT, FORM LA-28
- --------------------------------------------------------------------------------
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
Name of Owner Policy Number
JOHN DOE 00000001
Name of Annuitant
JOHN DOE
American United Life Insurance Company (R) (AUL) will begin an annuity on the
annuity date, in accordance with the Settlement provisions, if the annuitant and
the owner are both living. If either the annuitant or the owner dies before the
annuity date, AUL will provide benefits as described in the Death of Annuitant
or Death of Owner provisions.
10 DAY RIGHT TO EXAMINE THIS POLICY
READ YOUR POLICY CAREFULLY
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY POLICY
PARTICIPATING
Annuity will begin on annuity date
in accordance with the settlement provisions.
LA-28 7-94
This policy is a legal contract between the owner and AUL.
The owner may return this policy to AUL or to one of its agents for any reason
within 10 days after receiving it. The policy will be void from its beginning
and any premium paid will be refunded.
ALL BENEFITS, PAYMENTS, AND VALUES UNDER THIS
CONTRACT WHICH ARE BASED ON THE INVESTMENT
EXPERIENCE OF A SEPARATE ACCOUNT ARE VARIABLE
AND NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT.
- --------------------------------------------------------------------------------
READ YOUR POLICY CAREFULLY
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY POLICY
PARTICIPATING
Annuity will begin on annuity date
in accordance with the settlement provisions.
- --------------------------------------------------------------------------------
Signed for American United Life Insurance Company(R) by
/s/ William R. Brown /s/ Jerry D. Semler
Secretary Chairman of the Board,
President, and Chief Executive Officer
LA-28
<PAGE>
TABLE OF CONTENTS
POLICY SPECIFICATIONS........................................................ 3
PREMIUM AND ACCOUNT VALUE PROVISIONS......................................... 4
Premium, Net Purchase Payments, The Fixed Account,
The Variable Accounts, Accumulation Units, Accumulation Unit Value,
Net Investment Factor, Mortality and Expense Risk Charge,
Valuation Dates and Valuation Period, Contract Value,
Annual Fee, Transfers Between Accounts
WITHDRAWAL AND DEATH BENEFIT PROVISIONS...................................... 7
Free Withdrawal Amount, Withdrawals,
Withdrawal Deferral, Death Proceeds,
Death of the Owner, Death of the Annuitant
OWNERSHIP, ASSIGNMENT AND BENEFICIARY PROVISIONS............................. 10
Ownership, Assignment, Beneficiary,
Change of Beneficiary, Change of Annuitant
GENERAL PROVISIONS........................................................... 11
Policy, Incontestability, Annual Report, Participation
SETTLEMENT PROVISIONS........................................................ 11
Policy Proceeds, Options,
Annuity Date, Payments, Evidence of Age and Sex,
Misstatement of Age or Sex, Evidence that Annuitant is Alive,
Payee, Adjusted Age, Claims of Creditors
SETTLEMENT OPTION TABLES..................................................... 14
LA-28 7-94
<PAGE>
POLICY SPECIFICATIONS
- --------------------------------------------------------------------------------
DATE OF ISSUE AUG 01, 1994
POLICY YEARS ARE COMPUTED FROM THIS DATE
NAME OF ANNUITANT JOHN DOE
POLICY NUMBER 00000001
NAME OF OWNER JOHN DOE
PLAN FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
FORM NUMBER LA-28
INITIAL PREMIUM $2,000
ADDITIONAL $2,000
PLANNED PREMIUM ANNUAL
ANNUITY DATE AUG 01, 2024
EARLY WITHDRAWAL 10% OF THE CONTRACT VALUE IN THE FIRST YEAR
PENALTY DECREASING TO 0 IN YEAR 11 AS SHOWN ON PAGE 8.
FREE WITHDRAWAL UP TO 12% OF THE CONTRACT VALUE MAY BE WITHDRAWN
AMOUNT EACH POLICY YEAR BEFORE EARLY WITHDRAWAL PENALTIES
ARE ASSESSED.
LA-28 7-94
3
<PAGE>
In this policy, the words you and your refer to the owner named on page 3.
Individual refers to a natural person. We, us, our, and AUL refer to American
United Life Insurance Company(R).
PREMIUM AND ACCOUNT VALUE PROVISIONS
Premium
Premiums are payable at our home office. A receipt will be given upon request.
Premium payments are flexible and can be paid at any time and in any amount
subject to the following conditions:
1. Each premium payment must be at least $50;
2. All premiums received in any one policy year may not be more than $12,000,
unless a higher amount is agreed to by us;
3. All premiums received in the first three policy years may not be less than
a cumulative total of $300 per year. AUL may terminate a policy not meeting
this condition and refund the account balance.
Net Purchase Payments
A net purchase payment is equal to the premium paid LESS any applicable state
premium tax.
Each net purchase payment will be allocated among the fixed account and the
variable accounts by the method you elect.
The Fixed Account
The fixed account is our general account.
The fixed account value equals (1) - (2) + (3) where:
(1) is net purchase payments applied to the fixed account plus any dividends
credited.
(2) is any amounts withdrawn (including early withdrawal penalty).
LA-28 7-94
4
<PAGE>
(3) is interest earned on (1) - (2), from date of deposit to date of
withdrawal, at the rates declared by us. At the time a net purchase payment
is applied the interest rate then in effect on newly deposited money will
apply to that net purchase payment for one year from the date of deposit.
The interest rate which we will apply to that net purchase payment is
subject to change at any time after one year. However, we may not declare
an interest rate which is less than 3% per year.
The Variable Accounts
The variable accounts are separate investment accounts established and owned by
AUL. The assets of the accounts will be used to provide values and benefits
under this contract and similar contracts, but the account may not be charged
with liabilities arising from any other business in which AUL takes part.
Accumulation Units
Net purchase payments applied to the variable accounts will be allocated as
specified by you and will be credited to your account in the form of
accumulation units. The number of accumulation units to be credited is
determined by dividing:
(1) the dollar amount allocated to the particular variable account, by
(2) the accumulation unit value for the particular account at the end of the
valuation period during which the net purchase payment is received by AUL
at its home office.
Accumulation Unit Value
AUL determines the accumulation unit value for each variable account on each
valuation date. The accumulation unit value for the Money Market account was
initially set at one dollar ($1) and the value for each of the other variable
accounts was set at five dollars ($5) when operations commenced. The value for
any later valuation period is found by multiplying:
(1) the net investment factor for the particular account, by
(2) the accumulation unit value of the same account for the preceding valuation
period.
5
<PAGE>
The accumulation unit value may increase or decrease from one valuation period
to the next.
LA-28 7-94
Net Investment Factor
The net investment factor is used to measure the investment performance of an
investment account from one valuation period to the next. For any investment
account the net investment factor for a valuation period 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 mutual fund held in the
investment account determined at the end of the current valuation
period, plus
(2) the per share amount of any dividend or capital gain distribution paid
by the mutual 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.
(b) is the net asset value per share of the mutual fund held in the investment
account, determined at the end of the preceding valuation period.
(C) is a daily charge factor representing the mortality and expense risk charge.
Mortality and Expense Risk Charge
In calculating the net investment factor, we will deduct a daily charge from
each investment account for the mortality and expense risks assumed by AUL. The
charge is equal to an equivalent annual rate of 1.25% of the average daily net
assets over the whole year in each investment account.
Valuation Dates and Valuation Period
The valuation dates are the dates on which the variable accounts are valued. The
valuation dates currently include each business day that is also a day on which
both AUL and the New York Stock Exchange are open for business. A valuation
period begins at the close of one valuation date and ends at the close of the
next succeeding valuation date.
LA-28 7-94
6
<PAGE>
Contract Value
The contract value at any time is the sum of: (1) the fixed account value; and
(2) the sum of the value of all variable account accumulation units credited to
this policy.
Annual Fee
We will charge an annual administrative fee of $30, or 2% of the contract value,
if less, at the end of the policy year. The fee will be charged on each policy
anniversary while the contract is in force other than under an annuity payment
settlement option. The charge is deducted proportionately from your contract
value allocated among the variable accounts and the fixed account. We will waive
the annual fee on each contract anniversary when the contract value, at the time
the charge would have otherwise been imposed, exceeds $50,000.
Transfers Between Accounts
You may make transfers of value among the variable accounts and between the
fixed account and the variable accounts. The minimum amount that may be
transferred from any account is $500, or the total amount in that account, if
less. If the amount remaining in any investment 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 from the fixed
account to the variable accounts in any contract year is 20% of the fixed
account value at the preceding contract anniversary. Any withdrawals from the
fixed account, including exercise of the Free Withdrawal provision, will
decrease the 20% maximum transfer limit by the amount withdrawn.
Currently, there are no charges for or limitations on the number of transfers
between accounts. AUL reserves the right to change the limitation on the minimum
transfer, to limit the number and frequency of transfers, to assess transfer
charges, and to otherwise modify the transfer privilege.
WITHDRAWAL AND DEATH BENEFIT PROVISIONS
Free Withdrawal Amount
The free withdrawal amount for each policy year is equal to 12% of the contract
value at the time of that year's first withdrawal. Any transfer from the fixed
account to the variable accounts will reduce the amount available for free
withdrawal from the fixed account by the amount transferred.
LA-28 7-94
7
<PAGE>
Withdrawals
You may withdraw all or part of your contract value at any time on or before the
annuity date. If you do not specify from which accounts the withdrawal is to be
made, the withdrawal will be made from the fixed and variable accounts in the
same proportion as their account values bear to the contract. If you withdraw
all of the contract value, you must surrender the policy.
If you withdraw less than the full contract value, you must withdraw at least
$200. To fund a withdrawal from the fixed account, premiums previously paid and
their accumulated interest will be withdrawn on a last-in, first-out basis.
Withdrawals from the variable accounts will be funded by the liquidation of an
adequate number of accumulation units.
There may be an early withdrawal penalty during the first ten policy years.
Whenever the total amount withdrawn in a policy year exceeds the free withdrawal
amount, there is an early withdrawal penalty on the excess.
The penalty will be a percentage of the excess as follows:
Early Early
Policy Withdrawal Policy Withdrawal
Year Penalty Year Penalty
1 10.0 7 4.0
2 9.0 8 3.0
3 8.0 9 2.0
4 7.0 10 1.0
5 6.0 11 and 0.0
6 5.0 thereafter
In no event will the withdrawal penalty exceed 8.5% of the total premiums paid.
There is no withdrawal penalty after the tenth policy year.
The amount you can withdraw is not less than the minimum required by the law of
the state where this policy is delivered.
Withdrawal Deferral
For withdrawals from the fixed account, we may defer payment for up to six
months. If we do, interest on the fixed account will continue to be earned at
the declared rates.
We may suspend or delay withdrawal payments from the variable account when
LA-28 7-94
8
<PAGE>
permitted under applicable Federal laws, rules and regulations.
Death Proceeds
The death proceeds under this contract is the contract value; however, if you
die before age 76 the death proceeds will not be less than the value given by
(a)-(b)-(c)+(d) where:
(a) is the net purchase payments.
(b) is any amounts withdrawn (including any early withdrawal penalties)
prior to your death.
(c) is the annual fees assessed prior to your death.
(d) is interest earned on (a)-(b)-(c), credited at an annual effective
rate of 4%.
Death of the Owner
If you die before the annuity date and the beneficiary is your surviving spouse:
Your surviving spouse will become the new owner. The policy will continue with
its terms unchanged and your spouse will assume all rights as its owner. Within
120 days of your death, your spouse may elect to receive the death proceeds or
withdraw any of the contract value without any early withdrawal penalty.
If you die before the annuity date and the beneficiary is not your surviving
spouse:
The death proceeds will be paid to the beneficiary in a lump sum no later than
120 days after your death, 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 your 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.
Any amount payable hereunder will not be less than the minimum required by the
law of the state where this policy is delivered.
Death of the Annuitant
LA-28 7-94
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<PAGE>
If the annuitant dies before the annuity date and the annuitant is not also the
owner, then:
1. if the owner is not an individual, the death proceeds will be paid to
the owner in a lump sum no later than 120 days after the annuitant's
death; or
2. if the owner is an individual, a new annuitant may be named and the
policy will continue. If a new annuitant is not named within 120 days
of the annuitant's death, the contract value, less any early
withdrawal penalty, will be paid to the owner in a lump sum.
OWNERSHIP, ASSIGNMENT AND BENEFICIARY PROVISIONS
Ownership
As the owner of this policy, you are entitled to all rights given by its terms.
You may exercise these rights without the consent of the annuitant, beneficiary,
or payee. Your rights are subject to the interests of any assignee or
irrevocable beneficiary.
Assignment
You may assign this policy, but if you do, the rights of the owner and any
beneficiary will be secondary to the interests of the assignee. We assume no
responsibility for the validity of an assignment. Any assignment will not be
binding upon AUL until received in writing at the home office.
Because an assignment may be a taxable event, you should consult competent tax
advisors as to the tax consequences resulting from such an assignment.
Beneficiary
The beneficiary is as named in the application unless later changed by you. A
beneficiary may only be named if the owner is an individual. The interests of a
beneficiary who dies before you will pass to any surviving beneficiary, unless
you specify otherwise. If no beneficiary survives, the rights to policy proceeds
will vest in your estate.
Change of Beneficiary
You may change the beneficiary of this policy by giving written notice to AUL. A
change will take effect on the date the notice is signed. However, the change
will not apply to any payments made or actions taken by us before we received
the notice. We
LA-28 7-94
10
<PAGE>
reserve the right to require that this policy be presented for endorsement of
any change. An irrevocable beneficiary may be changed only with the written
consent of that beneficiary.
Change of Annuitant
If the owner is an individual, the annuitant may be changed by writing us any
time prior to the annuity date. The annuitant must also be an individual and
must be you, or someone chosen from among your spouse, parents, brothers,
sisters and children. Any other choice will need our consent.
If the owner is not an individual, a change in the annuitant will not be
permitted without our consent.
GENERAL PROVISIONS
Policy
The entire policy consists of:
1. the basic policy;
2. endorsements, if any; and
3. a copy of your application.
Any change in this policy must be approved by AUL's President, Vice President or
Secretary. No agent is authorized to change or waive any policy provision.
Incontestability
This policy will not be contested after it has been in force 2 years from its
date of issue.
Annual Report
We will send you an annual report which shows the current contract value,
premiums paid, interest credited, charges assessed, transfers made, and
withdrawals made since the last report.
Participation
While this policy is in force prior to the annuity date, its share of divisible
surplus, if
LA-28 7-94
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<PAGE>
any, will be determined each year by AUL and credited to the fixed account
value.
SETTLEMENT PROVISIONS
Policy Proceeds
If the policy is in its fifth policy year or later and you select the life
annuity or survivorship annuity option, proceeds are equal to the contract
value. Otherwise, proceeds are equal to the contract value less any applicable
early withdrawal penalty.
Options
Proceeds may be paid in one sum or according to one of the following options, or
in any other manner agreed to by us. If no option has been selected by the
annuity date, the proceeds will be applied to option 2 with 120 guaranteed
payments.
Once an annuity begins, the method of payment, the annuitant, and the selected
option cannot be changed.
1. Income for a Fixed Period. Proceeds are paid in equal monthly
installments for a specified number of years, not to exceed 20.
2. Life Annuity. Proceeds are paid in equal monthly installments for as
long as the annuitant lives. A minimum number of payments can be
guaranteed such as 120 or the number of payments required to refund
the proceeds applied.
3. Survivorship Annuity. Proceeds are paid in monthly installments for as
long as one of two named annuitants live. A minimum number of payments
equal to the initial payment can be guaranteed such as 120. A lower
monthly installment payable while only one annuitant is alive can be
specified.
Annuity Date
The annuity date is the date we will begin an annuity in accordance with the
settlement option you have chosen. The annuity date you requested in the
application is shown on page 3. If no date was indicated on the application, the
annuity date will be age 70. This date may be changed by writing us any time
prior to the annuity date. The annuity date may not be changed once payments
begin.
Payments
The settlement option tables show the guaranteed monthly payments available
under options 1, 2 and 3. The amounts shown are for exact adjusted ages. The
values for
LA-28 7-94
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<PAGE>
other ages and fractional ages not shown will be calculated on the same basis as
those shown and will be furnished upon request. Based on your contract value, we
will calculate the amount payable under any option.
If the monthly payment under a chosen settlement option is less than $100, we
may require that payments be made on a less frequent basis.
Evidence of Age and Sex
Evidence of age and sex for any annuitant will be required before payments
begin.
Misstatement of Age or Sex
If the stated date of birth or sex of any annuitant is not correct we will
adjust any amount payable under this policy to that based on the correct age and
sex. Any underpayment will be paid in full with the next annuity payment. Any
overpayment, unless repaid in one sum, will be deducted from future annuity
payments until totally repaid.
Evidence that Annuitant is Alive
We may ask for evidence that the annuitant(s) is still alive when any
installment is due.
Payee
Payee means the person(s) designated by the owner to receive annuity payments.
The owner may change the payee at any time by giving us 30 days written notice.
Payees may be named regardless of whether the owner is an individual.
Adjusted Age
An adjusted age is calculated as follows:
1. determine an annuitant's actual age in years and full months on the
date payments are to begin; and
2. subtract 1.5 months for each year the annuitant's year of birth
exceeds 1900.
Claims of Creditors
Settlement option payments will be exempt from the claims of creditors to the
maximum extent permitted by law.
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<PAGE>
SETTLEMENT OPTION TABLES
Guaranteed Monthly Income Per $1,000 of Proceeds
OPTION 1 - Income for Fixed Period
Number Monthly Number Monthly
of Years Income of Years Income
1 $84.47 11 $8.86
2 42.86 12 8.24
3 28.99 13 7.71
4 22.06 14 7.26
5 17.91 15 6.87
6 15.14 16 6.53
7 13.16 17 6.23
8 11.68 18 5.96
9 10.53 19 5.73
10 9.61 20 5.51
Quarterly Income is 2.993 times the monthly income and annual income is 11.839
times the monthly income.
OPTION 2 - Life Annuity
The amount of income based on the adjusted age of the annuitant on the date of
the first payment
<TABLE>
<CAPTION>
Number of Guaranteed Payments Number of Guaranteed Payments
Adjusted ------------------------------- Adjusted ----------------------------------
Age None 120 Refund* Age None 120 Refund*
------------------------------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
55 $4.34 $4.30 $4.17 63 $5.21 $5.10 $4.86
56 4.42 4.38 4.24 64 5.35 5.22 4.96
57 4.52 4.47 4.31 65 5.51 5.35 5.08
58 4.61 4.56 4.39 66 5.67 5.49 5.20
59 4.72 4.65 4.47 67 5.85 5.64 5.33
60 4.83 4.76 4.56 68 6.04 5.80 5.46
61 4.95 4.86 4.66 69 6.24 5.96 5.61
62 5.08 4.98 4.75 70 6.46 6.13 5.76
</TABLE>
*The sum of all guaranteed payments will equal the amount applied under this
option.
OPTION 3 - Survivorship Annuity
The amount of income is based on the adjusted age of each of the annuitants on
the date of the first payment.
<TABLE>
<CAPTION>
50% to Survivor 100% to Survivor
120 Guaranteed Payments 120 Guaranteed Payments
Payee #1 Payee #2 Age Payee #1 Payee #2 Age
- -------------------------------------------- ------------------------------------------------
#1 50 55 60 65 70 #1 50 55 60 65 70
- -------------------------------------------- ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 $3.95 $4.12 $4.31 $4.55 $4.80 50 $3.56 $3.67 $3.76 $3.83 $3.88
55 4.12 4.30 4.52 4.77 5.05 55 3.67 3.83 3.97 4.08 4.17
60 4.31 4.52 4.76 5.04 5.36 60 3.76 3.97 4.17 4.36 4.51
65 4.55 4.77 5.04 5.35 5.72 65 3.83 4.08 4.36 4.64 4.90
70 4.80 5.05 5.36 5.72 6.13 70 3.88 4.17 4.51 4.90 5.28
</TABLE>
Income for other combinations of ages will be furnished on request.
LA-28 7-94
14
<PAGE>
NOTICE OF ANNUAL MEETING
Since AUL is a mutual company, its policyowners are
owners of the company, and they are invited to attend
the annual policyowners' meeting at the home office
in Indianapolis, Indiana.
By-law, Art. III, Sec. 1: The regular annual meeting
of the members of this corporation shall be held at its
principal place of business on the third Thursday in
February of each year at the hour of 10:00 o'clock
a.m.; Elections for directors shall be held at such
annual meeting.
American United Life Insurance Company(R)
Indianapolis, Indiana
- --------------------------------------------------------------------------------
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY POLICY
PARTICIPATING
Annuity will begin on annuity date in accordance with the
settlement provisions.
This policy is a legal contract between the owner and AUL.
LA-28 7-94
- --------------------------------------------------------------------------------
EXHIBIT 4.2
ONE YEAR FLEXIBLE PREMIUM VARIABLE ANNUITY CONTRACT, FORM LA-27
- --------------------------------------------------------------------------------
INDIVIDUAL ONE YEAR FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
Name of Owner Policy Number
JOHN DOE 00000001
Name of Annuitant
JOHN DOE
American United Life Insurance Company(R) (AUL) will begin an annuity on the
annuity date, in accordance with the Settlement provisions, if the annuitant and
the owner are both living. If either the annuitant or the owner dies before the
annuity date, AUL will provide benefits as described in the Death of Annuitant
or Death of Owner provisions.
10 DAY RIGHT TO EXAMINE THIS POLICY
The owner may return this policy to AUL or to one of its agents for any reason
within 10 days after receiving it. The policy will be void from its beginning
and any premium paid will be refunded.
ALL BENEFITS, PAYMENTS, AND VALUES UNDER THIS CONTRACT WHICH ARE BASED ON THE
INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT ARE VARIABLE AND ARE NOT GUARANTEED
AS TO FIXED DOLLAR AMOUNTS.
- --------------------------------------------------------------------------------
READ YOUR POLICY CAREFULLY
ONE YEAR FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY POLICY
PARTICIPATING
Annuity will begin on annuity date
in accordance with the settlement provisions.
- --------------------------------------------------------------------------------
Signed for American United Life Insurance Company(R) by
/s/ William R. Brown /s/ Jerry D. Semler
Secretary Chairman of the Board,
President, and Chief Executive Officer
LA-27 7-94
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
POLICY SPECIFICATIONS................................................................................................... 3
PREMIUM AND ACCOUNT VALUE PROVISIONS.................................................................................... 4
Premium, Net Purchase Payments, The Fixed Account,
The Variable Accounts, Accumulation Units, Accumulation Unit Value,
Net Investment Factor, Mortality and Expense Risk Charge,
Valuation Dates and Valuation Period, Contract Value,
Annual Fee, Transfers Between Accounts
WITHDRAWAL AND DEATH BENEFIT PROVISIONS................................................................................. 7
Free Withdrawal Amount, Withdrawals,
Withdrawal Deferral, Death Proceeds,
Death of the Owner, Death of the Annuitant
OWNERSHIP, ASSIGNMENT AND BENEFICIARY PROVISIONS........................................................................ 10
Ownership, Assignment, Beneficiary,
Change of Beneficiary, Change of Annuitant
GENERAL PROVISIONS...................................................................................................... 11
Policy, Incontestability, Annual Report, Participation
SETTLEMENT PROVISIONS................................................................................................... 11
Policy Proceeds, Options, Annuity Date, Payments,
Evidence of Age and Sex, Misstatement of Age or Sex,
Evidence that Annuitant is Alive, Payee, Adjusted Age,
Claims of Creditors
SETTLEMENT OPTION TABLES................................................................................................ 14
</TABLE>
LA-27
<PAGE>
POLICY SPECIFICATIONS
- --------------------------------------------------------------------------------
DATE OF ISSUE AUG 01, 1994
POLICY YEARS ARE COMPUTED FROM THIS DATE
NAME OF ANNUITANT JOHN DOE
POLICY NUMBER 00000001
NAME OF OWNER JOHN DOE
PLAN ONE YEAR FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
FORM NUMBER LA-27
INITIAL PREMIUM $10,000
ANNUITY DATE AUG 01, 2024
EARLY WITHDRAWAL 7% OF THE CONTRACT VALUE IN THE FIRST YEAR
PENALTY DECREASING TO 0 IN YEAR 8 AS SHOWN ON PAGE 8.
FREE WITHDRAWAL UP TO 12% OF THE CONTRACT VALUE MAY BE WITHDRAWN
AMOUNT EACH POLICY YEAR BEFORE EARLY WITHDRAWAL PENALTIES
ARE ASSESSED.
LA-27 7-94
<PAGE>
In this policy, the words you and your refer to the owner named on page 3.
Individual refers to a natural person. We, us, our, and AUL refer to American
United Life Insurance Company(R).
PREMIUM AND ACCOUNT VALUE PROVISIONS
Premium
Premiums are payable at our home office. A receipt will be given upon request.
Premium payments are flexible and can be paid at any time and in any amount
subject to the following conditions:
1. Additional premiums will only be accepted during the first policy year;
2. Each premium payment must be at least $500;
3. All premiums combined may not be more than $1,000,000, unless a higher
amount is agreed by us.
Net Purchase Payments
A net purchase payment is equal to the premium paid LESS any applicable state
premium tax.
Each net purchase payment will be allocated among the fixed account and the
variable accounts by the method you elect.
The Fixed Account
The fixed account is our general account.
The fixed account value equals (1) - (2) + (3) where:
(1) is net purchase payments applied to the fixed account plus any dividends
credited.
(2) is any amounts withdrawn (including early withdrawal penalty).
LA-27 7-94
<PAGE>
(3) is interest earned on (1) - (2), from date of deposit to date of
withdrawal, at the rates declared by us. At the time a net purchase payment
is applied the interest rate then in effect on newly deposited money will
apply to that net purchase payment for one year from the date of deposit.
The interest rate which we will apply to that net purchase payment is
subject to change at any time after one year. However, we may not declare
an interest rate which is less than 3% per year.
The Variable Accounts
The variable accounts are separate investment accounts established and owned by
AUL. The assets of the accounts will be used to provide values and benefits
under this contract and similar contracts, but the account may not be charged
with liabilities arising from any other business in which AUL takes part.
Accumulation Units
Net purchase payments applied to the variable accounts will be allocated as
specified by you and will be credited to your account in the form of
accumulation units. The number of accumulation units to be credited is
determined by dividing:
(1) the dollar amount allocated to the particular variable account, by
(2) the accumulation unit value for the particular account at the end of the
valuation period during which the net purchase payment is received by AUL
at its home office.
Accumulation Unit Value
AUL determines the accumulation unit value for each variable account on each
valuation date. The accumulation unit value for the Money Market account was
initially set at one dollar ($1) and the value for each of the other variable
accounts was set at five dollars ($5) when operations commenced. The value for
any later valuation period is found by multiplying:
(1) the net investment factor for the particular account, by
(2) the accumulation unit value of the same account for the preceding valuation
period.
The accumulation unit value may increase or decrease from one valuation period
to the next.
LA-27
<PAGE>
Net Investment Factor
The net investment factor is used to measure the investment performance of an
investment account from one valuation period to the next. For any investment
account the net investment factor for a valuation period 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 mutual fund held in the
investment account determined at the end of the current valuation
period, plus
(2) the per share amount of any dividend or capital gain distribution paid
by the mutual 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.
(b) is the net asset value per share of the mutual fund held in the investment
account, determined at the end of the preceding valuation period.
(c) is a daily charge factor representing the mortality and expense risk charge.
Mortality and Expense Risk Charge
In calculating the net investment factor, we will deduct a daily charge from
each investment account for the mortality and expense risks assumed by AUL. The
charge is equal to an equivalent annual rate of 1.25% of the average daily net
assets over the whole year in each investment account.
Valuation Dates and Valuation Period
The valuation dates are the dates on which the variable accounts are valued. The
valuation dates currently include each business day that is also a day on which
both AUL and the New York Stock Exchange are open for business. A valuation
period begins at the close of one valuation date and ends at the close of the
next succeeding valuation date.
LA-27
<PAGE>
Contract Value
The contract value at any time is the sum of: (1) the fixed account value; and
(2) the sum of the value of all variable account accumulation units credited to
this policy.
Annual Fee
We will charge an annual administrative fee of $30, or 2% of the contract value,
if less, at the end of the policy year. The fee will be charged on each policy
anniversary while the contract is in force other than under an annuity payment
settlement option. The charge is deducted proportionately from your contract
value allocated among the variable accounts and the fixed account. We will waive
the annual fee on each contract anniversary when the contract value, at the time
the charge would have otherwise been imposed, exceeds $50,000.
Transfers Between Accounts
You may make transfers of value among the variable accounts and between the
fixed account and the variable accounts. The minimum amount that may be
transferred from any account is $500, or the total amount in that account, if
less. If the amount remaining in any investment 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 from the fixed
account to the variable accounts in any contract year is 20% of the fixed
account value at the preceding contract anniversary. Any withdrawals from the
fixed account, including exercise of the Free Withdrawal provision, will
decrease the 20% maximum transfer limit by the amount withdrawn.
Currently, there are no charges for or limitations on the number of transfers
between accounts. AUL reserves the right to change the limitation on the minimum
transfer, to limit the number and frequency of transfers, to assess transfer
charges, and to otherwise modify the transfer privilege.
WITHDRAWAL AND DEATH BENEFIT PROVISIONS
Free Withdrawal Amount
The free withdrawal amount for each policy year is equal to 12% of the contract
value at the time of that year's first withdrawal. Any transfer from the fixed
account
<PAGE>
l-27 7-94
to the variable accounts will reduce the amount available for free withdrawal
from the fixed account by the amount transferred.
Withdrawals
You may withdraw all or part of your contract value at any time on or before the
annuity date. If you do not specify from which accounts the withdrawal is to be
made, the withdrawal will be made from the fixed and variable accounts in the
same proportion as their account values bear to the contract value. If you
withdraw all of the contract value, you must surrender the policy.
If you withdraw less than the full contract value, you must withdraw at least
$500. To fund a withdrawal from the fixed account, premiums previously paid and
their accumulated interest will be withdrawn on a last-in, first-out basis.
Withdrawals from the variable accounts will be funded by the liquidation of an
adequate number of accumulation units.
There may be an early withdrawal penalty during the first seven policy years.
Whenever the total amount withdrawn in a policy year exceeds the free withdrawal
amount, there is an early withdrawal penalty on the excess.
The penalty will be a percentage of the excess as follows:
Early Early
Policy Withdrawal Policy Withdrawal
Year Penalty Year Penalty
1 7.0% 5 3.0%
2 6.0 6 2.0
3 5.0 7 1.0
4 4.0 8 and 0.0
thereafter
In no event will the withdrawal penalty exceed 8% of the total premiums paid.
There is no withdrawal penalty after the seventh policy year.
The amount you can withdraw is not less than the minimum required by the law of
the state where this policy is delivered.
Withdrawal Deferral
LA-27
8
<PAGE>
For withdrawals from the fixed account, we may defer payment for up to six
months. If we do, interest on the fixed account will continue to be earned at
the declared rates.
We may suspend or delay withdrawal payments from the variable account when
permitted under applicable Federal laws, rules and regulations.
Death Proceeds
The death proceeds under this contract is the contract value; however, if you
die before age 76 the death proceeds will not be less than the value given by
(a)-(b)-(c)+(d) where:
(a) is the net purchase payments.
(b) is any amounts withdrawn (including any early withdrawal penalties)
prior to your death.
(c) is the annual fees assessed prior to your death.
(d) is interest earned on (a)-(b)-(c), credited at an annual effective
rate of 4%.
Death of the Owner
If you die before the annuity date and the beneficiary is your surviving spouse:
Your surviving spouse will become the new owner. The policy will continue with
its terms unchanged and your spouse will assume all rights as its owner. Within
120 days of your death, your spouse may elect to receive the death proceeds or
withdraw any of the contract value without any early withdrawal penalty.
If you die before the annuity date and the beneficiary is not your surviving
spouse:
The death proceeds will be paid to the beneficiary in a lump sum no later than
120 days after your death, 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 your 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.
Any amount payable hereunder will not be less than the minimum required by the
law of
LA-27
9
<PAGE>
the state where this policy is delivered.
Death of the Annuitant
If the annuitant dies before the annuity date and the annuitant is not also the
owner, then:
1. if the owner is not an individual, the death proceeds will be paid to
the owner in a lump sum no later than 120 days after the annuitant's
death; or
2. if the owner is an individual, a new annuitant may be named and the
policy will continue. If a new annuitant is not named within 120 days
of the annuitant's death, the contract value, less any early
withdrawal penalty, will be paid to the owner in a lump sum.
OWNERSHIP, ASSIGNMENT AND BENEFICIARY PROVISIONS
Ownership
As the owner of this policy, you are entitled to all rights given by its terms.
You may exercise these rights without the consent of the annuitant, beneficiary,
or payee. Your rights are subject to the interests of any assignee or
irrevocable beneficiary.
Assignment
You may assign this policy, but if you do, the rights of the owner and any
beneficiary will be secondary to the interests of the assignee. We assume no
responsibility for the validity of an assignment. Any assignment will not be
binding upon AUL until received in writing at the home office.
Because an assignment may be a taxable event, you should consult competent tax
advisors as to the tax consequences resulting from such an assignment.
Beneficiary
The beneficiary is as named in the application unless later changed by you. A
beneficiary may only be named if the owner is an individual. The interests of a
beneficiary who dies before you will pass to any surviving beneficiary, unless
you specify otherwise. If no beneficiary survives, the rights to policy proceeds
will vest
LA-27
10
<PAGE>
in your estate.
Change of Beneficiary
You may change the beneficiary of this policy by giving written notice to AUL. A
change will take effect on the date the notice is signed. However, the change
will not apply to any payments made or actions taken by us before we received
the notice. We reserve the right to require that this policy be presented for
endorsement of any change. An irrevocable beneficiary may be changed only with
the written consent of that beneficiary.
Change of Annuitant
If the owner is an individual, the annuitant may be changed by writing us any
time prior to the annuity date. The annuitant must also be an individual and
must be you, or someone chosen from among your spouse, parents, brothers,
sisters and children. Any other choice will need our consent.
If the owner is not an individual, a change in the annuitant will not be
permitted without our consent.
GENERAL PROVISIONS
Policy
The entire policy consists of:
1. the basic policy;
2. endorsements, if any; and
3. a copy of your application.
Any change in this policy must be approved by AUL's President, Vice President or
Secretary. No agent is authorized to change or waive any policy provision.
Incontestability
This policy will not be contested after it has been in force 2 years from its
date of issue.
Annual Report
LA-27
11
<PAGE>
We will send you an annual report which shows the current contract value,
premiums paid, interest credited, charges assessed, transfers made, and
withdrawals made since the last report.
Participation
While this policy is in force prior to the annuity date, its share of divisible
surplus, if any, will be determined each year by AUL and credited to the fixed
account value.
SETTLEMENT PROVISIONS
Policy Proceeds
If the life annuity or survivorship annuity option is selected, proceeds are
equal to the contract value.
If the policy is in its fourth policy year or later and you select the fixed
income option for a period of 10 or more years, proceeds are equal to the
contract value.
Otherwise, proceeds are equal to the contract value less any applicable early
withdrawal penalty.
Options
Proceeds may be paid in one sum or according to one of the following options, or
in any other manner agreed to by us. If no option has been selected by the
annuity date, the proceeds will be applied to option 2 with 120 guaranteed
payments.
Once an annuity begins, the method of payment, the annuitant, and the selected
option cannot be changed.
1. Income for a Fixed Period. Proceeds are paid in equal monthly
installments for a specified number of years, not to exceed 20.
2. Life Annuity. Proceeds are paid in equal monthly installments for as
long as the annuitant lives. A minimum number of payments can be
guaranteed such as 120 or the number of payments required to refund
the proceeds applied.
3. Survivorship Annuity. Proceeds are paid in monthly installments for as
long as one of two named annuitants live. A minimum number of payments
equal to the initial payment can be guaranteed such as 120. A lower
monthly installment payable while only one annuitant is alive can be
specified.
L-27 12
<PAGE>
Annuity Date
The annuity date is the date we will begin an annuity in accordance with the
settlement option you have chosen. The annuity date you requested in the
application is shown on page 3. If no date was indicated on the application, the
annuity date will be age 70. This date may be changed by writing us any time
prior to the annuity date. The annuity date may not be changed once payments
begin.
Payments
The settlement option tables show the guaranteed monthly payments available
under options 1, 2 and 3. The amounts shown are for exact adjusted ages. The
values for other ages and fractional ages not shown will be calculated on the
same basis as those shown and will be furnished upon request. Based on your
contract value, we will calculate the amount payable under any option.
If the monthly payment under a chosen settlement option is less than $100, we
may require that payments be made on a less frequent basis.
Evidence of Age and Sex
Evidence of age and sex for any annuitant will be required before payments
begin.
Misstatement of Age or Sex
If the stated date of birth or sex of any annuitant is not correct we will
adjust any amount payable under this policy to that based on the correct age and
sex. Any underpayment will be paid in full with the next annuity payment. Any
overpayment, unless repaid in one sum, will be deducted from future annuity
payments until totally repaid.
Evidence that Annuitant is Alive
We may ask for evidence that the annuitant(s) is still alive when any
installment is due.
Payee
Payee means the person(s) designated by the owner to receive annuity payments.
The owner may change the payee at any time by giving us 30 days written notice.
Payees may be named regardless of whether the owner is an individual.
L-27
13
<PAGE>
Adjusted Age
An adjusted age is calculated as follows:
1. determine an annuitant's actual age in years and full months on the
date payments are to begin; and
2. subtract 1.5 months for each year the annuitant's year of birth
exceeds 1900.
Claims of Creditors
Settlement option payments will be exempt from the claims of creditors to the
maximum extent permitted by law.
LA-27
14
<PAGE>
SETTLEMENT OPTION TABLES
Guaranteed Monthly Income Per $1,000 of Proceeds
OPTION 1 - Income for Fixed Period
Number Monthly Number Monthly
of Years Income of Years Income
1 $84.47 11 $8.86
2 42.86 12 8.24
3 28.99 13 7.71
4 22.06 14 7.26
5 17.91 15 6.87
6 15.14 16 6.53
7 13.16 17 6.23
8 11.68 18 5.96
9 10.53 19 5.73
10 9.61 20 5.51
Quarterly Income is 2.993 times the monthly income and annual income is 11.839
times the monthly income.
OPTION 2 - Life Annuity
The amount of income is based on the adjusted age of the annuitant on the date
of the first payment.
<TABLE>
<CAPTION>
Number of Guaranteed Payments Number of Guaranteed Payments
Adjusted ----------------------------------- Adjusted -----------------------------------
Age None 120 Refund* Age None 120 Refund*
- ------------------------------------------------- -------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
55 $4.34 $4.30 $4.17 63 $5.21 $5.10 $4.86
56 4.42 4.38 4.24 64 5.35 5.22 4.96
57 4.52 4.47 4.31 65 5.51 5.35 5.08
58 4.61 4.56 4.39 66 5.67 5.49 5.20
59 4.72 4.65 4.47 67 5.85 5.64 5.33
60 4.83 4.76 4.56 68 6.04 5.80 5.46
61 4.95 4.86 4.66 69 6.24 5.96 5.61
62 5.08 4.98 4.75 70 6.46 6.13 5.76
</TABLE>
*The sum of all guaranteed payments will equal the amount applied under this
option.
OPTION 3 - Survivorship Annuity
The amount of income is based on the adjusted age of each of the annuitants on
the date of the first payment.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50% to Survivor 100% to Survivor
120 Guaranteed Payments 120 Guaranteed Payments
Payee #1 Payee #2 Age Payee #1 Payee #2 Age
------------------------------------------------ -----------------------------------------------
#1 50 55 60 65 70 #1 50 55 60 65 70
------------------------------------------------ -----------------------------------------------
50 $3.95 $4.12 $4.31 $4.55 $4.80 50 $3.56 $3.67 $3.76 $3.83 $3.88
55 4.12 4.30 4.52 4.77 5.05 55 3.67 3.83 3.97 4.08 4.17
60 4.31 4.52 4.76 5.04 5.36 60 3.76 3.97 4.17 4.36 4.51
65 4.55 4.77 5.04 5.35 5.72 65 3.83 4.08 4.36 4.64 4.90
70 4.80 5.05 5.36 5.72 6.13 70 3.88 4.17 4.51 4.90 5.28
</TABLE>
Income for other combinations of ages will be furnished on request.
LA-27 7/94
15
<PAGE>
NOTICE OF ANNUAL MEETING
Since AUL is a mutual company, its policyowners are
owners of the company, and they are invited to attend
the annual policyowners' meeting at the home office
in Indianapolis, Indiana.
By-law, Art. III, Sec. 1: The regular annual meeting
of the members of this corporation shall be held at its
principal place of business on the third Thursday in
February of each year at the hour of 10:00 o'clock
a.m.; Elections for directors shall be held at such
annual meeting.
American United Life Insurance Company(R)
Indianapolis, Indiana
- -------------------------------------------------------------------------------
ONE YEAR FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY POLICY
PARTICIPATING
Annuity will begin on annuity date in accordance with the
settlement provisions.
This policy is a legal contract between the owner and AUL.
LA-27
- --------------------------------------------------------------------------------
EXHIBIT 5
INDIVIDUAL VARIABLE ANNUITY ENROLLMENT FORM
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
<TABLE>
<C> <S>
Application for Individual Variable Annuity
- -------------------------------------------------------------------------------------------------------------------
American United Life Insurance Company(r) Member NASD.
P.O. Box 368, Indianapolis, Indiana 46206-0368
- -------------------------------------------------------------------------------------------------------------------
1. a. TYPE OF PLAN (choose one):
[ ] Non-qualified [ ] IRA [ ] SEP-IRA [ ] Roth IRA [ ] 403(b) TDA [ ] HR-10
[ ] SIMPLE IRA [ ] Retirement Plan: Pension, Profit Sharing or 401(k) [ ] Other:
b. If qualified plan, indicate tax year for initial premium:
2. PRODUCT AND PREMIUM PAYMENT OPTIONS
Select the annuity and premium payment option you are applying for:
[ ] One Year Flexible Premium Deferred Variable Annuity (SPVA)
Initial Premium $__________ ($5,000 minimum) Check if: [ ] Direct Rollover [ ] Rollover [ ] ss 1035 Exchange
[ ] Flexible Premium Deferred Variable Annuity (FPVA)
Planned Premium $__________ ($50 minimum; $300 minimum total annual premium for first 3 years)
to be billed: [ ] Annually [ ] Monthly list bill (3 life minimum)
[ ] Automatic Premium Payment (APP) Annuitant/Payee's Account #________________
Account Type: [ ] Checking [ ] Savings
Please attach a blank voided check from this account for verification of account information
Additional Premium at Issue $________ Check if: [ ] Direct Rollover [ ] Rollover [ ] ss 1035 Exchange
3. ANNUITANT/OWNER:
Last First Middle Address:
____________________________________ ____________________________________
Date of Birth:
SS#: _________________________ Sex: [ ] Male [ ] Female Telephone Number: ( )
4. OWNER (if other than annuitant)
[ ] Last Name First Middle Address:
_______________________________________________ ___________________________________
Date of Birth: ________________
SS#:_________________________ Sex: [ ] Male [ ] Female Telephone Number: ( )
[ ] OTHER:________________________________________ Tax ID #:__________________
Name Relationship to Annuitant
[ ]________________________________________________ Custodian under UGMA, UTMA Telephone Number: ( )
Name Circle One
5. Is any proposed Owner or Annuitant/Owner an associated person of another
NASD member? [ ] Yes [ ] No Proposed Owner or Owner/Annuitant's Profession
(if retired, list profession prior to retirement):
Employer Name:
Employer Address:
Employer Name Street Address City State Zip Code
6. SUITABILITY INFORMATION
Investment Objective [ ] Capital Preservation [ ] Income [ ] Total Return [ ] Capital Appreciation
(Select One) (Conservative) (Moderate) (Moderate) (Aggressive)
Investment Experience: Number of Years:_______ Annual Income (Salary) $____________
Stocks: $____________ Other Income: $________________
Bonds: $_____________ Total Household Income $______________
Mutual Funds: $_____________ Net Worth: $______________
Other: $______________ Liquid Net Worth: $______________
Approximate Tax Bracket: ___________% Filing Status: [ ] Single [ ] Married [ ] Head of Household Number of Dependents____
7. BENEFICIARY
Date of Birth (mo/day/year) SS # Relationship Address
First:_____________________________ ____________________ ______________ _____________ _____________________
Second, if no first beneficiary is living:
any lawful children of the [ ] proposed annuitant [ ] owner (choose one),
share and share alike.
If any second beneficiary is not living a the time a death benefit is
payable, the living children, if any, of such deceased second
beneficiary shall receive, share and share alike, the share of the
proceeds which their parent would have received if living.
[ ] ------------------------------ --------------------- -------------- ------------- ---------------------
8. Does any proposed annuitant have any intention of replacing or changing any
insurance or annuity in this or any other company by this annuity?
[ ] Yes [ ] No
9. Indicate the INVESTMENT ACCOUNT ALLOCATIONS for the PREMIUM PAYMENT(S) in
increments of 5%. Premiums will be applied to the AUL American Money Market
Account if allocation is not specified or does not total 100%.
_____% AUL Fixed Interest Account _____% American Century _____% Fidelity (VIP) High Income
_____% AUL American Bond _____% VP Capital Appreciation _____% Fidelity (VIP II) Index 500
_____% AUL American Equity _____% American Century VP International _____% Fidelity (VIP) Overseas
_____% AUL American Managed _____% Calvert Social Mid Cap Growth _____% PBHG Growth II (ISF)
_____% AUL American Money Market _____% Fidelity (VIP II) Asset Manager _____% PBHG Technology &
_____% AUL American Tactical _____% Fidelity (VIP II) Contrafund Communication (ISF)
Asset Allocation _____% Fidelity (VIP) Equity Income _____% T.Rowe Price Equity Income
_____% Alger American Growth _____% Fidelity (VIP) Growth 100 % TOTAL
10. HOME OFFICE ENDORSEMENT (Not applicable in NJ, PA or WV):
IVA-98 7-13285C rev. 4/98
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
FRAUD WARNING (Not applicable to residents of AZ, ND, OR, TX, VA or WA)
Any person who knowingly presents a false or fraudulent claim for payment of a
loss or benefit or knowingly presents false information in an application for
insurance is guilty of a crime and may be subject to fines and confinement in
prison.
COLORADO FRAUD WARNING
It is unlawful to knowingly provide false, incomplete, or misleading facts or
information to an insurance company for the purpose of defrauding or attempting
to defraud the company. Penalties may include imprisonment, fines, denial of
insurance, and civil damages. Any insurance company or representative of an
insurance company who knowingly provides false, incomplete, or misleading facts
or information to a policyholder or claimant for the purpose of defrauding or
attempting to defraud the policyholder or claimant with regard to a settlement
or award payable from insurance proceeds shall be reported to the Colorado
division of insurance within the department of regulatory agencies.
FLORIDA FRAUD WARNING
Any person who knowingly and with intent to injure or deceive any insurer files
a statement of claim or an application containing any false, incomplete, or
misleading information is guilty of a felony of the third degree.
KENTUCKY FRAUD WARNING
Any person who knowingly and with intent to defraud any insurance company or
other person files an application for insurance containing any materially false
information or conceals, for the purpose of misleading, information concerning
any fact material thereto commits a fraudulent insurance act, which is a crime.
NEW JERSEY FRAUD WARNING
Any person who includes any false or misleading information on an application
for an insurance policy is subject to criminal and civil penalties.
PENNSYLVANIA FRAUD WARNING
Any person who knowingly and with intent to defraud any insurance company or any
other person, files an application for insurance or statement of claim
containing any materially false information, or conceals for the purpose of
misleading information concerning any fact material thereto commits a fraudulent
insurance act, which is a crime and subjects such a person to criminal and civil
penalties.
TAXPAYER IDENTIFICATION NUMBER CERTIFICATION
Under penalties of perjury, I certify that: 1. The number shown on this
application is my correct taxpayer identification number (or I am waiting for a
number to be issued to me), and 2. I am not subject to backup withholding
because: (a) I am exempt from backup withholding, or (b) I have not been
notified by the Internal Revenue Service (IRS) that I am subject to backup
withholding as a result of a failure to report all interest or dividends, or (c)
the IRS has notified me that I am no longer subject to backup withholding. (You
must cross out item 2 above if you have been notified by the IRS that you are
currently subject to backup withholding because you have failed to report all
interest and dividends on your tax return.)
- -------------------------------------------------------------------------------
I represent that I have read and understand all the statements and answers given
in this application and that they are true and complete to the best of my
knowledge and belief.
It is agreed that:
(a) any annuity issued will be based on the statements and answers given in this
application and any amendments to it; (b) no agent has the authority to make or
alter any contract for the company; (c) the company may indicate changes in the
space entitled "Home Office Endorsement" for administrative purposes only but I
must agree in writing to any other changes in this application. (d) no contract
shall take effect unless and until this application is approved by the company
at its home office; (e) I have received a current prospectus for each of the
investment accounts and mutual fund(s) indicated in section 9; (f) all benefits,
payments, and values under this contract which are based on the investment
experience of a separate account are variable and not guaranteed as to fixed
dollar amount.
The Internal Revenue Service does not require your consent to any portions of
this document other than the certification required to avoid backup withholding.
Signed at:____________________ on ____________ _______________________________
City and State Date Signature of Proposed Annuitant
Signature of Owner if not Proposed Annuitant (include title, if applicable)
To the best of your knowledge, will the annuity applied for replace any existing
insurance or annuity? [ ] Yes [ ] No
- ----------- ------------------------ -------------------------- ----------
Agent's Code Signature of Registered Signature of other Agent's
Representative/Agent Registered Representative/ Code
Agent(s) if split case
---------
Percentage
Credit
FLORIDA ONLY: __________________ _____________________________________________
Florida License No. FL Licensed Resident Agent (Name Printed)
_____________________________________________
FL Licensed Resident Agent (Signature)
Field Office Principal/Broker-Dealer Approval on (date)
_________________________________ _______________________________
Accepted by American United Life Insurance Company (R)
at the Home Office by ____________________________ on ____________
NASD Principal Date
- --------------------------------------------------------------------------------
Registered Representative/Agent/Home Office Use Only:
- --------------------------------------------------------------------------------
IVA-98 7-13285C rev. 4/98
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RECEIPT
Received from _______________________________________ the sum of $______________
dollars in connection with an application for a variable annuity from American
United Life Insurance Company(r) (AUL). The amount received and the application
will be forwarded to the Home Office of AUL for their review. If the application
for the variable annuity contains all of the required information and is
otherwise acceptable to AUL, then the amount set forth above will be applied and
invested a specified in the current prospectus describing AUL's variable
annuity.
Name of Agent (please print) Signature of Agent
- ----------------------------- -----------------------------------------
- --------------------------------------------------------------------------------
EXHIBIT 6.1
ARTICLES OF MERGER
BETWEEN AMERICAN CENTRAL LIFE INSURANCE COMPANY
AND UNITED MUTUAL LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
ARTICLES OF MERGER
OF
AMERICAN CENTRAL LIFE
INSURANCE COMPANY
INDIANAPOLIS, INDIANA
AND
UNITED MUTUAL LIFE
INSURANCE COMPANY
INDIANAPOLIS, INDIANA
<PAGE>
(This page was left blank intentionally)
<PAGE>
ARTICLES OF MERGER
IT IS HEREBY CERTIFIED by the American Central Life Insurance Company and the
United Mutual Life Insurance Company that the following Joint Agreement of
Merger between said corporations has been duly adopted and executed by them,
viz:
THIS JOINT AGREEMENT OF MERGER, made and entered into this 17th day of December,
A. D., 1936, at Indianapolis, Indiana, by and between the AMERICAN CENTRAL LIFE
INSURANCE COMPANY, a corporation duly organized, established, and existing under
and by virtue of the laws of the State of Indiana, as a capital stock life
insurance company (hereinafter designated as the "American Central"), and the
UNITED MUTUAL LIFE INSURANCE COMPANY, a corporation duly organized, established,
and existing under and by virtue of the laws of the State of Indiana, as a
mutual life insurance company (hereinafter designated as the "United Mutual"),
each with its principal office and place of business at Indianapolis, Indiana,
WITNESSETH THAT,
WHEREAS, The laws of the State of Indiana by Acts 1935, Chapter 162,
authorize and empower domestic insurance corporations to enter into joint
agreements of merger and provide the method and procedure for the approval,
adoption, and execution of such agreements and the approval of articles of
merger,
NOW THEREFORE, In consideration of the mutual promises, covenants, and
agreements herein contained and to effectuate a merger of the American Central
and the United Mutual pursuant to the approval and authorization of their
respective boards of directors, the stockholders of the American Central and the
members of the United Mutual and subject to the approval of the necessary
officials and departments of the State of Indiana, all as provided by law, IT IS
HEREBY MUTUALLY AGREED by and between the parties hereto as follows:
1. Merger Agreement and Name of Surviving Corporation:
The American Central Life Insurance Company shall merge into the United
Mutual Life Insurance Company, (which, with its name changed to "AMERICAN UNITED
LIFE INSURANCE COMPANY," shall be and is hereinafter designated as the
"Surviving Corporation"), under the present certificate of authority of the
United Mutual, except for such modification and changes as are specifically set
forth in this Joint Merger Agreement and restatement of its Articles of
Incorporation.
3
<PAGE>
2. Surrender of American Central Stock and Issuance of Participation
Certificates:
Immediately upon the issuance of the Certificate of Merger by the Secretary
of State, stock certificates evidencing ownership of at least eighty-five per
centum (85%) in amount of the capital stock of the American Central shall be
surrendered by Herbert M. Woollen and Harry R. Wilson, as Trustees for American
Central stockholders and owners of Participation Certificates, free and clear of
any pledge, lien or claim of any nature whatsoever to the Surviving Corporation
for cancellation; provided that surrender of a substantial part of the remaining
shares shall be completed within four (4) months from the effective date of said
merger; and provided that coincident with any such surrender and cancellation
and in exchange for said stock certificates and in consideration therefor, there
shall be issued by the Surviving Corporation to said Trustees for delivery to
each owner, in lieu of his certificates of stock in the American Central,
Participation Certificates, in the form hereinafter set forth, entitling him to
such fractional part of the amounts herein called "Conversion Proceeds" less
deductions herein set out as the number of his surrendered shares of stock bears
to 2,740, the total outstanding shares of stock in the American Central. In the
event any shares of American Central stock shall be acquired in accordance with
the provisions of Chapter III, Article V, Section 123 of the Indiana Insurance
Law, or by purchase, Participation Certificates shall be issued for such stock
so acquired or purchased and shall share in the regular distribution of
Conversion Proceeds. Such Participation Certificates shall be held by the
Surviving Corporation as Trustee for the remaining Participation Certificate
owners and the share thereof in the Conversion Proceeds shall be equitably
distributed by the said Trustee among the remaining Participation Certificate
owners. The Surviving Corporation may purchase Participation Certificates for
its own account. The Participation Certificates shall be registered on the books
of the Surviving Corporation and shall be transferable. They shall give the
owners and holders thereof no other or greater rights than stated in such
Certificates and this Agreement, and shall create no liability against the
Surviving Corporation except for Conversion Proceeds, as hereinafter defined,
when, if, and as determined in the manner herein provided.
3. Segregation of American Central Assets and Liabilities American Central
Fund
There shall be created, by proper segregation, designations, and entries
upon the books of the Surviving Corporation, a complete separation, listing, and
accounting of all assets, liabilities, and business of the American Central,
(except those assets taken over by the Surviving Corporation by agreement,) as
the same exist
4
<PAGE>
and are shown by the books and records in the accounting for the American
Central at the close of business on December 31, 1936, which, with all
accretions thereto and depletions therefrom, shall constitute and be known as
the "American Central Fund" and shall continue until all Participation
Certificates are retired as hereinafter provided.
4. Conversion Proceeds Determined Annually and Distributed:
The Conversion Proceeds above mentioned shall be determined in the
following manner: As of December 31, 1936, and annually thereafter until and
including December 31, 1956, a complete annual accounting of the business of the
American Central Fund shall be prepared in the form required for annual
statements to the Indiana Insurance Department.
A. In these statements there shall be credited to the American Central Fund
the following:
a. In the first accounting as of December 31, 1936, all assets received
from the American Central at book values. Subsequent accountings shall
start with the ledger assets at the date of the preceding accounting.
b. All income of any sort derived from business and assets of the
American Central Fund.
c. All profits on sales and maturities of ledger assets and gross
increase by adjustment in book value of ledger assets of the American
Central Fund.
d. Interest, rents and other income, including profits on sales or
maturities and increases by adjustments on that portion, if any, of
the general assets of the Surviving Corporation which is derived from
the business and assets of the American Central Fund, at the net rate
realized by the Surviving Corporation on all of its assets acquired
after this Merger, excluding those transferred from the American
Central and the United Mutual.
B. In said annual statements, there shall be charged as disbursements:
a. All disbursements specifically chargeable to the business and assets
of the American Central Fund. The expenses which cannot be
specifically allocated to the business of the American Central or the
Surviving Corporation, shall be pro-rated between the respective
businesses and assets on the basis hereinafter set forth, it being
expressly understood that no part of the acquisition expense of the
Surviving Corporation shall be charged to the American Central Fund.
5
<PAGE>
b. All investment expenses and investment losses on account of assets of
the American Central Fund.
c. All payments made or credited to owners of Participation Certificates
and dissenting stockholders.
C. In preparing the statements of assets and liabilities, the following
principles shall be followed:
a. All assets received from the American Central with accretions and
substitutions less depletions, shall be included.
b. An amount equal to the value of the undivided part of the general
assets of the Surviving Corporation derived from income from the
business and assets of the American Central Fund shall be included.
c. All policy assets and liabilities and all other non-ledger assets and
liabilities shall be included as required by the Insurance Department
Annual Statement Blank unless otherwise specified herein. Disability
reserves shall be based upon the tables heretofore used by the
American Central.
From the statements prepared as provided herein, the gain or loss of the
Surviving Corporation on account of the business of the American Central shall
be determined. The amount thereof shall constitute the Conversion Proceeds. Any
such loss in excess of gains from other sources and of the existing Fluctuation
Fund as hereinafter provided shall be a first charge against the Conversion
Proceeds of the succeeding year or years until equalized. The determination of
Conversion Proceeds, as herein provided, shall be made annually as of December
31st, and after deducting the amounts provided in Sections 5, 6 and 7 hereof,
the remainder of said Conversion Proceeds shall within ninety (90) days
thereafter be distributed in cash annually for a period ending December 31,
1956, to the registered owners of the Participation Certificates. The Trustees
shall have access at all times to the books and records of the Surviving
Corporation for the purpose of determining the correctness of the accounting, or
for any other purposes. Any expense of any examinations or audits at the request
of the Trustees shall be paid by the Surviving Corporation and charged against
the American Central Fund.
5. Equalization of American Central Surplus as of December 31, 1935:
It is agreed that the capital and surplus of the American Central as of
December 31, 1935, and the surplus of the United Mutual constitute the surplus
of the Surviving Corporation. If necessary to equalize the surplus of the
American Central at the effective date hereof to the amount thereof as of
December 31,
6
<PAGE>
1935, there shall be deducted from the Conversion Proceeds each year beginning
with the accounting for the year 1937 an amount not in excess of ten per centum
(10%) of the Conversion Proceeds created by the operations of that year, which
amounts so deducted shall remain in the American Central Fund.
6. Provision for Fluctuations and Losses" Final Accounting December 31, 1956 -
Appraisal:
In order to provide for fluctuations in the value of investments and other
losses, there shall be deducted an amount equal to twenty per centum (20%) of
the remainder of the Conversion Proceeds after the deduction provided in Section
5 hereof has been made, beginning with the accounting for the year 1939, which
amounts so deducted shall remain in the American Central Fund and be carried as
a liability to be known as the "Fluctuation Fund," against which losses in
excess of gains from other sources may be charged, until December 31,1956,
provided that the maximum of said Fund shall not at any accounting exceed ten
per centum (10%) of the book value of the assets of the American Central Fund,
and provided further that the American Central Committee, as hereinafter
created, shall annually determine the extent to which the further maintenance of
this Fund is reasonably necessary. In the accounting as of December 31, 1956,
the reasonable, fair, normal, average market value of all assets in the American
Central Fund shall be determined by agreement between the American Central
Committee and the Surviving Corporation; or, in the event they are unable so to
agree, by disinterested parties employed by the American Central Committee with
the approval of the Surviving Corporation. In that accounting, the values so
fixed shall be used in determining the Conversion Proceeds payable to the
Participation Certificate owners, and the remainder of the Fluctuation Fund, if
any, shall be distributed as a part of the final accounting and payment. Any
part of the Fluctuation Fund which shall be distributed in accordance with this
agreement shall not be subject to the deduction provided for in Section 7 of
this agreement. Immediately thereupon the Participation Certificates shall be
surrendered for cancellation.
7. Allocation of Conversion Proceeds to Surviving Corporation:
In the accounting for each of the years 1937 and 1938 there shall be
deducted and credited to the surplus of the Surviving Corporation an amount
equal to ten per centum (10%) of the Conversion Proceeds as determined from the
operations during said year. For each of the years 1939 and thereafter such
deduction and credit shall be fifteen per centum (15%).
7
<PAGE>
8. Effective Date of Merger:
The "effective date" of the merger shall be the date of the issuance of the
Certificate of Merger by the Secretary of State, as provided by Chap. III, Art.
V, Sec. 118 of the Indiana Insurance Law.
9. Surviving Corporation Vested with Property and Responsible for Liabilities:
When such merger has been effected, as provided by Chap. III, Art. V, Sec.
125 of the Indiana Insurance Law, the Surviving Corporation shall thereupon and
thereafter possess and be vested with all the rights, privileges, immunities,
powers, and franchises of a public, as well as of a private nature of each of
the corporations, parties hereto; and all property, real, personal, and mixed,
and all debts due on whatever account and all choses in action and all and every
other interest, of or belonging to or due to each of them shall be deemed to be
transferred to and vested in the Surviving Corporation without further act or
deed; and the title to any real estate, or any interest therein, under the laws
of this State vested in either of the corporations, parties hereto, shall not
revert or be in any way impaired by reason of the merger, and the Surviving
Corporation shall thenceforth be responsible and liable for all the liabilities
and obligations of each of the corporations, parties hereto, in the same manner
and to the same extent as if the Surviving Corporation had itself incurred the
same or contracted therefor. The American Central, its directors, officers and
agents shall make all conveyances, assignments, and do or refrain from all other
acts and deeds deemed necessary, expedient or proper to effectuate the merger,
and to vest in the Surviving Corporation all of the American Central's right,
title and interest in and to said property, and to carry out the full intents
and purposes of the merger, and the Surviving Corporation shall have all rights
of action, legal and equitable possessed by each of the corporations, parties
hereto.
10. Taxes Paid by Owners of Participation Certificates:
The Participation Certificate owners shall pay all state and federal taxes
which may be imposed against said owners upon the portion of the Conversion
Proceeds paid to them; provided that should any state or federal law require
that the said taxes be paid by the Surviving Corporation prior to payment to the
Participation Certificate owners, the Surviving Corporation shall pay the same
and withhold and deduct in the annual accounting the proper prorated amounts
thereof from the amounts payable to the various Participation Certificate
owners.
11. Disbursements and Income - Allocation and Pro-Rata Division:
Whenever, in this Joint Agreement of Merger, reference is made to a
pro-rata division of profits or losses on the undivided
8
<PAGE>
assets of the Surviving Corporation or income from those assets or disbursements
on their account or a division of the general income, expenses or disbursements
of the Surviving Corporation, the following principles shall govern:
A. The items which are derived from the undivided assets, if any, shall be
divided in proportion to the contributions on the one part of the American
Central and on the other part of the United Mutual and the Surviving Corporation
to such undivided assets of the Surviving Corporation.
B-1. The following disbursements of the Surviving Corporation as listed in
the annual statement are considered as specifically chargeable to the American
Central Fund and as such shall be charged as disbursements to that Fund, as
provided for in Section 4, Paragraph B(a) of this Agreement of Merger:
a. All payments of any kind to or for any policyholder, or his or her
beneficiary, on contracts of life insurance or on annuities written or
assumed by the American Central.
b. Amounts paid for claims on supplementary contracts issued or assumed
by the American Central.
c. Expenses of investigation and settlement of American Central policy
and contract claims, including legal expenses.
d. Renewal commissions and first year commissions to agents on life
insurance policies and annuity contracts written by them for the
American Central.
e. All taxes, licenses, and fees laid by any State or the Federal
Government and all other taxes on assets belonging to the American
Central Fund or paid to protect same, and taxes on annuity
considerations or insurance premiums on contracts or policies written
or assumed by the American Central.
f. All bills and accounts and similar obligations incurred by the
American Central prior to date of this merger.
g. Bank exchange on American Central items.
h. American Central agents' balances charged off.
i. Gross loss on sale or maturity of ledger assets of the American
Central Fund.
j. Gross decrease by adjustment in book value of ledger assets of the
American Central Fund.
k. Any other general disbursements clearly allocable to the business and
assets of the American Central Fund.
B-2. The following listed disbursements of the Surviving Corporation are to
be divided between the American Central Fund and the Surviving Corporation in
proportion to the amount of insurance
9
<PAGE>
remaining in force as of December 31st of the preceding year, originally written
or assumed on the one part by the American Central and on the other part by the
United Mutual and the Surviving Corporation:
a. The rent of the two home office buildings, (941 North Meridian Street
and 30 West Fall Creek Parkway). It is understood and agreed that the
building at 941 North Meridian Street will be disposed of by sale or
lease as soon as possible, and at that time the rent on this building
will be dropped from the disbursements.
b. Bureau and association dues and assessments, with the exception of
those of the National Fraternal Congress, M. I. B., Life Insurance
Sales Research Bureau, Association of Life Agency Officers and any
other association of which neither the American Central nor the United
Mutual is now a member, or in which membership would be clearly for
the benefit of the Surviving Corporation. Such excepted membership
costs shall be charged to the Surviving Corporation.
c. Books, newspapers and periodicals not clearly allocable.
d. Postage, express, telegraph, and telephone not clearly allocable.
e. General Office maintenance and expenses not clearly allocable.
f. Legislative expense not clearly allocable.
B-3. The following listed disbursements of the Surviving Corporation are to
be divided in proportion to the actual time devoted, use made, and expense
incurred in carrying out the business of the American Central Fund and the
Surviving Corporation respectively:
a. Salaries and all other compensation of officers, directors, trustees,
and home office employees.
b. Home office travel.
c. Legal expenses not incurred in connection with settlement of policy or
annuity claims.
d. Furniture and fixtures.
e. Printing and stationery.
f. Insurance except on real estate.
g. Investment expense.
h. Miscellaneous expense.
B-4. The division of any general disbursements of the Surviving
Corporation, other than those enumerated in this Section or which are not
clearly allocable to the business and assets of the American Central Fund or of
the Surviving Corporation, shall be made by the
10
<PAGE>
American Central Committee, hereinafter mentioned, in accordance with a survey
of the items of expense.
B-6. Payments to inactive employees, retired prior to the effective date of
or as a result of this merger shall be charged to the American Central Fund if
paid to former employees of the American Central or charged entirely to the
Surviving Corporation if paid to former employees of the United Mutual.
12. American Central Committee:
The by-laws of the Surviving Corporation shall create a Committee to be
known as the "American Central Committee," which shall consist of four (4)
members of the Board of Directors of the Surviving Corporation of whom two (2)
shall be named by the Trustees for the Participation Certificate owners and two
(2) shall be named by the Board of Directors of the Surviving Corporation; the
duties of such Committee shall be:
a. To operate, manage, control, direct, lease, sell, convert, and collect the
assets of the American Central Fund and to reinvest the proceeds thereof
available for reinvestment in such securities as will comply with the
Indiana Insurance Law.
b. To formulate and apply a just and accurate rule or formula for the
distribution of the income and disbursements and the profits and losses of
the American Central Fund where situations and conditions arise not covered
by the terms of this Agreement.
c. To supervise, manage, and control the insurance and reinsurance business of
the American Central Fund as the same exists at the date of the merger and
as the same continues thereafter until the expiration of the term provided
in this Agreement, provided that with respect to the agency field force of
the American Central, it is understood that in the acquisition of new
business the same shall be under the complete supervision, management and
control of the Surviving Corporation, except:
That such agency field force may have the privilege of writing new business
for the Surviving Corporation under the contracts with the American Central
in force on the effective date of the merger and that none of the members
of such agency field force shall be subject to dismissal, nor shall their
contracts be terminated by the Surviving Corporation, unless for willful
violation of the terms of the contract of employment or the rules and
regulations of the Surviving Corporation, or if it be found upon experience
that the acquisition
11
<PAGE>
cost of new business through them is unduly excessive and that proper
measures in accordance with the spirit of their contracts to reduce such
cost to a proper figure are not effective, unless with the approval of the
American Central Committee.
d. Each Committee Member shall have power to designate a suitable person to
act as substitute, provided, however, that not more than two (2)
substitutes shall be permitted at any one time; no action of the Committee
shall be valid unless it is by the unanimous act of all members or
substitutes therefor.
e. The Committee shall choose from its members its own Chairman and Secretary
who shall serve without compensation and neither of whom shall lose his
vote in Committee matters; upon request of the Committee the Secretary of
the Surviving Corporation may, however, act as secretary; Committee
meetings shall be held at the Home Office as frequently as practicable on
call of any two members; full and complete minutes of all Committee
meetings shall be kept, preserved, and reported to the Board of Directors
at each regular meeting thereof; full and complete records and books of
account reflecting truly and accurately all business transactions and the
state and condition of the American Central Fund shall be kept and
maintained and the minutes of the Committee and such books and records
shall be kept in the office of the Secretary of the Surviving Corporation
and shall be open at all times to inspection by the executive officers and
directors of the Surviving Corporation.
f. The Committee shall have no power or authority to waive, alter, change or
amend the provisions, terms and requirements of this Agreement, but all of
the provisions, terms, and requirements hereof shall be binding upon and
controlling over such Committee in all of its actions. If the Committee
cannot agree unanimously with respect to any matter in this Paragraph
hereafter enumerated no further action shall be taken with respect thereto
until the same shall, upon the request of any member thereof, be referred
to and acted upon by the Board of Directors or by the Executive Committee,
which shall promptly review the subject so to it referred and determine the
proper action to be taken with respect thereto, of which action immediate
notice shall be given to the Committee. If such failure to agree shall
occur within fifteen (15) days prior to a regular Board meeting, such
matter shall be referred to the Board; if at any other
12
<PAGE>
time, then such matter shall be referred to the Executive Committee; if
referred to the Executive Committee, the chief executive officer, if he so
desires, may have a period of fifteen (15) days within which to call a
special meeting of the Board to consider such matter. The matters which may
be thus referred to the Board are:
(1) Those matters defined in Paragraph (a) of this Section.
(2) Those matters defined in Paragraph (b) of this Section, so far as they
do not violate the terms of this Agreement.
(3) The administration and handling of the reinsurance in force on the
effective date of the merger and contracts and treaties therefor.
(4) Dealings and relations with the agency field force of the American
Central under contracts in force at the effective date of the merger.
g. Any such by-laws relating to the foregoing subject matter shall be
irrevocable while any Participation Certificates are outstanding.
13. Participation Certificates Form:
The Participation Certificates to be issued to stockholders of the American
Central shall be in the form following:
PARTICIPATION CERTIFICATE
No. _______________ ____Units
AMERICAN UNITED LIFE INSURANCE COMPANY
Indianapolis, Indiana
This certifies that _____________________________________ is the owner of
________________________________ Beneficial Units entitling him to participate
in any and all distributions from certain assets and proceeds therefrom,
designated as the American Central Fund in Articles of Merger executed by
American Central Life Insurance Company and United Mutual Life Insurance
Company, both of Indianapolis, Indiana, by which said corporations were merged
into American United Life Insurance Company, the issuer hereof. Said Articles of
Merger were filed in the office of the
Secretary of State of Indiana on the ____________ day of __________________,
1936, and were recorded in the office of the Recorder of Marion County,
Indiana, in Miscellaneous Record ____________________, page _______ By the
provisions of said Articles of Merger, all holders of shares of capital stock in
American Central Life Insurance Company are entitled to surrender for
cancellation the certificates evidencing said shares and to receive in lieu
thereof a Certificate or Certificates in the form hereof for such the American
Central Fund and the Surviving Corporation in proportion to the amount of
insurance
13
<PAGE>
outstanding 2,740 shares of said stock and the rights of the holder of this
certificate participate shall be in the proportion that the number of units
represented by this certificate bears to the total number (not in excess of
2,740) of shares for which certificates shall be issued.
For the sole protection and the enforcement of the rights of holders of
certificates, of which this Certificate is a part, there has been executed by
American United Life Insurance Company and by Herbert M. Woollen and Harry R.
Wilson, formerly President and Vice President, respectively, of American Central
Life Insurance Company, a written Trust Indenture dated the ____________ day of
_______________________, 1936. The aforesaid Articles of Merger and said Trust
Indenture are made parts of this Participation Certificate, and any holder
hereof is bound by all the terms and conditions of said documents and by the
provisions of the Indiana Insurance Law.
On the effective day of the said Articles of Merger, American United Life
Insurance Company became vested with all of the property and assets of American
Central Life Insurance Company and assumed liability to perform all of its
obligations. As a part of that merger said American United Life Insurance
Company agreed to issue said Participation Certificates in consideration of and
proportionately to the extent of the surrender to it of the shares of capital
stock above described.
The American Central Fund consists of all the assets and liabilities and
business delivered by American Central Life Insurance Company to American United
Life Insurance Company pursuant to said merger as shown by the books and records
of said former company at the close of business on December 31, 1936, with all
subsequent accretions thereto and depletions therefrom until and including the
year 1956.
Before March 31st of each year beginning with 1938 until all Participation
Certificates are retired there shall be determined the gain or loss, which
amount so determined shall constitute what is described in the Articles of
Merger as the Conversion Proceeds.
If necessary to equalize the surplus of the American Central Life Insurance
Company to the amount thereof as of December 31, 1935, an amount not in excess
of ten per centum (10%) of the Conversion Proceeds created by operations of each
respective preceding year shall, in 1938 and each year thereafter, be retained
in the American Central Fund.
Beginning with the accounting for December 31, 1939, and in each year thereafter
until December 31, 1956, there shall be deducted twenty per centum (20%) of the
amount remaining in the Conversion Proceeds after said deduction, which amount
so deducted shall remain in the American Central Fund and shall be known as the
"Fluctuation Fund," which shall serve to provide for fluctuations in the value
of investments and other losses and against which losses in excess of gains from
other sources may be charged, provided that the maximum amount in this
Fluctuation Fund shall at no time exceed ten per centum (10%) of the book value
of the assets in the American Central Fund. Such deductions for the Fluctuation
Fund shall continue so long only as may be reasonably necessary.
In each of the years 1938 and 1939, there shall be deducted and credited to the
surplus of American United Life Insurance Company ten per centum (10%) of the
Conversion Proceeds for distribution in that year; in the year 1940 and in each
year thereafter such deduction shall be fifteen per centum (15%).
The remainder of the Conversion Proceeds after the foregoing deductions and any
expense incurred in accordance with the Trust Agreement shall be distributed
annually at the times and in the manner provided in the Articles of Merger
pro-rata to holders of Participation Certificates.
14
<PAGE>
On or before March 31st, 1957, by methods provided in the Articles of Merger,
there shall be determined the net amount, if any, to be distributed from the
American Central Fund as at the close of business on December 31, 1956, and the
same shall then be distributed pro-rata to Participation Certificate holders,
whereupon all further rights and claims of the owner of this certificate against
any property or assets of American United Life Insurance Company shall cease and
this Certificate and all other certificates shall be deemed fully satisfied and
shall be surrendered for cancellation.
The owner hereof shall have no claim against any of the property or assets of
American United Life Insurance Company except as is described in this
Certificate and in the Articles of Merger, nor is any liability created hereby
except as, and when funds are available as provided in said Articles of Merger
for distribution to the owners of Participation Certificates.
For a more complete description of the American Central Fund, methods of
creating such Fund, principles of debiting and crediting the same in the
determination of the Conversion Proceeds, and of the participation rights of the
holders of these Certificates, there should be examined the aforesaid Articles
of Merger and the Trust Indenture.
All distributions hereunder may be delivered to the person or persons registered
as the owner or owners hereof by valid remittance transmitted by United States
mail addressed to the owner or owners all as is shown by the registration books
of the Company. Or, before making any remittance, the Company may in its
discretion demand production and exhibit of this certificate and, on final
distribution, the surrender hereof.
IN WITNESS WHEREOF, American United Life Insurance Company by its authorized
officers, has hereunto affixed its signature attested by its corporate seal this
____________ day of ____________, 1936.
AMERICAN UNITED LIFE INSURANCE COMPANY
By___________________________
President
ATTEST:
_____________________________
Secretary
(Corporate Seal)
14. American Central Policyholders:
The policyholders of the American Central on the effective date of the merger
shall not participate in the profits of the Surviving Corporation or otherwise,
but their respective policies shall continue to remain non-participating,
provided that any policy issued by the American Central on the participating
basis shall continue to participate in the manner and to the extent provided in
the policy. The rights and obligations between the American Central
policyholders and the Surviving Corporation shall continue unchanged from those
existing between the American Central and said policy. holders prior to the
merger, without change, diminution, or enlargement.
15
<PAGE>
15. Restatement of Articles of Incorporation:
In order to give effect to the merger described herein, it is deemed necessary
and advisable to restate certain of the Articles of Incorporation of the
Surviving Corporation: Such Articles as are so restated and the restatements
thereof are as follows:
ARTICLE I
Sec. 1. NAME AND SEAL: The name of the Corporation shall be American United
Life Insurance Company.
The seal shall be a circular disk around the edge of which shall appear the
words, "American United Life Insurance Company," and in the center of which
shall appear the words "Seal" and "A Mutual Corporation."
ARTICLE II
Sec. 1. TERM OF CORPORATE EXISTENCE: The existence of the Surviving
Corporation shall be perpetual.
ARTICLE III
Sec. 1. MEMBERSHIP - CLASSES OF MEMBERS AND POLICYHOLDERS: The members and
policyholders of the American United Life Insurance Company shall consist of
voting members and non-voting policyholders.
a. VOTING MEMBERS: The voting members shall consist of the present members
of the United Mutual Life Insurance Company and those becoming members of the
American United Life Insurance Company subsequent to the effective date of the
merger.
b. NON-VOTING POLICYHOLDERS: The non-voting policyholders shall consist of
all policyholders of the American Central Life Insurance Company on the
effective date of the merger.
ARTICLE: IV
Sec. 1. BOARD OF DIRECTORS - NUMBER: The number of directors of the
American United Life Insurance Company shall be sixteen (16) and until the first
annual meeting and their successors are elected and qualified and vacancies
filled they shall consist of the following present directors of the United
Mutual Life Insurance Company and the following present directors of the
American Central Life Insurance Company, namely:
Go. A. Bangs Alva M. Lumpkin
Earl B. Barnes William R. O'Neal
Harry C. Byers Gwynn F. Patterson
Russell T. Byers James E. Watson
John W. Craig Harry R. Wilson
Leslie E. Crouch Richard S. Witte
Edward A. Horton Herbert M. Woollen
16
<PAGE>
IN WITNESS WHEREOF, Said parties, respectively, in accordance with resolutions
of their respective Board of Directors, have caused these presents to be signed
in their names by their presidents and have affixed hereto their corporate seals
attested by their secretaries at the City of Indianapolis, Indiana, the day and
year first above written.
AMERICAN LIFE INSURANCE COMPANY
By /s/ Herbert M. Woollen
--------------------------------
President
ATTEST:
/s/ H. W. Buttolph
- --------------------
Secretary
(CORPORATE SEAL)
UNITED MUTUAL LIFE INSURANCE COMPANY
By /s/ Geo. A. Bangs
-------------------------------------
President
ATTEST:
/s/ W.A. Jenkins
- ----------------------
Secretary
(CORPORATE SEAL)
STATE OF INDIANA }
}ss:
COUNTY OF MARION }
On this 17 th day of December, 1936, before me appeared Geo. A. Bangs and W. A.
Jenkins, to me personally known, who, being by me duly sworn, did say that they
are the President and the Secretary, respectively, of the United Mutual Life
Insurance Company and that the seal affixed to said instrument is the corporate
seal of said corporation, and that said instrument was signed and sealed in
behalf of said corporation by authority of its Board of Directors, and said Go.
A. Bangs and W. A. Jenkins acknowledged said instrument to be the free act and
deed of said corporation.
Witness my hand and official seal this 17 th day of December, 1936.
/s/ Alma H. Irwin
- ----------------------------
Notary Public
My commission expires Jan. 15, 1939
- ---------------------------------------
17
<PAGE>
STATE OF INDIANA }
}ss:
COUNTY OF MARION }
On this 17th day of December,1936, before me appeared Herbert M. Woollen and H.
W. Buttolph, to me personally known, who, being by me duly sworn, did say that
they are the President and the Secretary, respectively, of the American Central
Life Insurance Company and that the seal affixed to said instrument is the
corporate seal of said corporation, and that said instrument was signed and
sealed in behalf of said corporation by authority of its Board of Directors, and
said Herbert M. Woollen and H. W. Buttolph acknowledged said instrument to be
the free act and deed of said corporation.
Witness my hand and official seal this 17 th day of December, 1936.
/s/ Helen L. Clark
- -------------------------
Notary Public
My commission expires: Feb. 23 1938
- -----------------------------------------
IT IS FURTHER CERTIFIED that the signatures appended to the foregoing Joint
Agreement of Merger are the respective signatures of the corporations, parties
thereto, and that the manner of adoption of said Joint Agreement of Merger and
the vote by which adopted by each of said corporations is as follows:
(1) That at a duly called regular meeting of the Board of Directors of the
United Mutual Life Insurance Company, held at its home office on the 15th day of
August, 1936, at which a quorum was present, said Board did unanimously adopt a
resolution approving the Joint Agreement of Merger above set forth; that said
resolution directed that said agreement be submitted to a vote of all of the
members of said corporation entitled to vote in respect thereof at a special
meeting of said members, which was by said resolution called to be held at the
home office of said corporation at 941 N. Meridian Street, Indianapolis,
Indiana, on the 6th day of October, 1936, at the hour of 10:00 o'clock A. M.,
and did further direct that notice of said special meeting be given by the
secretary of the corporation to all members of record in the manner provided by
law; that in compliance with said resolution said secretary did, on the 5th day
of September, 1936, mail a printed notice of the place, day, hour and purposes
of said special meeting to each mem-
18
<PAGE>
ber entitled to vote, at his address as it appeared upon the records of the
corporation; that said special members' meeting was duly held at the place, day
and hour in said notice stated and that there were present and entitled to vote
13 members in person and 27,289 members represented by proxy; that said members
so present in person and represented by proxy constituted a quorum for the
transaction of business under the by-laws of the corporation; that a resolution
approving said Joint Agreement of Merger was duly adopted by said members, and
that the affirmative vote by which said resolution was so adopted was 27,302
votes in favor of and none against its adoption, whereupon said Joint Agreement
of Merger was duly adopted by the corporation; that on the 7th day of October,
1936, and within five days after the adoption of the said Joint Agreement of
Merger as above stated, the secretary of the corporation did mail a printed
notice of the adoption of said Joint Agreement of Merger to each member of
record of the corporation who was not present in person or represented by proxy
at said special meeting of members, and the corporation did on the 8th day of
October, 1936, file with the Indiana Insurance Department an affidavit, signed
by the President and the Secretary, that such notice was given; that no member
or members have, in the manner provided by law or otherwise, objected to the
adoption of said Joint Agreement of Merger or filed a petition with the Indiana
Insurance Department for a hearing thereon; that at a duly called adjourned
regular meeting of the Board of Directors held at the corporation's home office
on the 11th day of December, 1936, at which a quorum was present, said Board did
again consider and by a unanimous vote adopted a resolution reapproving said
Joint Agreement of Merger in all things and authorizing its execution by the
proper officers of the corporation as provided by law; that said adjourned
regular meeting of the Board of Directors was held as soon as practicable after
the expiration of a period of thirty days after the adoption of said Joint
Agreement of Merger by the American Central Life Insurance Company, which
corporation was the last, in point of time, to adopt it.
(2) That at a duly called special meeting of the Board of Directors of the
American Central Life Insurance Company held at its home office on the 31st day
of August, 1936, at which a quorum was present, said Board did unanimously adopt
a resolution approving the above set forth Joint Agreement of Merger; that said
resolution directed that said agreement be submitted to a vote of all of the
shareholders of said corporation entitled to vote in respect thereof at a
special meeting of said shareholders, which was by said resolution called to be
held at the home office of said corporation at 30 West Fall Creek Parkway,
Indianapolis, Indiana, on the 10th day of November, 1936, at the hour of 10:00
o'clock A. M., and did
19
<PAGE>
further direct that notice of said special meeting be given by the secretary of
the corporation to all shareholders of record in the manner provided by law;
that in compliance with said resolution said secretary did, on the 7th day of
October, 1936, deliver or mail a written notice of the place, day, hour and
purposes of said special meeting to each shareholder entitled to vote, at his
address as it appeared upon the records of the corporation; that the said
special meeting was duly held at the place, day and hour in said notice stated
and that there were present in person or represented by proxy 2,619 1/2 shares
of the total 2,740 outstanding shares of capital stock; that said shareholders
so present in person and by proxy constituted a quorum for the transaction of
business under the by-laws of the corporation and more than two-thirds of all
its outstanding capital stock; that a resolution approving said Joint Agreement
of Merger was duly adopted by said shareholders, and that the affirmative vote
by which said resolution was so adopted was 2,619 1/2 votes in favor of and none
against its adoption, whereupon said Joint Agreement of Merger was duly adopted
by the corporation; that on the 10th day of November, 1936, and being within
five days after the adoption of said Joint Agreement of Merger as above stated,
the secretary of the corporation did mail a written notice of the adoption of
said Joint Agreement of Merger to each shareholder of record of the corporation
who was not present in person or represented by proxy at said special meeting of
shareholders, and the corporation did on the 11th day of November, 1936, file
with the Indiana Insurance Department an affidavit, signed by the President and
the Secretary, that such notice was given; that no shareholder has, in the
manner provided by law or otherwise, objected to the adoption of said Joint
Agreement of Merger or demanded payment of the value of his share or shares of
stock; that at a duly called special meeting of the Board of Directors held at
the corporation's home office on the 11th day of December, 1936, at which a
quorum was present, said Board did again consider and by a unanimous vote
adopted a resolution reapproving said Joint Agreement of Merger in all things
and authorizing its execution by the proper officers of the corporation as
provided by law; that said special meeting of the Board of Directors was held as
soon as practicable after the expiration of a period of thirty day after the
adoption of said Joint Agreement of Merger by the shareholders of and by said
corporation.
(3) That pursuant to authorization by their respective Boards of Directors
as hereinbefore stated, said corporations did on the 17 th day of December,
1936, duly execute said Joint Agreement of Merger.
20
<PAGE>
IN WITNESS WHEREOF, said corporations, respectively, have caused these
presents to be signed in such multiple copies as shall be required in their
names by their presidents and have affixed hereto their corporate seals attested
by their secretaries at the city of Indianapolis, Indiana, this 17th day of
December, 1936.
AMERICAN CENTRAL LIFE INSURANCE COMPANY
By /s/ Herbert M. Woollen
---------------------------------------
President
ATTEST:
/s/ H. W. Buttolph
- ---------------------------
Secretary
(CORPORATE SEAL)
UNITED MUTUAL LIFE INSURANCE COMPANY
By /s/ Geo. A. Bangs
----------------------------------------
President
ATTEST:
/s/ W.A. Jenkins
- ---------------------------
Secretary
(CORPORATE SEAL)
STATE OF INDIANA }
}ss:
COUNTY OF MARION }
On this 17 th day of December, 1936, before me appeared Herbert M. Woollen and
H. W. Buttolph, to me personally known, who, being by me duly sworn, did say
that they are the President and the Secretary, respectively, of the American
Central Life Insurance Company and that the seal affixed to said instrument is
the corporate seal of said corporation, and that said instrument was signed and
sealed in behalf of said corporation by authority of its Board of Directors, and
said Herbert M. Woollen and H. W. Buttolph acknowledged said instrument to be
the free act and deed of said corporation.
Witness my hand and official seal this 17 th day of December, 1936.
/s/ Helen L. Clark
- -----------------------------
Notary Public
My commission expires: Feb. 26, 1938
- --------------------------------------
21
<PAGE>
STATE OF INDIANA }
}ss:
COUNTY OF MARION }
On this 17th day of December, 1936, before me appeared Geo. A. Bangs and W.
A. Jenkins, to me personally known, who, being by me duly sworn, did say that
they are the President and the Secretary, respectively, of the United Mutual
Life Insurance Company and that the seal affixed to said instrument is the
corporate seal of said corporation, and that said instrument was signed and
sealed in behalf of said corporation by authority of its Board of Directors, and
said Go A. Bangs and W. A. Jenkins acknowledged said instrument to be the free
act and deed of said corporation.
Witness my hand and official seal this 17 th day of December, 1936.
/s/ Alma H. Irwin
- -----------------------
Notary Public
My commission expires: January 15, 1939
- -----------------------------------------
22
- --------------------------------------------------------------------------------
EXHIBIT 6.2
CERTIFICATION OF THE INDIANA SECRETARY OF STATE
AS TO THE FILING OF THE ARTICLES OF MERGER BETWEEN
AMERICAN CENTRAL LIFE INSURANCE COMPANY
AND UNITED MUTUAL LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
STATE OF INDIANA
OFFICE OF THE SECRETARY OF STATE
August G. Mueller, Secretary of State
To Whom These Presents Come, Greeting:
WHEREAS, there have been presented to me at this office Articles of Merger in
forty-eight copies whereby AMERICAN CENTRAL LIFE INSURANCE COMPANY,
non-surviving corporation, is merged into the UNITED MUTUAL LIFE INSURANCE
COMPANY, surviving corporation, showing no capital stock, hereinafter designated
as the AMERICAN UNITED LIFE INSURANCE COMPANY.
Said Articles of Merger having been prepared and signed in accordance with "An
Act Concerning Insurance and Declaring an Emergency", approved March 8, 1935.
WHEREAS, upon due examination, I find that they conform to law:
NOW, THEREFORE, I hereby certify that I have this day endorsed my approval upon
the forty-eight copies of Articles so presented, and, having received the fees
required by law, in the sum of $6.50, have filed one copy of the Articles in
this office and returned forty-seven copies bearing the endorsement of my
approval to the surviving corporation. I further certify that said American
Central Life Insurance Company is duly merged into said United Mutual Life
Insurance Company and that the name of the latter is duly changed to AMERICAN
UNITED LIFE INSURANCE COMPANY, and that Section 125 of said Act, approved March
8, 1935, provides that all property, assets and rights of every nature and
wherever situated owned by the non-surviving corporation are transferred and
vested in the surviving corporation.
In Witness Whereof, I have hereunto set my hand and affixed the seal of the
State of Indiana at the City of Indianapolis, this 31st day of December, 1936
[SEAL]
at the hour of 5:00 o'clock P.M.
/s/ August G. Mueller
---------------------
Secretary of State
By: /s/ Joseph O. Hoffman
-------------------------
Deputy
- --------------------------------------------------------------------------------
EXHIBIT 6.3
CODE OF BY-LAWS OF AMERICAN UNITED LIFE INSURANCE COMPANY(R)
- --------------------------------------------------------------------------------
CODE OF BY-LAWS
OF
AMERICAN UNITED LIFE INSURANCE COMPANY (R)
ARTICLE I
CORPORATE SEAL AND PRINCIPAL OFFICE
Section 1. Corporate Seal. The corporate seal shall be circular in form
with the words "American United Life Insurance Company (R) " around the top of
its periphery and the words "Seal" and "A Mutual Corporation" through its
center.
Section 2. Principal Office. The principal office and place of business
shall be at One American Square, City of Indianapolis, County of Marion and
State of Indiana.
ARTICLE II
MEMBERSHIP
Section 1. Classes of Members. As provided in the articles of
incorporation, the members of the corporation shall be divided into two classes:
(a) voting members, and (b) non-voting policyholders. The members of each class
shall have such rights, privileges, duties and liabilities, with respect to the
regulation and management of the affairs of the corporation, as are provided in
these By-laws or in the articles of incorporation.
Section 2. Voting Members. The voting members of the corporation shall
consist of those policyholders
(a) who hold insurance certificates issued by the Insurance Department of the
Supreme Lodge Knights of Pythias and
(b) who hold policies issued or assumed by the former American Life Insurance
Company of Detroit, Michigan, and by the former Mutual Savings Life
Insurance Company of St. Louis, Missouri, which were assumed by this
corporation, and
(c) who hold policies of insurance or annuity contracts issued by the
corporation under its present name or under the name United Mutual Life
Insurance Company.
Each voting member continues to be a member of the corporation so long as any
policy or annuity contract, which entitles him to voting membership, remains in
full force and effect.
Section 3. Non-Voting Policyholders. The non-voting policyholders of the
corporation shall consist of those persons (a) who were policyholders in the
American Central Life Insurance Company when that corporation was merged into
this corporation, or (b) who prior to that merger were policyholders in the
American Central Life Insurance Company and subsequently were reinstated as
policyholders. Nothing contained in this Section 3, however, shall disqualify a
policyholder who qualifies as a voting member according to the provisions of
Section 2 of Article II.
<PAGE>
ARTICLE III
MEETINGS OF MEMBERS
Section 1. Annual Meeting. The regular annual meeting of the members of
this corporation shall be held at its principal place of business on the third
Thursday in February of each year at ten a.m. Elections for directors shall be
held at the annual meeting.
Section 2. Special Meetings. Special meetings of the members of the
corporation may be called by the chief executive officer of the corporation, by
the board of directors or by not less than twenty-five percent of the voting
members.
Section 3. Notice of Meetings. Thirty day written notice stating the place,
day and hour of any meetings of members shall be delivered or mailed by the
secretary of the corporation or by the officer or persons calling the meeting to
each member entitled to vote at such meeting at such address as appears upon the
records of the corporation. In the case of special meetings or when otherwise
required by law, the purpose or purposes for which the meeting is called shall
also be stated. With respect to annual meetings of members, notice need not be
given to any member in whose policy of insurance or annuity contract there is a
statement of the time and place of the meeting.
If less than a quorum of voting members attend in person or by proxy, a
majority of the voting members who are present in person or by proxy may
adjourn, without notice other than by announcement at the meeting, until the
number of members required to form a quorum shall attend. No annual meeting of
members may be adjourned to a date later than five months after the close of the
fiscal year of the corporation. At any adjourned meeting at which a quorum is
present, any business may be transacted which might have been transacted at the
original meeting.
Section 4. Waiver of Notice. Notice of any meeting of members may be waived
in writing by any member if the waiver sets forth in reasonable detail the time
and place of the meeting and its purpose. Attendance at any meeting in person or
by proxy shall constitute a waiver of notice of such meeting.
Section 5. Voting Rights. Except as hereinafter provided, each voting
member of the corporation shall have the right to cast one vote on each matter
submitted to a vote of the members, regardless of the number of policies or
amount of insurance standing in his name with the corporation.
<PAGE>
Section 6. Voting by Proxy. A member entitled to vote at a meeting of
members may vote either in person or by proxy executed in writing by the member
or the member's duly authorized attorney-in- fact. No proxy shall be voted at
any meeting of members unless the proxy is filed with the secretary of the
meeting at or before the meeting.
Section 7. Quorum. To constitute a quorum at any meeting of members, there
must be at least ten percent of the voting members represented in person or by
proxy. A majority vote of any such quorum shall be necessary for the transaction
of any business at the meeting unless a greater vote is required by law or the
articles of incorporation.
ARTICLE IV
BOARD OF DIRECTORS
Section 1. Duties and Qualifications. The business and affairs of the
corporation shall be managed by a board of directors. Each director shall be a
voting member of the corporation, and the policy of insurance or annuity
contract entitling each director to membership in the corporation shall be free
of liens to secure any debt to the corporation. Each director shall be a citizen
of the U.S. or the Dominion of Canada, and at least one director shall be a
resident of the State of Indiana. No person shall be eligible for election as a
director who has reached, or will reach, his seventieth birthday in the year of
election, and is retired from his business or profession.
Section 2. Number and Terms of Office. The board of directors shall consist
of sixteen members who are elected by the voting members at annual meetings to
serve for terms of three years, and until their successors are elected and
qualified. The board of directors shall be divided into three classes, two of
which consist of five directors and one of which consists of six directors. I he
teens of office of all directors in a particular class shall be identical;
however, the terms of office of each class of directors shall be staggered so
that in every three year period a different class shall be elected at each
succeeding annual meeting of members.
Section 3. Limitation as to Employee or Retired Employee Directors. No more
than five fulltime employees of the corporation or retired employees of the
corporation receiving a pension or other retirement benefits from the
corporation shall be eligible to serve at one time as directors.
Section 4. Vacancies. Any vacancy in the board of directors caused by
death, resignation or disqualification shall be filled by a majority vote of the
remaining members of the board of directors for the unexpired term of the
director whose place is filled. Any vacancy on the board of directors occasioned
by an
<PAGE>
increase in the number of directors shall be filled by a majority vote of the
existing directors for a term ending with the next annual meeting of members of
the corporation.
Section 5. Oath of Office. Each director of the corporation, when elected,
shall take and subscribe to an oath that he will insofar as the duty devolves
upon him, faithfully, honestly and diligently administer the affairs of the
corporation and that he will not knowingly violate or willingly permit violation
of any laws applicable to the corporation.
Section 6. Annual Meetings. Unless otherwise unanimously agreed upon, the
board of directors shall meet each year, immediately following the annual
meeting of members, at the place where the meeting of members was held. This
meeting shall be held for the purpose of organization, election of officers of
the corporation and consideration of any other business which may be brought
before the meeting. No notice shall be necessary for the holding of any annual
meeting of the board of directors.
Section 7. Other Meetings. Meetings of the board of directors, other than
the annual meeting, shall be held regularly once each quarter during the second,
third and fourth quarters of each calendar year, in accordance with a duly
adopted resolution or motion of the board of directors. Special meetings may be
called by the chief executive officer of the corporation, the chairman of the
board or any seven directors, upon five days' notice. The time and general
purposes of any such meeting must be specified and given to each director either
personally or by mail or telegram. No notice shall be necessary for any regular
meeting, and notice of any special meeting may be waived in writing or by
telegram. Attendance at any such meeting shall constitute waiver of notice of
such meeting. All meetings of the board of directors shall be held at the
principal office or at such other place as may be unanimously designated by the
board of directors.
Section 8. Quorum. A majority of the whole board of directors shall be
necessary to constitute a quorum for the transaction of any business except the
filling of vacancies. The act of a majority of the directors present at a
meeting at which a quorum is present shall be the act of the board of directors
unless a greater number is required by law, the articles of incorporation or
these By-laws. If a quorum is not present, a majority of the directors present
may adjourn the meeting from time to time without further notice.
Section 9. Honorary Directors. Any person who has served as the chief
executive officer of the corporation may be elected an honorary member of the
board of directors and shall be privileged to attend all meetings of directors,
but shall have no right to vote.
ARTICLE V
COMMITTEES
Section 1. Standing Committees. The standing committees of the corporation
shall be the following: executive committee, finance committee, and audit
committee. The board of directors may from time to time create other standing
committees as deemed desirable by amending these By-laws.
Section 2. Members of Standing Committees. At its annual meeting, the board
of directors shall designate the members of each standing committee and shall,
except as otherwise provided in these Bylaws, name the chairman thereof. The
members shall serve for a term of one year and until their successors are chosen
and qualified unless sooner removed. The chief executive officer of the
corporation shall be an ex- officio member, with full voting power, of each
standing committee except the Audit Committee. Subject to any limitation imposed
by these By-laws, the board of directors shall have the power at any time to
increase or decrease the number of members of any standing committee, to appoint
or remove members from any standing committee and to fill vacancies on any such
committee.
At any meeting of a standing committee, a designated director may act in the
place of an absent member of such committee with full Voting rights. Each
designated director shall be selected in the following manner: The chief
executive officer shall contact a member or members of the board in alphabetical
order according to the member's last name until he obtains agreement of the
necessary number of directors to attend the standing committee meeting. After
the first selection under this section, contact shall commence with the name
alphabetically following that of the director agreeing to serve.
Section 3. Meetings of Standing Committees. Meetings of each standing
committee may be called by its chairman or by the chief executive officer of the
corporation. Each committee shall hold its meetings in accordance with the rules
of procedure and at locations designated by the majority of the committee
members. Except as otherwise provided by these By-laws, each committee shall
select a secretary, who shall not be required to be a member of the committee,
to record the minutes of all its meetings.
Section 4. Special Committees. Special committees may be designated by a
resolution adopted by a majority of the directors present at any board meeting
at which a quorum is present. Except as otherwise provided in the resolution,
members of each special committee shall be members of the corporation, and the
chief executive officer of the corporation shall appoint the committee members.
Any special committee member may be removed by the person or persons authorized
to appoint such member whenever in their
<PAGE>
judgment the best interests of the corporation shall be served by such removal.
Any special committee shall have only the responsibilities for which it was
created. It shall have no power to act except as specifically conferred upon it
by action of the board of directors. Upon completion of its duties, the special
committee shall be discharged. Each member of a special committee shall serve
the committee until it is discharged unless the member is removed from the
committee or ceases to qualify as a member. Committee vacancies shall be filled
by appointments made in the same manner as provided in the case of the original
appointments.
<PAGE>
ARTICLE VI
COMPOSITION AND DUTIES OF STANDING COMMITTEES
Section 1. Executive Committee. he executive committee shall consist of the
chairman of the board and not less shall three nor more than seven other members
of the board of directors. No member of the committee shall Continue as SUCH
after he ceases to be a member of the board of directors. The chairman of the
board shall be chairman of the committee and a vice-chairman may be designated
by the committee. The committee shall select a secretary from among its members
to keep accurate minutes of all meetings. The minutes shall be presented for
approval to the next regular meeting of the board of directors.
During the intervals between meetings of the board of directors and subject to
such limitations as may be imposed by law. the articles of incorporation or
these By-laws, the executive committee shall have and may exercise all the
authority of the board of directors in the management of the corporation.
However, no action shall be taken which will conflict with the expressed
policies of the board of directors.
Section 2. Finance Committee. The finance committee shall consist of the
chief executive officer, not less than three other members of the board of
directors and not more than two officers of the corporation who are not members
of the board of directors. The secretary of the committee shall keep accurate
minutes of all meetings which shall he presented for approval to the next
regular meeting of the board of directors.
Except as otherwise provided in these By-laws, and subject to law and to the
general control of the board of directors, the finance committee shall
supervise, pass upon and authorize the investment of all funds of the
corporation. It shall have the power to purchase and sell or otherwise acquire
or dispose of real estate, bonds, mortgages, securities or other investments, to
authorize and direct conveyances of real estate and interests therein and
thereunder, including the execution of deeds, leases, releases, discharges and
other related documents, and to direct all other things necessary or incidental
to the authorization, acquisition, supervision, control and disposition of all
the investments of the corporation. I he finance committee shall also perform
such other duties as these By-laws or the board of directors may prescribe.
Section 3. Audit Committee. The audit committee shall consist of three
members of the board of directors. All members of the audit committee shall he
independent directors.
The audit committee shall, prior to the annual meeting, recommend selection of
independent certified public accountants for the fiscal year to the board of
directors. The audit committee shall engage the independent auditors selected by
the voting members, be responsible for establishing the independent audit and
review the results of the independent audit prior to presentation to the board
of directors. The audit committee
<PAGE>
shall also be responsible for establishing the scope of the internal audit
function, reviewing internal controls and following tip on deficiencies noted.
The audit committee will confer with internal auditing, auditors and other
consultants as deemed necessary on significant audit findings and shall report
and make recommendations to the board of directors as necessary.
ARTICLE VII
OFFICERS
Section 1. Number and Qualification. The officers of the corporation shall
consist of a chairman of the board of directors, a president, a chief executive
officer, one or more senior vice presidents and one or more additional vice
presidents, a general counsel, a medical director, a secretary, a treasurer, a
controller, an actuary, and such other officers as the board of directors may
elect in accordance with the provisions of this article. The board of directors
may elect or appoint other assistant or subordinate officers, as it deems
desirable, to have the authority to perform the duties prescribed. The chairman
of the board, the president, and the chief executive officer shall be chosen
from among the directors of the corporation, and if any one of such officers
ceases to he a director he shall cease to hold such office as soon as his
successor is elected and qualified. More shall one office. may be held by the
same person, except the duties of the president and secretary shall not be
performed by the same person.
Section 2. Election and Term of Office. The officers of the corporation
shall be elected annually by the board of directors at its annual meeting If
tile election of officers is not held at the annual meeting, the election shall
be held as soon thereafter as is convenient. New offices may be created and
filled at any meeting of the board of directors. Each officer shall hold office
until his successor is duly elected and qualified.
Section 3. Vacancies. Whenever any vacancies occur in any of the offices of
the corporation by reason of death, resignation, disqualification, removal or
otherwise, the office may be filled by the board of directors at a regular or
special meeting I he newly elected officer shall hold office until the next
annual meeting of the board of directors and until his successor is duly elected
and qualified.
Section 4. Removal. Any officer of the corporation elected or appointed by
the board of directors may be removed by the hoard of directors whenever, in its
judgment, the best interest of the corporation would be served. Such removal
shall be without prejudice to any contract rights of the officer so removed.
Section 5. Salaries of Officers and Employees. 'I he salaries of the
chairman of the board, the president, the chief executive officer, all vice
presidents (except regional vice presidents), the secretary, the treasurer, the
controller, medical director, general counsel, actuary, anti of all employees
receiving compensation of $75,000 a year or more, shall be approved by the board
of directors.
<PAGE>
ARTICLE VIII
DUTIES OF OFFICERS
Section 1. Chairman of the Board. The chairman of the board of directors
shall preside at all meetings of members and at all meetings of directors. He
shall be entitled to vote upon questions and motions submitted to vote of the
board of directors only when his vote is required to break a tie. He shall
perform such duties as these By-laws or the board of directors prescribe.
Section 2. President. The president shall have power to perform the duties
prescribed by the board of directors, the chairman of the board, or these
By-laws. Section 3. Vice Presidents. The vice presidents shall have the powers
to perform the duties prescribed by the board of directors, the chief executive
officer of the corporation, or these By-laws.
Section 4. General Counsel. The general counsel shall be the chief
consulting officer of the corporation on all legal matters. He shall, subject to
the control of the board of directors and executive committee, have control of
all legal matters pertaining to the business of the corporation and shall
perform such other duties as these By-laws or the board of directors prescribe.
Section 5. Medical Director The medical director shall he the chief
underwriting officer of the corporation on all medical matters. He shall,
subject to the control of the board of directors and executive committee, have
control of all medical matters pertaining to applications for new insurance or
reinstatement of old insurance, appointment and supervision of medical
examiners, and other medical matters pertaining to the corporation's
underwriting operations. He shall perform other duties as these By-laws or the
board of directors prescribe.
Section 6. Secretary. The secretary shall attend all meetings of members
and meetings of the board of directors and shall be responsible for a true anti
complete record of the proceedings of such meetings. He shall serve notice of
all corporate meetings in accordance with these By-laws, have custody of the
books (except books of account), records and corporate seal of the corporation,
affix the corporate seal to all papers and documents requiring a seal, and
perform other duties as these By-laws or the board of directors prescribe.
Section 7. Treasurer. The treasurer shall be the custodian of all funds,
notes, securities, and instruments of title and valuables belonging to and in
the possession of the corporation. He shall deposit, or
<PAGE>
cause to be deposited, all funds of the corporation not required to be on hand
in the operation of the business, in banks or depositories designated by the
board of directors. He shall disburse the funds of the corporation as
authorized, and take proper vouchers for such disbursements. He shall furnish
the board of directors a statement of the financial condition of the corporation
at or before each annual meeting and perform other duties as these By-laws or
the board of directors prescribe.
Section 8. Controller. The controller shall be responsible for keeping
current and complete records of account, showing accurately the financial
condition of the corporation. He shall assemble budget information and keep
budgetary control of disbursements of the corporation, and perform other duties
as these By-laws or the board of directors prescribe.
Section 9. Actuary. I he actuary shall be the chief consulting officer on
all matters relating to the pricing and designing of insurance contracts issued
by the corporation. He shall, subject to the controls of the board of directors
and executive committee, have control of matters pertaining to premium rates,
dividends, policy values, reserve basis, and benefits provided in the insurance
contracts issued by the corporation. He shall perform such other duties as these
By-laws or the board of directors prescribe.
Section 10. Assistant Officers. Assistant officers that the board of
directors may elect or appoint shall have duties specified by the board of
directors. In the absence of such specification, duties shall be specified by
the officer whom the person was appointed to assist.
Section 11. Chief Executive Officer. The chief executive officer of the
corporation shall be the chairman of the board or the president, as determined
by the board of directors Subject to the general control of the corporation by
the board of directors and the executive committee, the chief executive officer
shall supervise, direct anti control the business and affairs of the corporation
and shall discharge all the unusual functions and duties of his office. Except
as otherwise provided in these By-laws he shall appoint, and at his discretion,
remove employees of the corporation, fix and at times change their compensation,
designate their titles and determine their duties. He shall appoint temporary or
permanent committees of officers and employees as he deems necessary for the
control and supervision of the business. He shall have general supervision and
direction of all of the other officers of the corporation and the employees of
all departments. He shall keep the board of directors and executive committee
fully informed as to the activities of the corporation, and shall prepare and
submit to each annual meeting of members a report on the business of the
corporation for the preceding year and a statement of its current financial
condition. He shall perform such other duties as these By-laws or the board of
directors prescribe.
<PAGE>
ARTICLE IX
INDEMNIFICATION
Section 1. Indemnification of Directors and Officers. The corporation shall
indemnify any director or officer or former director or officer against expenses
actually and reasonably incurred by him (and for which he is not covered by
insurance) in connection with the defense of any action, suit or proceeding
(unless such action, suit or proceeding is settled) in which he is made a party
by reason of being or having been such director or officer, except in relation
to matters as to which he shall be adjudged in such action, suit or proceeding,
to be liable for negligence or misconduct in the performance of his duties. The
corporation may also reimburse any director or officer or former director or
officer for the reasonable costs of settlement of any such action, suit or
proceeding, if it shall be found by a majority of the directors not involved in
the matter in controversy (whether or not a quorum) that it was to the interest
of the corporation that such settlement be made and that such director or
officer was not guilty of negligence or misconduct. Such rights of
indemnification and reimbursement shall not be exclusive of any other rights to
which such director or officer may be entitled under any By-law, agreement, vote
of members or otherwise.
ARTICLE X
MISCELLANEOUS
Section 1. Fiscal Year. I he fiscal year of the corporation begins on the
first day of January of each year and ends on the thirty-first day of December
of the same year.
Section 2. Execution of Instruments. Except as may otherwise be provided by
resolution of the board of directors or executive committee, all contracts,
bills of sale, deeds, mortgages, leases, and other similar instruments, as well
as all policies of insurance and annuity contracts of the corporation, shall be
signed by the chairman of the board or by the president. The secretary, or an
assistant secretary, shall affix the corporate seal and attest the same.
Section 3. Checks. All checks, drafts, notes and other instruments calling
for the payment of money by or to the corporation shall be executed or endorsed
by the officers who the board of directors or executive committee shall specify
by resolution.
Section 4. Bonds and Insurance. All officers, employees and other persons
who have control of or access to the moneys, securities or properties of the
company shall be bonded with adequate surety. Fire, casualty and other insurance
shall also be carried for the protection of the company, its personnel and
property.
<PAGE>
The sufficiency of sureties on all bonds, the contingencies insured against in
such bonds and insurance policies and the amount thereof shall be in compliance
with the requirements of law. A report showing the status of such bonds and
hazard insurance shall be submitted to the board of directors at each annual
meeting.
ARTICLE XI
AMENDMENTS
Section 1. Amendments to By-laws. The power to make, alter, amend or repeal
all or any part of these By-laws is vested in the board of directors, and the
affirmative vote of a majority of all the members of the board of directors
shall be necessary to effect any such change in these By-laws.
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EXHIBIT 8.1
FORM OF PARTICIPATION AGREEMENT WITH ALGER AMERICAN FUND
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FUND PARTICIPATION AGREEMENT
This AGREEMENT is made this 14th day of March, 1995, by and between
American United Life Insurance Company(R) (the "Company"), a life insurance
company domiciled in Indiana, on its behalf and on behalf of the segregated
asset accounts of the Company (the "Separate Accounts"); Alger American Fund
(the "Fund"), a Massachusetts business trust; and Fred Alger & Company,
Incorporated (the "Distributor"), a Delaware corporation.
WITNESSETH
WHEREAS, the Fund is registered with the Securities and Exchange Commission
("SEC") as an open-end management investment company under the Investment
Company Act of 1940, as amended ("1940 Act") and the Fund is authorized to
issue separate classes of shares of beneficial interests ("shares"), each
representing an interest in a separate portfolio of assets known as a "series"
and each series has its own investment objective, policies, and limitations; and
WHEREAS, the Fund is available to offer shares of one or more of its series
to separate accounts of insurance companies that fund variable life insurance
policies and variable annuity contracts ("Variable Contracts") and to serve as
an investment medium for Variable Contracts offered by insurance companies that
have entered into participation agreements substantially similar to this
agreement ("Participating Insurance Companies"), and the Fund is currently
comprised of six separate series, and other series may be established in the
future; and
<PAGE>
2
WHEREAS, the Fund has obtained an order from the SEC, granting
Participating insurance Companies, separate accounts funding Variable Contracts
of Participating Insurance Companies, and the Fund exemptions from the
provisions of sections 9(a), 13(a), 15(a), and 15(b) of the 1940 Act and
paragraph (b)(15) of each of Rules 6e-2 and 6e-3(T) under the 1940 Act, to the
extent necessary to permit shares of the Fund to be sold to and held by separate
accounts funding variable annuity contracts or scheduled or flexible premium
variable life insurance contracts of both affiliated and unaffiliated life
insurance companies (the "Shared Funding Exemptive Order"); and
WHEREAS, the Distributor is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended ("1934 Act"), and is a
member in good standing of the National Association of Securities Dealers, Inc.
("NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company wishes to purchase shares of one or more of the Fund's
series on behalf of its Separate Accounts to serve as an investment medium for
Variable Contracts funded by the Separate Accounts, and the Distributor is
authorized to sell shares of the Fund's series;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and covenants hereinafter set forth, the parties hereby agree as follows:
<PAGE>
3
ARTICLE I. Sale of Fund Shares
1.1. The Distributor agrees to sell to the Company those shares of the
series offered and made available by the Fund and identified on Exhibit A
("Series") that the Company orders on behalf of its Separate Accounts, and
agrees to execute such orders on each day on which the Fund calculates its net
asset value pursuant to rules of the SEC ("business day") at the net asset value
next computed after receipt and acceptance by the Fund or its designee of the
order for the shares of the Fund.
1.2. The Fund agrees to make available on each business day shares of the
Series for purchase at the applicable net asset value per share by the Company
on behalf of its Separate Accounts; provided, however, that the Trustees of the
Fund may refuse to sell shares of any Series to any person, or suspend or
terminate the offering of shares of any Series, if such action is required by
law or by regulatory authorities having jurisdiction or is, in the sole
discretion of the Trustees, acting in good faith and in light of the Trustees'
fiduciary duties under applicable law, necessary in the best interests of the
shareholders of any Series.
1.3. The Fund and the Distributor agree that shares of the Series of the
Fund will be sold only to Participating Insurance Companies, their separate
accounts, and other persons consistent with each Series being adequately
diversified pursuant to Section 817(h) of the Internal Revenue Code of 1986, as
amended ("Code") and the regulations thereunder. No shares of any Series will be
sold directly to the general public.
<PAGE>
4
1.4. The Fund and the Distributor will not sell shares of the Series to any
insurance company or separate account unless an agreement containing provisions
substantially the same as this Agreement is in effect to govern such sales.
1.5. Upon receipt of a request for redemption in proper form from the
Company, the Fund agrees to redeem in cash any full or fractional shares of the
Series held by the Company, ordinarily executing such requests on each business
day at the net asset value next computed after receipt and acceptance by the
Fund or its designee of the request for redemption, except that the Fund
reserves the right to suspend the right of redemption, consistent with Section
22(e) of the 1940 Act and any rules thereunder. Such redemptions shall
ordinarily be paid in federal funds or by any other method mutually agreed upon
by the parties hereto by the next business day following receipt by the Fund or
its designee of notice of the order for redemption; however the Fund reserves
the right to postpone payment upon redemption consistent with Section 22(e) of
the Act and any Rules thereunder.
1.6. For purposes of Sections 1.1 and 1.5, the Company shall be the
designee of the Fund for receipt of purchase and redemption orders from the
Separate Account, and receipt by such designee shall constitute receipt by the
Fund; provided that the Company receives the order by the close of business of
the New York Stock Exchange. The Company will use its best efforts to ensure
that the Fund receives notice of such order by 9:30 a.m. New York City time on
the next following business day.
<PAGE>
5
1.7. The Company shall pay for shares of the Series on the business day
next following the day that the Company receives an order to purchase shares of
the Series, except with respect to shares of any Series of the Fund ("Acquired
Series") ordered by the Company for a Separate Account or any subaccount thereof
in connection with an exchange or transfer from another Separate Account or
another subdivision of a Separate Account under the Variable Contracts, Company
shall pay for shares of the Acquired Series on the later of (1) the next
business day after an order to purchase the shares is made in accordance with
Section 1.1 hereof, or (2) on the same business day that the Separate Account
or subdivision from which the exchange or transfer is being made receives
payment from the investment company portfolio in which it invests, but in no
event later than seven days after the purchase order is received by the Company.
Payment shall be in federal funds transmitted by wire or by any other method
mutually agreed upon by the parties hereto.
1.8. Issuance and transfer of shares of the Series will be by book entry
only unless otherwise agreed by the Fund. Stock certificates will not be issued
to the Company or the Separate Accounts unless otherwise agreed by the Fund.
Fund and Distributor agree that shares ordered from the Fund will be recorded as
specified in such orders in an appropriate title for the Separate Accounts or
the appropriate subaccounts of the Separate Accounts.
1.9. The Fund shall promptly furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income dividends or
capital gain distributions payable on the shares of the Series. The Company
hereby elects to reinvest in the Series all such dividends and distributions as
are payable on a Series' shares and to receive such
<PAGE>
6
dividends and distributions in additional shares of that Series. The Company
reserves the right to revoke this election in writing and to receive all such
dividends and distributions in cash. The Fund shall notify the Company of the
number of shares so issued as payment of such dividends and distributions.
1.10. The Fund shall instruct its recordkeeping agent to advise the Company
on each business day of the net asset value per share for each Series as soon as
reasonably practical after the net asset value per share is calculated, which is
normally 6:30 p.m. New York City time and shall use its best efforts to make
such net asset value per share available by 9:00 p.m. New York City time.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that it is an insurance company
duly organized and in good standing under Indiana law and that it is taxed as an
insurance company under Subchapter L of the Code.
2.2. The Company represents and warrants that it has legally and validly
established each of the Separate Accounts as a segregated asset account under
the Indiana Insurance Code, and that each of the Separate Accounts is a validly
existing segregated asset account under Indiana law.
<PAGE>
7
2.3. The Company represents and warrants that the Variable Contracts issued
by the Company or interests in the Separate Accounts under such Variable
Contracts (1) are or, prior to issuance, will be registered as securities under
the Securities Act of 1933 ("1933 Act") or, alternatively (2) are not registered
because they are properly exempt from registration under the 1933 Act or will be
offered exclusively in transactions that are properly exempt from registration
under the 1933 Act.
2.4. The Company represents and warrants that each of the Separate
Accounts: (1) has been registered as a unit investment trust in accordance with
the provisions of the 1940 Act or, alternatively (2) has not been registered in
proper reliance upon an exclusion from registration under the 1940 Act.
2.5. The Company represents that it believes, in good faith, that the
Variable Contracts issued by the Company are currently treated as annuity
contracts or life insurance policies (which may include modified endowment
contracts), whichever is appropriate, under applicable provisions of the Code.
2.6. The Company represents and warrants that any of its Separate Accounts
that fund variable life insurance contracts and that are registered with the SEC
as investment companies, rely on the exemptions provided by Rule 6e-2 or Rule
6e-3(T), or any successor thereto under the 1940 Act.
<PAGE>
8
2.7. The Fund represents and warrants that it is a business trust duly
organized and in good standing under the laws of Massachusetts.
2.8. The Fund represents and warrants that the shares of the Series are
duly authorized for issuance in accordance with applicable law and that the Fund
is registered as an open-end management investment company under the 1940 Act.
2.9. The Fund represents that it believes, in good faith, (i) that the
Series currently comply with the diversification provisions of Section 817(h) of
the Code and the regulations issued thereunder relating to the diversification
requirements for variable life insurance policies and variable annuity contracts
and (ii) that each Series has complied with such provisions since its
commencement of operations.
2. 10. The Distributor represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC.
ARTICLE III. General Duties
3.1. The Fund shall take all such actions as are necessary under applicable
federal and state law to permit the sale of the shares of each Series to the
Separate Accounts, including maintaining its registration as an investment
company under the 1940 Act, and registering the shares of the Series sold to the
Separate Accounts under the 1933 Act for so long as required by applicable law.
The Fund shall amend its Registration Statement filed with the SEC under
<PAGE>
9
the 1933 Act and the 1940 Act from time to time as required in order to permit
the continuous offering of the shares of the Series. The Fund shall register and
qualify the shares of the Series for sale in accordance with the laws of the
various states to the extent deemed necessary by the Fund or the Distributor.
3.2. The Fund shall make every effort to maintain qualification of each
Series as a Regulated Investment Company under Subchapter M of the Code (or any
successor or similar provision) and shall notify the Company immediately upon
having a reasonable basis for believing that a Series has ceased to so qualify
or that it might not so qualify in the future.
3.3. The Fund will invest assets of the Series in such a manner to permit
the Series to be used for investment by Separate Accounts of life insurance
companies funding variable annuity or life insurance contracts, whichever is
appropriate, under the Code and the regulations thereunder (or any successor
provisions). Without limiting the scope of the foregoing, the Fund shall make
every effort to enable each Series to comply with the diversification provisions
of Section 817(h) of the Code and the regulations issued thereunder relating to
the diversification requirements for variable life insurance policies and
variable annuity contracts and any prospective amendments or other modifications
to Section 817 or regulations thereunder, and shall notify the Company
immediately upon having a reasonable basis for believing that any Series has
ceased or might cease to comply.
3.4. Fund agrees to use its best efforts to ensure that each Series of the
Fund shall be managed consistent with its investment objective or objectives,
investment policies, and invest-
<PAGE>
10
ment restrictions as described in the Fund's prospectus and registration
statement, as amended or modified from time to time.
3.5. The Company shall take all such actions as are necessary under
applicable federal and state law to permit the sale of the Variable Contracts
issued by the Company, including registering each Separate Account as an
investment company to the extent required under the 1940 Act, and registering
the Variable Contracts or interests in the Separate Accounts under the Variable
Contracts to the extent required under the 1933 Act, and obtaining all necessary
approvals to offer the Variable Contracts from state insurance commissioners.
3.6. The Company shall make every effort to maintain the treatment of the
Variable Contracts issued by the Company as annuity contracts or life insurance
policies, whichever is appropriate, under applicable provisions of the Code and
shall notify the Fund and the Distributor immediately upon having a reasonable
basis for believing that such Variable Contracts have ceased to be so treated or
that they might not be so treated in the future. In the event that a change in
the Code or in the regulations thereunder or in an interpretation thereof makes
it unreasonable for the Company to continue to treat Variable Contracts as
annuity contracts or life insurance policies, whichever is appropriate, then the
Company shall, as soon as may be practical under the circumstances, notify the
Fund and the Distributor of its intent or plans with respect to such affected
annuity contracts or life insurance policies.
3.7. The Company shall require that any persons who offer and sell the
Variable Contracts issued by the Company do so in accordance with applicable
provisions of the 1933
<PAGE>
11
Act, the 1934 Act, the 1940 Act, the NASD Rules of Fair Practice, and state law
respecting the offering of variable life insurance policies and variable annuity
contracts.
3.8. The Distributor shall sell and distribute the shares of the Series of
the Fund in accordance with the applicable provisions of the 1933 Act, the 1934
Act, the 1940 Act, the NASD Rules of Fair Practice, and state law.
3.9. A majority of the Board of Trustees of the Fund shall consist of
persons who are not "interested persons" of the Fund ("disinterested Trustees"),
as defined by Section 2(a)(19) of the 1940 Act, except that if this provision of
this Section 3.9 is not met by reason of the death, disqualification, or bona
fide resignation of any Trustee or Trustees, then the operation of this
provision shall be suspended (a) for a period of 45 days if the vacancy or
vacancies may be filled by the Fund's Board; (b) for a period of 60 days if a
vote of shareholders is required to fill the vacancy or vacancies; or (c) for
such longer period as the SEC may prescribe by order upon application.
3.10. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities having jurisdiction (including, without
limitation, the SEC, the NASD, and state insurance regulators) and shall permit
such authorities reasonable access to its books and records in connection with
any investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
<PAGE>
12
3.11. The Company shall, at least annually, submit to the Board of Trustees
of the Fund such reports, materials or data as the Trustees may reasonably
request so that the Trustees may carry out the obligations imposed upon them by
the Shared Funding Exemptive Order, and said reports, materials and data shall
be submitted more frequently if deemed appropriate by the Board of Trustees.
ARTICLE IV. Potential Conflicts
4.1. The Fund's Board of Trustees shall monitor the Fund for the existence
of any material irreconcilable conflict (1) between the interests of owners of
variable annuity contracts and variable life insurance policies, and (2) between
the interests of owners of Variable Contracts ("Variable Contract Owners")
issued by different Participating Insurance Companies that invest in the Fund.
An irreconcilable material conflict may arise for a variety of reasons,
including: (a) an action by any state insurance regulatory authority; (b) a
change in applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretive letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of the Fund or any
Series are being managed; or (e) a decision by a Participating Insurance Company
to disregard the voting instructions of Variable Contract Owners.
4.2. The Company agrees that it shall be responsible for reporting any
potential or existing conflicts to the Fund's Board of Trustees. The Company
will be responsible for
<PAGE>
13
assisting the Board of Trustees of the Fund in carrying out its responsibilities
under this Agreement, by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This includes, but is not
limited to, an obligation by the Company to inform the Board whenever Variable
Contract Owner voting instructions are disregarded. The Company shall carry out
its responsibility under this Section 4.2 with a view only to the interests of
the Variable Contract Owners.
4.3. The Company agrees that in the event that it is determined by a
majority of the Board of Trustees of the Fund or a majority of the Fund's
disinterested Trustees that a material irreconcilable conflict exists, the
Company shall, in cooperation with other Participating Insurance Companies whose
Variable Contract owners are affected, at its own expense and to the extent
reasonably practicable (as determined by a majority of the disinterested
Trustees of the Board of the Fund), take whatever steps are necessary to
eliminate the irreconcilable material conflict, including: (1) withdrawing the
assets allocable to some or all of the Separate Accounts from the Fund or any
Series and reinvesting such assets in a different investment medium, which may
include another series of the Fund, or submitting the question of 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., Contract Owners of Variable Contracts issued by one 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 (2)
establishing a new registered management investment company or managed separate
account. If a material irreconcilable conflict arises because of the Company's
decision to disregard Variable Contract Owners' voting instructions and that
<PAGE>
14
decision represents a minority position or would preclude a majority vote, the
Company shall be required, at the Fund's election, to withdraw the Separate
Accounts' investment in the Fund, and no charge or penalty will be imposed as a
result of such withdrawal. The Fund shall neither be required to bear the costs
of remedial actions taken to remedy a material irreconcilable conflict nor shall
it be requested to pay a higher investment advisory fee for the sole purpose of
covering such costs. In addition, no Variable Contract Owner shall be required
directly or indirectly to bear the direct or indirect costs of remedial actions
taken to remedy a material irreconcilable conflict. A majority of the
disinterested members of the Board of Trustees of the Fund shall determine
whether any proposed action adequately remedies any material irreconcilable
conflict, but in no event will the Fund be required to establish a new funding
medium for any Variable Contract. A new funding medium for any Variable Contract
need not be established by the Company pursuant to this Section 4.3, if an offer
to do so has been declined by vote of a majority of Variable Contract Owners who
would be adversely affected by the irreconcilable material conflict. All reports
received by the Fund's Board of Trustees of potential or existing conflicts, and
all Board action with regard to determining the existence of a conflict,
notifying Participating Insurance Companies and the Fund's investment adviser of
a conflict, and determining whether any proposed action adequately remedies a
conflict, shall be properly recorded in the minutes of the Board of Trustees of
the Fund or other appropriate records, and such minutes or other records shall
be made available to the SEC upon request. The Company and the Fund shall carry
out their responsibilities under this Section 4.3 with a view only to the
interests of the Variable Contract Owners.
<PAGE>
15
4.4. The Board of Trustees of the Fund shall promptly notify the Company in
writing of its determination of the existence of an irreconcilable material
conflict and its implications.
ARTICLE V. Prospectuses and Proxy Statements; Voting
5.1. The Company shall distribute such prospectuses, proxy statements and
periodic reports of the Fund to the owners of Variable Contracts issued by the
Company as required to be distributed to such Variable Contract Owners under
applicable federal or state law.
5.2. The Distributor shall provide the Company with as many copies of the
current prospectus of the Fund as the Company may reasonably request. If
requested by the Company in lieu thereof, the Fund shall provide such
documentation (including a final copy of the Fund's prospectus as set in type or
in camera-ready copy) and other assistance as is reasonably necessary in order
for the Company to print together in one document the current prospectus for the
Variable Contracts issued by the Company and the current prospectus for the
Fund. The Fund shall bear the expense of printing copies of its current
prospectus that will be distributed to existing Variable Contract Owners, and
the Company shall bear the expense of printing copies of the Fund's prospectus
that are used in connection with offering the Variable Contracts issued by the
Company.
5.3. The Fund and the Distributor shall provide (1) at the Fund's expense,
one copy of the Fund's current Statement of Additional Information ("SAI") to
the Company and to any owner of a Variable Contract issued by the Company who
requests such SAI, (2) at the Com-
<PAGE>
16
pany's expense, such additional copies of the Fund's current SAI as the Company
shall reasonably request and that the Company shall require in accordance with
applicable law in connection with offering the Variable Contracts issued by the
Company.
5.4. The Fund, at its expense, shall provide the Company with copies of its
proxy material, periodic reports to shareholders and other communications to
shareholders in such quantity as the Company shall reasonably require for
purposes of distributing to owners of Variable Contracts issued by the Company.
The Fund, at the Company's expense, shall provide the Company with copies of its
periodic reports to shareholders and other communications to shareholders in
such quantity as the Company shall reasonably request for use in connection with
offering the Variable Contracts issued by the Company. If requested by the
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 Company to print
such shareholder communications for distribution to owners of Variable Contracts
issued by the Company.
5.5. For so long as the SEC interprets the 1940 Act to require pass-through
voting by Participating Insurance Companies whose Separate Accounts are
registered as investment companies under the 1940 Act ("Registered Separate
Accounts"), the Company shall vote shares of each Series of the Fund held in
Registered Separate Accounts or subaccounts thereof, at regular and special
meetings of the Fund in accordance with instructions timely received by the
Company (or its designated agent) from owners of Variable Contracts funded by
such
<PAGE>
17
Registered Separate Accounts or subaccounts thereof having a voting interest in
the Series. The Company shall vote shares of a Series of the Fund held in
Registered Separate Accounts or subaccounts thereof that are attributable to the
Variable Contracts as to which no timely instructions are received, as well as
shares held in such Registered Separate Accounts or subaccounts thereof that are
not attributable to the Variable Contracts and owned beneficially by the Company
(resulting from charges against the Variable Contracts or otherwise), in the
same proportion as the votes cast by owners of the Variable Contracts funded by
that Separate Account or subaccount thereof having a voting interest in the
Series from whom instructions have been timely received. The Company shall vote
shares of each Series of the Fund held in its general account or in any Separate
Account that is not registered under the 1940 Act, if any, in its discretion or
in the same proportion as the votes cast with respect to shares of the Series
held in all Registered Separate Accounts of the Company or subaccounts thereof,
in the aggregate. The Company agrees to take steps so that each Registered
Separate Account or subaccount thereof investing in the Fund calculates voting
privileges in a reasonable manner which will be communicated to the Company by
the Fund and that such manner will be consistent with other registered variable
annuity or variable life insurance separate accounts investing in the Fund.
5.6. To the extent applicable, the Fund shall disclose in its prospectus,
in substance, that: (1) shares of the Series of the Fund are offered to
affiliated or unaffiliated insurance company separate accounts which fund both
annuity and life insurance contracts, (2) due to differences in tax treatment or
other considerations, the interests of various Variable Contract Owners
participating in the Fund or a Series might at some time be in irreconcilable
conflict,
<PAGE>
18
and (3) the Board of Trustees of the Fund will monitor for any material
irreconcilable conflicts and determine what action, if any, should be taken.
ARTICLE VI. Sales Material and Information
6.1. The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material in
which the Fund (or any Series thereof) or its investment adviser or the
Distributor is named, and no such sales literature or other promotional material
shall be used without the prior approval of the Fund and the Distributor or the
designee of either. The Fund and the Distributor shall use their best efforts to
provide such approval or, if approval is not given, then to provide comments
suggesting appropriate changes to any piece of sales literature or other
promotional material within two (2) business days of receipt of such materials.
6.2. The Company agrees that neither it nor any of its affiliates shall
give any information or make any representations or statements on behalf of the
Fund or concerning the Fund other than the information or representations
contained in the Registration Statement or prospectus for the Fund shares, as
such registration statement and prospectus may be amended or supplemented from
time to time, or in reports or proxy statements for the Fund, or in sales
literature or other promotional material approved by the Fund or its designee
and/or by the Distributor or its designee, except with the prior permission of
the Fund or its designee and/or the Distributor or its designee.
<PAGE>
19
6.3. The Fund or the Distributor or the designee of either shall furnish to
the Company or its designee, each piece of sales literature or other promotional
material in which the Company or its Separate Accounts are named, and no such
material shall be used without the prior approval of the Company or its
designee.
6.4. The Fund and the Distributor agree that each and the affiliates of
each shall not give any information or make any representations on behalf of the
Company or concerning the Company, the Separate Accounts, or the Variable
Contracts issued by the 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 for the Separate Accounts or prepared for
distribution to owners of such Variable Contracts, or in sales literature or
other promotional material approved by the Company or its designee, except with
the prior permission of the Company.
6.5. The Fund will provide to the Company at least one complete copy of all
prospectuses, Statements of Additional Information, reports, proxy statements
and other voting solicitation materials, and all amendments and supplements to
any of the above, that relate to the Fund or its shares, promptly after the
filing of such document with the SEC or other regulatory authorities.
6.6. The Company will provide to the Fund at least one complete copy of all
prospectuses (which shall include an offering memorandum if the Variable
Contracts issued by the
<PAGE>
20
Company or interests therein are not registered under the 1933 Act), Statements
of Additional Information, reports, solicitations for voting instructions, and
all amendments or supplements to any of the above, that relate to the Variable
Contracts issued by the Company or the Separate Accounts promptly after the
filing of such document with the SEC or other regulatory authority.
6.7. For purposes of this Article VI, the phrase "sales literature or other
promotional material" includes, but is not limited to, 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, computerized media, or other public
media), sales literature (i.e., any written communication distributed or made
generally available to customers or the public, including brochures, circulars,
research reports, market letters, form letters, seminar texts, 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.
ARTICLE VII. Indemnification
7.1. Indemnification By the Company
7.l (a). The Company agrees to indemnify and hold harmless the Fund, each
of its Trustees and officers and the Distributor and each of the Directors and
officers of the
<PAGE>
21
Distributor (collectively, the "Indemnified Parties" for purposes of this
Section 7.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Company)
or litigation expenses (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
litigation expenses:
(i) 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 (which shall include an offering memorandum) for the Variable
Contracts issued by the Company or sales literature for such 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 the Company by or on behalf
of the Fund for use in the registration statement or prospectus for the
Variable Contracts issued by the Company or in sales literature (or any
amendment or supplement to any of the foregoing) or otherwise for use in
connection with the sale of the Variable Contracts or Fund shares; or
(ii) arise out of or as a result of any statement or representation (other than
statements or representations (1) contained in the registration statement,
prospectus or sales literature of the Fund not supplied by the Company or
persons under its control, or (2) contained in the registration statement,
prospectus, SAI, or sales literature for the Variable Contracts made in
reliance upon and in conformity with information furnished to the Company
by or on behalf of the Fund or the Distributor) or wrongful conduct of the
Company or persons under the control thereof with respect to the sale or
distribution of the Variable Contracts issued by the Company or the Fund
shares; or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, or sales
literature of the Fund or any amendment thereof or supplement thereto or
the omission or alleged omission to state therein a material fact required
to be stated
<PAGE>
22
therein or necessary to make the statements therein not misleading if such
a statement or omission was made in reliance upon information furnished to
the Fund by or on behalf of the Company; or
(iv) arise out of or result from the material breach of any representation
and/or warranty made by the Company in this Agreement or arise out of or
result from any other material breach of this Agreement by the Company;
except to the extent provided in Sections 7.1(b) and 7.1(c) hereof
7.l(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
expenses to which an Indemnified Party would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of his or
her duties or by reason of his or her reckless disregard of obligations or
duties under this Agreement or to the Fund.
7.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Party shall have notified the 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
Party shall have received notice of such service on any designated agent), but
failure to notify the Company of any such claim shall not relieve the 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, the Company
shall be entitled to participate, at its own expense, in the defense of such
action. The Company also shall be entitled to assume the
<PAGE>
23
defense thereof, with counsel satisfactory to the Indemnified Party named in the
action. After notice from the Company to such party of the Company's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the 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.
7.1(d). The Indemnified Parties shall promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund shares hereunder or the Variable Contracts
issued by the Company or the operation of the Fund provided that such litigation
or proceedings relate to or affect the interests of the Company.
7.2. Indemnification By the Distributor
7.2(a). The Distributor agrees to indemnify and hold harmless the Company
and each of its directors and officers and the Separate Accounts (collectively,
the "Indemnified Parties" for purposes of this Section 7.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Distributor) or litigation expenses (including legal
and other expenses) to which the Indemnified Parties may become subject under
any statute, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or litigation expenses:
<PAGE>
24
(i) 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 the 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 the Distributor or the Fund or the designee of either by or on
behalf of the Company for use in the registration statement or prospectus
for the Fund or in sales literature (or any amendment or supplement to any
of the foregoing) or otherwise for use in connection with the sale of the
Variable Contracts issued by the Company or Fund shares; or
(ii) arise out of or as a result of any statement or representation (other than
statements or representations (1) contained in the registration statement,
prospectus or sales literature for the Variable Contracts not supplied by
the Distributor or persons under the control thereof, or (2) contained in
the registration statement, prospectus, SAI, or sales literature for the
Fund made in reliance upon and in conformity with information furnished to
the Fund by or on behalf of the Company) or wrongful conduct of the Fund or
Distributor or persons under their control with respect to the sale or
distribution of the Variable Contracts or the Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, or sales
literature covering the Variable Contracts issued by the Company, 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 statement or statements therein not misleading, if
such statement or omission was made in reliance upon information furnished
to the Company by the Distributor or by or on behalf of the Fund; or
(iv) arise out of or result from the material breach of any representation
and/or warranty made by the Distributor or the Fund in this Agreement or
arise out of or result from any other material breach of this Agreement by
the Distributor or the Fund, including but not limited to, compliance with
the diversification requirements of Section 817(h) of the Code and
qualification of each Series of the Fund as a Regulated Investment Company
under Subchapter M of the Code;
<PAGE>
25
except to the extent provided in Sections 7.2(b) and 7.2(c) hereof.
7.2(b). The Distributor shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
expenses to which an Indemnified Party would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of his or
her duties or by reason of his or her reckless disregard of obligations and
duties under this Agreement or to the Company or the Separate Accounts.
7.2(c). The Distributor shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Party shall have notified the Distributor 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 Party shall have received notice of such service on any designated agent),
but failure to notify the Distributor of any such claim shall not relieve the
Distributor 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, the Distributor will be entitled to participate, at its own
expense, in the defense thereof. The Distributor also shall be entitled to
assume the defense thereof, with counsel satisfactory to the Indemnified Party
named in the action. After notice from the Distributor to such party of the
Distributor's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the Distributor will not be liable to such party under this Agree-
<PAGE>
26
meet for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
7.2(d). The Company shall promptly notify the Distributor of the
commencement of any litigation or proceedings against any Indemnified Party in
connection with the issuance or sale of the Fund shares hereunder or the
Variable Contracts issued by the Company or the operation of the Separate
Accounts provided that such litigation or proceedings relate to or affect the
interests of the Fund or the Distributor.
ARTICLE VIII. Applicable Law
8.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Indiana.
8.2. This Agreement shall be subject to the provisions of the 1933, 1934,
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, the Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
<PAGE>
27
ARTICLE IX. Termination
9.1. This Agreement shall terminate:
(a) at the option of any party upon 90 days advance written notice to
the other parties, unless a shorter time is agreed to by the parties to
this Agreement; or
(b) at the option of the Company if shares of the Series are not
reasonably available to meet the requirements of the Variable Contracts
issued by the Company, as determined by the Company, and upon written
notice by the Company to the other parties to this Agreement; or,
(c) at the option of the Fund or the Distributor upon institution of
formal proceedings against the Company by the NASD, the SEC, or any state
securities or insurance department or any other regulatory body if the Fund
or the Distributor shall determine, in its sole judgment exercised in good
faith, that the Company has suffered a material adverse change in its
business, operations, financial condition, or prospects since the date of
this Agreement or is the subject of material adverse publicity; or
(d) at the option of the Company upon institution of formal
proceedings against the Fund or the Distributor by the NASD, the SEC, or
any state securities or insurance department or any other regulatory body
if the Company shall determine, in its sole judgment exercised in good
faith, that the Fund or the Distributor has suffered a material adverse
change in its business, operations, financial condition, or prospects since
the date of this Agreement or is the subject of material adverse publicity;
or
<PAGE>
28
(e) upon requisite vote of the Variable Contract Owners having an
interest in the Separate Accounts (or any subaccounts thereof) to
substitute the shares of another investment company or series thereof for
the corresponding shares of the Fund or a Series in accordance with the
terms of the Variable Contracts for which those shares had been selected to
serve as the underlying investment media; or
(f) in the event any of the shares of a Series are not registered,
issued or sold in accordance with applicable state and/or federal law, or
such law precludes the use of such shares as the underlying investment
media of the Variable Contracts issued or to be issued by the Company; or
(g) at the option of any party to the Agreement upon a determination
by a majority of the Trustees of the Fund, or a majority of its
disinterested Trustees, that an irreconcilable material conflict exists; or
(h) at the option of the Company if the Fund or a Series fails to meet
the diversification requirements specified in Section 3.2 or 3.3 hereof; or
(i) at the option of the Fund or the Distributor if the Variable
Contracts issued by the Company cease to qualify as annuity contracts or
life insurance contracts, as applicable, under the Code or if the Variable
Contracts are not registered, issued or sold in accordance with applicable
state and/or federal law; or
(j) at the option of the Company upon any substitution of the shares
of another investment company or series thereof for shares of the Fund or a
Series in accordance with the terms of the Contracts, provided that the
Company has given at least 45 days prior written notice to the Fund or
Distributor of the date of the substitution.
<PAGE>
29
(k) at the option of the Company upon a material breach of this
Agreement or of any representation or warranty herein by the Fund or the
Distributor, or at the option of the Fund or the Distributor upon a
material breach of this Agreement or of any representation or warranty
herein by the Company.
9.2. Each party to this Agreement shall promptly notify the other parties
to the Agreement of the institution against such party of any such formal
proceedings as described in Sections 9.l(c) and (d) hereof. The Company shall
give 45 days prior written notice to the Fund of the date of any proposed vote
of Variable Contract Owners to replace the Fund's shares as described in Section
9.1(e) hereof.
9.3. Under the terms of the Variable Contracts, the Company reserves the
right, subject to compliance with the law as then in effect, to make
substitutions for the securities that are held by a Separate Account of Company
under certain circumstances. The parties acknowledge that Company has the right
to substitute other securities for the shares of the Fund or a Series already
purchased or to be purchased in the future if the shares of the Fund or any or
all of the Series should no longer be available for investment, or if, in the
judgment of Company management, further investment in shares of the Fund or any
or all of the Series thereof should become inappropriate in view of the purposes
of the Contracts. Company will provide 45 days written notice to the Fund or to
the Distributor prior to effecting any such substitution.
<PAGE>
30
9.4. If this Agreement terminates, any provision of this Agreement
necessary to the orderly windup of business under it will remain in effect as to
that business, after termination.
ARTICLE X. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund: The Alger American Fund
75 Maiden Lane
New York, New York 10038
Attn: Gregory Duch
If to the Distributor: Fred Alger & Company, Incorporated
30 Montgomery Street
Jersey City, New Jersey 07302
Attn: Gregory Duch
If to the Company: American United Life Insurance Company(R)
One American Square
Indianapolis, Indiana 46206
Attn: Richard A. Wacker
ARTICLE XI.
11. 1. The Fund and the Company agree that if and to the extent Rule 6e-2
or 6e-3(T) under the 1940 Act is amended or if Rule 6e-3 is adopted in final
form, to the extent appli-
<PAGE>
31
cable, the Fund and the Company shall each take such steps as may be necessary
to comply with such Rule as amended or adopted in final form.
11.2. A copy of the Fund's Agreement and Declaration of Trust is on file
with the Secretary of the Commonwealth of Massachusetts and notice is hereby
given that the Agreement has been executed on behalf of the Fund by a Trustee of
the Fund in his or her capacity as Trustee and not individually. The obligations
of this Agreement shall only be binding upon the assets and property of the Fund
and shall not be binding upon any Trustee, officer or shareholder of the Fund
individually.
11.3. It is understood that the name "American United Life Insurance
Company(R)", "AUL", or any derivative thereof or logo associated with that name
is the valuable property of the Company and its affiliates, and that the Company
has the right to use such name (or derivative or logo) only so long as this
Agreement is in effect. Upon termination of this Agreement the Company shall
forthwith cease to use such name (or derivative or logo).
11.4. It is understood that the name "Alger", or any derivative thereof or
logo associated with that name is the valuable property of the Distributor and
its affiliates, and that the Company has the right to use such name (or
derivative or logo) only so long as this Agreement is in effect. Upon
termination of this Agreement the Company shall forthwith cease to use such name
(or derivative or logo).
<PAGE>
32
11.5. The Fund and the Distributor agree to treat as the property of the
Company any list or compilation of names, addresses, and other information
relating to the owners of the Variable Contracts or prospects for the sale of
the Variable Contracts acquired in the course of performing under this Agreement
and agree not to use such information for any purpose without the prior written
consent of the Company.
11.6. 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.
11.7. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
11.8. 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.
11.9. This Agreement may not be assigned by any party to the Agreement
except with the written consent of the other parties to the Agreement. For
purposes of this provision, the term "assigned" shall include a change in
control of a party to the Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
<PAGE>
33
executed as of the day and year first above written.
THE ALGER AMERICAN FUND
ATTEST: __________________ BY: __________________
Name: Nanci Staple Name: Gregory Duch
Tile: Secretary Title: Treasurer
FRED ALGER & COMPANY, INCORPORATED
ATTEST: __________________ BY: __________________
Name: Nanci Staple Name: Gregory Duch
Tile: Secretary Title: Treasurer
AMERICAN UNITED LIFE INSURANCE COMPANY(R)
ATTEST: __________________ BY:___________________
Name: Richard A. Wacker Name: James H. Akins, Jr.
Tile: Associate General Counsel Title: Vice President
Pension Contracts
<PAGE>
34
Exhibit A
List of Series Currently available to American United Life Insurance
Company(R):
Alger American Growth Portfolio
- --------------------------------------------------------------------------------
EXHIBIT 8.1
FORM OF PARTICIPATION AGREEMENT WITH AMERICAN CENTURY VARIABLE PORTFOLIOS
- --------------------------------------------------------------------------------
FUND PARTICIPATION AGREEMENT
American United Life Insurance Company (the "Company") and TCI Portfolios,
Inc. ("TCIP") and its investment adviser, Investors Research Corporation
("Investors Research") hereby agree to an arrangement whereby shares of TCI
Growth (the "Fund") shall be made available to serve as underlying investment
media for Individual and Group Annuity Contracts ("Contracts") to be offered to
the public by the Company, subject to the following provisions:
1. Establishment of Account; Availability of Fund.
The Company represents that it has established or will establish one or
more separate accounts (an "Account") under state insurance law, each of which
is or will be registered as a unit investment trust under the Investment Company
Act of 1940 (the "1940 Act"), to serve as an investment vehicle for the
Contracts. The Contracts provide for the allocation of net amounts received by
the Company to separate series of an Account for investment in the shares of a
specified investment company selected from among those companies available
through an Account to act as underlying investment media. Selection of a
particular series of an Account is made by the Contract owner, who may change
such selection from time to time in accordance with the terms of the applicable
Contract.
2. Marketing and Promotion.
The Company agrees to make every reasonable effort to market its Contracts.
It will not give disproportionately unequal emphasis and promotion to shares of
the Fund as compared to other underlying investments of an Account. In addition,
the Company shall not
<PAGE>
2
impose any fee, condition, rule or regulation for the use by a Contract owner of
the Fund as an investment option that operates to the specific prejudice of the
Fund vis-a-vis the other investment options offered by the Company to Contract
owners. In marketing and administering its Contracts, the Company will comply
with all applicable state and Federal laws.
3. Pricing Information; Orders; Settlement.
(a) TCIP will make Fund shares available to be purchased by the Company on
behalf of an Account at the net asset value applicable to each order. Fund
shares shall be purchased and redeemed in such quantity and at such time
determined by the Company to be necessary to meet the requirements of those
Contracts for which the Fund serves as underlying investment media.
(b) TCIP will provide to the Company closing net asset value, dividend and
capital gain information at the close of trading each day that the New York
Stock Exchange (the "Exchange") is open (each such day, a "business day"). The
Company will send directly to TCIP or its specified agent orders to purchase
and/or redeem Fund shares by 10:00 a.m. Eastern Time the following business day.
Payment for net purchases will be wired by the Company to a custodial account
designated by TCIP to coincide with the order for shares of the Fund.
(c) TCIP hereby appoints the Company as its agent for the limited purpose
of accepting purchase and redemption orders for Fund shares from Contract
owners. Orders from Contract owners received by the Company acting as agent for
TCIP prior to the close of the Exchange on any given business day will be
executed by TCIP at the net asset value determined as of the close of the
Exchange on such business day. Any orders received by the
<PAGE>
3
Company acting as agent on such day but after the close of the Exchange will be
executed by TCIP at the net asset value determined as of the close of the
Exchange on the next business day following the day of receipt of such order.
(d) Payments for net redemptions of shares of the Fund will be paid in cash
and will be wired by TCIP from the TCIP custodial account to an account
designated by the Company. Payment for net redemptions will ordinarily be wired
one business day after the order for the redemptions has been sent by the
Company to TCIP or its specified agent.
4. Compliance.
(a) In managing and administering TCIP,. TCIP and Investors Research will
comply in all material respects with all applicable state and Federal securities
laws.
(b) TCIP and Investors Research shall use their respective best efforts to
ensure that the Fund qualifies and continues to qualify as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code (or any
successor or similar provision).
(c) TCIP and Investors Research shall use their respective best efforts to
ensure that the Fund complies and maintains compliance with the diversification
provisions of Section 817(h) of the Internal Revenue Code and the regulations
issued thereunder relating to the diversification requirements for variable
annuity contracts, and with any prospective amendments or other modifications to
Section 817 or regulations thereunder.
(d) Unless it notifies the Company with reasonable promptness that it does
not intend to do so, TCIP shall take all steps necessary to adhere to any
requirements under tax or insurance law or otherwise that pertain to the Fund by
virtue of serving as an investment media for the Contracts for which notice is
provided to TCIP by the Company.
(e) Investors Research shall notify the Company with reasonable promptness
after
<PAGE>
4
having a reasonable basis for believing that the Fund has ceased to comply or
likely will cease to comply with any of the requirements described or referenced
in Section 4(a), (b), (c), or (d) of this Agreement.
(f) TCIP and Investors Research represent and warrant that as of the date
of this Agreement the shares of the Fund are duly authorized for issuance in
accordance with applicable law, that the shares of the Fund are registered with
the Securities and Exchange Commission ("SEC") as securities under the
Securities Act of 1933 (the "1933 Act") and that TCIP is registered as an
open-end management investment company under the 1940 Act.
5. Expenses.
(a) Except as otherwise provided in this Agreement, all expenses incident
to the performance by TCIP under this Agreement shall be paid by Investors
Research or TCIP, including the cost of registration of TCIP's shares with the
SEC and in states where required.
(b) TCIP shall provide to the Company its proxy materials, periodic fund
reports to shareholders and other materials that are required by law to be sent
to Contract owners. In addition, TCIP shall provide the Company with a
sufficient quantity of its prospectuses to be used in connection with the
offerings and transactions contemplated by this Agreement. The cost of preparing
and printing such materials shall be paid by Investors Research or TCIP, and the
cost of distributing such materials shall be paid by the Company; provided,
however, that at any time TCIP reasonably deems the usage of such materials to
be excessive, it may request that the Company pay the cost of printing
(including press time and paper) of any additional copies of such materials
requested by the Company.
6. Representations.
The Company and its agents shall not, without the written consent of TCIP,
make
<PAGE>
5
representations concerning TCIP or its shares except those contained in the then
current prospectuses, registration statement and in the then current printed
sales literature of TCIP.
7. Administration of Accounts.
(a) Administrative services to purchasers of Contracts shall be the
responsibility of the Company and shall not be the responsibility of TCIP or
Investors Research. TCIP and Investors Research recognize the Company as the
sole shareholder of TCIP shares issued under this Agreement. TCIP and Investors
Research further recognize that they will derive a substantial savings in
administrative expense, such as significant reductions in postage expense and
shareholder communications and recordkeeping, by virtue of having a sole
shareholder rather than multiple shareholders. In consideration of the
administrative savings resulting from such arrangement, Investors Research
agrees to pay to the Company an amount equal to 15 basis points (0.15%) per
annum of the average aggregate amount invested by the Company under this
Agreement, commencing with the month in which the average aggregate investment
by the Company (on behalf of the Contract owners) in the Fund exceeds $10
million. No payment obligation shall arise until the Company's average aggregate
investment in the Fund reaches $10 million, and such payment obligation, once
commenced, shall be suspended with respect to any month during which the
Company's average aggregate investment in the Fund drops below $10 million.
(b) Investors Research has advised the Company that it customarily pays,
out of its management fee, another affiliated corporation for the type of
administrative services to be provided by the Company to the Contract holders.
The parties agree that Investors Research's payments to the Company, like
Investors Research's payments to its affiliated corporation, are for
administrative services only and do not constitute payment in any manner for
investment
<PAGE>
6
advisory services or for costs of distribution.
(c) For the purposes of computing the payment to the Company contemplated
by this Section 7, the average aggregate amount invested by the Company over a
one month period shall be computed by totaling the Company's aggregate
investment (share net asset value multiplied by total number of shares held by
the Company) on each business day during the month and dividing by the total
number of business days during such month.
(d) Investors Research will calculate the payment contemplated by this
Section 7 at the end of each calendar quarter and will make such payment to the
Company within 30 days thereafter. The check for such payment will be
accompanied by a statement showing the calculation of the monthly amounts
payable by Investors Research and such other supporting data as may be
reasonably requested by the Company.
8. Termination.
This Agreement shall terminate as to the sale and issuance of new
Contracts:
(a) at the option of either the Company or TCIP upon 90 days' advance
written notice to the other;
(b) at the option of the Company if shares of the Fund are not available
for any reason or if the Company shall reasonably determine in good faith that
further investment in shares of the Fund is inappropriate in view of the
purposes of the Contracts, provided that reasonable advance notice of election
to terminate shall be furnished by the Company;
(c) at the option of either the Company or TCIP, upon institution of formal
proceedings against the broker-dealer or broker-dealers underwriting the
Contracts, the Account, the Company, Investors Research or TCIP by the National
Association of Securities Dealers, Inc. (the "NASD"), the SEC or any other
regulatory body;
<PAGE>
7
(d) at the option of TCIP, if TCIP shall reasonably determine in good faith
that the Company is not offering shares of the Fund in conformity with the terms
of this Agreement;
(e) upon termination of the Management Agreement between TCIP and Investors
Research, notice of which shall be promptly furnished to the Company; provided,
however, that this subsection (e) shall not apply if contemporaneously with such
termination a new contract of substantially similar terms is entered into
between TCIP and Investors Research;
(f) upon the requisite vote of Contract owners having an interest in the
Fund to substitute for Fund shares the shares of another investment company in
accordance with the terms of Contracts for which Fund shares had been selected
to serve as an underlying investment medium; provided, however, that the Company
shall give 60 days' written notice to TCIP of any proposed vote to replace the
Fund's shares;
(g) upon assignment of this Agreement, unless made with the written consent
of all other parties hereto;
(h) if TCIP's shares are not registered, issued or sold in conformance with
Federal or applicable state law or such law precludes the use of Fund shares as
the underlying investment medium of Contracts issued or to be issued by the
Company, provided that prompt notice shall be given by either party should such
situation occur;
(i) at the option of the Company by written notice to the other parties in
the event that the Fund ceases to qualify as a Regulated Investment Company
under Subchapter M of the Internal Revenue Code or in the event that the Fund
fails to meet the diversification requirements specified in Section 4(c) of this
Agreement, or if the Company reasonably believes in good faith that the fund may
fail to so qualify as a Regulated Investment Company or may fail to meet such
diversification requirements; or
<PAGE>
8
(j) at the option of any party in the event that a majority of the Board of
TCIP determines that a material irreconcilable conflict exists as provided in
Section 14 of this Agreement.
9. Continuation of Agreement.
Termination as the result of any cause listed in Section 8 shall not affect
TCIP's obligation maintain an account in the name of the Company on behalf of
those Contract owners who selected the Fund as an investment option prior to the
termination of this Agreement; provided, however, TCIP shall have no
administrative services payment obligation to the Company after such
termination.
10. Substitution.
The Company has advised TCIP and Investors Research, and TCIP and Investors
Research understand that the Contracts provide that the Company reserves the
night to substitute the shares of another investment company or series thereof
for the shares of TCIP if such shares are no longer available for investment, or
if, in the judgment of the Company's management, further investment in the
shares of the Fund would be inappropriate in view of the purposes of the
Contracts. The Company hereby represents that all determinations of
appropriateness will be reasonably made in good faith.
11. Advertising Materials; Filed Documents.
(a) Advertising and literature with respect to TCIP prepared by the Company
or its agents for use in marketing its Contracts will be submitted to TCIP for
review before such material is submitted to the SEC or NASD for review.
(b) TCIP will provide to the Company at least one complete copy of all
registration statements, prospectuses, statements of additional information,
annual and semi-
<PAGE>
9
annual reports, proxy statements and all amendments or supplements to any of the
above that relate to the Fund promptly after the filing of such document with
the SEC or other regulatory authorities. The Company will provide to TCIP at
least one complete copy of all registration statements, prospectuses, statements
of additional information, annual and semi-annual reports, proxy statements, and
all amendments or supplements to any of the above that relate to an Account
promptly after the filing of such document with the SEC or other regulatory
authority.
12. Proxy Voting.
(a) The Company shall provide pass-through voting privileges to all
Contract owners so long as the SEC continues to interpret the 1940 Act as
requiring such privileges. It shall be the responsibility of the Company to
assure that it and the separate accounts of the other Participating Companies
(as defined in Section 14(a) below) participating in the Fund calculate voting
privileges in a consistent manner. TCIP and Investors Research agree to advise
the Company if either shall be notified by a Participating Company of a change
in the calculation of voting privileges.
(b) The Company will distribute to Contract owners all proxy material
furnished by TCIP and will vote shares in accordance with instructions received
from such Contract owners. The Company shall vote TCIP shares for which no
instructions have been received in the same proportion as shares for which such
instructions have been received. The Company and its agents shall not oppose or
interfere with the solicitation of proxies for TCIP shares held for Contract
owners.
13. Indemnification.
(a) The Company agrees to indemnify and hold harmless TCIP and each of its
<PAGE>
10
directors, officers, employees, agents and each person, if any, who controls
TCIP or its investment adviser within the meaning of the 1933 Act against any
losses, claims, damages or liabilities to which TCIP or any such director,
officer, employee, agent, or controlling person may become subject, under the
1933 Act or otherwise, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof (i) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, prospectus or sales literature of the Company 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, or arise out of or as a result of conduct, statements or
representations (other than statements or representations contained in the
registration statement, as amended, the prospectuses or sales literature of
TCIP) of the Company or its agents, with respect to the sale and distribution of
Contracts for which the shares of the Fund are the underlying investment, or
(ii) result from a breach of material provision of this Agreement. The Company
will reimburse any legal or other expenses reasonably incurred by TCIP or any
such director, officer, employee, agent, investment adviser, or controlling
person in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such Registration Statement,
prospectus or sales literature in conformity with written materials furnished to
the Company by TCIP or Investors Research specifically for use therein.
(b) Investors Research agrees to indemnify and hold harmless the Account,
<PAGE>
11
Company and each of its directors, officers, employees, agents and each person,
if any, who controls the Company within the meaning of the 1933 Act against any
losses, claims, damages or liabilities to which the Account, the Company or any
such director, officer, employee, agent or controlling person may become
subject, under the 1933 Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof (i) arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, prospectuses or sales literature of the
Fund 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 material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (ii) result from a breach of a material provision of this
Agreement. Investors Research will reimburse any legal or other expenses
reasonably incurred by the Company or any such director, officer, employee,
agent, or controlling person in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that Investors
Research will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in such
Registration Statement, prospectuses or sales literature in conformity with
written materials furnished to TCIP by the Company specifically for use therein.
(c) Promptly after receipt by an indemnified party hereunder of notice of
the commencement of action, such indemnified party will, if a claim in respect
thereof is to be made against the indemnifying party hereunder, notify the
indemnifying party of the commencement thereof, but the omission so to notify
the indemnifying party will not relieve it from any liability which it may have
to any indemnified party otherwise than under this
<PAGE>
12
Section 13. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the extent
that it may wish to, assume the defense thereof, with counsel satisfactory to
such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section 13 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
14. Potential Conflicts.
(a) The Company has received a copy of an application for exemptive relief,
as amended, filed by TCIP on December 21, 1987, with the SEC and the order
issued by the SEC in response thereto (the "Shared Funding Exemptive Order").
The Company has reviewed the conditions to the requested relief set forth in
such application for exemptive relief. As set forth in such application, the
Board of Directors of TCIP (the "Board") will monitor TCIP for the existence of
any material irreconcilable conflict between the interests of the
contractholders of all separate accounts ("Participating Companies") investing
in TCIP. An irreconcilable material conflict may arise for a variety of reasons,
including: (i) an action by any state insurance regulatory authority; (ii) a
change in applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar actions by insurance, tax or securities
regulatory authorities; (iii) an administrative or judicial decision in any
relevant proceeding; (iv) the manner in which the investments of any portfolio
are being managed; (v) a difference in voting instructions given by variable
annuity contractholders and variable life insurance
<PAGE>
13
contractholders; or (vi) a decision by an insurer to disregard the voting
instructions of contractholders. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
(b) The Company will report any potential or existing conflicts of which it
is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order by providing the Board
with all information reasonably necessary for the Board to consider any issues
raised. This includes, but is not limited to, an obligation by the Company to
inform the Board whenever contractholder voting instructions are disregarded.
(c) If a majority of the Board, or a majority of its disinterested Board
members, determines that a material irreconcilable conflict exists with regard
to contractholder investments in the Fund, the Board shall give prompt notice to
all Participating Companies. If the Board determines that the Company is
responsible for causing or creating said conflict, the Company shall at its sole
cost and expense, and to the extent reasonably practicable (as determined by a
majority of the disinterested Board members), take such action as is necessary
to remedy or eliminate the irreconcilable material conflict. Such necessary
action may include but shall not be limited to:
(i) withdrawing the assets allocable to the Account from the Fund and
reinvesting such assets in a different investment medium or submitting
the question of whether such segregation should be implemented to a
vote of all affected contractholders and as appropriate, segregating
the assets of any appropriate group (i.e., annuity contract owners,
life insurance contract owners, or variable contract owners of one or
more Participating Companies) that votes in favor of such segregation,
or offering to the affected contractholders the option of making such
a change; and/or
(ii) establishing a new registered management investment company or
<PAGE>
14
managed separate account.
(d) If a material irreconcilable conflict arises as a result of a decision
by the Company to disregard its contractholder voting instructions and said
decision represents a minority position or would preclude a majority vote by all
of its contractholders having an interest in TCIP, the Company at its sole cost,
may be required, at the Board's election, to withdraw the Account's investment
in TCIP and terminate this Agreement; provided, however, that such withdrawal
and termination shall be limited to the extent required by the foregoing
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
(e) For the purpose of this Section 14, a majority of the disinterested
Board members shall determine whether or not any proposed action adequately
remedies any irreconcilable material conflict, but in no event will TCIP be
required to establish a new funding medium for any Contract. The Company shall
not be required by this Section 14 to establish a new funding medium for any
Contract if an offer to do so has been declined by vote of a majority of the
Contract owners materially adversely affected by the irreconcilable material
conflict.
15. Miscellaneous.
(a) Amendment and Waiver. Neither this Agreement, nor any provision hereof,
may be amended, waived, discharged or terminated orally, but only by an
instrument in writing signed by all parties hereto.
(b) Notices. All notices and other communications hereunder shall be given
or made in writing and shall be delivered personally, or sent by telex,
telecopier, express delivery or registered or certified mail, postage prepaid,
return receipt requested, to the party
<PAGE>
15
or parties to whom they are directed at the following addresses, or at such
other addresses as may be designated by notice from such party to all other
parties.
To the Company: American United Life Insurance Company
One American Square
Indianapolis, Indiana 42606-0368
Attention: Richard A. Wacker
To TCI or Investors Research:
TCI Portfolios, Inc.
4500 Main Street
Kansas City, Missouri 64111
Attention: Patrick A. Looby
Any notice, demand or other communication given in a manner prescribed in this
subsection (b) shall be deemed to have been delivered on receipt.
(c) Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective permitted successors
and assigns
(d) Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one agreement, and
any party hereto may execute this Agreement by signing any such counterpart.
(e) Severability. In case any one or more of the provisions contained in
this Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
(f) Entire Agreement. This Agreement constitutes the entire agreement and
understanding between the parties hereto and supersedes all prior agreement and
understandings relating to the subject matter hereof.
<PAGE>
16
IN WITNESS WHEREOF, the undersigned have executed this Agreement by their
duly authorized officers as of this 1st day of March 1994.
AMERICAN UNITED LIFE INSURANCE
COMPANY
By: ____________________________
Name: James H. Akins, Jr.
Title: Vice President
INVESTORS RESEARCH CORPORATION
By: ____________________________
Name: William M. Lyons
Title: Executive Vice President
TCI PORTFOLIOS, INC.
By: ____________________________
Name: Patrick A. Looby
Title: Vice President
AMENDMENT NO. 1 TO
FUND PARTICIPATION AGREEMENT
THIS AMENDMENT NO. 1 TO FUND PARTICIPATION AGREEMENT is made and entered
into as of the 31st day of August, 1994, by and among AMERICAN UNITED LIFE
INSURANCE COMPANY (the "Company"), TCI PORTFOLIOS,INC. ("TCIP") and its invest-
ment adviser, INVESTORS RESEARCH CORPORATION ("Investors Research"). Capitalized
terms not otherwise defined herein shall have the meaning ascribed to them in
the Agreement (defined below).
WITNESSETH
WHEREAS, the Company, TCIP and Investors Research are parties to a Fund
Participation Agreement (the "Agreement") dated as of March 1, 1994, whereby
shares of TCI Growth, a series of mutual fund shares registered under the
Investment Company Act of 1940 and issued by TCIP, were made available by TCIP
to serve as underlying investment media for individual and group annuity
contracts to be issued through one or more separate accounts established by the
Company under state law; and
WHEREAS, the Company, TCIP and Investors Research now desire to modify the
Agreement so that shares of TCI International (another series of registered
mutual fund shares issued by TCIP) may be made available to the Company to serve
as underlying investment media for such contracts.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and promises expressed herein, the parties agree as follows:
1. From the date hereof pursuant to the terms of the Agreement, as
amended from time to time, shares of TCI International shall be made
available to serve as underlying investment media for the Contracts.
2. The Company represents that it has established the All American
Individual Separate Account and the All American Group Separate
Account (the "Accounts") as separate accounts under Indiana Insurance
Law to serve as investment vehicles for the Contracts. The Accounts
are registered as unit investment trusts under the Investment Company
Act of 1940 to serve as investment vehicles for the Contracts.
3. All references to "Account" under the Agreement shall be deemed to
refer to the Accounts under this First Amendment.
4. From and after the date hereof, unless the context otherwise requires,
all references in the Agreement to the term "Fund" shall be deemed to
include TCI International.
5. In the event that there is any conflict between the terms of this
Amendment No. 1 and the Agreement, it is the intention of the parties
hereto that the terms of this Amendment No. 1 shall
<PAGE>
2
control, and the Agreement shall be interpreted on that basis. To the
extent that the provisions of the Agreement have not been amended by
this Amendment No. 1, the parties hereto hereby confirm and ratify the
Agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 as of
the date first above written.
AMERICAN UNITED LIFE INSURANCE COMPANY
By: ___________________________________
Name: James H. Akins, Jr.
Title: Vice President Pensions
Contracts to Compliance
INVESTORS RESEARCH CORPORATION
By: ___________________________________
William M. Lyons
Executive Vice President
TCI PORTFOLIOS, INC.
By: ___________________________________
William M. Lyons
Executive Vice President
AMENDMENT NO. 2 TO FUND PARTICIPATION AGREEMENT
THIS AMENDMENT NO. 2 TO FUND PARTICIPATION AGREEMENT is made and entered
into as of the 16th day of September 1997, by and among AMERICAN UNITED LIFE
INSURANCE COMPANY (the "Company"), AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.,
formerly known as TCI Portfolios, Inc. (the "Issuer"), and its investment
adviser, AMERICAN CENTURY INVESTMENT MANAGEMENT, INC., formerly known as
Investors Research Corporation (the "Adviser"). Capitalized terms not otherwise
defined herein shall have the meaning ascribed to them in the Agreement (as
defined below).
WHEREAS, the Company, the Issuer and the Adviser are parties to a Fund
Participation Agreement, dated as of March 1, 1994 and amended as of August 31,
1994 (the "Agreement"), whereby shares of VP Capital Appreciation, formerly
known as TCI Growth, and shares of VP International, formerly known as TCI
International, each of which is a series of mutual fund shares registered under
the Investment Company Act of 1940, as amended, and issued by the Issuer
(collectively, the "Funds"), were made available by the Issuer to serve as
underlying investment media for individual and group annuity contracts to be
issued through one or more separate accounts established by the Company under
state law; and
WHEREAS, the Company offers or will offer to the public certain individual
and group variable life insurance contracts (the "Variable Life Contracts"); and
WHEREAS, the Company, the Issuer and the Adviser now desire to modify the
Agreement so that shares of the Funds may be made available to the Company to
serve as underlying investment media for the Variable Life Contracts in addition
to the annuity contracts.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and promises expressed herein, the parties hereto hereby agree as follows:
1. The Company represents that it has established or will establish one
or more separate accounts (each a "Variable Life Account") under state
insurance law, each of which is or will be registered as a unit
investment trust under the 1940 Act, to serve as investment vehicles
for the Variable Life Contracts.
2. From and after the date hereof, pursuant to the terms of the Agreement
as amended from time to time, shares of the Funds shall be made
available to serve as underlying investment media for the Variable
Life Contracts in addition to the annuity contracts.
3. From and after the date hereof, unless the context otherwise requires,
(a) references in the Agreement to the term "Account" shall be deemed
to include the Variable Life Accounts and (b) references in the
Agreement to the term "Contracts" shall be deemed to include the
Variable Life Contracts.
<PAGE>
2
4. In the event that there is any conflict between the terms of this
Amendment No. 2 and the Agreement, it is the intention of the parties
hereto that the terms of this Amendment No. 2 shall control, and the
Agreement shall be interpreted on that basis. To the extent that the
provisions of the Agreement have not been amended by this Amendment
No. 2, the parties hereto hereby confirm and ratify the Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 2
as of the date first above written,
AMERICAN UNITED LIFE INSURANCE COMPANY
By: ______________________________________
Name: Richard A. Wacker
Title: Associate General Counsel
AMERICAN CENTURY INVESTMENT
MANAGEMENT, INC.
By: ______________________________________
William M. Lyons
Executive Vice President
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
By: ______________________________________
William M. Lyons
Executive Vice President
- --------------------------------------------------------------------------------
EXHIBIT 8.3
FORM OF PARTICIPATION AGREEMENT WITH CALVERT VARIABLE PORTFOLIOS
- --------------------------------------------------------------------------------
FUND PARTICIPATION AGREEMENT
This AGREEMENT is made this 29th day of March, 1995, by and between
American United Life Insurance Company (R) (the "Company"), a life insurance
company domiciled in Indiana, on its behalf and on behalf of the segregated
asset accounts of the Company (the "Separate Accounts"); Acacia Capital
Corporation (the "Fund"), a Maryland corporation; Calvert Distributors, Inc.
("Distributor") and Calvert Asset Management Corporation ("Adviser"), a Maryland
corporation.
WITNESSETH
WHEREAS, the Fund is registered with the Securities and Exchange Commission
("SEC") as an open-end management investment company under the Investment
Company Act of 1940, as amended ("1940 Act") and the Fund is authorized to issue
separate classes of shares of beneficial interests ("shares"), each representing
an interest in a separate portfolio of assets known as a "series" and each
series has its own investment objective, policies, and limitations; and
WHEREAS, the Fund is available to offer shares of one or more of its series
to separate accounts of insurance companies that fund variable life insurance
policies and variable annuity contracts ("Variable Contracts") and to serve as
an investment medium for Variable Contracts offered by insurance companies that
have entered into participation agreements substantially similar to this
agreement ("Participating Insurance Companies"), and the Fund offers its shares
in one or more series; and
<PAGE>
2
WHEREAS, the Fund has obtained an order from the SEC, granting
Participating Insurance Companies, separate accounts funding Variable Contracts
of Participating Insurance Companies, and the Fund exemptions from the
provisions of sections 9(a), 13(a), 15(a), and 15(b) of the 1940 Act and
paragraph (b)(15) of each of Rules 6e-2 and 6e-3(T) under the 1940 Act, to the
extent necessary to permit such persons to rely on the exemptive relief provided
under paragraph (b)(15) of Rules 6e-2 and 6e-3(T), even though shares of the
Fund may be offered to and held by separate accounts funding variable annuity
contracts or scheduled or flexible premium variable life insurance contracts of
both affiliated and unaffiliated life insurance companies (the "Shared Funding
Exemptive Order"); and
WHEREAS, the Distributor is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended ("1934 Act"), and is a
member in good standing of the National Association of Securities Dealers, Inc.
("NASD"); and
WHEREAS, the Adviser is registered as an Investment Adviser with the SEC
under the Investment Advisers Act of 1940 and with all of the states where
registration is required; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company wishes to purchase shares of one or more of the Fund's
series on behalf of its Separate Accounts to serve as an investment medium for
Variable Contracts funded
<PAGE>
3
by the Separate Accounts, and the Distributor is authorized to sell shares of
the Fund's series;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and covenants hereinafter set forth, the parties hereby agree as follows:
ARTICLE 1. Sale of Fund Shares
1.1. The Distributor agrees to sell to the Company those shares of the
series offered and made available by the Fund and identified on Exhibit A
("Series") that the Company orders on behalf of its Separate Accounts, and
agrees to execute such orders on each day on which the Fund calculates its net
asset value pursuant to rules of the SEC ("business day") at the net asset value
next computed after receipt and acceptance by the Fund or its designee of the
order for the shares of the Fund.
1.2. The Fund agrees to make available on each business day shares of the
Series for purchase at the applicable net asset value per share by the Company
on behalf of its Separate Accounts; provided, however, that the
Directors/Trustees of the Fund may refuse to sell shares of any Series to any
person, or suspend or terminate the offering of shares of any Series, if such
action is required by law or by regulatory authorities having jurisdiction or
is, in the sole discretion of the Directors/Trustees, acting in good faith and
<PAGE>
4
in light of the Directors/Trustees' fiduciary duties under applicable law,
necessary in the best interests of the shareholders of any Series.
1.3. The Fund and the Distributor agree that shares of the Series of the
Fund will be sold only to Participating Insurance Companies, their separate
accounts, and other persons consistent with each Series being adequately
diversified pursuant to Section 817(h) of the Internal Revenue Code of 1986, as
amended ("Code") and the regulations thereunder. No shares of any Series will be
sold directly to the general public.
1.4. The Fund and the Distributor will not sell shares of the Series to any
insurance company or separate account unless an agreement containing provisions
substantially the same as this Agreement is in effect to govern such sales.
1.5. Upon receipt of a request for redemption in proper form from the
Company, the Fund agrees to redeem in cash any full or fractional shares of the
Series held by the Company, ordinarily executing such requests on each business
day at the net asset value next computed after receipt and acceptance by the
Fund or its designee of the request for redemption, except that the Fund
reserves the right to suspend the right of redemption, consistent with Section
22(e) of the 1940 Act and any rules thereunder. Such redemptions shall be paid
in federal funds ordinarily on the next business day following receipt by the
Fund or its designee of the order for redemption; however the
<PAGE>
5
Fund reserves the right to postpone payment upon redemption consistent with
Section 22(e) of the Act and any Rules thereunder.
1.6. For purposes of Sections 1.1 and 1.5, the Company shall be the
designee of the Fund for receipt of purchase and redemption orders from the
Separate Account, and receipt by such designee shall constitute receipt by the
Fund; provided that the Company receives the order by 4:00 p.m. New York City
time and the Fund receives notice of such order by 9:30 a.m. New York City time
on the next following business day.
1.7. The Company shall pay for shares of the Series on the business day
next following the day that the Company places an order to purchase shares of
the Series, except with respect to shares of any Series of the Fund ("Acquired
Series") ordered by the Company for a Separate Account or any subaccount thereof
in connection with an exchange or transfer from another Separate Account or
another subdivision of a Separate Account under the Variable Contracts, Company
shall pay for shares of the Acquired Series on the latter of (1) the next
business day after an order to purchase the shares is made in accordance with
Section 1.1 hereof, or (2) on the same business day that the Separate Account or
subdivision from which the exchange or transfer is being made receives payment
from the investment company portfolio in which it invests. Payment shall be in
federal funds transmitted by wire or by any other method mutually agreed upon by
the parties hereto.
<PAGE>
6
1.8. Issuance and transfer of shares of the Series will be by book entry
only unless otherwise agreed by the Fund. Stock certificates will not be issued
to the Company or the Separate Accounts unless otherwise agreed by the Fund.
Fund and Distributor agree that shares ordered from the Fund will be recorded
properly in an appropriate title for the Separate Accounts or the appropriate
subaccounts of the Separate Accounts.
1.9. The Fund shall promptly furnish same-day notice (by wire or telephone,
followed by written confirmation) to the Company of any income dividends or
capital gain distributions payable on the shares of the Series. The Company
hereby elects to reinvest in the Series all such dividends and distributions as
are payable on a Series' shares and to receive such dividends and distributions
in additional shares of that Series. The Company reserves the right to revoke
this election in writing and to receive all such dividends and distributions in
cash. The Fund shall notify the Company of the number of shares so issued as
payment of such dividends and distributions.
1.10. The Fund shall instruct its recordkeeping agent to advise the Company
on each business day of the net asset value per share for each Series as soon as
reasonably practical after the net asset value per share is calculated, which is
normally 6:30 p.m., New York City time, and shall use its best efforts to make
such net asset value per share available by 7:00 p.m. New York City time.
<PAGE>
7
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that it is an insurance company
duly organized and in good standing under Indiana law and that it is taxed as an
insurance company under Subchapter L of the Code.
2.2. The Company represents and warrants that it has legally and validly
established each of the Separate Accounts as a segregated asset account under
the Indiana Insurance Code, and that each of the Separate Accounts is a validly
existing segregated asset account under Indiana law.
2.3. The Company represents and warrants that the Variable Contracts issued
by the Company or interests in the Separate Accounts under such Variable
Contracts (1) are or, prior to issuance, will be registered as securities under
the Securities Act of 1933 ("1933 Act") or, alternatively (2) are not registered
because they are properly exempt from registration under the 1933 Act or will be
offered exclusively in transactions that are properly exempt from registration
under the 1933 Act.
2.4. The Company represents and warrants that each of the Separate Accounts
(1) has been registered as a unit investment trust in accordance with the
provisions of the 1940 Act or, alternatively (2) has not been registered in
proper reliance upon an exclusion from registration under the 1940 Act.
<PAGE>
8
2.5. The Company represents that it believes, in good faith, that the
Variable Contracts issued by the Company are currently treated as annuity
contracts or life insurance policies (which may include modified endowment
contracts), whichever is appropriate, under applicable provisions of the Code.
2.6. The Company represents and warrants that any of its Separate Accounts
that fund variable life insurance contracts and that are registered with the SEC
as investment companies, rely on the exemptions provided by Rule 6e-2 or Rule
6e-3(T), or any successor thereto, under the 1940 Act.
2.7. The Fund represents and warrants that it is duly organized as a
corporation under the laws of Maryland, and is in good standing under applicable
law.
2.8. The Fund represents and warrants that the shares of the Series are
duly authorized for issuance in accordance with applicable law and that the Fund
is registered as an open-end management investment company under the 1940 Act.
2.9. The Fund represents that it believes, in good faith, that the Series
currently comply with the diversification provisions of Section 817(h) of the
Code and the regulations issued thereunder relating to the diversification
requirements for variable life insurance policies and variable annuity
contracts, and that each Series has complied with such provisions since its
commencement of operations.
<PAGE>
9
2.10. The Distributor represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC.
ARTICLE III. General Duties
3.1. The Fund and Adviser shall take all such actions as are necessary to
permit the sale of the shares of each Series to the Separate Accounts, including
maintaining its registration as an investment company under the 1940 Act, and
registering the shares of the Series sold to the Separate Accounts under the
1933 Act for so long as required by applicable law. The Fund and Adviser shall
amend its Registration Statement filed with the SEC under the 1933 Act and the
1940 Act from time to time as required in order to effect the continuous
offering of the shares of the Series. The Fund and Adviser shall register and
qualify the shares of the Fund for sale in accordance with the laws of the
various states to the extent deemed necessary by the Fund or the Distributor.
The Fund and Distributor shall take all steps necessary to sell shares of the
Fund in compliance with all applicable federal and state securities laws.
3.2. The Fund and Adviser shall make every effort to maintain qualification
of each Series as a Regulated Investment Company under Subchapter M of the Code
(or any successor or similar provision) and shall notify the Company immediately
upon
<PAGE>
10
having a reasonable basis for believing that a Series has ceased to so qualify
or that it might not so qualify in the future.
3.3. The Fund and Adviser shall make every effort to enable each Series to
comply with the requirements of Section 817, including the diversification
provisions of Section 817(h) of the Code and the regulations issued thereunder
relating to the diversification requirements for variable life insurance
policies and variable annuity contracts, and any prospective amendments or other
modifications to Section 817 or regulations thereunder, and shall notify the
Company immediately upon having a reasonable basis for believing that any Series
has ceased or might cease to comply.
3.4. Fund and Adviser agree that each Series of the Fund shall be managed
consistent with 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.
3.5. The Company shall take all such actions as are necessary under
applicable federal and state law to permit the sale of the Variable Contracts
issued by the Company, including registering each Separate Account as an
investment company to the extent required under the 1940 Act, and registering
the Variable Contracts or interests in the Separate Accounts under the Variable
Contracts to the extent required under the
<PAGE>
11
1933 Act, and obtaining all necessary approvals to offer the Variable Contracts
from state insurance commissioners.
3.6. The Company shall make every reasonable effort to maintain the
treatment of the Variable Contracts issued by the Company as annuity contracts
or life insurance policies, whichever is appropriate, under applicable
provisions of the Code, and shall notify the Fund and the Distributor
immediately upon having a reasonable basis for believing that such Variable
Contracts have ceased to be so treated or that they might not be so treated in
the future.
3.7. The Company shall require that any persons who offer and sell the
Variable Contracts issued by the Company do so in accordance with applicable
provisions of the 1933 Act, the 1934 Act, the 1940 Act, the NASD Rules of Fair
Practice, and state law respecting the offering of variable life insurance
policies and variable annuity contracts.
3.8. The Distributor shall sell and distribute the shares of the Series of
the Fund in accordance with the applicable provisions of the 1933 Act, the 1934
Act, the 1940 Act, the NASD Rules of Fair Practice, and state law.
3.9. A majority of the Board of Directors/Trustees of the Fund shall
consist of persons who are not "interested persons" of the Fund ("disinterested
Directors/Trustees"),
<PAGE>
12
as defined by Section 2(a)(19) of the 1940 Act, except that if this provision of
this Section 3.9 is not met by reason of the death, disqualification, or bona
fide resignation of any Director/Trustee or Directors/Trustees, then the
operation of this provision shall be suspended (a) for a period of 45 days if
the vacancy or vacancies may be filled by the Fund's Board; (b) for a period of
60 days if a vote of shareholders is required to fill the vacancy or vacancies;
or (c) for such longer period as the SEC may prescribe by order upon
application.
3.10. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities having jurisdiction (including, without
limitation, the SEC, the NASD, and state insurance regulators) and shall permit
such authorities reasonable access to its books and records in connection with
any investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
3.11. The Company shall, at least annually, submit to the Board of
Directors/Trustees of the Fund such reports, materials or data as the
Directors/Trustees may reasonably request so that the Directors/Trustees may
carry out the obligations imposed upon them by the Shared Funding Exemptive
Order, and said reports, materials and data shall be submitted more frequently
if deemed appropriate by the Board of Directors/Trustees.
<PAGE>
13
ARTICLE IV. Potential Conflicts
4.1. The Fund's Board of Directors/Trustees shall monitor the Fund for the
existence of any material irreconcilable conflict (1) between the interests of
owners of variable annuity contracts and variable life insurance policies, and
(2) between the interests of owners of Variable Contracts ("Variable Contract
Owners") issued by different Participating Insurance Companies that invest in
the Fund. An irreconcilable material conflict may arise for a variety of
reasons, including: (a) an action by any state insurance regulatory authority;
(b) a change in applicable federal or state insurance, tax, or securities laws
or regulations, or a public ruling, private letter ruling, no-action or
interpretive letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of the Fund or any
Series are being managed; or (e) a decision by a Participating Insurance Company
to disregard the voting instructions of Variable Contract Owners.
4.2. The Company agrees that it shall be responsible for reporting any
potential or existing conflicts to the Fund's Board of Directors/Trustees. The
Company will be responsible for assisting the Board of Directors/Trustees of the
Fund in carrying out its responsibilities under this Agreement, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever Variable
<PAGE>
14
Contract Owner voting instructions are disregarded. The Company shall carry out
its responsibility under this Section 4.2 with a view only to the interests
of the Variable Contract Owners.
4.3. The Company agrees that in the event that it is determined by a
majority of the Board of Directors/Trustees of the Fund or a majority of the
Fund's disinterested Directors/Trustees that a material irreconcilable conflict
exists, the Company shall, in cooperation with other Participating Insurance
Companies whose Variable Contract owners are affected, at its own expense and to
the extent reasonably practicable (as determined by a majority of the
disinterested Directors/Trustees of the Board of the Fund), take whatever steps
are necessary to eliminate the irreconcilable material conflict, including: (1)
withdrawing the assets allocable to some or all of the Separate Accounts from
the Fund or any Series and reinvesting such assets in a different investment
medium, which may include another series of the Fund, or submitting the question
of 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., Contract Owners of Variable Contracts issued by one 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 (2) establishing a new registered management investment company or
managed separate account. If a material irreconcilable conflict arises because
of the Company's decision to disregard Variable Contract Owners' voting
instructions and that decision represents a minority
<PAGE>
15
position or would preclude a majority vote, the Company shall be required, at
the Fund's election, to withdraw the Separate Accounts' investment in the Fund,
and no charge or penalty will be imposed as a result of such withdrawal. The
Fund shall neither be required to bear the costs of remedial actions taken to
remedy a material irreconcilable conflict nor shall it be requested to pay a
higher investment advisory fee for the sole purpose of covering such costs. In
addition, no Variable Contract Owner shall be required directly or indirectly to
bear the direct or indirect costs of remedial actions taken to remedy a material
irreconcilable conflict. A majority of the disinterested members of the Board of
Directors/Trustees of the Fund shall determine whether any proposed action
adequately remedies any material irreconcilable conflict, but in no event will
the Fund be required to establish a new funding medium for any Variable
Contract. A new funding medium for any Variable Contract need not be established
by the Company pursuant to this Section 4.3, if an offer to do so has been
declined by vote of a majority of Variable Contract Owners who would be
materially and adversely affected by the irreconcilable material conflict. All
reports received by the Fund's Board of Directors/Trustees of potential or
existing conflicts, and all Board action with regard to determining the
existence of a conflict, notifying Participating Insurance Companies and the
Fund's investment adviser of a conflict, and determining whether any proposed
action adequately remedies a conflict, shall be properly recorded in the minutes
of the Board of Directors/Trustees of the Fund or other appropriate records, and
such minutes or other records shall be made available to the SEC upon request.
The Company and the Fund
<PAGE>
16
shall carry out their responsibilities under this Section 4.3 with a view only
to the interests of the Variable Contract Owners.
4.4. The Board of Directors/Trustees of the Fund shall promptly notify the
Company in writing of its determination of the existence of an irreconcilable
material conflict and its implications.
ARTICLE V. Prospectuses and Proxy Statements, Voting
5.1. The Company shall distribute such prospectuses, proxy statements and
periodic reports of the Fund to the owners of Variable Contracts issued by the
Company as required to be distributed to such Variable Contract Owners under
applicable federal or state law.
5.2. The Distributor shall provide the Company with as many copies of the
current prospectus of the Fund as the Company may reasonably request. If
requested by the Company in lieu thereof, the Fund shall provide such
documentation (including a final copy of the Fund's prospectus as set in type or
in camera-ready copy as defined by the Fund) and other assistance as is
reasonably necessary in order for the Company to print together in one document
the current prospectus for the Variable Contracts issued by the Company and the
current prospectus for the Fund. The Fund or Adviser shall
<PAGE>
17
bear the expense of printing copies of its current prospectus that will be
distributed to existing Variable Contract Owners, and the Company shall bear the
expense of printing copies of the Fund's prospectus that are used in connection
with offering the Variable Contracts issued by the Company.
5.3. The Fund and the Distributor shall provide (1) at the Fund's expense,
one copy of the Fund's current Statement of Additional Information ("SAI") to
the Company and to any owner of a Variable Contract issued by the Company who
requests such SAI, (2) at the Company's expense, such additional copies of the
Fund's current SAI as the Company shall reasonably request.
5.4. The Fund, at its expense, shall provide the Company with copies of its
proxy material, periodic reports to shareholders and other communications to
shareholders in such quantity as the Company shall reasonably require for
purposes of distributing to owners of Variable Contracts issued by the Company.
The Fund, at the Company's expense, shall provide the Company with copies of its
periodic reports to shareholders and other communications to shareholders in
such quantity as the Company shall reasonably request for use in connection with
offering the Variable Contracts issued by the Company. If requested by the
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 as
defined by the Fund) and other assistance as reasonably necessary
<PAGE>
18
in order for the Company to print such shareholder communications for
distribution to owners of Variable Contracts issued by the Company.
5.5. For so long as the SEC interprets the 1940 Act to require pass-through
voting by Participating Insurance Companies whose Separate Accounts are
registered as investment companies under the 1940 Act ("Registered Separate
Accounts"), the Company shall vote shares of each Series of the Fund held in
Registered Separate Accounts or subaccounts thereof, at regular and special
meetings of the Fund in accordance with instructions timely received by the
Company (or its designated agent) from owners of Variable Contracts funded by
such Registered Separate Accounts or subaccounts thereof having a voting
interest in the Series. The Company shall vote shares of a Series of the Fund
held in Registered Separate Accounts or subaccounts thereof that are
attributable to the Variable Contracts as to which no timely instructions are
received, as well as shares held in such Registered Separate Accounts or
subaccounts thereof that are not attributable to the Variable Contracts and
owned beneficially by the Company (resulting from charges against the Variable
Contracts or otherwise), in the same proportion as the votes cast by owners of
the Variable Contracts funded by that Separate Account or subaccount thereof
having a voting interest in the Series from whom instructions have been timely
received. The Company shall vote shares of each Series of the Fund held in its
general account or in any Separate Account that is not registered under the 1940
Act, if any, in its discretion or in the same proportion as the votes cast with
respect to shares of the Series held in all Registered Separate Accounts of the
<PAGE>
19
Company or subaccounts thereof, in the aggregate. In the event that the Shared
Funding Exemptive Order requires all Participating Insurance Companies to
calculate voting privileges in substantially the same manner, the Company agrees
to take steps so that each Registered Separate Account or subaccount thereof
investing in the Fund calculates voting privileges substantially in the manner
established by the Fund, provided that such manner is reasonable and
communicated to the Company by the Fund.
5.6. To the extent applicable, the Fund shall disclose in its prospectus,
in substance, that: (1) shares of the Series of the Fund are offered to
affiliated or unaffiliated insurance company separate accounts which fund both
annuity and life insurance contracts, (2) due to differences in tax treatment or
other considerations, the interests of various Variable Contract Owners
participating in the Fund or a Series might at some time be in irreconcilable
conflict, and (3) the Board of Directors/Trustees of the Fund will monitor for
any material irreconcilable conflicts and determine what action, if any, should
be taken.
ARTICLE VI. Sales Material and Information
6.1. The Company agrees that neither it nor any of its affiliates shall
give any information or make any representations or statements on behalf of the
Fund or concerning the Fund other than the information or representations
contained in the Registration Statement or prospectus for the Fund shares, as
such registration statement
<PAGE>
20
and prospectus may be amended or supplemented from time to time, or in reports
or proxy statements for the Fund, or in sales literature or other promotional
material approved by the Fund or its designee and/or by the Distributor or its
designee, except with the prior permission of the Fund or its designee and/or
the Distributor or its designee. The Parties agree that total return information
of the Fund and its Series derived from the prospectus or Registration Statement
of the Fund or from reports provided by the Fund or the Adviser, Distributor to
the Company may be used by the Company in connection with the sale of the
Variable Contracts without prior approval of the Fund or the Distributor, or
their designees, and the Company shall be responsible for using such information
in conformity with the information it is provided.
6.2. Neither the Fund nor the Distributor nor the designee of either shall
use any sales literature or other promotional material in which the Company or
its Separate Accounts are named without the prior approval of the Company or its
designee.
6.3. The Fund and the Distributor agree that each and the affiliates of
each shall not give any information or make any representations on behalf of the
Company or concerning the Company, the Separate Accounts, or the Variable
Contracts issued by the 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 for the Separate Accounts or prepared for
distribution to owners of such Variable Contracts, or
<PAGE>
21
in sales literature or other promotional material approved by the Company or its
designee, except with the prior permission of the Company.
6.4. The Fund will provide to the Company at least one complete copy of all
prospectuses, Statements of Additional Information, reports, proxy statements
and other voting solicitation materials, and all amendments and supplements to
any of the above, that relate to the Fund or its shares, promptly after the
filing of such document with the SEC or other regulatory authorities.
6.5. The Company will provide to the Fund at least one complete copy of all
prospectuses (which shall include an offering memorandum if the Variable
Contracts issued by the Company or interests therein are not registered under
the 1933 Act), Statements of Additional Information, reports, solicitations for
voting instructions, and all amendments or supplements to any of the above, that
relate to the Variable Contracts issued by the Company or the Separate Accounts
promptly after the filing of such document with the SEC or other regulatory
authority.
6.6. For purposes of this Article VI, the phrase "sales literature or other
promotional material" includes, but is not limited to, 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, computerized media, or other public
media), sales literature (i.e., any written
<PAGE>
22
communication distributed or made generally available to customers or the
public, including brochures, circulars, research reports, market letters, form
letters, seminar texts, 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.
ARTICLE VII. Administration of Accounts
7.1 Services to Owners of Variable Contracts shall be the responsibility of
the Company and shall not be the responsibility of the Fund or the Distributor.
These services include, but are not limited to:
(a) providing information periodically to Contract Owners showing their
interests in the Separate Accounts or subaccounts thereof that invest
in the Fund or in any Series thereof;
(b) addressing inquiries from Contract Owners relating to investing,
exchanging or transferring, or redeeming interests under the Variable
Contracts and the Separate Accounts or subaccounts or any Series
thereof funding such Variable Contracts, which inquiries may relate to
the Fund or a Series thereof;
(c) providing explanations to Owners regarding Fund investment objectives
and policies and other information about the Fund and its Series,
including the performance of the Series;
(d) forwarding shareholder communications from the Fund, including but not
limited to shareholder reports containing annual and semi-annual
financial statements of the Fund to Contract Owners;
(e) delivering the Fund prospectus and supplements thereto to Owners
whenever necessary under the Securities Act of 1933;
<PAGE>
23
(f) delivering any notices of shareholder meetings and proxy statements
accompanying such notices in connection with general and special
meetings of shareholders of the Fund under which Contract Owners may
have voting rights, and helping tabulate the voting of Owners
tendering voting instructions to the Company.
7.2 The Fund and the Distributor recognize the Company as the sole
shareholder of Fund shares issued under this Agreement and further recognize
that Distributor, Adviser, and/or the Fund will derive a substantial savings in
administrative expense because the Company will provide the services described
above, thus allowing the Fund significant reductions in postage expense and
shareholder communications and recordkeeping, by virtue of having a sole
shareholder rather than multiple shareholders. In consideration of the
administrative savings resulting from such arrangement, the Company shall be
paid an amount equal to 0 basis points (0.00%) per annum of the average
aggregate amount invested by the Company under this Agreement until $5 million
has been invested, and then an amount equal to 7.5 basis points (0.075%) per
annum of the average aggregate amount invested by the Company under this
Agreement until $10 million has been invested, and then an amount equal to 10
basis points (0.10%) per annum of the average aggregate amount invested by the
Company under this Agreement.
7.3 For purposes of computing the payment to the Company contemplated by
this Section VII, the average aggregate amount invested by Company over a one
month period shall be computed by totaling the Company's aggregate investment
(share net asset value multiplied by total number of shares held by the Company)
on each business
<PAGE>
24
day during the month and dividing by the total number of business days during
such month.
7.4 The payment contemplated by this Section VII shall be calculated by the
Fund, or the Distributor at the end of each calendar quarter and will be paid by
the Distributor to the Company within ten (10) business days thereafter. Payment
will be accompanied by a statement showing the calculation of the monthly amount
payable by the Distributor and such other supporting data as may be reasonably
requested by the Company.
ARTICLE VIII. Indemnification
8. 1. Indemnification By the Company
8.1(a). The Company agrees to indemnify and hold harmless the Fund, each of
its Directors/Trustees and officers, the Adviser, and the Distributor and each
of the Directors/Trustees of the Adviser and the Distributor (collectively, the
"Indemnified Parties" for purposes of this Section 8. 1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation expenses (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 litigation expenses:
<PAGE>
25
(i) 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 (which shall include an offering memorandum) for the
Variable Contracts issued by the Company or sales literature for such
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 the Company by or on behalf
of the Fund: (1) for use in the registration statement or prospectus
for the Variable Contracts issued by the Company or in sales
literature (or any amendment or supplement to any of the foregoing) or
otherwise, (2) was contained in sales literature or other promotional
material that has been approved by the Fund or its designee or by the
Distributor or its designee for use in connection with the sale of
such Variable Contracts or Fund shares, or (3) or otherwise in
connection with the sale of the Variable Contracts or Fund shares; or
(ii) arise out of or as a result of any statement or representation (other
than statements or representations (1) contained in the registration
statement, prospectus or sales literature of the Fund not supplied by
the Company or persons under its control, (2) contained in the
registration statement, prospectus, SAI, or sales literature for the
Variable Contracts made in reliance upon and in conformity with
information furnished to the Company by or on behalf of the Fund or
the Distributor, or (3) in sales literature or other promotional
material that has been approved by the Fund or its designee or the
Distributor or its designee) or wrongful conduct of the Company or
persons under the control thereof with respect to the sale or
distribution of the Variable Contracts issued by the Company or the
Fund shares; or
(iii arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, or
sales literature of the 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 a statement or omission was
made in reliance upon information furnished to the Fund by or on
behalf of the Company; or
(iv) arise out of or result from the material breach of any representation
and/or warranty made by the Company in this Agreement or
<PAGE>
26
arise out of or result from any other material breach of this Agree-
ment by the Company;
except to the extent provided in Sections 8. 1 (b) and 8. 1 (c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
expenses to which an Indemnified Party would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of his or
her duties or by reason of his or her reckless disregard of obligations or
duties under this Agreement or to the Fund.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Party shall have notified the 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
Party shall have received notice of such service on any designated agent), but
failure to notify the Company of any such claim shall not relieve the 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, the Company
shall be entitled to participate, at its own expense, in the defense of such
action. The Company also shall be entitled to assume the defense thereof, with
counsel satisfactory to the Indemnified Party named in the action. After notice
from the Company to such party of the Company's election to assume the defense
thereof, the
<PAGE>
27
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the 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.
8.1(d). The Indemnified Parties shall promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund shares thereunder or the Variable Contracts
issued by the Company or the operation of the Fund.
8.2. Indemnification By the Adviser/Distributor
8.2(a). The Adviser and Distributor jointly and severally agree to
indemnify and hold harmless the Company and each of its directors and officers
and the Separate Accounts (collectively, the "Indemnified Parties" for purposes
of this Section 8.2) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Distributor) or litigation expenses (including legal and other expenses) to
which the Indemnified Parties may become subject under any statute, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
litigation expenses:
(i) 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 the Fund (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon
<PAGE>
28
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 the Distributor,
Adviser or the Fund or the designee of either by or on behalf of the
Company: (1) for use in the registration statement or prospectus for
the Fund or in sales literature (or any amendment or supplement to any
of the foregoing) or otherwise, (2) was contained in sales literature
or other promotional material that has been approved by the Company or
its designee for use in connection with the sale of the Variable
Contracts or Fund shares, or (3) or otherwise for use in connection
with the sale of the Variable Contracts issued by the Company or Fund
shares; or
(ii) arise out of or as a result of any statement or representation (other
than statements or representations (1) contained in the registration
statement, prospectus or sales literature for the Variable Contracts
not supplied by the Distributor, Adviser, or persons under the control
thereof, (2) contained in the registration statement, prospectus, SAI,
or sales literature for the Fund made in reliance upon and in
conformity with information furnished to the Fund by or on behalf of
the Company, or (3) in sales literature or other promotional material
that has been approved by the Company or its designee) or wrongful
conduct of the Fund, Adviser or Distributor or persons under their
control with respect to the sale or distribution of the Variable
Contracts or the Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, or
sales literature covering the Variable Contracts issued by the
Company, 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 statement or statements
therein not misleading, if such statement or omission was made in
reliance upon information furnished to the Company by the Distributor,
Adviser, or by or on behalf of the Fund; or
(iv) arise out of or result from the material breach of any representation
and/or warranty made by the Distributor, Adviser, or the Fund in this
Agreement or arise out of or result from any other material breach of
this Agreement by the Distributor, Adviser, or the Fund, including but
not limited to, compliance with the diversification requirements of
Section 817(h) of the Code and qualification of each Series of the
Fund as a Regulated Investment Company under Subchapter M of the Code;
<PAGE>
29
except to the extent provided in Sections 8.2(b) and 8.2(c) hereof.
8.2(b). The Distributor shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
expenses to which an Indemnified Party would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of his or
her duties or by reason of his or her reckless disregard of obligations and
duties under this Agreement or to the Company or the Separate Accounts.
8.2(c). The Distributor shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Party shall have notified the Distributor 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 Party shall have received notice of such service on any designated agent),
but failure to notify the Distributor of any such claim shall not relieve the
Distributor 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, the Distributor will be entitled to participate, at its own
expense, in the defense thereof The Distributor also shall be entitled to assume
the defense thereof, with counsel satisfactory to the Indemnified Party named in
the action. After notice from the Distributor to such party of the Distributor's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by
<PAGE>
30
it, and the Distributor 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.
8.2(d). The Company shall promptly notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Fund shares
hereunder or the Variable Contracts issued by the Company or the operation of
the Separate Accounts provided that such litigation or proceedings relate to or
affect the interests of the Fund or the Distributor.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Indiana.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934,
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, the Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
<PAGE>
31
ARTICLE X. Termination
10.1. This Agreement shall terminate:
(a) at the option of any party upon 90 days advance written notice to the
other parties, unless a shorter time is agreed to by the parties to
this Agreement; or
(b) at the option of the Company if shares of the Series are not
reasonably available to meet the requirements of the Variable
Contracts issued by the Company, as determined by the Company, and
upon written notice by the Company to the other parties to this
Agreement; or,
(c) at the option of the Fund, Adviser, or the Distributor upon
institution of formal proceedings against the Company by the NASD, the
SEC, or any state securities or insurance department or any other
regulatory body if the Fund, Adviser, or the Distributor shall
determine, in their sole judgment exercised in good faith, that the
Company has suffered a material adverse change in its business,
operations, financial condition, or prospects since the date of this
Agreement or is the subject of material adverse publicity; or
(d) at the option of the Company upon institution of formal proceedings
against the Fund, Adviser, or the Distributor by the NASD, the SEC, or
any state securities or insurance department or any other regulatory
body if the Company shall determine, in its sole judgment exercised in
good faith, that the Fund, Adviser, or the Distributor has suffered a
material adverse change in its business, operations, financial
<PAGE>
32
condition, or prospects since the date of this Agreement or is the
subject of material adverse publicity; or
(e) upon requisite vote of the Variable Contract Owners having an interest
in the Separate Accounts (or any subaccounts thereof) to substitute
the shares of another investment company or series thereof for the
corresponding shares of the Fund or a Series in accordance with the
terms of the Variable Contracts for which those shares had been
selected to serve as the underlying investment media; or
(f) in the event any of the shares of a Series are not registered, issued
or sold in accordance with applicable state and/or federal law, or
such law precludes the use of such shares as the underlying investment
media of the Variable Contracts issued or to be issued by the Company;
or
(g) by any party to the Agreement upon a determination by a majority of
the Directors/Trustees of the Fund, or a majority of its disinterested
Directors/Trustees, that an irreconcilable material conflict exists;
or
(h) at the option of the Company if the Fund or a Series fails to meet the
diversification requirements specified in Section 3.2 or 3.3 hereof;
or
(i) at the option of the Fund or the Distributor if the Variable Contracts
issued by the Company cease to qualify as annuity contracts or life
insurance contracts, as applicable, under the Code or if the Variable
Contracts are not registered, issued or sold in accordance with
applicable state and/or federal law; or
(j) at the option of the Company upon any substitution of the shares of
another investment company or series thereof for shares of the Fund or
a Series of the
<PAGE>
33
Fund in accordance with the terms of the Contracts, provided that the
Company has given at least 30 days prior written notice to the Fund or
Distributor of the date of the substitution.
(k) at the option of the Company upon a material breach of this Agreement
or of any representation or warranty herein by the Fund, Adviser, or
the Distributor, or at the option of the Fund. Adviser, or the
Distributor upon a material breach of this Agreement or of any
representation or warranty herein by the Company.
10.2.Each party to this Agreement shall promptly notify the other parties
to the Agreement of the institution against such party of any such formal
proceedings as described in Sections 10.1(c) and (d) hereof. The Company shall
give 30 days prior written notice to the Fund of the date of any proposed vote
of Variable Contract Owners to replace the Fund's shares as described in Section
10.1(e) hereof.
10.3. Under the terms of the Variable Contracts, the Company reserves the
right, subject to compliance with the law as then in effect, to make
substitutions for the securities that are held by a Separate Account of Company
under certain circumstances. The parties acknowledge that Company has the right
to substitute other securities for the shares of the Fund or a Series thereof
already purchased or to be purchased in the future if the shares of the Fund or
any or all of the Series of the Fund should no longer be available for
investment, or if, in the judgment of Company management, further investment in
shares of the Fund or any or all of the Series thereof should become
<PAGE>
34
inappropriate in view of the purposes of the Contracts. Company will provide 30
days written notice to the Fund or to the Distributor prior to effecting any
such substitution.
10.4. If this Agreement terminates, any provision of this Agreement
necessary to the orderly windup of business under it will remain in effect as to
that business, after termination.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
Calvert Group
4550 Montgomery Ave., Suite 100ON
Bethesda, MD 20814
Attn: Legal Department
If to the Adviser:
Calvert Group
4550 Montgomery Ave., Suite IOOON
Bethesda, MD 20814
Attn: Legal Department
<PAGE>
35
If to the Distributor:
Calvert Group
4550 Montgomery Ave., Suite 100ON
Bethesda, MD 20814
Attn: Legal Department
If to the Company:
American United Life Insurance Company
One American Square
P.O. Box 368
Indianapolis, Indiana 46206-0368
Attn: Richard A. Wacker Associate General Counsel
ARTICLE XII. Miscellaneous
12.1. The Fund and the Company agree that if and to the extent Rule 6e-2 or
6e-3(T) under the 1940 Act is amended or if Rule 6e-3 is adopted in final form,
to the extent applicable, the Fund and the Company shall each take such steps as
may be necessary to comply with such Rule as amended or adopted in final form.
12.2. It is understood that the name "American United Life Insurance
Company," "AUL" or any derivative thereof or logo associated with that name is
the valuable property of the Distributor and its affiliates, and that the
Company has the right to use such name (or derivative or logo) only so long as
this Agreement is in effect. Upon
<PAGE>
36
termination of this Agreement the Company shall forthwith cease to use such name
(or derivative or logo).
12.3. It is understood that the name "Calvert" or any derivative thereof or
logo associated with that name is the valuable property of the Distributor and
its affiliates, and that the Company has the right to use such name (or
derivative or logo) only so long as this Agreement is in effect. Upon
termination of this Agreement the Company shall forthwith cease to use such name
(or derivative or logo).
12.4. The parties agree that the names, addresses, and other information
relating to the owners of the Variable Contracts or prospects for the sale of
the Variable Contracts are the exclusive property of Company and may not be used
by the Fund, Adviser, or Distributor without the written consent of the Company.
12.5. 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.
12.6. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
<PAGE>
37
12.7. 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.
12.8. This Agreement may not be assigned by any party to the Agreement
except with the written consent of the other parties to the Agreement. For
purposes of this provision, assignment shall be as defined in the Investment
Company Act of 1940 and the rules thereunder.
<PAGE>
38
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
Acacia Capital Corporation
ATTEST:___________________________ By: _________________________
Name: Name: William M. Tartikoff
Title: Title: General Counsel
Calvert Asset Management
Corporation
ATTEST: __________________________ By: _________________________
Name: Name: William M. Tartikoff
Title: Title: General Counsel
Calvert Distributors Inc.
ATTEST:___________________________ By:__________________________
Name: Name: William M. Tartikoff
Title: Title: General Counsel
American United Life Insurance
Company(R)
ATTEST:___________________________ By:__________________________
Name: Name: Brian Sweeney
Title: Title: V.P. Pension Marketing
<PAGE>
39
EXHIBIT A
The following series of Acacia Capital Corporation are "Series" for purposes of
Section
1.1 of the Agreement:
Calvert Capital Accumulation Portfolio
- --------------------------------------------------------------------------------
EXHIBIT 8.4
FORM OF PARTICIPATION AGREEMENT WITH FIDELITY VARIABLE INSURANCE PRODUCTS FUND
- --------------------------------------------------------------------------------
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND,
FIDELITY DISTRIBUTORS CORPORATION
and
AMERICAN UNITED LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of the 1st day of May, 1993 by and
among AMERICAN UNITED LIFE INSURANCE COMPANY, (hereinafter the "Company"), an
Indiana corporation, on its own behalf and on behalf of each segregated asset
account of the Company set forth on Schedule A hereto as may be amended from
time to time (each such account hereinafter referred to as the "Account"), and
the VARIABLE INSURANCE PRODUCTS FUND, an unincorporated business trust organized
under the laws of the Commonwealth of Massachusetts (hereinafter the "Fund") and
FIDELITY DISTRIBUTORS CORPORATION (hereinafter the "Underwriter"), a
Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and variable annuity contracts
(collectively, the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and the
Underwriter (hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission, dated October 15, 1985 (File No. 812-6102), granting Participating
Insurance Companies and variable annuity and variable life insurance separate
accounts exemptions from the provisions of sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended, (hereinafter the "1940
Act") and Rules 6e-2(b) (15) and 6e-3(T) (b) (15) thereunder, to the extent
necessary to permit shares of the Fund to be sold to and held by variable
annuity and variable life insurance separate accounts of both affiliated and
unaffiliated life insurance companies (hereinafter the "Shared Funding Exemptive
Order"); and
<PAGE>
2
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser") is duly
registered as an investment adviser under the federal Investment Advisers Act of
1940 and any applicable stare securities law; and, to the extent required by
law,
WHEREAS, the Company has, to the extent required by law, registered or will
register interests in each Account funding certain variable annuity contracts
under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established under the provisions of Indian law, on the date shown
for such Account on Schedule A hereto, to set aside and invest assets
attributable to attributable to the aforesaid variable annuity contracts; and
WHEREAS, the Company has registered or will register, as required by law,
certain of the Accounts as unit investment trusts under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended, (hereinafter the " 1934 Act"), and is a member in good
standing of the National Association of Securities Dealers, Inc. (hereinafter
"NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable annuity contracts and
the Underwriter is authorized to sell such shares to unit investment trusts such
as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Underwriter agrees to sell to the Company those shares of the Fund
which each Account orders, executing such orders on a daily basis at the net
asset value next computed after receipt by the Fund or its designee of the order
for the shares of the Fund. For purposes of this Section 1.1, the Company shall
be the designee of the Fund for receipt of such orders from each Account and
receipt by such designee shall constitute receipt by the Fund; provided that the
Fund receives notice of such order by 9.00 am. Boston time on the next following
Business Day. "Business Day" shall mean any day on which the New York Stock
Exchange is open for trading and on which the Fund calculates its net asset
value pursuant to the rules of the Securities and Exchange Commission.
<PAGE>
3
1.2. The Fund agrees to make its shares available indefinitely for purchase
at the applicable net asset value per share by the Company and its Accounts on
those days on which the Fund calculates its net asset value pursuant to rules of
the Securities and Exchange Commission and the Fund shall use reasonable efforts
to calculate such net asset value on each day which the New York Stock Exchange
is open for trading. Notwithstanding the foregoing, the Board of Trustees of the
Fund (hereinafter the "Board") may refuse to sell shares of any Portfolio to any
person, or suspend or terminate the offering of shares of any Portfolio if such
action is required by law or by regulatory authorities having jurisdiction or
is, in the sole discretion of the Board acting in good faith and in light of
their fiduciary duties under federal and any applicable state laws necessary in
the best interests of the shareholders of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts. No
shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, II, V, VII and Section 2.5 of Article II
of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request, any full
or fractional shares of the Fund held by the Company, executing such requests on
a daily basis at the net asset value next computed after receipt by the Fund or
its designee of the request for redemption. For purposes of this Section 1.5,
the Company shall be the designee of the Fund for receipt of requests for
redemption from each Account and receipt by such designee shall constitute
receipt by the Fund; provided that the Fund receives notice of such request for
redemption on the next following Business Day.
1.6. The Company agrees to purchase and redeem the shares of each Portfolio
offered by the then current prospectus of the Fund in accordance with the
provisions of such prospectus. The Company agrees that all net amounts available
under the variable annuity contracts with the form number(s) which are listed on
Schedule A attached hereto and incorporated herein by this reference, as such
Schedule A may be amended from time to time hereafter by mutual written
agreement of all the parties hereto, (the "Contracts") shall be invested in the
Fund, in such other Funds advised by the Adviser as may be mutually agreed to in
writing by the parties hereto, or in the Company's general account, provided
that such amounts may also be invested in an investment company other than the
Fund if (a) such other investment company, or series thereof, has investment
objectives or policies that are substantially different from the investment
objectives and policies of all the Portfolios of the Fund; or (b) the Company
gives the Fund and the Underwriter 45 days written notice of its intention to
make such other investment company available as a funding vehicle for the
Contracts; or (c) such other investment company was available or contemplated as
a funding vehicle for the Contracts prior to the date of this Agreement and the
Company so informs the Fund and Underwriter prior to their signing this
Agreement (a list of such funds appearing on Schedule C to this Agreement); or
(d) the Fund or Underwriter consents to the use of such other investment
company.
<PAGE>
4
1.7. The Company shall pay for Fund shares on the next Business Day after
an order to purchase Fund shares is made in accordance with the provisions of
Section 1.1 hereof. Payment shall be in federal funds transmitted by wire. For
purpose of Section 2.10 and 2.11, upon receipt by the Fund of the federal funds
so wired, such funds shall cease to be the responsibility of the Company and
shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account. Shares
ordered from the Fund will be recorded in an appropriate title for each Account
or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone, followed
by written confirmation) to the Company of any income, dividends or capital gain
distributions payable on the Fund's shares. The Company hereby elects to receive
all such income dividends and capital gain distributions as are payable on the
Portfolio shares in additional shares of that Portfolio. The Company reserves
the right to revoke this election and to receive all such income dividends and
capital gain distributions in cash. The Fund shall notify the Company of the
number of shares so issued as payment of such dividends and distributions.
1.10. The Fund shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated and shall use its best efforts to
make such net asset value per share available by 7 p.m. Boston time.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that interests in the Separate
Account funding the Contracts are or will be registered under the 1933 Act if
required by law; that the Contracts will be issued and sold in compliance in all
material respects with all applicable Federal and State laws and that the sale
of the Contracts shall comply in all material respects with state insurance
suitability requirements. The Company further represents and warrants that it is
an insurance company duly organized and in good standing under applicable law
and that it has legally and validly established each Account prior to any
issuance or sale thereof as a segregated asset account under Section 27-1-5-1 of
the Indiana Insurance Code and has registered or, prior to any issuance or sale
of the Contracts, will register each Account as a unit investment trust in
accordance with the provisions of the 1940 Act to serve as a segregated
investment account for the Contracts, if required by law.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Indiana and all
applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as
<PAGE>
5
required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4. The Company represents that the Contracts are currently treated as
annuity contracts under applicable provisions of the Code and that it will make
every effort to maintain such treatment and that it will notify the Fund and the
Underwriter immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so treated in
the future.
2.5. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it may make such payments in the future. The Fund has adopted a "no
fee" or "defensive" Rule 12b-1 Plan under which it makes no payments for
distribution expenses. To the extent that it decides to finance distribution
expenses pursuant to Rule 12b-1, the Fund undertakes to have a board of
trustees, a majority of whom are not interested persons of the Fund, formulate
and approve any plan under Rule 12b-1 to finance distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Indiana and the Fund and the Underwriter represent that their
respective operations are and shall at all times remain in material compliance
with the laws of the State of Indiana to the extent required to perform this
Agreement.
2.7. The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Indiana and all applicable state and
federal securities laws, including without limitation the 1933 Act, the 1934
Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly existing
under the laws of the Commonwealth of Massachusetts and that it does and will
comply in all material respects with the 1940 Act.
2.9. The Underwriter represents and warrants that the Adviser is and shall
remain duly registered as an investment adviser in all material respects under
all applicable federal and
<PAGE>
6
stare securities laws and that the Adviser shad perform its obligations for the
Fund in compliance in all material respects with the laws of the State of
Indiana and any applicable state and federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of their
directors, trustees, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund, in an amount not less than
the minimum coverage as required currently by Rule 17g-1 of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid
includes coverage for larceny and embezzlement is issued by a reputable bonding
company. The Company agrees to make all reasonable efforts to see that this bond
or another bond containing these provisions is always in effect, and agrees to
notify the Fund and the Underwriter in the event that such coverage no longer
applies.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Underwriter shall provide the Company (at the Company's expense)
with as many copies of the Fund's current prospectus as the Company may
reasonably request. If requested by the Company in lieu thereof, the Fund shall
provide such documentation (including a final copy of the new prospectus as set
in type at the Fund's expense) and other assistance as is reasonably necessary
in order for the Company once each year (or more frequently if the prospectus
for the Fund is amended) to have the prospectus for the Contracts and the Fund's
prospectus printed together in one document (such printing to be at the
Company's expense).
3.2. The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Underwriter (or in the Fund's
discretion, the Prospectus shall state that such Statement is available from the
Fund), and the Underwriter (or the Fund), at its expense, shall print and
provide such Statement free of charge to the Company and to any owner of a
Contract or prospective owner who requests such Statement.
3.3. The Fund, at its expense, shall provide the Company with copies of its
proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners or Participants under Contracts.
3.4. If and to the extent required by law the Company shall:
<PAGE>
7
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions received
from contract owners; and
(iii) vote Fund shares for which no instructions have been received in
the same proportion as Fund shares of such portfolio for which
instructions have been received,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent permitted
by law. Participating Insurance Companies shall be responsible for assuring that
each of their separate accounts participating in the Fund calculates voting
privileges in a manner consistent with the standards set forth on Schedule B
attached hereto and incorporated herein by this reference, which standards will
also be provided to the other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the Securities and Exchange Commission's interpretation of the
requirements of Section 16(a) with respect to periodic elections of trustees and
with whatever rules the Commission may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material in
which the Fund or its investment adviser or the Underwriter is named, at least
ten Business Days prior to its use. No such material shall be used if the Fund
or its designee reasonably objects to such use within ten Business Days after
receipt of such material.
4.2. The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement or prospectus for the Fund shares, as
such registration statement and prospectus may be amended or supplemented from
time to time, or in reports or proxy statements for the Fund, or in sales
literature or other promotional material approved by the Fund or its designee or
by the Underwriter, except with the permission of the Fund or the Underwriter or
the designee of either.
4.3. The Fund, Underwriter, or its designee shall furnish, or shall cause
to be furnished, to the Company or its designee, each piece of sales literature
or other promotional material in which the Company and/or its separate
account(s), is named at least ten Business Days
<PAGE>
8
prior to its use. No such material shall be used if the Company or its designee
reasonably objects to such use within ten Business Days after receipt of such
material.
4.4. The Fund and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company, each
Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports' proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the Securities and Exchange Commission or
other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the Contracts or
each Account, contemporaneously with the filing of such document with the SEC or
other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, 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
(i.e., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, 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, and registration statements, prospectuses,
Statements of Additional Information, shareholder reports, and proxy materials.
ARTICLE V. Fees and Expenses
5.1. The Fund and Underwriter shall pay no fee or other compensation to the
Company under this agreement, except that if the Fund or any Portfolio adopts
and implements a plan pursuant to Rule 12b-1 to finance distribution expenses,
then the Underwriter may make payments to the Company or to the underwriter for
the Contracts if and in amounts agreed to by the Underwriter in writing and such
payments will be made out of existing fees otherwise payable
<PAGE>
9
to the Underwriter, past profits of the Underwriter or other resources available
to the Underwriter. No such payments shall be made directly by the Fund.
Currently, no such payments are contemplated.
5.2. All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund. The Fund shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent necessary in accordance with applicable state laws
prior to their sale. The Fund shall bear the expenses for the cost of
registration and qualification of the Fund's shares, preparation and filing of
the Fund's prospectus and registration statement, proxy materials and reports,
setting the prospectus in type, setting in type and printing the proxy materials
and reports to shareholders (including the costs of printing a prospectus that
constitutes an annual report), the preparation of all statements and notices
required by any federal or state law, and all taxes on the issuance or transfer
of the Fund's shares.
5.3. The Company shall bear the expenses of printing and distributing the
Fund's prospectus to owners of Contracts issued by the Company and of
distributing the Fund's proxy materials and reports to such Contract owners.
ARTICLE VI. Diversification
6.1. The Fund will at all times invest money from the Contracts in such a
manner as to ensure that the Contracts will be treated as variable contracts
under the Code and the regulations issued thereunder. Without limiting the scope
of the foregoing, the Fund will at all times comply with Section 817(h) of the
Code and Treasury Regulation 1.817-5, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts and
any amendments or other modifications to such Section or Regulations. In the
event of a breach of this Article VI by the Fund, it will take all reasonable
steps (a) to notify Company of such breach and (b) to adequately diversify the
Fund so as to achieve compliance with the grace period afforded by Regulation
817-5.
ARTICLE VII. Potential Conflicts
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or (f)
a decision by an insurer to disregard the voting instructions of contract
owners. The Board shall
<PAGE>
10
promptly inform the Company if it determines that an irreconcilable material
conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority of its
disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such
Account; provided, however that such withdrawal and termination shall be limited
to the extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Underwriter and Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
<PAGE>
11
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 to establish a new funding
medium for the Contracts if an offer to do so has been declined by vote of a
majority of Contract owners materially adversely affected by the irreconcilable
material conflict. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Fund and terminate this
Agreement within six (6) months after the Board informs the Company in writing
of the foregoing determination, provided, however, that such withdrawal and
termination shall be Limited to the extent required by any such material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-9 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall
continue in effect only to the extent that terms and conditions substantially
identical to such Sections are contained in such Rule(s) as so amended or
adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
8.1 (a). The Company agrees to indemnify and hold harmless the Fund and
each trustee of the Board and officers and each person, if any, who controls the
Fund within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.l) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) 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
are related to the sale or acquisition of the Fund's shares or the Contracts
and:
(i) 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 Contracts or
contained in the Contracts or sales Literature for the 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
<PAGE>
12
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 Parry such
statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information fur-
nished to the Company by or on behalf of the Fund for use in the
Registration Statement or prospectus for the Contracts or in the
Contracts or sales Literature (or any amendment or supplement)
or otherwise for use in connection with the sale of the Contracts
or Fund shares; or
(ii) 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 the
Fund not supplied by the Company, or persons under its control)
or wrongful conduct of the Company or persons under its control,
with respect to the sale or distribution of the Contracts or Fund
Shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a Registration Statement,
prospectus, or sales Literature of the 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 mace the statements therein not misleading if such a
statement or omission was made in reliance upon information
furnished to the Fund by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company, as Limited by and in
accordance with the provisions of Sections 8.1(b) and 8.1(c)
hereof.
8.1(b). The 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 or to
the Fund, whichever is applicable.
8.1(c). The 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 the 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
<PAGE>
13
notify the Company of any such claim shall not relieve the Company from any
liability which it may have to the Indemnified Party whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, the Company shall be entitled
to participate, at its own expense, in the defense of such action. The Company
also shall be entitled to assume the defense thereof, with counsel satisfactory
to the party named in the action. After notice from the Company to such party of
the Company's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the 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.
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund Shares or the Contracts or the operation of the
Fund.
8.2. Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless the Company
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Underwriter) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of the Fund's shares or the Contracts or the operations of
the Fund and:
(i) 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 the
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 the Underwriter
or Fund by or on behalf of the Company for use in the
Registration Statement or prospectus for the Fund or in sales
literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement,
<PAGE>
14
prospectus sides literature for the Contracts not supplied by the
Underwriter or persons under its control) or wrongful conduct of
the Fund, Adviser or Underwriter or persons under their control,
with respect to the sale or distribution of the Contracts or Fund
shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a Registration Statement,
prospectus, or sales literature covering the 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 statement or statements
therein not misleading, if such statement or omission was made in
reliance upon information furnished to the Company by or on
behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in good
faith or otherwise, to comply with the diversification
requirements specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter or the
Fund in this Agreement or arise out of or result from any other
material breach of this Agreement by the Underwriter; as limited
by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter 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 or to
each Company or the Account, whichever is applicable.
8.2(c). The Underwriter 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 the Underwriter 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 the Underwriter of
any such claim shall not relieve the Underwriter 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, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses
<PAGE>
15
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3. Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the Company, and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements result from the
gross negligence, bad faith or willful misconduct of the Board or any member
thereof, are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure to comply with the diversification
requirements specified in Article VI of this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund 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 and duties under this Agreement or to the
Company, the Fund, the Underwriter or each Account, whichever is applicable.
8.3(c). The Fund 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 the Fund 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 the Fund of any such claim shall not
relieve the Fund 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
<PAGE>
16
Indemnified Parties, the Fund will be entitled to participate, at its own
expense, in the defense thereof. The Fund also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Fund to such party of the Fund's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund 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.
8.3(d). The Company and the Underwriter agree promptly to notify the Fund
of the commencement of any litigation or proceedings against it or any of its
respective officers or directors in connection with this Agreement, the issuance
or sale of the Contracts, with respect to the operation of either Account, or
the sale or acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the Securities and
Exchange Commission may grant (including, but not limited to, the Shared Funding
Exemptive Order) and the terms hereof shall be interpreted and construed in
accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason by sixty (60) days
advance written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio based upon the
Company's determination that shares of such Portfolio are not
reasonably available to meet the requirements of the Contracts;
or
(c) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event any of the
Portfolio's shares are not registered, issued or sold in
accordance with applicable state and/or federal law or such law
precludes the use of such shares as the underlying investment
media of the Contracts issued or to be issued by the Company, or
<PAGE>
17
(d) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such
Portfolio ceases to qualify as a Regulated Investment Company
under Subchapter M of the Code or under any successor or similar
provision, or if the Company reasonably believes that the Fund
may fail to so qualify; or
(e) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such
Portfolio fails to meet the diversification requirements
specified in Article VI hereof; or
(f) termination by either the Fund or the Underwriter by written
notice to the Company, if either one or both of the Fund or the
Underwriter respectively, shall determine, in their sole judgment
exercised in good faith, that the Company and/or its affiliated
companies has suffered a material adverse change in its business,
operations, financial condition or prospects since the date of
this Agreement or is the subject of material adverse publicity;
or
(g) termination by the Company by written notice to the Fund and the
Underwriter, if the Company shall determine, in its sole judgment
exercised in good faith, that either the Fund or the Underwriter
has suffered a material adverse change in its business,
operations, financial condition or prospects since the date of
this Agreement or is the subject of material adverse publicity;
or
(h) termination by the Fund or the Underwriter by written notice to
the Company, if the Company gives the Fund and the Underwriter
the written notice specified in Section 1.6(b) hereof and at the
time such notice was given there was no notice of termination
outstanding under any other provision of this Agreement;
provided, however any termination under this Section 10.1 (h)
shall be effective forty five (45) days after the notice
specified in Section 1.6(b) was given.
10.2. Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.2 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
10.3 The Company shall not redeem Fund shares attributable to the Contracts
(as opposed to Fund shares attributable to the Company's assets held in the
Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"), or (iii) pursuant
to the terms of the Contracts. Upon request, the
<PAGE>
18
Company will promptly furnish to the Fund and the Underwriter the opinion of
counsel for the Company (which counsel shall be reasonably satisfactory to the
Fund and the Underwriter) to the effect that any redemption pursuant to clause
(ii) above is a Legally Required Redemption. Furthermore, except in cases where
permitted under the terms of the Contracts, the Company shall not prevent
Contract Owners from allocating payments to a Portfolio that was otherwise
available under the Contracts without first giving the Fund or the Underwriter
90 days notice of its intention to do so.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
American United Life Insurance Company
One American Square, P.O. Box 368
Indianapolis, IN 46206-0368
Attention: Dusty Akins
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. Miscellaneous
12.1 All persons dealing with the Fund must look solely to the property of
the Fund for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory authority,
each party hereto shall treat as confidential the names and addresses of the
owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
<PAGE>
19
12.3 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.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 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.
12.6 Each party hereto 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.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance Regulations and any other applicable law or regulations.
12.7. 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.
12.8. This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Underwriter may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Underwriter, if such assignee is duly licensed and registered
to perform the obligations of the Underwriter under this Agreement.
12.9. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports:
(a) the Company's annual statement prepared under statutory
accounting principles) and annual report (prepared under
accounting practices prescribed by the Insurance Department of
the State of Indiana), as soon as practical and in any event
within 90 days after the end of each fiscal year;
(b) the Company's quarterly statements (statutory), as soon as
practical and in any event within 45 days after the end of each
quarterly period:
<PAGE>
20
(c) any financial statement, proxy statement, notice or report of the
Company sent to policyholders, as soon as practical after the
delivery thereof to policyholders;
(d) any registration statement (without exhibits) and financial
reports of the Company filed with the Securities and Exchange
Commission or any state insurance regulator, as soon as practical
after the filing, thereof;
(e) any other report submitted to the Company by independent
accountants in connection with any annual, interim or special
audit made by them of the books of the Company, as soon as
practical after the receipt thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
AMERICAN UNITED LIFE INSURANCE COMPANY
By its authorized officer,
By:_______________________
Title: V.P. Pension Contracts and Compliance
Date:_____________________
VARIABLE INSURANCE PRODUCTS FUND
By its authorized officer,
By:_______________________
Title:____________________
Date:_____________________
FIDELITY DISTRIBUTORS CORPORATION
By its authorized officer,
By:_______________________
Title:____________________
Date:_____________________
<PAGE>
21
Schedule A
----------
Separate Accounts and Associated Contracts
------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Name of Separate Account
and Date Established by the Contracts Funded by the
Executive Committee of AUL Separate Account
- -----------------------------------------------------------------------------------------
1.AUL American Unit Trust DCP Multiple-Fund Group Variable Annuity (P-12518)
Separate Account TDA Multiple-Fund Group Variable Annuity (P-12511)
(Established 8/17/89) TDA Multiple-Fund Group Variable Annuity (P-12511,WA)
TDA Multiple-Fund Group Variable Annuity (P-12833)
TDA Multiple-Fund Group Variable Annuity (P-12833SPL)
IRA Multiple-Fund Group Variable Annuity(P-12366)
IRA Multiple-Fund Group Variable Annuity (P-12867)
Employer-Sponsored TDA Multiple-Fund Group Variable
Annuity (P-12621)
Employer-Sponsored TDA Multiple-Fund Group Variable
Annuity [P-12621(BR)]
Employer-Sponsored TDA and Qualified Plan Multiple-
Fund Group Variable Annuity [P-13098(BR)]
2. Group Retirement Annuity Separate Accounts Group Retirement Annuity
Separate Account I (GRA VIII)[P-12947(BR)]
(Established 12-17-92)
3.Group Retirement Annuity Separate Accounts Group Retirement Annuity
Separate Account II (GRA IV) (P-11710)
(established 4/15/93) Separate Accounts Group Retirement Annuity
(GRA V) (P-11736)
Separate Accounts Group Retirement Annuity
(GRA VI) (P-12390)
Separate Accounts Group Retirement Annuity
(GRA VI & IX) ((BR) (P-12390(BR))
</TABLE>
<PAGE>
22
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the Company by the
Underwriter as early as possible before the date set by the Fund
for the shareholder meeting to facilitate the establishment of
tabulation procedures. At this time the Underwriter will inform
the Company of the Record, Mailing and Meeting dates. This will
be done verbally approximately two months before meeting.
2. Promptly after the Record Date, the Company will perform a "tape
run", or other activity, which will generate the names, addresses
and number of units which are attributed to each
Contractowner/policyholder (the "Customer") as of the Record
Date. Allowance should be made for account adjustments made after
this date that could affect the status of the Customers' accounts
as of the Record Date.
Note: The number of proxy statements is determined by the
activities described in Step #2. The Company will use its best
efforts to call in the number of Customers to Fidelity, as soon
as possible, but no later than two weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the
Company either before or together with the Customers' receipt of
a proxy statement. Underwriter will provide at least one copy of
the last Annual Report to the Company.
4. The text and format for the Voting Instruction Cards ("Cards" or
"Card") is provided to the Company by the Fund. The Company, at
its expense, shall produce and personalize the Voting Instruction
Cards. The Legal Department of the Underwriter or its affiliate
("Fidelity legal") must approve the Card before it is printed.
Allow approximately 2-4 business days for printing information on
the Cards. Information commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and
verification of votes (already on Cards as printed
by the Fund)
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
<PAGE>
23
5. During this time, Fidelity Legal will develop, produce, and the
Fund will pay for the Notice of Proxy and the Proxy Statement
(one document). Printed and folded notices and statements will be
sent to Company for insertion into envelopes (envelopes and
return envelopes are provided and paid for by the Insurance
Company). Contents of envelope sent to Customers by Company will
include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to
the company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a
small, single sheet of paper that requests Customers to vote
as quickly as possible and that their vote is important. One
copy will be supplied by the Fund.)
e. cover letter - optional, supplied by Company and reviewed
and approved in advance by Fidelity Legal.
6. The above contents should be received by the Company
approximately 3-5 business days before mail date. Individual in
charge at Company reviews and approves the contents of the
mailing package to ensure correctness and completeness. Copy of
this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to
the Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but not
including) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually
takes place in another department or another vendor depending on
process used. An often used procedure is to sort Cards on arrival
by proposal into vote categories of all yes, no, or mixed
replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal
procedure and has not been required by Fidelity in the past.
9. Signatures on Card checked against legal name on account
registration which was printed on the Card.
Note: For Example, If the account registration is under "Bertram
C. Jones, Trustee," then that is the exact legal name to be
printed on the Card and is the signature needed on the Card.
<PAGE>
24
10. If Cards are mutilated, or for any reason are illegible or are
not signed properly, they are sent back to Customer with an
explanatory letter, a new Card and return envelope. The mutilated
or illegible Card is disregarded and considered to be not
received for purposes of vote tabulation. Any Cards that have
"kicked out" (e.g. mutilated, illegible) of the procedure are
"hand verified," i.e., examined as to why they did not complete
the system. Any questions on those Cards are usually remedied
individually.
11. There are various control procedures used to ensure proper
tabulation of votes and accuracy of that tabulation. The most
prevalent is to sort the Cards as they first arrive into
categories depending upon their vote; an estimate of how the vote
is progressing may then be calculated. If the initial estimates
and the actual vote do not coincide, then an internal audit of
that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then
converted to shares. (It is very important that the Fund receives
the tabulations stated in terms of a percentage and the number of
shares.) Fidelity Legal must review and approve tabulation
format.
13. Final tabulation in shares is verbally given by the Company to
Fidelity Legal on the morning of the meeting not later than 10:00
a.m. Boston time. Fidelity Legal may request an earlier deadline
if required to calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will
be required from the Company as well as an original copy of the
final vote. Fidelity Legal will provide a standard form for each
Certification.
15. The Company will be required to box and archive the Cards
received from the Customers. In the event that any vote is
challenged or if otherwise necessary for legal, regulatory, or
accounting purposes, Fidelity Legal will be permitted reasonable
access to such Cards.
l6. All approvals and "signing-off" may be done orally, but must
always be followed up in writing.
<PAGE>
25
SCHEDULE C
Other investment companies currently available or contemplated under
variable annuities issued by the Company:
All Portfolios currently offered by (a) Scudder Variable Life Investment
Fund, (b) Twentieth Century Investors, Inc., (c) Dreyfus Investment Fund, (d)
Dreyfus Life and Annuity Index Fund, Inc., (e) Dreyfus Socially Responsible
Growth Fund, Inc.
AMENDMENT NO. 1
Amendment to the Participation Agreement among Variable Insurance Products Fund
(the Fund), Fidelity Distributors Corporation (the Underwriter) and American
United Life Insurance Company (the Company) dated May l, 1993 (the Agreement).
WHEREAS each of the parties desire to expand the Accounts of the Company which
invest in shares of the Fund. The Fund, Underwriter and the Company hereby agree
to amend Schedule A of the Agreement by inserting the following in its entirety:
Name of Separate Account and
Date Established by Contracts Funded Executive
Committee of Board of Directors By Separate Account
All of the Separate Accounts listed in Schedule A of the original Participation
Agreement between the parties hereto as well as the ALL American Individual
Separate Account, which was established by AUL on April 14, 1994 for the purpose
of providing a funding medium for the Individual Flexible Premium Deferred
Variable Annuity (Contract LA-28) and the Individual One Year Flexible Premium
Deferred Variable Annuity (Contract LA-27).
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to be
executed in its name and on its behalf by its duly authorized representative as
of 8/31,1994.
AMERICAN UNITED LIFE INSURANCE
COMPANY
By its authorized officer,
By: _________________________________________
Title: V.P. Pension Contracts and Compliance
Date: ________________________________
VARIABLE INSURANCE PRODUCTS FUND
By its authorized officer,
By: _________________________________________
Title: Senior Vice President
Date: ________________________________
FIDELITY DISTRIBUTORS CORPORATION
By: _________________________________________
Title: President
Date:_________________________________
- --------------------------------------------------------------------------------
EXHIBIT 8.5
FORM OF PARTICIPATION AGREEMENT WITH
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
- --------------------------------------------------------------------------------
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND II,
FIDELITY DISTRIBUTORS CORPORATION
and
AMERICAN UNITED LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of the 1st day of May, 1993 by and
among AMERICAN UNITED LIFE INSURANCE COMPANY, (hereinafter the "Company"), an
Indiana corporation, on its own behalf and on behalf of each segregated asset
account of the Company set forth on Schedule A hereto as may be amended from
time to time (each such account hereinafter referred to as the "Account"), and
the VARIABLE INSURANCE PRODUCTS FUND, an unincorporated business trust organized
under the laws of the Commonwealth of Massachusetts (hereinafter the "Fund") and
FIDELITY DISTRIBUTORS CORPORATION (hereinafter the "Underwriter"), a
Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and variable annuity contracts
(collectively, the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and the
Underwriter (hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission, dated September 17, 1986 (File No. 812-6422), granting Participating
Insurance Companies and variable annuity and variable life insurance separate
accounts exemptions from the provisions of sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended, (hereinafter the "1940
Act") and Rules 6e-2(b) (15) and 6e-3(T) (b) (15) thereunder, to the extent
necessary to permit shares of the Fund to be sold to and held by variable
annuity and variable life insurance separate accounts of both affiliated and
unaffiliated life insurance companies (hereinafter the "Shared Funding Exemptive
Order"); and
<PAGE>
2
WHEREAS, the Fund is registered as an open-ended management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser") is duly
registered as an investment adviser under the federal Investment Advisers Act of
1940 and any applicable state securities law; and
WHEREAS, the Company has, to the extent required by law, registered or will
register interests in each Account funding certain variable annuity contracts
under the 1933 Act if required by law; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established under the provisions of Indiana law, on the date
shown for such Account on Schedule A hereto, to set aside and invest assets
attributable to attributable to the aforesaid variable annuity contracts; and
WHEREAS, the Company has registered or will register, as required by law,
certain of the Accounts as unit investment trusts under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended, (hereinafter the "1934 Act"), and is a member in good standing
of the National Association of Securities Dealers, Inc. (hereinafter "NASD");
and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable annuity contracts and
the Underwriter is authorized to sell such shares to unit investment trusts such
as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Underwriter agrees to sell to the Company those shares of the Fund
which each Account orders, executing such orders on a daily basis at the net
asset value next computed after receipt of the Fund or its designee of the order
for the shares of the Fund. For purposes of this Section 1.1, the Company shall
be the designee of the Fund for receipt of such orders from each Account and
receipt by such designee shall constitute receipt by the Fund; provided that the
Fund receives notice of such order by 9:00 a.m. Boston time on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Fund calculates its net
asset value pursuant to the rules of the Securities and Exchange Commission.
<PAGE>
3
1.2. The Fund agrees to make its shares available indefinitely for purchase
at the applicable net asset value per share by the Company and its Accounts on
those days on which the Fund calculates its net asset value pursuant to rules of
the Securities and Exchange Commission and the Fund shall use reasonable efforts
to calculate such net asset value on each day which the New York Stock Exchange
is open for trading. Notwithstanding the foregoing, the Board of Trustees of the
Fund (hereinafter the "Board") may refuse to sell shares of any Portfolio to any
person, or suspend or terminate the offering of shares of any Portfolio if such
action is required by law or by regulatory authorities having jurisdiction or
is, in the sole discretion of the Board acting in good faith and in light of
their fiduciary duties under federal and any applicable state laws, necessary in
the best interests of the shareholders of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts. No
shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VII and Section 2.5 of Article II
of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request, any full
or fractional shares of the Fund held by the Company, executing such requests on
a daily basis at the net asset value next computed after receipt by the Fund or
its designee of the request for redemption. For purposes of this Section 1.5,
the Company shall be the designee of the Fund for receipt of requests for
redemption from each Account and receipt by such designee shall constitute
receipt by the Fund; provided that the Fund receives notice of such request for
redemption on the next following Business Day.
1.6. The Company agrees to purchase and redeem the shares of each Portfolio
offered by the then current prospectus of the Fund in accordance with the
provisions of such prospectus. The Company agrees that all net amounts available
under the variable annuity contracts with the form number(s) which are listed on
Schedule A attached hereto and incorporated herein by this reference, as such
Schedule A may be amended from time to time hereafter by mutual written
agreement of all the parties hereto, (the "Contracts") shall be invested in the
Fund, in such other Funds advised by the Adviser as may be mutually agreed to in
writing by the parties hereto, or in the Company's general account, provided
that such amounts may also be invested in an investment company other than the
Fund if (a) such other investment company, or series thereof, has investment
objectives or policies that are substantially different from the investment
objectives and policies of all the Portfolios of the Fund; or (b) the Company
gives the Fund and the Underwriter 45 days written notice of its intention to
make such other investment company available as a funding vehicle for the
Contracts; or (c) such other investment company was available or contemplated as
a funding vehicle for the Contracts prior to the date of this Agreement and the
Company so informs the Fund and Underwriter prior to their signing this
Agreement (a list of such funds appearing on Schedule C to this Agreement); or
(d) the Fund or Underwriter consents to the use of such other investment
company.
<PAGE>
4
1.7. The Company shall pay for Fund shares on the next Business Day after
an order to purchase Fund shares is made in accordance with the provisions of
Section 1.1 hereof. Payment shall be in federal funds transmitted by wire. For
purpose of Section 2.10 and 2.11, upon receipt by the Fund of the federal funds
so wired, such funds shall cease to be the responsibility of the Company and
shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account. Shares
ordered from the Fund will be recorded in an appropriate title for each Account
or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone, followed
by written confirmation) to the Company of any income, dividends or capital gain
distributions payable on the Fund's shares. The Company hereby elects to receive
all such income dividends and capital gain distributions as are payable on the
Portfolio shares in additional shares of that Portfolio. The Company reserves
the right to revoke this election and to receive all such income dividends and
capital main distributions in cash. The Fund shall notify the Company of the
number of shares so issued as payment of such dividends and distributions.
1.10. The Fund shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated and shall use its best efforts to
make such net asset value per share available by 7 p.m. Boston time.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that interests in the Separate
Account funding the Contracts are or will be registered under the 1933 Act if
required by law; that the Contracts will be issued and sold in compliance in all
material respects with all applicable Federal and State laws and that the sale
of the Contracts shall comply in all material respects with state insurance
suitability requirements. The Company further represents and warrants that it is
an insurance company duly organized and in good standing under applicable law
and that it has legally and validly established each Account prior to any
issuance or sale thereof as a segregated asset account under Section 27-1-5-1 of
the Indiana Insurance Code and has registered or, prior to any issuance or sale
of the Contracts, will register each Account as a unit investment trust in
accordance with the provisions of the 1940 Act to serve as a segregated
investment account for the Contracts, if required by law.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Indiana and all
applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as
<PAGE>
5
required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4. The Company represents that the Contracts are currently treated as
annuity contracts under applicable provisions of the Code and that it will make
every effort to maintain such treatment and that it will notify the Fund and the
Underwriter immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so treated in
the future.
2.5. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it may make such payments in the future. The Fund has adopted a "no
fee" or "defensive" Rule 12b-1 Plan under which it makes no payments for
distribution expenses. To the extent that it decides to finance distribution
expenses pursuant to Rule 12b-1, the Fund undertakes to have a board of
trustees, a majority of whom are not interested persons of the Fund, formulate
and approve any plan under Rule 12b-1 to finance distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Indiana and the Fund and the Underwriter represent that their
respective operations are and shall at all times remain in material compliance
with the laws of the State of Indiana to the extent required to perform this
Agreement.
2.7. The Underwriter represents and warrants that it is a member in good
standing, of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Indiana and all applicable state and
federal securities laws, including without limitation the 1933 Act, the 1934
Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly existing
under the laws of the Commonwealth of Massachusetts and that it does and will
comply in all material respects with the 1940 Act.
2.9. The Underwriter represents and warrants that the Adviser is and shall
remain duly registered as an investment adviser in all material respects under
all applicable federal and
<PAGE>
6
state securities laws and that the Advise shall perform its obligations for the
Fund in compliance in all material respects with the laws of the State of
Indiana and any applicable state or federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of their
directors, trustees, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and Shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund, in an amount not less than
the minimum coverage as required currently by Rule 17g-1 of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid
includes coverage for larceny and embezzlement is issued by a reputable bonding
company. The Company agrees to make all reasonable efforts to see that this bond
or another bond containing these provisions is always in effect, and agrees to
notify the Fund and the Underwriter in the event that such coverage no longer
applies.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Underwriter shall provide the Company (at the Company's expense)
with as many copies of the Fund's current prospectus as the Company may
reasonably request. If requested by the Company in lieu thereof, the Fund shall
provide such documentation (including a final copy of the new prospectus as set
in type at the Fund's expense) and other assistance as is reasonably necessary
in order for the Company once each year (or more frequently if the prospectus
for the Fund is amended) to have the prospectus for the Contracts and the Fund's
prospectus printed together in one document (such printing to be at the
Company's expense).
3.2. The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Underwriter (or in the Fund's
discretion, the Prospectus shall state that such Statement is available from the
Fund), and the Underwriter (or the Fund), at its expense, shall print and
provide such Statement free of charge to the Company and to any owner of a
Contract or prospective owner who requests such Statement.
3.3. The Fund, at its expense, shall provide the Company with copies of its
proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners or Participants under Contracts.
3.4. If and to the extent required by law the Company shall:
<PAGE>
7
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in the same proportion as Fund shares of such
portfolio for which instructions have been received,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent permitted
by law. Participating Insurance Companies shall be responsible for assuring that
each of their separate accounts participating in the Fund calculates voting
privileges in a manner consistent with the standards set forth on Schedule B
attached hereto and incorporated herein by this reference, which standards will
also be provided to the other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the Securities and Exchange Commission's interpretation of the
requirements of Section 16(a) with respect to periodic elections of trustees and
with whatever rules the Commission may promulgate with respect thereto.
ARTICLE IV. Sale Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material in
which the Fund or its investment adviser or the Underwriter is named, at least
ten Business Days prior to its use. No such material shall be used if the Fund
or its designee reasonably objects to such use within ten Business Days after
receipt of such material.
4.2. The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement or prospectus for the Fund shares, as
such registration statement and prospectus may be amended or supplemented from
time to time, or in reports or proxy statements for the Fund, or in sales
literature or other promotional material approved by the Fund or its designee or
by the Underwriter, except with the permission of the Fund or the Underwriter or
the designee of either.
4.3. The Fund, Underwriter, or its designee shall furnish, or shall cause
to be furnished, to the Company or its designee, each piece of sales literature
or other promotional material in which the Company and/or its separate
account(s), is named at least ten Business Days
<PAGE>
8
prior to its use. No such material shall be used if the Company or its designee
reasonably objects to such use within ten Business Days after receipt of such
material.
4.4. The Fund and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company, each
Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the Securities and Exchange Commission or
other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports, solicitations for voting instructions, sales Literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the Contracts or
each Account, contemporaneously with the filing of such document with the SEC or
other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to 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
(i.e., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, 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, and registration statements, prospectuses,
Statements of Additional Information, shareholder reports, and proxy materials.
ARTICLE V. Fees and Expenses
5.1. The Fund and Underwriter shall pay no fee or other compensation to the
Company under this agreement, except that if the Fund or any Portfolio adopts
and implements a plan pursuant to Rule 12b-1 to finance distribution expenses,
then the Underwriter may make payments to the Company or to the underwriter for
the Contracts if and in amounts agreed to by the Underwriter in writing and such
payments will be made out of existing fees otherwise payable
<PAGE>
9
to the Underwriter, past profits of the Underwriter or other resource available
to the Underwriter. No such payments shall be made directly by the Fund.
Currently, no such payments are contemplated.
5.2. All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund. The Fund shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent necessary in accordance with applicable state laws
prior to their sale. The Fund shall bear the expenses for the cost of
registration and qualification of the Fund's shares, preparation and filing of
the Fund's prospectus and registration statement, proxy materials and reports,
setting the prospectus in type, setting, in type and printing the proxy
materials and reports to shareholders (including the costs of printing a
prospectus that constitutes an annual report), the preparation of all statements
and notices required by any federal or state law, and all taxes on the issuance
or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of printing and distributing the
Fund's prospectus to owners of Contracts issued by the Company and of
distributing the Fund's proxy materials and reports to such Contract owners.
ARTICLE VI. Diversification
6.1. The Fund will at all times invest money from the Contracts in such a
manner as to ensure that the Contracts will be treated as variable contracts
under the Code and the regulations issued thereunder. Without limiting the scope
of the foregoing, the Fund will at all times comply with Section 817(h) of the
Code and Treasury Regulation 1.817-5, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts and
any amendments or other modifications to such Section or Regulations. In the
event of a breach of this Article VI by the Fund, it will take all reasonable
steps (a) to notify Company of such breach and (b) to adequately diversify the
Fund so as to achieve compliance with the grace period afforded by Regulation
817-5.
ARTICLE VII. Potential Conflicts
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or (f)
a decision by an insurer to disregard the voting instructions of contract
owners. The Board shall
<PAGE>
10
promptly inform the Company if it determines that an irreconcilable material
conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority of its
disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such
Account; provided, however that such withdrawal and termination shall be limited
to the extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Underwriter and Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
<PAGE>
11
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 to establish a new funding
medium for the Contracts if an offer to do so has been declined by vote of a
majority of Contract owners materially adversely affected by the irreconcilable
material conflict. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Fund and terminate this
Agreement within six (6) months after the Board informs the Company in writing
of the foregoing determination, provided, however, that such withdrawal and
termination shall be limited to the extent required by any such material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are
applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this
Agreement shall continue in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in such Rule(s) as so
amended or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
8.1(a). The Company agrees to indemnify and hold harmless the Fund and each
trustee of the Board and officers and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.1) against any and all losses, claims,
damages, liabilities (including amounts paid in the Company) or litigation
(including legal and other settlement with the written consent of 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 are related to the
sale or acquisition of the Fund's shares or the Contracts and:
(i) 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 Contracts or contained in the
Contracts or sales literature for the 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
<PAGE>
12
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 the Company by or
on behalf of the Fund for use in the Registration Statement or
prospectus for the Contracts or in the Contracts or sales literature
(or any amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(ii) 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 the Fund not supplied by
the Company, or persons under its control) or wrongful conduct of the
Company or persons under its control, with respect to the sale or
distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a Registration Statement, prospectus, or
sales literature of the 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 a statement or omission was
made in reliance upon information furnished to the Fund by or on
behalf of the Company; or
(iv) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this Agreement;
or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Company in this Agreement or arise out of
or result from any other material breach of this Agreement by the
Company, as limited by and in accordance with the provisions of
Sections 8.l(b) and 8.1(c) hereof.
8.1(b). The 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 as such may arise from such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Parties duties or by reason of such Indemnified Party's reckless
disregard of obligations or duties under this Agreement or to the Fund,
whichever is applicable.
8.1(c). The 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 the 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
<PAGE>
13
notify the Company of any such claim shall not relieve the 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 the Indemnified Parties, the Company shall be
entitled to participate, at its own expense, in the defense of such action. The
Company also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from the Company to
such party of the Company's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the 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.
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund Shares or the Contracts or the operation of the
Fund.
8.2. Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless the Company
and each of its directors and officers and each person, if any, who controls the
Company within the meaning, of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Underwriter) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of the Fund's shares or the Contracts or the operations of
the Fund and:
(i) 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 the 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 the Underwriter
or Fund by or on behalf of the Company for use in the Registration
Statement or prospectus for the Fund or in sales literature (or any
amendment or supplement) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the Registration
Statement,
<PAGE>
14
prospectus or sales Literature for the Contracts not supplied by the
Underwriter or persons under its control) or wrongful conduct of the
Fund, Adviser or Underwriter or persons under their control, with
respect to the sale or distribution of the Contracts or Fund shares;
or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a Registration Statement, prospectus, or
sales literature covering the 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 statement or statements therein not misleading, if such
statement or omission was made in reliance upon information furnished
to the Company by or on behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to provide the services
and furnish the materials under the terms of this Agreement (including
a failure, whether unintentional or in good faith or otherwise, to
comply with the diversification requirements specified in Article VI
of this Agreement); or
(v) arise out of or result from any material breach of any representation
and warranty made by the Underwriter or the Fund in this Agreement or
arise out of or result from any other material breach of this
Agreement by the Underwriter; as limited by and in accordance with the
provisions of Sections 8.2(b) and 8.2(c) hereof.
8.2(b). The Underwriter 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 or to
each Company or the Account, whichever is applicable.
8.2(c). The Underwriter 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 the Underwriter 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 the Underwriter of
any such claim shall not relieve the Underwriter 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, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses
<PAGE>
15
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3. Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the Company, and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements result from the gross
negligence, bad faith or willful misconduct of the Board or any member thereof,
are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the services
and furnish the materials under the terms of this Agreement (including
a failure to comply with the diversification requirements specified in
Article VI of this Agreement); or
(ii) arise out of or result from any material breach of any representation
and/or warranty made by the Fund in this Agreement or arise out of or
result from any other material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund 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 and duties under this Agreement or to the
Company, the Fund, the Underwriter or each Account, whichever is applicable.
8.3(c). The Fund 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 the Fund 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 the Fund of any such claim shall not
relieve the Fund 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
<PAGE>
16
Indemnified Parties, the Fund will be entitled to participate, at its own
expense, in the defense thereof. The Fund also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Fund to such party of the Fund's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund 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.
8.3(d). The Company and the Underwriter agree promptly to notify the Fund
of the commencement of any litigation or proceedings against it or any of its
respective officers or directors in connection with this Agreement, the issuance
or sale of the Contracts, with respect to the operation of either Account, or
the sale or acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1993, 1934,
and 1940 acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the Securities and
Exchange Commission may grant (including but not limited to, the Shared Funding
Exemptive Order) and the terms hereof shall be interpreted and construed in
accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason by sixty (60) days advance
written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio based upon the Company's
determination that shares of such Portfolio are not reasonably
available to meet the requirements of the Contracts; or
(c) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event any of the
Portfolio's shares are not registered, issued or sold in accordance
with applicable state and/or federal law or such law precludes the use
of such shares as the underlying investment media of the Contracts
issued or to be issued by the Company; or
<PAGE>
17
(d) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such
Portfolio ceases to qualify as a Regulated Investment Company under
Subchapter M of the Code or under any successor or similar provision,
or if the Company reasonably believes that the Fund may fail to so
qualify; or
(e) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such
Portfolio fails to meet the diversification requirements specified in
Article VI hereof; or
(f) termination by either the Fund or the Underwriter by written notice to
the Company, if either one or both of the Fund or the Underwriter
respectively, shall determine, in their sole judgment exercised in
good faith, that the Company and/or its affiliated companies has
suffered a material adverse change in its business, operations,
financial condition or prospects since the date of this Agreement or
is the subject of material adverse publicity; or
(g) termination by the Company by written notice to the Fund and the
Underwriter, if the Company shall determine, in its sole judgment
exercised in good faith, that either the Fund or the Underwriter has
suffered a material adverse change in its business, operations,
financial condition or prospects since the date of this Agreement or
is the subject of material adverse publicity; or
(h) termination by the Fund or the Underwriter by written notice to the
Company, if the Company gives the Fund and the Underwriter the written
notice specified in Section 1.6(b) hereof and at the time such notice
was given there was no notice of termination outstanding under any
other provision. of this Agreement; provided, however any termination
under this Section 10.1(h) shall be effective forty five (45) days
after the notice specified in Section 1.6(b) was given.
10.2. Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.2 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
10.3 The Company shall not redeem Fund shares attributable to the Contracts
(as opposed to Fund shares attributable to the Company's assets held in the
Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"), or (iii) pursuant
to the terms of the Contracts. Upon request, the
<PAGE>
18
Company will promptly furnish to the Fund and the Underwriter the opinion of
counsel for the Company (which counsel shall be reasonably satisfactory to the
Fund and the Underwriter) to the effect that any redemption pursuant to clause
(ii) above is a Legally Required Redemption. Furthermore, except in cases where
permitted under the terms of the Contracts, the Company shall not prevent
Contract Owners from allocating payments to a Portfolio that was otherwise
available under the Contracts without first giving the Fund or the Underwriter
90 days notice of its intention to do so.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
92 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
American United Life Insurance Company
One American Square, P.O. Box 368
Indianapolis, IN 46206-0368
Attention: Dusty Akins
If to the Underwriter:
92 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. Miscellaneous
12.1 All persons dealing with the Fund must look solely to the property of
the Fund for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory authority,
each party hereto shall treat as confidential the names and addresses of the
owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
<PAGE>
19
12.3 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.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 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.
12.6 Each party hereto 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.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance Regulations and any other applicable law or regulations.
12.7. 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.
12.8. This Agreement or any of the rights and obligations hereunder may not
be sent of all parties without the prior written consent of all parties hereto;
provided, however, that the Underwriter may assign this Agreement or any rights
or obligations hereunder to any affiliate of or company under common control
with the Underwriter, if such assignee is duly licensed and registered to
perform the obligations of the Underwriter under this Agreement.
12.9. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports:
(a) the Company's annual statement prepared under statutory accounting
principles and annual report (prepared under accounting practices
prescribed by the Insurance Department of the State of Indiana), as
soon as practical and in any event within 90 days after the end of
each fiscal year;
(b) the Company's quarterly statements (statutory), as soon as practical
and in any event within 45 days after the end of each quarterly
period;
<PAGE>
20
(c) any financial statement, proxy statement, notice or report of the
Company sent to policyholders, as soon as practical after the delivery
thereof to policyholders;
(d) any registration statement (without exhibits) and financial reports of
the Company filed with the Securities and Exchange Commission or any
state insurance regulator, as soon as practical after the filing
thereof;
(e) any other report submitted to the Company by independent accountants
in connection with any annual, interim or special audit made by them
of the books of the Company, as soon as practical after the receipt
thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
AMERICAN UNITED LIFE INSURANCE COMPANY
By its authorized officer,
By: _______________________
Title: V.P. Pension Contracts and Compliance
Date: _____________________
VARIABLE INSURANCE PRODUCTS FUND II
By its authorized officer,
By:________________________
Title:
Date:______________________
FIDELITY DISTRIBUTORS CORPORATION
By its authorized officer,
By:________________________
Title:
Date:______________________
<PAGE>
21
<TABLE>
Schedule A
----------
Separate Accounts and Associated Contracts
------------------------------------------
<CAPTION>
<S> <C>
Name of Separate Account
and Date Established by the Contracts Funded by the
Executive Committee of AUL Separate Account
- -----------------------------------------------------------------------------------------
1.AUL American Unit Trust DCP Multiple-Fund Group Variable Annuity (P-12518)
Separate Account TDA Multiple-Fund Group Variable Annuity (P-12511)
(Established 8/17/89) TDA Multiple-Fund Group Variable Annuity (P-12511,WA)
TDA Multiple-Fund Group Variable Annuity (P-12833)
TDA Multiple-Fund Group Variable Annuity (P-12833SPL)
IRA Multiple-Fund Group Variable Annuity(P-12366)
IRA Multiple-Fund Group Variable Annuity (P-12867)
Employer-Sponsored TDA Multiple-Fund Group Variable
Annuity (P-12621)
Employer-Sponsored TDA Multiple-Fund Group Variable
Annuity [P-12621(BR)]
Employer-Sponsored TDA and Qualified Plan Multiple-
Fund Group Variable Annuity [P-13098(BR)]
2. Group Retirement Annuity Separate Accounts Group Retirement Annuity
Separate Account I (GRA VIII)[P-12947(BR)]
(Established 12-17-92)
3.Group Retirement Annuity Separate Accounts Group Retirement Annuity
Separate Account II (GRA IV) (P-11710)
(established 4/15/93) Separate Accounts Group Retirement Annuity
(GRA V) (P-11736)
Separate Accounts Group Retirement Annuity
(GRA VI) (P-12390)
Separate Accounts Group Retirement Annuity
(GRA VI & IX) ((BR) (P-12390(BR))
</TABLE>
<PAGE>
22
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities
for the handling of proxies relating to the Fund by the Underwriter, the Fund
and the Company. The defined terms herein shall have the meanings assigned in
the Participation Agreement except that the term "Company" shall also include
the department or third party assigned by the Insurance Company to perform the
steps delineated below.
1. The number of proxy proposals is given to the Company by the
Underwriter as early as possible before the date set by the Fund for
the shareholder meeting to facilitate the establishment of tabulation
procedures. At this time the Underwriter will inform the Company of
the Record, Mailing and Meeting dates. This will be done verbally
approximately two months before meeting.
2. Promptly after the Record Date, the Company will perform a "tape
run", or other activity, which will generate the names, addresses and
number of units which are attributed to each
contractowner/policyholder (the "Customer") as of the Record Date.
Allowance should be made for account adjustments made after this date
that could affect the status of the Customers' accounts as of the
Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in
the number of Customers to Fidelity, as soon as possible, but no later
than two weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of a proxy
statement. Underwriter will provide at least one copy of the last
Annual Report to the Company.
4. The text and format for the Voting Instruction Cards ("Cards" or
"Card") is provided to the Company by the Fund. The Company, at its
expense, shall produce and personalize the Voting Instruction Cards.
The Legal Department of the Underwriter or its affiliate ("Fidelity
Legal") must approve the Card before it is printed. Allow
approximately 2-4 business days for printing information on the Cards.
Information commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and
verification of votes (already on Cards as printed
by the Fund)
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
<PAGE>
23
5. During this time, Fidelity legal will develop, produce, and the Fund
will pay for the Notice of Proxy and the Proxy Statement (one
document). Printed and folded notices and statements will be sent to
Company for insertion into envelopes (envelopes and return envelopes
are provided and paid for by the Insurance Company). Contents of
envelope sent to Customers by Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company)
addressed to the Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is
a small, single sheet of paper that requests
Customers to vote as quickly as possible and that
their vote is important. One copy will be supplied
by the Fund.)
e. cover letter - optional, supplied by Company and
reviewed and approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company
reviews and approves the contents of the mailing package to ensure
correctness and completeness. Copy of this approval sent to Fidelity
Legal.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the
Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but not
including) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes
place in another department or another vendor depending on process
used. An often used procedure is to sort Cards on arrival by proposal
into vote categories of all yes, no, or mixed replies, and to begin
data entry.
Note: Postmarks are not generally needed. A need for postmark infor-
mation would be due to an insurance company's internal procedure and
has not been required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration
which was printed on the Card.
Note: For Example, If the account registration is under "Bertrarn C.
Jones, Trustee," then that is the exact legal name to be printed on
the Card and is the signature needed on the Card.
<PAGE>
24
10. If cards are mutilated, or for any reason illegible or are not signed
properly, they are sent back to Customer with an explanatory letter, a
new Card and return envelope. The mutilated or illegible Card is
disregarded and considered to be not received for purposes of vote
tabulation. Any Cards that have "kicked out" (e.g. mutilated,
illegible) of the procedure are "hand verified" i.e., examined as to
why they did not complete the system. Any questions on those Cards are
usually remedied individually.
11. There are various control procedures used to ensure proper tabulation
of votes and accuracy of that tabulation. The most prevalent is to
sort the Cards as they first arrive into categories depending upon
their vote; an estimate and the actual vote do not coincide, then an
internal audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then
converted to shares. (It is very important that the Fund receives the
tabulations stated in terms of a percentage and the number of shares.)
Fidelity Legal must review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to
Fidelity Legal on the morning of the meeting not later than 10:00 a.m.
Boston time. Fidelity Legal may request an earlier deadline if
required to calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final
vote. Fidelity Legal will provide a standard form for each
Certification.
15. The Company will be required to box and archive the Cards received
from the Customers. In the event that any vote is challenged or if
otherwise necessary for legal, regulatory, or accounting purposes,
Fidelity Legal will be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
<PAGE>
25
SCHEDULE C
Other investment companies currently available or contemplated under variable
annuities issued by the Company:
All Portfolios currently offered by (a) Scudder Variable Life Investment Fund,
(b) Twentieth Century Investors, Inc., (c) Dreyfus Investment Fund, (d) Dreyfus
Life and Annuity Index Fund, Inc., (e) Dreyfus Socially Responsible Growth Fund,
Inc.
AMENDMENT NO. 1
Amendment to the Participation Agreement among Variable Insurance Products
Fund II (the Fund), Fidelity Distributors Corporation (the Underwriter) and
American United Life Insurance Company (the Company) dated May 1, 1993 (the
Agreement).
WHEREAS each of the parties desire to expand the Accounts of the Company
which invest in shares of the Fund. The Fund, Underwriter and the Company hereby
agree to amend Schedule A of the Agreement by inserting the following in its
entirety:
Name of Separate Account and
Date Established by Contracts Funded
Executive Committee of Board of Directors By Separate Account
- --------------------------------------------------------------------------------
All of the Separate Accounts listed in Schedule A of the original
Participation Agreement between the parties hereto as well as the AUL American
Individual Separate Account, which was established by AUL on April 14, 1994 for
the purpose of providing a funding medium for the Individual Flexible Premium
Deferred Variable Annuity (Contract LA-28) and the Individual One Year Flexible
Premium Deferred Variable Annuity (Contract LA-27).
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to
be executed in its name and on its behalf by its duly authorized representative
as of 8/31, 1994.
AMERICAN UNITED LIFE INSURANCE
COMPANY
By its authorized officer,
By:_______________________________________
Title: V.P. Pension Contracts & Compliance
Date:_____________________________________
VARIABLE INSURANCE PRODUCTS
FUND II
By its authorized officer,
By:_______________________________________
Title: Senior Vice President
Date: ____________________________________
FIDELITY DISTRIBUTORS
CORPORATION
By its authorized officer,
By:_______________________________________
Title: President
Date: ____________________________________
- --------------------------------------------------------------------------------
EXHIBIT 8.6
FORM OF PARTICIPATION AGREEMENT WITH PBHG FUNDS, INC.
- --------------------------------------------------------------------------------
FUND PARTICIPATION AGREEMENT
This AGREEMENT is made this 3rd day of April, 1995, by and between American
United Life Insurance Company(R) (the "Company"), a life insurance company
domiciled in Indiana, on its behalf and on behalf of the segregated asset
accounts of the Company (the "Separate Accounts"); The PBHG Funds, Inc. (the
"Fund"), a Maryland corporation; SEI Financial Services Company ("Distributor"),
a Delaware corporation; and Pilgrim Baxter & Associates, Ltd. ("Adviser"), a
Limited Partnership.
WITNESSETH
WHEREAS, the Fund is registered with the Securities and Exchange Commission
("SEC") as an open-end management investment company under the Investment
Company Act of 1940, as amended ("1940 Act") and the Fund is authorized to issue
separate classes of shares of beneficial interests ("shares"), each representing
an interest in a separate portfolio of assets known as a "series" and each
series has its own investment objective, policies, and limitations; and
WHEREAS, Distributor is registered as a broker-dealer with the SEC under
the Securities Exchange Act of 1934, as amended ("1934 Act"), and is a member in
good standing of the National Association of Securities Dealers, Inc. ("NASD");
and
<PAGE>
2
WHEREAS, Adviser is registered as an Investment Adviser with the SEC under
the Investment Advisers Act of 1940 and with all of the states where such
registration is required; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company wishes to purchase shares of one or more of the Fund's
series on behalf of its Separate Accounts to serve as an investment medium for
Variable Contracts funded by the Separate Accounts, and Distributor is
authorized to sell shares of the Fund's series;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and covenants hereinafter set forth, the parties hereby agree as follows:
ARTICLE 1. Sale of Fund Shares
1.1. Distributor agrees to sell to the Company those shares of the series
offered and made available by the Fund and identified on Exhibit B ("Series")
that the Company orders on behalf of its Separate Accounts, and agrees to
execute such orders on each day on which the Fund calculates its net asset value
pursuant to rules of the SEC ("business day") at the net asset value next
computed after receipt and acceptance by the Fund or its designee of the order
for the shares of the Fund.
<PAGE>
3
1.2. The Fund agrees to make available on each business day shares of the
Series for purchase at the applicable net asset value per share by the Company
on behalf of its Separate Accounts; provided, however, that the
Directors/Trustees of the Fund may refuse to sell shares of any Series to any
person, or suspend or terminate the offering of shares of any Series, if such
action is required by law or by regulatory authorities having jurisdiction or
is, in the sole discretion of the Directors/Trustees, acting in good faith and
in light of the Directors/Trustees' fiduciary duties under applicable law,
necessary in the best interests of the shareholders of any Series.
1.3. Upon receipt of a request for redemption in proper form from the
Company, the Fund agrees to redeem in cash any full or fractional shares of the
Series held by the Company, ordinarily executing such requests on each business
day at the net asset value next computed after receipt and acceptance by the
Fund or its designee of the request for redemption, except that the Fund
reserves the right to suspend the right of redemption, consistent with Section
22(e) of the 1940 Act and any rules thereunder. Such redemptions shall be paid
in federal funds ordinarily on the next business day following receipt by the
Fund or its designee of the order for redemption; however the Fund reserves the
right to postpone payment upon redemption consistent with Section 22(e) of the
Act and any Rules thereunder.
1.4. For purposes of Sections 1.1 and 1.3, the Company shall be the
designee of the Fund for receipt of purchase and redemption orders from the
Separate Account, and
<PAGE>
4
receipt by such designee shall constitute receipt by the Fund; provided that the
Company receives the order by 4:00 p.m. New York City time and the Fund receives
notice of such order by 8:30 a.m. New York City time on the next following
business day.
1.5. The Company shall pay for shares of the Series on the business day
next following the day that the Company places an order to purchase shares of
the Series, except with respect to shares of any Series of the Fund ("Acquired
Series") ordered by the Company for a Separate Account or any subaccount thereof
in connection with an exchange or transfer from another Separate Account or
another subdivision of a Separate Account under the Variable Contracts, Company
shall pay for shares of the Acquired Series on the latter of (1) the next
business day after an order to purchase the shares is made in accordance with
Section 1.1 hereof, or (2) on the same business day that the Separate Account or
subdivision from which the exchange or transfer is being made receives payment
from the investment company portfolio in which it invests. Payment shall be in
federal funds transmitted by wire or by any other method mutually agreed upon by
the parties hereto.
1.6. Issuance and transfer of shares of the Series will be by book entry
only unless otherwise agreed by the Fund. Stock certificates will not be issued
to the Company or the Separate Accounts unless otherwise agreed by the Fund.
Fund and Distributor agree that shares ordered from the Fund will be recorded
properly in an
<PAGE>
5
appropriate title for the Separate Accounts or the appropriate subaccounts of
the Separate Accounts.
1.7. The Fund shall promptly furnish same-day notice (by wire or telephone,
followed by written confirmation) to the Company of any income dividends or
capital gain distributions payable on the shares of the Series. The Company
hereby elects to reinvest in the Series all such dividends and distributions as
are payable on a Series' shares and to receive such dividends and distributions
in additional shares of that Series. The Company reserves the right to revoke
this election in writing and to receive all such dividends and distributions in
cash. The Fund shall notify the Company of the number of shares so issued as
payment of such dividends and distributions.
1.8. The Fund shall instruct its recordkeeping agent to advise the Company
on each business day of the net asset value per share for each Series as soon as
reasonably practical after the net asset value per share is calculated, which is
normally 6:30 p.m. New York City time, and shall use its best efforts to make
such net asset value per share available by 7:00 p.m. New York City time.
<PAGE>
6
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that it is an insurance company
duly organized and in good standing under Indiana law and that it is taxed as an
insurance company under Subchapter L of the Internal Revenue Code of 1986, as
amended ("Code").
2.2. The Company represents and warrants that it has legally and validly
established each of the Separate Accounts as a segregated asset account under
the Indiana Insurance Code, and that each of the Separate Accounts is a validly
existing segregated asset account under Indiana law.
2.3. The Company represents and warrants that the Variable Contracts issued
by the Company or interests in the Separate Accounts under such Variable
Contracts (1) are or, prior to issuance, will be registered as securities under
the Securities Act of 1933 ("1933 Act") or, alternatively (2) are not registered
because they are properly exempt from registration under the 1933 Act or will be
offered exclusively in transactions that are properly exempt from registration
under the 1933 Act.
2.4. The Company represents and warrants that each of the Separate
Accounts:
<PAGE>
7
(1) has been registered as a unit investment trust in accordance with the
provisions of the 1940 Act or, alternatively (2) has not been registered in
proper reliance upon an exclusion from registration under the 1940 Act.
2.5. The Company represents that it believes, in good faith, that the
Variable Contracts issued by the Company are currently treated as annuity
contracts or life insurance policies (which may include modified endowment
contracts), whichever is appropriate, under applicable provisions of the Code.
2.6. The Fund represents and warrants that it is duly organized as a
corporation under the laws of the State of Maryland, and is in good standing
under applicable law.
2.7. The Fund represents and warrants that the shares of the Series are
duly authorized for issuance in accordance with applicable law and that the Fund
is registered as an open-end management investment company under the 1940 Act.
2.8. Distributor represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC.
<PAGE>
8
ARTICLE Ill. General Duties
3.1. The Fund and Distributor shall take all such actions as are necessary
to permit the sale of the shares of each Series to the Separate Accounts,
including maintaining the Fund's registration as an investment company under the
1940 Act, and registering the shares of the Series sold to the Separate Accounts
under the 1933 Act for so long as required by applicable law. The Fund and
Distributor shall amend the Fund's registration statement filed with the SEC
under the 1933 Act and the 1940 Act from time to time as required in order to
effect the continuous offering of the shares of the Series. The Fund and
Distributor shall register and qualify the shares of the Fund for sale in
accordance with the laws of the various states to the extent deemed necessary by
the Fund or Distributor. The Fund and Distributor shall take all steps necessary
to sell shares of the Fund in compliance with all applicable federal and state
securities laws.
3.2. The Fund and Adviser shall make every effort to maintain qualification
of each Series as a Regulated Investment Company under Subchapter M of the Code
(or any successor or similar provision) and shall notify the Company immediately
upon having a reasonable basis for believing that a Series has ceased to so
qualify or that it might not so qualify in the future.
3.3. The Fund and Adviser agree that each Series of the Fund shall be
managed consistent with its investment objective or objectives, investment
policies, and
<PAGE>
9
investment restrictions as described in the Fund's prospectus and registration
statement, as amended or modified from time to time.
3.4. The Company shall take all such actions as are necessary under
applicable federal and state law to permit the sale of the Variable Contracts
issued by the Company, including registering each Separate Account as an
investment company to the extent required under the 1940 Act, and registering
the Variable Contracts or interests in the Separate Accounts under the Variable
Contracts to the extent required under the 1933 Act, and obtaining all necessary
approvals to offer the Variable Contracts from state insurance commissioners.
3.5. The Company shall require that any persons who offer and sell the
Variable Contracts issued by the Company do so in accordance with applicable
provisions of the 1933 Act, the 1934 Act, the 1940 Act, the NASD Rules of Fair
Practice, and state law respecting the offering of variable life insurance
policies and variable annuity contracts.
3.6. Distributor shall sell and distribute the shares of the Series of the
Fund in accordance with the applicable provisions of the 1933 Act, the 1934 Act,
the 1940 Act, the NASD Rules of Fair Practice, and state law.
<PAGE>
10
3.7. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities having jurisdiction (including, without
limitation, the SEC, the NASD, and state insurance regulators) and shall permit
such authorities reasonable access to its books and records in connection with
any investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
ARTICLE IV. Prospectuses and Proxy Statements, Voting
4.1. The Company shall distribute such prospectuses, proxy statements and
periodic reports of the Fund to the owners of Variable Contracts issued by the
Company as required to be distributed to such Variable Contract Owners under
applicable federal or state law.
4.2. Distributor shall provide the Company with as many copies of the
current prospectus of the Fund as the Company may reasonably request. If
requested by the Company in lieu thereof, the Fund shall provide such
documentation (including a final copy of the Fund's prospectus as set in type or
in camera-ready copy) and other assistance as is reasonably necessary in order
for the Company to print together in one document the current prospectus for the
Variable Contracts issued by the Company and the current prospectus for the
Fund. The Fund shall bear the expense of printing copies of its current
prospectus that will be distributed to existing Variable Contract Owners,
<PAGE>
11
and the Company shall bear the expense of printing copies of the Fund's
prospectus that are used in connection with offering the Variable Contracts
issued by the Company.
4.3. The Fund and Distributor shall provide (1) at the Fund's expense, one
copy of the Fund's current Statement of Additional Information ("SAI") to the
Company and to any owner of a Variable Contract issued by the Company who
requests such SAI, (2) at the Company's expense, such additional copies of the
Fund's current SAI as the Company shall reasonably request and that the Company
shall require in accordance with applicable law in connection with offering the
Variable Contracts issued by the Company.
4.4. The Fund, at its expense, shall provide the Company with copies of its
proxy material, periodic reports to shareholders and other communications to
shareholders in such quantity as the Company shall reasonably require for
purposes of distributing to owners of Variable Contracts issued by the Company.
The Fund, at the Company's expense, shall provide the Company with copies of its
periodic reports to shareholders and other communications to shareholders in
such quantity as the Company shall reasonably request for use in connection with
offering the Variable Contracts issued by the Company. If requested by the
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
<PAGE>
12
Company to print such shareholder communications for distribution to owners of
Variable Contracts issued by the Company.
4.5. For so long as the SEC interprets the 1940 Act to require pass-through
voting by Participating Insurance Companies whose Separate Accounts are
registered as investment companies under the 1940 Act ("Registered Separate
Accounts"), the Company shall vote shares of each Series of the Fund held in
Registered Separate Accounts or subaccounts thereof, at regular and special
meetings of the Fund in accordance with instructions timely received by the
Company (or its designated agent) from owners of Variable Contracts funded by
such Registered Separate Accounts or subaccounts thereof having a voting
interest in the Series. The Company shall vote shares of a Series of the Fund
held in Registered Separate Accounts or subaccounts thereof that are
attributable to the Variable Contracts as to which no timely instructions are
received, as well as shares held in such Registered Separate Accounts or
subaccounts thereof that are not attributable to the Variable Contracts and
owned beneficially by the Company (resulting from charges against the Variable
Contracts or otherwise), in the same proportion as the votes cast by owners of
the Variable Contracts funded by that Separate Account or subaccount thereof
having a voting interest in the Series from whom instructions have been timely
received. The Company shall vote shares of each Series of the Fund held in its
general account or in any Separate Account that is not registered under the 1940
Act, if any, in its discretion or in the same proportion as the votes cast
<PAGE>
13
with respect to shares of the Series held in all Registered Separate Accounts of
the Company or subaccounts thereof, in the aggregate.
ARTICLE V. Sales Material and Information
5.1. The Company agrees that neither it nor any of its affiliates shall
give any information or make any representations or statements on behalf of the
Fund or concerning the Fund other than the information or representations
contained in the Registration Statement or prospectus for the Fund shares, as
such registration statement and prospectus may be amended or supplemented from
time to time, or in reports or proxy statements for the Fund, or in sales
literature or other promotional material approved by the Fund or its designee
and/or by Distributor or its designee, except with the prior permission of the
Fund or its designee and/or Distributor or its designee. The Parties agree that
total return information of the Fund and its Series derived from the prospectus
or Registration Statement of the Fund or from reports provided by the Fund or
Distributor to the Company may be used by the Company in connection with the
sale of the Variable Contracts without prior approval of the Fund or
Distributor, or their designees, and the Company shall be responsible for using
such information in conformity with the information provided to it.
<PAGE>
14
5.2. The Fund or Distributor or the designee of either shall furnish to the
Company or its designee, each piece of sales literature or other promotional
material in which the Company or its Separate Accounts are named, and no such
material shall be used without the prior approval of the Company or its
designee.
5.3. The Fund and Distributor agree that each and the affiliates of each
shall not give any information or make any representations on behalf of the
Company or concerning the Company, the Separate Accounts, or the Variable
Contracts issued by the 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 for the Separate Accounts or prepared for
distribution to owners of such Variable Contracts, or in sales literature or
other promotional material approved by the Company or its designee, except with
the prior permission of the Company.
5.4. The Fund will provide to the Company at least one complete copy of all
prospectuses, Statements of Additional Information, reports, proxy statements
and other voting solicitation materials, and all amendments and supplements to
any of the above, that relate to the Fund or its shares, promptly after the
filing of such document with the SEC or other regulatory authorities.
<PAGE>
15
5.5. The Company will provide to the Fund at least one complete copy of all
prospectuses (which shall include an offering memorandum if the Variable
Contracts issued by the Company or interests therein are not registered under
the 1933 Act), Statements of Additional Information, reports, solicitations for
voting instructions, and all amendments or supplements to any of the above, that
relate to the Variable Contracts issued by the Company or the Separate Accounts
promptly after the filing of such document with the SEC or other regulatory
authority.
5.6. For purposes of this Article V, the phrase "sales literature or other
promotional material" includes, but is not limited to, 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, computerized media, or other public
media), sales literature (i.e., any written communication distributed or made
generally available to customers or the public, including brochures, circulars,
research reports, market letters, form letters, seminar texts, 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.
<PAGE>
16
ARTICLE VI. Administration of Accounts
6.1 Services to Owners of Variable Contracts shall be the responsibility of
the Company and shall not be the responsibility of the Fund or Distributor.
These services include, but are not limited to:
(a) providing information periodically to Contract Owners showing their
interests in the Separate Accounts or subaccounts thereof that invest
in the Fund or in any Series thereof,
(b) addressing inquiries from Contract Owners relating to investing,
exchanging or transferring, or redeeming interests under the Variable
Contracts and the Separate Accounts or subaccounts or any Series
thereof funding such Variable Contracts, which inquiries may relate to
the Fund or a Series thereof;
(c) providing explanations to Owners regarding Fund investment objectives
and policies and other information about the Fund and its Series,
including the performance of the Series;
(d) forwarding shareholder communications from the Fund, including but not
limited to shareholder reports containing annual and semi-annual
financial statements of the Fund to Contract Owners;
(e) delivering the Fund prospectus and supplements thereto to Owners
whenever necessary under the Securities Act of 1933;
(f) delivering any notices of shareholder meetings and proxy statements
accompanying such notices in connection with general and special
meetings of shareholders of the Fund under which Contract Owners may
have voting rights, and helping tabulate the voting of Owners
tendering voting instructions to the Company.
6.2 The Fund and Adviser recognize the Company as the sole shareholder of
Fund shares issued under this Agreement and further recognize that Adviser
and/or the Fund will derive a substantial savings in administrative expense
because the Company will provide the services described above, thus allowing the
Fund significant reductions in
<PAGE>
17
postage expense and shareholder communications and recordkeeping, by virtue of
having a sole shareholder rather than multiple shareholders. In consideration of
the administrative savings resulting from such arrangement, the Company shall be
paid an amount equal to 15 basis points (0.15%) per annum of the average
aggregate amount invested by the Company under this Agreement.
6.3 For purposes of computing the payment to the Company contemplated by
this Section VI, the average aggregate amount invested by Company over a one
month period shall be computed by totaling the Company's aggregate investment
(share net asset value multiplied by total number of shares held by the Company)
on each business day during the month and dividing by the total number of
business days during such month.
6.4 The payment contemplated by this Section VI shall be calculated by
Adviser at the end of each calendar month and will be paid by Adviser to the
Company within ten (10) business days thereafter. Payment will be accompanied by
a statement showing the calculation of the monthly amount payable by Adviser and
such other supporting data as may be reasonably requested by the Company.
<PAGE>
18
ARTICLE VII. Indemnification
7.1. Indemnification By the Company
7.1(a). The Company agrees to indemnify and hold harmless the Fund, each of
its Directors/Trustees and officers, Adviser, and Distributor and each of the
Directors/Trustees of Adviser and Distributor (collectively, the "Indemnified
Parties" for purposes of this Section 7.1) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Company) or litigation expenses (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 litigation expenses:
(i) 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 (which shall include an offering memorandum) for the
Variable Contracts issued by the Company or sales literature for such
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 the Company by or on behalf
of the Fund: (1) for use in the registration statement or prospectus
for the Variable Contracts issued by the Company or in sales
literature (or any amendment or supplement to any of the foregoing) or
otherwise, (2) was contained in sales literature or other promotional
material that has been approved by the Fund or its designee or by
Distributor or its designee for use in connection with the sale of
such Variable Contracts or Fund shares, or (3) otherwise in connection
with the sale of the Variable Contracts or Fund shares; or
<PAGE>
19
(ii) arise Out Of Or result from the material breach of any representation
and/or warranty made by the Company in this Agreement or arise out of
or result from any other material breach of this Agreement by the
Company;
except to the extent provided in Sections 7.1(b) and 7.1(c) hereof.
7.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
expenses to which an Indemnified Party would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of his or
her duties or by reason of his or her reckless disregard of obligations or
duties under this Agreement or to the Fund.
7.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Party shall have notified the 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
Party shall have received notice of such service on any designated agent), but
failure to notify the Company of any such claim shall not relieve the 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, the Company
shall be entitled to participate, at its own expense, in the defense of such
action. The Company also shall be entitled to assume the defense thereof, with
counsel satisfactory to the Indemnified Party named in the action. After notice
from the
<PAGE>
20
Company to such party of the Company's election to assume the defense thereof,
the Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the 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.
7.1(d). The Indemnified Parties shall promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund shares thereunder or the Variable Contracts
issued by the Company or the operation of the Fund.
7.2. Indemnification By Distributor
7.2(a). Distributor agrees to indemnify and hold harmless the Company and
each of its directors and officers and the Separate Accounts (collectively, the
"Indemnified Parties" for purposes of this Section 7.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of Distributor) or litigation expenses (including legal and
other expenses) to which the Indemnified Parties may become subject under any
statute, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or litigation expenses:
(i) 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 the Fund (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon
<PAGE>
21
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 Distributor or
the Fund or the designee of either by or on behalf of the Company: (1)
for use in the registration statement or prospectus for the Fund or in
sales literature (or any amendment or supplement to any of the
foregoing) or otherwise, (2) was contained in sales literature or
other promotional material that has been approved by the Company or
its designee for use in connection with the sale of the Variable
Contracts or Fund shares, or (3) or otherwise for use in connection
with the sale of the Variable Contracts issued by the Company or Fund
shares; or
(ii) arise out of or result from the material breach of any representation
and/or warranty made by Distributor, Adviser, or the Fund in this
Agreement or arise out of or result from any other material breach of
this Agreement by Distributor, Adviser, or the Fund, including but not
limited to, compliance with the diversification requirements of
Section 817(h) of the Code and qualification of each Series of the
Fund as a Regulated Investment Company under Subchapter M of the Code;
except to the extent provided in Sections 7.2(b) and 7.2(c) hereof.
7.2(b). Distributor shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
expenses to which an Indemnified Party would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of his or
her duties or by reason of his or her reckless disregard of obligations and
duties under this Agreement or to the Company or the Separate Accounts.
7.2(c). Distributor shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Party shall have
<PAGE>
22
notified Distributor 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 Party shall have
received notice of such service on any designated agent), but failure to notify
Distributor of any such claim shall not relieve Distributor 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, Distributor will be entitled to
participate, at its own expense, in the defense thereof. Distributor also shall
be entitled to assume the defense thereof, with counsel satisfactory to the
Indemnified Party named in the action. After notice from Distributor to such
party of Distributor's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and Distributor 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.
7.2(d). The Company shall promptly notify Distributor of the commencement
of any litigation or proceedings against it or any of its officers or directors
in connection with the issuance or sale of the Fund shares hereunder or the
Variable Contracts issued by the Company or the operation of the Separate
Accounts provided that such litigation or proceedings relate to or affect the
interests of the Fund or Distributor.
<PAGE>
23
ARTICLE VIII. Applicable Law
8.l. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Maryland.
8.2. This Agreement shall be subject to the provisions of the 1933, 1934,
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
and the terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE IX. Termination
9.1. This Agreement shall terminate:
(a) at the option of any party upon 90 days advance written notice to the
other parties, unless a shorter time is agreed to by the parties to
this Agreement; or
(b) at the option of the Company if shares of the Series are not
reasonably available to meet the requirements of the Variable
Contracts issued by the Company, as determined by the Company, and
upon written notice by the Company to the other parties to this
Agreement; or,
(c) at the option of the Fund, Adviser, or Distributor upon institution of
formal proceedings against the Company by the NASD, the SEC, or any
state securities
<PAGE>
24
or insurance department or any other regulatory body if the Fund,
Adviser, or Distributor shall determine, in their sole judgment
exercised in good faith, that the Company has suffered a material
adverse change in its business, operations, financial condition, or
prospects since the date of this Agreement or is the subject of
material adverse publicity; or
(d) at the option of the Company upon institution of formal proceedings
against the Fund, Adviser, or Distributor by the NASD, the SEC, or any
state securities or insurance department or any other regulatory body
if the Company shall determine, in its sole judgment exercised in good
faith, that the Fund, Adviser, or Distributor has suffered a material
adverse change in its business, operations, financial condition, or
prospects since the date of this Agreement or is the subject of
material adverse publicity; or
(e) upon requisite vote of the Variable Contract Owners having an interest
in the Separate Accounts (or any subaccounts thereof) to substitute
the shares of another investment company or series thereof for the
corresponding shares of the Fund or a Series in accordance with the
terms of the Variable Contracts for which those shares had been
selected to serve as the underlying investment media; or
(f) in the event any of the shares of a Series are not registered, issued
or sold in accordance with applicable state and/or federal law, or
such law precludes the use of such shares as the underlying investment
media of the Variable Contracts issued or to be issued by the Company;
or
(g) at the option of the Company if the Fund or a Series fails to meet the
requirements specified in Section 3.2 hereof; or
<PAGE>
25
(h) at the option of the Fund or Distributor if the Variable Contracts
issued by the Company cease to qualify as annuity contracts or life
insurance contracts, as applicable, under the Code or if the Variable
Contracts are not registered, issued or sold in accordance with
applicable state and/or federal law; or
(i) at the option of the Company upon any substitution of the shares of
another investment company or series thereof for shares of the Fund or
a Series of the Fund in accordance with the terms of the Contracts,
provided that the Company has given at least 30 days prior written
notice to the Fund or Distributor of the date of the substitution.
(j) at the option of the Company upon a material breach of this Agreement
or of any representation or warranty herein by the Fund, Adviser, or
Distributor, or at the option of the Fund, Adviser, or Distributor
upon a material breach of this Agreement or of any representation or
warranty herein by the Company.
9.2. Each party to this Agreement shall promptly notify the other parties
to the Agreement of the institution against such party of any such formal
proceedings as described in Sections 9.1(c) and (d) hereof The Company shall
give 30 days prior written notice to the Fund of the date of any proposed vote
of Variable Contract Owners to replace the Fund's shares as described in Section
9.1(e) hereof.
<PAGE>
26
9.3. Under the terms of the Variable Contracts, the Company reserves the
right, subject to compliance with the law as then in effect, to make
substitutions for the securities that are held by a Separate Account of the
Company under certain circumstances. The parties acknowledge that the Company
has the right to substitute other securities for the shares of the Fund or a
Series thereof already purchased or to be purchased in the future if the shares
of the Fund or any or all of the Series of the Fund should no longer be
available for investment, or if, in the judgment of the Company's management,
further investment in shares of the Fund or any or all of the Series thereof
should become inappropriate in view of the purposes of the Contracts. The
Company will provide 30 days written notice to the Fund or to Distributor prior
to effecting any such substitution.
9.4. If this Agreement terminates, any provision of this Agreement
necessary to the orderly windup of business under it will remain in effect as to
that business, after termination.
ARTICLE X. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
<PAGE>
27
If to the Fund: Anthony Fischer
SEI Financial Services Company
680 Swedesford Road
Wayne, PA 19087
If to the Transfer Agent: Michael Melles
Supervised Service Company
811 Main
Kansas City, MO 64105
If to Adviser: Michael Harrington
Pilgrim Baxter & Associates, Ltd.
1255 Drummers Lane, Suite 300
Wayne, PA 19087
If to Distributor: Anthony Fischer
SEI Financial Services Company
680 Swedesford Road
Wayne, PA 19087
If to the Company: Richard A. Wacker
Associate General Counsel
American United Life Insurance
Company
One American Square
Indianapolis, IN 46282
ARTICLE XI. Miscellaneous
11.1. It is understood that the name "American United Life Insurance
Company", "AUL:' or any derivative thereof or logo associated with that name is
the valuable property of Distributor and its affiliates, and that the Company
has the right to use such name (or derivative or logo) only so long as this
Agreement is in effect. Upon
<PAGE>
28
termination of this Agreement the Company shall forthwith cease to use such name
(or derivative or logo).
11.2. It is understood that the name "The PBHG Funds, Inc.", "PBHG",
"Pilgrim Baxter & Associates" or any derivative thereof or logo associated with
that name is the valuable property of Distributor and its affiliates and
Adviser, and that the Company has the right to use such name (or derivative or
logo) only so long as this Agreement is in effect. Upon termination of this
Agreement the Company shall forthwith cease to use such name (or derivative or
logo).
11.3. The parties agree that the names, addresses, and other information
relating to the owners of the Variable Contracts or prospects for the sale of
the Variable Contracts are the exclusive property of Company and may not be used
by the Fund, Adviser, or Distributor without the written consent of the Company.
11.4. 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.
11.5. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
<PAGE>
29
11.6. 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.
11.7. This Agreement may not be assigned by any party to the Agreement
except with the written consent of the other parties to the Agreement. For
purposes of this provision, assignment shall be as defined in the Investment
Company Act of 1940 and the rules thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
The PBHG Funds, Inc.
ATTEST: _______________________ By: _______________________
Name: Name: David G. Lee
Title: Title: President
Pilgrim Baxter & Associates, Inc.
ATTEST: _______________________ By: _______________________
Name: Name: Michael J. Harrington
Title: Title: Mutual Funds Coordinator
SEI Financial Services Company
<PAGE>
30
ATTEST: _______________________ By: ______________________
Name: Name: David G. Lee
Title: Title: President
American United Life Insurance
Company(R)
ATTEST: ______________________ By: _______________________
Name: Richard A. Wacker Name: Brian M. Sweeney
Title: Associate General Counsel Title: V.P., Pension Mktg.
AMENDMENT NO. 1
TO
FUND PARTICIPATION AGREEMENT
This AMENDMENT NO. 1 is made as of the day of February, 1997, by and among
American United Life Insurance Company (R) (the "Company"), a life insurance
company domiciled in Indiana, on its behalf and on behalf of the segregated
asset accounts of the Company; The PBHG Funds, Inc. (the "Fund"), a Maryland
corporation; SEI Financial Services Company (the "Distributor"), a Delaware
corporation; and Pilgrim Baxter & Associates, Ltd. (the "Adviser"), a Delaware
corporation.
WITNESSETH
WHEREAS, the Company, the Fund, the Distributor, and the Adviser have
entered into a Participation Agreement dated April 3, 1995 relating to the
purchase and sale of shares of certain series of the Fund (the "Participation
Agreement"); and,
WHEREAS, the Company, the Fund, the Distributor and the Adviser desire to
amend the Participation Agreement to allow for the purchase of shares of
additional series of the Fund.
NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the parties hereby agree as follows:
1. Exhibit B to the Participation Agreement is hereby amended and
replaced by the Exhibit B that is attached hereto.
2. All other provisions of the Participation Agreement shall remain
unchanged.
3. This Amendment may be executed in two or more counterparts, each of
which when taken together shall constitute one and the same
instrument.
<PAGE>
1
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day and year first above written.
THE PBHG FUNDS, INC.
ATTEST: ___________________ By: __________________
Name: John M. Zerr Name: Brian F. Bereznak
Title: Vice President Title: Vice President
PILGRIM BAXTER &
ASSOCIATES, LTD.
ATTEST: ___________________ By: __________________
Name: John M. Zerr Name: Gary L. Pilgrim
Title: General Counsel & Secretary Title: President
SEI FINANCIAL
SERVICES COMPANY
ATTEST: ___________________ By: __________________
Name: William R. White Name: David Gene
Title: Account Director Title: Senior Vice President
AMERICAN UNITED LIFE
INSURANCE COMPANY(R)
ATTEST: ___________________ By: __________________
Name: Brian Sweeney Name: Richard A. Wacker
Title: Vice President Title: Associate General
Counsel
<PAGE>
2
EXHIBIT B
Name of Portfolios
PBHG Growth Fund
PBHG Emerging Growth Fund
- --------------------------------------------------------------------------------
EXHIBIT 8.7
FORM OF PARTICIPATION AGREEMENT WITH T. ROWE PRICE EQUITY SERIES INC.
- --------------------------------------------------------------------------------
PARTICIPATION AGREEMENT
Among
AMERICAN UNITED LIFE INSURANCE COMPANY,
T. ROWE PRICE INVESTMENT SERVICES, INC.,
and
T. ROWE PRICE EQUITY SERIES, INC.,
THIS AGREEMENT, effective as of the 3rd day of April, 1995 by and among
American United Life (hereinafter, the "Company"), an Indiana life insurance
company, on its own behalf and on behalf of each segregated asset account of the
Company set forth on Schedule A hereto as may be amended from time to time
(each account hereinafter referred to as the "Account"), and the T. Rowe Price
Equity Series Inc. (the "Fund"), a corporation organized under the laws of
Maryland, and T. Rowe Price Investment Services, Inc. (hereinafter the
"Underwriter"), a Maryland corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is or will be available to act as the investment vehicle for
separate accounts established for variable life insurance and variable annuity
contracts (the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and
Underwriter (hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Fund will obtain an order from the Securities and Exchange
Commission ("SEC") granting Participating Insurance Companies and variable
annuity and variable life insurance separate accounts exemptions from the
provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment. Company
Act of 1940, as amended, (hereinafter the "1940 Act") and Rules 6e-2(b)(15) and
6e-3(T) (b)(15) thereunder, if and to the extent necessary to permit shares of
the Fund to be sold to and held by variable annuity and variable life insurance
separate accounts of both affiliated and unaffiliated life insurance companies
(hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, T. Rowe Price Associates, Inc. (the "Adviser"), which serves as
investment adviser to the Fund, is duly registered as an investment adviser
under the federal Investment Advisers Act of 1940, as amended, and any
applicable state securities laws; and
<PAGE>
2
WHEREAS, the Company has issued or will issue certain variable life
insurance and variable annuity contracts supported wholly or partially by the
Account (the "Contracts"), and said Contracts are listed in Schedule A hereto,
as it may be amended from time to time by mutual written agreement; and
WHEREAS, the Account is duly established and maintained as a segregated
asset account, duly established by the Company, on the date shown for such
Account on Schedule A hereto, to set aside and invest assets attributable to the
aforesaid Contracts; and
WHEREAS, the Underwriter, which serves as distributor to the Fund, is
registered as a broker dealer with the SEC under the Securities Exchange Act of
1934, as amended (hereinafter the "1934 Act"), and is a member in good standing
of the National Association of Securities Dealers, Inc. (hereinafter "NASD");
and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement (the "Designated Portfolios") on behalf of the Account to fund the
aforesaid Contracts, and the Underwriter is authorized to sell such shares to
the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1 The Underwriter agrees to sell to the Company those shares of the
Designated Portfolios which the Account orders, executing such orders on a daily
basis at the net asset value next computed after receipt by the Fund or its
designee of the order for the shares of the Designated Portfolios.
1.2 The Fund agrees to make shares of the Designated Portfolios available
for purchase at the applicable net asset value per share by the Company and the
Account on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission, and the Fund shall use
reasonable efforts to calculate such net asset value on each day which the New
York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Trustees or Directors of the Fund (hereinafter the "Board") may refuse
to sell shares of any Designated Portfolio to any person, or suspend or
terminate the offering of shares of any Designated Portfolio if such action is
required by law or by regulatory authorities having jurisdiction or is, in the
sole discretion of the Board acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws, necessary in the
best interests of the shareholders of such Designated Portfolio.
1.3 The Fund and the Underwriter agree that shares of the Fund will be sold
only to Participating Insurance Companies and their separate accounts. No shares
of any Designated Portfolios will be sold to the general public. The Fund and
the Underwriter will not sell Fund shares to any insurance company or separate
account unless an agreement containing provisions substantially the same as
Articles I, III and VII of this Agreement is in effect to govern such sales.
1.4 The Fund agrees to redeem, on the Company's request, any full or
fractional shares of the Designated Portfolios held by the Company, ordinarily
executing such requests on a daily basis at the net asset value next computed
after receipt by the Fund or its designee of the request for redemption, except
that the Fund reserves the right to suspend the right of redemption or postpone
the date of payment or satisfaction upon redemption consistent with Section
22(e) of the 1940 Act and any rules thereunder, and in accordance with the
procedures and policies of the Fund as described in the then current prospectus.
<PAGE>
3
Subject to the foregoing, the Fund ordinarily expects to pay redemption proceeds
in cash on the next Business Day after an order to redeem Fund shares is made in
accordance with the provisions of Section 1.5 hereof. Payment shall be in
federal funds transmitted by wire by 3:00 p.m. Baltimore time.
1.5 For purposes of Sections 1.1 and 1.4, the Company shall be the designee
of the Fund for receipt of purchase and redemption orders from the Account, and
receipt by such designee shall constitute receipt by the Fund; provided that the
Company receives the order by 4:00 p.m. Baltimore time and the Fund receives
notice of such order by 9:30 a.m. Baltimore time on the next following Business
Day. "Business Day" shall mean any day on which the New York Stock Exchange is
open for trading and on which the Fund calculates its net asset value pursuant
to the rules of the SEC.
1.6 The Company agrees to purchase and redeem the shares of the Designated
Portfolios offered by the then current prospectus of the Fund and in accordance
with the provisions of such prospectus.
1.7 The Company shall pay for Fund shares on the next Business Day after an
order to purchase Fund shares is made in accordance with the provisions of
Section 1.5 hereof. Payment shall be in federal funds transmitted by wire by
3:00 p.m. Baltimore time. If payment in federal funds for any purchase is not
received or is received by the Fund after 3:00 p.m. Baltimore time on such
Business Day, the Company shall promptly, upon the Fund's request, reimburse the
Fund for any charges, costs, fees, interest or other expenses incurred by the
Fund in connection with any advances to, or borrowing or overdrafts by, the
Fund, or any similar expenses incurred by the Fund, as a result of portfolio
transactions effected by the Fund based upon such purchase request. For purposes
of Section 2.8 and 2.9 hereof, upon receipt by the Fund of the federal funds so
wired, such funds shall cease to be the responsibility of the Company and shall
become the responsibility of the Fund.
1.8 Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account. Shares
ordered from the Fund will be properly recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9 The Fund shall furnish same day notice (by wire or telephone, followed
by written confirmation) to the Company of any income, dividends or capital gain
distributions payable on the Designated Portfolios' shares. The Company hereby
elects to receive all such income, dividends, and capital gain distributions as
are payable on Designated Portfolio shares in additional shares of that
Portfolio. The Company reserves the right to revoke this election and to receive
all such income dividends and capital gain distributions in cash. The Fund shall
notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.10 The Fund shall make the net asset value per share for each Designated
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. Baltimore time) and shall use its best efforts to make such net asset value
per share available by 7 p.m. Baltimore time.
1.11 The Parties hereto acknowledge that the arrangement contemplated by
this Agreement is not exclusive; the Fund's shares may be sold to other
insurance companies (subject to Section 1.3 and Article VI hereof) and the cash
value of the Contracts may be invested in other investment companies, provided,
however, that (a) such other investment company, or series thereof, has
investment objectives or policies that are substantially different from the
investment objectives and policies of the Fund; or (b) the Company gives the
Fund and the Underwriter 45 days written notice of its intention to make such
other investment company available as a funding vehicle for the Contracts; or
(c) such other investment
<PAGE>
4
company was available as a funding vehicle for the Contracts prior to the date
of this Agreement and the Company so informs the Fund and Underwriter prior to
their signing this Agreement; or (d) the Fund or Underwriter consents to the use
of such other investment company, such consent not to be unreasonably withhold.
ARTICLE II. Representations and Warranties
2.1 The Company represents and warrants that the Contracts (a) are or,
prior to issuance, will be registered under the 1933 Act or, alternatively (b)
are not registered because they are properly exempt from registration under the
1933 Act or will be offered exclusively in transactions that are properly exempt
from registration under the 1933 Act. The Company further represents and
warrants that the Contracts will be issued and sold in compliance in all
material respects with all applicable federal securities and state securities
and insurance laws and that the sale of the Contracts shall comply in all
material respects with state insurance suitability requirements. The Company
further represents and warrants that it is an insurance company duly organized
and in good standing under applicable law, that it has legally and validly
established the Account prior to any issuance or sale thereof as a segregated
asset account under Indiana insurance laws, and that it (a) has registered or,
prior to any issuance or sale of the Contracts, will register the Account as a
unit investment trust in accordance with the provisions of the 1940 Act to serve
as a segregated investment account for the Contracts, or alternatively (b) has
not registered the Account in proper reliance upon an exclusion from
registration under the 1940 Act. The Company shall register and qualify the
contracts or interests therein as securities in accordance with the laws of the
various states only if and to the extent deemed advisable by the Company.
2.2 The Fund represents and warrants that Fund shares sold pursuant to this
Agreement shall be registered under the 1933 Act, duly authorized for issuance
and sold in compliance with the laws of the State of Indiana and all applicable
federal and state securities laws and that the Fund is and shall remain
registered under the 1940 Act. The Fund shall amend the Registration Statement
for its shares under the 1933 Act and the 1940 Act from time to time as required
in order to effect the continuous offering of its shares. The Fund shall
register and qualify the shares for sale in accordance with the laws of the
various states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3 The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, although it may
make such payments in the future. To the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund will undertake to have
the Board of Directors or Trustees of the Fund (the "Board"), a majority of whom
are not interested persons of the Fund, formulate and approve any plan pursuant
to Rule 12b-1 under the 1940 Act to finance distribution expenses.
2.4 The Fund makes no representations as to whether any aspect of its
operations, including but not limited to, investment policies, fees and
expenses, complies with the insurance and other applicable laws of the various
states, except that the Fund represents that the Fund's investment policies,
fees and expenses are and shall at all times remain in compliance with the laws
of the State of Indiana to the extent required to perform this Agreement.
2.5 The Fund represents that it is lawfully organized and validly existing
under the laws of the State of Maryland and that it does and will comply in all
material respects with the 1940 Act.
2.6 The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will
<PAGE>
5
sell and distribute the Fund shares in accordance with the laws of the State of
Indiana and any applicable state and federal securities laws.
2.7 The Underwriter represents and warrants that the Adviser is and shall
remain duly registered under all applicable federal and state securities laws
and that the Adviser shall perform its obligations for the Fund in compliance in
all material respects with the laws of the State of Indiana and any applicable
state and federal securities laws.
2.8 The Fund and the Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other individuals or
entities dealing with the money and/or securities of the Fund are and shall
continue to be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of the Fund in an amount not less than the minimum
coverage as required currently by Rule 17g-1 of the 1940 Act or related
provisions as may be promulgated from time to time. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
2.9 The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities
employed or controlled by the Company dealing with the money and/or securities
of the Account are covered by a blanket fidelity bond or similar coverage for
the benefit of the Account, in an amount not less than $5 million. The aforesaid
bond includes coverage for larceny and embezzlement and is issued by a reputable
bonding company. The Company agrees to hold for the benefit of the Fund and to
pay to the Fund any amounts lost from larceny, embezzlement or other events
covered by the aforesaid bond to the extent such amounts properly belong to the
Fund pursuant to the terms of this Agreement. The Company agrees to make all
reasonable efforts to see that this bond or another bond containing these
provisions is always in effect, and agrees to notify the Fund and the
Underwriter in the event that such coverage no longer applies.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1 The Underwriter shall provide the Company with as many copies of the
Fund's current prospectus (describing only the Designated Portfolios listed on
Schedule A) as the Company may reasonably request. The Company shall bear the
expense of printing copies of its current prospectus that will be distributed to
existing Contract owners, and the Company shall bear the expense of printing
copies of the Fund's prospectus that are used in connection with offering the
Contracts issued by the Company. If requested by the Company in lieu thereof,
the Fund shall provide such documentation (including a final copy of the new
prospectus on diskette at the Fund's expense) and other assistance as is
reasonably necessary in order for the Company once each year (or more frequently
if the prospectus for the Fund is amended) to have the prospectus for the
Contracts and the Fund's prospectus printed together in one document (such
printing to be at the Company's expense).
3.2 The Fund's prospectus shall state that the current Statement of
Additional Information ("SAI") for the Fund is available from the Company, and
the Underwriter (or the Fund), at its expense, shall provide copies of such SAI
free of charge to the Company for itself and for any owner of a Contract who
requests such SAI.
3.3 The Fund, at its expense, shall provide the Company with copies of its
proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners.
<PAGE>
6
3.4 The Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions received
from Contract owners; and
(iii) vote Fund shares for which no instructions have been received in
the same proportion as Fund shares of such portfolio for which
instructions have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners or to the
extent otherwise required by law. The Company reserves the right to vote Fund
shares held in any segregated asset account in its own right, to the extent
permitted by law.
3.5 Participating Insurance Companies shall be responsible for assuring
that each of their separate accounts participating in a Designated Portfolio
calculates voting privileges as required by the Shared Funding Exemptive Order
and consistent with any reasonable standards that the Fund may adopt and provide
in writing.
3.6 The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the SEC's interpretation of the requirements of Section 16(a)
with respect to periodic elections of directors or trustees and with whatever
rules the SEC may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1 The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material
that the Company develops or uses and in which the Fund (or a Designated
Portfolio thereof) or the Adviser or the Underwriter is named, at least ten
Business Days prior to its use. No such material shall be used if the Fund or
its designee reasonably object to such use within ten Business Days after
receipt of such material. The Fund or its designee reserves the night to
reasonably object to the continued use of any such sales literature or other
promotional material in which the Fund (or a Designated Portfolio thereof) or
the Adviser or the Underwriter is named, and no such material shall be used if
the Fund or its designee so object.
4.2 The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement or prospectus or SAI for the Fund
shares, as such registration statement and prospectus or SAI may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3 The Fund, Underwriter, or its designee shall furnish, or shall cause to
be furnished, to the Company, each piece of sales literature or other
promotional material that it develops or uses and in which
<PAGE>
7
the Company, and/or its Account, is named at least ten Business Days prior to
its use. No such material shall be used if the Company reasonably objects to
such use within ten Business Days after receipt of such material. The Company
reserves the right to reasonably object to the continued use of any such sales
literature or other promotional material in which the Company and/or its Account
is named, and no such material shall be used if the Company so objects.
4.4. The Fund and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company, the
Account, or the Contracts other than the information or representations
contained in a registration statement, prospectus (which shall include an
offering memorandum, if any, if the Contracts issued by the Company or interests
therein are not registered under the 1933 Act), or SAI for the Contracts, as
such registration statement, prospectus, or SAI may be amended or supplemented
from time to time, or in published reports for the Account which are in the
public domain or approved by the Company for distribution to Contract Owners, or
in sales literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5 The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, SAIs, reports, proxy statements, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above, that
relate to the Fund or its shares, contemporaneously with the filing of such
document(s) with the SEC or other regulatory authorities.
4.6 The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses (which shall include an offering
memorandum, if any, if the Contracts issued by the Company or interests therein
are not registered under the 1933 Act), SAIs, reports, solicitations for voting
instructions, sales literature and other promotional materials, applications for
exemptions, requests for no- action letters, and all amendments to any of the
above, that relate to the Contracts or the Account, contemporaneously with the
filing of such document(s) with the SEC or other regulatory authorities.
4.7 The Fund will provide the Company with as much notice as is reasonably
practicable of any proxy solicitation for any Designated Portfolio, and of any
material change in the Fund's registration statement, particularly any change
resulting in a change to the registration statement or prospectus for any
Account. The Fund will work with the Company so as to enable the Company to
solicit proxies from Contract Owners, or to make changes to its prospectus or
registration statement, in an orderly manner. The Fund will make reasonable
efforts to attempt to have changes affecting Contract prospectuses become
effective simultaneously with the annual updates for such prospectuses.
4.8 For purposes of this Article IV, the phrase "sales literature and other
promotional materials" includes, but is not limited to, any of the following
that refer to the Fund or any affiliate of the Fund: 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
(i.e., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, reports, market
letters, form letters, seminar texts, 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, and registration statements, prospectuses,
SAIs, shareholder reports, proxy materials, and any other communications
distributed or made generally available with regard to the Funds.
<PAGE>
8
ARTICLE V. Fees and Expenses
5.1 The Fund and the Underwriter shall pay no fee or other compensation to
the Company under this Agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing, and such payments will be made out of existing fees otherwise payable
to the Underwriter, past profits of the Underwriter, or other resources
available to the Underwriter. No such payments shall be made directly by the
Fund. Currently, no such payments are contemplated.
5.2 All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund. The Fund shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent deemed advisable by the Fund, in accordance with
applicable state laws prior to their sale. The Fund shall bear the expenses for
the cost of registration and qualification of the Fund's shares, preparation and
filing of the Fund's prospectus and registration statement, proxy materials and
reports, setting the prospectus in type, setting in type and printing the proxy
materials and reports to shareholders (including the costs of printing a
prospectus that constitutes an annual report), the preparation of all statements
and notices required by any federal or state law, and all taxes on the issuance
or transfer of the Fund's shares.
5.3 The Company shall bear the expenses of distributing the Fund's
prospectus to owners of Contracts issued by the Company and of distributing the
Fund's proxy materials and reports to such Contract owners.
ARTICLE VI. Diversification and Qualification
6.1 The Fund will invest its assets in such a manner as to ensure that the
Contracts will be treated as annuity or life insurance contracts, whichever is
appropriate, under the Internal Revenue Code of 1986, as amended (the "Code")
and the regulations issued thereunder (or any successor provisions). Without
limiting the scope of the foregoing, each Designated Portfolio has complied and
will continue to comply with Section 817(h) of the Code and Treasury Regulation
Sec. 1.817-5, and any Treasury interpretations thereof, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts, and any amendments or other modifications or successor provisions to
such Section or Regulations. In the event of a breach of this Article VI by the
Fund, it will take all reasonable steps (a) to notify the Company of such breach
and (b) to adequately diversify the Fund so as to achieve compliance within the
grace period afforded by Regulation 817.5.
6.2 The Fund represents that it is or will be qualified as a Regulated
Investment Company under Subchapter M of the Code, and that it will make every
effort to maintain such qualification (under Subchapter M or any successor or
similar provisions) and that it will notify the Company immediately upon having
a reasonable basis for believing that it has ceased to so qualify or that it
might not so qualify in the future.
6.3 The Company represents that the Contracts are currently, and at the
time of issuance shall be, treated as life insurance or annuity insurance
contracts, under applicable provisions of the Code, and that it will make every
effort to maintain such treatment, and that it will notify the Fund and the
Underwriter immediately upon having a reasonable basis for believing the
Contracts have ceased to be so treated or that they might not be so treated in
the future. The Company agrees that any prospectus offering a contract that is a
"modified endowment contract" as that term is defined in Section 7702A of
<PAGE>
9
the Code (or any successor or similar provision), shall identify such contract
as a modified endowment contract.
ARTICLE VII. Potential Conflicts
The following provisions shall apply only upon issuance of the Mixed and Shared
Funding Order and the sale of shares of the Fund to variable life insurance
separate accounts.
7.1 The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or (f)
a decision by an insurer to disregard the voting instructions of contract
owners. The Board shall promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3 If it is determined by a majority of the Board, or a majority of its
disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested Board members), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account.
7.4 If a material irreconcilable conflict arises because of a decision by
the Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the Account's investment in
the Fund and terminate this Agreement with respect to each Account provided,
however, that such withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as determined by a
majority of the disinterested members of the Board. Any such withdrawal and
termination must take place within six (6) months after the Fund gives written
notice that this provision is being implemented, and until the end of that six
month period the Fund shall continue to accept and implement orders by the
Company for the purchase (and redemption) of shares of the Fund.
<PAGE>
10
7.5 If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state regulators, then the Company will withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account within six months after the Board informs the Company in writing
that it has determined that such decision has created an irreconcilable material
conflict; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. Until the
end of the foregoing six month period, the Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.6 For purposes of Section 7.3 through 7.6 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 to establish a new funding
medium for the Contract if an offer to do so has been declined by vote of a
majority of Contract owners materially adversely affected by the irreconcilable
material conflict. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Fund and terminate this
Agreement within six (6) months after the Board informs the Company in writing
of the foregoing determination; provided, however, that such withdrawal and
termination shall be limited to the extent required by any such material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
7.7 If and to the extent the Shared Funding Exemption Order or any
amendment thereto contains terms and conditions different from Sections 3.4,
3.5, 3.6, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement, then the Fund and/or
the Participating Insurance Companies, as appropriate, shall take such steps as
may be necessary to comply with the Shared Funding Exemptive Order, and Sections
3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4 and 7.5 of this Agreement shall continue in
effect only to the extent that terms and conditions substantially identical to
such Sections are contained in the Shared Funding Exemptive Order or any
amendment thereto. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule 6c-3 is adopted, to provide exemptive relief from any provision
of the 1940 Act or the rules promulgated thereunder with respect to mixed or
shared funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared Funding
Exemptive Order, then (a) the Fund and/or the Participating Insurance Companies,
as appropriate, shall take such steps as may be necessary to comply with Rules
6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such
rules are applicable; and (b) Sections 3.4, 3.5, 7.1., 7.2, 7.3, 7.4, and 7.5 of
this Agreement shall continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8.1 Indemnification By the Company
8.1(a). The Company agrees to indemnify and hold harmless the Fund and the
Underwriter and each of its directors and officers, and each person, if any, who
controls the Fund or Underwriter within the meaning of Section 15 of the 1933
Act (collectively, the "Indemnified Parties" for purposes of this Section 8.1)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Company) 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
<PAGE>
11
respect thereof) or settlements are related to the current or prior sale or
acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the
Registration Statement, prospectus (which shall include an
offering memorandum, if any), or SAI for the Contracts or
contained in the Contracts or sales literature for the 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 the Company by or
on behalf of the Fund for use in the Registration Statement,
prospectus or SAI for the Contracts or in the Contracts or sales
literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus, SAI, or sales literature of
the Fund not supplied by the Company or persons under its
control) or wrongful conduct of the Company or persons under its
authorization or control, with respect to the sale or
distribution of the Contracts or Fund Shares, or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a Registration Statement,
prospectus, SAI, or sales literature of the 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 a
statement or omission was made in reliance upon information
furnished to the Fund by or on behalf of the Company; or
(iv) arise as a result of any material failure by the Company to
provide the services and furnish the materials under the terms of
this Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the qualification
requirements specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company, as limited by and in
accordance with the provisions of Sections 8-1(b) and 8.1(c)
hereof.
8.1(b). The Company 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 its obligations or duties under this Agreement.
<PAGE>
12
8.1(c) The 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 the 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 the Company of any such claim shall not
relieve the 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, the Company shall be entitled to participate, at its own
expense, in the defense of such action. The Company also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Company to such party of the Company's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the 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.
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund Shares or the Contracts or the operation of the
Fund.
8.2 Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless the Company
and each of it directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Underwriter) 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
are related to the current or prior sale or acquisition of the Fund's shares or
the Contracts; and
(i) 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 SAI or sales literature
of the 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 the Underwriter
or Fund by or on behalf of the Company for use in the
Registration Statement, prospectus or SAI for the Fund or in
sales literature (or any amendment or supplement) or otherwise
for use in connection with the sale of the Contracts or Fund
shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus, SAI or sales literature for
the Contracts not supplied by the Underwriter or persons under
its control) or wrongful conduct of the
<PAGE>
13
Fund or Underwriter or persons under their control, with respect
to the sale or distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a Registration Statement,
prospectus, SAI or sales literature covering the 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 statement or statements
therein not misleading, if such statement or omission was made in
reliance upon information furnished to the Company by or on
behalf of the Fund or the Underwriter; or
(iv) arise as a result of any failure by the Fund or the Underwriter
to provide the services and furnish the materials under the terms
of this Agreement (including a failure of the Fund, whether
unintentional or in good faith or otherwise, to comply with the
diversification and other qualification requirements specified in
Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Underwriter;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter 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 or such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company or the Account, whichever is applicable.
8.2(c). The Underwriter 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 the Underwriter 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 the Underwriter of
any such claim shall not relieve the Underwriter 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 Party, the Underwriter will be entitled to participate,
at its own expense, in the defense thereof. The Underwriter also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Underwriter to such party of the
Underwriter's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the Underwriter 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.
<PAGE>
14
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account.
8.3 Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the Company and each
of its directors and officers and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.3) against any and all losses, claims,
expenses, damages, liabilities (including amounts paid in settlement with the
written consent of the Fund) or litigation (including legal and other expenses)
to which the Indemnified Parties may be required to pay or may become subject
under any statute or regulation, at common law or otherwise, insofar as such
losses, claims, expenses, damages, liabilities or expenses (or actions in
respect thereof) or settlements, are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in good
faith or otherwise, to comply with the diversification and other
qualification requirements specified in Article VI of this
Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund 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 or to the
Company, the Fund, the Underwriter or the Account, whichever is applicable.
8.3(c). The Fund 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 the Fund 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 the Fund of any such claim shall not
relieve the Fund 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, the Fund will be entitled to participate, at its own
expense, in the defense thereof. The Fund also shall be entitled to assume the
expense thereof, with counsel satisfactory to the party named in the action.
After notice from the Fund to such party of the Fund's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund 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.
<PAGE>
15
8.3(d). The Company and the Underwriter agree promptly to notify the Fund
of the commencement of any litigation or proceeding against it or any of its
respective officers or directors in connection with the Agreement, the issuance
or sale of the Contracts, the operation of the Account, or the sale or
acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1 This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of Maryland.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934 and
1940 Acts, and the rules and regulations and rulings thereunder, including such
exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, any Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. Termination
10.1 This Agreement shall continue in full force and effect until the first
to occur of
(a) termination by any party, for any reason with respect to some or
all Designated Portfolios, by three (3) months advance written
notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and the
Underwriter based upon the Company's determination that shares of
the Fund are not reasonably available to meet the requirements of
the Contracts; or
(c) termination by the Company by written notice to the Fund and the
Underwriter in the event any of the Portfolio's shares are not
registered, issued or sold in accordance with applicable state
and/or federal law or such law precludes the use of such shares
as the underlying investment media of the Contracts issued or to
be issued by the Company; or
(d) termination by the Fund or Underwriter in the event that formal
administrative proceedings are instituted against the Company by
the NASD, the SEC, the Insurance Commissioner or like official of
any state or any other regulatory body regarding the Company's
duties under this Agreement or related to the sale of the
Contracts, the operation of any Account, or the purchase of the
Fund shares; provided, however, that the Fund or Underwriter
determines in its sole judgment exercised in good faith, that any
such administrative proceedings will have a material adverse
effect upon the ability of the Company to perform its obligations
under this Agreement; or
(e) termination by the Company in the event that formal
administrative proceedings are instituted against the Fund or
Underwriter by the NASD, the SEC, or any state securities or
insurance department or any other regulatory body; provided,
however, that the Company determines in its sole judgment
exercised in good faith, that any such administrative proceedings
will have a material adverse effect upon the ability of the Fund
or Underwriter to perform its obligations under this Agreement;
or
<PAGE>
16
(f) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Designated Portfolio in the event
that such Portfolio ceases to qualify as a Regulated Investment
Company under Subchapter M or fails to comply with the Section
817(h) diversification requirements specified in Article VI
hereof, or if the Company reasonably believes that such Portfolio
may fail to so qualify or comply; or
(g) termination by the Fund or Underwriter by written notice to the
Company in the event that the Contracts fail to meet the
qualifications specified in Article VI hereof, or
(h) termination by either the Fund or the Underwriter by written
notice to the Company, if either one or both of the Fund or the
Underwriter respectively, shall determine, in their sole judgment
exercised in good faith, that the Company has suffered a material
adverse change in its business, operations, financial condition,
or prospects since the date of this Agreement or is the subject
of material adverse publicity; or
(i) termination by the Company by written notice to the Fund and the
Underwriter, if the Company shall determine, in its sole judgment
exercised in good faith, that the Fund, Adviser, or the
Underwriter has suffered a material adverse change in its
business, operations, financial condition or prospects since the
date of this Agreement or is the subject of material adverse
publicity; or
(j) termination by the Fund or the Underwriter by written notice to
the Company, if the Company gives the Fund and the Underwriter
the written notice specified in Section 1.11 (b) hereof and at
the time such notice was given there was no notice of termination
outstanding under any other provision of this Agreement;
provided, however, any termination under this Section 10.1(j)
shall be effective forty-five days after the notice specified in
Section 1.11 (b) was given; or
(k) termination by the Company upon any substitution of the shares of
another investment company or series thereof for shares of a
Designated Portfolio of the Fund in accordance with the terms of
the Contracts, provided that the Company has given at least 45
days prior written notice to the Fund and Underwriter of the date
of substitution; or
(1) termination by any party in the event that the Fund's Board of
Directors determines that a material irreconcilable conflict
exists as provided in Article VII.
10.2 Notwithstanding any termination of this Agreement, the Fund and the
Underwriter shall, at the option of the Company, continue to make available
additional shares of the Fund pursuant to the terms and conditions of this
Agreement, for all Contracts in effect on the effective date of termination of
this Agreement (hereinafter referred to as "Existing Contracts"). Specifically,
the owners of the Existing Contracts may be permitted to reallocate investments
in the Fund, redeem investments in the Fund and/or invest in the Fund upon the
making of additional purchase payments under the Existing Contracts. The parties
agree that this Section 10.2 shall not apply to any terminations under Article
VII and the effect of such Article VII terminations shall be governed by Article
VII of this Agreement. The parties further agree that this Section 10.2 shall
not apply to any terminations under Section 10.1(g) of this Agreement.
<PAGE>
17
10.3 The Company shall not redeem Fund shares attributable to the Contracts
(as opposed to Fund shares attributable to the Company's assets held in the
Account) except (i) as necessary to implement Contract owner initiated or
approved transactions, (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"), (iii) as permitted
by an order of the SEC pursuant to Section 26(b) of the 1940 Act, or (iv) as
permitted under the terms of the Contract. Upon request, the Company will
promptly furnish to the Fund and the Underwriter reasonable assurance that any
redemption pursuant to clause (ii) above is a Legally Required Redemption.
Furthermore, except in cases where permitted under the terms of the Contracts,
the Company shall not prevent Contract owners from allocating payments to a
Portfolio that was otherwise available under the Contracts without first giving
the Fund or the Underwriter 45 days notice of its intention to do so.
10.4 Notwithstanding any termination of this Agreement, each party's
obligation under Article VIII to indemnify the other parties shall survive.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
Attention: Henry H. Hopkins, Esq.
If to the Company:
American United Life Insurance Company
One American Square
Indianapolis, Indiana 46204
Attention: Richard A. Wacker, Esq.
If to Underwriter:
T. Rowe Price Investment Services, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
Attention: Terrie Westren
ARTICLE XII. Miscellaneous
12.1 All persons dealing with the Fund must look solely to the property of
the Fund, and in the case of a series company, the respective Designated
Portfolios listed on Schedule A hereto as though each such Designated Portfolio
had separately contracted with the Company and the Underwriter for the
enforcement of any claims against the Fund. The parties agree that neither the
Board, officers, agents or shareholders of the Fund assume any personal
liability or responsibility for obligations entered into by or on behalf of the
Fund.
12.2 Subject to the requirements of legal process and regulatory authority,
each party hereto shall treat as confidential the names and addresses of the
owners of the Contracts and all information
<PAGE>
18
reasonably identified as confidential in writing by any other party hereto and,
except as permitted by this Agreement, shall not disclose, disseminate or
utilize such names and addresses and other confidential information without the
express written consent of the affected party until such time as such
information has come into the public domain.
12.3 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.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 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.
12.6 Each party hereto 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.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the Indiana Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the variable annuity
operations of the Company are being conducted in a manner consistent with the
Iowa variable annuity laws and regulations and any other applicable law or
regulations.
12.7 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.
12.8 This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior written consent of all parties
hereto.
12.9 The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under
generally accepted accounting principles ("GAAP"), if any) filed
with any state or federal regulatory body or otherwise made
available to the public, as soon as practical and in any event
within 90 days after the end of each fiscal year; and
(b) any registration statement (without exhibits) and financial
reports of the Company filed with the Securities and Exchange
Commission or any state insurance regulatory, as soon as
practical after the filing thereof.
<PAGE>
19
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed in its name and on its behalf by its duly authorized representative and
its seal to be hereunder affixed hereto as of the date specified below.
COMPANY: AMERICAN UNITED LIFE INSURANCE COMPANY
By its authorized officer
By:
-----------------------------------
Title: Vice President
Date: April 6, 1995
FUND: T. Rowe Price Equity Series, Inc.
By its authorized officer
By:
Title: Vice President
Date: April 5, 1995
UNDERWRITER: T. ROWE PRICE INVESTMENT SERVICES, INC.
By its authorized officer
By:
Title: Vice President
Date: April 5, 1995
<PAGE>
SCHEDULE A
<TABLE>
<S> <C> <C>
Name of Separate Account and
Date Established by the Contracts Funded by
Executive Committee of AUL the Separate Account Designated Portfolios
1. AUL American Unit Trust Separate DCP Multiple-Fund Group Variable Annuity (P-12518) T. Rowe Price Equity
Account (established 8/17/89) TDA Multiple-Fund Group Variable Annuity (P-1 251 1) Series, Inc.
TDA Multiple-Fund Group Variable Annuity (P-12511,WA) ----------
TDA Multiple-Fund Group Variable Annuity (P-12833) T. Rowe Price Equity
TDA Multiple-Fund Group Variable Annuity (P-12833SPL) Income Portfolio
IRA Multiple-Fund Group Variable Annuity (P-12566)
IRA Multiple-Fund Group Variable Annuity (P-12867)
Employer-Sponsored TDA Multiple-Fund Group
Variable Annuity (P-12621)
Employer-Sponsored TDA Multiple-Fund Group
Variable Annuity [(P-12621(BR)]
Employer-Sponsored TDA and Qualified Plan Multiple-Fund
Group Variable Annuity [P-13098(BR)]
2. Group Retirement Annuity Separate Separate Accounts Group Retirement T. Rowe Price Equity
Account II (established 12/17/92) Annuity (GRA VIII) [P-12947(BR)] Series, Inc.
----------
T. Rowe Price Equity
Income Portfolio
3. Group Retirement Annuity Separate Separate Accounts Group Retirement Annuity T. Rowe Price Equity
Account I (established 4/15/93) (GRA IV) (P-11710) Series, Inc.
Separate Accounts Group Retirement Annuity ----------
(GRA V) (P-11736) T. Rowe Price Equity
Separate Accounts Group Retirement Annuity Income Portfolio
(GRA VI) (P-12390)
Separate Accounts Group Retirement Annuity
(GRA VI & IX)(BR) [P-12390(BR)]
Separate Accounts Group Deposit Annuity Contract
4. AUL American Individual Unit Trust Individual Flexible Premium Deferred Variable Annuity T. Rowe Price Equity
Separate Account (established 4/14/94) (LA-27) Series, Inc.
Individual One Year Flexible Premium Deferred ----------
Variable Annuity (LA-27) T. Rowe Price Equity
Income Portfolio
</TABLE>
- --------------------------------------------------------------------------------
EXHIBIT 9
OPINION AND CONSENT OF ASSOCIATE GENERAL COUNSEL OF AUL
AS TO THE LEGALITY OF CONTRACTS BEING REGISTERED
- --------------------------------------------------------------------------------
American United Life Insurance Company
One American Square
P.O. Box 368
Indianapolis Indiana 46206-0368
Telephone (317) 263-1877
Associate General Counsel September 8, 1994
Filing Room
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington D.C. 20549
Dear Sir or Madam:
In my capacity as Associate General Counsel of American United Life
Insurance Company (R) ("AUL"), I supervised the establishment of AUL American
Individual Unit Trust on April 14, 1994, by resolution of the Executive
Committee of the Board of Directors of AUL as the separate account for assets
applicable to individual variable annuity contracts, pursuant to the provisions
of Section 27-1-5-1 Class l(c) of the Indiana Insurance Code. Moreover, I have
been associated with the preparation of the Registration Statement on Form N-4
("Registration Statement") filed by AUL on May 31, 1994 and AUL American
Individual Unit Trust with the Securities and Exchange Commission (File No.
33-79562) under the Securities Act of 1933, as amended, for the registration of
Individual Variable Annuity Contracts to be issued with respect to AUL American
Individual Unit Trust.
I have made such examination of the law and examined such corporate records
and such other documents that, in my judgment, are necessary and appropriate to
enable me to render the following opinion that:
1. AUL has been duly organized under the laws of the State of Indiana and is a
validly existing corporation.
2. AUL American Individual Unit Trust has been duly created and validly exists
as a separate account pursuant to Indiana law.
3. The portion of the assets held in AUL American Individual Unit Trust equal
to the reserves and other liabilities under the Individual Variable Annuity
Contracts is not chargeable with liabilities arising out of any
<PAGE>
Securities and Exchange Commission
September 8, 1994
Page Two
other business AUL may conduct.
4. The Individual Variable Annuity Contracts have been duly authorized by AUL
and, when issued as contemplated by the Registration Statement, will
constitute legal, validly issued and binding obligations of AUL, except as
limited by bankruptcy and other laws generally affecting the rights of
creditors.
I hereby consent to the filing of this opinion as an exhibit of the
Registration statement.
Very truly yours,
/s/ Richard A. Wacker
Richard A. Wacker
Associate General Counsel
RAW/jk
- --------------------------------------------------------------------------------
EXHIBIT 10.1
CONSENT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
Board of Directors
American United Life Insurance Company(R)
Indianapolis, Indiana
We consent to the inclusion in Post-Effective Amendment No. 6 to the
Registration Statement of AUL American Individual Unit Trust (the "Trust") on
Form N-4 (File No. 33-79562) of:
(1) Our report dated February 2, 1998, on our audits of the financial
statements of the Trust; and
(2) Our report dated February 27, 1998, on our audits of the financial
statements of American United Life Insurance Company.
We also consent to the reference to our Firm under the caption "Independent
Accountants.
/s/ Coopers & Lybrand L.L.P.
Indianapolis, Indiana
April 24, 1998
- --------------------------------------------------------------------------------
EXHIBIT 10.2
CONSENT OF DECHERT PRICE & RHOADS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
477 Madison Ave LAW OFFICE OF TEN POST OFFICE SQUARE,
NEW YORK, NY 10022-5891 SOUTH
(212) 326-3500 DECHERT PRICE & RHOADS BOSTON, MA 02109-4603
1500 K STREET, N.W. (617) 728-7100
4000 BELL ATLANTIC TOWER WASHINGTON, DC 20005-1208
1717 ARCH STREET TELEPHONE: (202) 626-3300 PRINCETON PIKE CORP. CNTR.
PHILADELPHIA, PA 19103-2793 FAX: (202) 626-3334 P.O. BOX 5218
(215) 994-4000 PRINCETON, NJ 08543-85218
(609) 520-3200
THIRTY NORTH THIRD STREET 65 AVENUE LOUISE
HARRISBURG, PA 17101-1603 1050 BRUSSELS, BELGIUM
(717) 237-2000 (32-2) 535-5411
TITMUSS SANIER DECHERT
2 SERJEANTS' INN
LONDON EC4Y 1LT, ENGLAND
(44-171) 583-5353
</TABLE>
September 12, 1994
Board of Directors
American United Life Insurance Company
One American Square
Indianapolis, Indiana 46204
Re: AUL American Individual Unit Trust, SEC File No. 33-79562
Dear Sirs:
We hereby consent to the reference to our firm under the caption "Legal Matters"
in the Prospectus comprising a part of the above referenced Registration
Statement.
Very truly yours,
/s/ Dechert Price & Rhoads
Dechert Price & Rhoads
- --------------------------------------------------------------------------------
EXHIBIT 10.3
POWERS OF ATTORNEY
- --------------------------------------------------------------------------------
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Richard A. Wacker and William R. Brown, and each of them his true
and lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution for him in his name, place and stead to sign any and all
Registration Statements (including Registration Statements or any Amendments
thereto arising from any reorganization of a Separate Account with any other
Separate Account) applicable to Separate Accounts established for funding
variable annuity and variable life contracts of American United Life Insurance
Company(R) and any Amendments or supplements thereto, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
Dated: 8/4/97
--------------------------------
/s/ Steven C. Beering, M.D.
--------------------------------
Steven C. Beering, M.D.
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Richard A. Wacker and William R. Brown, and each of them his true
and lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution for him in his name, place and stead to sign any and all
Registration Statements (including Registration Statements or any Amendments
thereto arising from any reorganization of a Separate Account with any other
Separate Account) applicable to Separate Accounts established for funding
variable annuity and variable life contracts of American United Life Insurance
Company(R) and any Amendments or supplements thereto, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
Dated: 7/28/97
--------------------------------
/s/ Arthur L. Bryant
--------------------------------
Arthur L. Bryant
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Richard A. Wacker and William R. Brown, and each of them his true
and lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution for him in his name, place and stead to sign any and all
Registration Statements (including Registration Statements or any Amendments
thereto arising from any reorganization of a Separate Account with any other
Separate Account) applicable to Separate Accounts established for funding
variable annuity and variable life contracts of American United Life Insurance
Company(R) and any Amendments or supplements thereto, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
Dated: 7/28/97
--------------------------------
/s/ James M. Cornelius
--------------------------------
James M. Cornelius
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Richard A. Wacker and William R. Brown, and each of them his true
and lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution for him in his name, place and stead to sign any and all
Registration Statements (including Registration Statements or any Amendments
thereto arising from any reorganization of a Separate Account with any other
Separate Account) applicable to Separate Accounts established for funding
variable annuity and variable life contracts of American United Life Insurance
Company(R) and any Amendments or supplements thereto, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
Dated: 7/28/97
--------------------------------
/s/ James E. Dora
--------------------------------
James E. Dora
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Richard A. Wacker and William R. Brown, and each of them his true
and lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution for him in his name, place and stead to sign any and all
Registration Statements (including Registration Statements or any Amendments
thereto arising from any reorganization of a Separate Account with any other
Separate Account) applicable to Separate Accounts established for funding
variable annuity and variable life contracts of American United Life Insurance
Company(R) and any Amendments or supplements thereto, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
Dated: 7/28/97
--------------------------------
/s/ Otto N. Frenzel III
--------------------------------
Otto N. Frenzel III
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Richard A. Wacker and William R. Brown, and each of them his true
and lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution for him in his name, place and stead to sign any and all
Registration Statements (including Registration Statements or any Amendments
thereto arising from any reorganization of a Separate Account with any other
Separate Account) applicable to Separate Accounts established for funding
variable annuity and variable life contracts of American United Life Insurance
Company(R) and any Amendments or supplements thereto, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
Dated: 8/4/97
--------------------------------
/s/ David W. Goodrich
--------------------------------
David W. Goodrich
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Richard A. Wacker and William R. Brown, and each of them his true
and lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution for him in his name, place and stead to sign any and all
Registration Statements (including Registration Statements or any Amendments
thereto arising from any reorganization of a Separate Account with any other
Separate Account) applicable to Separate Accounts established for funding
variable annuity and variable life contracts of American United Life Insurance
Company(R) and any Amendments or supplements thereto, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
Dated: 7/28/97
--------------------------------
/s/ William P. Johnson
--------------------------------
William P. Johnson
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Richard A. Wacker and William R. Brown, and each of them his true
and lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution for him in his name, place and stead to sign any and all
Registration Statements (including Registration Statements or any Amendments
thereto arising from any reorganization of a Separate Account with any other
Separate Account) applicable to Separate Accounts established for funding
variable annuity and variable life contracts of American United Life Insurance
Company(R) and any Amendments or supplements thereto, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
Dated: 8/1/97
--------------------------------
/s/ James T. Morris
--------------------------------
James T. Morris
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Richard A. Wacker and William R. Brown, and each of them his true
and lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution for him in his name, place and stead to sign any and all
Registration Statements (including Registration Statements or any Amendments
thereto arising from any reorganization of a Separate Account with any other
Separate Account) applicable to Separate Accounts established for funding
variable annuity and variable life contracts of American United Life Insurance
Company(R) and any Amendments or supplements thereto, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
Dated: 7/28/97
--------------------------------
/s/ James W. Murphy
--------------------------------
James W. Murphy
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Richard A. Wacker and William R. Brown, and each of them his true
and lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution for him in his name, place and stead to sign any and all
Registration Statements (including Registration Statements or any Amendments
thereto arising from any reorganization of a Separate Account with any other
Separate Account) applicable to Separate Accounts established for funding
variable annuity and variable life contracts of American United Life Insurance
Company(R) and any Amendments or supplements thereto, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
Dated: 7/25/97
--------------------------------
/s/ R. Stephen Radcliffe
--------------------------------
R. Stephen Radcliffe
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Richard A. Wacker and William R. Brown, and each of them his true
and lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution for him in his name, place and stead to sign any and all
Registration Statements (including Registration Statements or any Amendments
thereto arising from any reorganization of a Separate Account with any other
Separate Account) applicable to Separate Accounts established for funding
variable annuity and variable life contracts of American United Life Insurance
Company(R) and any Amendments or supplements thereto, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
Dated: 8/4/97
--------------------------------
/s/ Thomas E. Reilly, Jr.
--------------------------------
Thomas E. Reilly, Jr.
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Richard A. Wacker and William R. Brown, and each of them his true
and lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution for him in his name, place and stead to sign any and all
Registration Statements (including Registration Statements or any Amendments
thereto arising from any reorganization of a Separate Account with any other
Separate Account) applicable to Separate Accounts established for funding
variable annuity and variable life contracts of American United Life Insurance
Company(R) and any Amendments or supplements thereto, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
Dated: 8/4/97
--------------------------------
/s/ William R. Riggs
--------------------------------
William R. Riggs
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Richard A. Wacker and William R. Brown, and each of them his true
and lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution for him in his name, place and stead to sign any and all
Registration Statements (including Registration Statements or any Amendments
thereto arising from any reorganization of a Separate Account with any other
Separate Account) applicable to Separate Accounts established for funding
variable annuity and variable life contracts of American United Life Insurance
Company(R) and any Amendments or supplements thereto, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
Dated: 9/29/97
--------------------------------
/s/ John C. Scully
--------------------------------
John C. Scully
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Richard A. Wacker and William R. Brown, and each of them his true
and lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution for him in his name, place and stead to sign any and all
Registration Statements (including Registration Statements or any Amendments
thereto arising from any reorganization of a Separate Account with any other
Separate Account) applicable to Separate Accounts established for funding
variable annuity and variable life contracts of American United Life Insurance
Company(R) and any Amendments or supplements thereto, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
Dated: 7/25/97
--------------------------------
/s/ Jerry D. Semler
--------------------------------
Jerry D. Semler
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Richard A. Wacker and William R. Brown, and each of them his true
and lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution for him in his name, place and stead to sign any and all
Registration Statements (including Registration Statements or any Amendments
thereto arising from any reorganization of a Separate Account with any other
Separate Account) applicable to Separate Accounts established for funding
variable annuity and variable life contracts of American United Life Insurance
Company(R) and any Amendments or supplements thereto, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
Dated: 7/28/97
--------------------------------
/s/ Yvonne H. Shaheen
--------------------------------
Yvonne H. Shaheen
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes
and appoints Richard A. Wacker and William R. Brown, and each of them his true
and lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution for him in his name, place and stead to sign any and all
Registration Statements (including Registration Statements or any Amendments
thereto arising from any reorganization of a Separate Account with any other
Separate Account) applicable to Separate Accounts established for funding
variable annuity and variable life contracts of American United Life Insurance
Company(R) and any Amendments or supplements thereto, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
Dated: 7/28/97
--------------------------------
/s/ Frank D. Walker
--------------------------------
Frank D. Walker
- --------------------------------------------------------------------------------
EXHIBIT 11
ANNUAL REPORT OF AUL AMERICAN INDIVIDUAL UNIT TRUST
FOR THE PERIOD ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
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 to surprise investors with its performance
during 1997. The current seven year expansion has been unique in that economic
growth has remained moderate while inflationary pressures have been subdued. The
inflation rate actually declined during 1997, allowing the Federal Reserve to
hold monetary policy steady during the last nine months of the year. Other
positive economic factors during the year included lower interest rates, higher
productivity and improved corporate profit margins.
Equity investors were richly rewarded during the past year with the Dow
Jones Industrial Average and the S&P 500 (commonly quoted equity indices) both
achieving double digit returns. During 1997, equity investors reacted positively
to the combination of slow growth and moderate inflation. However, the
volatility of returns increased dramatically during the second half of the year
as investors became fearful that corporations would experience a decline in
profit growth during 1998. Severe weakness in Asia and Latin America was another
principal catalyst causing increased volatility.
Bond yields moved higher in the first quarter of 1997 in reaction to the
Federal Reserve Bank's 25 basis point increase in the Federal Funds rate target
but declined over the remainder of the year. Moderate inflation, a declining
federal deficit, and turmoil in the Asian markets caused the Federal Reserve
Bank to withhold any further intervention, despite strong economic growth and
low unemployment. As a result, bond returns, especially for bonds with longer
maturities, were competitive with common stocks in the last six months of 1997
although they still trailed well behind equity returns for the entire year.
At the present time, most economists are expecting economic growth to
decelerate in 1998 as a result of weaker domestic demand and momentum lost from
foreign trade. Slower growth does have some positive aspects. However, equity
investors remain focused on the possibility of weaker corporate profits.
Equity investors have now experienced three years of phenomenal equity
returns, returns which are substantially higher than the long-term averages. The
major stock indices could still post further gains during 1998, but the
opportunity to dramatically outperform the long-term averages becomes extremely
limited. Good bond performance will depend on declining interest rates,
continued moderate inflation and bonds being viewed as an "alternative
investment" for equity investors.
/s/ James W. Murphy
James W. Murphy
Chairman of the Board of Directors and President
1
<PAGE>
(This page is intentionally blank)
2
<PAGE>
Indianapolis, Indiana
January 20, 1998
Report of Independent Accountants
The Contract Owners of
AUL American Individual Unit Trust and
Board of Directors of
American United Life Insurance Company
We have audited the accompanying statements of net assets of AUL American
Individual Unit Trust as of December 31, 1997, 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, 1997, by correspondence with
the custodians. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. 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, 1997, 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
February 2, 1998
3
<PAGE>
AUL American Individual Unit Trust
STATEMENTS OF NET ASSETS
December 31, 1997
<TABLE>
<CAPTION>
Series Fund Fidelity
-------------------------------------------------------------- ----------
Equity Money Bond Managed Tactical High
Market Asset Income
---------- ---------- ---------- ---------- ---------- ----------
<S> .................... <C> <C> <C> <C> <C> <C>
Assets:
Investments at value ... $8,976,235 $5,092,365 $2,366,858 $6,178,542 $3,168,747 $4,486,791
---------- ---------- ---------- ---------- ---------- ----------
Net Assets ............. $8,976,235 $5,092,365 $2,366,858 $6,178,542 $3,168,747 $4,486,791
========== ========== ========== ========== ========== ==========
Units outstanding ...... 1,008,287 4,549,404 373,791 791,101 459,162 577,023
========== ========== ========== ========== ========== ==========
Accumulation Unit Value $ 8.90 $ 1.12 $ 6.33 $ 7.81 $ 6.90 $ 7.78
========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
AUL American Individual Unit Trust
STATEMENTS OF NET ASSETS (continued)
December 31, 1997
<TABLE>
<CAPTION>
Fidelity
---------------------------------------------------------------------------------
Growth Overseas Asset Index 500 Equity- Contrafund
Manager Income
----------- ----------- ----------- ----------- ----------- -----------
<S> ................... <C> <C> <C> <C> <C> <C>
Assets:
Investments at value .. $12,936,642 $ 1,948,811 $12,030,222 $19,854,895 $10,124,985 $11,602,769
----------- ----------- ----------- ----------- ----------- -----------
Net Assets ............ $12,936,642 $ 1,948,811 $12,030,222 $19,854,895 $10,124,985 $11,602,769
=========== =========== =========== =========== =========== ===========
Units outstanding 1,393,042 297,195 1,581,639 1,836,589 1,186,973 1,310,234
=========== =========== =========== =========== =========== ===========
Accumulation Unit Value $ 9.29 $ 6.56 $ 7.61 $ 10.81 $ 8.53 $ 8.86
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
AUL American Individual Unit Trust
STATEMENTS OF NET ASSETS (continued)
December 31, 1997
<TABLE>
<CAPTION>
American Century Alger Calvert T.RowePrice
----------------------------- ----------- ------------ -------------
VP Capital VP American Capital
Appreciation International Growth Accumulation Equity Income
------------- ------------- ----------- ------------ -------------
<S> ................... <C> <C> <C> <C> <C>
Assets:
Investments at value .. $ 1,830,373 $ 2,635,254 $14,588,275 $ 1,860,781 $ 20,117,044
------------- ------------- ----------- ------------ -------------
Net Assets ............ $ 1,830,373 $ 2,635,254 $14,588,275 $ 1,860,781 $ 20,117,044
============= ============= =========== ============ =============
Units outstanding ..... 312,676 371,156 1,748,167 231,353 2,226,491
============= ============= =========== ============ =============
Accumulation Unit Value $ 5.85 $ 7.10 $ 8.34 $ 8.04 $ 9.04
============= ============= =========== ============ =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
AUL American Individual Unit Trust
STATEMENTS OF NET ASSETS (continued)
December 31, 1997
PBHG
-----------------------------
Growth II Tech. & Comm.
------------ --------------
Assets:
Investments at value $ 521,632 $ 405,466
------------ --------------
Net Assets $ 521,632 $ 405,466
============= ==============
Units outstanding 97,881 78,548
============= ==============
Accumulation Unit Value $ 5.33 $ 5.16
============= ==============
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
AUL American Individual Unit Trust
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Series Fund
--------------------------------------------------------------------------------------------
Equity Money Market Bond
---------------------------- ---------------------------- ----------------------------
1997 1996 1997 1996 1997 1996
------------ ------------ ------------ ------------ ------------ ------------
<S> ........................ <C> <C> <C> <C> <C> <C>
Operations:
Dividend income ............ $ 194,477 $ 45,758 $ 183,949 $ 115,215 $ 155,983 $ 92,504
Mortality & expense
charges ................... 78,607 29,591 47,237 30,590 26,224 16,617
------------ ------------ ------------ ------------ ------------ ------------
Net Investment Income
(Loss) .................... 115,870 16,167 136,712 84,625 129,759 75,887
------------ ------------ ------------ ------------ ------------ ------------
Gain (Loss) on Investments:
Net realized gain (loss) ... 285,199 34,024 -- -- 37,423 (2,048)
Net change in
unrealized gain (loss) .... 1,029,868 344,982 -- -- (35,542) (18,274)
------------ ------------ ------------ ------------ ------------ ------------
Net Gain (Loss) ............ 1,315,067 379,006 -- -- 1,881 (20,322)
------------ ------------ ------------ ------------ ------------ ------------
Increase (Decrease)
in Net Assets from
Operations ................ 1,430,937 395,173 136,712 84,625 131,640 55,565
------------ ------------ ------------ ------------ ------------ ------------
Contract Owner Transactions:
Proceeds from units sold ... 4,466,066 2,342,416 11,080,898 21,617,520 2,367,692 1,594,898
Cost of units redeemed ..... (595,356) (66,261) (8,812,016) (20,667,199) (2,078,457) (186,785)
------------ ------------ ------------ ------------ ------------ ------------
Increase (Decrease) ........ 3,870,710 2,276,155 2,268,882 950,321 289,235 1,408,113
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) .... 5,301,647 2,671,328 2,405,594 1,034,946 420,875 1,463,678
Net Assets, beginning ...... 3,674,588 1,003,260 2,686,771 1,651,825 1,945,983 482,305
------------ ------------ ------------ ------------ ------------ ------------
Net Assets, ending ......... $ 8,976,235 $ 3,674,588 $ 5,092,365 $ 2,686,771 $ 2,366,858 $ 1,945,983
============ ============ ============ ============ ============ ============
Units sold ................. 554,508 368,904 10,417,704 20,521,606 381,702 277,366
Units redeemed ............. (74,488) (10,375) (8,356,283) (19,616,253) (335,222) (31,969)
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) .... 480,020 358,529 2,061,421 905,353 46,480 245,397
Units outstanding, beginning 528,267 169,738 2,487,983 1,582,630 327,311 81,914
------------ ------------ ------------ ------------ ------------ ------------
Units outstanding, ending .. 1,008,287 528,267 4,549,404 2,487,983 373,791 327,311
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
AUL American Individual Unit Trust
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (continued)
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Series Fund Fidelity
-------------------------------------------------------- -----------------------
Managed Tactical Asset High Income
-------------------------- -------------------------- -----------------------
1997 1996 1997 1996 1997 1996
------------ ----------- ----------- ----------- ----------- -----------
<S> ........................ <C> <C> <C> <C> <C> <C>
Operations:
Dividend income ............ $ 303,723 $ 81,813 $ 229,808 $ 28,262 $ 176,695 $ 69,242
Mortality & expense
charges ................... 58,232 25,095 26,793 7,553 37,368 17,670
------------ ----------- ----------- ----------- ----------- -----------
Net Investment Income
(Loss) ..................... 245,491 56,718 203,015 20,709 139,327 51,572
------------ ----------- ----------- ----------- ----------- -----------
Gain (Loss) on Investments:
Net realized gain (loss) ... 109,208 25,509 48,556 2,694 60,312 26,834
Net change in
unrealized gain (loss) .... 432,569 159,770 5,006 64,663 247,977 83,401
------------ ----------- ----------- ----------- ----------- -----------
Net Gain (Loss) ............ 541,777 185,279 53,562 67,357 308,289 110,235
------------ ----------- ----------- ----------- ----------- -----------
Increase (Decrease)
in Net Assets from
Operations ................. 787,268 241,997 256,577 88,066 447,616 161,807
------------ ----------- ----------- ----------- ----------- -----------
Contract Owner Transactions:
Proceeds from units sold ... 2,588,339 2,460,594 2,070,415 824,922 2,479,819 1,356,038
Cost of units redeemed ..... (462,750) (142,232) (137,709) (29,031) (518,646) (178,148)
------------ ----------- ----------- ----------- ----------- -----------
Increase (Decrease) ........ 2,125,589 2,318,362 1,932,706 795,891 1,961,173 1,177,890
------------ ----------- ----------- ----------- ----------- -----------
Net increase(decrease) ..... 2,912,857 2,560,359 2,189,283 883,957 2,408,789 1,339,697
Net Assets, beginning ...... 3,265,685 705,326 979,464 95,507 2,078,002 738,305
------------ ----------- ----------- ----------- ----------- -----------
Net Assets, ending ......... $ 6,178,542 $ 3,265,685 $ 3,168,747 $ 979,464 $ 4,486,791 $ 2,078,002
============ =========== =========== =========== =========== ===========
Units sold ................. 355,209 403,449 318,153 150,337 337,319 214,596
Units redeemed ............. (63,509) (23,140) (20,857) (6,501) (70,840) (28,308)
------------ ----------- ----------- ----------- ----------- -----------
Net increase (decrease) .... 291,700 380,309 297,296 143,836 266,479 186,288
Units outstanding, beginning 499,401 119,092 161,866 18,030 310,544 124,256
------------ ----------- ----------- ----------- ----------- -----------
Units outstanding, ending .. 791,101 499,401 459,162 161,866 577,023 310,544
============ =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
AUL American Individual Unit Trust
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (continued)
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Fidelity
--------------------------------------------------------------------------------------------
Growth Overseas Asset Manager
---------------------------- ---------------------------- ----------------------------
1997 1996 1997 1996 1997 1996
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Dividend income ............ $ 325,488 $ 206,470 $ 92,988 $ 9,445 $ 763,196 $ 98,943
Mortality & expense
charges ................... 137,514 71,907 18,503 9,283 108,982 44,655
------------ ------------ ------------ ------------ ------------ ------------
Net Investment Income
(Loss) ..................... 187,974 134,563 74,485 162 654,214 54,288
------------ ------------ ------------ ------------ ------------ ------------
Gain (Loss) on Investments:
Net realized gain (loss) ... 353,918 211,891 59,959 19,409 110,314 58,343
Net change in
unrealized gain (loss) ..... 1,595,384 311,416 (37,531) 62,848 703,669 390,495
------------ ------------ ------------ ------------ ------------ ------------
Net Gain (Loss) ............ 1,949,302 523,307 22,428 82,257 813,983 448,838
------------ ------------ ------------ ------------ ------------ ------------
Increase (Decrease)
in Net Assets from
Operations ................. 2,137,276 657,870 96,913 82,419 1,468,197 503,126
------------ ------------ ------------ ------------ ------------ ------------
Contract Owner Transactions:
Proceeds from units sold ... 3,826,538 5,798,270 1,120,040 716,922 5,181,615 4,311,179
Cost of units redeemed ..... (1,640,979) (415,375) (330,480) (91,954) (611,357) (212,023)
------------ ------------ ------------ ------------ ------------ ------------
Increase (Decrease) ........ 2,185,559 5,382,895 789,560 624,968 4,570,258 4,099,156
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) .... 4,322,835 6,040,765 886,473 707,387 6,038,455 4,602,282
Net Assets, beginning ...... 8,613,807 2,573,042 1,062,338 354,951 5,991,767 1,389,485
------------ ------------ ------------ ------------ ------------ ------------
Net Assets, ending ......... $ 12,936,642 $ 8,613,807 $ 1,948,811 $ 1,062,338 $ 12,030,222 $ 5,991,767
============ ============ ============ ============ ============ ============
Units sold ................. 456,931 805,777 169,260 128,049 730,254 727,908
Units redeemed ............. (195,006) (57,408) (50,539) (16,250) (87,170) (35,685)
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) .... 261,925 748,369 118,721 111,799 643,084 692,223
Units outstanding, beginning 1,131,117 382,748 178,474 66,675 938,555 246,332
------------ ------------ ------------ ------------ ------------ ------------
Units outstanding, ending .. 1,393,042 1,131,117 297,195 178,474 1,581,639 938,555
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements
10
<PAGE>
AUL American Individual Unit Trust
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (continued)
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Fidelity
--------------------------------------------------------------------------------------------
Index 500 Equity-Income Contrafund
---------------------------- ---------------------------- ----------------------------
1997 1996 1997 1996 1997 1996
------------ ------------ ------------ ------------ ------------ ------------
<S> ........................ <C> <C> <C> <C> <C> <C>
Operations:
Dividend income ............ $ 256,760 $ 45,109 $ 616,205 $ 59,196 $ 205,387 $ 10,399
Mortality & expense
charges ................... 166,249 44,637 96,237 44,959 111,873 43,120
------------ ------------ ------------ ------------ ------------ ------------
Net Investment Income
(Loss) ..................... 90,511 472 519,968 14,237 93,514 (32,721)
------------ ------------ ------------ ------------ ------------ ------------
Gain (Loss) on Investments:
Net realized gain loss) .... 562,621 122,509 240,521 38,790 399,353 80,913
Net change in
unrealized gain (loss) .... 2,607,904 638,522 958,013 396,053 1,242,165 666,789
------------ ------------ ------------ ------------ ------------ ------------
Net Gain (Loss) ............ 3,170,525 761,031 1,198,534 434,843 1,641,518 747,702
------------ ------------ ------------ ------------ ------------ ------------
Increase (Decrease)
in Net Assets from
Operations ................ 3,261,036 761,503 1,718,502 449,080 1,735,032 714,981
------------ ------------ ------------ ------------ ------------ ------------
Contract Owner Transactions:
Proceeds from units sold ... 11,227,689 5,347,903 4,399,847 4,547,863 4,689,385 4,960,020
Cost of units redeemed ..... (1,357,807) (272,289) (1,672,256) (287,406) (1,044,864) (186,380)
------------ ------------ ------------ ------------ ------------ ------------
Increase (Decrease) ........ 9,869,882 5,075,614 2,727,591 4,260,457 3,644,521 4,773,640
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) .... 13,130,918 5,837,117 4,446,093 4,709,537 5,379,553 5,488,621
Net Assets, beginning ...... 6,723,977 886,860 5,678,892 969,355 6,223,216 734,595
------------ ------------ ------------ ------------ ------------ ------------
Net Assets, ending ......... $ 19,854,895 $ 6,723,977 $ 10,124,985 $ 5,678,892 $ 11,602,769 $ 6,223,216
============ ============ ============ ============ ============ ============
Units sold ................. 1,160,180 721,534 562,867 725,735 577,185 767,503
Units redeemed ............. (138,613) (36,902) (218,107) (45,774) (128,422) (27,857)
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) .... 1,021,567 684,632 344,760 679,961 448,763 739,646
Units outstanding, beginning 815,022 130,390 842,213 162,252 861,471 121,825
------------ ------------ ------------ ------------ ------------ ------------
Units outstanding, ending .. 1,836,589 815,022 1,186,973 842,213 1,310,234 861,471
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
AUL American Individual Unit Trust
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (continued)
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
American Century Alger
------------------------------------------------------------ ----------------------------
VP Capital Appreciation VP International American Growth
---------------------------- ---------------------------- ----------------------------
1997 1996 1997 1996 1997 1996
------------ ------------ ------------ ------------ ------------ ------------
<S> ........................ <C> <C> <C> <C> <C> <C>
Operations:
Dividend income ............ $ 44,016 $ 138,502 $ 37,999 $ 13,386 $ 102,249 $ 131,042
Mortality & expense
charges ................... 26,083 21,010 23,017 7,924 148,455 64,041
------------ ------------ ------------ ------------ ------------ ------------
Net Investment Income
(Loss) ..................... 17,933 117,492 14,982 5,462 (46,206) 67,001
------------ ------------ ------------ ------------ ------------ ------------
Gain (Loss) on Investments:
Net realized gain (loss) ... (174,225) 29,651 230,824 14,675 450,958 57,997
Net change in
unrealized gain (loss) .... 68,744 (267,775) (68,911) 65,251 1,888,668 429,314
------------ ------------ ------------ ------------ ------------ ------------
Net Gain (Loss) ............ (105,481) (238,124) 161,913 79,926 2,339,626 487,311
------------ ------------ ------------ ------------ ------------ ------------
Increase (Decrease)
in Net Assets from
Operations ................ (87,548) (120,632) 176,895 85,388 2,293,420 554,312
------------ ------------ ------------ ------------ ------------ ------------
Contract Owner Transactions:
Proceeds from units sold ... 1,217,666 1,732,790 2,459,408 433,643 5,486,477 7,105,908
Cost of units redeemed ..... (1,579,609) (164,269) (880,556) (37,857) (1,632,203) (469,736)
------------ ------------ ------------ ------------ ------------ ------------
Increase (Decrease) ........ (361,943) 1,568,521 1,578,852 395,786 3,854,274 6,636,172
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) .... (449,491) 1,447,889 1,755,747 481,174 6,147,694 7,190,484
Net Assets, beginning ...... 2,279,864 831,975 879,507 398,333 8,440,581 1,250,097
------------ ------------ ------------ ------------ ------------ ------------
Net Assets, ending ......... $ 1,830,373 $ 2,279,864 $ 2,635,254 $ 879,507 $ 14,588,275 $ 8,440,581
============ ============ ============ ============ ============ ============
Units sold ................. 199,521 268,925 350,320 77,615 715,079 1,122,887
Units redeemed ............. (258,864) (25,176) (124,281) (6,759) (222,982) (75,053)
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) .... (59,343) 243,749 226,039 70,856 492,097 1,047,834
Units outstanding, beginning 372,019 128,270 145,117 74,261 1,256,070 208,236
------------ ------------ ------------ ------------ ------------ ------------
Units outstanding, ending .. 312,676 372,019 371,156 145,117 1,748,167 1,256,070
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
AUL American Individual Unit Trust
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (continued)
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Calvert T. Rowe Price PBHG
---------------------------- ---------------------------- -------------------------------
Capital Accumulation Equity-Income Growth II(1) Tech.& Comm.(1)
---------------- ----------- ---------------------------- ------------ ---------------
1997 1996 1997 1996 1997 1997
------------ ------------ ------------ ------------ ------------ ---------------
<S> ........................ <C> <C> <C> <C> <C> <C>
Operations:
Dividend income ............ $ 193,311 $ 2,162 $ 929,965 $ 175,556 $ -- $ --
Mortality & expense
charges ................... 18,586 8,980 166,855 51,751 2,506 2,123
------------ ------------ ------------ ------------ ------------ ---------------
Net Investment Income
(Loss) .................... 174,725 (6,818) 763,110 123,805 (2,506) (2,123)
------------ ------------ ------------ ------------ ------------ ---------------
Gain (Loss) on Investments:
Net realized gain
(loss) .................... 48,471 8,363 465,118 124,056 (622) 25,874
Net change in
unrealized gain (loss) .... 69,643 44,730 1,904,287 515,833 (18,592) (52,422)
------------ ------------ ------------ ------------ ------------ ---------------
Net Gain (Loss) ............ 118,114 53,093 2,369,405 639,889 (19,214) (26,548)
------------ ------------ ------------ ------------ ------------ ---------------
Increase (Decrease)
in Net Assets from
Operations ................ 292,839 46,275 3,132,515 763,694 (21,720) (28,671)
------------ ------------ ------------ ------------ ------------ ---------------
Contract Owner Transactions:
Proceeds from units sold ... 495,600 1,178,357 10,649,296 6,202,566 1,474,635 653,188
Cost of units redeemed ..... (260,165) (41,758) (1,346,727) (265,100) (931,283) (219,051)
------------ ------------ ------------ ------------ ------------ ---------------
Increase (Decrease) ........ 235,435 1,136,599 9,302,569 5,937,466 543,352 434,137
------------ ------------ ------------ ------------ ------------ ---------------
Net increase (decrease) .... 528,274 1,182,874 12,435,084 6,701,160 521,632 405,466
Net Assets, beginning ...... 1,332,507 149,633 7,681,960 980,800 -- --
------------ ------------ ------------ ------------ ------------ ---------------
Net Assets, ending ......... $ 1,860,781 $ 1,332,507 $ 20,117,044 $ 7,681,960 $ 521,632 $ 405,466
============ ============ ============ ============ ============ ===============
Units sold ................. 72,221 184,348 1,310,129 958,454 268,845 114,417
Units redeemed ............. (43,129) (6,178) (165,014) (40,121) (170,964) (35,869)
------------ ------------ ------------ ------------ ------------ ---------------
Net increase (decrease) .... 29,092 178,170 1,145,115 918,333 97,881 78,548
Units outstanding, beginning 202,261 24,091 1,081,376 163,043 -- --
------------ ------------ ------------ ------------ ------------ ---------------
Units outstanding, ending .. 231,353 202,261 2,226,491 1,081,376 97,881 78,548
============ ============ ============ ============ ============ ===============
</TABLE>
(1) for the period from May 1, 1997 to December 31, 1997
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
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 (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 variable 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 Variable
Insurance Products Fund and Variable Insurance Products Fund II(Fidelity),
American Century Variable Portfolios, Inc. (American Century), Alger American
Fund (Alger), Acacia Capital Corporation (Calvert), T. Rowe Price Equity Series,
Inc. (T. Rowe Price), and PBHG Insurance Series Fund, Inc. (PBHG).
Security Valuation, Transactions and Related Income
The market value of investments is based on the closing bid prices at December
31, 1997. 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, 1997 and 1996 were $1,301,444 and $539,383 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 and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of increases and decreases in net assets from operations
during the reporting period. Actual results could differ from those estimates.
2. 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, 1997 and 1996 were $81,617 and
$21,722, 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. However,
the contract owner has a right to a full refund of the contributions made under
the contract for any reason within ten days of original contract purchase. If a
particular state allows a longer "free look" period, then such state law will be
followed for Participants residing in that state. The amount of the withdrawal
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> <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%
</TABLE>
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.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
3.Accumulation Unit Value
The change in the Net Asset Value per unit for the year ended December 31, 1997,
or from commencement of operation, May 1, 1997, through December 31, 1997, is:
12/31/97 12/31/96 Change
--------- --------- ------
Series Fund:
Equity $8.902288 $6.955832 28.0%
Money Market 1.118656 1.079623 3.6%
Bond 6.331288 5.944584 6.5%
Managed 7.809842 6.538610 19.4%
Tactical Asset 6.900921 6.050897 14.0%
Fidelity:
High Income 7.775151 6.690998 16.2%
Growth 9.286787 7.614970 22.0%
Overseas 6.557107 5.951929 10.2%
Asset Manager 7.606226 6.383686 19.2%
Index 500 10.811089 8.249673 31.0%
Equity Income 8.530417 6.742581 26.5%
Contrafund 8.855954 7.223554 22.6%
American Century:
VP Capital
Appreciation 5.855008 6.128474 (4.5%)
VP International 7.100007 6.060122 17.2%
Alger:
American Growth 8.344870 6.719732 24.2%
Calvert:
Capital Accumulati 8.041824 6.587155 22.1%
T. Rowe Price:
Equity Income 9.040136 7.104109 27.3%
12/31/97 05/01/97 Change
--------- --------- ------
PBHG:
Growth II $5.330245 $5.000000 6.6%
Technology &
Communications 5.161663 5.000000 3.2%
4. Cost of Investments
The cost of investments at December 31, 1997, is:
Series Fund:
Equity $ 7,534,677
Money Market 5,092,365
Bond 2,410,971
Managed 5,565,128
Tactical Asset 3,099,411
Fidelity:
High Income 4,100,802
Growth 10,831,970
Overseas 1,898,608
Asset Manager 10,808,977
Fidelity (continued):
Index $ 16,529,378
Equity-Income 8,714,286
Contrafund 9,669,697
American Century:
Vp Capital
Appreciation 1,945,238
Vp International 2,604,897
Alger:
American Growth 12,261,354
Calvert:
Capital
Accumulation $ 1,746,677
T. Rowe Price:
Equity Income 17,628,645
PBHG:
Growth II 540,224
Technology &
Communications 457,888
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
5. Net Assets
Net Assets at December 31, 1997, are:
<TABLE>
<CAPTION>
Series Fund
----------------------------------------------------------------------------
Equity Money Market Bond Managed Tactical
Asset
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Proceeds from units sold.... $ 7,756,774 $ 47,185,815 $ 4,465,102 $ 5,735,570 $ 2,991,272
Cost of units redeemed ..... (697,389) (42,341,403) (2,310,798) (634,515) (168,633)
Net investment income (loss) 152,672 247,953 218,266 323,706 224,993
Net realized gain (loss) ... 322,620 -- 38,401 140,367 51,779
Unrealized gain (loss)
on investments ........... 1,441,558 -- (44,113) 613,414 69,336
------------ ------------ ------------ ------------ ------------
$ 8,976,235 $ 5,092,365 $ 2,366,858 $ 6,178,542 $ 3,168,747
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Fidelity
----------------------------------------------------------------------------
High Income Growth Overseas Asset Index 500
Manager
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Proceeds from units sold ... $ 4,603,706 $ 12,203,015 $ 2,298,277 $ 11,005,023 $ 17,409,674
Cost of units redeemed ..... (782,564) (2,276,369) (558,112) (1,085,333) (1,658,892)
Net investment income (loss) 193,777 309,197 72,345 706,425 87,912
Net realized gain (loss) .. 85,883 596,127 86,098 182,862 690,684
Unrealized gain (loss)
on investments ........... 385,989 2,104,672 50,203 1,221,245 3,325,517
------------ ------------ ------------ ------------ ------------
$ 4,486,791 $ 12,936,642 $ 1,948,811 $ 12,030,222 $ 19,854,895
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Fidelity American Century Alger
---------------------------- ----------------------------- ------------
VP Capital VP American
Equity-Income Contrafund Appreciation International Growth
------------- ------------ ------------ ------------- ------------
<S> ........................ <C> <C> <C> <C> <C>
Proceeds from units sold ... $ 9,883,288 $ 10,357,643 $ 3,763,469 $ 3,292,330 $ 13,853,276
Cost of units redeemed ..... (1,990,168) (1,236,288) (1,812,177) (954,640) (2,123,140)
Net investment income (loss) 538,473 67,007 129,962 17,482 17,053
Net realized gain (loss) ... 282,693 481,335 (136,016) 249,725 514,165
Unrealized gain (loss)
on investments ........... 1,410,699 1,933,072 (114,865) 30,357 2,326,921
------------ ------------ ------------ ------------ ------------
$ 10,124,985 $ 11,602,769 $ 1,830,373 $ 2,635,254 $14,588,275
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Calvert T.RowePrice PBHG
------------- ------------ ----------------------------
Capital Equity Technology &
Accumulation Income Growth II Communications
------------ ------------ ------------ -------------
Proceeds from units sold ... $ 1,816,854 $ 17,783,366 $ 1,474,635 $ 653,188
Cost of units redeemed .... (302,362) (1,646,879) (931,283) (219,051)
Net investment income (loss) 175,160 898,262 (2,506) (2,123)
Net realized gain (loss) ... 57,025 593,896 (622) 25,874
Unrealized gain(loss)
on investments ........... 114,104 2,488,399 (18,592) (52,422)
------------ ------------ ------------ ------------
$ 1,860,781 $ 20,117,044 $ 521,632 $ 405,466
============ ============ ============ ============
16
</TABLE>
- --------------------------------------------------------------------------------
EXHIBIT 13
COMPUTATION OF PERFORMANCE QUOTATIONS
- --------------------------------------------------------------------------------
These Performance Computations do not reflect a calculation of current
performance. These figures are only intended to demonstrate the method by which
performance is calculated. These computations were originally filed as Exhibit
13 in Post Effective Amendment No. 4, which was filed by the Registrant with the
Securities and Exchange Commission on April 26, 1996.
Computation of Performance Quotations
1. Current Yield for the Money Market Investment Account:
As stated in the Statement of Additional Information, current yield for the
Money Market Investment Account will be based on the seven day period
ending December 31, 1995, and is computed by determining the net change in
the value of a hypothetical investment (exclusive of capital charges) of a
pre-existing account having a balance of one Accumulation Unit at the
beginning of the period [.00122658], subtracting a hypothetical charge
reflecting deductions from contractowner accounts [.00026033], and dividing
the difference by the value of the account at the beginning of the base
period [$1.188087] to obtain the base period return [.0008132827], and then
multiplying the base period return by (365/7) with the resulting yield
figure carried to at least the nearest hundredth of one percent [.000813 x
365/7] = .04240 or 4.24%.
2. Effective Yield for the Money Market Investment Account is based on the
seven day period ending December 31, 1995, carried to at least the nearest
hundredth of one percent, computed by determining the net change, exclusive
of capital charges, in the value of a hypothetical pre-existing account
having a balance of one Accumulation Unit at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from contractowner
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
compounding the base period return by adding "1", raising the sum to a
power equal to 365 divided by 7, and subtracting "1" from the result,
pursuant to the following formula:
Effective Yield = [(Base Period Return + 1)365/7] -1
Effective Yield = [(.000813 + 1)365/7] -1
Effective Yield = [(1.000813)365/7] -1
Effective Yield = 1.043301 - 1 = 0.04330 or 4.33%
3. Yield Calculations
(a) For the Equity Investment Account:
For the year ending December 31, 1995, yield is based on a 30 day period
ending December 31, 1995, and is computed by dividing the net investment
income per Accumulation Unit earned during the period by the maximum
offering price per unit on December 31, 1995, according to the following
formula:
Yield = 2[(a-b/cd +1)6 -1]
where "a" = net investment income earned during the period attributable to
shares owned by the Investment Account;
"b" = expenses accrued for the period (net of reimbursements);
"c" = the average daily number of Accumulation Units outstanding during
the period; and
"d" = the maximum offering price per Accumulation Unit on December 31,
1994.
For the Equity Investment Account:
According to the formula stated above, where:
"a" = $1,500.19 "b" = $1,030.97 "c" = 165,948.550 and "d" = $1.7904
Yield = 2[(469.22/297,116.44 + 1)**6 -1]
Yield = 2[(1.001579246)**6 -1]
Yield = 2[.009512966] = 0.019026 or 1.90%
<PAGE>
(b) For the Bond Investment Account:
According to the formula stated in 3(a) above, where:
"a" = $2,370.58 "b" = $497.41 "c" = 80,017.660 and "d" = $1.5995
Yield = 2[(1,873.17/127,988.49)**6 -1]
Yield = 2[(1.014635457)**6 -1]
Yield = 2[.091089081] = 0.182178 or 18.22%
(c) For the Managed Investment Account:
According to the formula stated in 3(a) above, where:
"a" = $1,901.34 "b" = $683.35 "c" = 111,742.950 and "d" = $1.6643
Yield = 2[(1,217.99/185,977.59 + 1)**6 -1]
Yield = 2[(1.006549122)**6 -1]
Yield = 2[.039943745] = 0.079887 or 7.99%
(d) For the Tactical Asset Allocation Investment Account:
According to the formula stated in 3(a) above, where:
"a" = $273.20 "b" = $43.00 "c" = 11,803.110 and "d" = $5.2972
Yield = 2[(230.20/62,523.13 + 1)**6 -1]
Yield = 2[(1.00368184)**6 -1]
Yield = 2[.02229537] = 0.044591 or 4.46%
For the Individual Flexible Premium Deferred Variable Annuity
4. Quotations of average annual total return for an Investment Account will be
expressed in terms of the compounded rate of return of a hypothetical
investment in the Investment Account for periods of one, five, and ten
years, or since the Fund's inception, if less. The average annual total
return for an Investment Account will be calculated pursuant to the
following formula: P (1 + T)n = ERV (where P = a hypothetical initial
payment of $1,000, T = the total return, n = the number of years, and ERV =
the ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period.) All total return figures reflect the deduction of
a proportional share of Investment Account expenses on an annual basis, and
assume that all dividends and distributions are reinvested when paid.
FOR THE YEAR ENDING DECEMBER 31, 1995
(a) For the Equity Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,059; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.0585 or 5.85%
(b) For the Bond Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,044; and n = 1
ERV = $1,000 (1 + T)*1
T = 0.0437 or 4.37%
(c) For the Money Market Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $933; and n = 1
ERV = $1,000(1 + T)**1
T = -0.0671 or (6.71%)
(d) For the Managed Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,056; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.0557 or 5.57%
(e) The Tactical Asset Allocation Investment Account has not been in
operation for the relevant time period.
<PAGE>
(f) For the VIP High Income Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,069; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.0687 or 6.87%
(g) For the VIP Growth Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,200; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.1995 or 19.95%
(h) For the VIP Overseas Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $972; and n = 1
ERV = $1,000 (1 + T)**1
T = -0.0281 or (2.81%)
(i) For the VIP II Asset Manager Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,036; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.0364 or 3.64%
(j) For the VIP II Index 500 Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,216; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.2157 or 21.57%
(k) For the Twentieth Century Growth Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,162; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.1617 or 16.17%
(l) For the TCI International Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $994; and n = 1
ERV = $1,000 (1 + T)**1
T = -0.0057 or (0.57%)
(m) For the Fidelity Equity Income Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,197; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.1970 or 19.70%
(n) The Fidelity Contra Fund Investment Account has not been in operation
for the relevant time period.
(o) For the Alger American Growth Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,208; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.2085 or 20.85%
(p) For the Calvert Capital Accumulation Investment Account, according to
the formula expressed above, where:
P = $1,000; ERV = $1,236; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.2364 or 23.64%
(q) For the T. Rowe Price Equity Income Investment Account, according to
the formula expressed above, where:
P = $1,000; ERV = $1,194; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.1942 or 19.42%
FOR THE PERIOD JANUARY 1, 1990 THROUGH DECEMBER 31, 1995
(a) For the Equity Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,691; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.1109 or 11.09%
<PAGE>
(b) For the Bond Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,364; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.0641 or 6.41%
(c) For the Money Market Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,057; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.0111 or 1.11%
(d) For the Managed Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,462; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.0789 or 7.89%
(e) For the Tactical Asset Allocation Investment Account was not in
operation for the relevant time period.
(f) For the VIP High Income Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $2,070; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.1566 or 15.66%
(g) For the VIP Growth Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $2,236; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.1746 or 17.46%
(h) For the VIP Overseas Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,285; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.0515 or 5.15%
(i) For the VIP II Asset Manager Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,586; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.0967 or 9.67%
(j) The VIP II Index 500 Investment Account has not been in operation for
the relevant time period.
(k) For the Twentieth Century Growth Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,741; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.1173 or 11.73%
(l) The TCI International Investment Account has not been in operation for
the relevant time period.
(m) For the Fidelity Equity Income Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $2,288; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.1800 or 18.00%
(n) The Fidelity Contra Fund Investment Account has not been in operation
for the relevant time period.
(o) For the Alger American Growth Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $2,328; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.1841 or 18.41%
(p) The Calvert Capital Accumulation Investment Account has not been in
operation for the relevant time period.
(q) The T. Rowe Price Equity Income Investment Account has not been in
operation for the relevant time period.
<PAGE>
FOR THE PERIOD JANUARY 1, 1986 THROUGH DECEMBER 31, 1995 OR FROM INCEPTION,
IF LESS
(a) For the Equity Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,673; and n = 5.7194
ERV = $1,000 (1 + T)**5.7194
T = 0.0941 or 9.41%
(b) For the Bond Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,494; and n = 5.7194
ERV = $1,000 (1 + T)**5.7194
T = 0.0727 or 7.27%
(c) For the Money Market Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,109; and n = 5.7194
ERV = $1,000 (1 + T)**5.7194
T = 0.0183 or 1.83%
(d) For the Managed Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,554; and n = 5.7194
ERV = $1,000 (1 + T)**5.7194
T = 0.0801 or 8.01%
(e) For the Tactical Asset Allocation Portfolio was not in operation for
the relevant time period.
(f) For the VIP High Income Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $2,515; and n = 10
ERV = $1,000 (1 + T)**10
T = 0.0966 or 9.66%
(g) For the VIP Growth Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $3,097; and n = 9.2285
ERV = $1,000 (1 + T)9.2285
T = 0.1303 or 13.03%
(h) For the VIP Overseas Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,603; and n = 8.9274
ERV = $1,000 (1 + T)**8.9274
T = 0.0543 or 5.43%
(i) For the VIP II Asset Manager Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,699; and n = 6.3167
ERV = $1,000 (1 + T)**6.3167
T = 0.0875 or 8.75%
(j) For the VIP II Index 500 Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,425; and n = 3.3468
ERV = $1,000 (1 + T)**3.3468
T = 0.1116 or 11.16%
(k) For the Twentieth Century Growth Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $2,398; and n = 8.1139
ERV = $1,000 (1 + T)**8.1139
T = 0.1138 or 11.38%
(l) The TCI International has not been in operation for the relevant time
period.
P = $1,000; ERV = $944; and n = 1.6640
ERV = $1,000 (1 + T)**1.6640
T = -0.0338 or (3.38%)
(m) For the Fidelity Equity Income Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $2,713; and n = 9.2285
ERV = $1,000 (1 + T)**9.2285
T = 0.1142 or 11.42%
<PAGE>
(n) The Fidelity Contra Fund Investment Account has not been in operation
for the relevant time period.
(o) For the Alger American Growth Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $2,920; and n = 6.9785
ERV = $1,000 (1 + T)**6.9785
T = 0.1660 or 16.60%
(p) For the Calvert Capital Accumulation Investment Account, according to
the formula expressed above, where:
P = $1,000; ERV = $1,459; and n = 4.4597
ERV = $1,000 (1 + T)**4.4597
T = 0.0884 or 8.84%
(q) For the T. Rowe Price Equity Income Investment Account, according to
the formula expressed above, where:
P = $1,000; ERV = $1,278; and n = 1.7527
ERV = $1,000 (1 + T)**1.7527
T = 0.1504 or 15.04%
For the Individual One Year Flexible Premium Deferred Variable Annuity
5. Quotations of average annual total return for an Investment Account will be
expressed in terms of the compounded rate of return of a hypothetical
investment in the Investment Account for periods of one, five, and ten
years, or since the Fund's inception, if less. The average annual total
return for an Investment Account will be calculated pursuant to the
following formula: P (1 + T)n = ERV (where P = a hypothetical initial
payment of $1,000, T = the total return, n = the number of years, and ERV =
the ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period.) All total return figures reflect the deduction of
a proportional share of Investment Account expenses on an annual basis, and
assume that all dividends and distributions are reinvested when paid.
FOR THE YEAR ENDING DECEMBER 31, 1995
(a) For the Equity Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,094; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.0938 or 9.38%
(b) For the Bond Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,079; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.0785 or 7.85%
(c) For the Money Market Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $964; and n = 1
ERV = $1,000 (1 + T)**1
T = -0.0360 or (3.60%)
(d) For the Managed Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,091; and n = 1
ERV = $1,000 (1 + T)1
T = 0.0909 or 9.09%
(e) The Tactical Asset Allocation Investment Account has not been in
operation for the relevant time period.
(f) For the VIP High Income Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,104; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.1043 or 10.43%
(g) For the VIP Growth Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,240; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.2395 or 23.95%
<PAGE>
(h) For the VIP Overseas Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,004; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.0043 or 0.43%
(i) For the VIP II Asset Manager Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,071; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.0709 or 7.09%
(j) For the VIP II Index 500 Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,256; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.2562 or 25.62%
(k) For the Twentieth Century Growth Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,200; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.2004 or 20.04%
(l) The TCI International has not been in operation for the relevant time
period.
P = $1,000; ERV = $1,028; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.275 or 2.75%
(m) For the Fidelity Equity Income Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,237; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.2369 or 23.69%
(n) The Fidelity Contra Fund Investment Account has not been in operation
for the relevant time period.
(o) For the Alger American Growth Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,249; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.2487 or 24.87%
(p) For the Calvert Capital Accumulation Investment Account, according to
the formula expressed above, where:
P = $1,000; ERV = $1,278; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.2776 or 27.76%
(q) The T. Rowe Price Equity Income Investment Account has not been in
operation for the relevant time period.
P = $1,000; ERV = $1,234; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.2340 or 23.40%
FOR THE PERIOD JANUARY 1, 1990 THROUGH DECEMBER 31, 1995
(a) For the Equity Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,746; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.1179 or 11.79%
(b) For the Bond Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,408; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.0708 or 7.08%
<PAGE>
(c) For the Money Market Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,090; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.0174 or 1.74%
(d) For the Managed Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,508; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.0857 or 8.57%
(e) The Tactical Asset Allocation Investment Account was not in operation
for the relevant time period.
(f) For the VIP High Income Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $2,136; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.1639 or 16.39%
(g) For the VIP Growth Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $2,307; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.1820 or 18.20%
(h) For the VIP Overseas Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,326; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.0581 or 5.81%
(i) For the VIP II Asset Manager Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,637; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.1036 or 10.36%
(j) The VIP II Index 500 Investment Account has not been in operation for
the relevant time period.
(k) For the Twentieth Century Growth Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,796; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.1173 or 11.73%
(l) The TCI International Investment Account has not been in operation for
the relevant time period.
(m) For the Fidelity Equity Income Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $2,361; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.1875 or 18.75%
(n) The Fidelity Contra Fund Investment Account has not been in operation
for the relevant time period.
(o) For the Alger American Growth Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $2,401; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.1915 or 19.15%
(p) The Calvert Capital Accumulation Investment Account has not been in
operation for the relevant time period.
(q) The T. Rowe Price Equity Income Investment Account has not been in
operation for the relevant time period.
FOR THE PERIOD JANUARY 1, 1985 THROUGH DECEMBER 31, 1994 OR FROM INCEPTION,
IF LESS
(a) For the Equity Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,725; and n = 5.7194
ERV = $1,000 (1 + T)**5.7194
T = 0.1000 or 10.00%
<PAGE>
(b) For the Bond Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,541; and n = 5.7194
ERV = $1,000 (1 + T)**5.7194
T = 0.0785 or 7.85%
(c) For the Money Market Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,145; and n = 5.7194
ERV = $1,000 (1 + T)**5.7194
T = 0.0239 or 2.39%
(d) For the Managed Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,603; and n = 5.7194
ERV = $1,000 (1 + T)**5.7194
T = 0.0860 or 8.60%
(e) The Tactical Asset Allocation Investment Account was not in
operation for the relevant time period.
(f) For the VIP High Income Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $2,540; and n = 10
ERV = $1,000 (1 + T)**10
T = 0.0977 or 9.77%
(g) For the VIP Growth Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $3,127; and n = 9.2285
ERV = $1,000 (1 + T)**9.2285
T = 0.1315 or 13.15%
(h) For the VIP Overseas Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,636; and n = 8.9274
ERV = $1,000 (1 + T)**8.9274
T = 0.0567 or 5.67%
(i) For the VIP II Asset Manager Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,754; and n = 6.3167
ERV = $1,000 (1 + T)**6.3167
T = 0.0930 or 9.30%
(j) For the VIP II Index 500 Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,471; and n = 3.3468
ERV = $1,000 (1 + T)**3.3468
T = 0.1223 or 12.23%
(k) For the Twentieth Century Growth Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $2,472; and n = 8.1139
ERV = $1,000 (1 + T)**8.1139
T = 0.1180 or 11.80%
(l) The TCI International has not been in operation for the relevant time
period.
P = $1,000; ERV = $975; and n = 1.6640
ERV = $1,000 (1 + T)**1.6640
T = -0.0148 or (1.48%)
(m) For the Fidelity Equity Income Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $2,740; and n = 9.2285
ERV = $1,000 (1 + T)**9.2285
T = 0.1154 or 11.54%
(n) The Fidelity Contra Fund Investment Account has not been in operation
for the relevant time period.
(o) For the Alger American Growth Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $3,013; and n = 6.9785
ERV = $1,000 (1 + T)**6.9785
T = 0.1712 or 17.12%
<PAGE>
(p) For the Calvert Capital Accumulation Investment Account, according to
the formula expressed above, where:
P = $1,000; ERV = $1,506; and n = 4.4597
ERV = $1,000 (1 + T)**4.4597
T = 0.0962 or 9.62%
(q) The T. Rowe Price Equity Income Investment Account has not been in
operation for the relevant time period.
P = $1,000; ERV = $1,321; and n = 1.7527
ERV = $1,000 (1 + T)**1.7527
T = 0.1720 or 17.20%
For both the Individual Flexible Premium Deferred Variable Annuity Contract and
the Individual One Year Flexible Premium Deferred Variable Annuity Contract
6. Quotations of average annual total return for an Investment Accountant will
be expressed in terms of the compounded rate of return of a hypothetical
investment in the Investment Account for periods of one, five, and ten years,
or since the Fund's inception, if less. The average annual total return for
an Investment Account will be calculated pursuant to the following formula:
P (1 +T)n = ERV (where P = a hypothetical initial payment of $1,000, T = the
total return, n = the number of years, and ERV = the ending redeemable value
of a hypothetical $1,000 payment made at the beginning of the period, but not
including the surrender charge, which is a maximum of 10% for the Individual
Flexible Premium Deferred Variable Annuity Contract and 7% for the One Year
Flexible Premium Deferred Variable Annuity Contract). All total return
figures reflect the deduction of a proportional share of Investment Account
expenses on an annual basis, and assume that all dividends and distributions
are reinvested when paid.
FOR THE YEAR ENDING DECEMBER 31, 1995
(a) For the Equity Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,080; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.1797 or 17.97%
(b) For the Bond Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,163; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.1632 or 16.32%
(c) For the Money Market Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,040; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.0397 or 3.97%
(d) For the Managed Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,177; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.1765 or 17.65%
(e) The Tactical Asset Allocation Portfolio was not in operation for the
relevant time period.
(f) For the VIP High Income Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,191; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.1910 or 19.10%
(g) For the VIP Growth Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,337; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.3368 or 33.68%
(h) For the VIP Overseas Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,083; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.0831 or 8.31%
<PAGE>
(i) For the VIP II Asset Manager Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,155; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.1550 or 15.50%
(j) For the VIP II Index 500 Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,355; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.3548 or 35.48%
(k) For the Twentieth Century Growth Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,295; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.2947 or 29.47%
(l) For the TCI International Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,108; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.1049 or 10.49%
(m) For the Fidelity Equity Income Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,334; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.3340 or 33.40%
(n) The Fidelity Contra Fund Investment Account has not been in operation
for the relevant time period.
(o) For the Alger American Growth Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,347; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.3468 or 34.68%
(p) For the Calvert Capital Accumulation Investment Account, according to
the formula expressed above, where:
P = $1,000; ERV = $1,378; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.3779 or 37.79%
(q) The T. Rowe Price Equity Income Investment Account has not been in
operation for the relevant time period.
P = $1,000; ERV = $1,331; and n = 1
ERV = $1,000 (1 + T)**1
T = 0.3308 or 33.08%
FOR THE PERIOD JANUARY 1, 1991 THROUGH DECEMBER 31, 1995
(a) The Equity Investment Account was not in operation for the relevant
time period.
P = $1,000; ERV = $1,827; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.1281 or 12.81%
(b) The Bond Investment Account was not in operation for the relevant time
period.
P = $1,000; ERV = $1,473; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.0806 or 8.06%
(c) The Money Market Investment Account was not in operation for the
relevant time period.
P = $1,000; ERV = $1,141; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.0267 or 2.67%
<PAGE>
(d) The Managed Investment Account was not in operation for the relevant
time period.
P = $1,000; ERV = $1,579; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.0956 or 9.56%
(e) The Tactical Asset Allocation Investment Account was not in operation
for the relevant time period.
(f) For the VIP High Income Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $2,236; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.1746 or 17.46%
(g) For the VIP Growth Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $2,415; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.1928 or 19.28%
(h) For the VIP Overseas Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,388; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.0678 or 6.78%
(i) For the VIP II Asset Manager Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,713; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.1136 or 11.36%
(j) The VIP II Index 500 Investment Account has not been in operation for
the relevant time period.
(k) For the Twentieth Century Growth Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,880; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.1346 or 13.46%
(l) The TCI International Investment Account has not been in operation for
the relevant time period.
(m) For the Fidelity Equity Income Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $2,471; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.1983 or 19.83%
(n) The Fidelity Contra Fund Investment Account has not been in operation
for the relevant time period.
(o) For the Alger American Growth Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $2,513; and n = 5
ERV = $1,000 (1 + T)**5
T = 0.2024 or 20.24%
(p) The Calvert Capital Accumulation Investment Account has not been in
operation for the relevant time period.
(q) The T. Rowe Price Equity Income Investment Account has not been in
operation for the relevant time period.
FOR THE PERIOD JANUARY 1, 1986 THROUGH DECEMBER 31, 1995 OR FROM INCEPTION,
IF LESS
(a) For the Equity Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,792; and n = 5.7194
ERV = $1,000 (1 + T)**5.7194
T = 0.1074 or 10.74%
<PAGE>
(b) For the Bond Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,601; and n = 5.7194
ERV = $1,000 (1 + T)**5.7194
T = 0.0858 or 8.58%
(c) For the Money Market Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,189; and n = 5.7194
ERV = $1,000 (1 + T)**5.7194
T = 0.0308 or 3.08%
(d) For the Managed Investment Account, according to the formula expressed
above, where:
P = $1,000; ERV = $1,666; and n = 5.7194
ERV = $1,000 (1 + T)**5.7194
T = 0.0933 or 9.33%
(e) The Tactical Asset Allocation Investment Account was not in operation
for the relevant time period.
(f) For the VIP High Income Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $2,617; and n = 10
ERV = $1,000 (1 + T)**10
T = 0.1010 or 10.10%
(g) For the VIP Growth Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $3,225; and n = 9.2285
ERV = $1,000 (1 + T)**9.2285
T = 0.1353 or 13.53%
(h) For the VIP Overseas Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,681; and n = 8.9274
ERV = $1,000 (1 + T)**8.9274
T = 0.599 or 5.99%
(i) For the VIP II Asset Manager Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $1,828; and n = 6.3167
ERV = $1,000 (1 + T)**6.3167
T = 0.1002 or 10.02%
(j) For the VIP II Index 500 Investment Account, according to the formula
expressed above, where:
P = $1,000; ERV = $1,551; and n = 3.3468
ERV = $1,000 (1 + T)**3.3468
T = 0.1402 or 14.02%
(k) For the Twentieth Century Growth Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $2,541; and n = 8.1139
ERV = $1,000 (1 + T)**8.1139
T = 0.1218 or 12.18%
(l) The TCI International, according to the formula expressed above,
where:
P = $1,000; ERV = $1,044; and n = 1.6640
ERV = $1,000 (1 + T)**1.6640
T = 0.1117 or 11.17%
(m) For the Fidelity Equity Income Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $2,825; and n = 9.2285
ERV = $1,000 (1 + T)**9.2285
T = 0.1191 or 11.91%
(n) The Fidelity Contra Fund Investment Account has not been in operation
for the relevant time period.
<PAGE>
(o) For the Alger American Growth Investment Account, according to the
formula expressed above, where:
P = $1,000; ERV = $3,107; and n = 6.9785
ERV = $1,000 (1 + T)**6.9785
T = 0.1764 or 17.64%
(p) For the Calvert Capital Accumulation Investment Account, according to
the formula expressed above, where:
P = $1,000; ERV = $1,577; and n = 4.4597
ERV = $1,000 (1 + T)**4.4597
T = 0.1076 or 10.76%
(q) The T. Rowe Price Equity Income Investment Account has not been in
operation for the relevant time period.
P = $1,000; ERV = $1,414; and n = 1.7527
ERV = $1,000 (1 + T)**1.7527
T = 0.2183 or 21.83%
<TABLE> <S> <C>
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