<PAGE>
As filed with the Securities and Exchange
Commission on April 22, 1999
333-_____
811-09305
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 __X__
Pre-Effective Amendment No. ____
Post-Effective Amendment No. ____
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 __X__
Amendment No. ____
AUSA ENDEAVOR TARGET ACCOUNT
(Exact Name of Registrant)
AUSA LIFE INSURANCE COMPANY, INC.
(Name of Insurance Company)
666 Fifth Avenue
New York, New York 10103
(212) 246-5234
Name and Address of Agent for Service: Copy to:
Frank A. Camp, Esquire Frederick R. Bellamy, Esquire
AUSA Life Insurance Company, Inc. Sutherland Asbill and Brennan LLP
4333 Edgewood Road N.E. 1275 Pennsylvania Avenue, N.W.
Cedar Rapids, Iowa 52499-0001 Washington, D.C. 20004-2404
TITLE OF SECURITIES BEING REGISTERED:
Flexible Premium Variable Annuity Policies
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after effectiveness of the Registration Statement, as the
Commission, acting pursuant to said Section 8(a), shall determine.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
CROSS REFERENCE SHEET
Pursuant to Rule 495
Showing Location in Part A (Prospectus),
Part B (Statement of Additional Information) and Part C
of Registration Statement Information Required by Form N-3
----------------------------------------------------------
PART A
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Item of Form N-3 Prospectus Caption
- ---------------- ------------------
1. Cover Page.......................................... Cover Page
2. Table of Contents................................... Table of Contents
3. Definitions......................................... Glossary of Terms
4. Synopsis............................................ Summary; Fee Table;
5. Condensed Financial Information..................... Financial Information;
6. General Description of Registrant and
Depositor
(a) Depositor...................................... AUSA Life Insurance Company, Inc.
(b) Registrant..................................... The Mutual Fund Account; The Target
Account;
(c) Voting Rights.................................. Voting Rights
7. Management.......................................... The Mutual Fund Account; The Target
Account
8. Deductions and Expenses
(a) General........................................ Expenses
(b) Sales Load %................................... Surrender Charge
(c) Special Purchase Plan.......................... N/A
(d) Commissions.................................... Distributor of the Policies
(e) Expenses - Registrant.......................... N/A
(f) Subaccount Expenses............................ Portfolio Management Fees;
The Target Account Fees
(g) Organizational Expenses........................ N/A
</TABLE>
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<TABLE>
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9. General Description of Variable Annuity
Policies
(a) Persons with Rights............................ The Annuity Policy; Annuity Payments;
Annuity Payment Options; Ownership;
Voting Rights
(b)(i) Allocation of Premium Payments.............. Allocation of Premium Payments
(ii) Transfers................................. Transfers
(iii) Exchanges................................. N/A
(c) Changes........................................ The Mutual Fund Account; Annuity
Payment Option; The Target Account;
Policy Value; Allocation of Premium
Payments
(d) Inquiries...................................... Summary
10. Annuity Period...................................... Annuity Payment
11. Death Benefit....................................... Death Benefit
12. Purchase and Policy Value
(a) Purchases...................................... Purchase
(b) Valuation...................................... Policy Value; The Mutual Fund Account;
The Target Account
(c) Daily Calculation.............................. The Mutual Fund Account Value; The
Target Account Value
(d) Underwriter.................................... Distributor of the Policies
13. Redemptions
(a) By Owners...................................... Surrender Charge
By Annuitant................................ N/A
(b) Texas ORP................................... Restrictions Under the Texas Optional
Retirement Program
(c) Check Delay................................. Annuity Payments
(d) Lapse....................................... N/A
(e) Free Look................................... Summary
14. Taxes............................................... Taxes
15. Legal Proceedings................................... Legal Proceedings
16. Table of Contents for the Statement
of Additional Information................... Table of Contents for the Statement of
Additional Information
</TABLE>
<PAGE>
PART B
------
<TABLE>
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<S> <C>
Item of Form N-3 Statement of Additional
- ---------------- Information Caption
-----------------------
17. Cover Page................................................. Cover Page
18. Table of Contents.......................................... Table of Contents
19. General Information and History............................ (Prospectus) AUSA Life Insurance
Company, Inc.
20. Investment Objectives and Policies......................... What is the Investment Strategy;
Investment Restrictions
21. Management................................................. Management
22. Investment Advisory and Other Services
(a) Investment Advisory Services....................... The Investment Advisory Services
(b) Fees and Expenses of the Registrant................ N/A
(c) Management Policies................................ The Manager
(d) Custodian.......................................... Transfer Agent and Custodian; Custody
of Assets
Independent Auditors............................... Independent Auditors
(e) Assets of Registrant............................... Custody of Assets
(f) Affiliated Person.................................. N/A
(g) Principal Underwriter.............................. Distribution of Policies
23. Brokerage Allocations...................................... Brokerage Allocation
24. Purchase and Pricing of Securities
Being Offered.............................................. Distribution of the Policies
Offering Sales Load........................................ N/A
25. Underwriters............................................... Distribution of the Policies; (Prospectus)
Distributor of the Policies
26. Calculation of Performance Data............................ Historical Performance Data
27. Annuity Payments........................................... (Prospectus) Election of Payment
Option; (Prospectus) Annuity Payment
Options
28. Federal Tax Matters........................................ Federal Tax Matters
29. Financial Statements....................................... Financial Statements
</TABLE>
PART C - OTHER INFORMATION
--------------------------
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<CAPTION>
Item of Form N-3 Part C Caption
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30. Financial Statements and Other Exhibits.................... Financial Statements and Exhibits
(a) Financial Statements............................... Financial Statements
(b) Exhibits........................................... Exhibits
31. Directors and Officers of the
Insurance Company.................................. Directors and Officers of the Insurance
Company; Business and Other
Connections of Investment Advisor
32. Persons Controlled by or Under Common
Control with the Insurance Company
or Registrant...................................... Persons Controlled by or Under
Common Control with the Insurance
Company or Registrant
33. Number of Policyowners..................................... Number of Contract Owners
34. Indemnification............................................ Indemnification
35. Business and Other Connection of
Investment Advisor................................. Directors and Officers of the Insurance
Company; Business and Other
Connections of the Investment Advisor
36. Principal Underwriters..................................... Principal Underwriters
37. Location of Accounts and Records........................... Locations of Accounts and Records
38. Management Services........................................ Management Services
39. Undertakings............................................... Undertakings
40. Signatures................................................. Signatures
</TABLE>
<PAGE>
THE ENDEAVOR VARIABLE ANNUITY
Issued Through
AUSA ENDEAVOR VARIABLE
ANNUITY ACCOUNT
and
AUSA ENDEAVOR TARGET ACCOUNT
by
AUSA LIFE INSURANCE COMPANY, INC.
Prospectus
_________________
This prospectus and the mutual fund prospectuses give you important information
about the policies and the mutual funds. Please read them carefully before you
invest and keep them for future reference.
If you would like more information about The Endeavor Variable Annuity Policy,
you can obtain a free copy of the Statement of Additional Information (SAI)
dated ___________________. Please call us at (800) 525-6205 or write us at: AUSA
Life Insurance Company, Inc., Financial Markets Division, Variable Annuity
Department, 4333 Edgewood Road N.E., Cedar Rapids, Iowa, 52499-0001. A
registration statement, including the SAI has been filed with the Securities and
Exchange Commission (SEC) and is incorporated herein by reference. Information
about the separate account and the target account can be reviewed and copied at
the SEC's Public Reference Room in Washington, D.C. You may obtain information
about the operation of the public reference room by calling the SEC at
1-800-SEC-0330. The SEC also maintains a web site (http://www.sec.gov) that
contains the prospectus, the SAI, material incorporated by reference, and other
information. The table of contents of the SAI is included at the end of this
prospectus.
Please note that the policies and the mutual funds:
. are not bank deposits
. are not federally insured
. are not endorsed by any bank or government agency
. are not guaranteed to achieve their goal
. are subject to risks, including loss of premium
The flexible premium deferred annuity policy has many investment choices. There
are two separate accounts: (1) a mutual fund account; and (2) a target account.
The mutual fund subaccounts and the target series subaccounts are listed below.
You bear the entire investment risk for all amounts you put in either separate
account. There is also a fixed account, which offers an interest rate that is
guaranteed by AUSA Life. You can choose any combination of these investment
choices.
ENDEAVOR SERIES TRUST
Subadvised by Morgan Stanley
Asset Management Inc.
Endeavor Asset Allocation Portfolio
Endeavor Money Market Portfolio
Subadvised by T. Rowe Price Associates, Inc.
T. Rowe Price Equity Income Portfolio
T. Rowe Price Growth Stock Portfolio
Subadvised by Rowe Price-Fleming
International, Inc.
T. Rowe Price International Stock Portfolio
Subadvised by OpCap Advisors
Endeavor Value Equity Portfolio
Endeavor Opportunity Value
Subadvised by J.P. Morgan Investment
Management Inc.
Endeavor Enhanced Index Portfolio
Subadvised by The Dreyfus Corporation
Dreyfus U.S. Government Securities
Portfolio
Dreyfus (SM)all Cap Value Portfolio
Subadvised by Montgomery Asset
Management, LLC
Endeavor Select 50 Portfolio
Subadvised by Massachusetts Financial
Services Company
Endeavor High Yield Portfolio
Subadvised by Janus Capital Corporation
Endeavor Janus Growth Portfolio
THE TARGET ACCOUNT
Subadvised by First Trust Advisors, L.P.
The Dow(SM) Target 10 (July Series)
The Dow(SM) Target 5 (July Series)
The Dow(SM) Target 10 (January Series)
The Dow(SM) Target 5 (January Series)
The Securities and Exchange Commission has not
approved or disapproved these securities, or
passed upon the adequacy of this prospectus.
Any representation to the contrary is a
criminal offense.
<PAGE>
TABLE OF CONTENTS Page
GLOSSARY OF TERMS..............................
SUMMARY........................................
ANNUITY POLICY FEE TABLE.......................
EXAMPLES.......................................
1. THE ANNUITY POLICY........................
2. ANNUITY PAYMENTS
(THE INCOME PHASE)........................
Annuity Payment Options...................
3. PURCHASE..................................
Policy Issue Requirements.................
Premium Payments..........................
Initial Premium Requirements..............
Additional Premium Payments...............
Maximum Total Premium Payments............
Allocation of Premium Payments............
Policy Value..............................
4. INVESTMENT CHOICES........................
The Separate Account......................
The Mutual Fund Account...................
The Target Account........................
The Fixed Account.........................
Transfers.................................
Dollar Cost Averaging Program.............
Asset Rebalancing.........................
5. EXPENSES..................................
Surrender Charges.........................
Mortality and Expense Risk Fee............
Administrative Charges....................
Premium Taxes.............................
Federal, State and Local Taxes............
Transfer Fee..............................
Portfolio Management Fees.................
Target Account Fees.......................
6. TAXES.....................................
Annuity Policies in General...............
Qualified and Nonqualified Policies.......
Withdrawals - Nonqualified Policies.......
Withdrawals - Qualified Policies..........
Withdrawals - 403(b) Policies.............
Tax Status of the Policy..................
Diversification and Distribution
Requirements..........................
Taxation of Death Benefit Proceeds.........
Annuity Payments...........................
Transfers, Assignments or Exchanges of
Policies...............................
Possible Tax Law Changes...................
7. ACCESS TO YOUR MONEY.......................
Surrenders.................................
Delay of Payment and Transfers.............
Systematic Payout Option...................
8. PERFORMANCE................................
The Mutual Fund Account....................
The Target Account.........................
9. DEATH BENEFIT..............................
When We Pay A Death Benefit................
When We Do Not Pay A Death Benefit.........
Amount of Death Benefit....................
Guaranteed Minimum Death Benefit...........
Partial Withdrawal.........................
10. OTHER INFORMATION..........................
Ownership..................................
Assignment.................................
AUSA Life Insurance Company, Inc...........
The Mutual Fund Account....................
The Target Account.........................
Mixed and Shared Funding...................
Reinstatements.............................
Voting Rights..............................
Distributor of the Policies................
Non-participating Policy...................
Variations in Policy Provisions............
Year 2000 Matters..........................
IMSA.......................................
Legal Proceedings..........................
Financial Statements.......................
TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL
INFORMATION.....................................
APPENDIX A
Condensed Financial Information
The Mutual Fund Account....................
APPENDIX B
Historical Performance Data
The Mutual Fund Account....................
Historical Performance Data
The Target Account.........................
2
<PAGE>
GLOSSARY OF TERMS
Accumulation Unit--An accounting unit of measure used in calculating the policy
value in the mutual fund account before the annuity commencement date.
Annual Stock Selection Date--The last business day of a specified 12-month
period.
Annuitant--The person entitled to receive annuity payments after the annuity
commencement date and during whose life any annuity payments involving life
contingencies will continue.
Annuity Commencement Date--The date upon which annuity payments are to commence.
This date may be any date at least thirty days after the policy date and may not
be later than the last day of the policy month starting after the annuitant
attains age 85, except as expressly allowed by AUSA Life. In no event will this
date be later than the last day of the policy month following annuitant's 90th
birthday.
Annuity Payment Option--A method of receiving a stream of annuity payments
selected by the owner.
Cash Value--The policy value less the surrender charge, if any.
DJIA--The Dow Jones Industrial Average (SM). Thirty stocks chosen by the editors
of The Wall Street Journal as representative of the broad market and of American
industry.
Fixed Account--A part of the general account of AUSA Life. General account
assets consist of all of the assets of AUSA Life that are not in the mutual fund
account or the target account.
Guaranteed Period Option--The one year guaranteed interest rate period which
will be offered by AUSA Life into which premiums may be paid or amounts
transferred.
Initial Stock Selection Date--The date is June 30, 1998 for the July Series. The
date is December 31, 1998 for the January Series.
Mutual Fund Account--A separate account established and registered as a unit
investment trust under the Investment Company Act of 1940, as amended, (the
"1940 Act"), to which premium payments under the policies may be allocated and
which invests in designated portfolios of Endeavor Series Trust and such other
mutual funds as AUSA Life may determine from time to time.
Mutual Fund Subaccount--A subdivision within the mutual fund account the assets
of which are invested in a specified portfolio of Endeavor Series Trust.
Owner or Owners--The person who may exercise all rights and privileges under the
policy. The owner during the lifetime of the annuitant and prior to the annuity
commencement date is the person designated as the owner or a successor owner in
the information that we require to issue a policy.
Policy Value--The value in the policy that may be used to purchase a stream of
annuity payments. On or before the annuity commencement date, this is an amount
equal to (a) the premiums paid; minus (b) partial withdrawals taken; plus (c)
interest credited in the fixed account; plus (d) accumulated gains or losses in
the mutual fund account; minus (e) any applicable service charges, premium
taxes, and transfer fees. The policy form refers to this as "annuity purchase
value."
Target Account--A separate account established and registered as a management
investment company under the 1940 Act to which premium payments under the
policies may be allocated.
Target Series Subaccount--A subdivision within the target account, the assets of
which are invested in common stocks selected according to a specified investment
strategy, with a specific stock selection date.
(Note: The Statement of Additional Information contains a more
extensive Glossary.)
3
<PAGE>
SUMMARY
The sections in this summary correspond to sections in this prospectus, which
discuss the topics in more detail. Words printed in italics in this prospectus
are defined in the Glossary.
1. THE ANNUITY POLICY
The Flexible Premium Variable Annuity Policy offered by AUSA Life Insurance
Company, Inc. (AUSA Life, we, us or our) is a policy between you, as the owner,
and AUSA Life, an insurance company. The policy provides a way to invest on a
tax-deferred basis in the following investment choices: thirteen subaccounts of
the mutual fund account, four subaccounts of the target account, and a fixed
account of AUSA Life. The policy is intended to accumulate money for retirement
or other long-term investment purposes.
This policy offers seventeen subaccounts in both the mutual fund account and the
target account that are listed in Section 4. Each mutual fund subaccount invests
exclusively in shares of one of the portfolios of Endeavor Series Trust. Each
target series subaccount invests directly in individual stocks according to its
specific investment strategy. The policy value may depend on the investment
experience of the selected subaccounts. Therefore, you bear the entire
investment risk with respect to all policy value in any subaccount. You could
lose the amount that you invest.
The fixed account offers an interest rate that is guaranteed by AUSA Life. We
guarantee to return your investment with interest credited for all amounts
allocated to the fixed account.
You can transfer money between any of the investment choices. We reserve the
right to impose a $10 fee for each transfer in excess of 12 transfers per policy
year.
The policy, like all deferred annuity policies, has two phases: the
"accumulation phase" and the "income phase." During the accumulation phase,
earnings accumulate on a tax-deferred basis and are taxed as income when you
take them out of the policy. The income phase occurs when you begin receiving
regular payments from your policy. The money you can accumulate during the
accumulation phase will largely determine the income payments you receive during
the income phase.
2. ANNUITY PAYMENTS
(THE INCOME PHASE)
The policy allows you to receive income under one of five annuity payment
options. You may choose from fixed payment options, variable payment options, or
a combination of both. If you select a variable payment option, the dollar
amount of your payments may go up or down.
3. PURCHASE
You can buy a nonqualified policy with $5,000 or more, and a qualified policy
with $1,000 or more, under most circumstances. You may also buy a tax deferred
403(b) annuity policy with $50 or more. You can add as little as $50 at any time
during the accumulation phase.
4. INVESTMENT OPTIONS
You can allocate your premium payments to one or more of the investment choices
listed below.
The following thirteen mutual fund portfolios are described in the Endeavor
Series Trust prospectus:
SUBADVISED BY MORGAN STANLEY
ASSET MANAGEMENT INC.
Endeavor Asset Allocation
Endeavor Money Market
SUBADVISED BY T. ROWE PRICE
ASSOCIATES, INC.
T. Rowe Price Equity Income
T. Rowe Price Growth Stock
SUBADVISED BY ROWE PRICE-FLEMING
INTERNATIONAL, INC.
T. Rowe Price International Stock
SUBADVISED BY OPCAP ADVISORS
Endeavor Value Equity
4
<PAGE>
Endeavor Opportunity Value
SUBADVISED BY J.P. MORGAN
INVESTMENT MANAGEMENT INC.
Endeavor Enhanced Index
SUBADVISED BY THE DREYFUS
CORPORATION
Dreyfus U.S. Government Securities
Dreyfus (SM)all Cap Value
SUBADVISED BY MONTGOMERY ASSET
MANAGEMENT, LLC
Endeavor Select 50
SUBADVISED BY MASSACHUSETTS
FINANCIAL SERVICES COMPANY
Endeavor High Yield
SUBADVISED BY JANUS CAPITAL
CORPORATION
Endeavor Janus Growth Portfolio
The following four target series subaccounts are described later in this
prospectus.
SUBADVISED BY FIRST TRUST ADVISORS L.P.
The Dow(SM) Target 10 (July Series)
The Dow(SM) Target 5 (July Series)
The Dow(SM) Target 10 (January Series)
The Dow(SM) Target 5 (January Series)
Depending upon their investment performance, you can make or lose money in any
of the mutual fund subaccounts or target series subaccounts.
You can also allocate your premium payments to the fixed account.
5. EXPENSES
No deductions are made from premium payments at the time you buy the policy so
that the full amount of each premium payment is invested in one or more of your
investment choices.
We may deduct a surrender charge of up to 7% of premium payments withdrawn
within seven years after the premium is paid. To calculate surrender charges, we
consider the premium you paid to come out before any earnings.
We deduct daily mortality and expense risk fees and administrative charges each
year from the assets in each mutual fund subaccount and target series
subaccount. The charges are the following annual percentages of assets:
. 1.55% in the first seven policy years and 1.40% thereafter, for the Annual
Step-Up Death Benefit; and
. 1.40% in the first seven policy years and 1.25% thereafter, for the Return of
Premium Death Benefit.
During the accumulation phase, we deduct an annual service charge from the
separate account of no more than $35 from the policy value on each policy
anniversary. The charge is waived if the sum of all premium payments, minus all
partial withdrawals, is at least $50,000.
We will deduct state premium taxes, which currently range from 0% to 3.50%, upon
total surrender, payment of a death benefit or when annuity payments begin.
The value of the net assets of the mutual fund subaccounts will reflect the
investment advisory fee and other expenses incurred by the underlying
portfolios. Those fees and expenses are detailed in the Endeavor Series Trust
prospectus that is attached to this prospectus. The value of the net assets of
the target series subaccounts will reflect the investment advisory fee and other
expenses incurred by the manager in operating each target series subaccount.
6. TAXES
Your earnings, if any, are not taxed until you take them out. If you take money
out during the accumulation phase, earnings come out first for federal tax
purposes, and are taxed as income. If you are younger than 59 <C189> when you
take money out, you may be charged a 10% federal penalty tax on the earnings.
Payments during the income phase may be considered partly a return of your
original investment so that part of each payment would not be taxable as income.
7. ACCESS TO YOUR MONEY
You can take out $500 or more anytime during the accumulation phase. After one
year, you may
5
<PAGE>
take out up to 10% of the policy value free of surrender charges
once each year. Amounts withdrawn in the first year are subject to a surrender
charge. You may also have to pay income tax and a tax penalty on any money you
take out.
8. PERFORMANCE
The value of the policy will vary up or down depending upon the investment
performance of the mutual fund subaccounts or target series subaccounts you
choose. We provide performance information in Appendix B and in the Statement of
Additional Information. This data is not intended to indicate future
performance.
9. DEATH BENEFIT
If you are both the owner and the annuitant and you die before the income phase
begins, then your beneficiary will receive a death benefit.
Naming different persons as owner and annuitant can affect whether the death
benefit is payable and to whom amounts will be paid. Use care when naming
owners, annuitants, and beneficiaries, and consult your agent if you have
questions.
You generally may choose one of the following guaranteed minimum death benefits:
. Annual Step-Up
. Return of Premium
10. OTHER INFORMATION
Right to Cancel Period. You may return your policy for a refund within 20 days
after you receive it. The amount of the refund will be the total of all premium
payments made and the accumulated gains or losses in the separate accounts, if
any. We will pay the refund within 7 days after we receive written notice of
cancellation and the returned policy. The policy will then be deemed void.
No Probate. Usually when you die, the person you choose as your beneficiary will
receive the death benefit under this policy without going through probate. State
laws vary on how the amount that may be paid is treated for estate tax purposes.
Who should purchase the Policy? This policy is designed for people seeking
long-term tax-deferred accumulation of assets, generally for retirement or other
long-term purposes; and for persons who have maximized their use of other
retirement savings methods, such as 401(k) plans and individual retirement
accounts. The tax-deferred feature is most attractive to people in high federal
and state tax brackets. You should not buy this policy if you are looking for a
short-term investment or if you cannot take the risk of losing the money that
you put in.
Financial Statements. Financial Statements for AUSA Life and the mutual fund
subaccounts are in the Statement of Additional Information.
Additional Features. This policy has additional features that might interest
you. These include the following:
. You can arrange to have money automatically sent to you monthly, quarterly,
semi-annually or annually while your policy is in the accumulation phase.
This feature is referred to as the "systematic payout option." Amounts you
receive may be included in your gross income, and in certain circumstances,
may be subject to penalty taxes.
. You can arrange to have a certain amount of money automatically transferred
from the fixed account, either monthly or quarterly, into your choice of
mutual fund subaccounts or target series subaccounts. This feature is
called "dollar cost averaging."
. We will, upon your request, automatically transfer amounts among the mutual
fund subaccounts or target series subaccounts on a regular basis to
maintain a desired allocation of the policy value among the various mutual
fund subaccounts or target series subaccounts. This feature is called
"asset rebalancing."
6
<PAGE>
The dollar cost averaging and asset rebalancing features are inconsistent with
the target series subaccounts' investment strategy.
These features may not be suitable for your particular situation.
Inquiries
If you need more information, please contact us at:
Service Office:
Financial Markets Division
Variable Annuity Department
AUSA Life Insurance Company
4333 Edgewood Road N.E.
P.O. Box 3183
Cedar Rapids, IA 52406-3183
Administrative Office:
AUSA Life Insurance Company, Inc.
666 Fifth Avenue, 25th Floor
New York, NY 10103
Home Office:
4 Manhattanville Road
Purchase, NY 10577
7
<PAGE>
<TABLE>
<CAPTION>
=================================================================================================================
ANNUITY POLICY FEE TABLE
=================================================================================================================
Separate Account Annual Expenses
Policy Owner Transaction Expenses (as a percentage of average account value)
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
Sales Load On Purchase Payments.............. 0 Mortality and Expense Risk Fee(3)........ 1.40%
Maximum Surrender Charge Administrative Charge.................... 0.15%
(as a % of Premium Withdrawal) (1)(2) 7%
Surrender Fees............................... 0
Annual Service Charge (1)............. $35 Per Policy TOTAL SEPARATE ACCOUNT
Transfer Fee (1)....................... Currently No Fee ANNUAL EXPENSES........................... 1.55%
=================================================================================================================
<CAPTION>
Portfolio Annual Expenses (4)
(as a percentage of average net assets and after expense reimbursements)
- -----------------------------------------------------------------------------------------------------------------
Total Total
Management Other Rule Portfolio Account and
Fees Expenses 12b-1 Annual Portfolio
Fees(5) Expenses (6) Expenses
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Endeavor Asset Allocation.................. 0.75% 0.03% 0.02% 0.80% 2.35%
Endeavor Money Market...................... 0.50% 0.10% - 0.60% 2.15%
T. Rowe Price Equity Income................ 0.80% 0.05% - 0.85% 2.40%
T. Rowe Price Growth Stock................. 0.80% 0.07% - 0.87% 2.42%
T. Rowe Price International Stock (7)...... 0.90% 0.08% - 0.98% 2.53%
Endeavor Value Equity...................... 0.80% 0.04% 0.01% 0.85% 2.40%
Endeavor Opportunity Value (8)............. 0.80% 0.18% 0.01% 0.99% 2.54%
Endeavor Enhanced Index.................... 0.75% 0.35% - 1.10% 2.65%
Dreyfus U.S. Government Securities (9)..... 0.60% 0.12% - 0.72% 2.27%
Dreyfus Small Cap Value.................... 0.80% 0.06% 0.08% 0.94% 2.49%
Endeavor Select 50 (10).................... 1.10% 0.39% - 1.49% 3.04%
Endeavor High Yield (11)................... 0.775% 0.525% - 1.30% 2.85%
Endeavor Janus Growth (12)................. 0.775% 0.095% - 0.87% 2.42%
The Dow(SM) Target 10 (July) (13)(14)(15) 0.75% 0.55% - 1.30% 2.85%
The Dow(SM) Target 5 (July) (13)(14)(15) 0.75% 0.55% - 1.30% 2.85%
The Dow(SM) Target 10 (January)
(13)(14)(15) 0.75% 0.55% - 1.30% 2.85%
The Dow(SM) Target 5 (January) (13)(14)(15) 0.75% 0.55% - 1.30% 2.85%
=================================================================================================================
</TABLE>
8
<PAGE>
(1) The surrender charge and transfer fee, if any is imposed, apply to each
policy, regardless of how the policy value is allocated among the mutual
fund account, the target account and the fixed account. The annual service
charge, if any is imposed, applies only to the mutual fund account and the
target account, and is assessed on a pro rata basis relative to each
account's policy value as a percentage of the policy's total policy value.
The service charge is deducted on each policy anniversary. If applicable, a
surrender charge will only be applied to withdrawals that exceed the amount
available under certain listed exceptions. There is no transfer fee for the
first 12 transfers per year. For additional transfers, AUSA Life may charge
a fee of $10 per transfer, but currently does not charge for any transfers.
(2) The surrender charge is decreased based on the number of years since the
premium payment was made, from 7% during the first year after the premium
payment was made to 0% after the seventh year after the premium payment was
made.
(3) The mortality and expense risk fees shown are those for the Annual Step-Up
Death Benefit which apply during the first seven policy years. After the
seventh policy year this charge is 1.25%. The corresponding Fee for the
Return of Premium Death Benefit is 1.25% during the first seven policy
years and 1.10% thereafter. The administrative charge may be increased in
the future. In no event will the mortality and expense risk fee and
administrative charge exceed 1.40% on or after the annuity commencement
date, regardless of the death benefit that was in effect prior to
commencement of annuity payments.
(4) The fee table information relating to Endeavor Series Trust was provided to
AUSA Life by Endeavor Management Co., and AUSA Life has not independently
verified such information. Actual future expenses of the portfolios may be
greater or less than those shown in the Table.
(5) The Board of Trustees of Endeavor Series Trust has authorized an
arrangement whereby, subject to best price and execution, executing brokers
will share commissions with the Trust's affiliated broker. Under
supervision of the Trustees, the affiliated broker will use the "recaptured
commission" to promote marketing of the Trust's shares. The staff of the
Securities and Exchange Commission believes that, through the use of these
recaptured commissions, the Trust is indirectly paying for distribution
expenses and such amounts must be shown as 12b-1 fees in the above table.
The use of recaptured commissions to promote the sale of the Trust's shares
involves no additional costs to the Trust or any Owner. Endeavor Series
Trust, based on advice of counsel, does not believe that recaptured
brokerage commissions should be treated as 12b-1 fees. For more information
on the Trust's Brokerage Enhancement Plan, see the Trust's prospectus
accompanying this Prospectus.
(6) Endeavor Management Co. has agreed, until further notice, to assume
expenses of the Portfolios that exceed the following rates: Endeavor Money
Market--0.99%; Endeavor Asset Allocation--1.25%; T. Rowe Price
International Stock--1.53%; Endeavor Value Equity--1.30%; Dreyfus (SM)all
Cap Value--1.30%; Dreyfus U.S. Government Securities--1.00%; T. Rowe Price
Equity Income--1.30%; T. Rowe Price Growth Stock--1.30%; Endeavor
Opportunity Value--1.30%; Endeavor Enhanced Index--1.30%; Endeavor Select
50--1.50%; Endeavor High Yield--1.30%. Endeavor Management Co. has agreed
for a period of at least one year to assume the expenses of the Endeavor
Janus Growth Portfolio that exceed 0.87%. Expenses shown for the Endeavor
Janus Growth Portfolio are estimated for 1999. Expenses shown for the
Endeavor Select 50 and Endeavor High Yield Portfolios are annualized.
(7) Total Portfolio Annual Expenses for the T. Rowe Price International Stock
Portfolio before credits allowed by the custodian for the period ended
December 31, 1998 were 1.10%.
(8) Total Portfolio Annual Expenses for the Endeavor Opportunity Value
Portfolio before waivers/reimbursement and credits allowed by the custodian
for the period ended December 31, 1998 were 0.99%.
(9) Total Portfolio Annual Expenses for the Dreyfus U.S. Government Securities
Portfolio before waiver/reimbursements and credits allowed by the custodian
for the period ended December 31, 1998 were 0.73%.
(10) Total Portfolio Annual Expenses for the Endeavor Select 50 Portfolio before
waivers/reimbursement and credit allowed by
9
<PAGE>
the custodian for the period ended December 31, 1998 were 1.55% annualized.
(11) Total Portfolio Annual Expenses for the Endeavor High Yield Portfolio
before waivers/reimbursement and credits allowed to the custodian for the
period ended December 31, 1998 were 1.58% annualized.
(12) The Endeavor Janus Growth Portfolio is new, so the Total Portfolio Annual
Expenses before waivers/reimbursement for the period ending December 31,
1999 are estimated to be 0.895%.
(13) For the target account, the distribution financing charge included under
"Total Separate Account Annual Expenses" in this table is deducted pursuant
to a 12b-1 plan.
(14) The manager is paid a fee of 0.75% of the average daily net assets of each
target series subaccount. For its services to the target account, the
manager pays the adviser a fee equal to 0.35% of the average daily net
assets of each target series subaccount.
(15) In addition to the management fees, the target account pays all expenses
not assumed by the manager. The manager has agreed to limit each target
series subaccount's management fee and operating expenses during its first
year of operations to an annual rate of 1.30% of the target series
subaccount's average net assets. (This limit does not include other fees
and deductions such as the mortality and expense risk fee, administrative
charge, and distribution financing charge.) (See the Statement of
Additional Information for more details.) Without this limitation, the
management fees and operating expenses for the Annual Step-Up Death Benefit
are expected to be ____% for The Dow(SM) Target 10 and ____% for The
Dow(SM) Target 5. Without this limitation, the management fees and
operating expenses for the Return of Premium Death Benefit are expected to
be ____% for The Dow(SM) Target 10 and ____% for The Dow(SM) Target 5.
10
<PAGE>
EXAMPLES
You would pay the following expenses on a $1,000 investment, assuming a
hypothetical 5% annual return on assets, and assuming the entire policy value is
in the applicable mutual fund subaccount or target series subaccount.
The expenses reflect different mortality and expense risk fees depending on
which death benefit you select:
A = Annual Step-Up Death Benefit (1.40% in the first seven policy years and
1.25% thereafter)
B = Return of Premium Death Benefit (1.25% in the first seven policy years and
1.10% thereafter)
<TABLE>
<CAPTION>
=================================================================================================================
If the Policy is annuitized at
If the Policy is surrendered the end of the applicable time
at the end of the applicable period or if the Policy is not
time period. surrendered or annuitized.
------------------------------------------------------------------------
1 3 5 10 1 3 5 10
Subaccounts Year Years Years Years Year Years Years Years
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Endeavor Asset Allocation A $94 $120 $155 $269 $24 $75 $128 $269
B $93 $115 $147 $253 $23 $70 $121 $253
Endeavor Money Market A $92 $113 $145 $248 $22 $69 $118 $248
B $91 $109 $137 $233 $21 $64 $110 $233
T. Rowe Price Equity Income A $95 $121 $157 $274 $25 $76 $131 $274
B $93 $117 $150 $258 $23 $72 $123 $258
T. Rowe Price Growth Stock A $95 $122 $158 $276 $25 $77 $132 $276
B $94 $117 $151 $260 $24 $73 $124 $260
T. Rowe Price International A $96 $125 $164 $286 $26 $80 $137 $286
Stock B $95 $120 $156 $272 $25 $76 $130 $272
Endeavor Value Equity A $95 $121 $157 $274 $25 $76 $131 $274
B $93 $117 $150 $258 $23 $72 $123 $258
Endeavor Opportunity Value A $96 $125 $164 $287 $26 $81 $138 $287
B $95 $121 $157 $273 $25 $76 $130 $273
Endeavor Enhanced Index A $97 $129 $170 $298 $27 $84 $143 $298
B $96 $124 $162 $283 $26 $79 $136 $283
Dreyfus U.S. Government A $94 $117 $151 $260 $24 $73 $124 $260
Securities B $92 $113 $143 $245 $22 $68 $117 $245
Dreyfus Small Cap Value A $96 $124 $162 $282 $26 $79 $135 $282
B $94 $119 $154 $267 $24 $75 $128 $267
Endeavor Select 50 A $101 $140 $189 $335 $31 $95 $162 $335
B $100 $136 $182 $321 $30 $91 $155 $321
Endeavor High Yield A $99 $135 $180 $317 $29 $90 $153 $317
B $98 $130 $172 $303 $28 $85 $146 $303
Endeavor Janus Growth A $195 $122 $158 $276 $25 $77 $132 $276
B $94 $117 $151 $260 $24 $73 $124 $260
The Dow(SM) Target 10 A $99 $135 $180 $317 $29 $90 $153 $317
(July Series) B $98 $130 $172 $303 $28 $85 $146 $303
The Dow(SM) Target 5 A $99 $135 $180 $317 $29 $90 $153 $317
(July Series) B $98 $130 $172 $303 $28 $85 $146 $303
The Dow(SM) Target 10 A $99 $135 $180 $317 $29 $90 $153 $317
(January Series) B $98 $130 $172 $303 $28 $85 $146 $303
The Dow(SM) Target 5 A $99 $135 $180 $317 $29 $90 $153 $317
(January Series) B $98 $130 $172 $303 $28 $85 $146 $303
=================================================================================================================
</TABLE>
11
<PAGE>
The above tables will assist you in understanding the costs and expenses that
you will bear, directly or indirectly. These include the 1998 expenses of the
underlying portfolios, except for Endeavor Janus Growth and the target
subaccounts (whose expenses listed above are estimates for the first full year
of operations). In addition to the expenses listed above, premium taxes may be
applicable.
These examples should not be considered a representation of past or future
expenses, and actual expenses may be greater or lesser than those shown. The
assumed 5% annual return is hypothetical and should not be considered a
representation of past or future annual returns, which could be greater or less
than the assumed rate.
In these examples, the $35 annual service charge is reflected as a charge of
0.0522% based on an average policy value of $67,071. Normally, the $35 (but not
more than 2% of the policy value) service charge would be waived if the premium
payment, less partial withdrawals, is at least $50,000 on a policy anniversary.
However, $35 has been included in these examples for illustrative purposes.
Financial Information. Condensed financial information for the mutual fund
subaccounts and target series subaccounts are in Appendix A to this prospectus.
12
<PAGE>
1. THE ANNUITY POLICY
This prospectus describes The Endeavor Variable Annuity Policy offered by AUSA
Life Insurance Company, Inc.
An annuity is a policy between you, the owner, and an insurance company (in this
case AUSA Life), where the insurance company promises to pay you an income in
the form of annuity payments. These payments begin on a designated date,
referred to as the annuity commencement date. Until the annuity commencement
date, your annuity is in the accumulation phase and the earnings are tax
deferred. Tax deferral means you generally are not taxed on your annuity until
you take money out of your annuity. After the annuity commencement date, your
annuity switches to the income phase.
The policy is a flexible premium variable annuity. You can use the policy to
accumulate funds for retirement or other long-term financial planning purposes.
It is a "flexible premium" policy because after you purchase it, you can
generally make additional investments of any amount of $50 or more, until the
annuity commencement date. But you are not required to make any additional
investments.
The policy is a "variable" annuity because the value of your investments can go
up or down based on the performance of your investment choices. If you select
the variable annuity portion of the policy, the amount of money you are able to
accumulate in your policy during the accumulation phase depends upon the
performance of your investment choices. The amount of annuity payments you
receive during the income phase from the variable annuity portion of your policy
also depends upon the investment performance of your investment choices for the
income phase.
The policy also contains a fixed account. The fixed account offers a one year
interest rate that is guaranteed by AUSA Life not to decrease during each one
year period.
2. ANNUITY PAYMENTS
(THE INCOME PHASE)
You choose the annuity commencement date. You can change this date by giving us
30 days written notice before the current annuity commencement date. The new
annuity commencement date must be at least 30 days after we receive the change.
The latest annuity commencement date cannot be after the policy month following
the month in which the annuitant attains age 90.
Election of Annuity Payment Option. Before the annuity commencement date, if the
annuitant is alive, you may choose an annuity payment option or change your
election. If the annuitant dies before the annuity commencement date, the
beneficiary may elect to receive the death benefit in a lump sum or under one of
the annuity payment options.
Unless you specify otherwise, the annuitant will receive the annuity payments.
After the annuitant's death, the beneficiary will receive any remaining
guaranteed payments.
Supplemental Policy. Once you annuitize and select an annuity payment option,
your policy will be supplemented with who will receive the annuity payments and
describe when the annuity payments will be made.
Annuity Payment Options
The policy provides five annuity payment options that are described below. You
may chose any combination of annuity payment options. We will use your policy
value to provide these annuity payments. If the policy value on the annuity
commencement date is less than $2,000, AUSA Life reserves the right to pay it in
one lump sum in lieu of applying it under an annuity payment option. You can
receive annuity payments monthly, quarterly, semi-annually, or annually.
13
<PAGE>
Unless you choose to receive variable payments under annuity payment options 3
or 5, the amount of each payment will be set on the annuity commencement date
and will not change. You may, however, choose to receive variable payments under
payment options 3 and 5. The dollar amount of the first variable payment will be
determined in accordance with the annuity payment rates set forth in the
applicable table contained in the policy. The dollar amount of additional
variable payments will vary based on the investment performance of the mutual
fund subaccount(s) and/or target series subaccount(s). The dollar amount of each
variable payment after the first may increase, decrease, or remain constant. If
the actual investment performance exactly matched the assumed investment return
of 5% at all times, the amount of each variable annuity payment would remain
equal. If actual investment performance exceeds the assumed investment return,
the amount of the variable annuity payments would increase. Conversely, if
actual investment performance is lower than the assumed investment return, the
amount of the variable annuity payments would decrease.
A charge for premium taxes may be made when annuity payments begin.
The annuity payment options are explained below. Options 1, 2, and 4 are fixed
only. Options 3 and 5 can be fixed or variable.
Payment Option 1--Interest Payments. We will pay the interest on the amount we
use to provide annuity payments in equal payments or this amount may be left to
accumulate for a period of time you and AUSA Life agree to. You and AUSA Life
will agree on withdrawal rights when you elect this option.
Payment Option 2--Income for a Specified Period. We will make level payments
only for the fixed period you choose. No funds will remain at the end.
Payment Option 3--Life Income. You may choose between:
Fixed Payments
. No Period Certain--We will make level payments only during the annuitant's
lifetime.
. 10 Years Certain--We will make level payments for the longer of the
annuitant's lifetime or ten years.
. Guaranteed Return of Policy Proceeds--We will make level payments for the
longer of the annuitant's lifetime or until the total dollar amount of
payments we made to you equals the amount applied to this option.
Variable Payments
. No Period Certain--Payments will be made only during the lifetime of the
annuitant.
. 10 Years Certain--Payments will be made for the longer of the annuitant's
lifetime or ten years.
Payment Option 4--Income of a Specified Amount. Payments are made for any
specified amount until the amount applied to this option, with interest, is
exhausted. This will be a series of level payments followed by a smaller final
payment.
Payment Option 5--Joint and Survivor Annuity. You may choose between:
Fixed Payment
. Payments are made during the joint lifetime of the payee and a joint payee
of your selection. Payments will be made as long as either person is
living.
Variable Payments
. Payments are made as long as either the payee or the joint payee is living.
Other annuity payment options may be arranged by agreement with AUSA Life.
NOTE CAREFULLY:
IF:
. you choose Life Income with No Period Certain or a Joint and Survivor
Annuity; and
. the annuitant(s) dies before the due date of the second annuity payment;
THEN:
. we may make only one annuity payment.
14
<PAGE>
IF:
. you choose Income for a Specified Period, Life Income with 10 years
Certain, Life Income with Guaranteed Return of Policy Proceeds, or Income
of a Specified Amount; and
. the person receiving payments dies prior to the end of the guaranteed
period;
THEN:
. the remaining guaranteed payments will be continued to that person's
beneficiary, or their present value may be paid in a single sum.
We will not pay interest on amounts represented by uncashed annuity payment
checks if the postal or other delivery service is unable to deliver checks to
the payee's address of record. The payee is responsible to keep AUSA Life
informed of the payee's current address of record.
3. PURCHASE
Policy Issue Requirements
AUSA Life will issue a policy IF:
. AUSA Life receives all information needed to issue the policy;
. AUSA Life receives a minimum initial premium payment; and
. You (annuitant and any joint owner) are age 79 or younger.
--
. You meet our underwriting standards.
Premium Payments
You should make checks for premium payments payable only to AUSA Life Insurance
Company, Inc. and send them to the administrative and service office. Your check
must be honored in order for AUSA Life to pay any associated payments and
benefits due under the policy.
Initial Premium Requirements
The initial premium payment for nonqualified policies must be at least $5,000,
and at least $1,000 for qualified policies. The initial premium payment for
policies issued under section 403(b) of the Internal Revenue Code is $50. We
will credit your initial premium payment to your policy within two business days
after the day we receive it and your complete policy information. If we are
unable to credit your initial premium payment, we will contact you within five
business days and explain why. We will also return your initial premium payment
at that time unless you tell us to keep it and credit it as soon as possible.
The date on which we credit your initial premium payment to your policy is the
policy date. The policy date is used to determine policy years, policy months
and policy anniversaries.
Additional Premium Payments
You are not required to make any additional premium payments. However, you can
make additional premium payments as often as you like during the lifetime of the
annuitant and during the accumulation phase. Additional premium payments must be
at least $50. We will credit additional premium payments to your policy as of
the business day we receive your premium and required information.
Maximum Total Premium Payments
We allow premium payments up to a total of $1,000,000 without prior approval.
Allocation of Premium Payments
When you purchase a policy, we will allocate your premium payments to the
investment choices you select. Your allocation must be in whole percentages and
must total 100%. We will allocate additional premium payments the same way,
unless you request a different allocation.
If you allocate premium payment to the dollar cost averaging fixed account, you
must give us directions regarding the mutual fund subaccount(s) and/or target
series subaccount(s) to which transfers are to be made or we cannot accept your
premium payment.
15
<PAGE>
You may change allocations for future additional premium payments by sending us
written instructions. The allocation change will apply to premium payments
received after the date we receive the change request.
Policy Value
You should expect your policy value to change from valuation period to valuation
period. A valuation period begins at the close of trading on the New York Stock
Exchange on each business day and ends at the close of trading on the next
succeeding business day. A business day is each day that the New York Stock
Exchange is open. The New York Stock Exchange generally closes at 4:00 p.m.
eastern time. Holidays are generally not business days.
4. INVESTMENT CHOICES
The Separate Account
There are currently seventeen variable subaccounts available under the policies.
There are thirteen subaccounts of the mutual fund account (which is a portion of
the AUSA Endeavor Variable Annuity Account) and four subaccounts of the AUSA
Endeavor Target Account.
The Mutual Fund Account
The mutual fund subaccounts invest in shares of the various portfolios of
Endeavor Series Trust. The companies that provide investment advice and
administrative services for the underlying portfolios offered through this
policy. The following mutual fund investment choices are currently offered
through this policy:
Subadvised by Morgan Stanley
Asset Management Inc.
Endeavor Asset Allocation Portfolio
Endeavor Money Market Portfolio
Subadvised by T. Rowe Price Associates, Inc.
T. Rowe Price Equity Income Portfolio
T. Rowe Price Growth Stock Portfolio
Subadvised by Rowe Price-Fleming
International, Inc.
T. Rowe Price International Stock Portfolio
Subadvised by OpCap Advisors
Endeavor Value Equity Portfolio
Endeavor Opportunity Value
Subadvised by J.P. Morgan Investment
Management Inc.
Endeavor Enhanced Index Portfolio
Subadvised by The Dreyfus Corporation
Dreyfus U.S. Government Securities
Portfolio
Dreyfus (SM)all Cap Value Portfolio
Subadvised by Montgomery Asset
Management, LLC
Endeavor Select 50 Portfolio
Subadvised by Massachusetts Financial
Services Company
Endeavor High Yield Portfolio
Subadvised by Janus Capital Corporation
Endeavor Janus Growth
The general public may not purchase shares of these underlying portfolios. The
investment objectives and policies may be similar to other portfolios and mutual
funds managed by the same investment adviser or manager that are sold directly
to the public. You should not expect that the investment results of the other
portfolios and mutual funds will be comparable to those of these underlying
portfolios.
More detailed information, including an explanation of the portfolio's
investment objectives, may be found in the current Endeavor Series Trust
prospectus, which is attached to this prospectus. You should read the Endeavor
Series Trust prospectus carefully before you invest.
We may receive expense reimbursements or other revenues from Endeavor Series
Trust or its manager. The amount of these reimbursements or revenues, if any,
may be based on the amount of assets that AUSA Life or the mutual fund account
invests in the underlying portfolios.
The Target Account
This section gives information on the target account, including the management
and investment strategies, and policies. The following target account investment
choices are currently offered through this policy:
16
<PAGE>
THE TARGET ACCOUNT
Subadvised by First Trust Advisors, L.P.
The Dow(SM) Target 10 (July Series)
The Dow(SM) Target 5 (July Series)
The Dow(SM) Target 10 (January Series)
The Dow(SM) Target 5 (January Series)
General. The target account is a managed separate account and is currently
divided into four target series subaccounts. Each Series is a separate
subaccount, so there are currently two Target 10 subaccounts (January and July
Series) and two Target 5 subaccounts (January and July Series). Additional
target series subaccounts may be established in the future at the discretion of
AUSA Life. Each target series subaccount invests according to specific
investment strategies.
Under New York law, the assets of the target account are owned by AUSA Life, but
they are held separately from the other assets of AUSA Life. To the extent that
these assets are attributable to the policy value of the policies, these assets
are not chargeable with liabilities incurred in any other business operation of
AUSA Life. Income, gains, and losses incurred on the assets in a target series
subaccount of the target account, whether or not realized, are credited to or
charged against that target series subaccount without regard to other income,
gains or losses of any other account or subaccount of AUSA Life. Each target
series subaccount operates as a separate investment fund. Therefore, the
investment performance of any target series subaccount should be entirely
independent of the investment performance of AUSA Life's general account assets
or any other account or subaccount maintained by AUSA Life.
Management of the Target Account. The investments and administration of each
managed target series subaccount are under the direction of a Board of Managers.
The Board of Managers for each target series subaccount annually selects an
independent public accountant, reviews the terms of the management and
investment advisory agreements, recommends any changes in the fundamental
investment policies, and takes any other actions necessary in connection with
the operation and management of the target series subaccounts.
Endeavor Management Co., an investment adviser registered with the SEC under the
Investment Advisers Act of 1940, is the target account's manager. The manager
performs administerial and managerial functions for the target account. First
Trust Advisors L.P., an Illinois limited partnership formed in 1991 and an
investment adviser registered with the SEC under the Investment Advisers Act of
1940, is the target account's investment adviser. The adviser is responsible for
selecting the investments of each target series subaccount consistent with the
investment objectives and policies of that target series subaccount, and will
conduct securities trading for the target series subaccount.
Portfolio Manager. There is no one individual primarily responsible for
portfolio management decisions for the target account. Investments are made
according to the prescribed strategy under the direction of a committee.
Investment Strategy. Each of The Dow(SM) Target 10 Subaccounts will invest in
the common stock of the ten companies in the DJIA that have the highest dividend
yield as of a specified business day and hold those stocks for the following
12-month period.
Each of The Dow(SM) Target 5 Subaccounts will invest in the common stock of the
five companies with the lowest per share stock price of the ten companies in the
DJIA that have the highest dividend yield as of a specified business day and
hold those stocks for the following 12-month period.
The objective of each target series subaccount is to provide an above-average
total return through a combination of dividend income and capital appreciation.
Each target series subaccount will function in a similar manner. Each target
series subaccount will initially invest in substantially equal amounts in the
common stock of the companies described above for each target series subaccount
(as held in a target series subaccount,
17
<PAGE>
such common stock is referred to as the common shares) determined as of the
initial stock selection date.
Each target series subaccount may have different investment series running
simultaneously for different 12-month periods. For example, within The Dow(SM)
Target 10 Subaccount there may be more than one series, each with a different
initial stock selection date. At the initial stock selection date, a percentage
relationship among the number of common shares in a series will be established.
When additional funds are deposited into the series, additional common shares
will be purchased in such numbers reflecting as nearly as practicable the
percentage relationship of the number of common shares established at the
initial purchase. Sales of common shares by the series will likewise attempt to
replicate the percentage relationship of common shares. The percentage
relationship among the number of common shares in the series should therefore
remain stable. However, given the fact that the market price of such common
shares will vary throughout the year, the value of the common shares of each of
the companies as compared to the total assets of the series will fluctuate
during the year, above and below the proportion established on a stock selection
date.
As of the annual stock selection date, a new percentage relationship will be
established among the number of common shares described below for each series on
such date. Common shares may be sold or new equity securities bought each year
so that the series is equally invested in the common stock of each company
meeting the series' investment criteria. Thus the series may or may not hold
equity securities of the same companies as the previous year. Any purchase or
sale of additional common shares during the year will duplicate, as nearly as
practicable, the percentage relationship among the number of common shares as of
the annual stock selection date since the relationship among the value of the
common shares on the date of any subsequent transactions may be different than
the original relationship among their value. The adviser may depart from the
specified strategy to meet tax diversification requirements. (See Section 6,
"TAXES - Diversification and Distribution Requirements").
As of May 1, 1999, there are four target series subaccounts. There are two "The
Dow(SM) Target 10 Subaccounts," which contain a July Series (a June 30, 1998
initial stock selection date) and a January Series (a December 31, 1998 initial
stock selection date). Similarly, there are two "The Dow(SM) Target 5
Subaccounts," which contain a July Series (June 30, 1998 initial stock selection
date) and a January Series (December 31, 1998 initial stock selection date).
The target account may determine to offer additional target series subaccounts
in the future, which may have different selection criteria or stock selection
dates (or both).
The Dow(SM) Target 10 Subaccounts and The Dow(SM) Target 5 Subaccounts have not
been designed so that their prices will parallel or correlate with movements in
the DJIA. It is expected that their prices will not do so.
An investment in a target series subaccount involves the purchase of a portfolio
of equities securities with high dividend yields in one convenient purchase.
Investing in the stocks of the DJIA with the highest dividend yields amounts to
a contrarian strategy because these shares are often out of favor. Such strategy
may be effective in achieving a target series subaccount's investment objectives
because regular dividends are common for established companies and dividends
have accounted for a substantial portion of the total return on stocks of the
DJIA as a group. However, there is no guarantee that either a target series
subaccount's objective will be achieved or that a target series subaccount will
provide for capital appreciation in excess of such target series subaccount's
expenses.
Each target series subaccount may also invest in futures and options, hold
warrants, and lend its common shares.
18
<PAGE>
The Dow Jones Industrial Average(SM). The DJIA consists of 30 stocks. The stocks
are chosen by the editors of The Wall Street Journal as representative of the
broad market and of American industry. The companies are major factors in their
industries and their stocks are widely held by individuals and institutional
investors. Changes in the components of the DJIA are made entirely by the
editors of The Wall Street Journal without consultation with the companies, the
stock exchange or any official agency. For the sake of continuity, changes are
made rarely. Most substitutions have been the result of mergers, but from time
to time, changes may be made. The components of the DJIA may be changed at any
time, for any reason. Any changes in the components of the DJIA made after the
initial stock selection date of any series will not cause a change in the
identity of the common shares included in that series, including any equity
securities deposited in that series, except on an annual stock selection date.
The following is a list of the companies that comprise the DJIA as of May 1,
1999.
AT&T Corporation
Allied Signal
Aluminum Company of America
American Express Company
Boeing Company
Caterpillar Inc.
Chevron Corporation
Coca Cola Company
Walt Disney Company
International Business Machines Corporation
International Paper Company
Johnson & Johnson
McDonald's Corporation
Merck & Company, Inc.
Minnesota Mining & Manufacturing
Company
E.I. du Pont de Nemours & Company
Eastman Kodak Company
Exxon Corporation
General Electric Company
General Motors Corporation
Goodyear Tire & Rubber Company
Hewlett Packard Company
J.P. Morgan & Company, Inc.
Philip Morris Companies, Inc.
Procter & Gamble Company
Sears, Roebuck & Company
Travelers Group
Union Carbide Corporation
United Technologies Corporation
Wal Mart Stores Inc.
The target account is not sponsored, endorsed, sold or promoted by Dow Jones.
Dow Jones makes no representation or warranty, express or implied, to the owners
of the target account or any member of the public regarding the advisability of
purchasing the target account. Dow Jones' only relationship to First Trust
Advisors, Endeavor Management Co. (Endeavor) and AUSA Life is the licensing of
certain copyrights, trademarks, service marks and service names of Dow Jones.
Dow Jones has no obligation to take the needs of First Trust Advisors, Endeavor,
AUSA Life or the owners of the target account into consideration in determining,
composing or calculating the Dow Jones Industrial Average(SM). Dow Jones is not
responsible for and has not participated in the determination of the terms and
conditions of the target account to be issued, including the pricing or the
amount payable under the policy. Dow Jones has no obligation or liability in
connection with the administration or marketing of the target account.
Dow Jones does not guarantee the accuracy and/or the completeness of the Dow
Jones Industrial Average(SM) or any data included therein and Dow Jones shall
have no liability for any errors, omission, or interruptions therein. Dow Jones
makes no warranty, express or implied, as to results to be obtained by First
Trust Advisors, Endeavor, AUSA Life, owners of the target account or any other
person or entity from the use of the Dow Jones Industrial Average(SM) or any
data included therein. Dow Jones makes no express or implied warranties, and
expressly disclaims all warranties, of merchantability or fitness for a
particular purpose or use with respect to the Dow Jones Industrial Average(SM)
or any data included therein. Without limiting any of the foregoing, in no event
shall Dow Jones have any liability for any lost profits or indirect, punitive,
special or consequential damages (including lost profits), even if notified of
the possibility of such damages.
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Investment Risks. There is no assurance that any target series subaccount will
achieve its stated objective. More detailed information, including a description
of each target series subaccount's investment objective and policies and a
description of risks involved in investing in each of the target series
subaccounts and of each target series subaccount's fees and expenses is
contained in the Statement of Additional Information. Information contained in
the Statement of Additional Information should be read carefully before
investing in a target series subaccount.
Each subaccount consists of different issues of equity securities, all of which
are listed on a securities exchange. In addition, each of the companies whose
equity securities are included in a subaccount are actively traded,
well-established corporations.
Common shares may be sold under certain circumstances. Common shares, however,
will not be sold by a target series subaccount to take advantage of market
fluctuations or changes in anticipated rates of appreciation or depreciation, or
if the common shares no longer meet the criteria by which they were selected.
However, common shares will be sold on or about each annual stock selection date
in accordance with the adviser's stock selection strategy.
Whether or not the common shares are listed on a securities exchange, the
principal trading market for the common shares may be in the over-the-counter
market. As a result, the existence of a liquid trading market for the common
shares may depend on whether dealers will make a market in the common shares.
There can be no guarantee that a market will be made for any of the common
shares, that any market for the common shares will be maintained or that there
will be sufficient liquidity of the common shares in any markets made. The price
at which the common shares may be sold to meet transfers, partial withdrawals or
surrenders and the value of a target series subaccount will be adversely
affected if trading markets for the common shares are limited or absent.
Investors should consider the following before making a decision to invest in a
target series subaccount:
. The value of the common shares will fluctuate over the life of a target
series subaccount and may be more or less than the price at which they were
purchased by such target series subaccount.
. The common shares may appreciate or depreciate in value (or pay dividends)
depending on the full range of economic and market influences affecting
these securities, including the impact of the target series subaccounts'
purchase and sale of the common shares and other factors.
. Transfers between the target account investment portfolios during the 12-
month period from stock selection date to stock selection date run counter
to the investment strategy of the target account investment portfolios,
namely holding the applicable stocks for a 12-month period, and may
adversely impact your investment performance. Similarly, using dollar cost
averaging and asset rebalancing for the target account investment
portfolios also runs counter to their investment strategies.
. The investment policies of each target subaccount are narrow and
innovative, and the Internal Revenue Service has not addressed them. If you
are deemed to have investment control of the assets in a target subaccount,
then you could be treated as the owner of those assets. If so, income and
gains from the subaccounts assets would be includable (pro rata) in your
taxable income each year.
You should understand the risks of investing in common stocks before making an
investment in a target series subaccount. In general, the value of your
investment will fall if the financial condition of the issuers of the common
stocks becomes impaired or if the general condition of the relevant stock market
worsens. Common stocks are especially susceptible to general stock market
movements and to volatile increases and decreases of value, as market confidence
in and perceptions of the issuers change. These
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perceptions are based on unpredictable factors including:
. expectations regarding government,;
. economic, monetary and fiscal policies;
. inflation and interest rates;
. economic expansion or contraction; and
. global or regional political, economic or banking crises.
At times, due to the objective nature of the investment selection criteria,
target series subaccounts may be considered concentrated in various industries.
AUSA Life cannot predict the direction or scope of any of these factors.
Generally, common stocks do not receive payments until all obligations of the
issuer have been paid. Unlike debt securities, common stocks do not offer any
assurance of income or provide guaranteed protection of capital.
An investment in The Dow(SM) Target 5 Subaccount may subject you to greater
market risk than other target series subaccounts that contain a more diversified
portfolio of securities since it contains only five stocks.
Each target series subaccount is not actively managed and common shares will not
be sold to take advantage of market fluctuations or changes in anticipated rates
of appreciation.
Please note that each strategy has previously under-performed the DJIA.
AUSA Life and Endeavor Management Co. shall not be liable in any way for any
default, failure or defect in any common share.
Portfolio Turnover. It is anticipated that each target series subaccount's
annual rate of portfolio turnover normally will not exceed 100%. Portfolio
turnover for each target series subaccount will vary from year to year, and
depending on market conditions, the portfolio turnover rate could be greater in
periods of unusual market movement. A higher turnover rate would result in
heavier brokerage commissions or other transactional expenses which must be
borne, directly or indirectly by each target series subaccount, and ultimately
by you.
The Fixed Account
Premium payments allocated and amounts transferred to the fixed account become
part of the general account of AUSA Life. Interests in the general account have
not been registered under the Securities Act of 1933 (the "1933 Act"), nor is
the general account registered as an investment company under the Investment
Company Act of 1940 (the "1940 Act"). Accordingly, neither the general account
nor any interests therein are generally subject to the provisions of the 1933 or
1940 Acts. AUSA Life has been advised that the staff of the SEC has not reviewed
the disclosures in this prospectus which relate to the fixed account.
We guarantee that the interest credited to the fixed account will not be less
than 3% per year. At the end of a guaranteed period option, the value in that
guaranteed period option will automatically be transferred into a new guaranteed
period option of the same length (or the next shorter period if the same period
is no longer offered) at the current interest rate for that period. You can
transfer to another investment choice by giving us notice within 30 days before
the end of the expiring guaranteed period.
If you select the fixed account, your money will be placed with the other
general assets of AUSA Life. The amount of money you are able to accumulate in
the fixed account during the accumulation phase depends upon the total interest
credited. The amount of annuity payments you receive during the income phase
from the fixed portion of your policy will remain level for the entire income
phase.
Transfers
During the accumulation phase, you may make transfers from any mutual fund
subaccount or target series subaccount as often as you wish within certain
limitations. Transfers from the
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guaranteed period option of the fixed account are limited to the following:
. At the end of a guaranteed period option, you must notify us within 30 days
prior to the end of the guaranteed period that you wish to transfer the
amount in that guaranteed period option to another investment choice.
. Transfers of amounts equal to interest credited in the one year guaranteed
period option to any subaccount prior to the end of the guaranteed period
on a monthly, quarterly, semi-annual or annual basis. This may affect your
overall interest-crediting rate, because transfers are deemed to come from
the oldest premium payment first.
. Transfers of amounts from the one year guaranteed period option prior to
the end of the guaranteed period option is 25% of the policy value in that
guaranteed period option, less any previous transfer during the current
policy year.
There are no transfers permitted out of the dollar cost averaging fixed account
option except through the dollar cost averaging program.
Each transfer must be at least $500, or the entire mutual fund subaccount,
target series subaccount, or guaranteed period option policy value. If less than
$500 remains, then we reserve the right to either deny the transfer or include
that amount in the transfer.
During the income phase of your policy, you may transfer values out of any
mutual fund subaccount or target series subaccount up to four times per year.
However, you cannot transfer values out of the fixed account in this phase. The
minimum amount that can be transferred during this phase is the lesser of $10 of
monthly income, or the entire monthly income of the annuity units in the mutual
fund subaccount or target series subaccount from which the transfer is being
made.
Currently, there is no charge for transfers. However, the number of transfers
permitted may be limited in the future and charges per transfer may apply in the
future.
Dollar Cost Averaging Program
During the accumulation phase, you may instruct us to automatically transfer
money from the dollar cost averaging fixed account option, the Endeavor Money
Market Subaccount, or the Dreyfus U.S. Government Securities Subaccount, into
any other mutual fund subaccounts and/or target series subaccounts. You may
specify the dollar amount to be transferred either monthly or quarterly; however
each transfer must be at least $500. A minimum of 6 monthly or 4 quarterly
transfers are required and a maximum of 24 months or 8 quarterly transfers are
allowed. Transfers must begin within 30 days. We will make the transfers on the
28th day of the applicable month. There is no charge for this program.
Dollar cost averaging buys more accumulation units when prices are low and fewer
accumulation units when prices are high. It does not guarantee profits or assure
that you will not experience a loss. You should consider your ability to
continue the dollar cost averaging program during all economic conditions.
We may credit different interest rates for dollar cost averaging programs of
varying time periods. If you discontinue the dollar cost averaging program
before its completion, then the interest credited on amounts in the dollar cost
averaging fixed account option may be adjusted downward, but not below the
minimum guaranteed effective annual interest rate of 3%.
Asset Rebalancing
During the accumulation phase you can instruct us to automatically rebalance the
amounts in your mutual fund subaccounts or target series subaccounts to maintain
your desired asset allocation. This feature is called asset rebalancing and can
be started and stopped at any time free of charge. However, we will not
rebalance if you are in the dollar cost averaging program or if any other
transfer is requested. Asset rebalancing ignores amounts in the fixed account.
You can choose to rebalance monthly, quarterly, semi-annually, or annually.
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5. EXPENSES
There are charges and expenses associated with your policy that reduce the
return on your investment in the policy.
Surrender Charges
During the accumulation phase, you can withdraw part or all of the cash value.
Cash value is the policy value decreased by any applicable surrender charge.
After the first year, you can withdraw up to 10% of your policy value once each
year free of surrender charges. This amount is referred to as the free
percentage and is determined at the time of the withdrawal. If you withdraw
money in excess of 10% of your policy value, you might have to pay a surrender
charge, which is a contingent deferred sales charge, on the excess amount. The
following schedule shows the surrender charges that apply during the seven years
following each premium payment:
- -------------------------------------------------
Number of Years Surrender Charge
Since Premium (as a percentage of
Payment Date Premium Payment
withdrawn)
- -------------------------------------------------
0 - 1 7%
- -------------------------------------------------
1 - 2 6%
- -------------------------------------------------
2 - 3 5%
- -------------------------------------------------
3 - 4 4%
- -------------------------------------------------
4 - 5 3%
- -------------------------------------------------
5 - 6 2%
- -------------------------------------------------
6 - 7 1%
- -------------------------------------------------
7 or more 0%
- -------------------------------------------------
For example, assume your policy value is $100,000 at the beginning of policy
year 2 and you withdraw $30,000. Since that amount is more than your free
percentage, you would pay a surrender charge of $1,200 on the remaining $20,000
(6% of $30,000 - $10,000).
You will receive the full amount of a requested partial withdrawal because we
deduct any applicable surrender charge from your remaining policy value. You
receive your cash value upon full surrender.
For surrender charge purposes, the oldest premium is considered to be withdrawn
first. Keep in mind that withdrawals may be taxable, and if made before age 59
1/2, may be subject to a 10% federal penalty tax. For tax purposes, withdrawals
are considered to come from earnings first.
Mortality and Expense Risk Fee
We charge a fee as compensation for bearing certain mortality and expense risks
under the policy. Examples include a guarantee of annuity rates, the death
benefits, certain expenses of the policy, and assuming the risk that the current
charges will be insufficient in the future to cover costs of administering the
policy. For the Annual Step-Up Death Benefit, the mortality and expense risk fee
is at an annual rate of 1.40% of assets for the first seven policy years and
1.25% of assets thereafter. For the Return of Premium Death Benefit the
mortality and expense risk fee is at an annual rate of 1.25% of assets for the
first seven policy years and 1.10% thereafter. This annual fee is assessed daily
based on the net asset value of each mutual fund subaccount and target series
subaccount.
If this charge does not cover our actual costs, we absorb the loss. Conversely,
if the charge more than covers actual costs, the excess is added to our surplus.
We expect to profit from this charge. We may use any profit for any proper
purpose, including distribution expenses.
Administrative Charges
We deduct an administrative charge to cover the costs of administering the
policies. This charge is equal to 0.15% per year of the daily net asset value of
the mutual fund account and the target account.
In addition, an annual service charge of the lesser of $35 or 2% of the policy
value is charged on each policy anniversary and at surrender. The service charge
is waived if your policy value or the sum of your premium(s), less all partial
withdrawals, is at least $50,000.
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Premium Taxes
Some states assess premium taxes on the premium payments you make. We currently
do not deduct for these taxes at the time you make a premium payment. However,
we will deduct the total amount of premium taxes, if any, from the policy value
when:
. you elect to begin receiving annuity payments;
. you surrender the policy; or
. you die and a death benefit is paid (you must also be the annuitant for the
death benefit to be paid).
Generally, premium taxes range from 0% to 3.50%, depending on the state.
Federal, State and Local Taxes
We may in the future deduct charges from the policy for any taxes we incur
because of the policy. However, no deductions are being made at the present
time.
Transfer Fee
You are allowed to make 12 free transfers per year before the annuity
commencement date. If you make more than 12 transfers per year, we reserve the
right to charge $10 for each transfer. Premium payments, asset rebalancing and
dollar cost averaging transfers are not considered transfers. All transfer
requests made at the same time are treated as a single request.
Portfolio Management Fees
The value of the assets in each mutual fund subaccount will reflect the fees and
expenses paid by Endeavor Series Trust. A description of these expenses is found
in the Endeavor Series Trust prospectus.
Target Account Fees
For its services to the target account, the manager is paid a fee of 0.75% of
the average daily net assets of each target series subaccount. For the adviser's
services to the target account, the manager pays the adviser a fee equal to
0.35% of the average daily net assets of each target series subaccount.
In addition to the management fees, the target account pays all expenses not
assumed by the manager, including, without limitation, the following:
. legal expenses;
. accounting and auditing services;
. interest;
. taxes;
. costs of printing and distributing reports to shareholders;
. proxy materials and prospectuses;
. custodian, transfer agent and dividend disbursing agent charges;
. registration fees;
. fees and expenses of the Board of Managers who are not affiliated persons
of the Manager or an Adviser;
. insurance;
. brokerage costs
. litigation; and
. other extraordinary or nonrecurring expenses.
All general target account expenses are allocated among and charged to the
assets of the target series subaccounts on a basis that the Board of Managers
deems fair and equitable. This may be on the basis of relative net assets of
each target series subaccount or the nature of the services performed and
relative applicability to each target series subaccount.
The manager has agreed to limit each target series subaccount's management fee
and operating expenses during its first year of operations to an annual rate of
1.30% of the subaccount's average net assets. (This limit does not include other
fees and deductions, such as the mortality and expense risk fee and
administrative charge.)
6. TAXES
NOTE: AUSA Life has prepared the following information on federal income taxes
as a general discussion of the subject. It is not intended as tax
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advice to any individual. You should consult your own tax adviser about your own
circumstances. AUSA Life has included an additional discussion regarding taxes
in the Statement of Additional Information.
Annuity Policies in General
Deferred annuity policies are a way of setting aside money for future needs like
retirement. Congress recognized how important saving for retirement is and
provided special rules in the Internal Revenue Code for annuities.
Simply stated, these rules provide that generally you will not be taxed on the
earnings, if any, on the money held in your annuity policy until you take the
money out. This is referred to as tax deferral. There are different rules as to
how you will be taxed depending on how you take the money out and the type of
policy - qualified or nonqualified (discussed below).
You will not be taxed on increases in the value of your policy until a
distribution occurs - either as a withdrawal or as annuity payments.
When a non-natural person (e.g., corporation or certain other entities other
than tax-qualified trusts) owns a nonqualified policy, the policy will generally
not be treated as an annuity for tax purposes.
Qualified and Nonqualified Policies
If you purchase the policy under an individual retirement annuity, a pension
plan, or specially sponsored program, your policy is referred to as a qualified
policy.
Qualified policies are issued in connection with the following plans:
. Individual Retirement Annuity (IRA): A traditional IRA allows individuals
to make contributions, which may be deductible, to the Contract. A Roth IRA
also allows individuals to make contributions to the Contract, but it does
not allow a deduction for contributions, and distributions may be tax-free
if the owner meets certain rules.
. Tax-Sheltered Annuity (403(b) Plan): A 403(b) Plan may be made available to
employees of certain public school systems and tax-exempt organizations and
permits contributions to the Contract on a pre-tax basis.
. Corporate Pension and Profit-Sharing and H.R. 10 Plan: Employers and
self-employed individuals can establish pension or profit-sharing plans for
their employees or themselves and make contributions to the Contract on a
pre-tax basis.
. Deferred Compensation Plan (457 Plan): Certain governmental and tax-exempt
organizations can establish a plan to defer compensation on behalf of their
employees through contributions to the Contract.
If you purchase the policy as an individual and not under an individual
retirement annuity, 403(b) plan, 457 plan, or pension or profit sharing plan,
your policy is referred to as a nonqualified policy.
Withdrawals - Nonqualified Policies
If you make a withdrawal from your policy before the annuity commencement date,
the Internal Revenue Code treats that withdrawal as first coming from earnings
and then from your premium payments. When you make a withdrawal you are taxed on
the amount of the withdrawal that is earnings. Different rules apply for annuity
payments. See "Annuity Payments" below.
The Internal Revenue Code also provides that withdrawn earnings may be subject
to a penalty. The amount of the penalty is equal to 10% of the amount that is
includable in income. Some withdrawals will be exempt from the penalty. They
include any amounts:
. paid on or after the taxpayer reaches age 59 1/2;
. paid after the taxpayer dies;
. paid if the taxpayer becomes totally disabled (as that term is defined in
the Internal Revenue Code);
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. paid in a series of substantially equal payments made annually (or more
frequently) under a lifetime annuity;
. paid under an immediate annuity; or
. which come from premium payments made prior to August 14, 1982.
All deferred non-qualified annuity policies that are issued by AUSA Life (or its
affiliates) to the same owner during any calendar year are treated as one
annuity for purposes of determining the amount includable in the owner's income
when a taxable distributions occurs.
Withdrawals - Qualified Policies
The above information describing the taxation of nonqualified policies does not
apply to qualified policies. There are special rules that govern with respect to
qualified policies. Generally, these rules restrict:
. the amount that can be contributed to the policy during any year; and
. the time when amounts can be paid from the policies.
In addition, a penalty tax may be assessed on amounts withdrawn from the policy
prior to the date you reach age 59 1/2, unless you meet one of the exceptions to
this rule. You may also be required to begin taking minimum distributions from
the policy by a certain rule. The terms of the plan may limit the rights
otherwise available to you under the policies.
We have provided more information in the Statement of Additional Information.
You should consult your legal counsel or tax adviser if you are considering
purchasing a policy for use with any retirement plan.
Withdrawals - 403(b) Policies
The Internal Revenue Code limits the withdrawal of premium payments from certain
403(b) policies. Withdrawals can generally only be made when an owner:
. reaches age 59 1/2;
. leaves his/her job;
. dies;
. becomes disabled (as that term is defined in the Internal Revenue Code); or
. in the case of hardship. However, in the case of hardship, the owner can
only withdraw the premium payments and not any earnings.
Tax Status of the Policy
The following discussion is based on the assumption that the policy qualifies as
an annuity contract for federal income tax purposes.
Diversification Requirements. Section 817(h) of the Code provides that in order
for a variable contract which is based on a segregated asset account to qualify
as an annuity contract under the Code, the investments made by such account must
be "adequately diversified" in accordance with Treasury regulations. The
Treasury regulations issued under Section 817(h) (Treas. Reg.(S).1.817-5) apply
a diversification requirement to each of the mutual fund subaccounts and the
target series subaccounts. The mutual fund account, through its underlying funds
and their portfolios, and the target account, through its subaccounts, intends
to comply with the diversification requirements of the Treasury. AUSA Life has
entered into agreements regarding participation in the Endeavor Series Trust
which requires the portfolios to be operated in compliance with the Treasury
regulations. AUSA Life has entered into an agreement with First Trust Advisers,
L.P., the adviser of the target account, which requires the target series
subaccounts to be operated in compliance with the Treasury regulations.
Owner Control. In certain circumstances, owners of variable annuity contracts
may be considered the owners, for federal income tax purposes, of the assets of
the mutual fund account used to support their contracts. In those circumstances,
income and gains from the mutual fund account assets would be includable in the
variable annuity contract owner's gross income. Several years ago, the IRS
stated in published rulings that a variable annuity contract owner will be
considered the owner of mutual fund account assets if the contract owner
possesses incidents of ownership in those assets, such as the ability to
exercise investment control over the assets. More recently, the Treasury
Department announced in connection with the issuance of regulations concerning
investment diversification, that those regulations "do not provide guidance
concerning the circumstances in which investor control of the
26
<PAGE>
investments of a segregated asset account may cause the investor (i.e., you),
rather than the insurance company, to be treated as the owner of the assets in
the account." This announcement also stated that guidance would be issued by way
of regulations or rulings on the "extent to which policyholders may direct their
investments to particular subaccounts without being treated as owners of the
underlying assets."
The ownership rights under the contract are similar to, but different in certain
respects from those described by the IRS in rulings in which it was determined
that contract owners were not owners of mutual fund account assets. For example,
you have the choice of one or more subaccounts in which to allocate premiums and
policy values, and may be able to transfer among these accounts more frequently
than in such rulings. Moreover, the investment strategies for the target
subaccounts are narrow and innovative and the Internal Revenue Service has not
addressed them. These differences could result in you being treated as the owner
of the assets of the mutual fund account or the target account. In addition,
AUSA Life does not know what standards will be set forth, if any, in the
regulations or rulings that the Treasury Department has stated it expects to
issue. AUSA Life therefore reserves the right to modify the policies as
necessary to attempt to prevent you from being considered the owner of a pro
rata share of the assets of the mutual fund account or target account.
Diversification and Distribution Requirements
The Internal Revenue Code provides that the underlying investments for a
variable annuity must satisfy certain diversification requirements at the death
of an owner in order to be treated as an annuity policy. The policy must also
meet certain distribution requirements in order to be treated as an annuity
policy. These diversification and distribution requirements are discussed in the
Statement of Additional Information. AUSA Life may modify the policy to attempt
to maintain favorable tax treatment.
The target account, through the target series subaccounts, intends to comply
with the diversification requirements of the Treasury. AUSA Life has entered
into an agreement with the manager, who in turn, has entered into a contract
with the adviser that requires the target series subaccounts to be operated in
compliance with the Treasury regulations. The adviser reserves the right to
depart from either target series subaccount's investment strategy in order to
meet these diversification requirements. See the Statement of Additional
Information for more information concerning diversification requirements.
Taxation of Death Benefit Proceeds
Amounts may be distributed from the policy because of the death of an owner or
the annuitant. Generally, such amounts are includable in the income of the
recipient:
. if distributed in a lump sum, these amounts are taxed in the same manner as
a full surrender; or
. if distributed under an annuity payment option, these amounts are taxed in
the same manner as annuity payments.
For these purposes, the "investment in the contract" is not affected by the
owner's or annuitant's death. That is, the "investment in the contract" remains
generally the total premium payments, less amounts received, which were not
includable in gross income.
Annuity Payments
Although the tax consequences may vary depending on the annuity payment option
you select, in general, for nonqualified and certain qualified policies, only a
portion of the annuity payments you receive will be includable in your gross
income.
In general, the excludable portion of each annuity payment you receive will be
determined as follows:
. Fixed payments - by dividing the "investment in the contract" on the
annuity commencement date by the total expected value of the annuity
payments for the term of the payments. This is the percentage of each
annuity payment that is excludable.
. Variable payments - by dividing the "investment in the contract" on the
annuity commencement date by the total number of
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expected periodic payments. This is the amount of each annuity payment that
is excludable.
The remainder of each annuity payment is includable in gross income. Once the
"investment in the contract" has been fully recovered, the full amount of any
additional annuity payments is includable in gross income.
If you select more than one annuity payment option, special rules govern the
allocation of the Policy's entire "investment in the contract" to each such
option, for purposes of determining the excludable amount of each payment
received under that option. We advise you to consult a competent tax adviser as
to the potential tax effects of allocating amounts to any particular annuity
payment option.
If, after the annuity commencement date, annuity payments stop because an
annuitant died, the excess (if any) of the "investment in the contract" as of
the annuity commencement date over the aggregate amount of annuity payments
received that was excluded from gross income is generally allowable as a
deduction for your last taxable year.
Transfers, Assignments or Exchanges of Policies
A transfer of ownership or assignment of a policy, the designation of an
annuitant or other beneficiary who is not also the owner, the selection of
certain annuity commencement dates, or a change of annuitant, may result in
certain income or gift tax consequences to the owner that are beyond the scope
of this discussion. An owner contemplating any such transfer, assignment,
selection, or change should contact a competent tax adviser in respect to the
potential tax effects of such a transaction.
Possible Tax Law Changes
Although the likelihood of legislative changes in uncertain, there is always the
possibility that the tax treatment of the policy could change by legislation or
otherwise. You should consult a tax adviser with respect to legislative
developments and their effect on the policy.
7. ACCESS TO YOUR MONEY
Surrenders
During the accumulation phase, you can have access to the money in your policy
in several ways:
. by making a withdrawal (either a complete or partial withdrawal); or
. by taking annuity payments.
If you want to make a complete withdrawal, you will receive the value of your
policy, minus:
. surrender charges;
. premium taxes; and
. service charges.
If you want to take a partial withdrawal, in most cases it must be for at least
$500. Unless you tell us otherwise, we will take the withdrawal from each of the
investment choices in proportion to the policy value.
Remember that any withdrawal you take will reduce the policy value, and might
reduce the amount of the death benefit. See Section 9, Death Benefit, for more
details. Withdrawals may be subject to a surrender charge.
Income taxes, federal tax penalties and certain restrictions may apply to any
withdrawals you make.
During the income phase, the annuity payment option you select will determine
your access to the money in your policy.
Delay of Payment and Transfers
Payment of any amount due from the mutual fund account or target account for a
surrender, a death benefit, or the death of the owner of a nonqualified policy,
will generally occur within seven business days from the date all required
information is received by AUSA Life. AUSA Life may be permitted to defer such
payment
28
<PAGE>
from the mutual fund account and target account if:
. the New York Stock Exchange is closed other than for usual weekends or
holidays or trading on the Exchange is otherwise restricted;
. an emergency exists as defined by the SEC or the SEC requires that trading
be restricted; or
. the SEC permits a delay for the protection of owners.
In addition, transfers of amounts from the mutual fund subaccounts and target
series subaccounts may be deferred under these circumstances.
Pursuant to the requirements of certain state laws, we reserve the right to
defer payment of the cash value from the fixed account for up to six months.
Systematic Payout Option
You can receive regular payments from your policy by using the systematic payout
option. Under this option, you can receive up to 10% (annually) of the policy
value free of surrender charges. Payments can be made monthly, quarterly,
semi-annually, or annually.
8. PERFORMANCE
The Mutual Fund Account
AUSA Life periodically advertises performance of the various mutual fund
subaccounts. We may disclose at least four different kinds of performance.
First, we may calculate performance by determining the percentage change in the
value of an accumulation unit by dividing the increase (decrease) for that unit
by the value of the accumulation unit at the beginning of the period. This
performance number reflects the deduction of the mortality and expense risk fees
and administrative charges. It does not reflect the deduction of any applicable
premium taxes or surrender charges. The deduction of any applicable premium
taxes or surrender charges would reduce the percentage increase or make greater
any percentage decrease.
Second, any advertisement will also include total return figures, which reflect
the deduction of the mortality and expense risk fees, administrative charges and
surrender charges.
Third, for periods starting prior to the date the policies were first offered,
the performance will be based on the historical performance of the corresponding
investment portfolios for the periods commencing from the date on which the
particular investment portfolio was made available through the mutual fund
account. Fourth, in addition, for certain investment portfolios, performance may
be shown for the period commencing from the inception date of the investment
portfolio. These figures should not be interpreted to reflect actual historical
performance of the mutual fund account.
We also may, from time to time, include in our advertising and sales materials,
tax deferred compounding charts and other hypothetical illustrations, which may
include, comparisons of currently taxable and tax deferred investment programs,
based on selected tax brackets.
Appendix B contains performance information that you may find useful. It is
divided into various parts, depending upon the type of performance information
shown. Future performance will vary and future results will not be the same as
the results shown.
The Target Account
Performance information regarding the target series subaccount is in Appendix B
and in the Statement of Additional Information.
9. DEATH BENEFIT
We will pay a death benefit to your beneficiary, under certain circumstances, if
the annuitant dies before the accumulation phase and the annuitant was also an
owner. (If the annuitant was not an owner, a death benefit may or may not be
paid. See below). The beneficiary may choose an
29
<PAGE>
annuity payment option, or may choose to receive a lump sum.
When We Pay A Death Benefit
Before the Annuity Commencement Date
We will pay a death benefit to youm beneficiary
IF:
. you are both the annuitant and an owner of the policy; and
. you die before the annuity commencement date.
If the only beneficiary is your surviving spouse, then he or she may elect to
continue the policy as the new annuitant and owner, instead of receiving the
death benefit.
We will also pay a death benefit to your beneficiary
IF:
. you are not the annuitant; and
. the annuitant dies before the annuity commencement date; and
. you specifically requested that the death benefit be paid upon the
annuitant's death.
Distribution requirements apply to the policy value upon the death of any owner.
These requirements are detailed in the Statement of Additional Information.
After the Annuity Commencement Date
The death benefit payable, if any, on or after the annuity commencement date
depends on the annuity payment option selected.
IF:
. you are not the annuitant; and
. you die on or after the annuity commencement date; and
. the entire interest in the policy has not been paid to you;
THEN:
. the remaining portion of such interest in the policy will be distributed at
least as rapidly as under the method of distribution being used as of the
date of your death.
When We Do Not Pay A Death Benefit
No death benefit is paid in the following cases:
IF:
. you are not the annuitant; and
. the annuitant dies prior to the annuity commencement date; and
. you did not specifically request that the death benefit be paid upon the
annuitant's death;
THEN:
. you will become the new annuitant and the policy will continue.
IF:
. you are not the annuitant; and
. you die prior to the annuity commencement date;
THEN:
. the new owner must surrender the policy for the policy value within five
years of your death.
Note carefully. If the owner does not name a contingent owner, the owner's
estate will become the new owner. If no probate estate is opened (because, for
example, the owner has precluded the opening of a probate estate by means of a
trust or other instrument), and AUSA Life has not received written notice of the
trust as a successor owner signed prior to the owner's death, then that trust
may not exercise ownership rights to the policy. It may be necessary to open a
probate estate in order to exercise ownership rights to the policy if no
contingent owner is named in a written notice received by AUSA Life.
Amount of Death Benefit
The death benefit may be paid as a lump sum or as annuity payments. The amount
of the death benefit depends on the guaranteed minimum death benefit option you
chose when you bought the policy. The death benefit will be the greatest of:
. policy value on the date we receive the required information; or
. cash value on the date we receive the required information; or
30
<PAGE>
. guaranteed minimum death benefit (discussed below), plus premium payments,
less partial withdrawals from the date of death to the date the death
benefit is paid.
Guaranteed Minimum Death Benefit
On the policy application, you generally may choose one of the following
guaranteed minimum death benefit options listed below.
After the policy is issued, you cannot make an election and the death benefit
cannot be changed.
Annual Step-Up Death Benefit
Largest policy value on the date of issue or on any policy anniversary prior to
the earlier of the date of death or the owner's 81st birthday, plus premium
payments less any partial withdrawals taken, subsequent to the date of the
policy anniversary with the largest policy value.
The Annual Step-Up Death Benefit is not available if the owner or annuitant is
81 or older on the policy date.
Return of Premium Death Benefit
Total premium payments, less any partial withdrawals (discussed below) as of the
date of death.
The Return of Premium Death Benefit will be in effect if you do not choose one
of the options on the policy application.
IF, under both death benefit options:
. the surviving spouse elects to continue the policy instead of receiving the
death benefit; and
. the guaranteed minimum death benefit is greater than the policy value;
THEN:
. we will increase the policy value to be equal to the guaranteed minimum
death benefit. This increase is made only at the time the surviving spouse
elects to continue the policy.
Partial Withdrawal
When you request a partial withdrawal, your guaranteed minimum death benefit
will be reduced by an amount called the partial withdrawal. Under certain
circumstances, the partial withdrawal may be more than the amount of your
withdrawal request. It is also possible that if a death benefit is paid after
you have made a partial withdrawal, then the total amount paid could be less
than the total premium payments. We have included a detailed explanation of this
adjustment in the Statement of Additional Information.
10. OTHER INFORMATION
Ownership
You, as owner of the policy, exercise all rights under the policy. You can
change the owner at any time by notifying us in writing. An ownership change may
be a taxable event.
Assignment
You can also assign the policy any time during your lifetime. AUSA Life will not
be bound by the assignment until we receive written notice of the assignment. We
will not be liable for any payment or other action we take in accordance with
the policy before we receive notice of the assignment. An assignment may be a
taxable event. There may be limitations on your ability to assign a qualified
policy.
AUSA Life Insurance Company, Inc.
AUSA Life Insurance Company, Inc. was incorporated under the laws of the State
of New York on October 3, 1947. It is engaged in the sale of life and health
insurance and annuity policies. AUSA Life is a wholly-owned indirect subsidiary
of AEGON USA, Inc. which conducts most of its operations through subsidiary
companies engaged in the insurance business or in providing non-insurance
financial services. All of the stock of AEGON USA, Inc., is indirectly owned by
AEGON n.v. of the Netherlands, the securities of which are publicly traded.
AEGON
31
<PAGE>
n.v., a holding company, conducts its business through subsidiary companies
engaged primarily in the insurance business. AUSA Life is licensed in the
District of Columbia, and in all states except Hawaii.
All obligations arising under the policies, including the promote to make
annuity payments, are general corporate obligations of AUSA Life.
The Mutual Fund Account
AUSA Life established a mutual fund account, called the AUSA Endeavor Variable
Annuity Account, under the laws of the State of New York on September 27, 1994.
The mutual fund account receives and currently invests the premium payments that
are allocated to it for investment in shares of the underlying mutual fund
portfolios.
The mutual fund account is registered with the SEC as a unit investment trust
under the Investment Company Act of 1940. However, the SEC does not supervise
the management, the investment practices, or the policies of the mutual fund
account or AUSA Life.
The assets of the mutual fund account are held in AUSA Life's name on behalf of
the mutual fund account and belong to AUSA Life. However, those assets that
underlie the policies are not chargeable with liabilities arising out of any
other business AUSA Life may conduct. The mutual fund account includes other
subaccounts that are not available under these policies.
Information about the mutual fund account can be reviewed and copied at the
SEC's Public Reference Room in Washington, D.C. You may obtain information about
the operation of the public reference room by calling the SEC at 1-800-SEC-0330.
In addition, the SEC maintains a web site (http://www.sec.gov) that contains
other information regarding the mutual fund account.
The Target Account
AUSA Life established the AUSA Endeavor Target Account (the target account)
under the laws of the state of New York on March 24, 1998. The target account is
registered with the SEC under the Investment Company Act of 1940, as amended, as
an open-end management investment company and meets the definition of a separate
account under federal securities laws. However, the SEC does not supervise the
management or the investment practices or policies of the target account or AUSA
Life.
The two Dow(SM) Target 10 Subaccounts (January and July Series) and the two
Dow(SM) Target 5 Subaccounts (January and July Series) are non-diversified
target series subaccounts of the target account.
Legislation. Legislation may be enacted at any time that could negatively affect
the common shares in the target series subaccounts or the issuers of the common
shares. Changing approaches to regulation, particularly with respect to the
environment or with respect to the petroleum industry, may have a negative
impact on certain companies represented in the target series subaccounts. There
can be no assurance that future legislation, regulation or deregulation will not
have a material adverse effect on the target series subaccounts or will not
impair the ability of the issuers of the common shares to achieve their business
goals.
Mixed and Shared Funding
Before making a decision concerning the allocation of premium payments to a
particular mutual fund subaccount, please read the Endeavor Series Trust
prospectus. Endeavor Series Trust is not limited to selling its shares to this
mutual fund account and can accept investments from any separate account or
qualified retirement plan of an insurance company. Since the portfolios of
Endeavor Series Trust are available to registered mutual fund accounts offering
variable annuity products of AUSA Life, as well as variable annuity and variable
life products of other insurance companies, there is a possibility that a
material conflict may arise between the interests of this mutual fund account
and one or more of the mutual fund accounts of another participating
32
<PAGE>
insurance company. In the event of a material conflict, the affected insurance
companies, including AUSA Life, agree to take any necessary steps to resolve the
matter. This includes removing their mutual fund accounts from Endeavor Series
Trust. See the Endeavor Series Trust prospectus for more details.
Reinstatements
You may surrender your policy and transfer your money directly to another life
insurance company (sometimes referred to as a 1035 Exchange or a
trustee-to-trustee transfer). You may also request us to reinstate your policy
after such a transfer by returning the same total dollar amount of funds to the
applicable investment choices. The dollar amount will be used to purchase new
accumulation units at the then-current price. Because of changes in market
value, your new accumulation units may be worth more or less than the units you
previously owned. We recommend that you consult a tax professional to explain
the possible tax consequences of exchanges and/or reinstatements.
Voting Rights
Mutual Fund Account. AUSA Life will vote all shares of Endeavor Series Trust in
accordance with instructions we receive from you and other owners that have
voting interests in the portfolios. We will send you and other owners written
requests for instructions on how to vote those shares. When we receive those
instructions, we will vote all of the shares in proportion to those
instructions. If, however, we determine that we are permitted to vote the shares
in our own right, we may do so.
Each person having a voting interest will receive proxy material, reports, and
other materials relating to the appropriate portfolio.
Target Account. You (or the person receiving annuity payments) can vote on
certain matters with respect to the target series subaccounts you have an
interest in. Such matters include:
. changes in the investment advisory agreement;
. changes in the fundamental investment policies;
. any other matter requiring a vote of persons holding voting interests; and
. matters pursuant to the requirements of Rules 12b-1 and 18f-2 of the
Investment Company Act of 1940.
On certain matters, each target series subaccount may vote separately. Each
person having a voting interest will receive proxy material, reports, and other
materials relating to the appropriate target series subaccount.
Distributor of the Policies
AFSG Securities Corporation is the principal underwriter of the policies. Like
AUSA Life, it is an indirect wholly-owned subsidiary of AEGON USA, Inc. It is
located at 4333 Edgewood Road N.E., Cedar Rapids, IA 52499-0001. AFSG Securities
Corporation is registered as a broker/dealer under the Securities Exchange Act
of 1934. It is a member of the National Association of Securities Dealers, Inc.
Commissions of up to 6% of premium payments will be paid to broker/dealers who
sell the policies under agreements with AFSG Securities Corporation. These
commissions are not deducted from premium payments. In addition, certain
production, persistency and managerial bonuses may be paid. AUSA Life may also
pay compensation to financial institutions for their services in connection with
the sale and servicing of the policies.
Non-participating Policy
The policy does not participate or share in the profits or surplus earnings of
AUSA Life. No dividends are payable on the policy.
Variations in Policy Provisions
Certain provisions of the policies may vary from the descriptions in this
prospectus in order to comply with different state laws. See your policy
33
<PAGE>
for variations since any such state variations will be included in your policy
or in riders or endorsements attached to your policy.
Year 2000 Matters
In May 1996, AUSA Life Insurance Company, Inc. (AUSA Life) adopted and presently
has in place a Year 2000 Project Plan (the "Plan") to review and analyze
existing hardware and software systems, as well as voice and data communications
systems, to determine if they are Year 2000 compliant. As of March 1, 1999,
substantially all of AUSA Life's mission-critical systems are Year 2000
compliant. The Year 2000 Project Plan remains on track as AUSA Life continues
with the validation of its mission-critical and non-mission-critical systems,
including revalidation testing in 1999. In addition, AUSA Life has undertaken
aggressive initiatives to test all systems that interface with any third parties
and other business partners. All of these steps are aimed at allowing current
operations to remain unaffected by the year 2000 date change.
As of the date of this prospectus, AUSA Life has identified and made available
what it believes are the appropriate resources of hardware, people, and dollars,
including the engagement of outside third parties, to ensure that the Plan will
be completed.
The actions taken by management under The Year 2000 Project Plan are intended to
significantly reduce AUSA Life's risk of a material business interruption based
on the Year 2000 issues. It should be noted that the Year 2000 computer problem,
and its resolution, is complex and multifaceted, and any company's success
cannot be conclusively known until the Year 2000 is reached. In spite of its
efforts or results, AUSA Life's ability to function unaffected to and through
the Year 2000 may be adversely affected by actions, or failure to act, of third
parties beyond our knowledge or control.
This statement is a Year 2000 Readiness Disclosure pursuant to Section 3(9) of
the Year 2000 Information and Readiness Disclosure Act, 15 U.S.C. Section 1
(1998).
IMSA
AUSA Life is a member of the Insurance Marketplace Standards Association (IMSA).
IMSA members subscribe to a set of ethical standards involving the sales and
service of individually sold life insurance and annuities. As a member, we may
use the IMSA logo and language in advertisements.
Legal Proceedings
There are no legal proceedings to which the mutual fund account or target
account is a party or to which the assets of the account are subject. AUSA Life,
like other life insurance companies, is involved in lawsuits. In some class
action and other lawsuits involving other insurers, substantial damages have
been sought and/or material settlement payments have been made. Although the
outcome of any litigation cannot be predicted with certainty, AUSA Life believes
that at the present time there are no pending or threatened lawsuits that are
reasonably likely to have a material adverse impact on the mutual fund account,
target account or AUSA Life.
Financial Statements
The financial statements of AUSA Life and the mutual fund account are included
in the Statement of Additional Information. There are no financial statements
for the target account because it had not commenced operations as of the date of
this prospectus.
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TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
Glossary of Special Terms
The Policy--General Provisions
Certain Federal Income Tax Consequences
Investment Experience
Historical Performance Data
Published Ratings
State Regulation of AUSA Life
Administration
Records and Reports
Distribution of the Policies
Other Products
Custody of Assets
Legal Matters
Independent Auditors
Other Information
Financial Statements
35
<PAGE>
APPENDIX A
CONDENSED FINANCIAL INFORMATION
The Mutual Fund Account
The accumulation unit values and the number of accumulation units outstanding
for each subaccount from the date of inception are shown in the following
tables.
Annual Step-Up Death Benefit
(Total Mutual Fund Account Annual Expenses: 1.55%)
<TABLE>
<CAPTION>
============================================================================================
Value Value Accumulation
at Beginning of at End of Units at End
Year Year of Year
===========================================================================================
<S> <C> <C> <C>
Endeavor Asset Allocation Subaccount
1998(6) ................................. $ 2.168718 $ 2.529863 31,242.813
- --------------------------------------------------------------------------------------------
Endeavor Money Market Subaccount
1998(6) ................................. $ 1.196982 $ 1.236621 52,322.018
- --------------------------------------------------------------------------------------------
T. Rowe Price Equity Income Subaccount
1998(6) ................................. $ 1.885394 $ 2.060734 145,891.829
- --------------------------------------------------------------------------------------------
T. Rowe Price Growth Stock Subaccount
1998(6) ................................. $ 2.011973 $ 2.586964 206,657.078
- --------------------------------------------------------------------------------------------
T. Rowe Price International Stock Subaccount
1998(6) ................................. $ 1.313338 $ 1.529380 39,361.912
- --------------------------------------------------------------------------------------------
Endeavor Value Equity Subaccount
1998(6) ................................. $ 2.022644 $ 2.207657 106,211.103
- --------------------------------------------------------------------------------------------
Endeavor Opportunity Value Subaccount
1998(6) ................................. $ 1.136598 $ 1.197263 70,958.668
- --------------------------------------------------------------------------------------------
Endeavor Enhanced Index Subaccount
1998(6) ................................. $ 1.199020 $ 1.574026 202,995.681
- --------------------------------------------------------------------------------------------
Dreyfus U.S. Government Securities Subaccount
1998(6) ................................. $ 1.231625 $ 1.283673 38,151.310
- --------------------------------------------------------------------------------------------
Dreyfus Small Cap Value Subaccount
1998(6) ................................. $ 1.780884 $ 1.781675 119,463.216
- --------------------------------------------------------------------------------------------
Endeavor Janus Growth Subaccount
1998(6) ................................. $ 19.428802 $31.822714 18,019.791
============================================================================================
</TABLE>
36
<PAGE>
Return of Premium Death Benefit
-------------------------------
(Total Mutual Fund Account Annual Expenses: 1.40%)
--------------------------------------------------
<TABLE>
<CAPTION>
===============================================================================================================
Accumulation Accumulation Number of
Unit Value Unit Value Accumulation
at Beginning of at End of Units at End
Year Year of Year
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Endeavor Asset Allocation Subaccount
1998................................................ $ 2.171948 $ 2.535888 2,197,971.735
1997................................................ $ 1.833135 $ 2.171948 1,871,808.286
1996................................................ $ 1.577873 $ 1.833135 1,123,469.170
1995................................................ $ 1.301669 $ 1.577873 607,869.454
- ---------------------------------------------------------------------------------------------------------------
Endeavor Money Market Subaccount
1998................................................ $ 1.196418 $ 1.239556 1,017,991.339
1997................................................ $ 1.154219 $ 1.196418 611,981.762
1996................................................ $ 1.115718 $ 1.154219 665,174.123
1995................................................ $ 1.072424 $ 1.115718 271,034.756
- ---------------------------------------------------------------------------------------------------------------
T. Rowe Price Equity Income Subaccount
1998................................................ $ 1.925022 $ 2.065623 3,702,824.740
1997................................................ $ 1.521680 $ 1.925022 2,982,510.532
1996................................................ $ 1.287240 $ 1.521680 1,387,607.312
1995 (2)............................................. $ 1.000000 $ 1.287240 293,619.530
- ---------------------------------------------------------------------------------------------------------------
T. Rowe Price Growth Stock Subaccount
1998................................................ $ 2.043480 $ 2.593121 2,640,487.984
1997................................................ $ 1.611613 $ 2.043480 1,925,118.021
1996................................................ $ 1.353339 $ 1.611613 964,658.085
1995 (3)............................................. $ 1.000000 $ 1.353339 189,613.999
- ---------------------------------------------------------------------------------------------------------------
T. Rowe Price International Stock Subaccount
1998................................................ $ 1.346560 $ 1.533035 4,958,037.992
1997................................................ $ 1.330640 $ 1.346560 4,334,553.810
1996................................................ $ 1.171039 $ 1.330640 2,084,832.841
1995................................................ $ 1.073958 $ 1.171039 681,093.799
- ---------------------------------------------------------------------------------------------------------------
Endeavor Value Equity Subaccount
1998................................................ $ 2.086130 $ 2.212928 3,668,656.747
1997................................................ $ 1.694854 $ 2.086130 2,981,906.712
1996................................................ $ 1.387903 $ 1.694854 1,565,599.143
1995................................................ $ 1.045610 $ 1.387903 547,233.586
- ---------------------------------------------------------------------------------------------------------------
Endeavor Opportunity Value Subaccount
1998................................................ $ 1.156993 $ 1.200101 886,891.881
1997................................................ $ 1.004355 $ 1.156993 869,832.105
1996 (4)............................................. $ 1.000000 $ 1.004355 178,913.412
- ---------------------------------------------------------------------------------------------------------------
Endeavor Enhanced Index Subaccount
1998................................................ $ 1.217647 $ 1.577775 1,007,218.727
1997 (5)............................................. $ 1.000000 $ 1.217647 422,227.210
- ---------------------------------------------------------------------------------------------------------------
Dreyfus U.S. Government Securities Subaccount
1998................................................ $ 1.215033 $ 1.286733 1,728,824.679
1997................................................ $ 1.128769 $ 1.215033 1,093,934.793
1996................................................ $ 1.124292 $ 1.128769 589,779.900
1995(1)............................................. $ 0.985803 $ 1.124292 204,813.593
- ---------------------------------------------------------------------------------------------------------------
Dreyfus Small Cap Value Subaccount
1998................................................ $ 1.851229 $ 1.785929 2,915,575.262
1997................................................ $ 1.496065 $ 1.851229 2,294,637.110
1996................................................ $ 1.206843 $ 1.496065 1,239,443.264
1995................................................ $ 1.072941 $ 1.206843 535,283.029
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Endeavor Janus Growth Subaccount
1998................................................ $ 19.665157 $ 31.898334 636,917.148
1997................................................ $ 16.964068 $ 19.665157 557,897.978
1996................................................ $ 14.583843 $ 16.964068 306,855.075
1995................................................ $ 10.051117 $ 14.583843 97,436.321
===============================================================================================================
</TABLE>
(1) Period from June 16, 1995 through December 31, 1995
(2) Period from June 28, 1995 through December 31, 1995
(3) Period from April 28, 1995 through December 31, 1995
(4) Period from December 13, 1996 through December 31, 1996.
(5) Period from May 1, 1997 through December 31, 1997.
(6) Period from January 14, 1998 through December 31, 1998.
The Endeavor Select 50 Subaccount and the Endeavor High Yield Subaccount had not
commenced operations as of December 31, 1998. Accordingly, no comparable data is
available for those Subaccounts.
38
<PAGE>
APPENDIX B
HISTORICAL PERFORMANCE DATA
The Mutual Fund Account
Standardized Performance Data
AUSA Life may advertise historical yields and total returns for the subaccounts
of the mutual fund account. In addition, AUSA Life may advertise the effective
yield of the subaccount investing in the Endeavor Money Market Portfolio (the
"Endeavor Money Market Subaccount"). These figures will be calculated according
to standardized methods prescribed by the SEC. They are based on historical
earnings and are not intended to indicate future performance.
Endeavor Money Market Subaccount. The yield of the Endeavor Money Market
Subaccount for a policy refers to the annualized income generated by an
investment under a policy in the subaccount over a specified seven-day period.
The yield is calculated by assuming that the income generated for that seven-day
period is generated each seven-day period over a 52-week period and is shown as
a percentage of the investment. The effective yield is calculated similarly but,
when annualized, the income earned by an investment under a policy in the
subaccount is assumed to be reinvested. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment.
Other Subaccounts. The yield of a mutual fund subaccount (other than the
Endeavor Money Market Subaccount) for a policy refers to the annualized income
generated by an investment under a policy in the subaccount over a specified
thirty-day period. The yield is calculated by assuming that the income generated
by the investment during that thirty-day period is generated each thirty-day
period over a 12-month period and is shown as a percentage of the investment.
The total return of a subaccount refers to return quotations assuming an
investment under a policy has been held in the subaccount for various periods of
time including a period measured from the date the subaccount commenced
operations. When a subaccount has been in operation for one, five, and ten
years, respectively, the total return for these periods will be provided. The
total return quotations for a subaccount will represent the average annual
compounded rates of return that equate an initial investment of $1,000 in the
subaccount to the redemption value of that investment as of the last day of each
of the periods for which total return quotations are provided. In addition to
the standard data discussed above, similar performance data for other periods
may also be shown.
The yield and total return calculations for a subaccount do not reflect the
effect of any premium taxes that may be applicable to a particular policy. The
yield calculations also do not reflect the effect of any surrender charge that
may be applicable to a particular policy. To the extent that a premium tax
and/or surrender charge is applicable to a particular policy, the yield and/or
total return of that policy will be reduced. For additional information
regarding yields and total returns calculated using the standard formats briefly
summarized above, please refer to the Statement of Additional Information, a
copy of which may be obtained from the service office of AUSA Life upon request.
Based on the method of calculation described in the Statement of Additional
Information, the average annual total returns for periods from inception of the
subaccounts to December 31, 1998, and for the one and five year periods ended
December 31, 1998, are shown in Table 1 below. Total returns shown reflect
deductions for the mortality and expense risk fee and administrative charges.
Performance figures may reflect the 1.25% mortality and expense risk fee for the
Annual Step-Up Death Benefits, or the 1.10% mortality and expense risk fee for
the Return of Premium Death Benefit. Standard total return calculations will
reflect the effect of surrender charges that may be applicable to a particular
period.
39
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================================
TABLE 1
Standard Average Annual Total Returns (1)
===========================================================================================================
Annual Step-Up Death Benefit
(Total Separate Account Annual Expenses: 1.55%)
- -----------------------------------------------------------------------------------------------------------
1 Year 5 Year Inception of the Subaccount
Ended Ended Subaccount Inception
Subaccount 12/31/98 12/31/98 to 12/31/98 Date
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Endeavor Asset Allocation............... 11.22% N/A 12.51% January 1, 1995
T. Rowe Price Equity Income............. 1.73% N/A 19.09% June 28, 1995
T. Rowe Price Growth Stock.............. 21.40% N/A 26.23% April 28, 1995
T. Rowe Price International Stock ...... 8.30% N/A 5.39% January 1, 1995
Endeavor Value Equity................... 0.50% N/A 14.86% January 1, 1995
Endeavor Opportunity Value.............. **1.86%** N/A 15.10% December 13, 1996
Endeavor Enhanced Index................. 24.09% N/A 52.22% May 1, 1997
Dreyfus U.S. Government Securities...... 0.32% N/A 4.92% June 16, 1995
Dreyfus small Cap Value (2)............. **9.14%** N/A 10.29% January 1, 1995
Endeavor Select 50 (3).................. N/A N/A N/A N/A
Endeavor High Yield (3)................. N/A N/A N/A N/A
Endeavor Janus Growth (4)............... 56.86% N/A 16.45% January 1, 1995
===========================================================================================================
<CAPTION>
Return of Premium Death Benefit
(Total Separate Account Annual Expenses: 1.40%)
- -----------------------------------------------------------------------------------------------------------
1 Year 5 Year Inception of the Subaccount
Ended Ended Subaccount Inception
Subaccount 12/31/98 12/31/98 to 12/31/98 Date
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Endeavor Asset Allocation............... 11.40% N/A 17.70% January 1, 1995
T. Rowe Price Equity Income............. 1.89% N/A 18.48% June 28, 1995
T. Rowe Price Growth Stock.............. 21.59% N/A 24.32% April 28, 1995
T. Rowe Price International Stock (1)... 8.47% N/A 8.75% January 1, 1995
Endeavor Value Equity................... 0.70% N/A 20.22% January 1, 1995
Endeavor Opportunity Value.............. **1.71%** N/A 7.33% December 13, 1996
Endeavor Enhanced Index................. 24.29% N/A 28.82% May 1, 1997
Dreyfus U.S. Government Securities...... 0.48% N/A 4.35% June 16, 1995
Dreyfus small Cap Value (2)............. **9.00%** N/A 13.09% January 1, 1995
Endeavor Select 50 (3) ................. N/A N/A N/A N/A
Endeavor High Yield (3)................. N/A N/A N/A N/A
Endeavor Janus Growth (4)............... 57.14% N/A 33.17% January 1, 1995
===========================================================================================================
</TABLE>
(1) These calculations also assume the policy has been in effect for less than
eight years and that annuity payments have not commenced. Policies in
effect for more than seven years would experience lower mortality and
expense risk fees and therefore the yield and/or total return of such
policies would be increased. In no event will policies which have reached
the annuity commencement date reflect a return based on a mortality and
expense risk fee and administrative charge of more than 1.40%, regardless
of the death benefit option in effect just prior to the commencement of
annuity payments.
(2) Effective September 16, 1996, The Dreyfus Corporation became the adviser to
the Dreyfus small Cap Value Portfolio, formerly known as Quest for Value
small Cap Portfolio. The portfolio was previously advised by OpCap
Advisors.
(3) The Endeavor Select 50 Portfolio and the Endeavor High Yield Portfolio had
not commenced operations as of December 31, 1998. Accordingly, comparable
information is not available.
(4) Effective April 30, 1999, shares of the WRL Growth Portfolio were removed
and replaced with shares of the Endeavor Janus Growth Portfolio.
Performance prior to May 1, 1999 reflects performance of the annuity
subaccount while it was invested in the WRL Growth Portfolio.
The figures for the "from inception" periods in the above tables reflect waiver
of advisory fees and reimbursement of other expenses for all portfolios except
the T. Rowe Price Equity Income Portfolio and the T. Rowe Price Growth Stock
Portfolio. In the absence of such waivers, the average annual total return
figures above for the inception periods would have been lower.
40
<PAGE>
Non-Standardized Performance Data
In addition to the standard data discussed above, similar performance data for
other periods may also be shown.
AUSA Life may present the total return data described above on a
non-standardized basis. This means that the data may not be reduced by all the
fees and charges under the policy and that the data may be presented for
different time periods and for different premium payment amounts.
Non-standardized performance data will only be disclosed if standardized
performance data for the required periods is also disclosed. Table 2 shows
average annual total returns of the subaccounts since their inception reduce by
all fees and charges under the policy except surrender charges:
<TABLE>
<CAPTION>
===========================================================================================================
TABLE 2
Average Annual Total Returns (1)
(Assuming No Surrender Charge)
===========================================================================================================
Annual Step-Up Death Benefit
(Total Separate Account Annual Expenses: 1.55%)
- -----------------------------------------------------------------------------------------------------------
1 Year 5 Year Inception of the Subaccount
Ended Ended Subaccount Inception
Subaccount 12/31/98 12/31/98 to 12/31/98 Date
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Endeavor Asset Allocation............... 16.52% N/A 12.56% January 1, 1995
T. Rowe Price Equity Income............. 7.09% N/A 19.68% June 28, 1995
T. Rowe Price Growth Stock.............. 26.64% N/A 26.69% April 28, 1995
T. Rowe Price International Stock ...... 13.62% N/A 5.47% January 1, 1995
Endeavor Value Equity................... 5.87% N/A 15.01% January 1, 1995
Endeavor Opportunity Value.............. 3.52% N/A 19.50% December 13, 1996
Endeavor Enhanced Index................. 29.32% N/A 57.27% May 1, 1997
Dreyfus U.S. Government Securities...... 5.69% N/A 5.39% June 16, 1995
Dreyfus small Cap Value (2)............. **3.72%** N/A 10.56% January 1, 1995
Endeavor Select 50 (3) ................. N/A N/A N/A N/A
Endeavor High Yield (3)................. N/A N/A N/A N/A
Endeavor Janus Growth (4)............... 61.89% N/A 16.45% January 1, 1995
===========================================================================================================
<CAPTION>
Return of Premium Death Benefit
(Total Separate Account Annual Expenses: 1.40%)
- -----------------------------------------------------------------------------------------------------------
1 Year 5 Year Inception of the Subaccount
Ended Ended Subaccount Inception
Subaccount 12/31/98 12/31/98 to 12/31/98 Date
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Endeavor Asset Allocation............... 16.70% N/A 18.07% January 1, 1995
T. Rowe Price Equity Income............. 7.25% N/A 19.08% June 28, 1995
T. Rowe Price Growth Stock.............. 26.83% N/A 24.79% April 28, 1995
T. Rowe Price International Stock ...... 13.79% N/A 9.24% January 1, 1995
Endeavor Value Equity................... 6.06% N/A 20.56% January 1, 1995
Endeavor Opportunity Value.............. 3.67% N/A 9.30% December 13, 1996
Endeavor Enhanced Index................. 29.51% N/A 31.36% May 1, 1997
Dreyfus U.S. Government Securities...... 5.85% N/A 5.23% June 16, 1995
Dreyfus small Cap Value (2)............. **3.58%** N/A 13.52% January 1, 1995
Endeavor Select 50 (3).................. N/A N/A N/A N/A
Endeavor High Yield (3)................. N/A N/A N/A N/A
Endeavor Janus Growth (4)............... 62.17% N/A 33.39% January 1, 1995
===========================================================================================================
</TABLE>
41
<PAGE>
(1) These calculations also assume the policy has been in effect for less than
eight years and that annuity payments have not commenced. Policies in
effect for more than seven years would experience lower mortality and
expense risk fees and therefore the yield and/or total return of such
policies would be increased. In no event will policies which have reached
the annuity commencement date reflect a return based on a mortality and
expense risk fee and administrative charge of more than 1.40%, regardless
of the death benefit option in effect just prior to the commencement of
annuity payments.
(2) Effective September 16, 1996, The Dreyfus Corporation became the adviser to
the Dreyfus Small Cap Value Portfolio, formerly known as Quest for Value
Small Cap Portfolio. The portfolio was previously advised by OpCap
Advisors.
(3) The Endeavor Select 50 Portfolio and the Endeavor High Yield Portfolio had
not commenced operations as of December 31, 1998. Accordingly, comparable
information is not available.
(4) Effective April 30, 1999, shares of the WRL Growth Portfolio were removed
and replaced with shares of the Endeavor Janus Growth Portfolio.
Performance prior to May 1, 1999 reflects performance of the annuity
subaccount while it was invested in the WRL Growth Portfolio.
The figures for the "from inception" periods in the above tables reflect waiver
of advisory fees and reimbursement of other expenses for all portfolios except
the T. Rowe Price Equity Income Portfolio and the T. Rowe Price Growth Stock
Portfolio. In the absence of such waivers, the average annual total return
figures above for the inception periods would have been lower.
Adjusted Historical Performance Data. AUSA Life may present historic performance
data for the underlying portfolios since their inception reduced by some or all
of the fees and charges under the policy. Such adjusted historic performance
includes data that precedes the inception dates of the subaccounts. This data is
designed to show the performance that would have resulted if the policy had been
in existence during that time.
For instance, as shown in Table 3 and Table 4 below, AUSA Life may disclose
average annual total returns for the portfolios reduced by all fees and charges
under the policy, as if the policy had been in existence since the inception of
the portfolio. Such fees and charges include the mortality and expense risk fee,
administrative charge and surrender charges. Table 3 assumes a complete
surrender of the policy at the end of the period; therefore the surrender charge
is deducted. Table 4 assumes that the policy is not surrendered, and therefore
the surrender charge is not deducted.
The following information is based on the method of calculation described in the
Statement of Additional Information. The adjusted historical average annual
total returns for periods ended December 31, 1998, were as follows:
42
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================================
TABLE 3
Adjusted Historical Average Annual Total Returns (1)
===========================================================================================================
Annual Step-Up Death Benefit
(Total Separate Account Annual Expenses: 1.55%)
- -----------------------------------------------------------------------------------------------------------
Corresponding
10 Year or Portfolio
Portfolio 1 Year 5 Year Inception Inception Date
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Endeavor Asset Allocation............... 11.22% 12.29% 12.51% April 8, 1991
T. Rowe Price Equity Income............. 1.73% N/A 19.09% January 3, 1995
T. Rowe Price Growth Stock.............. 21.40% N/A 26.23% January 3, 1995
T. Rowe Price International Stock (2)... 8.30% 5.31% 5.39% April 8, 1991
Endeavor Value Equity................... 0.50% 16.38% 14.86% May 27, 1993
Endeavor Opportunity Value.............. **1.86%** N/A 6.87% November 18, 1996
Endeavor Enhanced Index................. 24.09% N/A 28.63% May 1, 1997
Dreyfus U.S. Government Securities...... 0.32% N/A 4.92% May 9, 1994
Dreyfus small Cap Value (3)........... **9.14%** 9.57% 10.29% May 4, 1993
Endeavor Select 50 ..................... N/A N/A **1.93%** February 2, 1998
Endeavor High Yield .................... N/A N/A **10.99%** June 2, 1998
Endeavor Janus Growth (4)............... 56.86% 23.09% 20.63% October 2, 1986
===========================================================================================================
<CAPTION>
Return of Premium Death Benefit
(Total Separate Account Annual Expenses: 1.40%)
- -----------------------------------------------------------------------------------------------------------
Corresponding
10 Year or Portfolio
Portfolio 1 Year 5 Year Inception Inception Date
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Endeavor Asset Allocation............... 11.40% 12.45% 12.68% April 8, 1991
T. Rowe Price Equity Income............. 1.89% N/A 19.39% January 3, 1995
T. Rowe Price Growth Stock.............. 21.59% N/A 26.51% January 3, 1995
T. Rowe Price International Stock (2)... 8.47% 5.46% 5.55% April 8, 1991
Endeavor Value Equity................... 0.70% 16.57% 15.07% May 27, 1993
Endeavor Opportunity Value.............. **1.71%** N/A 7.03% November 18, 1996
Endeavor Enhanced Index................. 24.29% N/A 28.82% May 1, 1997
Dreyfus U.S. Government Securities...... 0.48% N/A 5.08% May 9, 1994
Dreyfus small Cap Value (3)............. **9.00%** 9.74% 10.55% May 4, 1993
Endeavor Select 50 ..................... N/A N/A **1.79%** February 2, 1998
Endeavor High Yield .................... N/A N/A **10.91%** June 2, 1998
Endeavor Janus Growth (4)............... 57.14% 23.28% 20.76% October 2, 1986
===========================================================================================================
+ Ten Year Date
===========================================================================================================
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================================
TABLE 4
Adjusted Historical Average Annual Total Returns (1)
(Assuming No Surrender Charge)
===========================================================================================================
Annual Step-Up Death Benefit
(Total Separate Account Annual Expenses: 1.55%)
- -----------------------------------------------------------------------------------------------------------
Corresponding
10 Year or Portfolio
Portfolio 1 Year 5 Year Inception Inception Date
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Endeavor Asset Allocation............... 16.52% 12.49% 12.56% April 8, 1991
T. Rowe Price Equity Income............. 7.09% N/A 19.68% January 3, 1995
T. Rowe Price Growth Stock.............. 26.64% N/A 26.69% January 3, 1995
T. Rowe Price International Stock (2)... 13.62% 5.59% 5.47% April 8, 1991
Endeavor Value Equity................... 5.87% 16.55% 15.01% May 27, 1993
Endeavor Opportunity Value.............. 3.52% N/A 8.78% November 18, 1996
Endeavor Enhanced Index................. 29.32% N/A 31.18% May 1, 1997
Dreyfus U.S. Government Securities...... 5.69% N/A 5.39% May 9, 1994
Dreyfus small Cap Value (3)............. **3.72%** 9.81% 10.56% May 4, 1993
Endeavor Select 50 ..................... N/A N/A 5.07% February 2, 1998
Endeavor High Yield .................... N/A N/A **3.99%** June 2, 1998
Endeavor Janus Growth (4)............... 61.89% 23.22% 20.63% October 2, 1986
===========================================================================================================
<CAPTION>
Return of Premium Death Benefit
(Total Separate Account Annual Expenses: 1.40%)
- -----------------------------------------------------------------------------------------------------------
Corresponding
10 Year or Portfolio
Portfolio 1 Year 5 Year Inception Inception Date
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Endeavor Asset Allocation............... 16.70% 12.66% 12.72% April 8, 1991
T. Rowe Price Equity Income............. 7.25% N/A 19.85% January 3, 1995
T. Rowe Price Growth Stock.............. 26.83% N/A 26.87% January 3, 1995
T. Rowe Price International Stock (2)... 13.79% 5.74% 5.62% April 8, 1991
Endeavor Value Equity................... 6.06% 16.74% 15.22% May 27, 1993
Endeavor Opportunity Value.............. 3.67% N/A 8.94% November 18, 1996
Endeavor Enhanced Index................. 29.51% N/A 31.36% May 1, 1997
Dreyfus U.S. Government Securities...... 5.85% N/A 5.55% May 9, 1994
Dreyfus small Cap Value (3)............. **3.58%** 9.97% 10.73% May 4, 1993
Endeavor Select 50 ..................... N/A N/A 5.21% February 2, 1998
Endeavor High Yield .................... N/A N/A **3.91%** June 2, 1998
Endeavor Janus Growth (4)............... 62.17% 23.40% 20.76% October 2, 1986
===========================================================================================================
+ Ten Year Date
===========================================================================================================
</TABLE>
(1) The calculation of total return performance for periods prior to inception
of the subaccounts reflects deductions for the mortality and expense risk
fee and administrative charge on a monthly basis, rather than a daily
basis. The monthly deduction is made at the beginning of each month and
generally approximates the performance that would have resulted if the
subaccounts had actually been in existence since the Inception of the
Portfolio.
(2) Effective January 1, 1995, Rowe-Price Fleming International, Inc. became
the Adviser to the T. Rowe Price International Stock Portfolio. The
Portfolio's name was changed from the Global Growth Portfolio and the
Portfolio's shareholders approved a change in investment objective from
investments in small capitalization companies on a global basis to
investments in a broad range of companies on an international basis (i.e.,
non-U.S. companies).
(3) Effective September 16, 1996, The Dreyfus Corporation became the adviser to
the Dreyfus small Cap Value Portfolio, formerly known as Quest for Value
small Cap Portfolio. The portfolio was previously advised by OpCap
Advisors.
(4) Effective April 30, 1999, shares of the WRL Growth Portfolio were removed
and replaced with shares of the Endeavor Janus Growth Portfolio.
Performance prior to May 1, 1999 reflects performance of the annuity
subaccount while it was invested in the WRL Growth Portfolio.
44
<PAGE>
The figures for the "five year" and "from inception" periods in the above tables
reflect waiver of advisory fees and reimbursement of other expenses for all
portfolios except the T. Rowe Price Equity Income Portfolio and the T. Rowe
Price Growth Stock Portfolio. In the absence of such waivers, the average annual
total return figures above from the five year and from inception periods would
have been lower.
45
<PAGE>
HISTORICAL PERFORMANCE DATA
The Target Account
The total return for each target series subaccount will also reflect the
manager's fee and other operating expenses.
Target Strategies--Performance Data
Certain aspects of the investment strategies can be demonstrated using
historical data.
The following table contains three columns that show the performance of:
Column One: the Ten Highest Dividend Yielding Stocks Strategy for
the DJIA;
Column Two: Five Lowest Priced Stocks of the Ten Highest Dividend
Yielding Stocks Strategies in the DJIA; and
Column Three: the performance of the DJIA.
The returns shown in the following table and graphs are not guarantees of future
performance and should not be used as predictors of returns to be expected in
connection with a target series subaccount. Both stock prices (which may
appreciate or depreciate) and dividends (which may be increased, reduced or
eliminated) will affect the returns. Each strategy under performed its
respective index in certain years. Accordingly, there can be no assurance that a
target series subaccount will outperform its respective index over the life of a
target series subaccount or over consecutive rollover periods, if available.
An investor in a target series subaccount would not necessarily realize as high
a total return on an investment in the stocks upon which the hypothetical
returns are based for the following reasons: the total return figures shown do
not reflect brokerage commissions, target series subaccount expenses or taxes;
the target series subaccounts are established at different times of the year;
and the target series subaccounts may not be fully invested at all times or
equally weighted in all stocks comprising a strategy. If the above-mentioned
charges were reflected in the hypothetical returns, the returns would be lower
than those presented here.
46
<PAGE>
COMPARISON OF TOTAL RETURN(2)
<TABLE>
<CAPTION>
Index
Strategy Total Returns Total Returns
5 Lowest Priced of
10 Highest Dividend the 10 Highest
Year Yielding Stocks(1) Dividend Yielding Stocks(1) DJIA
- ---- ------------------- --------------------------- ----
<S> <C> <C> <C>
1974................... **1.02** **5.40** **23.64**
1975................... 56.10% 64.77% 44.46%
1976................... 35.18% 40.96% 22.80%
1977................... **1.95** 5.49% **12.91**
1978................... 0.03% 1.23% 2.66%
1979................... 13.01% 9.84% 10.60%
1980................... 27.90% 41.69% 21.90%
1981................... 7.46% 3.19% **3.61**
1982................... 27.12% 43.37% 26.85%
1983................... 39.07% 36.38% 25.82%
1984................... 6.22% 11.12% 1.29%
1985................... 29.54% 38.34% 33.28%
1986................... 35.63% 30.89% 27.00%
1987................... 5.59% 10.69% 5.66%
1988................... 24.57% 21.47% 16.03%
1989................... 26.97% 10.55% 32.09%
1990................... **7.82** **15.74** **0.73**
1991................... 34.20% 62.03% 24.19%
1992................... 7.69% 22.90% 7.39%
1993................... 27.08% 34.01% 16.87%
1994................... 4.21% 8.27% 5.03%
1995................... 36.85% 30.50% 36.67%
1996................... 28.35% 26.20% 28.71%
1997................... 21.68% 19.97% 24.82%
1998................... 10.59% 12.36% 18.03%
</TABLE>
- --------------
(1) The Ten Highest Dividend Yielding Stocks and the Five Lowest Priced Stocks
of the Ten Highest Dividend Yielding Stocks in the DJIA for any given
period were selected by ranking the dividend yields for each of the stocks
in the index, as of the beginning of the period, and dividing by the
stock's market value on the first trading day on the exchange where that
stock principally trades in the given period.
(2) Total Return represents the sum of the percentage change in market value of
each group of stocks between the first trading day of a period and the
total dividends paid on each group of stocks during the period divided by
the opening market value of each group of stocks as of the first trading
day of a period. Total Return does not take into consideration any sales
charges, commissions, expenses or taxes. Total Return dividends are
reinvested semi-annually and all returns are stated in terms of the United
States dollar. Based on the year-by-year returns contained in the table,
over the twenty-five years listed above, the Ten Highest Dividend Yielding
Stocks in the DJIA achieved an average annual total return of 18.73%, while
the Five Lowest Priced Stocks of the Ten Highest Dividend Yielding Stocks
in the DJIA achieved an average annual total return of 21.07%. In addition,
over this period, the individual strategies achieved a greater average
annual total return than that of the DJIA, which was 14.48%. Although each
target series subaccount seeks to achieve a better performance than the
index as a whole, there can be no assurance that a target series subaccount
will achieve a better performance.
The performance shown for the strategies does not guarantee future success, nor
should it be used as a predictor of returns. The Dow(SM) Target 5 strategy and
The Dow(SM) Target 10 strategy under-performed the DJIA in 8 and 9,
respectively, of the 25 years shown. There can be no assurance that the
strategies will outperform a given index over any time period, or that they will
have positive results. They have the potential for loss.
47
<PAGE>
The results of the strategies do not represent actual investment advice of First
Trust Advisors L.P. or any actual trading using client assets. They were
achieved by the retroactive application of a model designed with the benefit of
hindsight and should not be considered indicative of the competence or skill of
First Trust Advisors L.P. In addition, the strategy results do not reflect the
impact material, economic, and market factors might have had on First Trust
Advisors L.P.'s decision making, if First Trust Advisors L.P. had actually
managed client money during the period indicated.
Past Performance of the DJIA
[INSERT "prodjia" CHART HERE]
The chart above represents past performance of the DJIA, the Ten Highest
Dividend Yielding DJIA Stocks and the Five Lowest Priced Stocks of the Ten
Highest Yielding DJIA Stocks (but not The Dow(SM) Target 10 Subaccount or The
Dow(SM) Target 5 Subaccount) from January 1, 1974 through December 31, 1998 and
should not be considered indicative of future results. Further, these results
are hypothetical. The chart assumes that all dividends during a year are
reinvested semi-annually and does not reflect sales charges, commissions,
expenses or taxes. There can be no assurance that either The Dow(SM) Target 10
Subaccount or The Dow(SM) Target 5 Subaccount will outperform the DJIA.
Investors should not rely on the preceding financial information as an
indication of the past or future performance of the target series subaccounts.
Standardized Performance Data
AUSA Life may advertise historical total returns for the target series
subaccounts. These figures will be calculated according to standardized methods
prescribed by the SEC. They will be based on historical earnings and are not
intended to indicate future performance.
The total return calculations for a target series subaccount do not reflect the
effect of any premium taxes that may be applicable to a particular policy. To
the extent that any or all of a premium tax is applicable to a particular
policy, the total return of that policy will be reduced. For additional
information regarding total returns calculated using the standard formats
briefly summarized above, please refer to the Statement of Additional
Information.
Non-Standardized Performance Data
AUSA Life may also advertise or disclose average annual total return or other
performance data in non-standard formats for a target series subaccount. The
non-standard data may assume that the policy remains in force and therefore not
reflect the surrender charge. The non-standard performance data may make other
assumptions such as the amount invested in a target series subaccount,
differences in time periods to be shown, or the effect of partial withdrawals or
annuity payments and may also make other assumptions.
All non-standard performance data will be advertised only if the standard
performance data is also disclosed. For additional information regarding the
calculation of other performance data, please refer to the Statement of
Additional Information.
48
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
THE ENDEAVOR VARIABLE ANNUITY
Issued through
AUSA ENDEAVOR VARIABLE ANNUITY ACCOUNT
and
AUSA ENDEAVOR TARGET ACCOUNT
Offered by
AUSA LIFE INSURANCE COMPANY, INC.
666 Fifth Avenue
New York, New York 10103
This Statement of Additional information expands upon subjects discussed in the
current prospectus for the Endeavor Variable Annuity offered by AUSA Life
Insurance Company, Inc. ("AUSA Life"). You may obtain a copy of the prospectus
dated _____________, by calling 1-800-525-6205, or by writing to the Service
Office, Financial Markets Division--Variable Annuity Dept., 4333 Edgewood Road,
N.E., Cedar Rapids, Iowa 52499-0001. Terms used in the current prospectus for
the policy are incorporated in this Statement of Additional Information.
This Statement of Additional Information is not a prospectus and should be read
only in conjunction with the prospectuses for the policy and the target account,
and the Endeavor Series Trust.
Dated: ___________________
<PAGE>
TABLE OF CONTENTS
GLOSSARY OF TERMS...........................................................
THE POLICY--GENERAL PROVISIONS..............................................
Owner.....................................................................
Entire Policy.............................................................
Misstatement of Age or Sex................................................
Addition, Deletion, Substitution of Investments...........................
Reallocation of Policy Values After the Annuity Commencement Date.........
Annuity Payment Options...................................................
Death Benefit.............................................................
Death of Owner............................................................
Assignment................................................................
Evidence of Survival......................................................
Non-Participating.........................................................
Amendments................................................................
Employee and Agent Purchases..............................................
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.....................................
Tax Status of the Policy..................................................
Taxation of AUSA Life.....................................................
INVESTMENT EXPERIENCE.......................................................
Accumulation Units........................................................
Annuity Unit Value and Annuity Payment Rates..............................
HISTORICAL PERFORMANCE DATA.................................................
Money Market Yields.......................................................
Other Subaccount Yields...................................................
Total Returns.............................................................
Other Performance Data....................................................
Adjusted Historical Performance Data - The Mutual Fund Account............
THE TARGET ACCOUNT..........................................................
What is the Investment Strategy?..........................................
Determination of Unit Value; Valuation of Securities......................
The Board of Managers.....................................................
The Investment Advisory Services..........................................
The Manager...............................................................
Operating Expenses........................................................
Transfer Agent and Custodian..............................................
Brokerage Allocation......................................................
Investment Restrictions...................................................
Fundamental Policies......................................................
Operating Policies........................................................
Options and Futures Strategies............................................
Securities Lending........................................................
Tax Limitation............................................................
PUBLISHED RATINGS...........................................................
STATE REGULATION OF AUSA LIFE...............................................
RECORDS AND REPORTS.........................................................
DISTRIBUTION OF THE POLICIES................................................
VOTING RIGHTS...............................................................
The Mutual Fund Account...................................................
The Target Account........................................................
OTHER PRODUCTS..............................................................
CUSTODY OF ASSETS...........................................................
LEGAL MATTERS...............................................................
INDEPENDENT AUDITORS........................................................
OTHER INFORMATION...........................................................
FINANCIAL STATEMENTS........................................................
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GLOSSARY OF TERMS
Accumulation Unit--An accounting unit of measure used in calculating the policy
value in the mutual fund account and target account before the annuity
commencement date.
Annual Stock Selection Date--The last business day of a specified 12-month
period.
Annuitant--The person entitled to receive annuity payments after the annuity
commencement date and during whose life any annuity payments involving life
contingencies will continue.
Annuity Commencement Date--The date upon which annuity payments are to commence.
This date may be any date at least thirty days after the policy date and may not
be later than the last day of the policy month starting after the annuitant
attains age 85, except as expressly allowed by AUSA Life. In no event will this
date be later than the last day of the policy month following annuitant's 90th
birthday.
Annuity Payment Option--A method of receiving a stream of annuity payments
selected by the owner.
Annuity Unit--An accounting unit of measure used in the calculation of the
amount of the second and each additional variable annuity payment.
Application--A written application, order form, or any other information
received electronically or otherwise upon which the policy is issued and/or is
reflected on the data or specifications page.
Beneficiary--The person who has the right to the death benefit set forth in the
policy.
Business Day--A day when the New York Stock Exchange is open for business.
Cash Value--The policy value less the surrender charge, if any.
Code--The Internal Revenue Code of 1986, as amended.
DJIA--The Dow Jones Industrial Average(SM). Thirty stocks chosen by the editors
of The Wall Street Journal as representative of the broad market and of American
industry.
Due Proof of Death--A certified copy of a death certificate, a certified copy of
a decree of a court of competent jurisdiction as to the finding of death, a
written statement by the attending physician, or any other proof satisfactory to
AUSA Life will constitute due proof of death.
Excess Premium Withdrawals--The amount of a premium payment withdrawal which is
more than the amount that may be taken free from surrender charge.
Fixed Account--A part of the general account of AUSA Life. General account
assets consist of all of the assets of AUSA Life that are not in separate
accounts.
Guaranteed Period Option--The one year guaranteed interest rate period which
will be offered by AUSA Life into which premiums may be paid or amounts
transferred.
Initial Stock Selection Date--The date is June 30, 1999 for the July Series. The
date is December 31, 1999 for the January Series.
Nonqualified Policy--A policy other than a qualified policy.
Mutual Fund Account--A separate account established and registered as a unit
investment trust under the Investment Company Act of 1940, as amended, to which
premium payments under the policies may be allocated and which invests in the
WRL Janus Growth Portfolio of the WRL Series Fund, Inc. and
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designated portfolios of the Endeavor Series Trust and such other mutual funds
as AUSA Life may determine from time to time.
Mutual Fund Subaccount--A subdivision within the mutual fund account the assets
of which are invested in a specified portfolio of the underlying funds.
Owner or Owners--The person who may exercise all rights and privileges under the
policy. The owner during the lifetime of the annuitant and prior to the annuity
commencement date is the person designated as the owner or a successor owner in
the application.
Policy Year--A policy year begins on the date of issue and on each policy
anniversary.
Policy Value--The value in the policy that may be used to purchase a stream of
annuity payments. On or before the annuity commencement date, this is an amount
equal to (a) the premiums paid; minus (b) partial withdrawals taken; plus (c)
interest credited in the fixed account; plus (d) accumulated gains or losses in
the mutual fund account; minus (e) any applicable service charges, premium
taxes, and transfer fees. The policy form refers to this as "annuity purchase
value."
Premium Payment--An amount paid to AUSA Life by the owner or on the owner's
behalf as consideration for the benefits provided by the policy.
Qualified Policy--A policy issued in connection with retirement plans that
qualify for special federal income tax treatment.
Service Charge--An annual charge on each policy anniversary for policy
maintenance and related administrative expenses. This annual charge is the
lesser of 2% of the policy value or $35.
Service Office--Financial Markets Division--Variable Annuity Dept., 4333
Edgewood Road, N.E., Cedar Rapids, Iowa 52499-0001.
Successor Owner--A person appointed by the owner to succeed to ownership of the
policy in the event of the death of the owner who is not the annuitant before
the annuity commencement date.
Surrender Charge--A percentage of each excess premium withdrawal, which is
deducted by AUSA Life upon surrender or partial withdrawal from the policy. The
surrender charge percentage ranges from 7% to 0% depending upon the length of
time from the date of each premium payment to the date of withdrawal.
Target Account--A separate account established and registered as a management
investment company under the 1940 Act to which premium payments under the
policies may be allocated.
Target Series Subaccount--A subdivision within the target account, the assets of
which are invested in common stocks selected according to a specified investment
strategy.
Valuation Period--The period of time from one determination of accumulation unit
and annuity unit values to the next subsequent determination of values. Such
determination shall be made on each business day.
Variable Annuity Payments--Payments made pursuant to an annuity payment option
which fluctuate as to dollar amount or payment term in relation to the
investment performance of the specified subaccounts within the separate account.
Written Notice or Written Request--Written notice, signed by the owner, that
gives AUSA Life the information it requires and is received at the service
office. For some transactions, AUSA Life may accept an electronic notice. Such
electronic notice must meet the requirements AUSA Life establishes for such
notices. Telephone instructions are not permitted.
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In order to supplement the description in the prospectus, the following provides
additional information about AUSA Life and the policy, which may be of interest
to a prospective purchaser. Words printed in italics in this Statement of
Additional Information are defined in the Glossary of Terms, found on page 3.
THE POLICY--GENERAL PROVISIONS
Owner
The policy shall belong to the owner upon issuance of the policy after
completion of an application and delivery of the initial premium payment. While
the annuitant is living, the owner may: (1) assign the policy; (2) surrender the
policy; (3) amend or modify the policy with AUSA Life's consent; (4) receive
annuity payments or name a payee to receive the payments; and (5) exercise,
receive and enjoy every other right and benefit contained in the policy. The
exercise of these rights may be subject to the consent of any assignee or
irrevocable beneficiary.
A successor owner can be named in the application or in a written notice. The
successor owner will become the new owner upon the owner's death, if the owner
predeceases the annuitant. If no successor owner survives the owner and the
owner predeceases the annuitant, the owner's estate will become the owner.
Note carefully. If the owner does not name a contingent owner, the owner's
estate will become the new owner. If no probate estate is opened because the
owner has precluded the opening of a probate estate by means of a trust or other
instrument, unless AUSA Life has received written notice of the trust as a
successor owner signed prior to the owner's death, that trust may not exercise
ownership rights to the policy. It may be necessary to open a probate estate in
order to exercise ownership rights to the policy if no contingent owner is named
in a written notice received by AUSA Life.
The owner may change the ownership of the policy in a written notice. When this
change takes effect, all rights of ownership in the policy will pass to the new
owner. A change of ownership may have adverse tax consequences.
When there is a change of owner or successor owner, the change will take effect
as of the date the owner signs the written notice, subject to any payment AUSA
Life has made or action AUSA Life has taken before recording the change.
Changing the owner or naming a new successor owner cancels any prior choice of
successor owner, but does not change the designation of the beneficiary or the
annuitant.
If ownership is transferred (except to the owner's spouse) because the owner
dies before the annuitant, the cash value generally must be distributed to the
successor owner within five years of the owner's death, or payments must be made
for a period certain or for the successor owner's lifetime so long as any period
certain does not exceed that successor owner's life expectancy, if the first
payment begins within one year of the owner's death.
Entire Policy
The policy, any endorsements thereon, and the application constitute the entire
contract between AUSA Life and the owner. All statements in the application are
representations and not warranties. No statement will cause the policy to be
void or to be used in defense of a claim unless contained in the application.
Misstatement of Age or Sex
If the age or sex of the annuitant has been misstated, AUSA Life will change the
annuity benefit payable to that which the premium payments would have purchased
for the correct age or sex. The dollar amount of any underpayment made by AUSA
Life shall be paid in full with the next payment due such person or the
beneficiary. The dollar amount of any overpayment made by AUSA Life due to any
misstatement shall be deducted from payments subsequently accruing to such
person or beneficiary. Any underpayment or overpayment will include interest at
5% per year, from the date of the wrong payment to the date of the adjustment.
The age of the annuitant may be established at any time by the submission of
proof satisfactory to AUSA Life.
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Addition, Deletion, or Substitution of Investments
AUSA Life cannot and does not guarantee that any of the mutual fund subaccounts
or target series subaccounts will always be available for premium payments,
allocations, or transfers. AUSA Life retains the right, subject to any
applicable law, to make certain changes in the mutual fund account and its
investments. AUSA Life reserves the right to eliminate the shares of any
portfolio held by a mutual fund subaccount and to substitute shares of another
portfolio of the underlying funds, or of another registered open-end management
investment company for the shares of any portfolio, if the shares of the
portfolio are no longer available for investment or if, in AUSA Life's judgment,
investment in any portfolio would be inappropriate in view of the purposes of
the mutual fund account. To the extent required by the 1940 Act, substitutions
of shares attributable to your interest in a mutual fund subaccount will not be
made without prior notice to you and the prior approval of the SEC. AUSA Life
retains the right, subject to any applicable law, to make certain changes in the
target account and its investments. AUSA Life reserves the right to eliminate a
target series subaccount if, in AUSA Life's judgment, investment in any target
series subaccount would be inappropriate in view of the purposes of the policy
or for any other reason. Nothing contained herein shall prevent the mutual fund
account from purchasing other securities for other series or classes of variable
annuity policies, or from effecting an exchange between series or classes of
variable annuity policies on the basis of your requests.
New subaccounts may be established when, in the sole discretion of AUSA Life,
marketing, tax, investment or other conditions warrant. Any new subaccounts may
be made available to existing owners on a basis to be determined by AUSA Life.
Each additional subaccount will purchase shares in a mutual fund portfolio,
other investment vehicle, or, in the case of the target account, in shares of
common stock. AUSA Life may also eliminate one or more subaccounts if, in its
sole discretion, marketing, tax, investment or other conditions warrant such
change. In the event any subaccount is eliminated, AUSA Life will notify you and
request a reallocation of the amounts invested in the eliminated subaccount. If
no such reallocation is provided by you, AUSA Life will reinvest the amounts in
the subaccount that invests in the Endeavor Money Market Portfolio (or in a
similar portfolio of money market instruments), in another subaccount, or in the
fixed account, if appropriate.
In the event of any such substitution or change, AUSA Life may, by appropriate
endorsement, make such changes in the policies as may be necessary or
appropriate to reflect such substitution or change. Furthermore, if deemed to be
in the best interests of persons having voting rights under the policies, the
mutual fund account may be (i) operated as a management company under the 1940
Act or any other form permitted by law, (ii) deregistered under the 1940 Act in
the event such registration is no longer required or (iii) combined with one or
more other mutual fund accounts, and the target account may be (i) operated in
any form permitted by law, (ii) deregistered under the 1940 Act in the event
such registration is no longer required or (iii) combined with one or more other
mutual fund accounts. To the extent permitted by applicable law, AUSA Life also
may transfer the assets of the mutual fund account or target account associated
with the policies to another account or accounts.
Reallocation of Annuity Units After the Annuity Commencement Date
After the annuity commencement date, the owner may reallocate the value of a
designated number of annuity units of a mutual fund subaccount or of a target
series subaccount then credited to a policy into an equal value of annuity units
of one or more other mutual fund subaccounts or target series subaccounts. The
reallocation shall be based on the relative value of the annuity units of the
subaccount(s) at the end of the business day on the next payment date. The
minimum amount which may be reallocated is the lesser of (1) $10 of monthly
income or (2) the entire monthly income of the annuity units in the subaccount
from which the transfer is being made. If the monthly income of the annuity
units remaining in a subaccount after a reallocation is less than $10, AUSA Life
reserves the right to include the value of those annuity units as part of the
transfer. The request must be in writing to AUSA Life's service office. There is
no charge assessed in connection with such reallocation. AUSA Life reserves the
right to limit the number of times a reallocation of annuity units may be made
in any given policy ear.
Annuity Payment Options
During the lifetime of the annuitant and prior to the annuity commencement date,
the owner may choose an annuity payment option or change the election, but
written notice of any election or change of election must be received by AUSA
Life at its service office at least thirty (30) days prior to the annuity
commencement date. If no election is
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made prior to the annuity commencement date, annuity payments will be made under
(i) Payment Option 3, life income with level payments for 10 years certain,
using the existing policy value of the fixed account, or (ii) under Payment
Option 3, life income with variable payments for 10 years certain using the
existing policy value of the mutual fund account, or (iii) in a combination of
(i) and (ii).
The person who elects an annuity payment option can also name one or more
successor payees to receive any unpaid amount AUSA Life has at the death of a
payee. Naming these payees cancels any prior choice of a successor payee.
A payee who did not elect the annuity payment option does not have the right to
advance or assign payments, take the payments in one sum, or make any other
change. However, the payee may be given the right to do one or more of these
things if the person who elects the option tells AUSA Life in writing and AUSA
Life agrees.
Variable Payment Options. The dollar amount of the first variable annuity
payment will be determined in accordance with the annuity payment rates set
forth in the applicable table contained in the policy. The tables are based on a
5% effective annual Assumed Investment Return and the "1983 Table a" (male,
female, and unisex if required by law) mortality table improved to the year 2000
with projection Scale G. ("The 1983 Table a" mortality rates are adjusted based
on improvements in mortality since 1983 to more appropriately reflect increased
longevity. This is accomplished using a set of improvement factors referred to
as projection scale G.) The dollar amount of additional variable annuity
payments will vary based on the investment performance of the subaccount(s) of
the mutual fund account selected by the annuitant or beneficiary.
Determination of the First Variable Payment. The amount of the first variable
payment depends upon the sex (if consideration of sex is allowed under state
law) and adjusted age of the annuitant. The adjusted age is the annuitant's
actual age nearest birthday, on the annuity commencement date, adjusted as
follows:
Annuity Commencement Date Adjusted Age
------------------------- ------------
Before 2001 Actual Age
2001-2010 Actual Age minus 1
2011-2020 Actual Age minus 2
2021-2030 Actual Age minus 3
2031-2040 Actual Age minus 4
After 2040 As determined by AUSA Life
This adjustment assumes an increase in life expectancy, and therefore it results
in lower payments than without such an adjustment.
Determination of Additional Variable Payments. All variable annuity payments
other than the first are calculated using annuity units and are credited to the
policy. The number of annuity units to be credited in respect of a particular
subaccount is determined by dividing that portion of the first variable annuity
payment attributable to that subaccount by the annuity unit value of that
subaccount on the annuity commencement date. The number of annuity units of each
particular subaccount credited to the policy then remains fixed, assuming no
transfers to or from that subaccount occur. The dollar value of variable annuity
units in the chosen subaccount will increase or decrease reflecting the
investment experience of the chosen subaccount. The dollar amount of each
variable annuity payment after the first may increase, decrease or remain
constant, and is equal to the sum of the amounts determined by multiplying the
number of annuity units of each particular subaccount credited to the policy by
the annuity unit value for the particular subaccount on the date the payment is
made.
Death Benefit
Partial Withdrawal. The amount of your guaranteed minimum death benefit is
reduced due to a partial withdrawal. The reduction amount depends on the
relationship between your guaranteed minimum death benefit and policy value. The
partial withdrawal in the guaranteed minimum death benefit is the sum of (1) and
(2), where:
(1) The surrender-charge-free withdrawal amount taken; and
(2) The amount that an excess partial withdrawal (the portion of a
withdrawal that can be subject to a surrender charge) reduces the
policy value times [(a) divided by (b)] where:
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(a) is the amount of the death benefit prior to the excess partial
withdrawal; and
(b) is the policy value prior to the excess partial withdrawal.
The following examples describe the effect of a withdrawal on the guaranteed
minimum death benefit and policy value.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Example 1
(Assumed Facts for Example)
- -------------------------------------------------------------------------------------
<S> <C>
$75,000 current Guaranteed Minimum Death Benefit (GMDB) before withdrawal
- -------------------------------------------------------------------------------------
$50,000 current policy value before withdrawal
- -------------------------------------------------------------------------------------
$75,000 current death benefit (larger of policy value and GMDB)
- -------------------------------------------------------------------------------------
6% current surrender charge percentage
- -------------------------------------------------------------------------------------
$15,000 requested withdrawal
- -------------------------------------------------------------------------------------
$ 5,000 surrender charge-free amount (assumes 10% free percentage is available)
- -------------------------------------------------------------------------------------
$10,000 excess partial withdrawal -EPW (amount subject to surrender charge)
- -------------------------------------------------------------------------------------
$ 600 surrender charge on (EPW)= 0.06 * 10,000
- -------------------------------------------------------------------------------------
$10,600 reduction in policy value due to excess partial withdrawal = 10,000 + 600
- -------------------------------------------------------------------------------------
$20,000 partial withdrawal = $5,000+ $10,000 * (75,000/50,000)
- -------------------------------------------------------------------------------------
$55,000 New GMDB (after withdrawal) = 75,000- 20,000
- -------------------------------------------------------------------------------------
$34,400 New policy value (after withdrawal)=50,000 - 5,000 - 10,600
- -------------------------------------------------------------------------------------
</TABLE>
Summary:
Reduction in guaranteed minimum death benefit = $20,000
Reduction in policy value = $15,600
Note, the guaranteed minimum death benefit is reduced more than the policy value
since the guaranteed minimum death benefit was greater than the policy value
just prior to the withdrawal.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Example 2
(Assumed Facts for Example)
- -----------------------------------------------------------------------------------
<S> <C>
$50,000 current Guaranteed Minimum Death Benefit (GMDB) before withdrawal
- -----------------------------------------------------------------------------------
$75,000 current policy value before withdrawal
- -----------------------------------------------------------------------------------
$75,000 current death benefit (larger of policy value and GMDB)
- -----------------------------------------------------------------------------------
6% current surrender charge percentage
- -----------------------------------------------------------------------------------
$15,000 requested withdrawal
- -----------------------------------------------------------------------------------
$ 7,500 surrender charge-free amount (assumes 10% free percentage is available)
- -----------------------------------------------------------------------------------
$ 7,500 excess partial withdrawal -EPW (amount subject to surrender charge)
- -----------------------------------------------------------------------------------
$ 450 surrender charge on (EPW)= 0.06 * 7,500
- -----------------------------------------------------------------------------------
$ 7,950 reduction in policy value due to EPW= 7,500 + 450
- -----------------------------------------------------------------------------------
$15,450 partial withdrawal = $7,500+ $7,950 * (75,000/75,000)
- -----------------------------------------------------------------------------------
$34,550 New GMDB (after withdrawal) = 50,000- 15,450
- -----------------------------------------------------------------------------------
$59,550 New policy value (after withdrawal)= 75,000 - 7,500 - 7,950
- -----------------------------------------------------------------------------------
</TABLE>
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Summary:
Reduction in the guaranteed minimum death benefit = $15,450
Reduction in policy value = $15,450
Note, the guaranteed minimum death benefit and policy value are reduced by the
same amount since the policy value was higher than the guaranteed minimum death
benefit just prior to the withdrawal.
Due proof of death of the annuitant is proof that the annuitant who is the owner
died prior to the commencement of annuity payments. Upon receipt of this proof
and an election of a method of settlement and return of the policy, the death
benefit generally will be paid within seven days, or as soon thereafter as AUSA
Life has sufficient information about the beneficiary to make the payment. The
beneficiary may receive the amount payable in a lump sum cash benefit, or,
subject to any limitation under any state or federal law, rule, or regulation,
under one of the annuity payment options described above, unless a settlement
agreement is effective at the death of the owner preventing such election.
If the annuitant was the owner, and the beneficiary was not the annuitant's
spouse, the death benefit must (1) be distributed within five years of the date
of the deceased owner's death, or (2) payments under an annuity payment option
must begin no later than one year after the deceased owner's death and must be
made for the beneficiary's lifetime or for a period certain (so long as any
certain period does not exceed the beneficiary's life expectancy). Death
Proceeds which are not paid to or for the benefit of a natural person must be
distributed within five years of the date of the deceased owner's death. If the
sole beneficiary is the deceased owner's surviving spouse, such spouse may elect
to continue the policy as the new annuitant and owner instead of receiving the
death benefit.
If the annuitant is not the owner, and the owner dies prior to the annuity
commencement date, a successor owner may surrender the policy at any time for
the amount of the policy value. If the successor owner is not the deceased
owner's spouse, however, the policy value must be distributed: (1) within five
years after the date of the deceased owner's death, or (2) payments under an
annuity payment option must begin no later than one year after the deceased
owner's death and must be made for the successor owner's lifetime or for a
period certain (so long as any period certain does not exceed the successor
owner's life expectancy).
Beneficiary. The beneficiary designation in the application will remain in
effect until changed. The owner may change the designated beneficiary by sending
written notice to AUSA Life. The beneficiary's consent to such change is not
required unless the beneficiary was irrevocably designated or law requires
consent. (If an irrevocable beneficiary dies, the owner may then designate a new
beneficiary.) The change will take effect as of the date the owner signs the
written notice, whether or not the owner is living when the notice is received
by AUSA Life. AUSA Life will not be liable for any payment made before the
written notice is received. If more than one beneficiary is designated, and the
owner fails to specify their interests, they will share equally.
Death of Owner
Federal tax law requires that if any owner (including any joint owner or any
successor owner who has become a current owner) dies before the annuity
commencement date, then the entire value of the policy must generally be
distributed within five years of the date of death of such owner. Certain rules
apply where 1) the spouse of the deceased owner is the sole beneficiary, 2) the
owner is not a natural person and the primary annuitant dies or is changed, or
3) any owner dies after the annuity commencement date. See "Certain Federal
Income Tax Consequences" for a detailed description of these rules. Other rules
may apply to qualified policies.
Assignment
During the lifetime of the annuitant the owner may assign any rights or benefits
provided by the policy. An assignment will not be binding on AUSA Life until a
copy has been filed at its service office. The rights and benefits of the owner
and beneficiary are subject to the rights of the assignee. AUSA Life assumes no
responsibility for the validity or effect of any assignment. Any claim made
under an assignment shall be subject to proof of interest and the extent of the
assignment. An assignment may have tax consequences.
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Unless the owner so directs by filing written notice with AUSA Life, no
beneficiary may assign any payments under the policy before they are due. To the
extent permitted by law, no payments will be subject to the claims of any
beneficiary's creditors.
Ownership of qualified policies is restricted to comply with the Code.
Evidence of Survival
AUSA Life reserves the right to require satisfactory evidence that a person is
alive if a payment is based on that person being alive. No payment will be made
until AUSA Life receives such evidence.
Non-Participating
The policy will not share in AUSA Life's surplus earnings; no dividends will be
paid.
Amendments
No change in the policy is valid unless made in writing by AUSA Life and
approved by one of AUSA Life's officers. No registered representative has
authority to change or waive any provision of the policy.
AUSA Life reserves the right to amend the policies to meet the requirements of
the Code, regulations or published rulings. An owner can refuse such a change by
giving written notice, but a refusal may result in adverse tax consequences.
Employee and Agent Purchases
The policy may be acquired by an employee or registered representative of any
broker/dealer authorized to sell the policy or their spouse or minor children,
or by an officer, director, trustee or bona-fide full-time employee of AUSA Life
or its affiliated companies or their spouse or minor children. In such a case,
AUSA Life may credit an amount equal to a percentage of each premium payment to
the policy due to lower acquisition costs AUSA Life experiences on those
purchases. The credit will be reported to the Internal Revenue Service as
taxable income to the employee or registered representative. AUSA Life may offer
certain employer sponsored savings plans, in its discretion, reduced fees and
charges including, but not limited to, the surrender charges, the mortality and
expense risk fee and the administrative charge for certain sales under
circumstances which may result in savings of certain costs and expenses. In
addition, there may be other circumstances of which AUSA Life is not presently
aware which could result in reduced sales or distribution expenses. Credits to
the policy or reductions in these fees and charges will not be unfairly
discriminatory against any owner.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary does not constitute tax advice. It is a general discussion
of certain of the expected federal income tax consequences of investment in and
distributions with respect to a Policy, based on the Internal Revenue Code of
1986, as amended, proposed and final Treasury Regulations thereunder, judicial
authority, and current administrative rulings and practice. This summary
discusses only certain federal income tax consequences to "United States
Persons," and does not discuss state, local, or foreign tax consequences. United
States Persons means citizens or residents of the United States, domestic
corporations, domestic partnerships and trusts or estates that are subject to
United States federal income tax regardless of the source of their income.
Tax Status of the Policy
The following discussion is based on the assumption that the policy qualifies as
an annuity contract for federal income tax purposes.
Distribution Requirements. The Code also requires that nonqualified policies
contain specific provisions for distribution of policy proceeds upon the death
of the owner. In order to be treated as an annuity contract for federal
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income tax purposes, the Code requires that such policies provide that if any
owner dies on or after the annuity commencement date and before the entire
interest in the policy has been distributed, the remaining portion must be
distributed at least as rapidly as under the method in effect on such owner's
death. If any owner dies before the annuity commencement date, the entire
interest in the policy must generally be distributed within 5 years after such
owner's date of death or be applied to provide an immediate annuity under which
payments will begin within one year of such owner's death and will be made for
the life of the beneficiary or for a period not extending beyond the life
expectancy of the "designated beneficiary" as defined in Section 72(s) of the
Code. However, if upon such owner's death prior to the annuity commencement
date, such owner's surviving spouse becomes the sole new owner under the policy,
then the policy may be continued with the surviving spouse as the new owner.
Under the policy, the beneficiary is the designated beneficiary of an
owner/annuitant and the successor owner is the designated beneficiary of an
owner who is not the annuitant. If any owner is not a natural person, then for
purposes of these distribution requirements, the primary annuitant shall be
treated as an owner, and any death or change of such primary annuitant shall be
treated as the death of an owner. The nonqualified policies contain provisions
intended to comply with these requirements of the Code. No regulations
interpreting these requirements of the Code have yet been issued and thus no
assurance can be given that the provisions contained in the policies satisfy all
such Code requirements. The provisions contained in the policies will be
reviewed and modified if necessary to maintain their compliance with the Code
requirements when clarified by regulation or otherwise.
Withholding. The portion of any distribution under a policy that is includable
in gross income will be subject to federal income tax withholding unless the
recipient of such distribution elects not to have federal income tax withheld.
Election forms will be provided at the time distributions are requested or made.
For certain qualified policies, certain distributions are subject to mandatory
withholding. The withholding rate varies according to the type of distribution
and the owner's tax status. For qualified policies, "eligible rollover
distributions" from section 401(a) plans and section 403(b) tax-sheltered
annuities are subject to a mandatory federal income tax withholding of 20%. An
eligible rollover distribution is the taxable portion of any distribution from
such a plan, except certain distributions such as distributions required by the
Code or distributions in a specified annuity form. The 20% withholding does not
apply, however, if the owner chooses a "direct rollover" from the plan to
another tax-qualified plan or IRA.
Qualified Policies. The qualified policy is designed for use with several types
of tax-qualified retirement plans. The tax rules applicable to participants and
beneficiaries in tax-qualified retirement plans vary according to the type of
plan and the terms and conditions of the plan. Special favorable tax treatment
may be available for certain types of contributions and distributions. Adverse
tax consequences may result from contributions in excess of specified limits;
distributions prior to age 59 1/2 (subject to certain exceptions); distributions
that do not conform to specified commencement and minimum distribution rules;
and in other specified circumstances. Some retirement plans are subject to
distribution and other requirements that are not incorporated into our policy
administration procedures. Owners, participants and beneficiaries are
responsible for determining that contributions, distributions and other
transactions with respect to the policies comply with applicable law.
For qualified plans under section 401(a), 403(a), 403(b), and 457, the Code
requires that distributions generally must commence no later than the later of
April 1 of the calendar year following the calendar year in which the owner (or
plan participant) (i) reaches age 70 1/2 or (ii) retires, and must be made in a
specified form or manner. If the plan participant is a "5 percent owner" (as
defined in the Code), distributions generally must begin no later than April 1
of the calendar year in which the owner (or plan participant) reaches age 70
1/2. Each owner is responsible for requesting distributions under the policy
that satisfy applicable tax rules.
AUSA Life makes no attempt to provide more than general information about use of
the policy with the various types of retirement plans. Purchasers of policies
for use with any retirement plan should consult their legal counsel and tax
adviser regarding the suitability of the policy.
Individual Retirement Annuities. In order to qualify as a traditional individual
retirement annuity under Section 408(b) of the Code, a policy must contain
certain provisions: (i) the owner must be the annuitant; (ii) the policy
generally is not transferable by the owner, e.g., the owner may not designate a
new owner, designate a contingent owner or assign the policy as collateral
security; (iii) the total premium payments for any calendar year may not exceed
$2,000, except in the case of a rollover amount or contribution under Section
402(c), 403(a)(4), 403(b)(8) or 408(d)(3) of the Code; (iv) annuity payments or
withdrawals must begin no later than April 1 of the calendar year
11
<PAGE>
following the calendar year in which the annuitant attains age 70 1/2; (v) an
annuity payment option with a period certain that will guarantee annuity
payments beyond the life expectancy of the annuitant and the beneficiary may not
be selected; and (vi) certain payments of death benefits must be made in the
event the annuitant dies prior to the distribution of the policy value. Policies
intended to qualify as a traditional individual retirement annuities under
Section 408(b) of the Code contain such provisions. Amounts in the IRA (other
than nondeductible contributions) are taxed when distributed from the IRA.
Distributions prior to age 59 1/2 (unless certain exceptions apply) are subject
to a 10% penalty tax.
Section 408 of the Code also indicates that no part of the funds for a
traditional individual retirement account or annuity should be invested in a
life insurance contract, but the regulations thereunder allow such funds to be
invested in an annuity contract that provides a death benefit that equals the
greater of the premiums paid or the cash value for the contract. The policy
provides an enhanced death benefit that could exceed the amount of such a
permissible death benefit, but it is unclear to what extent such an enhanced
death benefit could disqualify the policy under Section 408 of the Code. The
Internal Revenue Service has not reviewed the policy for qualification as an
IRA, and has not addressed in a ruling of general applicability whether an
enhanced death benefit provision, such as the provision in the policy, comports
with IRA qualification requirements.
Roth Individual Retirement Annuities (Roth IRA). The Roth IRA, under Section
408A of the Code, contains many of the same provisions as a traditional IRA.
However, there are some differences. First, the contributions are not deductible
and must be made in cash or as a rollover or transfer from another Roth IRA or
other IRA. A rollover from or conversion of an IRA to a Roth IRA may be subject
to tax and other special rules may apply. You should consult a tax adviser
before combining any converted amounts with any other Roth IRA contributions,
including any other conversion amounts from other tax years. The Roth IRA is
available to individuals with earned income and whose adjusted gross income is
under $110,000 for single filers, $160,000 for married filing jointly, and
$10,000 for married filing separately. The amount per individual that may be
contributed to all IRAs (Roth and traditional) is $2,000. Secondly, the
distributions are taxed differently. The Roth IRA offers tax-free distributions
when made from assets which have been held in the account for 5 tax years and
are made after attaining age 59 1/2, to pay for qualified first time homebuyer
expenses (lifetime maximum of $10,000) or due to death or disability. All other
distributions are subject to income tax when made from earnings and may be
subject to a premature withdrawal penalty tax unless an exception applies.
Unlike the traditional IRA, there are no minimum required distributions during
the owner's lifetime; however, required distributions at death are the same.
Section 403(b) Plans. Under Section 403(b) of the Code, payments made by public
school systems and certain tax exempt organizations to purchase policies for
their employees are excludable from the gross income of the employee, subject to
certain limitations. However, such payments may be subject to FICA (Social
Security) taxes. The policy includes a death benefit that in some cases may
exceed the greater of the premium payments or the policy value. The death
benefit could be characterized as an incidental benefit, the amount of which is
limited in any tax-sheltered annuity under section 403(b). Because the death
benefit may exceed this limitation, employers using the policy in connection
with such plans should consult their tax adviser. Additionally, in accordance
with the requirements of the Code, Section 403(b) annuities generally may not
permit distribution of (i) elective contributions made in years beginning after
December 31, 1988, and (ii) earnings on those contributions and (iii) earnings
on amounts attributed to elective contributions held as of the end of the last
year beginning before January 1, 1989. Distributions of such amounts will be
allowed only upon the death of the employee, on or after attainment of age 59
1/2, separation from service, disability, or financial hardship, except that
income attributable to elective contributions may not be distributed in the case
of hardship.
Corporate Pension and Profit-Sharing Plans and H.R. 10 Plans. Sections 401(a)
and 403(a) of the Code permit corporate employers to establish various types of
retirement plans for employees and self-employed individuals to establish
qualified plans for themselves and their employees. Such retirement plans may
permit the purchase of the policies to accumulate retirement savings. Adverse
tax consequences to the plan, the participant or both may result if the policy
is assigned or transferred to any individual as a means to provide benefit
payments. The policy includes a death benefit that in some cases may exceed the
greater of the premium payments or the policy value. The death benefit could be
characterized as an incidental benefit, the amount of which is limited in an
pension or profit sharing plan. Because the death benefit may exceed this
limitation, employers using the policy in connection with such plans should
consult their tax adviser.
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<PAGE>
Deferred Compensation Plans. Section 457 of the Code, while not actually
providing for a qualified plan as that term is normally used, provides for
certain deferred compensation plans with respect to service for state
governments, local governments, political sub-divisions, agencies,
instrumentalities and certain affiliates of such entities, and tax exempt
organizations. The policies can be used with such plans. Under such plans a
participant may specify the form of investment in which his or her participation
will be made. For non-government Section 457 plans all such investments,
however, are owned by, and are subject to, the claims of the general creditors
of the sponsoring employer. Depending on the terms of the particular plan, a
non-government employer may be entitled to draw on deferred amounts for purposes
unrelated to its Section 457 plan obligations. In general, all amounts received
under a Section 457 plan are taxable and are subject to federal income tax
withholding as wages.
Non-natural Persons. Pursuant to Section 72(u) of the Code, an annuity contract
held by a taxpayer other than a natural person generally will not be treated as
an annuity contract under the Code; accordingly, an owner who is not a natural
person will recognize as ordinary income for a taxable year the excess of (i)
the sum of the policy value as of the close of the taxable year and all previous
distributions under the policy over (ii) the sum of the premium payments paid
for the taxable year and any prior taxable year and the amounts includable in
gross income for any prior taxable year with respect to the policy.
Notwithstanding the preceding sentences in this paragraph, Section 72(u) of the
Code does not apply to (i) a policy the nominal owner of which is not a natural
person but the beneficial owner of which is a natural person, (ii) a policy
acquired by the estate of a decedent by reason of such decedent's death, (iii) a
qualified policy (other than one qualified under Section 457) or (iv) a
single-payment annuity the annuity commencement date for which is no later than
one year from the date of the single premium payment; instead, such policies are
taxed as described above under the heading "Taxation of Annuities."
Taxation of AUSA Life
AUSA Life at present is taxed as a life insurance company under part I of
Subchapter L of the Code. The mutual fund account and the target account are
treated as part of AUSA Life and, accordingly, will not be taxed separately as a
"regulated investment company" under Subchapter M of the Code. AUSA Life does
not expect to incur any federal income tax liability with respect to investment
income and net capital gains arising from the activities of the mutual fund
account retained as part of the reserves under the policy. Based on this
expectation, it is anticipated that no charges will be made against the mutual
fund account for federal income taxes. If, in future years, any federal income
taxes are incurred by AUSA Life with respect to the mutual fund account or the
target account, AUSA Life may make a charge to that account.
INVESTMENT EXPERIENCE
An "investment experience factor" is used to determine the value of accumulation
units and annuity units, and to determine Annuity Payment rates.
Accumulation Units
Allocations of a premium payment directed to a mutual fund subaccount or target
series subaccount are credited in the form of accumulation units. Each
subaccount has a distinct accumulation unit value. The number of units credited
is determined by dividing the premium payment or amount transferred to the
mutual fund subaccount or target series subaccount by the accumulation unit
value of the mutual fund subaccount or target series subaccount as of the end of
the valuation period during which the allocation is made. For each mutual fund
subaccount or target series subaccount, the accumulation unit value for a given
business day is based on the net asset value of a share of the corresponding
portfolio of the underlying funds less any applicable charges or fees.
Upon allocation to the selected mutual fund subaccount or target series
subaccount, premium payments are converted into accumulation units of the
subaccount. The number of accumulation units to be credited is determined by
dividing the dollar amount allocated to each subaccount by the value of an
accumulation unit for that subaccount as next determined after the premium
payment is received at the service office or, in the case of the initial premium
payment, when the application is completed, whichever is later. The value of an
accumulation unit was arbitrarily established at $1 (except the target series
subaccounts, which were established at $10) at the inception of each subaccount.
Thereafter, the value of an accumulation unit is determined as of the close of
trading on each day the New York Stock Exchange is open for business.
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<PAGE>
For the mutual fund account, an index (the "investment experience factor") which
measures the investment performance of a subaccount during a valuation period is
used to determine the value of an accumulation unit for the next subsequent
valuation period. The investment experience factor may be greater or less than
or equal to one; therefore, the value of an accumulation unit may increase,
decrease or remain the same from one valuation period to the next. The owner
bears this investment risk. The Net Investment Performance of a subaccount and
deduction of certain charges affects the accumulation unit value.
The investment experience factor for any mutual fund subaccount or target series
subaccount for any valuation period is determined by dividing (a) by (b), and
subtracting (c) from the result, where:
(a) is the net result of:
(1) the net asset value per share of the shares held in the subaccount
determined at the end of the current valuation period, plus
(2) The per share amount of any dividend or capital gain distribution
made with respect to the shares held in the subaccount if the
ex-dividend date occurs during the current valuation period, plus or
minus
(3) a per share credit or charge for any taxes determined by AUSA Life
to have resulted from the investment operations of the subaccount and
for which it has created a reserve;
(b) is the net asset value per share of the shares held in the subaccount
determined as of the end of the immediately preceding valuation period; and
(c) is the charge for mortality and expense risk during the valuation
period equal on an annual basis to X percent of the daily net asset value
of the subaccount, where "X" depends on the Death Benefit Option and policy
year, plus the .15% annual administrative charge.
Illustration of Accumulation Unit Value Calculations
Formula and Illustration for Determining the Investment Experience Factor
(Assumes the Return of Premium Death Benefit is still in effect
and that the policy is within the first seven policy years.)
Investment Experience Factor = (A + B - C) - E
-----------
D
Where: A = The net asset value of an underlying fund share as of the end of
the current valuation period.
Assume................................................A = $11.57
B = The per share amount of any dividend or capital gains
distribution since the end of the immediately preceding
valuation period.
Assume.....................................................B = 0
C = The per share charge or credit for any taxes reserved for at the
end of the current valuation period.
Assume.....................................................C = 0
D = The net asset value of an underlying fund share at the end of the
immediately preceding valuation period.
Assume................................................D = $11.40
E = The daily deduction for mortality and expense risk fees and
administrative charges, which totals 1.40% on an annual basis.
On a daily basis = .0000380909
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<PAGE>
<TABLE>
<S> <C>
Then, the investment experience factor = (11.57 + 0 - 0) - .0000380909 = Z = 1.0148741898
---------------
11.40
</TABLE>
Formula and Illustration for Determining Accumulation Unit Value
Accumulation Unit Value = A * B
Where: A = The accumulation unit value for the immediately preceding valuation
period.
Assume....................................................... = $ X
B = The net investment factor for the current valuation period.
Assume......................................................... = Y
Then, the Accumulation Unit Value = $ X * Y = $ Z
Annuity Unit Value And Annuity Payment Rates
For both the mutual fund account and the target account, the amount of variable
annuity payments will vary with annuity unit values. Annuity unit values rise if
the net investment performance of the subaccount exceeds the Assumed Investment
Return of 5% annually. Conversely, annuity unit values fall if the net
investment performance of the subaccount is less than the Assumed Investment
Return. The value of a variable annuity unit in each subaccount was established
at $1.00 on the date operations began for that subaccount. For the mutual fund
account, the value of a variable annuity unit on any subsequent business day is
equal to (a) multiplied by (b) multiplied by (c), where:
(a) is the variable annuity unit value on the immediately preceding
business day;
(b) is the net investment factor of the valuation period; and
(c) is the investment result adjustment factor for the valuation period.
The investment result adjustment factor for the valuation period is the product
of discount factors of .99986634 per day to recognize the 5% effective annual
Assumed Investment Return. The valuation period is the period from the close of
the immediately preceding business day to the close of the current business day.
For the target account, at the end of each valuation period, the annuity unit
value is established by multiplying the value of an annuity unit determined at
the end of the immediately preceding valuation period by a net investment factor
for the current valuation period, and then multiplying that product by an
investment result adjustment factor for the purpose of offsetting the effect of
an assumed investment return of 5.0% per annum which is assumed in the annuity
conversion rates for the contracts. The net investment factor for the target
series subaccounts is very similar to the net investment factor for the mutual
fund account, except that it is based upon the value of the assets in the
subaccount, instead of the net asset value for a mutual fund share. The net
investment factor includes a charge for mortality and expense risks, that is,
the mortality and expense risk fee, and administrative charge.
The dollar amount of subsequent variable annuity payments will depend upon
changes in applicable annuity unit values.
The annuity payment rates vary according to the Annuity Option elected and the
sex and adjusted age of the annuitant at the annuity commencement date. The
policy also contains a table for determining the adjusted age of the annuitant.
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<PAGE>
Illustration of Calculations for Annuity Unit Value
and Variable Annuity Payments
Formula and Illustration for Determining Annuity Unit Value
Annuity unit value = A * B * C
Where: A = Annuity unit value for the immediately preceding valuation period.
Assume...................................................... = $ X
B = Investment Experience Factor for the valuation period for which the
annuity unit value is being calculated.
Assume....................................................... = Y
C = A factor to neutralize the Assumed Investment Return of 5% built
into the Annuity Tables used.
Assume....................................................... = Z
Then, the annuity unit value is:
$ X * Y * Z = $ Q
Formula and Illustration for Determining Amount of
First Monthly Variable Annuity Payment
First monthly variable annuity payment = A * B
-----
$1,000
Where: A = The policy value as of the annuity commencement date.
Assume.......................................................= $ X
B = The Annuity purchase rate per $1,000 based upon the option
selected, the sex and adjusted age of the annuitant according to
the tables contained in the policy.
Assume...................................................... = $ Y
Then, the first monthly variable annuity payment = $ X * $ Y = $ Z
---------
1,000
Formula and Illustration for Determining the Number of Annuity Units
Represented by Each Monthly Variable Annuity Payment
Number of annuity units = A
-
B
Where: A = The dollar amount of the first monthly variable annuity payment.
Assume...................................................... = $ X
B = The annuity unit value for the valuation date on which the first
monthly payment is due.
Assume..................................................... = $ Y
Then, the number of annuity units = $ X = Z
---
$ Y
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<PAGE>
HISTORICAL PERFORMANCE DATA
Money Market Yields
AUSA Life may from time to time disclose the current annualized yield of the
Endeavor Money Market Subaccount, which invests in the Endeavor Money Market
Portfolio, for a 7-day period in a manner which does not take into consideration
any realized or unrealized gains or losses on shares of the Endeavor Money
Market Portfolio or on its portfolio securities. This current annualized yield
is computed by determining the net change (exclusive of realized gains and
losses on the sale of securities and unrealized appreciation and depreciation
and income other than investment income) at the end of the 7-day period in the
value of a hypothetical account; having a balance of 1 unit of the Endeavor
Money Market Subaccount at the beginning of the 7-day period, dividing such net
change in account value by the value of the account at the beginning of the
period to determine the base period return, and annualizing this quotient on a
365-day basis. The net change in account value reflects (i) net income from the
portfolio attributable to the hypothetical account; and (ii) charges and
deductions imposed under a policy that are attributable to the hypothetical
account. The charges and deductions include the per unit charges for the
hypothetical account for (i) the administrative charges; and (ii) the Mortality
and Expense Risk Charge. Current Yield will be calculated according to the
following formula:
Current Yield = ((NCS - ES)/UV) * (365/7)
Where:
NCS = The net change in the value of the portfolio (exclusive of
realized gains and losses on the sale of securities and unrealized
appreciation and depreciation and income other than investment
income) for the 7-day period attributable to a hypothetical account
having a balance of 1 subaccount unit.
ES = Per unit expenses of the subaccount for the 7-day period.
UV = The unit value on the first day of the 7-day period.
Because of the charges and deductions imposed under a policy, the yield for the
Endeavor Money Market Subaccount will be lower than the yield for the Endeavor
Money Market Portfolio. The yield calculations do not reflect the effect of any
premium taxes or surrender charges that may be applicable to a particular
policy. Surrender charges range from 7% to 0% of the amount of premium withdrawn
based on the policy year since payment of the premium.
AUSA Life may also disclose the effective yield of the Endeavor Money Market
Subaccount for the same 7-day period, determined on a compounded basis. The
effective yield is calculated by compounding the base period return according to
the following formula:
Effective Yield = (1 + ((NCS - ES)/UV))365/7 - 1
Where:
NCS = The net change in the value of the Portfolio (exclusive of
realized gains and losses on the sale of securities and unrealized
appreciation and depreciation and income other than investment
income) for the 7-day period attributable to a hypothetical account
having a balance of 1 subaccount unit.
ES = Per unit expenses of the subaccount for the 7-day period.
UV = The unit value on the first day of the 7-day period.
The yield on amounts held in the Endeavor Money Market Subaccount normally will
fluctuate on a daily basis. Therefore, the disclosed yield for any given past
period is not an indication or representation of future yields or rates of
return. The Endeavor Money Market Subaccount's actual yield is affected by
changes in interest rates on money market securities, average portfolio maturity
of the Endeavor Money Market Portfolio, the types and quality of portfolio
securities held by the Endeavor Money Market Portfolio and its operating
expenses. For the seven days ended December 31, 1998, the yield of the Endeavor
Money Market Subaccount was 3.066%, and the effective yield
17
<PAGE>
was 3.113% for the Annual Step-Up Death Benefit. For the seven days ended
December 31, 1998, the yield of the Endeavor Money Market Subaccount was 3.219%,
and the effective yield was 3.271% for the Return of Premium Death Benefit.
Other Subaccount Yields
AUSA Life may from time to time advertise or disclose the current annualized
yield of one or more of the mutual fund subaccounts and the target series
subaccounts (except the Endeavor Money Market Subaccount) for 30-day periods.
The annualized yield of a subaccount refers to income generated by the
subaccount over a specific 30-day period. Because the yield is annualized, the
yield generated by a subaccount during the 30-day period is assumed to be
generated each 30-day period over a 12-month period. The yield is computed by:
(i) dividing the net investment income of the subaccount less subaccount
expenses for the period, by (ii) the maximum offering price per unit on the last
day of the period times the daily average number of units outstanding for the
period, (iii) compounding that yield for a 6-month period, and (iv) multiplying
that result by 2. Expenses attributable to the subaccount include (i) the
administrative charge and (ii) the Mortality and Expense Risk Charge. The 30-day
yield is calculated according to the following formula:
Yield = 2 * ((((NI - ES)/(U UV))+ 1)6 - 1)
Where:
NI = Net investment income of the subaccount for the 30-day period
attributable to the subaccount's unit.
ES = Expenses of the subaccount for the 30-day period.
U = The average number of units outstanding.
UV = The unit value at the close (highest) of the last day in the 30-day
period.
Because of the charges and deductions imposed by the mutual fund account, the
yield for a mutual fund subaccount will be lower than the yield for its
corresponding portfolio. The yield calculations do not reflect the effect of any
premium taxes that may be applicable to a particular policy. Surrender charges
range from 7% to 0% of the amount of the excess premium withdrawal based on the
number of years since payment of the premium.
The yield on amounts held in the mutual fund subaccounts and the target series
subaccounts normally will fluctuate over time. Therefore, the disclosed yield
for any given past period is not an indication or representation of future
yields or rates of return. The types and quality of its investments and its
operating expenses affect a subaccount's actual yield.
Total Returns
AUSA Life may from time to time also advertise or disclose total returns for one
or more of the mutual fund subaccounts or the target series subaccounts for
various periods of time. One of the periods of time will include the period
measured from the date the subaccount commenced operations. When a subaccount
has been in operation for 1, 5 and 10 years, respectively, the total return for
these periods will be provided. Total returns for other periods of time may from
time to time also be disclosed. Total returns represent the average annual
compounded rates of return that would equate an initial investment of $1,000 to
the redemption value of that investment as of the last day of each of the
periods. The ending date for each period for which total return quotations are
provided will be for the most recent month end practicable, considering the type
and media of the communication and will be stated in the communication.
Total returns will be calculated using subaccount unit values, which AUSA Life
calculates on each business day, based on the performance of the mutual fund
account's underlying portfolio, and the target series subaccount's common
shares, and the deductions for the mortality and expense risk fee and the
administrative charges. The total return for each target series subaccount will
also reflect the manager's fee and other operating expenses. Total return
calculations will reflect the effect of surrender charges that may be applicable
to a particular period. The total return will then be calculated according to
the following formula:
18
<PAGE>
P(1 + T)N = ERV
Where:
T = The average annual total return net of subaccount recurring charges.
ERV = The ending redeemable value of the hypothetical account at the end of the
period.
P = A hypothetical initial payment of $1,000.
N = The number of years in the period.
Other Performance Data
AUSA Life may from time to time also disclose average annual total returns in a
non-standard format in conjunction with the standard format described above. The
non-standard format will be identical to the standard format except assuming
that the surrender charge percentage will be 0%.
AUSA Life may from time to time also disclose cumulative total returns in
conjunction with the standard format described above. The cumulative returns
will be calculated using the following formula assuming that the surrender
charge percentage will be 0%.
CTR = (ERV/P) - 1
Where:
CTR = The cumulative total return net of subaccount recurring charges for the
period.
ERV = The ending redeemable value of the hypothetical investment at the end of
the period.
P = A hypothetical initial payment of $1,000.
All non-standard performance data will only be advertised if the standard
performance data for the same period, as well as for the required period, is
also disclosed.
Adjusted Historical Performance Data--The Mutual Fund Account
From time to time, sales literature or advertisements may quote average annual
total returns for periods prior to the date a particular mutual fund subaccount
commenced operations. Such performance information for the mutual fund
subaccounts will be calculated based on the performance of the various
portfolios and the assumption that the mutual fund subaccounts were in existence
for the same periods as those indicated for the portfolios, with the level of
policy charges that are currently in effect.
THE TARGET ACCOUNT
What is the Investment Strategy?
The objective of each of the target series subaccounts is to provide an
above-average total return through a combination of dividend income and capital
appreciation. While the objectives of the target series subaccounts are the
same, each target series subaccount follows a different investment strategy (set
forth below) in order to achieve its stated objective.
Each target series subaccount will initially invest in equal amounts in the
common stock described below for each target series subaccount (the common
shares) determined as of a specified business day (initial stock selection
date). The DowSM Target 10 Subaccount will invest in the common stock of the ten
companies in the DJIA that have the highest dividend yield. The DowSM Target 5
Subaccount will invest in the common stock of the five companies with the lowest
per share stock price of the ten companies in The DowSM Target 10 Subaccount.
These stocks will be held for approximately one year.
19
<PAGE>
At the initial stock selection date, a percentage relationship among the number
of common shares in a target series subaccount will be established. When
additional funds are deposited into the target series subaccount, additional
common shares will be purchased in such numbers reflecting as nearly as
practicable the percentage relationship of the number of common shares
established at the initial purchase. Sales of common shares by the target series
subaccount will likewise attempt to replicate the percentage relationship of
common shares. The percentage relationship among the number of common shares in
the target series subaccount should therefore remain stable. However, given the
fact that the market price of such common shares will vary throughout the year,
the value of the common shares of each of the companies as compared to the total
assets of the target series subaccount will fluctuate during the year, above and
below the proportion established on a stock selection date. On the last business
day of the 12-month period following the preceding stock selection date (annual
stock selection date), a new percentage relationship will be established among
the number of common shares described above for each target series subaccount on
such date. Common shares may be sold or new equity securities bought so that the
target series subaccount is equally invested in the common stock of each company
meeting the target series subaccount's investment criteria. Thus the target
series subaccount may or may not hold equity securities of the same companies as
the previous year. Any purchase or sale of additional common shares during the
year will duplicate, as nearly as practicable, the percentage relationship among
the number of common shares as of the annual stock selection date since the
relationship among the value of the common shares on the date of any subsequent
transactions may be different than the original relationship among their value.
The yield for each equity security listed on the DJIA is calculated by
annualizing the last quarterly or semi-annual ordinary dividend declared and
dividing the result by the market value of such equity security as of the close
of business on the stock selection date.
The publishers of the DJIA are not affiliated with AUSA Life, Endeavor
Management Co., or First Trust Advisers L.P. and have not participated in the
creation of the target series subaccounts or the selection of the equity
securities included therein. Any changes in the components of any of the
respective indices made after a stock selection date will not cause a change in
the identity of the common shares included in a target series subaccount,
including any additional common shares purchased thereafter, until the next
annual stock selection date.
Investors should note that the above criteria were applied and will in the
future be applied to the common shares selected for inclusion in the target
series subaccounts as of the respective stock selection date. Additional common
shares, which were originally selected through this process, may be purchased
throughout the year, as investors may continue to invest in the target series
subaccounts, even though the yields on these common shares may have changed
subsequent to the previous stock selection date. These common shares may no
longer be included in the index, or may not meet a target series subaccount's
selection criteria at that time, and therefore, such common shares would no
longer be chosen for inclusion in the target series subaccounts if the selection
process were to be performed again at that time. The equity securities selected
as common shares and the percentage relationship among the number of shares will
not change for purchase or sales by a target series subaccount until the next
annual stock selection date.
Determination of Unit Value; Valuation of Securities
AUSA Life determines the unit value of each target series subaccount each
business day. This daily determination of unit value is made by dividing the
total assets of a target series subaccount, less all of its liabilities, by the
total number of units outstanding at the time the determination is made. This is
made as of the close of regular trading on the New York Stock Exchange,
currently 4:00 p.m. New York time, unless the Exchange closes earlier. Purchases
and redemptions will be effected at the time of determination of unit value next
following the receipt of any purchase or redemption order deemed to be in good
order.
Equity securities are valued at the last sale price on the exchange on which
they are primarily traded or at the ask price on the NASDAQ system for unlisted
national market issues, or at the last quoted bid price for securities in which
there were no sales during the day or for unlisted securities not reported on
the NASDAQ system. Short-term obligations, which mature in 60 days or less, are
valued at amortized cost, which approximates fair value as determined by the
Board of Managers. Futures and option contracts that are traded on commodities
or securities exchanges are normally valued at the settlement price on the
exchange on which they are traded. Securities (other
20
<PAGE>
than short-term obligations) for which there are no such quotations or
valuations are valued at fair value as determined in good faith by or at the
direction of the Board of Managers of the target series subaccounts.
The Board of Managers
The members of the Board of Managers of the target account, and their principal
occupations during the past five years are set forth below. Their titles may
have varied during that period. Unless otherwise indicated, the address of each
member is 2101 East Coast Highway, Suite 300, Corona del Mar, California 92625.
<TABLE>
<CAPTION>
Name, Age and Address Held With Registrant During Past 5 Years
--------------------- -------------------- -------------------
<S> <C> <C>
*Vincent J. McGuinness, President, Chief Financial From February, 1997 to December 1997, Executive
Jr. (34) Officer (Treasurer), Vice-President, Chief of Operations, since March
and Manager 1997, Director, since December, 1997, Chief
Operating Officer and since June, 1998, Chief
Financial Officer of Endeavor Group; from
September, 1996 to June, 1997, and since June
1998, Chief Financial Officer, since May, 1996,
Director, and from June, 1997 to October, 1998,
Executive Vice President -- Administration and
since October 1998, President of Endeavor
Management Co.; since August, 1996, Chief
Financial Officer of VJM Corporation; from May,
1996 to January 1997, Executive Vice President and
Director of Sales, Western Division of Endeavor
Group; since May, 1996, Chief Financial Officer of
McGuinness & Associates; from July, 1993 to
August, 1995 Rocky Mountain Regional Marketing
Director for Endeavor Group; President, Chief
Financial Officer, and Trustee of Endeavor Series
Trust.
*Vincent J. McGuinness (64) Manager Chairman, Chief Executive Officer and Director
of McGuinness & Associates, Endeavor Group, VJM
Corporation (oil and gas), until July, 1996
McGuinness Group (insurance marketing) and
until January, 1994 Swift Energy Marketing
Company and since September, 1988 Endeavor
Management Co.; President of VJM Corporation
and until October, 1998, Endeavor Management
Co. and, since February, 1996, McGuinness &
Associates; Trustee, Endeavor Series Trust.
Timothy A. Devine (64) Manager Vice President, Plant Control, Inc. (landscape
1424 Dolphin Terrace contracting and maintenance); Trustee, Endeavor
Corona del Mar, California Series Trust.
92625
Thomas J. Hawekotte (64) Manager President, Thomas Hawekotte, P.C. (law
6007 North Sheridan Road practice); Trustee, Endeavor Series Trust.
Chicago, Illinois 60660
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Name, Age and Address Held With Registrant During Past 5 Years
---------------------- --------------------- -------------------
<S> <C> <C>
Steven L. Klosterman (47) Manager Since July, 1995, President of Klosterman
5973 Avenida Encinas, #300 Capital Corporation (investment adviser);
Carlsbad, California 92008 Investment Counselor, Robert J. Metcalf &
Associates, Inc. (investment adviser) from
August, 1990 to June, 1995; Trustee, Endeavor
Series Trust.
Halbert D. Lindquist (53) Manager President, Lindquist, Stephenson & White
1650 E. Fort Lowell Road (investment adviser) and since December, 1987
Suite 203 Tucson Asset Management Inc. (commodity trading
Tucson, Arizona 85719-2324 advisor), and since November, 1987, Presidio
Government Securities, Incorporated
(broker-dealer); since January 1998, Chief
Investment Officer, Blackstone Alternative
Asset Management, Trustee, Endeavor Series Trust.
Keith H. Wood (63) Manager Since 1972, Chairman and Chief Executive
Officer of Jamison, Eaton & Wood (investment
adviser) and since 1978 to December 1997,
President of Ivory & Sime International, Inc.
(investment adviser); Trustee, Endeavor Series
Trust.
Peter F. Muratore (67) Manager From June, 1989 to March 1998, President of OCC
Too Far Distributors (broker/dealer), a subsidiary of
Posthouse Road Oppenheimer Capital.
Morristown, NJ 07960
*William. L. Busler (56) Manager Vice President, AUSA Life Insurance Company,
4333 Edgewood Road N.E. Inc.; Trustee, Endeavor Series Trust.
Cedar Rapids, Iowa 52499-0001
Michael Pond (45) Executive Vice President - Since November 1, 1998, Executive Vice
Administration and President - Administrator and Compliance of
Compliance Endeavor Group and Endeavor Management Co. and
Chief Investment Officer of Endeavor Management
Co. From November, 1991 to November, 1996,
Chairman and President, the Preferred Group of
Mutual Funds; from October, 1989 to November,
1996, President of Caterpillar Securities, Inc.
and Caterpillar Investment Manager, Ltd.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Name, Age and Address Held With Registrant During Past 5 Years
---------------------- --------------------- -------------------
<S> <C> <C>
Pamela A. Shelton (50) Secretary Since October, 1993, Executive Secretary to
Chairman of the Board and Chief Executive
Officer of, and since April, 1996, Secretary of
McGuinness & Associates, Endeavor Group, VJM
Corporation, McGuinness Group (until July,
1996) and Endeavor Management Co.; Secretary,
Endeavor Series Trust.
</TABLE>
* An "interested person" of the target account as defined in the 1940 Act.
+ Vincent J. McGuinness, Jr. is the son of Vincent J. McGuinness.
The "rules and regulations" of the target account provide that the target
account will indemnify its Board of Managers and officers against liabilities
and expenses incurred in connection with litigation in which they may be
involved because of their offices with the target account, except if it is
determined in the manner specified in the rules and regulations that they have
not acted in good faith in the reasonable belief that their actions were in the
best interests of the target account or that such indemnification would relieve
any officer or member of the Board of Managers of any liability to the target
account or its shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of his duties. The target account, at its
expense, provides liability insurance for the benefit of its Board of Managers
and officers.
Compensation. For the period ended December 31, 1998, the following compensation
was paid to members of the Board of Managers:
<TABLE>
<CAPTION>
Aggregate Total Compensation
Compensation From Account and Fund
Name of Person From Account Complex Paid to Managers
- -------------- ------------ ------------------------
<S> <C> <C>
Vincent J. McGuinness.......................... -0- -0-
Timothy A. Devine.............................. $700.00 $13,075.00
Thomas J. Hawekotte............................ $700.00 $13,075.00
Steven L. Klosterman........................... $700.00 $13,075.00
Halbert D. Lindquist........................... $350.00 $8,225.00
R. Daniel Olmstead (retired as of 12/31/98)... $700.00 $13,075.00
Keith H. Wood.................................. $700.00 $13,075.00
Vincent J. McGuinness, Jr. .................... -0- -0-
William L. Busler.............................. -0- -0-
Peter F. Muratore $700.00 $6,700.00
</TABLE>
The Investment Advisory Services
First Trust Advisors L.P. (the "adviser") is the target account's investment
adviser. The adviser manages the assets of each target series subaccount,
consistent with the investment objective and policies described herein and in
the prospectus, pursuant to an investment advisory agreement (the "advisory
agreement") with Endeavor Management Co., the target account's manager.
The adviser's address is 1001 Warrenville Road, Lisle, Illinois 60532. First
Trust Advisers L.P. is a limited partnership with one limited partner, Grace
Partners of Dupage L.P., and one general partner, Nike Securities Corporation.
Grace Partners of Dupage L.P. is a limited partnership with one general partner,
Nike Securities Corporation, and a number of limited partners. Nike Securities
Corporation is an Illinois corporation controlled by Robert Donald Van Kampen.
Under the advisory agreement, the investment adviser provides each target series
subaccount with discretionary investment services. Specifically, the adviser is
responsible for supervising and directing the investments of each
23
<PAGE>
target series subaccount in accordance with each target series subaccount's
investment objective, program, and restrictions as provided in the prospectus
and this Statement of Additional Information. The investment adviser is also
responsible for effecting all security transactions on behalf of each target
series subaccount.
As compensation for its services, the adviser receives a fee of 0.35% of the
average daily net assets of each target series subaccount, which is paid by the
manager. Each target series subaccount's advisory agreement also provides that
the adviser, its directors, officers, employees, and certain other persons
performing specific functions for the target series subaccounts will only be
liable to the target series subaccount for losses resulting from willful
misfeasance, bad faith, gross negligence, or reckless disregard of duty. The
amount that Endeavor Management Co. paid to the adviser during 1998 was $0.
The adviser is also the portfolio supervisor of certain unit investment trusts
sponsored by Nike Securities L.P. ("Nike Securities") which are substantially
similar to the target series subaccounts in that they have the same investment
objectives as the target series subaccounts but have a life of approximately one
year. Nike Securities specializes in the underwriting, trading and distribution
of unit investment trusts and other securities. Nike Securities, an Illinois
limited partnership formed in 1991, acts as sponsor for successive series of The
First Trust Combined Series, The First Trust Special Situations Trust, the First
Trust Insured Corporate Trust, The First Trust of Insured Municipal Bonds and
the First Trust GNMA. First Trust introduced the first insured unit investment
trust in 1974 and to date more than $11 billion in First Trust unit investment
trusts have been deposited.
The Manager
The target account is managed by Endeavor Management Co. ("the manager") which,
subject to the supervision and direction of the target account's Board of
Managers, has overall responsibility for the general management and
administration of the target account. Vincent J. McGuinness, a member of the
Board of Managers of the target account, together with his family members and
trusts for the benefit of his family members, own all of Endeavor Management
Co.'s outstanding common stock. Mr. McGuinness is Chairman and Chief Executive
Officer of Endeavor Management Co.
The manager is responsible for providing investment management to the target
account and in the exercise of such responsibility selects an investment adviser
for each of the target series subaccounts (the "adviser") and monitors the
adviser's investment program and results, reviews brokerage matters, oversees
compliance by the target account with various federal and state statutes, and
carries out the directives of the Board of Managers. The manager is responsible
for providing the target account with office space, office equipment, and
personnel necessary to operate and administer the target account's business, and
also supervises the provision of services by third parties such as the target
account's custodian, transfer agent and administrator. Pursuant to an
administration agreement, First Data Investor Services Group, Inc. assists the
manager in the performance of its administrative responsibilities to the target
account. For its administrative responsibilities, the target account pays First
Data Investor Services Group a fee of $10,000 per annum per subaccount and any
out-of-pocket fees of the expenses.
As compensation for its services, the manager receives a fee equal to 0.75% of
the average daily net assets of each target series subaccount. The amount that
the target account paid the manager during 1998 was $0.
Operating Expenses
In addition to the management fees, the target account pays all expenses not
assumed by the manager, including, without limitation, expenses for legal,
accounting and auditing services, interest, taxes, costs of printing and
distributing reports to shareholders, proxy materials and prospectuses, charges
of its custodian, transfer agent and dividend disbursing agent, registration
fees, fees and expenses of the Board of Managers who are not affiliated persons
of the manager or an adviser, insurance, brokerage costs, litigation, and other
extraordinary or nonrecurring expenses. All general target account expenses are
allocated among and charged to the assets of the target series subaccounts on a
basis that the Board of Managers deems fair and equitable, which may be on the
basis of relative net assets of each target series subaccount or the nature of
the services performed and relative applicability to each target series
subaccount. The manager has agreed to limit each target series subaccount's
management fee and operating expenses during its first year of operations to an
annual rate of 1.30% of the target series subaccount's
24
<PAGE>
average net assets. (This limit does not include other fees and deductions such
as the mortality and expense risk fee, and administrative charge.)
Transfer Agent and Custodian
Boston Safe Deposit and Trust Company holds all cash and securities of each
target series subaccount as custodian. First Data Investor Services Group,
located at 4400 Computer Drive, Westborough, Massachusetts 01581, serves as
transfer agent for the target account.
Brokerage Allocation
The adviser invests all assets of the target series subaccounts in common stock
and incurs brokerage costs in connection therewith.
Allocations of transactions by the target series subaccounts, including their
frequency, to various dealers is determined by the adviser in its best judgment
and in a manner deemed to be in the best interest of the investors in the target
series subaccount rather than by any formula. The primary consideration is
prompt execution of orders in an effective manner at the most favorable price.
Purchases and sales of securities may be principal transactions; that is,
securities may be purchased directly from the issuer or from an underwriter or
market maker for the securities. Any transactions for which the target series
subaccounts pays a brokerage commission will be effected at the best price and
execution available. Purchases from underwriters of securities include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers serving as market makers include the spread between the bid and the
asked price. Brokerage may be allocated based on the sale of policies by dealers
or activities in support of sales of the policies. The target account has
adopted a Brokerage Enhancement Plan, whereby all or a portion of certain
brokerage commissions paid by the target series subaccounts may be allocated or
credited to the distributor or other entities marketing the policies, to help
finance sales activities.
The target account did not pay compensation to any affiliated broker of Endeavor
Management Co. or First Trust Advisors L.P. during 1998.
Investment Restrictions
Fundamental policies of the target series subaccounts may not be changed without
the approval of the lesser of (1) 67% of the persons holding voting interests
(generally owners) present at a meeting if the holders of more than 50% are
present in person or by proxy or (2) more than 50% of the persons holding voting
interests. Other restrictions, in the form of operating policies, are subject to
change by the Board of Managers without the approval of persons holding a voting
interest. Any investment restriction which involves a maximum percentage of
securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after, and is caused by, an acquisition
of securities or assets of, or borrowings by, a target subaccount.
Fundamental Policies
As a matter of fundamental policy, each target series subaccount may not:
(1) Borrowing. Borrow money, except each target series subaccount may
borrow as a temporary measure for extraordinary or emergency purposes, and
then only in amounts not exceeding 30% of its total assets valued at
market. Each target series subaccount will not borrow in order to increase
income (leveraging), but only to facilitate redemption requests which might
otherwise require untimely investment liquidations;
(2) Loans. Make loans, although the target series subaccounts may purchase
money market securities and enter into repurchase agreements; and they may
lend their common shares.
(3) Margin. Purchase securities on margin;
(4) Mortgaging. Mortgage, pledge, hypothecate or, in any manner, transfer
any security owned by the target series subaccounts as security for
indebtedness except as may be necessary in connection with permissible
25
<PAGE>
borrowings, in which event such mortgaging, pledging, or hypothecating may
not exceed 30% of each target series subaccount's total assets, valued at
market;
(5) Real Estate. Purchase or sell real estate;
(6) Senior Securities. Issue senior securities (except permitted
borrowings);
(7) Short Sales. Effect short sales of securities; or
(8) Underwriting. Underwrite securities issued by other persons, except to
the extent the target series subaccounts may be deemed to be underwriters
within the meaning of the Securities Act of 1933 in connection with the
purchase and sale of their portfolio securities in the ordinary course of
pursuing their investment programs.
In addition, as a matter of fundamental policy, each target series subaccount
may engage in futures and options transactions and hold warrants.
The investment objective of each target series subaccount is also a fundamental
policy and may not be changed without the necessary approval described above.
Operating Policies
As a matter of operating policy, each target series subaccount may not:
(1) Control of Companies. Invest in companies for the purpose of exercising
management or control;
(2) Illiquid Securities. Purchase a security if, as a result of such
purchase, more than 15% of the value of each target series subaccount's net
assets would be invested in illiquid securities or other securities that
are not readily marketable.
(3) Oil and Gas Programs. Purchase participations or other direct interests
or enter into leases with respect to, oil, gas, other mineral exploration
or development program.
Options and Futures Strategies
A subaccount may at times seek to hedge against either a decline in the value of
its portfolio securities or an increase in the price of securities which the
adviser plans to purchase through the writing and purchase of options and the
purchase or sale of future contracts and related options. Expenses and losses
incurred as a result of such hedging strategies will reduce a subaccount's
current return.
The ability of a subaccount to engage in the options and futures strategies
described below will depend on the availability of liquid markets in such
instruments. It is impossible to predict the amount of trading interest that may
exist in various types of options or futures. Therefore no assurance can be
given that a subaccount will be able to utilize these instruments effectively
for the purposes stated below.
Writing Covered Options on Securities. A subaccount may write covered call
options and covered put options on optionable securities of the types in which
it is permitted to invest from time to time as the adviser determines is
appropriate in seeking to attain the subaccount's investment objective. Call
options written by a subaccount give the holder the right to buy the underlying
security from the subaccount at a stated exercise price; put options give the
holder the right to sell the underlying security to the subaccount at a stated
price.
A subaccount may only write call options on a covered basis or for cross-hedging
purposes and will only write covered put options. A put option would be
considered "covered" if the subaccount owns an option to sell the underlying
security subject to the option having an exercise price equal to or greater than
the exercise price of the "covered" option at all times while the put option is
outstanding. A call option is covered if the subaccount owns or has the right to
acquire the underlying securities subject to the call option (or comparable
securities satisfying the
26
<PAGE>
cover requirements of securities exchanges) at all times during the option
period. A call option is for cross-hedging purposes if it is not covered, but is
designed to provide a hedge against another security which the subaccount owns
or has the right to acquire. In the case of a call written for cross-hedging
purposes or a put option, the subaccount will maintain in a segregated account
at the subaccount's custodian bank cash or short-term U.S. government securities
with a value equal to or greater than the subaccount's obligation under the
option. A subaccount may also write combinations of covered puts and covered
calls on the same underlying security.
A subaccount will receive a premium from writing an option, which increases the
subaccount's return in the event the option expires unexercised or is terminated
at a profit. The amount of the premium will reflect, among other things, the
relationship of the market price of the underlying security to the exercise
price of the option, the term of the option, and the volatility of the market
price of the underlying security. By writing a call option, a subaccount will
limit its opportunity to profit from any increase in the market value of the
underlying security above the exercise price of the option. By writing a put
option, a subaccount will assume the risk that it may be required to purchase
the underlying security for an exercise price higher than its then current
market price, resulting in a potential capital loss if the purchase price
exceeds the market price plus the amount of the premium received.
A subaccount may terminate an option, which it has written prior to its
expiration, by entering into a closing purchase transaction in which it
purchases an option having the same terms as the option written. The subaccount
will realize a profit (or loss) from such transaction if the cost of such
transaction is less (or more) than the premium received from the writing of the
option. Because increases in the market price of a call option will generally
reflect increases in the market price of the underlying security, any loss
resulting from the repurchase of a call option may be offset in whole or in part
by unrealized appreciation of the underlying security owned by the subaccount.
Purchasing Put and Call Options on Securities. A subaccount may purchase put
options to protect its portfolio holdings in an underlying security against a
decline in market value. This protection is provided during the life of the put
option since the subaccount, as holder of the put, is able to sell the
underlying security at the exercise price regardless of any decline in the
underlying security's market price. For the purchase of a put option to be
profitable, the market price of the underlying security must decline
sufficiently below the exercise price to cover the premium and transaction
costs. By using put options in this manner, any profit which the subaccount
might otherwise have realized on the underlying security will be reduced by the
premium paid for the put option and by transaction costs.
A subaccount may also purchase a call option to hedge against an increase in
price of a security that it intends to purchase. This protection is provided
during the life of the call option since the subaccount, as holder of the call,
is able to buy the underlying security at the exercise price regardless of any
increase in the underlying security's market price. For the purchase of a call
option to be profitable, the market price of the underlying security must rise
sufficiently above the exercise price to cover the premium and transaction
costs. By using call options in this matter, any profit which the subaccount
might have realized had it brought the underlying security at the time it
purchased the call option will be reduced by the premium paid for the call
option and by transaction costs.
No subaccount intends to purchase put or call options if, as a result of any
such transaction, the aggregate cost of options held by the subaccount at the
time of such transaction would exceed 5% of its total assets.
Limitations. A subaccount will not purchase or sell futures contracts or options
on futures contracts for non-hedging purposes if, as a result, the sum of the
initial margin deposits on its existing futures contracts and related options
positions and premiums paid for options on futures contracts would exceed 5% of
the net assets of the subaccount unless the transaction meets certain "bona fide
hedging" criteria.
Risks of Options and Futures Strategies. The effective use of options and
futures strategies depends, among other things, on a subaccount's ability to
terminate options and futures positions at times when the adviser deems it
desirable to do so. Although a subaccount will not enter into an option or
futures position unless the adviser believes that a liquid market exists for
such option or future, there can be no assurance that a subaccount will be able
to effect closing transactions at any particular time or at an acceptable price.
The adviser generally expects that options and futures transactions for the
subaccounts will be conducted on recognized exchanges. In certain instances,
however, a subaccount may purchase and sell options in the over-the-counter
market. The staff of the SEC considers over-the-counter options to be illiquid.
A subaccount's ability to terminate option positions established in the
over-the-
27
<PAGE>
counter market may be more limited than in the case of exchange traded options
and may also involve the risk that securities dealers participating in such
transactions would fail to meet their obligations to the subaccount.
The use of options and futures involves the risk of imperfect correlation
between movements in options and futures prices and movements in the price of
the securities that are the subject of the hedge. The successful use of these
strategies also depends on the ability of the subaccounts' adviser to forecast
correctly interest rate movements and general stock market price movements. The
risk increases as the composition of the securities held by the subaccount
diverges from the composition of the relevant option or futures contract.
Securities Lending
Each target series subaccount may also lend common shares to broker-dealers and
financial institutions to realize additional income. As an operating policy, the
target series subaccounts will not lend common shares or other assets, if as a
result, more than 33% of each subaccount's total assets would be lent to other
parties. Under applicable regulatory requirements (which are subject to change),
the following conditions apply to securities loans: (a) the loan must be
continuously secured by liquid assets maintained on a current basis in an amount
at least equal to the market value of the securities loaned; (b) each target
series subaccount must receive any dividends or interest paid by the issuer on
such securities; (c) each target series subaccount must have the right to call
the loan and obtain the securities loaned at any time upon notice of not more
than five business days, including the right to call the loan to permit voting
of the securities; and (d) each target series subaccount must receive either
interest from the investment of collateral or a fixed fee from the borrower.
Securities loaned by a target series subaccount remain subject to fluctuations
in market value. A target series subaccount may pay reasonable finders,
custodian and administrative fees in connection with a loan. Securities lending,
as with other extensions of credit, involves the risk that the borrower may
default. Although securities loans will be fully collateralized at all times, a
target series subaccount may experience delays in, or be prevented from,
recovering the collateral. During the period that the target series subaccount
seeks to enforce its rights against the borrower, the collateral and the
securities loaned remain subject to fluctuations in market value. The target
series subaccount do not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if it were considered important
with respect to the investment. A target series subaccount may also incur
expenses in enforcing its rights. If a target series subaccount has sold a
loaned security, it may not be able to settle the sale of the security and may
incur potential liability to the buyer of the security on loan for its costs to
cover the purchase.
Tax Limitation
Section 817(h) of the Code provides that in order for a variable contract which
is based on a segregated asset account to qualify as an annuity contract under
the Code, the investments made by such account must be "adequately diversified"
in accordance with Treasury regulations. The Treasury regulations issued under
Section 817(h) (Treas. Reg.ss.1.817-5) apply a diversification requirement to
each of the subaccounts of the target account. To qualify as "adequately
diversified," each subaccount may have:
. No more than 55% of the value of its total assets represented by any one
investment;
. No more than 70% of the value of its total assets represented by any two
investments;
. No more than 80% of the value of its total assets represented by any three
investments; and
. No more than 90% of the value of its total assets represented by any four
investments.
The target account, through the target series subaccounts, intends to comply
with the section 817(h) diversification requirements. AUSA Life has entered into
an agreement with the manager, who in turn, has entered into a contract with the
adviser, that requires the target series subaccounts be operated in compliance
with Treasury regulations. Therefore, each target series subaccount may deviate
from its stated strategy to the extent necessary to comply with these
requirements.
PUBLISHED RATINGS
AUSA Life may from time to time publish in advertisements, sales literature and
reports to owners, the ratings and other information assigned to it by one or
more independent rating organizations such as A.M. Best Company, Standard &
Poor's Insurance Ratings Services, Moody's Investors Service and Duff & Phelps
Credit Rating Co. The
28
<PAGE>
purpose of the ratings is to reflect the financial strength and/or claims-paying
ability of AUSA Life. The ratings should not be considered as bearing on the
investment performance of assets held in the mutual fund account or the target
account or of the safety or riskiness of an investment in the mutual fund
account or target account. Each year the A.M. Best Company reviews the financial
status of thousands of insurers, culminating in the assignment of Best's
Ratings. These ratings reflect their current opinion of the relative financial
strength and operating performance of an insurance company in comparison to the
norms of the life/health insurance industry. In addition, the claims-paying
ability of AUSA Life as measured by Standard & Poor's Insurance Ratings
Services, Moody's Investors Service or Duff & Phelps Credit Rating Co. may be
referred to in advertisements or sales literature or in reports to owners. These
ratings are opinions of an operating insurance company's financial capacity to
meet the obligations of its insurance policies in accordance with their terms.
Claims-paying ability ratings do not refer to an insurer's ability to meet
non-policy obligations (i.e., debt/commercial paper).
STATE REGULATION OF AUSA LIFE
AUSA Life is subject to the laws of New York governing insurance companies and
to regulation by the New York Department of Insurance. An annual statement in a
prescribed form is filed with the Department of Insurance each year covering the
operation of AUSA Life for the preceding year and its financial condition as of
the end of such year. Regulation by the Department of Insurance includes
periodic examination to determine AUSA Life's contract liabilities and reserves
so that the Department may determine the items are correct. AUSA Life's books
and accounts are subject to review by the Department of Insurance at all times
and a full examination of its operations is conducted periodically by the
National Association of Insurance Commissioners. In addition, AUSA Life is
subject to regulation under the insurance laws of other jurisdictions in which
it may operate.
RECORDS AND REPORTS
All records and accounts relating to the mutual fund account and the target
account will be maintained by AUSA Life. As presently required by the Investment
Company Act of 1940 and regulations promulgated thereunder, AUSA Life will mail
to all owners at their last known address of record, at least annually, reports
containing such information as may be required under that Act or by any other
applicable law or regulation. Owners will also receive confirmation of each
financial transaction and any other reports required by law or regulation.
DISTRIBUTION OF THE POLICIES
The policies are offered to the public through brokers licensed under the
federal securities laws and state insurance laws. The offering of the policies
is continuous and AUSA Life does not anticipate discontinuing the offering of
the policies. However, AUSA Life reserves the right to discontinue the offering
of the policies.
AFSG Securities Corporation, is the principal underwriter of the policies. AFSG
Securities Corporation will enter into agreements with broker-dealers for the
distribution of the policies. Prior to May 1, 1998, AEGON USA Securities, Inc.
was the principal underwriter. During 1998, the amount paid to AEGON USA
Securities, Inc. and/or broker-dealers for their services was $412,538.27.
Amount paid for these services in 1997 and 1996 were $1,430,319.48 and
$1,115,508, respectively. During 1998 the amount paid to AFSG Securities
Corporation was $202,758.60.
The target account has adopted a distribution plan in accordance with Rule 12b-1
under the 1940 Act for the distribution expenses (the "distribution plan"). The
distribution plan has been approved by a majority of the disinterested members
of the Board of Managers of the target account. The distribution plan is
designed to partially compensate AUSA Life for the cost of distributing the
policies. Charges under the distribution plan will be used to support marketing
efforts, training of representatives and reimbursement of expenses incurred by
broker/dealers who sell the policies, and will be based on a percentage of the
daily net assets of the target account. The distribution plan may be terminated
at any time by a vote of a majority of the disinterested members of the target
account's Board of Managers, or by a vote of the majority of its outstanding
shares.
29
<PAGE>
VOTING RIGHTS
The Mutual Fund Account
To the extent required by law, AUSA Life will vote the underlying funds' shares
held by the mutual fund account at regular and special shareholder meetings of
the underlying funds in accordance with instructions received from persons
having voting interests in the portfolios, although Endeavor Series Trust does
not hold regular annual shareholder meetings. If, however, the 1940 Act or any
regulation thereunder should be amended or if the present interpretation thereof
should change, and as a result AUSA Life determines that it is permitted to vote
the Endeavor Series Trust shares in its own right, it may elect to do so.
Before the annuity commencement date, you hold the voting interest in the
selected portfolios. The number of votes that you have the right to instruct
will be calculated separately for each subaccount. The number of votes that you
have the right to instruct for a particular subaccount will be determined by
dividing your policy value in the subaccount by the net asset value per share of
the corresponding portfolio in which the subaccount invests. Fractional shares
will be counted.
After the annuity commencement date, the person receiving annuity payments has
the voting interest, and the number of votes decreases as annuity payments are
made and as the reserves for the policy decrease. The person's number of votes
will be determined by dividing the reserve for the policy allocated to the
applicable subaccount by the net asset value per share of the corresponding
portfolio. Fractional shares will be counted.
The number of votes that you or the person receiving income payments has the
right to instruct will be determined as of the date established by the
underlying fund for determining shareholders eligible to vote at the meeting of
the underlying fund. AUSA Life will solicit voting instructions by sending you,
or other persons entitled to vote, written requests for instructions prior to
that meeting in accordance with procedures established by the underlying fund.
Portfolio shares as to which no timely instructions are received and shares held
by AUSA Life in which you, or other persons entitled to vote, have no beneficial
interest will be voted in proportion to the voting instructions that are
received with respect to all policies participating in the same subaccount.
Each person having a voting interest in a subaccount will receive proxy
material, reports, and other materials relating to the appropriate portfolio.
The Target Account
The target account is the legal owner of the common stock held in the
subaccounts and as such has the right to vote upon any matter that may be voted
by shareholders. However, you or persons receiving income payments may vote on
certain aspects of the governance of the subaccounts. Matters on which persons
holding voting interests may vote include the following: (1) approval of any
change in the investment advisory agreement corresponding to a subaccount; (2)
any change in the fundamental investment policies of a subaccount; or (3) any
other matter requiring a vote of persons holding voting interests in the
subaccount. With respect to approval of the investment advisory agreements or
any change in a fundamental investment policy, owners participating in that
subaccount will vote separately on the matter pursuant to the requirements of
Rule 18f-2 under the 1940 Act.
Before the annuity commencement date, you hold the voting interest in the
selected subaccounts. The number of votes that you have will be calculated
separately for each subaccount. The number of votes that you have for a
subaccount will be determined by dividing your policy value in the subaccount
into the total assets of the subaccount and multiplying this by the total number
of votes.
After the annuity commencement date, the person receiving annuity payments has
the voting interest, and the number of votes decreases as annuity payments are
made and as the reserves for the policy decrease. The person's number of votes
will be determined by dividing the reserve for the policy allocated to the
applicable subaccount into the total assets of the subaccount and multiplying
this by the total number of votes.
AUSA Life does not intend to hold annual or other periodic meetings of owners.
AUSA Life will solicit proxies by sending you or other persons entitled to vote
written requests for proxies prior to the vote. Where timely proxies are
30
<PAGE>
not received, the voting interests will be voted in proportion to the proxies
that are received with respect to all policies participating in the same
subaccount.
AUSA Life may, if required by state insurance officials, disregard proxies which
would require voting to cause a change in the subclassification or investment
objectives or policies of one or more of the subaccounts, or to approve or
disapprove an investment adviser or principal underwriter for one or more of the
subaccounts. In addition, AUSA Life may disregard proxies that would require
changes in the investment objectives or policies of any subaccount or in an
investment adviser or principal underwriter, if AUSA Life reasonably disapproves
those changes in accordance with applicable federal regulations. If AUSA Life
disregards proxies, it will advise those persons who may give proxies of that
action and its reasons for the action in the next semiannual report.
OTHER PRODUCTS
AUSA Life makes other variable annuity policies available that may also be
funded through the mutual fund account and/or the target account. These variable
annuity policies may have different features, such as different investment
options or charges.
CUSTODY OF ASSETS
The assets of each of the mutual fund subaccounts and the target series
subaccounts are held by AUSA Life. The assets of each of the subaccounts are
segregated and held separate and apart from the assets of the other subaccounts
and from AUSA Life's general account assets. AUSA Life maintains records of all
purchases and redemptions of shares of the underlying portfolios held by each of
the mutual fund subaccounts, and of all purchases and sales of common stock held
by each of the target series subaccounts. Additional protection for the assets
of the mutual fund account and the target account is afforded by AUSA Life's
fidelity bond, presently in the amount of $5,000,000, covering the acts of
officers and employees of AUSA Life.
LEGAL MATTERS
Legal advice relating to certain matters under the federal securities laws
applicable to the issue and sale of the policies has been provided to AUSA Life
by Sutherland Asbill & Brennan LLP, of Washington D.C.
INDEPENDENT AUDITORS
The Financial Statements of AUSA Life, at December 31, 1998 and 1997, and for
each of the three years in the period ended December 31, 1998, and the Financial
Statements of AUSA Endeavor Variable Annuity Account at December 31, 1998, and
for each of the two years in the period then ended, included in this Statement
of Additional Information have been audited by Ernst & Young LLP, Independent
Auditors, 801 Grand Avenue, Suite 3400, Des Moines, Iowa, 50309-2764.
There are no financial statements of the target account because it had not
commenced operations as of the date of this prospectus.
OTHER INFORMATION
A registration statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933 as amended, with respect to the
policies discussed in this Statement of Additional Information. Not all of the
information set forth in the Registration Statement, amendments and exhibits
thereto has been included in the prospectus or this Statement of Additional
Information. Statements contained in the prospectus and this Statement of
Additional Information concerning the content of the policies and other legal
instruments are intended to be summaries. For a complete statement of the terms
of these documents, reference should be made to the instruments filed with the
Securities and Exchange Commission.
31
<PAGE>
FINANCIAL STATEMENTS
The values of the interest of owners in the mutual fund account or the target
account will be affected solely by the investment results of the selected
subaccount(s). Financial statements for the AUSA Endeavor Variable Annuity
Account are contained herein. The Financial Statements of AUSA Life, which are
included in this Statement of Additional Information, should be considered only
as bearing on the ability of AUSA Life to meet its obligations under the
policies. They should not be considered as bearing on the investment performance
of the assets held in the mutual fund account or the target account.
32
<PAGE>
Financial Statements - Statutory Basis
Ausa Life Insurance Company, Inc.
Years ended December 31, 1998, 1997 and 1996
with Report of Independent Auditors
<PAGE>
AUSA Life Insurance Company, Inc.
Financial Statements - Statutory Basis
Years ended December 31, 1998, 1997 and 1996
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors...............................................1
Audited Financial Statements
Balance Sheets - Statutory Basis.............................................2
Statements of Operations - Statutory Basis...................................4
Statements of Changes in Capital and Surplus - Statutory Basis...............5
Statements of Cash Flows - Statutory Basis...................................6
Notes to Financial Statements - Statutory Basis..............................7
</TABLE>
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP]
Report of Independent Auditors
The Board of Directors
AUSA Life Insurance Company, Inc.
We have audited the accompanying statutory-basis balance sheets of AUSA Life
Insurance Company, Inc. as of December 31, 1998 and 1997 and the related
statutory-basis statements of operations, changes in capital and surplus, and
cash flows for each of the three years in the period ended December 31, 1998.
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.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Department of Insurance of the State of New York, which
practices differ from generally accepted accounting principles. The variances
between such practices and generally accepted accounting principles also are
described in Note 1. The effects on the financial statements of these variances
are not reasonably determinable but are presumed to be material.
In our opinion, because of the effects of the matters described in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of AUSA Life Insurance Company, Inc. at December 31, 1998 and 1997, or the
results of its operations or its cash flows for each of the three years in the
period ended December 31, 1998.
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of AUSA Life Insurance
Company, Inc. at December 31, 1998 and 1997, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1998 in conformity with accounting practices prescribed or permitted by the
Department of Insurance of the State of New York.
Ernst & Young LLP
Des Moines, Iowa
February 19, 1999
1
<PAGE>
AUSA Life Insurance Company, Inc.
Balance Sheets - Statutory Basis
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
----------------------------
<S> <C> <C>
ADMITTED ASSETS
Cash and invested assets:
Cash and short-term investments $ 61,065 $ 68,131
Bonds 4,151,780 3,988,635
Stocks:
Preferred 2,582 1,792
Common, at market (cost: $14 in 1998 and
$118 in 1997) 2 144
Mortgage loans on real estate 413,107 495,009
Real estate acquired in satisfaction of debt, at cost
less accumulated depreciation ($2,474 in 1998 and
$1,816 in 1997) 33,986 45,695
Policy loans 3,181 3,046
Other invested assets 30,795 22,414
----------------------------
Total cash and invested assets 4,696,498 4,624,866
Short-term note receivable from affiliate 10,400 8,800
Receivable from affiliates 14,731 794
Premiums deferred and uncollected 6,408 6,316
Accrued investment income 64,859 69,989
Federal income taxes recoverable 527 -
Other assets 12,567 7,609
Separate account assets 6,517,152 5,630,093
----------------------------
Total admitted assets $11,323,142 $10,348,467
============================
</TABLE>
See accompanying notes.
2
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
----------------------------
<S> <C> <C>
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate reserves for policies and contracts:
Life $ 109,132 $ 103,370
Annuity 868,294 911,075
Accident and health 16,416 16,547
Policy and contract claim reserves:
Life 4,927 5,456
Accident and health 10,302 11,125
Other policyholders' funds 3,267,417 3,181,719
Remittances and items not allocated 58,724 35,267
Asset valuation reserve 84,077 67,324
Interest maintenance reserve 37,253 25,882
Payable to affiliates - 2,247
Deferred income 5,230 13,421
Payable under assumption reinsurance agreement 52,837 56,952
Other liabilities 7,422 8,400
Federal income taxes payable - 1,010
Separate account liabilities 6,497,865 5,608,364
----------------------------
Total liabilities 11,019,896 10,048,159
Commitments and contingencies
Capital and surplus:
Common stock, $125 par value, 20,000 shares authorized,
issued and outstanding 2,500 2,500
Paid-in surplus 319,180 319,180
Special surplus funds 1,827 1,607
Unassigned surplus (deficit) (20,261) (22,979)
----------------------------
Total capital and surplus 303,246 300,308
----------------------------
Total liabilities and capital and surplus $11,323,142 $10,348,467
============================
</TABLE>
See accompanying notes.
3
<PAGE>
AUSA Life Insurance Company, Inc.
Statements of Operations - Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
------------------------------------------------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net of
reinsurance:
Life $ 22,664 $ 71,899 $ 21,120
Annuity 1,132,120 1,199,470 1,092,033
Accident and health 32,869 39,999 52,831
Net investment income 345,660 341,540 339,460
Amortization of interest maintenance reserve 6,116 3,392 2,326
Commissions and expense allowances on
reinsurance ceded 302 374 438
Other income - 17,240 10,739
------------------------------------------------
1,539,731 1,673,914 1,518,947
Benefits and expenses:
Benefits paid or provided for:
Life and accident and health benefits 32,464 39,045 50,647
Surrender benefits 1,117,653 1,175,051 864,643
Other benefits 20,886 14,316 11,699
Increase (decrease) in aggregate reserves for
policies and contracts:
Life 5,762 52,500 2,492
Annuity (42,781) 65,982 53,136
Accident and health (131) (1,357) (1,063)
Other (67) 580 609
Increase in liability for premium and other
deposit type funds 85,461 92,280 93,893
------------------------------------------------
1,219,247 1,438,397 1,076,056
Insurance expenses:
Commissions 69,009 79,099 87,938
General insurance expenses 95,169 92,613 83,885
Taxes, licenses and fees 1,466 3,717 3,335
Net transfers to separate accounts 130,910 42,490 255,672
Other expenses 978 181 145
------------------------------------------------
297,532 218,100 430,975
------------------------------------------------
1,516,779 1,656,497 1,507,031
------------------------------------------------
Gain from operations before federal income tax
expense and net realized capital gains 22,952 17,417 11,916
(losses) on investments
Federal income tax expense 4,021 5,247 5,719
------------------------------------------------
Gain from operations before net realized
capital gains (losses) on investments 18,931 12,170 6,197
Net realized capital gains (losses) on
investments (net of related federal income
taxes and amounts transferred to interest
maintenance reserve) 3,770 831 (12,107)
------------------------------------------------
Net income (loss) $ 22,701 $ 13,001 $ (5,910)
================================================
</TABLE>
See accompanying notes.
4
<PAGE>
AUSA Life Insurance Company, Inc.
Statements of Changes in Capital and
Surplus - Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
SPECIAL UNASSIGNED TOTAL
COMMON PAID-IN SURPLUS SURPLUS CAPITAL AND
STOCK SURPLUS FUNDS (DEFICIT) SURPLUS
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $2,500 $319,180 $1,357 $ 5,217 $328,254
Net loss - - - (5,910) (5,910)
Change in net unrealized capital gains - - - (460) (460)
(losses)
Change in non-admitted assets - - - 437 437
Change in special surplus funds - - 116 - 116
Change in liability for reinsurance in
unauthorized companies - - - (42) (42)
Change in asset valuation reserve - - - (6,217) (6,217)
Seed money contributed to separate
account, net of redemptions - - - (12,500) (12,500)
Change in surplus in separate account - - - 14,783 14,783
Prior year federal income tax adjustment - - - 446 446
----------------------------------------------------------------------
Balance at December 31, 1996 2,500 319,180 1,473 (4,246) 318,907
Net income - - - 13,001 13,001
Change in net unrealized capital gains - - - (2,710) (2,710)
(losses)
Change in non-admitted assets - - - (8,617) (8,617)
Change in special surplus funds - - 134 - 134
Change in liability for reinsurance in
unauthorized companies - - - 29 29
Change in asset valuation reserve - - - (20,446) (20,446)
Seed money withdrawn from separate
account, net of redemptions - - - 11,700 11,700
Change in surplus in separate account - - - (11,749) (11,749)
Prior year federal income tax adjustment - - - 59 59
----------------------------------------------------------------------
Balance at December 31, 1997 2,500 319,180 1,607 (22,979) 300,308
Net income - - - 22,701 22,701
Change in net unrealized capital gains - - - 4,439 4,439
(losses)
Change in non-admitted assets - - - (511) (511)
Change in special surplus funds - - 220 - 220
Change in liability for reinsurance in
unauthorized companies - - - 18 18
Change in asset valuation reserve - - - (16,753) (16,753)
Seed money withdrawn from separate
account, net of redemptions - - - 1,818 1,818
Change in surplus in separate account - - - (994) (994)
Dividend to stockholder - - - (8,000) (8,000)
Balance at December 31, 1998 $2,500 $319,180 $1,827 $(20,261) $303,246
======================================================================
</TABLE>
See accompanying notes.
5
<PAGE>
AUSA Life Insurance Company, Inc.
Statements of Cash Flows - Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
--------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Premiums and other considerations, net of reinsurance $ 1,191,035 $ 1,340,757 $ 1,177,613
Net investment income 353,054 340,150 345,153
Life and accident and health claims (33,979) (40,151) (52,590)
Surrender benefits and other fund withdrawals (1,117,653) (1,175,051) (864,643)
Other benefits to policyholders (20,876) (14,290) (11,697)
Commissions, other expenses and other taxes (169,784) (184,457) (193,405)
Net transfers to separate account (130,976) (43,309) (257,467)
Federal income taxes paid (5,558) (4,704) (4,490)
Other, net (3,806) (3,744) (14,431)
--------------------------------------------------
Net cash provided by operating activities 61,457 215,201 124,043
INVESTING ACTIVITIES
Proceeds from investments sold, matured or repaid:
Bonds and preferred stocks 1,381,784 968,184 777,107
Common stocks 164 - 5,288
Mortgage loans on real estate 138,723 179,810 165,460
Real estate 22,067 25,104 -
Policy loans - 16 4
Other (21) - -
--------------------------------------------------
1,542,717 1,173,114 947,859
Cost of investments acquired:
Bonds and preferred stocks (1,554,838) (1,260,122) (1,101,918)
Common stocks - (103) (589)
Mortgage loans on real estate (51,862) (60,722) (42,118)
Real estate (561) - (521)
Policy loans (135) (146) (153)
Other 5,756 (17,805) (2,695)
--------------------------------------------------
(1,601,640) (1,338,898) (1,147,994)
--------------------------------------------------
Net cash used in investing activities (58,923) (165,784) (200,135)
FINANCING ACTIVITIES
Payment of intercompany notes, net (1,600) (9,400) (19,200)
Dividends to stockholders (8,000) - -
--------------------------------------------------
Net cash used in financing activities (9,600) (9,400) (19,200)
--------------------------------------------------
Increase (decrease) in cash and short-term investments (7,066) 40,017 (95,292)
Cash and short-term investments at beginning of year 68,131 28,114 123,406
--------------------------------------------------
Cash and short-term investments at end of year $ 61,065 $ 68,131 $ 28,114
==================================================
</TABLE>
See accompanying notes.
6
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis
(Dollars in thousands)
December 31, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
AUSA Life Insurance Company, Inc. ("the Company") is a stock life insurance
company and is 82 percent owned by First AUSA Life Insurance Company ("First
AUSA"), a wholly-owned subsidiary of AEGON USA, Inc. ("AEGON"), and 18 percent
owned by Veterans Life Insurance Company, an indirect wholly-owned subsidiary of
AEGON. AEGON is a wholly-owned subsidiary of AEGON N.V., a holding company
organized under the laws of The Netherlands. Effective September 24, 1993, First
AUSA purchased from The Dreyfus Corporation ("Dreyfus"), its entire interest in
Dreyfus Life Insurance Company and subsequently changed the name to AUSA Life
Insurance Company, Inc. On December 31, 1993, the Company entered into an
assumption reinsurance agreement with Mutual of New York ("MONY") to transfer
certain group pension business of MONY to the Company.
In July 1996, the Company completed a merger with International Life Investors
Insurance Company ("ILI"), a wholly-owned subsidiary of Life Investors Insurance
Company of America, another wholly-owned subsidiary of First AUSA, whereby ILI
was merged directly into the Company. The Company received assets of $688,233
and liabilities of $635,189. The difference between assets and liabilities was
transferred directly to capital and surplus. In accordance with National
Association of Insurance Commissioners ("NAIC") statutory accounting principles,
all prior period financial statements presented have been restated as if the
merger took place at the beginning of such periods. Historical book values
carried over from the separate companies to the combined entity.
On October 1, 1998, the Company completed a merger with First Providian Life and
Health Insurance Company ("FPLH"), an indirect wholly-owned subsidiary of
Commonwealth General Corporation which, in turn, is an indirect wholly-owned
subsidiary of AEGON, whereby FPLH was merged directly into the Company. The
accompanying financial statements give retroactive effect as if the merger had
occurred on January 1, 1996 in conformity with the practices of the NAIC and
accounting practices prescribed or permitted by the Department of Insurance of
the State of New York. This merger was accounted for under the pooling of
interests method of accounting and, accordingly, the historical book values
carried over from the separate companies to the Company.
7
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Summarized financial information for the Company and FPLH prior to the merger
are as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
SEPTEMBER 30 YEAR ENDED DECEMBER 31
--------------------------------
1998 1997 1996
------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
The Company $1,155,265 $1,585,260 $1,454,207
FPLH 75,929 88,654 64,740
------------------------------------------------
As restated $1,231,194 $1,673,914 $1,518,947
================================================
Net income (loss):
The Company $ 3,944 $ 3,503 $ (13,714)
FPLH 6,911 9,498 7,804
------------------------------------------------
As restated $ 10,855 $ 13,001 $ (5,910)
================================================
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1998 1997
-----------------------------------
(UNAUDITED)
<S> <C> <C>
Assets:
The Company $10,411,596 $ 9,951,625
FPLH 445,873 396,842
-----------------------------------
As restated $10,857,469 $10,348,467
===================================
Liabilities:
The Company $10,208,203 $ 9,745,504
FPLH 352,184 302,655
-----------------------------------
As restated $10,560,387 $10,048,159
===================================
Capital and surplus:
The Company $ 203,393 $ 206,121
FPLH 93,689 94,187
-----------------------------------
As restated $ 297,082 $ 300,308
===================================
</TABLE>
NATURE OF BUSINESS
The Company primarily sells group fixed and variable annuities and group life
coverages. The Company is licensed in 49 states and the District of Columbia and
is actively in the process of becoming licensed in all 50 states. Sales of the
Company's products are primarily through brokers.
8
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BASIS OF PRESENTATION
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.
Significant estimates and assumptions are utilized in the calculation of
aggregate policy reserves, policy and contract reserves, guarantee fund
assessment accruals and valuation allowances on investments. It is reasonably
possible that actual experience could differ from the estimates and assumptions
utilized which could have a material impact on the financial statements.
The accompanying financial statements have been prepared on the basis of
accounting practices prescribed or permitted by the Department of Insurance of
the State of New York ("Insurance Department"), which practices differ in some
respects from generally accepted accounting principles. The more significant of
these differences are as follows: (a) bonds are generally reported at amortized
cost rather than segregating the portfolio into held-to-maturity (reported at
amortized cost), available-for-sale (reported at fair value), and trading
(reported at fair value) classifications; (b) acquisition costs of acquiring new
business are charged to current operations as incurred rather than deferred and
amortized over the life of the policies; (c) policy reserves on traditional life
products are based on statutory mortality rates and interest which may differ
from reserves based on reasonable assumptions of expected mortality, interest,
and withdrawals which include a provision for possible unfavorable deviation
from such assumptions; (d) policy reserves on certain investment products use
discounting methodologies utilizing statutory interest rates rather than full
account values; (e) reinsurance amounts are netted against the corresponding
asset or liability rather than shown as gross amounts on the balance sheet; (f)
deferred income taxes are not provided for the difference between the financial
statement and income tax bases of assets and liabilities; (g) net realized gains
or losses attributed to changes in the level of interest rates in the market are
deferred and amortized over the remaining life of the bond or mortgage loan,
rather than recognized as gains or losses in the statement of operations when
the sale is completed; (h) declines in the estimated realizable value of
investments are provided for through the establishment of a formula-determined
statutory investment reserve (reported as a liability), changes to which are
charged directly to surplus, rather than through recognition in the statement of
operations for declines in value, when such declines are judged to be other than
temporary; (i) certain assets designated as "non-admitted assets" have been
charged to surplus rather than being reported as assets; (j) revenues for
universal life and investment products consist of premiums received rather than
policy charges for the cost of insurance, policy administration charges,
amortization of policy initiation fees and surrender charges assessed; (k)
pension expense is recorded as amounts are paid; (l) stock options settled in
cash are recorded as an expense of the Company's indirect parent rather than
charged to current operations; (m) adjustments to federal income taxes of prior
years
9
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
are charged or credited directly to unassigned surplus, rather than reported as
a component of expense in the statement of operations; and (n) gains or losses
on dispositions of business are charged or credited directly to unassigned
surplus rather than being reported in the statement of operations. The effects
of these variances have not been determined by the Company.
In 1998, the National Association of Insurance Commissioners (NAIC) adopted
codified statutory accounting principles ("Codification"). Codification will
likely change, to some extent, prescribed statutory accounting practices and may
result in changes to the accounting practices that the Company uses to prepare
its statutory-basis financial statements. Codification will require adoption by
the various states before it becomes the prescribed statutory basis of
accounting for insurance companies domesticated within those states.
Accordingly, before Codification becomes effective for the Company, the State of
New York must adopt Codification as the prescribed basis of accounting on which
domestic insurers must report their statutory-basis results to the Insurance
Department. At this time, it is unclear whether the State of New York will adopt
Codification. However, based on current guidance, management believes that the
impact of Codification will not be material to the Company's statutory-basis
financial statements.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all highly
liquid investments with remaining maturity of one year or less when purchased to
be cash equivalents.
INVESTMENTS
Investments in bonds (except those to which the Securities Valuation Office of
the NAIC has ascribed a value), mortgage loans on real estate and short-term
investments are reported at cost adjusted for amortization of premiums and
accrual of discounts. Amortized costs for bonds and mortgage loans on real
estate that were acquired through the reinsurance agreement described earlier
were initially recorded at market value, consistent with the aforementioned
agreement and as prescribed by the Department of Insurance of the State of New
York. Amortization is computed using methods which result in a level yield over
the expected life of the security. The Company reviews its prepayment
assumptions on mortgage and other asset-backed securities at regular intervals
and adjusts amortization rates retrospectively when such assumptions are changed
due to experience and/or expected future patterns. Investments in preferred
stocks in good standing are reported at cost. Investments in preferred stocks
not in good standing are reported at the lower of cost or market. Common stocks
are carried at market. Real estate is reported at cost less allowances for
depreciation. Depreciation is computed principally by the straight-line method.
Policy loans are reported at unpaid
10
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
principal. Other invested assets consist principally of investments in various
joint ventures and are recorded at equity in underlying net assets. Other
"admitted assets" are valued, principally at cost, as required or permitted by
New York Insurance Laws.
Realized capital gains and losses are determined on the basis of specific
identification and are recorded net of related federal income taxes. The Asset
Valuation Reserve (AVR) is established by the Company to provide for anticipated
losses in the event of default by issuers of certain invested assets. These
amounts are determined using a formula prescribed by the NAIC and are reported
as a liability. The formula for the AVR provides for a corresponding adjustment
for realized gains and losses. Under a formula prescribed by the NAIC, the
Company defers, in the Interest Maintenance Reserve (IMR), the portion of
realized gains and losses on sales of fixed income investments, principally
bonds and mortgage loans, attributable to changes in the general level of
interest rates and amortizes those deferrals over the remaining period to
maturity of the security.
Interest income is recognized on an accrual basis. The Company does not accrue
income on bonds in default, mortgage loans on real estate in default and/or
foreclosure or which are delinquent more than twelve months, or real estate
where rent is in arrears for more than three months. Further, income is not
accrued when collection is uncertain. At December 31, 1998, 1997 and 1996, the
Company excluded investment income due and accrued of $216, $473 and $469,
respectively, with respect to such practices.
The Company uses interest rate swaps as part of its overall interest rate risk
management strategy for certain life insurance and annuity products. The net
interest effect of such swap transactions is reported as an adjustment of
interest income from the hedged items as incurred.
Deferred income for unrealized gains and losses on the securities valued at
market at the time of the assumption reinsurance agreement (described in Note 4)
are returned to MONY at the time of realization pursuant to the agreement.
AGGREGATE POLICY RESERVES
Life, annuity and accident and health benefit reserves are developed by
actuarial methods and are determined based on published tables using statutorily
specified interest rates and valuation methods that will provide, in the
aggregate, reserves that are greater than or equal to the minimum required by
law.
The aggregate policy reserves for life insurance policies are based principally
upon the 1941, 1958 and 1980 Commissioners' Standard Ordinary Mortality Tables.
The reserves are calculated using interest rates ranging from 2.50 to 6.50
percent and are computed principally on the Net Level Premium Valuation and the
Commissioners' Reserve Valuation Method. Reserves for universal life policies
are based on account balances adjusted for the Commissioners' Reserve Valuation
Method.
11
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deferred annuity reserves are calculated according to the Commissioners' Annuity
Reserve Valuation Method including excess interest reserves to cover situations
where the future interest guarantees plus the decrease in surrender charges are
in excess of the maximum valuation rates of interest. Reserves for immediate
annuities and supplementary contracts with life contingencies are equal to the
present value of future payments assuming interest rates ranging from 3.00 to
8.50 percent and mortality rates, where appropriate, from a variety of tables.
Accident and health policy reserves are equal to the greater of the gross
unearned premiums or any required midterminal reserves plus net unearned
premiums and the present value of amounts not yet due on both reported and
unreported claims.
POLICY AND CONTRACT CLAIM RESERVES
Claim reserves represent the estimated accrued liability for claims reported to
the Company and claims incurred but not yet reported through the statement date.
These reserves are estimated using either individual case-basis valuations or
statistical analysis techniques. These estimates are subject to the effects of
trends in claim severity and frequency. The estimates are continually reviewed
and adjusted as necessary as experience develops or new information becomes
available.
SEPARATE ACCOUNTS
Assets held in trust for purchases of separate account contracts and the
Company's corresponding obligation to the contract owners are shown separately
in the balance sheets. Income and gains and losses with respect to these assets
accrue to the benefit of the policyholders and, accordingly, the operations of
the separate accounts are not included in the accompanying financial statements.
Certain separate account assets and liabilities reported in the accompanying
financial statements contain contractual guarantees. Guaranteed separate
accounts represent funds invested by the Company for the benefit of individual
contract holders who are guaranteed certain returns as specified in the
contracts. Separate account asset performance different than guaranteed
requirements is either transferred to or received from the general account and
reported in the statements of operations. Guaranteed separate account assets and
liabilities are reported at estimated fair value except for certain government
and fixed-rate separate accounts, which are carried at amortized cost. The
assets and liabilities of the nonguaranteed separate accounts are carried at
estimated fair value.
12
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK OPTION PLAN
AEGON N.V. sponsors a stock option plan for eligible employees of the Company.
Under this plan, certain employees have indicated a preference to immediately
sell shares received as a result of their exercise of the stock options; in
these situations, AEGON N.V. has settled such options in cash rather than
issuing stock to these employees. These cash settlements are paid by the
Company, and AEGON N.V. subsequently reimburses the Company for such payments.
Under statutory accounting principles, the Company does not record any expense
related to this plan, as the expense is recognized by AEGON N.V. However, the
Company is allowed to record a deduction in the consolidated tax return filed by
the Company and certain affiliates.
2. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards (SFAS) No. 107, Disclosures about
Fair Value of Financial Instruments, requires disclosure of fair value
information about financial instruments, whether or not recognized in the
statutory-basis balance sheet, for which it is practicable to estimate that
value. SFAS No. 119, Disclosures About Derivative Financial Instruments and Fair
Value of Financial Instruments, requires additional disclosures about
derivatives. In cases where quoted market prices are not available, fair values
are based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparisons to independent
markets and, in many cases, could not be realized in immediate settlement of the
instrument. SFAS No. 107 and No. 119 exclude certain financial instruments and
all nonfinancial instruments from their disclosure requirements and allow
companies to forego the disclosures when those estimates can only be made at
excessive cost. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Company.
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and short-term investments: The carrying amounts reported in the
statutory-basis balance sheet for these instruments approximate their fair
values.
Investment securities: Fair values for fixed maturity securities (including
redeemable preferred stocks) are based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair values are
estimated using values obtained
13
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
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 values for equity securities are based on quoted market prices.
Mortgage loans and policy loans: The fair values for mortgage loans are
estimated utilizing discounted cash flow analyses, using interest rates
reflective of current market conditions and the risk characteristics of the
loans. The fair value of policy loans is assumed to equal its carrying value.
Investment contracts: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash flow
calculations, based on interest rates currently being offered for similar
contracts with maturities consistent with those remaining for the contracts
being valued.
Interest rate swaps: Estimated fair value of interest rate swaps are based
upon the pricing differential for similar swap agreements.
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts 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 following sets forth a comparison of the fair values and carrying values of
the Company's financial instruments subject to the provisions of SFAS No. 107
and No. 119:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
------------------------------- ------------------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
------------------------------- ------------------------------
<S> <C> <C> <C> <C>
ADMITTED ASSETS
Cash and short-term investments $ 61,065 $ 61,065 $ 68,131 $ 68,131
Bonds 4,151,780 4,246,901 3,988,635 4,083,280
Preferred stock 2,582 2,529 1,792 1,892
Common stock 2 2 144 144
Mortgage loans on real estate 413,107 429,716 495,009 504,947
Interest rate swap - - 391
Policy loans 3,181 3,181 3,046 3,046
Separate account assets 6,517,152 6,527,180 5,630,093 5,640,386
LIABILITIES
Investment contract liabilities 4,134,507 4,057,004 4,091,938 4,011,465
Separate account annuities 6,408,436 6,387,445 5,594,880 5,577,854
</TABLE>
14
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
3. INVESTMENTS
The carrying value and estimated fair value of investments in debt securities
were as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
--------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
Bonds:
United States Government and agencies $ 99,834 $ 1,776 $ 285 $ 101,325
State, municipal and other government 38,387 1,427 1,625 38,189
Public utilities 355,719 10,239 825 365,133
Industrial and miscellaneous 2,398,132 88,051 25,538 2,460,645
Mortgage-backed and asset-backed securities
1,259,708 27,387 5,486 1,281,609
--------------------------------------------------------
4,151,780 128,880 33,759 4,246,901
Preferred stocks 2,582 - 53 2,529
--------------------------------------------------------
$4,154,362 $128,880 $33,812 $4,249,430
========================================================
DECEMBER 31, 1997
Bonds:
United States Government and agencies $ 102,628 $ 943 $ 255 $ 103,316
State, municipal and other government 60,427 1,413 1,761 60,079
Public utilities 251,071 4,943 892 255,122
Industrial and miscellaneous 2,324,342 66,883 6,424 2,384,801
Mortgage-backed and asset-backed securities
1,250,167 32,779 2,984 1,279,962
--------------------------------------------------------
3,988,635 106,961 12,316 4,083,280
Preferred stocks 1,792 100 - 1,892
--------------------------------------------------------
$3,990,427 $107,061 $12,316 $4,085,172
========================================================
</TABLE>
The carrying value and estimated fair value of bonds at December 31, 1998, by
contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
15
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
3. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
CARRYING ESTIMATED
VALUE FAIR VALUE
--------------------------
<S> <C> <C>
Due in one year or less $ 262,288 $ 263,578
Due after one year through five years 1,553,746 1,582,380
Due after five years through ten years 825,886 849,510
Due after ten years 250,152 269,824
--------------------------
2,892,072 2,965,292
Mortgage-backed and asset-backed securities 1,259,708 1,281,609
--------------------------
$4,151,780 $4,246,901
==========================
</TABLE>
A detail of net investment income is presented below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
-------------------------------------------
<S> <C> <C> <C>
Interest on bonds and notes $290,967 $285,730 $267,510
Mortgage loans 46,027 57,659 83,511
Real estate 12,741 13,976 7,225
Dividends on equity investments 254 223 220
Interest on policy loans 317 168 154
Derivative instruments (3,265) 100 -
Other investment gain (loss) 9,568 1,543 (5,482)
-------------------------------------------
Gross investment income 356,609 359,399 353,138
Investment expenses 10,949 17,859 13,678
-------------------------------------------
Net investment income $345,660 $341,540 $339,460
===========================================
</TABLE>
Proceeds from sales and maturities of debt securities and related gross realized
gains and losses were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
---------------------------------------------
<S> <C> <C> <C>
Proceeds $1,381,784 $968,184 $777,107
=============================================
Gross realized gains $ 19,871 $ 19,165 $ 9,697
Gross realized losses (5,974) (11,997) (12,291)
---------------------------------------------
Net realized gains (losses) $ 13,897 $ 7,168 $ (2,594)
=============================================
</TABLE>
16
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
3. INVESTMENTS (CONTINUED)
At December 31, 1998, investments with an aggregate carrying value of $4,378
were on deposit with regulatory authorities or were restrictively held in bank
custodial accounts for the benefit of such regulatory authorities as required by
statute.
Realized investment gains (losses) and changes in unrealized gains (losses) for
investments are summarized below:
<TABLE>
<CAPTION>
REALIZED
------------------------------------------
YEAR ENDED DECEMBER 31
1998 1997 1996
-------------------------------------------
<S> <C> <C> <C>
Debt securities $ 13,897 $ 7,168 $ (2,594)
Common stock 60 - 244
Preferred stock 170 (7) (44)
Short-term investments (41) (6) (115)
Mortgage loans on real estate 325 287 (12,415)
Real estate 3,967 4,059 -
Other invested assets 2,859 5,035 6,872
-------------------------------------------
21,237 16,536 (8,052)
Tax effect 20 (747) 87
Transfer to interest maintenance reserve (17,487) (14,958) (4,142)
-------------------------------------------
Total realized gains (losses) $ 3,770 $ 831 $(12,107)
===========================================
</TABLE>
<TABLE>
<CAPTION>
CHANGE IN UNREALIZED
-------------------------------------------
YEAR ENDED DECEMBER 31
1998 1997 1996
-------------------------------------------
<S> <C> <C> <C>
Debt securities $ 323 $56,129 $(87,888)
Equity securities (38) 21 (190)
------------------------------------------
Change in unrealized appreciation
(depreciation) $ 285 $56,150 $(88,078)
==========================================
</TABLE>
Gross unrealized gains and gross unrealized losses on equity securities at
December 31, 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
-------------------------------------------
<S> <C> <C> <C>
Unrealized gains $ - $ 38 $ 16
Unrealized losses (12) (12) (11)
-------------------------------------------
Net unrealized gains (losses) $ (12) $ 26 $ 5
===========================================
</TABLE>
17
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
3. INVESTMENTS (CONTINUED)
During 1998, the Company issued mortgage loans with interest rates ranging from
6.55% to 8.49%. The maximum percentage of any one loan to the value of the
underlying real estate at origination was 79%. No mortgage loans were non-income
producing for the previous twelve months and, accordingly, no accrued interest
related to these mortgage loans was excluded from investment income. The Company
requires all mortgage loans to carry fire insurance equal to the value of the
underlying property.
During 1998, 1997 and 1996, there were $2,796, $4,427 and $28,929, respectively,
in foreclosed mortgage loans that were transferred to real estate. At December
31, 1998 and 1997, the Company held a mortgage loan loss reserve in the asset
valuation reserve of $34,083 and $20,191, respectively. The mortgage loan
portfolio is diversified by geographic region and specific collateral property
type as follows:
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION Property Type Distribution
- -------------------------------------------------- -------------------------------------------
DECEMBER 31 DECEMBER 31
1998 1997 1998 1997
------------------- -------------------
<S> <C> <C> <C> <C> <C>
South Atlantic 22% 20% Office 37% 30%
Mid-Atlantic 20 16 Industrial 29 13
E. North Central 20 16 Retail 24 19
Pacific 9 20 Apartment 4 23
W. South Central 9 2 Agricultural 2 -
New England 8 7 Other 4 15
Mountain 7 15
E. South Central 3 2
W. North Central 2 2
</TABLE>
At December 31, 1998, the Company had no investments, excluding U. S. Government
guaranteed or insured issues, which individually represented more than ten
percent of capital and surplus and the asset valuation reserve.
The Company utilized an interest rate swap agreement as part of its efforts to
hedge and manage fluctuations in the market value of its investment portfolio
attributable to changes in general interest rate levels and to manage duration
mismatch of assets and liabilities. The contract or notional amounts of those
instruments reflect the extent of involvement in the various types of financial
instruments.
18
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
3. INVESTMENTS (CONTINUED)
The Company's exposure to credit risk is the risk of loss from a counterparty
failing to perform according to the terms of the contract. That exposure
includes settlement risk (i.e., the risk that the counterparty defaults after
the Company has delivered funds or securities under terms of the contract) that
would result in an accounting loss and replacement cost risk (i.e., the cost to
replace the contract at current market rates should the counterparty default
prior to settlement date). Credit loss exposure resulting from nonperformance by
a counterparty for commitments to extend credit is represented by the
contractual amounts of the instruments.
At December 31, 1998, the Company held no derivative instruments. At December
31, 1998 and 1997, the Company's outstanding financial instruments with on and
off-balance sheet risks, shown in notional amounts, are summarized as follows:
<TABLE>
<CAPTION>
NOTIONAL AMOUNT
--------------------------
1998 1997
--------------------------
<S> <C> <C>
Derivative securities:
Interest rate swaps:
Receive fixed - pay floating $74,588 $50,800
</TABLE>
4. REINSURANCE
The Company reinsures portions of risk on certain insurance policies which
exceed its established limits, thereby providing a greater diversification of
risk and minimizing exposure on larger risks. The Company remains contingently
liable with respect to any insurance ceded, and this would become an actual
liability in the event that the assuming insurance company became unable to meet
its obligation under the reinsurance treaty.
Premiums earned reflect the following reinsurance assumed and ceded amounts for
the year ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------------
<S> <C> <C> <C>
Direct premiums $1,183,777 $1,309,731 $1,185,163
Reinsurance assumed 6,415 6,905 9,962
Reinsurance ceded (2,539) (5,268) (29,141)
--------------------------------------------
Net premiums earned $1,187,653 $1,311,368 $1,165,984
============================================
</TABLE>
19
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
4. REINSURANCE (CONTINUED)
The Company received reinsurance recoveries in the amounts of $2,493, $1,992 and
$1,758 during 1998, 1997 and 1996, respectively.
The aggregate reserves for policies and contracts were reduced for reserve
credits for reinsurance ceded at December 31, 1998 and 1997 of $143,819 and
$153,092, respectively.
On December 31, 1993, the Company and MONY entered into an assumption
reinsurance agreement whereby all of the general account liabilities were
novated to the Company from MONY as state approvals were received.
In accordance with the agreement, MONY will receive payments relating to the
performance of the assets and liabilities that exist at the date of closing for
a period of nine years. These payments will be reduced for certain
administrative expenses as defined in the agreement. The Company will recognize
operating gains and losses on renewal premiums received after December 31, 1993
of the business in-force at December 31, 1993, and on all new business written
after that date. At the end of nine years from the date of closing, the Company
will purchase from MONY the remaining transferred business inforce based upon a
formula described in the agreement. At December 31, 1998 and 1997, the Company
owed MONY $52,837 and $56,952, respectively, which represents the amount earned
by MONY under the gain sharing calculation and certain fees for investment
management services for the respective years.
In connection with the transaction, MONY purchased $150,000 and $50,000 in
Series A and Series B notes, respectively, of AEGON. The proceeds were used to
enhance the surplus of the Company. Both the Series A and Series B notes bear a
market rate of interest and mature in nine years from the date of closing.
AEGON provides general and administrative services for the transferred business
under a related agreement with MONY. The agreement specifies prescribed rates
for expenses to administer the business up to certain levels. In addition, AEGON
also provides investment management services on the assets underlying the new
business written by the Company while MONY continues to provide investment
management services for assets supporting the remaining policy liabilities which
were transferred at December 31, 1993.
20
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
5. INCOME TAXES
For federal income tax purposes, the Company joins in a consolidated tax return
filing with certain affiliated companies. Under the terms of a tax-sharing
agreement between the Company and its affiliates, the Company computes federal
income tax expense as if it were filing a separate income tax return, except
that tax credits and net operating loss carryforwards are determined on the
basis of the consolidated group. Additionally, the alternative minimum tax is
computed for the consolidated group and the resulting tax, if any, is allocated
back to the separate companies on the basis of the separate companies'
alternative minimum taxable income.
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to gain from operations before federal income
tax expense and net realized capital gains (losses) on investments primarily due
to differences in the statutory and tax treatment of certain investments,
deferred policy acquisition costs, stock options exercised, dividends received
deduction, carryforward (utilization) of operating loss, IMR amortization, and
certain adjustments related to the agreement between MONY and the Company. These
adjustments caused the Company to calculate federal income tax expense using
alternative minimum tax requirements in 1998.
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to net realized capital gains (losses) on
investments due to the agreement between MONY and the Company, as discussed in
Note 4 to the financial statements. In accordance with this agreement, these
gains and losses are included in the net payments MONY will receive relating to
the performance of the assets that existed at the date of closing. Accordingly,
income taxes relating to gains and losses on such assets are not provided for on
the income tax return filed by the Company.
Prior to 1984, as provided for under the Life Insurance Company Tax Act of 1959,
a portion of statutory income was not subject to current taxation but was
accumulated for income tax purposes in a memorandum account referred to as the
policyholders' surplus account. No federal income taxes have been provided for
in the financial statements on income deferred in the policyholders' surplus
account ($2,427 at December 31, 1998). To the extent dividends are paid from the
amount accumulated in the policyholders' surplus account, net earnings would be
reduced by the amount of tax required to be paid. Should the entire amount in
the policyholders' surplus account become taxable, the tax thereon computed at
current rates would amount to approximately $849.
At December 31, 1998, the Company had net operating loss carryforwards of
approximately $8,514 which expire through 2011.
In 1998, the Company reached a final settlement with the Internal Revenue
Service for years 1993 through 1995 resulting in no tax due or refunded.
21
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
6. POLICY AND CONTRACT ATTRIBUTES
A portion of the Company's policy reserves and other policyholders' funds relate
to liabilities established on a variety of the Company's products that are not
subject to significant mortality or morbidity risk; however, there may be
certain restrictions placed upon the amount of funds that can be withdrawn
without penalty. The amount of reserves on these products, by withdrawal
characteristics, are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
---------------------------- ----------------------------
PERCENT OF PERCENT OF
AMOUNT TOTAL AMOUNT TOTAL
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal with
market value adjustment $ 912,692 9% $ 910,528 9%
Subject to discretionary withdrawal at book
value less surrender charge 1,013,495 10 1,045,807 11
Subject to discretionary withdrawal at
market value 3,678,649 34 2,950,639 30
Subject to discretionary withdrawal at book
value (minimal or no charges or adjustments) 2,666,670 25 2,616,308 27
Not subject to discretionary withdrawal
provision 2,416,602 22 2,317,823 23
-------------------------- -------------------------
10,688,108 100% 9,841,105 100%
========= ========
Less reinsurance ceded 143,475 152,726
---------- ----------
Total policy reserves on annuities and
deposit fund liabilities $10,544,633 $9,688,379
=========== ==========
</TABLE>
Separate and variable account assets held by the Company represent contracts
where the benefit is determined by the performance of the investments held in
the separate account. Information regarding the separate accounts of the Company
as of and for the years ended December 31, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
GUARANTEED NON-GUARANTEED
SEPARATE SEPARATE
ACCOUNT ACCOUNT TOTAL
----------------------------------------------
<S> <C> <C> <C>
Premiums, deposits and other
considerations for the year ended
December 31, 1998 $ 84,150 $ 767,676 $ 851,826
==============================================
Reserves for separate accounts with
assets as of December 31, 1998 at:
Fair value $2,350,983 $3,461,715 $5,812,698
Amortized cost 595,738 - 595,738
----------------------------------------------
Total $2,946,721 $3,461,715 $6,408,436
==============================================
</TABLE>
22
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
6. POLICY AND CONTRACT ATTRIBUTES (CONTINUED)
<TABLE>
<CAPTION>
GUARANTEED NON-GUARANTEED
SEPARATE SEPARATE
ACCOUNT ACCOUNT TOTAL
----------------------------------------------
<S> <C> <C> <C>
Premiums, deposits and other
considerations for the year ended
December 31, 1997 $ 147,638 $ 648,056 $ 795,694
==============================================
Reserves for separate accounts with
assets as of December 31, 1997 at:
Fair value $2,204,931 $2,767,245 $4,972,176
Amortized cost 622,703 - 622,703
----------------------------------------------
Total $2,827,634 $2,767,245 $5,594,879
==============================================
Premiums, deposits and other
considerations for the year ended
December 31, 1996 $ - $ 747,506 $ 747,506
==============================================
Reserves for separate accounts with
assets as of December 31, 1996 at:
Fair value $2,022,843 $2,178,445 $4,201,288
Amortized cost 613,565 - 613,565
----------------------------------------------
Total $2,636,408 $2,178,445 $4,814,853
==============================================
</TABLE>
There may be certain restrictions placed upon the amount of funds that can be
withdrawn without penalty. The amount of separate account liabilities on these
products, by withdrawal characteristics, is summarized as follows:
<TABLE>
<CAPTION>
GUARANTEED NON-GUARANTEED
SEPARATE SEPARATE
ACCOUNT ACCOUNT TOTAL
----------------------------------------------
<S> <C> <C> <C>
DECEMBER 31, 1998
Subject to discretionary withdrawal
with market value adjustment $ 345,379 $ - $ 345,379
Subject to discretionary withdrawal at
book value less surrender charge 250,359 - 250,359
Subject to discretionary withdrawal at
market value 216,935 3,461,715 3,678,650
Not subject to discretionary withdrawal 2,134,048 - 2,134,048
----------------------------------------------
$2,946,721 $3,461,715 $6,408,436
==============================================
</TABLE>
23
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
6. POLICY AND CONTRACT ATTRIBUTES (CONTINUED)
<TABLE>
<CAPTION>
GUARANTEED NON-GUARANTEED
SEPARATE SEPARATE
ACCOUNT ACCOUNT TOTAL
-----------------------------------------------
<S> <C> <C> <C>
DECEMBER 31, 1997
Subject to discretionary withdrawal
with market value adjustment $ 358,061 $ - $ 358,061
Subject to discretionary withdrawal at
book value less surrender charge 264,642 - 264,642
Subject to discretionary withdrawal at
market value 180,802 2,767,245 2,948,047
Not subject to discretionary withdrawal 2,024,129 - 2,024,129
------------------------------------------------
$2,827,634 $2,767,245 $5,594,879
================================================
</TABLE>
A reconciliation of the amounts transferred to and from the separate accounts is
presented below:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------
<S> <C> <C> <C>
Transfers as reported in the summary of operations of
the separate accounts annual statement:
Transfers to separate accounts $851,826 $795,663 $747,677
Transfers from separate accounts 723,321 767,049 505,592
--------------------------------------
Net transfers to separate accounts 128,505 28,614 242,085
Reconciling adjustments - HUB level fees not paid to
AUSA general account 1,317 13,756 13,520
Fees paid to external fund manager - 120 67
Assumption of liabilities via merger of FPLH 1,088 - -
--------------------------------------
Net adjustments 2,405 13,876 13,587
--------------------------------------
Transfers as reported in the summary of operations of
the life, accident and health annual statement $130,910 $ 42,490 $255,672
======================================
</TABLE>
Reserves on the Company's traditional life products are computed using mean
reserving methodologies. These methodologies result in the establishment of
assets for the amount of the net valuation premiums that are anticipated to be
received between the policy's paid-through date to the policy's next anniversary
date. At December 31, 1998 and 1997, these assets (which are reported as
premiums deferred and uncollected) and the amounts of the related gross premiums
and loadings, are as follows:
24
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
6. POLICY AND CONTRACT ATTRIBUTES (CONTINUED)
<TABLE>
<CAPTION>
GROSS LOADING NET
--------------------------------
<S> <C> <C> <C>
DECEMBER 31, 1998
Ordinary direct first year business $ 351 $ 339 $ 12
Ordinary direct renewal business 6,760 1,087 5,673
Group life direct business 851 482 369
Credit life 37 - 37
Reinsurance ceded (6) - (6)
--------------------------------
7,993 1,908 6,085
Accident and health:
Direct 363 - 363
Reinsurance ceded (40) - (40)
--------------------------------
Total accident and health 323 - 323
--------------------------------
$8,316 $1,908 $6,408
================================
DECEMBER 31, 1997
Ordinary direct first year business $ 460 $ 336 $ 124
Ordinary direct renewal business 6,138 1,081 5,057
Group life direct business 1,267 433 834
Credit life 41 - 41
Reinsurance ceded (14) - (14)
--------------------------------
7,892 1,850 6,042
Accident and health:
Direct 325 - 325
Reinsurance ceded (51) - (51)
--------------------------------
Total accident and health 274 - 274
--------------------------------
$8,166 $1,850 $6,316
================================
</TABLE>
At December 31, 1998 and 1997, the Company had insurance in force aggregating
$474,471 and $597,855, respectively, in which the gross premiums are less than
the net premiums required by the valuation standards established by the
Department of Insurance of the State of New York. The Company established policy
reserves of $1,348 and $1,476 to cover these deficiencies at December 31, 1998
and 1997, respectively.
7. DIVIDEND RESTRICTIONS
The Company is subject to certain limitations relative to statutory surplus,
imposed by the State of New York, on the payment of dividends to its parent
company.
The Company paid dividends to its parent of $8,000 in 1998. The Company is not
entitled to pay out any dividends in 1999 without prior approval.
25
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
8. RETIREMENT AND COMPENSATION PLANS
The Company's employees participate in a qualified benefit pension plan
sponsored by AEGON. The Company has no legal obligation for the plan. The
Company recognizes pension expense equal to its allocation from AEGON. The
pension expense is allocated among the participating companies based on the FASB
87 expense as a percent of salaries. The benefits are based on years of service
and the employee's compensation during the highest five consecutive years of
employment. The Company was allocated $4, $0 and $13 of pension expense for the
years ended December 31, 1998, 1997 and 1996, respectively. The plan is subject
to the reporting and disclosure requirements of the Employee Retirement Income
Security Act of 1974.
The Company's employees also participate in a contributory defined contribution
plan sponsored by AEGON which is qualified under Section 401(k) of the Internal
Revenue Service Code. Employees of the Company who customarily work at least
1,000 hours during each calendar year and meet the other eligibility
requirements are participants of the plan. Participants may elect to contribute
up to fifteen percent of their salary to the plan. The Company will match an
amount up to three percent of the participant's salary. Participants may direct
all of their contributions and plan balances to be invested in a variety of
investment options. The plan is subject to the reporting and disclosure
requirements of the Employee Retirement Income Security Act of 1974. The Company
was allocated $9, $12 and $21 of expense for the years ended December 31, 1998,
1997 and 1996, respectively.
AEGON sponsors supplemental retirement plans to provide the Company's senior
management with benefits in excess of normal pension benefits. The plans are
noncontributory and benefits are based on years of service and the employee's
compensation level. The plans are unfunded and nonqualified under the Internal
Revenue Service Code. In addition, AEGON has established incentive deferred
compensation plans for certain key employees of the Company. AEGON also sponsors
an employee stock option plan for individuals employed at least three years and
a stock purchase plan for its producers, with the participating affiliated
companies establishing their own eligibility criteria, producer contribution
limits and company matching formula. These plans have been accrued or funded as
deemed appropriate by management of AEGON and the Company.
In addition to pension benefits, the Company participates in plans sponsored by
AEGON that provide postretirement medical, dental and life insurance benefits to
employees meeting certain eligibility requirements. Portions of the medical and
dental plans are contributory. The expenses of the postretirement plans
calculated on the pay-as-you-go basis are charged to affiliates in accordance
with an intercompany cost sharing arrangement. The Company expensed $4, $2 and
$2 for the years ended December 31, 1998, 1997 and 1996, respectively.
26
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
9. RELATED PARTY TRANSACTIONS
In accordance with an agreement between AEGON and the Company, AEGON will ensure
the maintenance of certain minimum tangible net worth, operating leverage and
liquidity levels of the Company, as defined in the agreement, through the
contribution of additional capital by the Company's parent as needed.
The Company shares certain officers, employees and general expenses with
affiliated companies.
The Company receives data processing, investment advisory and management,
marketing and administration services from certain affiliates. During 1998, 1997
and 1996, the Company paid $5,650, $7,330 and $5,739, respectively, for these
services, which approximates their costs to the affiliates.
Payable to affiliates and intercompany borrowings bear interest at the thirty-
day commercial paper rate of 4.95% at December 31, 1998. During 1998, 1997 and
1996, the Company paid net interest of $232, $142 and $29, respectively, to
affiliates.
10. COMMITMENTS AND CONTINGENCIES
The Company has issued Trust GIC contracts to plan sponsors totaling $153,146 at
December 31, 1998, pursuant to terms under which the plan sponsor retains
ownership of the assets related to these contracts. The Company guarantees
benefit responsiveness in the event that plan benefit requests and other
contractual commitments exceed plan cash flows. The plan sponsor agrees to
reimburse the Company for such benefit payments with interest, either at a fixed
or floating rate, from future plan and asset cash flows. In return for this
guarantee, the Company receives a premium which varies based on such elements as
benefit responsive exposure and contract size. The Company underwrites the plans
for the possibility of having to make benefit payments and also must agree to
the investment guidelines to ensure appropriate credit quality and cash flow
matching. The assets and liabilities relating to such contracts are not
recognized in the Company's statutory-basis financial statements.
The Company is a party to legal proceedings incidental to its business. Although
such litigation sometimes includes substantial demands for compensatory and
punitive damages, in addition to contract liability, it is management's opinion,
after consultation with counsel and a review of available facts, that damages
arising from such demands will not be material to the Company's financial
position.
27
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company is subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against insurance companies
for the benefit of policyholders and claimants in the event of insolvency of
other insurance companies. In accordance with the purchase agreement,
assessments related to periods prior to the purchase of the Company will be paid
by Dreyfus and assessments attributable to business reinsured from MONY for
premiums received prior to the date of the transaction will be paid by MONY (see
Note 1). The Company will be responsible for assessments, if any, attributable
to premium income after the date of purchase. Assessments are charged to
operations when received by the Company except where right of offset against
other taxes paid is allowed by law; amounts available for future offsets are
recorded as an asset on the Company's balance sheet. Potential future
obligations for unknown insolvencies are not determinable by the Company. The
future obligation has been based on the most recent information available from
the National Organization of Life and Health Insurance Guaranty Associations.
The guaranty fund expense was $126, $586 and $246 for the years ended December
31, 1998, 1997 and 1996, respectively.
11. YEAR 2000 (UNAUDITED)
The term Year 2000 issue generally refers to the improper processing of dates
and incorrect date calculations that might occur in computer software and
hardware and embedded systems as the Year 2000 is approached. The use of
computer programs that rely on two-digit date fields to perform computations and
decision-making functions may cause systems to malfunction when processing
information involving dates after 1999. For example, any computer software that
has date-sensitive coding might recognize a code of 00 as the year 1900 rather
than the year 2000.
The Company has developed a Year 2000 Project Plan (the Plan) to address the
Year 2000 issue as it affects the Company's internal Information Technology
("IT") and non-IT systems, and to assess Year 2000 issues relating to third
parties with whom the Company has critical relationships.
The Plan for addressing internal systems generally includes an assessment of
internal IT and non-IT systems and equipment affected by the Year 2000 issue;
definition of strategies to address affected systems and equipment; remediation
of identified systems and equipment; internal testing and certification that
each internal system is Year 2000 compliant; and a review of existing and
revised business resumption and contingency plans to address potential Year 2000
issues. The Company has remediated and tested substantially all of its mission-
critical internal IT systems as of December 31, 1998. The Company continues to
remediate and test certain non-critical internal IT systems, internal non-IT
systems and will continue with a revalidation testing program throughout 1999.
28
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
11. YEAR 2000 (UNAUDITED) (CONTINUED)
The Company's Year 2000 issues are more complex because a number of its systems
interface with other systems not under the Company's control. The Company's most
significant interfaces and uses of third-party vendor systems are in the bank,
financial services and trust areas. The Company utilizes various banks to handle
numerous types of financial and sales transactions. Several of these banks also
provide trustee and custodial services for the Company's investment holdings and
transactions. These services are critical to a financial services company such
as the Company as its business centers around cash receipts and disbursements to
policyholders and the investment of policyholder funds. The Company has received
written confirmation from its vendor banks regarding their status on Year 2000.
The banks indicate their dedication to resolving any Year 2000 issues related to
their systems and services prior to December 31, 1999. The Company anticipates
that a considerable effort will be necessary to ensure that its corrected or new
systems can properly interface with those business partners with whom it
transmits and receives data and other information (external systems). The
Company has undertaken specific testing regimes with these third-party business
partners and expects to continue working with its business partners on any
interfacing of systems. However, the timing of external system compliance cannot
currently be predicted with accuracy because the implementation of Year 2000
readiness will vary from one company to another.
The Company does have some exposure to date-sensitive embedded technology such
as micro-controllers, but the Company views this exposure as minimal. Unlike
other industries that may be equipment intensive, like manufacturing, the
Company is a life insurance and financial services organization providing
insurance, annuities and pension products to its customers. As such, the primary
equipment and electronic devices in use are computers and telephone related
equipment. This type of hardware can have date-sensitive embedded technology
which could have Year 2000 problems. Because of this exposure, the Company has
reviewed its computer hardware and telephone systems, with assistance from the
applicable vendors, and has upgraded, or replaced, or is in the process of
replacing any equipment that will not properly process date-sensitive data in
the Year 2000 or beyond.
For the Company, a reasonably likely worst case scenario might include one or
more of the Company's significant policyholder systems being non-compliant. Such
an event could result in a material disruption of the Company's operations.
Specifically, a number of the Company's operations could experience an
interruption in the ability to collect and process premiums or deposits, process
claim payments, accurately maintain policyholder information, accurately
maintain accounting records, and/or perform adequate customer service. Should
the worst case scenario occur, it could, dependent upon its duration, have a
material impact on the Company's business and financial condition. Simple
failures can
29
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
11. YEAR 2000 (UNAUDITED) (CONTINUED)
be repaired and returned to production within a matter of hours with no material
impact. Unanticipated failures with a longer service disruption period could
have a more serious impact. For this reason, the Company is placing significant
emphasis on risk management and Year 2000 business resumption contingency
planning in 1999 by modifying its existing business resumption and disaster
recovery plans to address potential Year 2000 issues.
The actions taken by management under the Year 2000 Project Plans are intended
to significantly reduce the Company's risk of a material business interruption
based on the Year 2000 issues. It should be noted that the Year 2000 computer
problem, and its resolution, is complex and multifaceted, and any company's
success cannot be conclusively known until the Year 2000 is reached. In spite of
its efforts or results, the Company's ability to function unaffected to and
through the Year 2000 may be adversely affected by actions (or failure to act)
of third parties beyond our knowledge or control. It is anticipated that there
may be problems that will have to be resolved in the ordinary course of business
on and after the Year 2000. However, the Company does not believe that the
problems will have a material adverse affect on the Company's operations or
financial condition.
30
<PAGE>
Financial Statements
AUSA Endeavor Variable Annuity Account -
The Endeavor Variable Annuity
Year ended December 31, 1998
with Report of Independent Auditors
<PAGE>
AUSA Endeavor Variable Annuity Account -
The Endeavor Variable Annuity
Financial Statements
Year ended December 31, 1998
Contents
Report of Independent Auditors.................................................1
Financial Statements
Balance Sheet..................................................................2
Statement of Operations........................................................6
Statements of Changes in Contract Owners' Equity..............................10
Notes to Financial Statements.................................................14
<PAGE>
Report of Independent Auditors
The Board of Directors and Contract Owners
of The Endeavor Variable Annuity,
AUSA Life Insurance Company, Inc.
We have audited the accompanying balance sheet of the subaccounts of AUSA
Endeavor Variable Annuity Account, which are available for investment by The
Endeavor Variable Annuity contract owners, as of December 31, 1998, and the
related statements of operations for the year then ended and changes in contract
owners' equity for each of the two years in the period then ended. These
financial statements are the responsibility of the Variable Account'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 mutual fund shares owned as of December 31, 1998 by
correspondence with the mutual funds' transfer agent. 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 the subaccounts of the AUSA
Endeavor Variable Annuity Account, which are available for investment by The
Endeavor Variable Annuity contract owners, at December 31, 1998, and the results
of its operations for the year then ended and changes in its contract owners'
equity for each of the two years in the period then ended in conformity with
generally accepted accounting principles.
Des Moines, Iowa
January 29, 1999
1
<PAGE>
AUSA Endeavor Variable Annuity Account -
The Endeavor Variable Annuity
Balance Sheet
December 31, 1998
Total
---------------
Assets
Investments in mutual funds, at current market value:
Endeavor Series Trust:
Endeavor Money Market Portfolio $ 1,326,568
Endeavor Asset Allocation Portfolio 5,652,912
T. Rowe Price International Stock Portfolio 7,661,121
Endeavor Value Equity Portfolio 8,353,188
Dreyfus Small Cap Value Portfolio 5,420,157
Dreyfus U. S. Government Securities Portfolio 2,273,520
T. Rowe Price Equity Income Portfolio 7,949,358
T. Rowe Price Growth Stock Portfolio 7,381,845
Endeavor Opportunity Value Portfolio 1,149,335
Endeavor Enhanced Index Portfolio 1,908,702
WRL Series Fund, Inc.:
Growth Portfolio 20,890,222
---------------
Total investments in mutual funds 69,966,928
---------------
Total assets $69,966,928
===============
Liabilities and contract owners' equity
Liabilities:
Contract terminations payable $ 1,118
---------------
Total liabilities 1,118
Contract owners' equity:
Deferred annuity contracts terminable by owners 69,965,810
---------------
Total liabilities and contract owners' equity $69,966,928
===============
See accompanying notes.
2
<PAGE>
<TABLE>
<CAPTION>
Endeavor Money Endeavor Asset T. Rowe Price
Market Allocation International
Subaccount Subaccount Stock Subaccount
<S> -------------------------------------------------------
Assets <C> <C> <C>
Investments in mutual funds, at current market value:
Endeavor Series Trust:
Endeavor Money Market Portfolio $1,326,568 $ - $ -
Endeavor Asset Allocation Portfolio - 5,652,912 -
T. Rowe Price International Stock Portfolio - - 7,661,121
Endeavor Value Equity Portfolio - - -
Dreyfus Small Cap Value Portfolio - - -
Dreyfus U. S. Government Securities Portfolio - - -
T. Rowe Price Equity Income Portfolio - - -
T. Rowe Price Growth Stock Portfolio - - -
Endeavor Opportunity Value Portfolio - - -
Endeavor Enhanced Index Portfolio - - -
WRL Series Fund, Inc.:
Growth Portfolio - - -
-------------------------------------------------------
Total investments in mutual funds 1,326,568 5,652,912 7,661,121
-------------------------------------------------------
Total assets $1,326,568 $5,652,912 $7,661,121
=======================================================
Liabilities and contract owners' equity
Liabilities:
Contract terminations payable $ 8 $ 62 $ 76
-------------------------------------------------------
Total liabilities 8 62 76
Contract owners' equity:
Deferred annuity contracts terminable by owners 1,326,560 5,652,850 7,661,045
=======================================================
Total liabilities and contract owners' equity $1,326,568 $5,652,912 $7,661,121
=======================================================
<CAPTION>
Endeavor Dreyfus Small
Value Equity Cap Value
Subaccount Subaccount
<S> ----------------------------------
Assets <C> <C>
Investments in mutual funds, at current market value:
Endeavor Series Trust:
Endeavor Money Market Portfolio $ - $ -
Endeavor Asset Allocation Portfolio - -
T. Rowe Price International Stock Portfolio - -
Endeavor Value Equity Portfolio 8,353,188 -
Dreyfus Small Cap Value Portfolio - 5,420,157
Dreyfus U. S. Government Securities Portfolio - -
T. Rowe Price Equity Income Portfolio - -
T. Rowe Price Growth Stock Portfolio - -
Endeavor Opportunity Value Portfolio - -
Endeavor Enhanced Index Portfolio - -
WRL Series Fund, Inc.:
Growth Portfolio - -
----------------------------------
Total investments in mutual funds 8,353,188 5,420,157
----------------------------------
Total assets $8,353,188 $5,420,157
==================================
Liabilities and contract owners' equity
Liabilities:
Contract terminations payable $ 237 $ 302
----------------------------------
Total liabilities 237 302
Contract owners' equity:
Deferred annuity contracts terminable by owners 8,352,951 5,419,855
==================================
Total liabilities and contract owners' equity $8,353,188 $5,420,157
==================================
</TABLE>
3
<PAGE>
AUSA Endeavor Variable Annuity Account -
The Endeavor Variable Annuity
Balance Sheet (continued)
Dreyfus U. S.
Government
Securities
Subaccount
--------------
Assets
Investments in mutual funds, at current market value:
Endeavor Series Trust:
Endeavor Money Market Portfolio $ -
Endeavor Asset Allocation Portfolio -
T. Rowe Price International Stock Portfolio -
Endeavor Value Equity Portfolio -
Dreyfus Small Cap Value Portfolio -
Dreyfus U. S. Government Securities Portfolio 2,273,520
T. Rowe Price Equity Income Portfolio -
T. Rowe Price Growth Stock Portfolio -
Endeavor Opportunity Value Portfolio -
Endeavor Enhanced Index Portfolio -
WRL Series Fund, Inc.:
Growth Portfolio -
--------------
Total investments in mutual funds 2,273,520
==============
Total assets $2,273,520
==============
Liabilities and contract owners' equity
Liabilities:
Contract terminations payable $ 10
--------------
Total liabilities 10
Contract owners' equity:
Deferred annuity contracts terminable by owners 2,273,510
==============
Total liabilities and contract owners' equity $2,273,520
==============
See accompanying notes.
4
<PAGE>
<TABLE>
<CAPTION>
T. Rowe Price T. Rowe Price Endeavor
Equity Income Growth Stock Opportunity Value
Subaccount Subaccount Subaccount
----------------------------------------------------------
<S> <C> <C> <C>
Assets
Investments in mutual funds, at current market value:
Endeavor Series Trust:
Endeavor Money Market Portfolio $ - $ - $ -
Endeavor Asset Allocation Portfolio - - -
T. Rowe Price International Stock Portfolio - - -
Endeavor Value Equity Portfolio - - -
Dreyfus Small Cap Value Portfolio - - -
Dreyfus U. S. Government Securities Portfolio - - -
T. Rowe Price Equity Income Portfolio 7,949,358 - -
T. Rowe Price Growth Stock Portfolio - 7,381,845 -
Endeavor Opportunity Value Portfolio - - 1,149,335
Endeavor Enhanced Index Portfolio - - -
WRL Series Fund, Inc.:
Growth Portfolio - - -
----------------------------------------------------------
Total investments in mutual funds 7,949,358 7,381,845 1,149,335
==========================================================
Total assets $7,949,358 $7,381,845 $1,149,335
==========================================================
Liabilities and contract owners' equity
Liabilities:
Contract terminations payable $ 74 $ 126 $ 19
----------------------------------------------------------
Total liabilities 74 126 19
Contract owners' equity:
Deferred annuity contracts terminable by owners 7,949,284 7,381,719 1,149,316
==========================================================
Total liabilities and contract owners' equity $7,949,358 $7,381,845 $1,149,335
==========================================================
<CAPTION>
Endeavor
Enhanced Index Growth
Subaccount Subaccount
-----------------------------------
<S> <C> <C>
Assets
Investments in mutual funds, at current market value:
Endeavor Series Trust: $ - $
Endeavor Money Market Portfolio - -
Endeavor Asset Allocation Portfolio - -
T. Rowe Price International Stock Portfolio - -
Endeavor Value Equity Portfolio - -
Dreyfus Small Cap Value Portfolio - -
Dreyfus U. S. Government Securities Portfolio - -
T. Rowe Price Equity Income Portfolio - -
T. Rowe Price Growth Stock Portfolio - -
Endeavor Opportunity Value Portfolio - -
Endeavor Enhanced Index Portfolio 1,908,702 -
WRL Series Fund, Inc.:
Growth Portfolio - 20,890,222
-----------------------------------
Total investments in mutual funds 1,908,702 20,890,222
===================================
Total assets $1,908,702 $20,890,222
===================================
Liabilities and contract owners' equity
Liabilities:
Contract terminations payable $ 17 $ 187
-----------------------------------
Total liabilities 17 187
Contract owners' equity:
Deferred annuity contracts terminable by owners 1,908,685 20,890,035
===================================
Total liabilities and contract owners' equity $1,908,702 $20,890,222
===================================
</TABLE>
5
<PAGE>
AUSA Endeavor Variable Annuity Account -
The Endeavor Variable Annuity
Statement of Operations
Year ended December 31, 1998
Total
-----------
Net investment income (loss)
Income:
Dividends $ 2,278,713
Expenses:
Administrative fee 29,892
Mortality and expense risk charge 787,827
-----------
Net investment income (loss) 1,460,994
Net realized and unrealized capital gain (loss) from investments
Net realized capital gain from sales of investments:
Proceeds from sales 8,259,766
Cost of investments sold 6,075,818
-----------
Net realized capital gain from sales of investments 2,183,948
Net change in unrealized appreciation (depreciation) of investments:
Beginning of the period 4,604,053
End of the period 12,505,236
-----------
Net change in unrealized appreciation (depreciation) of investments 7,901,183
-----------
Net realized and unrealized capital gain (loss) from investments 10,085,131
-----------
Increase (decrease) from operations $11,546,125
===========
See accompanying notes.
6
<PAGE>
<TABLE>
<CAPTION>
Endeavor Money Endeavor Asset T. Rowe Price
Market Allocation International
Subaccount Subaccount Stock Subaccount
-------------------------------------------------------
<S> <C> <C> <C>
Net investment income (loss)
Income:
Dividends $ 44,168 $481,730 $ 97,670
Expenses:
Administrative fee 372 2,644 3,505
Mortality and expense risk charge 12,567 67,293 95,343
-------------------------------------------------------
Net investment income (loss) 31,229 411,793 (1,178)
Net realized and unrealized capital gain (loss) from investments
Net realized capital gain from sales of investments:
Proceeds from sales 473,509 588,460 909,942
Cost of investments sold 473,509 369,236 722,979
-------------------------------------------------------
Net realized capital gain from sales of investments - 219,224 186,963
Net change in unrealized appreciation (depreciation) of investments:
Beginning of the period - 710,551 159,780
End of the period - 822,028 812,805
-------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments - 111,477 653,025
-------------------------------------------------------
Net realized and unrealized capital gain (loss) from investments - 330,701 839,988
-------------------------------------------------------
Increase (decrease) from operations $ 31,229 $742,494 $838,810
=======================================================
<CAPTION>
Endeavor Dreyfus Small
Value Equity Cap Value
Subaccount Subaccount
--------------------------------
<S> <C> <C>
Net investment income (loss)
Income:
Dividends $ 211,884 $ 646,835
Expenses:
Administrative fee 3,917 2,915
Mortality and expense risk charge 105,117 67,416
--------------------------------
Net investment income (loss) 102,850 576,504
Net realized and unrealized capital gain (loss) from investments
Net realized capital gain from sales of investments:
Proceeds from sales 997,731 550,950
Cost of investments sold 670,049 502,881
--------------------------------
Net realized capital gain from sales of investments 327,682 48,069
Net change in unrealized appreciation (depreciation) of investments:
Beginning of the period 1,057,390 504,537
End of the period 958,553 (325,370)
--------------------------------
Net change in unrealized appreciation (depreciation) of investments (98,837) (829,907)
--------------------------------
Net realized and unrealized capital gain (loss) from investments 228,845 (781,838)
--------------------------------
Increase (decrease) from operations $ 331,695 $(205,334)
================================
</TABLE>
7
<PAGE>
AUSA Endeavor Variable Annuity Account -
The Endeavor Variable Annuity
Statement of Operations (continued)
Dreyfus U. S.
Government
Securities
Subaccount
----------
Net investment income (loss)
Income:
Dividends $ 56,102
Expenses:
Administrative fee 890
Mortality and expense risk charge 24,291
----------
Net investment income (loss) 30,921
Net realized and unrealized capital gain (loss) from investments
Net realized capital gain from sales of investments:
Proceeds from sales 125,201
Cost of investments sold 118,550
----------
Net realized capital gain from sales of investments 6,651
Net change in unrealized appreciation (depreciation) of investments:
Beginning of the period 65,432
End of the period 126,060
----------
Net change in unrealized appreciation (depreciation) of investments 60,628
----------
Net realized and unrealized capital gain (loss) from investments 67,279
----------
Increase (decrease) from operations $ 98,200
==========
See accompanying notes.
8
<PAGE>
<TABLE>
<CAPTION>
T. Rowe Price T. Rowe Price Endeavor
Equity Income Growth Stock Opportunity Value
Subaccount Subaccount Subaccount
---------------------------------------------------------
<S> <C> <C> <C>
Net investment income (loss)
Income:
Dividends $ 324,655 $ 235,873 $ 10,421
Expenses:
Administrative fee 3,390 2,650 422
Mortality and expense risk charge 95,214 76,708 14,779
---------------------------------------------------------
Net investment income (loss) 226,051 156,515 (4,780)
Net realized and unrealized capital gain (loss) from investments
Net realized capital gain from sales of investments:
Proceeds from sales 830,323 807,578 583,296
Cost of investments sold 561,233 507,697 460,984
---------------------------------------------------------
Net realized capital gain from sales of investments 269,090 299,881 122,312
Net change in unrealized appreciation (depreciation) of investments:
Beginning of the period 1,045,433 762,948 80,372
End of the period 1,032,364 1,627,770 40,842
---------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments (13,069) 864,822 (39,530)
---------------------------------------------------------
Net realized and unrealized capital gain (loss) from investments 256,021 1,164,703 82,782
---------------------------------------------------------
Increase (decrease) from operations $ 482,072 $1,321,218 $ 78,002
=========================================================
<CAPTION>
Endeavor
Enhanced Index Growth
Subaccount Subaccount
---------------------------------
<S> <C> <C>
Net investment income (loss)
Income:
Dividends $ 4,701 $ 164,674
Expenses:
Administrative fee 385 8,802
Mortality and expense risk charge 18,116 210,983
--------------------------------
Net investment income (loss) (13,800) (55,111)
Net realized and unrealized capital gain (loss) from investments
Net realized capital gain from sales of investments:
Proceeds from sales 462,884 1,929,892
Cost of investments sold 380,349 1,308,351
--------------------------------
Net realized capital gain from sales of investments 82,535 621,541
Net change in unrealized appreciation (depreciation) of investments:
Beginning of the period 17,739 199,871
End of the period 266,268 7,143,916
--------------------------------
Net change in unrealized appreciation (depreciation) of investments 248,529 6,944,045
--------------------------------
Net realized and unrealized capital gain (loss) from investments 331,064 7,565,586
--------------------------------
Increase (decrease) from operations $317,264 $7,510,475
================================
</TABLE>
9
<PAGE>
AUSA Endeavor Variable Annuity Account -
The Endeavor Variable Annuity
Statements of Changes in Contract Owners' Equity
Years ended December 31, 1998 and 1997, except as noted
<TABLE>
<CAPTION>
Endeavor Money Market Endeavor Asset
Total Subaccount Allocation Subaccount
----------------------------- ----------------------------- ------------------------------
1998 1997 1998 1997 1998 1997
----------------------------- ----------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ 1,460,994 $ 1,324,362 $ 31,229 $ 31,716 $ 411,793 $ (6,560)
Net realized capital gain 2,183,948 537,309 - - 219,224 103,940
Net change in unrealized
appreciation (depreciation)
of investments 7,901,183 2,841,460 - - 111,477 411,330
----------------------------- ----------------------------- ------------------------------
Increase (decrease) from operations 11,546,125 4,703,131 31,229 31,716 742,494 508,710
Contract transactions:
Net contract purchase payments 3,911,835 9,220,861 99,464 333,392 133,924 476,507
Transfer payments from (to)
other subaccounts or general
account 13,499,242 11,407,256 463,681 (400,679) 1,084,068 1,090,186
Contract terminations,
withdrawals and other
deductions (3,590,513) (558,344) - - (373,106) (69,404)
----------------------------- ----------------------------- ------------------------------
Increase (decrease) from contract
transactions 13,820,564 20,069,773 563,145 (67,287) 844,886 1,497,289
----------------------------- ----------------------------- ------------------------------
Net increase (decrease) in
contract owners' equity 25,366,689 24,772,904 594,374 (35,571) 1,587,380 2,005,999
Contract owners' equity:
Beginning of the period 44,599,121 19,826,217 732,186 767,757 4,065,470 2,059,471
----------------------------- ----------------------------- ------------------------------
End of the period $69,965,810 $44,599,121 $1,326,560 $732,186 $5,652,850 $4,065,470
============================= ============================= ==============================
</TABLE>
(1) Commencement of operations, May 1, 1997.
See accompanying notes.
10
<PAGE>
<TABLE>
<CAPTION>
T. Rowe Price International Endeavor Value Dreyfus Small Cap
Stock Subaccount Equity Subaccount Value Subaccount
-------------------------------- ------------------------------ -----------------------------
1998 1997 1998 1997 1998 1997
-------------------------------- ------------------------------ -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ (1,178) $ (36,623) $ 102,850 $ 80,572 $ 576,504 $ 242,637
Net realized capital gain 186,963 67,267 327,682 95,546 48,069 42,516
Net change in unrealized
appreciation (depreciation)
of investments 653,025 (76,798) (98,837) 708,617 (829,907) 225,752
-------------------------------- ------------------------------ -----------------------------
Increase (decrease) from operations 838,810 (46,154) 331,695 884,735 (205,334) 510,905
Contract transactions:
Net contract purchase payments 236,000 1,358,284 352,811 1,004,197 289,404 847,169
Transfer payments from (to)
other subaccounts or general
account 1,092,159 1,831,294 1,879,751 1,750,664 1,356,749 1,086,084
Contract terminations,
withdrawals and other
deductions (342,661) (80,849) (431,951) (72,413) (268,863) (50,547)
-------------------------------- ------------------------------ -----------------------------
Increase (decrease) from contract
transactions 985,498 3,108,729 1,800,611 2,682,448 1,377,290 1,882,706
-------------------------------- ------------------------------ -----------------------------
Net increase (decrease) in
contract owners' equity 1,824,308 3,062,575 2,132,306 3,567,183 1,171,956 2,393,611
Contract owners' equity:
Beginning of the period 5,836,737 2,774,162 6,220,645 2,653,462 4,247,899 1,854,288
-------------------------------- ------------------------------ -----------------------------
End of the period $7,661,045 $5,836,737 $8,352,951 $6,220,645 $5,419,855 $4,247,899
================================ ============================== =============================
</TABLE>
11
<PAGE>
AUSA Endeavor Variable Annuity Account -
The Endeavor Variable Annuity
Statements of Changes in Contract Owners' Equity (continued)
<TABLE>
<CAPTION>
Dreyfus U. S. Government T. Rowe Price Equity T. Rowe Price Growth
Securities Subaccount Income Subaccount Stock Subaccount
----------------------------- ------------------------------ -----------------------------
1998 1997 1998 1997 1998 1997
------------- --------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ 30,921 $ 14,013 $ 226,051 $ 36,130 $ 156,515 $ (19,668)
Net realized capital gain 6,651 2,089 269,090 36,934 299,881 49,473
Net change in unrealized
appreciation (depreciation)
of investments 60,628 57,997 (13,069) 818,182 864,822 588,861
------------- --------------- -------------- --------------- -------------- --------------
Increase (decrease) from operations 98,200 74,099 482,072 891,246 1,321,218 618,666
Contract transactions:
Net contract purchase payments 58,235 189,291 653,419 1,328,455 511,952 799,864
Transfer payments from (to)
other subaccounts or general
account 852,781 415,951 1,474,782 1,479,634 1,984,283 980,121
Contract terminations,
withdrawals and other
deductions (64,873) (15,899) (402,387) (69,431) (369,688) (19,352)
------------- --------------- -------------- --------------- -------------- --------------
Increase (decrease) from contract
transactions 846,143 589,343 1,725,814 2,738,658 2,126,547 1,760,633
------------- --------------- -------------- --------------- -------------- --------------
Net increase (decrease) in
contract owners' equity 944,343 663,442 2,207,886 3,629,904 3,447,765 2,379,299
Contract owners' equity:
Beginning of the period 1,329,167 665,725 5,741,398 2,111,494 3,933,954 1,554,655
------------- --------------- -------------- --------------- -------------- --------------
End of the period $2,273,510 $1,329,167 $7,949,284 $5,741,398 $7,381,719 $3,933,954
============= =============== ============== =============== ============== ==============
</TABLE>
(1) Commencement of operations, May 1, 1997.
See accompanying notes.
12
<PAGE>
<TABLE>
<CAPTION>
Endeavor Opportunity Endeavor Enhanced
Value Subaccount Index Subaccount
------------------------------------ ---------------------------------
1998 1997 1998 1997 (1)
------------------------------------ ---------------------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ (4,780) $ (8,601) $ (13,800) $ (2,004)
Net realized capital gain 122,312 1,784 82,535 2,767
Net change in unrealized
appreciation (depreciation)
of investments (39,530) 80,478 248,529 17,739
------------------------------------ ---------------------------------
Increase (decrease) from operations 78,002 73,661 317,264 18,502
Contract transactions:
Net contract purchase payments 225,557 636,399 491,065 299,901
Transfer payments from (to)
other subaccounts or general
account (124,265) 127,025 915,841 197,261
Contract terminations,
withdrawals and other
deductions (36,368) (10,388) (329,609) (1,540)
------------------------------------ ---------------------------------
Increase (decrease) from contract
transactions 64,924 753,036 1,077,297 495,622
------------------------------------ ---------------------------------
Net increase (decrease) in
contract owners' equity 142,926 826,697 1,394,561 514,124
Contract owners' equity:
Beginning of the period 1,006,390 179,693 514,124 -
------------------------------------ ---------------------------------
End of the period $1,149,316 $1,006,390 $1,908,685 $514,124
==================================== =================================
<CAPTION>
Growth Subaccount
--------------------------------
1998 1997
--------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) $ (55,111) $ 992,750
Net realized capital gain 621,541 134,993
Net change in unrealized
appreciation (depreciation)
of investments 6,944,045 9,302
--------------------------------
Increase (decrease) from operations 7,510,475 1,137,045
Contract transactions:
Net contract purchase payments 860,004 1,947,402
Transfer payments from (to)
other subaccounts or general
account 2,519,412 2,849,715
Contract terminations,
withdrawals and other
deductions (971,007) (168,521)
--------------------------------
Increase (decrease) from contract
transactions 2,408,409 4,628,596
--------------------------------
Net increase (decrease) in
contract owners' equity 9,918,884 5,765,641
Contract owners' equity:
Beginning of the period 10,971,151 5,205,510
--------------------------------
End of the period $20,890,035 $10,971,151
================================
</TABLE>
13
<PAGE>
AUSA Endeavor Variable Annuity Account -
The Endeavor Variable Annuity
Notes to Financial Statements
December 31, 1998
1. Organization and Summary of Significant Accounting Policies
Organization
The AUSA Endeavor Variable Annuity Account (the "Mutual Fund Account") is a
segregated investment account of AUSA Life Insurance Company, Inc. ("AUSA"), an
indirect, wholly-owned subsidiary of AEGON N.V., a holding company organized
under the laws of The Netherlands.
The Mutual Fund Account is registered with the Securities and Exchange
Commission as a Unit Investment Trust pursuant to provisions of the Investment
Company Act of 1940. The Mutual Fund Account consists of eleven investment
subaccounts, ten of which are invested in specified portfolios of the Endeavor
Series Trust and one of which is invested in the WRL Series Fund, Inc. Activity
in these eleven investment subaccounts is available to contract owners of The
Endeavor Variable Annuity.
The Endeavor Enhanced Index Subaccount commenced operations on May 1, 1997.
Effective May 1, 1998, the names of the TCW Money Market, TCW Managed Asset
Allocation, Value Equity, Opportunity Value, and Enhanced Index portfolios and
subaccounts were changed to Endeavor Money Market, Endeavor Asset Allocation,
Endeavor Value Equity, Endeavor Opportunity Value, and Endeavor Enhanced Index
portfolios and subaccounts, respectively. The investment advisor of the Endeavor
Series Trust is Endeavor Management Co. The investment advisor for the WRL
Series Fund, Inc. is WRL Investment Management, Inc., an affiliate of AUSA.
Investments
Net purchase payments received by the Mutual Fund Account for The Endeavor
Variable Annuity are invested in the portfolios of the Endeavor Series Trust and
the Growth Portfolio of the WRL Series Fund, Inc. (collectively, the "Series
Funds"), as selected by the contract owner. Investments are stated at the
closing net asset values per share on December 31, 1998.
Realized capital gains and losses from the sale of shares in the Series Funds
are determined on the first-in, first-out basis. Investment transactions are
accounted for on the trade date (date the order to buy or sell is executed) and
dividend income is recorded on the ex-dividend date. Unrealized gains or losses
from the investments in the Series Funds are credited or charged to contract
owners' equity.
Dividend Income
Dividends received from the Series Funds' investments are reinvested to purchase
additional mutual fund shares.
14
<PAGE>
AUSA Endeavor Variable Annuity Account -
The Endeavor Variable Annuity
Notes to Financial Statements (continued)
2. Investments
A summary of the mutual fund investment at December 31, 1998 follows:
<TABLE>
<CAPTION>
Net Asset
Number of Value Per Market
Shares Held Share Value Cost
----------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Endeavor Series Trust:
Endeavor Money Market Portfolio 1,326,567.640 $ 1.00 $ 1,326,568 $ 1,326,568
Endeavor Asset Allocation Portfolio 236,622.517 23.89 5,652,912 4,830,884
T. Rowe Price International Stock
Portfolio 473,200.825 16.19 7,661,121 6,848,316
Endeavor Value Equity Portfolio 385,294.689 21.68 8,353,188 7,394,635
Dreyfus Small Cap Value Portfolio 383,320.898 14.14 5,420,157 5,745,527
Dreyfus U. S. Government Securities
Portfolio 184,538.932 12.32 2,273,520 2,147,460
T. Rowe Price Equity Income Portfolio
396,674.562 20.04 7,949,358 6,916,994
T. Rowe Price Growth Stock Portfolio 288,353.338 25.60 7,381,845 5,754,075
Endeavor Opportunity Value Portfolio 94,053.598 12.22 1,149,335 1,108,493
Endeavor Enhanced Index Portfolio 118,700.356 16.08 1,908,702 1,642,434
WRL Series Fund, Inc.:
Growth Portfolio 348,523.429 59.939219 20,890,222 13,746,306
--------------- ----------------
$69,966,928 $57,461,692
=============== ================
</TABLE>
The aggregate cost of purchases and proceeds from sales of investments were as
follows:
<TABLE>
<CAPTION>
Period ended December 31
1998 1997
----------------------------- ---------------------------
Purchases Sales Purchases Sales
-------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Endeavor Series Trust:
Endeavor Money Market Portfolio $ 1,067,902 $ 473,509 $ 478,323 $ 514,011
Endeavor Asset Allocation Portfolio 1,845,113 588,460 1,779,492 288,862
T. Rowe Price International Stock Portfolio 1,894,226 909,942 3,456,564 384,492
Endeavor Value Equity Portfolio 2,901,255 997,731 3,042,604 279,661
Dreyfus Small Cap Value Portfolio 2,504,908 550,950 2,254,509 128,984
Dreyfus U. S. Government Securities Portfolio 1,002,274 125,201 674,591 71,243
T. Rowe Price Equity Income Portfolio 2,782,124 830,323 2,894,969 120,095
T. Rowe Price Growth Stock Portfolio 3,090,633 807,578 1,892,220 151,150
Endeavor Opportunity Value Portfolio 643,438 583,296 759,976 15,519
Endeavor Enhanced Index Portfolio 1,526,385 462,884 538,368 44,737
WRL Series Fund, Inc.:
Growth Portfolio 4,282,983 1,929,892 6,020,425 399,047
-------------- -------------- ------------- -------------
$23,541,241 $8,259,766 $23,792,041 $2,397,801
============== ============== ============= =============
</TABLE>
15
<PAGE>
AUSA Endeavor Variable Annuity Account -
The Endeavor Variable Annuity
Notes to Financial Statements (continued)
3. Contract Owners' Equity
A summary of deferred annuity contracts terminable by owners at December 31,
1998 follows:
<TABLE>
<CAPTION>
Return of Premium Death Benefit
------------------------------------------------------------
Total
Accumulation Accumulation Contract
Subaccount Units Owned Unit Value Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Endeavor Money Market 1,017,991.339 $ 1.239556 $ 1,261,857
Endeavor Asset Allocation 2,197,971.735 2.535888 5,573,810
T. Rowe Price International Stock 4,958,037.992 1.533035 7,600,846
Endeavor Value Equity 3,668,656.747 2.212928 8,118,473
Dreyfus Small Cap Value 2,915,575.262 1.785929 5,207,010
Dreyfus U. S. Government Securities 1,728,824.679 1.286733 2,224,536
T. Rowe Price Equity Income 3,702,824.740 2.065623 7,648,640
T. Rowe Price Growth Stock 2,640,487.984 2.593121 6,847,105
Endeavor Opportunity Value 886,891.881 1.200101 1,064,360
Endeavor Enhanced Index 1,007,218.727 1.577775 1,589,165
Growth 636,917.148 31.898334 20,316,596
------------------
$67,452,398
==================
<CAPTION>
Annual Step-Up Death Benefit
------------------------------------------------------------
Total
Accumulation Accumulation Contract
Subaccount Units Owned Unit Value Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Endeavor Money Market 52,322.018 $1.236621 $ 64,703
Endeavor Asset Allocation 31,242.813 2.529863 79,040
T. Rowe Price International Stock 39,361.912 1.529380 60,199
Endeavor Value Equity 106,211.103 2.207657 234,478
Dreyfus Small Cap Value 119,463.216 1.781675 212,845
Dreyfus U. S. Government Securities 38,151.310 1.283673 48,974
T. Rowe Price Equity Income 145,891.829 2.060734 300,644
T. Rowe Price Growth Stock 206,657.078 2.586964 534,614
Endeavor Opportunity Value 70,958.668 1.197263 84,956
Endeavor Enhanced Index 202,995.681 1.574026 319,520
Growth 18,019.791 31.822714 573,439
------------------
$2,513,412
==================
</TABLE>
16
<PAGE>
AUSA Endeavor Variable Annuity Account -
The Endeavor Variable Annuity
Notes to Financial Statements (continued)
3. Contract Owners' Equity (continued)
At December 31, 1998 contract owners' equity was comprised of:
<TABLE>
<CAPTION>
Endeavor Endeavor T. Rowe Price
Money Asset International
Market Allocation Stock
Total Subaccount Subaccount Subaccount
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Unit transactions, accumulated net
investment income and realized capital gains $57,460,574 $1,326,560 $4,830,822 $6,848,240
Adjustment for appreciation (depreciation) to
market value 12,505,236 - 822,028 812,805
-----------------------------------------------------------------
Total contract owners' equity $69,965,810 $1,326,560 $5,652,850 $7,661,045
=================================================================
<CAPTION>
Endeavor Dreyfus Dreyfus U. S.
Value Small Cap Government T. Rowe Price
Equity Value Securities Equity Income
Subaccount Subaccount Subaccount Subaccount
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Unit transactions, accumulated net
investment income and realized capital gains $7,394,398 $5,745,225 $2,147,450 $6,916,920
Adjustment for appreciation (depreciation) to
market value 958,553 (325,370) 126,060 1,032,364
-----------------------------------------------------------------
Total contract owners' equity $8,352,951 $5,419,855 $2,273,510 $7,949,284
=================================================================
<CAPTION>
Endeavor Endeavor
T. Rowe Price Opportunity Enhanced
Growth Stock Value Index Growth
Subaccount Subaccount Subaccount Subaccount
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Unit transactions, accumulated net
investment income and realized capital gains $5,753,949 $1,108,474 $1,642,417 $13,746,119
Adjustment for appreciation (depreciation) to
market value 1,627,770 40,842 266,268 7,143,916
-----------------------------------------------------------------
Total contract owners' equity $7,381,719 $1,149,316 $1,908,685 $20,890,035
=================================================================
</TABLE>
17
<PAGE>
AUSA Endeavor Variable Annuity Account -
The Endeavor Variable Annuity
Notes to Financial Statements (continued)
3. Contract Owners' Equity (continued)
A summary of changes in contract owners' account units follows:
<TABLE>
<CAPTION>
Endeavor Endeavor T. Rowe Price
Money Asset International Endeavor
Market Allocation Stock Value Equity
Subaccount Subaccount Subaccount Subaccount
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Units outstanding at January 1, 1997 665,174 1,123,469 2,084,833 1,565,599
Units purchased 287,198 241,650 976,337 539,580
Units redeemed and transferred (340,390) 506,689 1,273,384 876,728
-----------------------------------------------------------------
Units outstanding at December 31, 1997 611,982 1,871,808 4,334,554 2,981,907
Units purchased 81,621 57,867 163,951 158,049
Units redeemed and transferred 376,710 299,540 498,895 634,912
-----------------------------------------------------------------
Units outstanding at December 31, 1998 1,070,313 2,229,215 4,997,400 3,774,868
=================================================================
<CAPTION>
T. Rowe
Dreyfus Dreyfus U. S. T. Rowe Price Price
Small Cap Government Equity Growth
Value Securities Income Stock
Subaccount Subaccount Subaccount Subaccount
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Units outstanding at January 1, 1997 1,239,443 589,780 1,387,607 964,658
Units purchased 478,443 160,483 780,799 442,620
Units redeemed and transferred 576,751 343,672 814,105 517,840
-----------------------------------------------------------------
Units outstanding at December 31, 1997 2,294,637 1,093,935 2,982,511 1,925,118
Units purchased 156,808 46,241 330,034 231,910
Units redeemed and transferred 583,593 626,800 536,173 690,117
-----------------------------------------------------------------
Units outstanding at December 31, 1998 3,035,038 1,766,976 3,848,718 2,847,145
=================================================================
<CAPTION>
Endeavor Endeavor
Opportunity Enhanced
Value Index Growth
Subaccount Subaccount Subaccount
------------------------------------------------
<S> <C> <C> <C>
Units outstanding at January 1, 1997 178,913 - 306,855
Units purchased 584,681 257,278 105,365
Units redeemed and transferred 106,238 164,949 145,678
------------------------------------------------
Units outstanding at December 31, 1997 869,832 422,227 557,898
Units purchased 195,802 362,815 35,902
Units redeemed and transferred (107,783) 425,172 61,137
------------------------------------------------
Units outstanding at December 31, 1998 957,851 1,210,214 654,937
================================================
</TABLE>
18
<PAGE>
AUSA Endeavor Variable Annuity Account -
The Endeavor Variable Annuity
Notes to Financial Statements (continued)
4. Administrative, Mortality and Expense Risk Charge
Administrative charges include an annual charge of the lesser of 2% of the
policy value or $35 per contract which will commence on the first policy
anniversary of each contract owner's account. For policies issued on or after
May 1, 1995, this charge is waived if the sum of the premium payments made less
the sum of all partial withdrawals equals or exceeds $50,000 on the policy
anniversary. Charges for administrative fees to the variable annuity contracts
are an expense of the Mutual Fund Account. AUSA also deducts a daily charge
equal to an annual rate of .15% of the contract owner's account for
administrative expenses.
AUSA deducts a daily charge for assuming certain mortality and expense risks.
For policies sold prior to December 1, 1998, this charge is equal to an
effective annual rate of 1.25% of the value of the contract owner's individual
account. For policies sold on or after December 1, 1998, this fee depends on the
death benefit option selected and the number of policy years that have elapsed
since the date of issue. For the Annual Step-Up Death Benefit, the fee is 1.40%
in the first seven policy years and 1.25% thereafter. For the Return of Premium
Death Benefit, the fee is 1.25% in the first seven years and 1.10% thereafter.
5. Taxes
Operations of the Mutual Fund Account form a part of AUSA, which is taxed as a
life insurance company under Subchapter L of the Internal Revenue Code of 1986,
as amended (the "Code"). The operations of the Mutual Fund Account are accounted
for separately from other operations of AUSA for purposes of federal income
taxation. The Mutual Fund Account is not separately taxable as a regulated
investment company under Subchapter M of the Code and is not otherwise taxable
as an entity separate from AUSA. Under existing federal income tax laws, the
income of the Mutual Fund Account, to the extent applied to increase reserves
under the variable annuity contracts, is not taxable to AUSA.
6. Year 2000 (Unaudited)
The term Year 2000 Issue generally refers to the improper processing of dates
and incorrect date calculations that might occur in computer software and
hardware and embedded systems as the Year 2000 is approached. The use of
computer programs that rely on two-digit date fields to perform computations and
decision-making functions may cause systems to malfunction when processing
information involving dates after 1999. For example, any computer software that
has date-sensitive coding might recognize a code of 00 as the year 1900 rather
than the year 2000.
19
<PAGE>
AUSA Endeavor Variable Annuity Account -
The Endeavor Variable Annuity
Notes to Financial Statements (continued)
6. Year 2000 (Unaudited) (continued)
AUSA has developed a Year 2000 Project Plan (the Plan) to address the Year 2000
issue as it affects AUSA's internal IT and non-IT systems, and to assess Year
2000 issues relating to third parties with whom AUSA has critical relationships.
The Plan for addressing internal systems generally includes an assessment of
internal IT and non-IT systems and equipment affected by the Year 2000 issue;
definition of strategies to address affected systems and equipment; remediation
of identified systems and equipment; internal testing and certification that
each internal system is Year 2000 compliant; and a review of existing and
revised business resumption and contingency plans to address potential Year 2000
issues. AUSA has remediated and tested substantially all of its mission-critical
internal IT systems as of December 31, 1998. AUSA continues to remediate and
test certain non-critical internal IT systems, internal non-IT systems and will
continue with a revalidation testing program throughout 1999.
AUSA's Year 2000 issues are more complex because a number of its systems
interface with other systems not under AUSA's control. AUSA's most significant
interfaces and uses of third-party vendor systems are in the bank, financial
services and trust areas. AUSA utilizes various banks to handle numerous types
of financial and sales transactions. Several of these banks also provide trustee
and custodial services for AUSA's investment holdings and transactions. These
services are critical to a financial services company such as AUSA as its
business centers around cash receipts and disbursements to policyholders and the
investment of policyholder funds. AUSA has received written confirmation from
its vendor banks regarding their status on Year 2000. The banks indicate their
dedication to resolving any Year 2000 issues related to their systems and
services prior to December 31, 1999. AUSA anticipates that a considerable effort
will be necessary to ensure that its corrected or new systems can properly
interface with those business partners with whom it transmits and receives data
and other information (external systems). AUSA has undertaken specific testing
regimes with these third-party business partners and expects to continue working
with its business partners on any interfacing of systems. However, the timing of
external system compliance cannot currently be predicted with accuracy because
the implementation of Year 2000 readiness will vary from one company to another.
AUSA does have some exposure to date sensitive embedded technology such as
micro-controllers, but AUSA views this exposure as minimal. Unlike other
industries that may be equipment intensive, like manufacturing, AUSA is a life
insurance, and financial services organization providing insurance, annuities
and pension products to its customers. As such, the primary equipment and
electronic devices in use are computers and telephone related equipment. This
type of hardware can have date sensitive embedded technology which could have
Year 2000 problems. Because of this exposure, AUSA has reviewed its computer
hardware and telephone systems, with assistance from
20
<PAGE>
AUSA Endeavor Variable Annuity Account -
The Endeavor Variable Annuity
Notes to Financial Statements (continued)
6. Year 2000 (Unaudited) (continued)
the applicable vendors, and has upgraded, or replaced, or is in the process of
replacing any equipment that will not properly process date sensitive data in
the Year 2000 or beyond. This undertaking has been substantially completed for
all operations.
For AUSA, a reasonably likely worst case scenario might include one or more of
AUSA's significant policyholder systems being non-compliant. Such an event could
result in a material disruption of AUSA's operations. Specifically, a number of
AUSA's operations could experience an interruption in the ability to collect and
process premiums or deposits, process claim payments, accurately maintain
policyholder information, accurately maintain accounting records, and or perform
adequate customer service. Should the worst case scenario occur, it could,
dependent upon its duration, have a material impact on AUSA's business and
financial condition. Simple failures can be repaired and returned to production
within a matter of hours with no material impact. Unanticipated failures with a
longer service disruption period could have a more serious impact. For this
reason, AUSA is placing significant emphasis on risk management and Year 2000
business resumption contingency planning in 1999 by modifying its existing
business resumption and disaster recovery plans to address potential Year 2000
issues.
The actions taken by management under the Year 2000 Project Plans are intended
to significantly reduce AUSA's risk of a material business interruption based on
the Year 2000 issues. It should be noted that the Year 2000 computer problem,
and its resolution, is complex and multifaceted, and any company's success
cannot be conclusively known until the Year 2000 is reached. In spite of its
efforts or results, AUSA's ability to function unaffected to and through the
Year 2000 may be adversely affected by actions (or failure to act) of third
parties beyond our knowledge or control. It is anticipated that there may be
problems that will have to be resolved in the ordinary course of business on and
after the Year 2000. However, AUSA does not believe that the problems will have
a material adverse affect on AUSA's operations or financial condition.
21
<PAGE>
AUSA Endeavor Target Account
Separate Account Financials
The AUSA Endeavor Target Account did not commence operations as of December 31,
1998, therefore there are no separate account financials available.
<PAGE>
PART C
OTHER INFORMATION
Item 28. Financial Statements and Exhibits
(a) Financial Statements:
All required financial statements are included in Part B of this
Registration Statement.
(b) Exhibits:
(1) Resolution of the Board of Directors of AUSA Life Insurance
Company, Inc. authorizing the establishment of the Target
Account. (Note 1)
(2) Rules and Regulations of the AUSA Endeavor Target Account.
(Note 2)
(3)(a) Custodian Agreement between the AUSA Endeavor Target Account
and Boston Safe Deposit and Trust Company (Note 2)
(3)(b) Not Applicable.
(4)(a) Management Agreement between the AUSA Endeavor Target
Account and Endeavor Investment Advisers. (Note 2)
(4)(b)(1) Investment Advisory Agreement between Endeavor Investment
Advisers and First Trust Advisers L.P. (The DowSM Target 5)
(Note 2)
(4)(b)(2) Investment Advisory Agreement between Endeavor Investment
Advisers and First Trust Advisers L.P. (The DowSM Target 10)
(Note 2)
(5)(a) Principal Underwriting Agreement by and between AUSA Life
Insurance Company, Inc. on its own behalf and on behalf of
the AUSA Endeavor Target Account, and AFSG Securities
Corporation (Note 1)
(5)(b) Form of Broker-Dealer Supervision and Sales Agreement by and
between AFSG Securities Corporation and the Broker-Dealer.
(Note 1)
(6)(a) Form of Policy for the AUSA Endeavor Variable Annuity. (Note
1)
(6)(b) Form of Policy Endorsement (AUSA Endeavor Target Account)
(Note 1)
(7)(a) Form of Application for the AUSA Endeavor Variable Annuity.
(Note 1)
(8)(a) Articles of Incorporation of AUSA Life Insurance Company,
Inc. (Note 1)
(8)(b) Bylaws of AUSA Life Insurance Company, Inc. (Note 1)
(9) Not Applicable.
(10) Not Applicable.
(11)(a) Distribution Plan (Note 2).
<PAGE>
(11)(b) Administrative Services Agreement with First Data Investors
Services Group (Note 2)
(11)(c) Brokerage Enhancement Plan (Note 2)
(11)(d) Sublicense Agreement between Dow Jones, First Trust Advisers
L.P. and the AUSA Endeavor Target Account (Note 2)
(11)(e) Distribution Agreement. (Note 2)
(12) Opinion and Consent of Counsel. (Note 1)
(13)(a) Opinion and Consent of Actuary. (Note 1)
(13)(b) Consent of Independent Auditors. (Note 2)
(14) Not Applicable.
(15) Not Applicable
(16) Performance Data Calculations. (Note 2)
(17) Financial Data Schedules. (Note 2)
- -----------------------
Note 1. Filed herewith.
Note 2. To be filed by amendment.
<PAGE>
Item 29. Directors and Officers of the Insurance Company
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with Positions and Offices with
Business Address Insurance Company Registrant
- ---------------- ----------------- ----------
<S> <C> <C>
Tom A. Scholossberg Director and President
4 Manhattanville Road
Purchase, NY 10577
Larry G. Brown Director and Chairman of the Board
570 Carillon Parkway
St. Petersburg, FL 33716-1202
William L. Busler Director and Vice President
4333 Edgewood Road N.E.
Cedar Rapids, IA 52499-0001
Patrick S. Baird Vice President and Chief Financial
4333 Edgewood Road N.E. Officer
Cedar Rapids, IA 52499-0001
Craig D. Vermie Secretary
4333 Edgewood Road N.E.
Cedar Rapids, IA 52499-0001
Colette Vargas Director and Chief Actuary
4 Manhattanville Road
Purchase, NY 10577
Brenda K. Clancy Treasurer
4333 Edgewood Road N.E.
Cedar Rapids, IA 52499-0001
<CAPTION>
Item 30. Persons Controlled by or Under Common Control with the Insurance
Company or Registrant
<S> <C> <C> <C>
Jurisdiction of Percent of Voting
Name Incorporation Securities Owned Business
AEGON N.V. Netherlands 53.63% of Vereniging Holding company
Corporation AEGON Netherlands
Membership Association
Groninger Financieringen B.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
AEGON Netherland N.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
AEGON Nevak Holding B.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
AEGON International N.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Voting Trust Delaware Voting Trust
Trustees:
K.J. Storm
Donald J. Shepard
H.B. Van Wijk
Dennis Hersch
AEGON U.S. Holding Delaware 100% of Voting Trust Holding company
Corporation
Short Hills Management New Jersey 100% of AEGON U.S. Holding company
Company Holding Corporation
CORPA Reinsurance New York 100% of AEGON U.S. Holding company
Company Holding Corporation
AEGON Management Indiana 100% of AEGON U.S. Holding company
Company Holding Corporation
RCC North America Inc. Delaware 100% of AEGON U.S. Holding company
Holding Corporation
AEGON USA, Inc. Iowa 100% AEGON U.S. Holding company
Holding Corporation
AUSA Holding Company Maryland 100% AEGON USA, Inc. Holding company
Monumental General Insurance Maryland 100% AUSA Holding Co. Holding company
Group, Inc.
Trip Mate Insurance Agency, Inc. Kansas 100% Monumental General Sale/admin. of travel
Insurance Group, Inc. insurance
Monumental General Maryland 100% Monumental General Provides management
Administrators, Inc. Insurance Group, Inc. srvcs. to unaffiliated
third party
administrator
Executive Management and Maryland 100% Monumental General Provides actuarial
Consultant Services, Inc. Administrators, Inc. consulting services
Monumental General Mass Maryland 100% Monumental General Marketing arm for
Marketing, Inc. Insurance Group, Inc. sale of mass marketed
insurance coverages
Diversified Investment Delaware 100% AUSA Holding Co. Registered investment
Advisors, Inc. advisor
Diversified Investors Securities Delaware 100% Diversified Investment Broker-Dealer
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Corp. Advisors, Inc.
AEGON USA Securities, Inc. Iowa 100% AUSA Holding Co. Broker-Dealer
Supplemental Ins. Division, Inc. Tennessee 100% AUSA Holding Co. Insurance
Creditor Resources, Inc. Michigan 100% AUSA Holding Co. Credit insurance
CRC Creditor Resources Canada 100% Creditor Resources, Inc. Insurance agency
Canadian Dealer Network Inc.
AEGON USA Investment Iowa 100% AUSA Holding Co. Investment advisor
Management, Inc.
AEGON USA Realty Iowa 100% AUSA Holding Co. Provides real estate
Advisors, Inc. administrative and real
estate investment services
Quantra Corporation Delaware 100% AEGON USA Realty Real estate and financial
Advisors, Inc. software production and
sales
Quantra Software Corporation Delaware 100% Quantra Corporation Manufacture and sell
mortgage loan and security
management software
Landauer Realty Advisors, Inc. Iowa 100% AEGON USA Realty Real estate counseling
Advisors, Inc.
Landauer Associates, Inc. Delaware 100% AEGON USA Realty Real estate counseling
Advisors, Inc.
Realty Information Systems, Inc. Iowa 100% AEGON USA Realty Information Systems for
Advisors, Inc. real estate investment
management
AEGON USA Realty Iowa 100% AEGON USA Real estate management
Management, Inc Realty Advisors, Inc.
USP Real Estate Investment Trust Iowa 21.89% First AUSA Life Real estate investment
Ins. Co , 13.11% PFL Life trust
Ins. Co. 4.86% Bankers
United Life Assurance Co.
RCC Properties Limited Iowa AEGON USA Realty Limited Partnership
Partnership Advisors Inc. is General
Partner and 5% owner.
AUSA Financial Markets, Inc. Iowa 100% AUSA Holding Co. Marketing
Endeavor Management Co. California 49.9% AUSA Financial General Partnership
Markets, Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Universal Benefits Corporation Iowa 100% AUSA Holding Co. Third party administrator
Investors Warranty of Iowa 100% AUSA Holding Co. Provider of automobile
America, Inc. extended maintenance
contracts
Massachusetts Fidelity Trust Co. Iowa 100% AUSA Holding Co. Trust company
Money Services, Inc. Delaware 100% AUSA Holding Co. Provides financial
counseling for employees
and agents of affiliated
companies
Zahorik Company, Inc. California 100% AUSA Holding Co. Broker-Dealer
ZCI, Inc. Alabama 100% Zahorik Company, Inc. Insurance agency
AEGON Asset Management Delaware 100% AUSA Holding Co. Registered investment
Services, Inc. advisor
Intersecurities, Inc. Delaware 100% AUSA Holding Co. Broker-Dealer
Associated Mariner Financial Michigan 100% Intersecurities, Inc. Holding co./management
Group, Inc. services
Mariner Financial Services, Inc. Michigan 100% Associated Mariner Broker/Dealer
Financial Group, Inc.
Mariner Planning Corporation Michigan 100% Mariner Financial Financial planning
Services, Inc.
Associated Mariner Agency, Inc. Michigan 100% Associated Mariner Insurance agency
Financial Group, Inc.
Associated Mariner Agency Hawaii 100% Associated Mariner Insurance agency
of Hawaii, Inc. Agency, Inc.
Associated Mariner Ins. Agency Massachusetts 100% Associated Mariner Insurance agency
of Massachusetts, Inc. Agency, Inc.
Associated Mariner Agency Ohio 100% Associated Mariner Insurance agency
Ohio, Inc. Agency, Inc.
Associated Mariner Agency Texas 100% Associated Mariner Insurance agency
Texas, Inc. Agency, Inc.
Associated Mariner Agency New Mexico 100% Associated Mariner Insurance agency
New Mexico, Inc. Agency, Inc.
Mariner Mortgage Corp. Michigan 100% Associated Mariner Mortgage origination
Financial Group, Inc.
Idex Investor Services, Inc. Florida 100% AUSA Holding Co. Shareholder services
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Idex Management, Inc. Delaware 50% AUSA Holding Co. Investment advisor
50% Janus Capital Corp.
IDEX Series Fund Massachusetts Various Mutual fund
First AUSA Life Insurance Maryland 100% AEGON USA, Inc. Insurance holding Company
company
AUSA Life Insurance New York 100% First AUSA Life Insurance
Company, Inc. Insurance Company
Life Investors Insurance Iowa 100% First AUSA Life Insurance
Company of America Ins. Co.
Life Investors Alliance, LLC Delaware 100% LIICA Purchases, own, and hold
the equity interest of other
entities
Bankers United Life Iowa 100% Life Investors Ins. Insurance
Assurance Company Company of America
Life Investors Agency Iowa 100% Life Investors Ins. Marketing
Group, Inc. Company of America
PFL Life Insurance Company Iowa 100% First AUSA Life Insurance
Ins. Co.
AEGON Financial Services Minnesota 100% PFL Life Insurance Co. Marketing
Group, Inc.
AEGON Assignment Corporation Kentucky 100% AEGON Financial Administrator of structured
of Kentucky Services Group, Inc. settlements
AEGON Assignment Corporation Illinois 100% AEGON Financial Administrator of structured
Services Group settlements
Southwest Equity Life Ins. Co. Arizona 100% of Common Voting Insurance
Stock
First AUSA Life Ins. Co.
Iowa Fidelity Life Insurance Co. Arizona 100% of Common Voting Insurance
Stock
First AUSA Life Ins. Co.
Western Reserve Life Assurance Ohio 100% First AUSA Life Insurance
Co. of Ohio Ins. Co.
WRL Series Fund, Inc. Maryland Various Mutual fund
WRL Investment Services, Inc. Florida 100% Western Reserve Life Provides administration for
Assurance Co. of Ohio affiliated mutual fund
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
WRL Investment Florida 100% Western Reserve Life Registered investment Management, Inc.
Assurance Co. of Ohio advisor
AEGON Equity Group, Inc. Florida 100% Western Reserve Life Insurance agency
Assurance Co. of Ohio
ISI Insurance Agency, Inc. California 100% Western Reserve Life Insurance agency
Assurance Co. of Ohio
ISI Insurance Agency Ohio 100% ISI Insurance Insurance agency
of Ohio, Inc. Agency Inc.
ISI Insurance Agency Texas 100% ISI Insurance Insurance agency
of Texas, Inc. Agency Inc.
ISI Insurance Agency Massachusetts 100% ISI Insurance Insurance agency
of Massachusetts, Inc. Agency Inc.
Monumental Life Insurance Co. Maryland 100% First AUSA Life Insurance
Ins. Co.
AEGON Special Markets Maryland 100% Monumental Life Marketing
Group, Inc. Ins. Co.
Monumental General Casualty Co. Maryland 100% First AUSA Life Insurance
Ins. Co.
United Financial Services, Inc. Maryland 100% First AUSA Life General agency
Ins. Co.
Bankers Financial Life Ins. Co. Arizona 100% First AUSA Life Insurance
Ins. Co.
The Whitestone Corporation Maryland 100% First AUSA Life Insurance agency
Ins. Co.
Cadet Holding Corp. Iowa 100% First AUSA Life Holding company
Ins. Co.
Commonwealth General Delaware 100% AEGON USA, Inc. Holding company
Corporation ("CGC")
PB Series Trust Massachusetts N/A Mutual fund
Monumental Agency Group, Inc. Kentucky 100% CGC Provider of srvcs. to ins.
cos.
Benefit Plans, Inc. Delaware 100% CGC TPA for Peoples Security Life Insurance
Company
Durco Agency, Inc. Virginia 100% Benefit Plans, Inc. General agent
Commonwealth General. Kentucky 100% CGC Administrator of structured
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Assignment Corporation settlements
AFSG Securities Corporation Pennsylvania 100% CGC Broker-Dealer
PB Investment Advisors, Inc. Delaware 100% CGC Registered investment
advisor
Diversified Financial Products Inc. Delaware 100% CGC Provider of investment,
marketing and admin.
services to ins. cos.
AEGON USA Real Estate Delaware 100% Diversified Financial Real estate and mortgage
Services, Inc. Products Inc.. holding company
Capital Real Estate Delaware 100% CGC Furniture and equipment
Development Corporation lessor
Capital General Development Delaware 100% CGC Holding company
Corporation
Ammest Realty Corporation Texas 100% Peoples Security Life Special purpose subsidiary
Insurance Company
JMH Operating Company, Inc. Mississippi 100% Peoples Security Life Real estate holdings
Insurance Company
Independence Automobile Florida 100% Capital Security Automobile Club
Association, Inc. Life Insurance Company
Independence Automobile Georgia 100% Capital Security Automobile Club
Club, Inc. Life Insurance Company
Capital 200 Block Corporation Delaware 100% CGC Real estate holdings
Capital Broadway Corporation Kentucky 100% CGC Real estate holdings
Southlife, Inc. Tennessee 100% CGC Investment subsidiary
Ampac Insurance Agency, Inc. Pennsylvania 100% CGC Provider of management
(EIN 23-1720755) support services
National Home Life Corporation Pennsylvania 100% Ampac Insurance Special-purpose subsidiary
Agency, Inc.
Compass Rose Development Pennsylvania 100% Ampac Insurance Special-purpose subsidiary
Corporation Agency, Inc.
Frazer Association Consultants, Illinois 100% Ampac Insurance TPA license-holder
Inc. Agency, Inc.
Valley Forge Associates, Inc. Pennsylvania 100% Ampac Insurance Furniture & equipment
Agency, Inc. lessor
Veterans Benefits Plans, Inc. Pennsylvania 100% Ampac Insurance Administrator of group
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Agency, Inc. insurance programs
Veterans Insurance Services, Inc. Delaware 100% Ampac Insurance Special-purpose subsidiary
Agency, Inc.
Academy Insurance Group, Inc. Delaware 100% CGC Holding company
Academy Life Insurance Co. Missouri 100% Academy Insurance Insurance company
Group, Inc.
Pension Life Insurance New Jersey 100% Academy Insurance Insurance company
Company of America Group, Inc.
Academy Services, Inc. Delaware 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Ammest Development Corp. Inc. Kansas 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Ammest Insurance Agency, Inc. California 100% Academy Insurance General agent
Group, Inc.
Ammest Massachusetts Massachusetts 100% Academy Insurance Special-purpose subsidiary
Insurance Agency, Inc. Group, Inc.
Ammest Realty, Inc. Pennsylvania 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Ampac, Inc. Texas 100% Academy Insurance Managing general agent
Group, Inc.
Ampac Insurance Agency, Inc. Pennsylvania 100% Academy Insurance Special-purpose subsidiary
(EIN 23-2364438) Group, Inc.
Data/Mark Services, Inc. Delaware 100% Academy Insurance Provider of mgmt. services
Group, Inc.
Force Financial Group, Inc. Delaware 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Force Financial Services, Inc. Massachusetts 100% Force Fin. Group, Inc. Special-purpose subsidiary
Military Associates, Inc. Pennsylvania 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
NCOA Motor Club, Inc. Georgia 100% Academy Insurance Automobile club
Group, Inc.
NCOAA Management Company Texas 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Unicom Administrative Pennsylvania 100% Academy Insurance Provider of admin.
Services, Inc. Group, Inc. services
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Unicom Administrative Germany 100%Unicom Administrative Provider of admin.
Services, GmbH Services, Inc. services
Capital Liberty, L.P. Delaware 79.2% Commonwealth Life Holding Company
Insurance Company
19.8% Peoples Security Life
Insurance Company
1% CGC
Commonwealth General LLC Turks & 100% CGC Special-purpose subsidiary
Caicos Islands
Peoples Benefit Life Missouri 3.7% CGC Insurance company
Insurance Company 20% Capital Liberty, L.P.
76.3% Monumental Life
Insurance Co.
Veterans Life Insurance Co. Illinois 100% Peoples Benefit Insurance company
Life Insurance Company
Peoples Benefit Services, Inc. Pennsylvania 100% Veterans Life Ins. Co. Special-purpose subsidiary
</TABLE>
Item 31. Number of Contract Owners
As of December 31, 1998, there were 0 Owners of the Policies.
Item 32. Indemnification
The New York Code (Sections 721 et. seq.) provides for permissive
-------
indemnification in certain situations, mandatory indemnification in other
situations, and prohibits indemnification in certain situations. The Code also
specifies procedures for determining when indemnification payments can be made.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Depositor pursuant to the foregoing provisions, or otherwise, the Depositor has
been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Depositor of expenses incurred
or paid by a director, officer or controlling person in connection with the
securities being registered), the Depositor will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 33. Business and Other Connections of Investment Adviser
Manager - Endeavor Management Co.
The Manager is a registered investment adviser providing investment management
and administrative services to the Registrant.
The list required by this Item 33 of partners, officers and directors of the
Manager together with information as to any other business, profession, vocation
or employment of a substantial nature engaged in by such officers and directors
during the past two years is incorporated by reference to Schedule B and D of
Form ADV filed by the Manager pursuant to the Investment Advisers Act of 1940
(SEC No. 801-41827)
<PAGE>
Advisers - First Trust Advisers L.P.
The list required by Item 33 of partners, officers and directors of the Adviser
together with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by such oficers and director
during the past two years is incorporated by reference to Schedule B and D of
Form ADV filed by the Adviser pursuant to the Investment Advisers Act of 1940
(SEC No. 801-39950).
Item 34. Principal Underwriters
AFSG Securities Corporation
4333 Edgewood Road N.E.
Cedar Rapids, IA 52499-0001
The directors and officers of AFSG Securities Corporation are as follows:
Larry N. Norman Sarah J. Stange
Director and President Director and Vice President
Frank A. Camp Bob Warner
Director and Secretary Assistant Compliance Officer
Lisa Wachendorf Linda Gilmer
Vice President and Treasurer/Controller
Chief Compliance Officer
Priscilla Hechler
Debra C. Cubero Assistant Vice President and Assistant Secretary
Vice President
Emily Bates Thomas Pierpan
Assistant Treasurer Assistant Vice President and Assistant Secretary
Clifton Flenniken Darin D. Smith
Assistant Treasurer Assistant Vice President and Assistant Secretary
The principal business address of each person listed is AFSG Securities
Corporation, 4333 Edgewood Road, N.E., Cedar Rapids, IA 52499-0001.
AFSG Securities Corporation serves as the principal underwriter for the PFL
Endeavor VA Separate Account, the PFL Retirement Builder Variable Annuity
Account, the PFL Life Variable Annuity Account A, the PFL Wright Variable
Annuity Account and the AUSA Endeavor Variable Annuity Account. These accounts
are separate accounts of PFL Life Insurance Company or AUSA Life Insurance
Company, Inc. AFSG Securities Corporation also serves as principal underwriter
for Separate Account I, Separate Account II, Separate Account IV and Separate
Account V of Peoples Benefit Life Insurance Company, and for Separate Account B
and Separate Account C of AUSA Life Insurance Company, Inc.
Commissions and Other Compensation Received by Principal Underwriter. AFSG
Securities Corporation, the broker/dealer, received $0 from the Registrant for
the year ending December 31, 1998, for its services in distributing the
Policies. No other commission or compensation was received by the principal
underwriter, directly or indirectly, from the Registrant during the fiscal year.
<PAGE>
Item 35. Location of Accounts and Records
The records required to be maintained by Section 31(a) of the Investment Company
Act of 1940 and Rules 31a-1 to 31a-3 promulgated thereunder, are maintained by
AUSA Life Insurance Company, Inc. at 666 Fifth Avenue, new York, NY 10103, or
its Service Office, Financial Markets Division - Variable Annuity Department,
4333 Edgewood Road N.E., Cedar Rapids, IA 52499-0001.
Item 36. Management Services
All management Contracts are discussed in Part A or Part B.
Item 37. Undertakings
(a) Registrant undertakes to file a post-effective amendment, using financial
statements of the Registrant which need not be certified, within four to six
months from the effective date of the Registrant's 1933 Act registration
statement.
(b) Registrant undertakes that it will file a post-effective amendment to this
registration statement as frequently as necessary to ensure that the audited
financial statements in the registration statement are never more than 16 months
old for so long as Premiums under the Policy may be accepted.
(c) Registrant undertakes that it will include either (i) a postcard or similar
written communication affixed to or included in the Prospectus that the
applicant can remove to send for a Statement of Additional Information or (ii) a
space in the Policy application that an applicant can check to request a
Statement of Additional Information.
(d) Registrant undertakes 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 to AUSA Life at the address or phone number listed
in the Prospectus.
(e) AUSA Life Insurance Company, Inc. hereby represents that the fees and
charges deducted under the policies, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and the
risks assumed by AUSA Life Insurance Company, Inc.
Section 403 (b) Representations
- -------------------------------
AUSA Life represents that it is relying on a no-action letter dated November 28,
1988, to the American Council of Life Insurance (Ref. No. IP-6-88), regarding
Sections 22(e), 27(c)(1), and 27(d) of the Investment Company Act of 1940, in
connection with redeemability restrictions on Section 403(b) Policies, and that
paragraphs numbered (1) through (4) of that letter will be complied with.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the AUSA Endeavor Target Account has caused this Registration Statement to
be signed on its behalf in the City of Corona Del Mar and State of California on
this 20th day of April, 1999.
AUSA ENDEAVOR TARGET ACCOUNT
By: *
---------------------------------
Vincent J. McGuinness, Jr.
President
AUDA LIFE INSURANCE COMPANY, INC.
By: /s/ Tom A. Schlossberg
---------------------------------
Tom A. Schlossberg
President
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
* Manager , 1999
- ----------------------------- ------------------
Vincent J. McGuinness
* Manager , 1999
- ----------------------------- ------------------
Timothy A. Devine
* Manager , 1999
- ----------------------------- ------------------
Thomas J. Hawekotte
* Manager , 1999
- ----------------------------- ------------------
Steven L. Klosterman
* Manager , 1999
- ----------------------------- ------------------
Halbert D. Linquist
* Manager , 1999
- ----------------------------- ------------------
Peter F. Muratore
* Manager, Treasurer , 1999
- ----------------------------- Chief Financial ------------------
Vincent J. McGuinness, Jr. Officer
<PAGE>
Signature Title Date
--------- ----- ----
* Manager , 1999
- ----------------------------- ---------------
Keith H. Wood
* Manager , 1999
- ----------------------------- ---------------
William L. Busler
/s/ Robert Hickey Power of Attorney April 20, 1999
- -----------------------------
Robert Hickey
* By Robert Hickey, Attorney-In-Fact.
<PAGE>
Registration No.
333-_______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
EXHIBITS
TO
FORM N-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FOR
AUSA ENDEAVOR TARGET ACCOUNT
---------------
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit Page No. *
- ----------- ---------------------- ----------
(1) Resolution of the Board of Directors of AUSA Life Insurance
Company, Inc. authorizing the establishment of the AUSA Endeavor
Target Account.
(5)(a) Principal Underwriting Agreement by and between AUSA Life
Insurance Company, Inc. on its own behalf and on the behalf of
AUSA Endeavor Target Account, and AFSG Securities Corporation.
(5)(b) Form of Broker/Dealer Supervision and Sales Agreement by and
between AFSG Securities Corporation and the Broker/Dealer.
(6)(a) Form of Policy for the AUSA Endeavor Variable Annuity.
(6)(b) Form of Policy Endorsement (AUSA Endeavor Target Account).
(7)(a) Form of Application for the AUSA Endeavor Variable Annuity.
(8)(a) Articles of Incorporation of AUSA Life Insurance Company, Inc.
(8)(b) Bylaws of AUSA Life Insurance Company, Inc.
(12) Opinion and Consent of Counsel.
(13)(a) Opinion and Consent of Actuary.
* Page numbers included only in manually executed original, in
compliance with Rule 403(d).
<PAGE>
Exhibit (1)
-----------
Resolution of the Board of Directors of AUSA Life Insurance Company, Inc.
authorizing the establishment of the AUSA Endeavor Target Account.
<PAGE>
CERTIFICATION
-------------
I, Craig D. Vermie, being the duly constituted Secretary of AUSA
Life Insurance Company, Inc., a New York corporation, hereby certify that the
following is a true and correct copy of a resolution adopted by the Board of
Directors of said corporation at a meeting held on March 24, 1998, and that said
resolution is still in full force and effect.
RESOLVED, that the officer of the Company be and they hereby are
authorized to establish the "AUSA Endeavor Target Account", a
managed separate account for the purpose of selling approved
variable insurance contracts;
BE IT FURTHER RESOLVED, that the officers of this company be and
they hereby are authorized and instructed to take any and all
actions necessary in order to carry out the powers hereby conferred,
including but not limited to, the filing of any registration
statements and amendments thereto with the Securities and Exchange
Commission, execution of any and all required underwriting
agreement, state regulatory filings, Blue Sky filings, policy
filings, and to execute any and all other documents that may be
required by any Federal, state or local regulatory agency in order
to operate the managed separate account.
Dated at Cedar Rapids, Iowa, this 27th day of August, 1998.
[SEAL]
BY: /s/ Craig D. Vermie
--------------------------------
CRAIG D. VERMIE
<PAGE>
EXHIBIT (5)(a)
--------------
PRINCIPAL UNDERWRITING AGREEMENT
BY AND BETWEEN AUSA LIFE INSURANCE COMPANY, INC.
ON ITS OWN BEHALF AND ON THE BEHALF OF
THE AUSA ENDEAVOR TARGET ACCOUNT
AND AFSG SECURITIES CORPORATION.
<PAGE>
PRINCIPAL UNDERWRITING AGREEMENT
THIS PRINCIPAL UNDERWRITING AGREEMENT made and effective as of the
1st day of April, 1999, by and between AFSG SECURITIES CORPORATION ("AFSG"), a
Pennsylvania corporation, and AUSA LIFE INSURANCE COMPANY, INC. ("AUSA"), a New
York corporation, on its own behalf and on behalf the separate investment
accounts of AUSA set forth in Exhibit A attached hereto and made a part hereof
---------
(collectively, the "Account").
WITNESSETH:
WHEREAS, the Account was established or acquired by AUSA under the
laws of the State of New York, pursuant to a resolution of AUSA's Board of
Directors in order to set aside the investment assets attributable to certain
flexible premium, multi-funded annuity contracts ("Contracts") issued by AUSA;
WHEREAS, AUSA has registered or will register the Account with the
Securities and Exchange Commission ("SEC") as a unit investment trust under the
Investment Company Act of 1940 (the "1940 Act");
WHEREAS, AUSA has registered or will register the Contracts under
the Securities Act of 1933 (the "1933 Act");
WHEREAS, AFSG is and will continue to be registered as a
broker-dealer with the SEC under the Securities Exchange Act of 1934 (the "1934
Act"), and a member of the National Association of Securities Dealers, Inc. (the
"NASD") prior to the offer and sale of the Contracts; and
WHEREAS, AUSA proposes to have the Contracts sold and distributed
through AFSG, and AFSG is willing to sell and distribute such Contracts under
the terms stated herein;
NOW, THEREFORE, the parties, intending to be legally bound, hereby
agree as follows:
2
<PAGE>
1. Appointment as Distributor/Principal Underwriter. AUSA grants to
------------------------------------------------
AFSG the exclusive right to be, and AFSG agrees to serve as, distributor and
principal underwriter of the Contracts during the term of this Agreement. AFSG
agrees to use its best efforts to solicit applications for the Contracts and
otherwise perform all duties and functions which are necessary and proper for
the distribution of the Contracts.
2. Prospectus. AFSG agrees to offer the Contracts for sale in
----------
accordance with the registration statements and prospectus therefor then in
effect. AFSG is not authorized to give any information or to make any
representations concerning the Contracts other than those contained in the
current prospectus therefor filed with the SEC or in such sales literature as
may be authorized by AUSA.
3. Considerations. All premiums, purchase payments or other moneys
--------------
payable under the Contracts shall be remitted promptly in full together with
such application, forms and any other required documentation to AUSA or its
designated servicing agent and shall become the exclusive property of AUSA.
Checks or money orders in payment under the Contracts shall be drawn to the
order of "AUSA Life Insurance Company, Inc." and funds may be remitted by wire
if prior written approval is obtained from AUSA.
4. Copies of Information. On behalf of the Account, AUSA shall
---------------------
furnish AFSG with copies of all prospectuses, financial statements and other
documents which AFSG reasonably requests for use in connection with the
distribution of the Contracts.
5. Representations. AFSG represents that it is (a) duly registered
---------------
as a broker-dealer under the 1934 Act, (b) a member in good standing of the NASD
and (c) to the extent necessary to offer the Contracts, duly registered or
otherwise qualified under the securities laws of any state or other
jurisdiction. AFSG shall be responsible for carrying out its sales and
underwriting obligations hereunder in continued compliance with the NASD Rules
and federal and state securities and insurance laws and regulations. Further,
AFSG represents and warrants that it will
3
<PAGE>
adopt, abide by and enforce the principles set forth in the Principles and Code
of Ethical Market Conduct of the Insurance Marketplace Standards Association as
adopted by the Company.
6. Other Broker-Dealer Agreements. AFSG is hereby authorized to
------------------------------
enter into written sales agreements with other independent broker-dealers for
the sale of the Contracts. All such sales agreements entered into by AFSG shall
provide that each independent broker-dealer will assume full responsibility for
continued compliance by itself and by its associated persons with the NASD Rules
and applicable federal and state securities and insurance laws, shall provide
that each independent broker-dealer will adopt, abide by and enforce the
principles set forth in the Principles and Code of Ethical Market Conduct of the
Insurance Marketplace Standards Association as adopted by the Company, and shall
be in such form and contain such other provisions as AUSA may from time to time
require. All associated persons of such independent broker-dealers soliciting
applications for the Contracts shall be duly and appropriately registered by the
NASD and licensed and appointed by AUSA for the sale of Contracts under the
insurance laws of the applicable states or jurisdictions in which such Contracts
may be lawfully sold. All applications for Contracts solicited by such
broker-dealers through their representatives, together with any other required
documentation and premiums, purchase payments and other moneys, shall be handled
as set forth in paragraph 3 above.
7. Insurance Licensing and Appointments. AUSA shall apply for the
------------------------------------
proper insurance licenses and appointments in appropriate states or
jurisdictions for the designated persons associated with AFSG or with other
independent broker-dealers that have entered into sales agreements with AFSG for
the sale of Contracts, provided that AUSA reserves the right to refuse to
appoint any proposed registered representative as an agent or broker, and to
terminate an agent or broker once appointed.
8. Recordkeeping. AUSA and AFSG shall cause to be maintained and
-------------
preserved for the periods prescribed such accounts, books, and other documents
as are required of them by
4
<PAGE>
the 1940 Act, and 1934 Act, and any other applicable laws and regulations. The
books, accounts and records of AUSA, of the Account, and of AFSG as to all
transactions hereunder shall be maintained so as to disclose clearly and
accurately the nature and details of the transactions. AUSA (or such other
entity engaged by AUSA for this purpose), on behalf of and as agent for AFSG,
shall maintain AFSG's books and records pertaining to the sale of Contracts to
the extent as mutually agreed upon from time to time by AUSA and AFSG; provided
that such books and records shall be the property of AFSG, and shall at all
times be subject to such reasonable periodic, special or other audit or
examination by the SEC, NASD, any state insurance commissioner and/or all other
regulatory bodies having jurisdiction. AUSA shall be responsible for sending on
behalf of and as agent for AFSG all required confirmations on customer
transactions in compliance with applicable regulations, as modified by an
exemption or other relief obtained by AUSA. AFSG shall cause AUSA to be
furnished with such reports as AUSA may reasonably request for the purpose of
meeting its reporting and recordkeeping requirements under the insurance laws of
the State of New York and any other applicable states or jurisdictions. AUSA
agrees that its records relating to the sale of Contracts shall be subject to
such reasonable periodic, special or other audit or examination by the SEC,
NASD, and any state insurance commissioner and/or all other regulatory bodies
having jurisdiction.
9. Commissions. AUSA shall have the responsibility for paying on
-----------
behalf of AFSG (a) any compensation to other independent broker-dealers and
their associated persons due under the terms of any sales agreements entered
into pursuant to paragraph 6 above, between AFSG and such broker-dealers as
agreed to by AUSA and (b) all commissions or other fees to associated persons of
AFSG which are due for the sale of the Contracts in the amounts and on such
terms and conditions as AUSA and AFSG determine. Notwithstanding the preceding
sentence, no broker-dealer, associated person or other individual or entity
shall have an interest in any deductions or other fees payable to AFSG as set
forth herein.
5
<PAGE>
10. Expense Reimbursement. AUSA shall reimburse AFSG for all costs
---------------------
and expenses incurred by AFSG in furnishing the services, materials, and
supplies required by the terms of this Agreement.
11. Indemnification. AUSA agrees to indemnify AFSG for any losses
---------------
incurred as a result of any action taken or omitted by AFSG, or any of its
officers, agents or employees, in performing their responsibilities under this
Agreement in good faith and without willful misfeasance, gross negligence, or
reckless disregard of such obligations.
12. Regulatory Investigations. AFSG and AUSA agree to cooperate
-------------------------
fully in any insurance or judicial regulatory investigation or proceeding
arising in connection with Contracts distributed under this Agreement. AFSG and
AUSA further agree to cooperate fully in any securities regulatory inspection,
inquiry, investigation or proceeding or any judicial proceeding with respect to
AUSA, AFSG, their affiliates and their representatives to the extent that such
inspection, inquiry, investigation or proceeding or judicial proceeding is in
connection with Contracts distributed under this Agreement. Without limiting the
foregoing:
(a) AFSG will be notified promptly of any customer complaint or
notice of any regulatory inspection, inquiry investigation or proceeding or
judicial proceeding received by AUSA with respect to AFSG or any representative
or which may affect AUSA's issuance of any Contracts marketed under this
Agreement; and
(b) AFSG will promptly notify AUSA of any customer complaint or
notice of any regulatory inspection, inquiry, investigation or judicial
proceeding received by AFSG or any representative with respect to AUSA or its
affiliates in connection with any Contracts distributed under this Agreement.
In the case of a customer complaint, AFSG and AUSA will cooperate in
investigating such complaint and shall arrive at a mutually satisfactory
response.
6
<PAGE>
13. Termination.
-----------
(a) This Agreement may be terminated by either party hereto upon 60
days' prior written notice to the other party.
(b) This Agreement may be terminated upon written notice of one
party to the other party hereto in the event of bankruptcy or insolvency of such
party to which notice is given.
(c) This Agreement may be terminated at any time upon the mutual
written consent of the parties hereto.
(d) AFSG shall not assign or delegate its responsibilities under
this Agreement without the written consent of AUSA.
(e) Upon termination of this Agreement, all authorizations, rights
and obligations shall cease except the obligations to settle accounts hereunder,
including payments or premiums or contributions subsequently received for
Contracts in effect at the time of termination or issued pursuant to
applications received by AUSA prior to termination.
14. Regulatory Impact. This Agreement shall be subject to, among
-----------------
other laws, the provisions of the 1940 Act and the 1934 Act and the rules,
regulations, and rulings thereunder and of the NASD, from time to time in
effect, including such exemptions from the 1940 Act as the SEC may grant, and
the terms hereof shall be interpreted and construed in accordance therewith.
AFSG shall submit to all regulatory and administrative bodies having
jurisdiction over the operations of the Account, present or future; and will
provide any information, reports or other material which any such body by reason
of this Agreement may request or require pursuant to applicable laws or
regulations.
15. Severability. If any provision of this Agreement shall be held
------------
or made invalid by a court decision, statute, rule or otherwise, the remainder
of this Agreement shall not be affected thereby.
7
<PAGE>
16. Choice of Law. This Agreement shall be construed, enforced and
-------------
governed by the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed by their respective duly authorized officials as of the day and year
first above written.
AFSG SECURITIES CORPORATION AUSA LIFE INSURANCE COMPANY, INC.
By: /s/ Larry N. Norman By: /s/ William L. Busler
------------------- ---------------------
Larry N. Norman William L. Busler
Title: President Title: Vice President
8
<PAGE>
EXHIBIT A
1. AUSA Endeavor Variable Annuity Account
2. AUSA Endeavor Target Account
3. AUSA Series Life Account
4. AUSA Series Annuity Account
5. AUSA Series Annuity Account B
9
<PAGE>
EXHIBIT (5)(b)
FORM OF BROKER/DEALER SUPERVISION AND SALES AGREEMENT
BY AND BETWEEN
AFSG SECURITIES CORPORATION
AND THE BROKER/DEALER.
<PAGE>
SELECTED BROKER AGREEMENT
AGREEMENT dated __________________________,19____, by and between AFSG
Securities Corporation ("Distributor"), a Pennsylvania corporation, AUSA Life
Insurance Company, Inc. ("Company") and ___________________________ ("Broker"),
a ___________________ corporation. This Agreement supersedes and replaces any
prior Selected Broker Agreement regarding the subject matter between the parties
hereto.
WITNESSETH:
In consideration of the mutual promises contained herein, the parties
hereto agree as follows:
A. Definitions
-----------
(1) Contracts--Variable life insurance contracts and/or variable annuity
contracts described in Schedule A attached hereto and issued by AUSA
Life Insurance Company, Inc. and for which Distributor has been
appointed the principal underwriter pursuant to Distribution
Agreements, copies of which have been furnished to Broker.
(2) Accounts--Separate accounts established and maintained by Company
pursuant to the laws of New York, as applicable, to fund the benefits
under the Contracts.
(3) The Funds--, open-end management investment companies registered under
the 1940 Act, shares of which are sold to the Accounts in connection
with the sale of the Contracts, as described in the Prospectus for the
Contracts.
(4) Registration Statement--The registration statements and amendments
thereto relating to the Contracts, the Accounts, and the Funds,
including financial statements and all exhibits.
(5) Prospectus--The prospectuses included within the Registration
Statements.
(6) 1933 Act--The Securities Act of 1933, as amended.
(7) 1934 Act--The Securities Exchange Act of 1934, as amended.
(8) 1940 Act--The Investment Company Act of 1940, as amended.
(9) SEC--The Securities and Exchange Commission.
(10) NASD--The National Association of Securities Dealers, Inc.
B. Agreements of Distributor
-------------------------
(1) Pursuant to the authority delegated to it by Company, Distributor
hereby authorizes Broker during the term of this Agreement to solicit
applications for Contracts from eligible persons provided that there
is an effective Registration Statement relating to such Contracts and
provided further that Broker has been notified by Distributor that the
Contracts are qualified for sale under all applicable securities and
insurance laws of the state or jurisdiction in which the application
will be solicited. In connection with the solicitation of applications
for Contracts, Broker is hereby authorized to offer riders that are
available with the Contracts in accordance with instructions furnished
by Distributor or Company.
(2) Distributor, during the term of this Agreement, will notify Broker of
the issuance by the SEC of any stop order with respect to the
Registration Statement or any amendments thereto or the initiation of
any proceedings for that purpose or for any other purpose relating to
the registration and/or offering of the Contracts and of any other
action or circumstance that may prevent the lawful sale of the
Contracts in any state or jurisdiction.
(3) During the term of this Agreement, Distributor shall advise Broker of
any amendment to the Registration Statement or any amendment or
supplement to any Prospectus.
C. Agreements of Broker
--------------------
(1) It is understood and agreed that Broker is a registered broker/dealer
under the 1934 Act and a member of the NASD and that the agents or
representatives of Broker who will be soliciting applications for the
Contracts also will be duly registered representative of Broker.
(2) Commencing at such time as Distributor and Broker shall agree upon,
Broker agrees to use commercially reasonable efforts to find
purchasers for the Contracts acceptable to Company. In meeting its
obligation to use its commercially reasonable efforts to solicit
applications for Contracts, Broker shall, during the term of this
Agreement, engage in the following activities:
(a) Regularly utilize only training, sales and promotional materials
relating to the Contracts which have been approved by Company.
(b) Establish and implement reasonable procedures for periodic
inspection and supervision of sales practices of its agents or
representatives and submit periodic reports to Distributor as may be
requested on the results of such inspections and the compliance with
such procedures.
(c) Broker shall take reasonable steps to ensure that the various
representatives appointed by it shall not make recommendations to an
applicant to purchase a Contract in the absence of reasonable grounds
to believe that
<PAGE>
the purchase of the Contract is suitable for such applicant. While not
limited to the following, a determination of suitability shall be
based on information furnished to a representative after reasonable
inquiry of such applicant concerning the applicant's insurance and
investment objectives, financial situation and needs, and, if
applicable, the likelihood that the applicant will make the premium
payments contemplated by the Contract. (d) Broker shall adopt, abide
by, and enforce the principles set forth in the Principles and Code of
Ethical market Conduct of the Insurance Marketplace Standards
Association as adopted by the Company and provided to You with this
Agreement.
(3) All payments for Contracts collected by agents or representatives of
Broker shall be held at all times in a fiduciary capacity and shall
be remitted promptly in full together with such applications, forms
and other required documentation to an office of the Company
designated by Distributor. Checks or money orders in payment of
initial premiums shall be drawn to the order of "AUSA Life Insurance
Company, Inc." Broker acknowledges that the Company retains the
ultimate right to control the sale of the Contracts and that the
Distributor or Company shall have the unconditional right to reject,
in whole or part, any application for the Contract. In the event
Company or Distributor rejects an application, Company immediately
will return all payments directly to the purchaser and Broker will be
notified of such action. In the event that any purchaser of a Contract
elects to return such Contract pursuant to the free look right, the
purchaser will receive a refund of either premium payments or the
value of the invested portion of such premiums as set forth in the
Contract and according to applicable state law. The Broker will be
notified of any such action.
(4) Broker shall act as an independent contractor, and nothing herein
contained shall constitute Broker, its agents or representatives, or
any employees thereof as employees of Company or Distributor in
connection with solicitation of applications for Contracts. Broker,
its agents or representatives, and its employees shall not hold
themselves out to be employees of Company or Distributor in this
connection or in any dealings with the public.
(5) Broker agrees that any material, including material it develops,
approves or uses for sales, training, explanatory or other purposes in
connection with the solicitation of applications for Contracts
hereunder (other than generic advertising materials which do not make
specific reference to the Company or the Contracts) will only be used
after receiving the written consent of Distributor to such material
and, where appropriate, the endorsement of Company to be obtained by
Distributor.
(6) Solicitation and other activities by Broker shall be undertaken only
in accordance with applicable Company procedures, ethical principles
and manuals, and applicable laws and regulations. No agent or
representative of Broker shall solicit applications for the contracts
until duly licensed and appointed by Company (such appointment not to
be unreasonably withheld by the Company) as a life insurance and
variable contract broker or agent of Company in the appropriate states
or other jurisdictions. Broker shall ensure that such agents or
representatives fulfill any training requirements necessary to be
licensed and that such agents or representatives are properly
supervised and controlled pursuant to the rules and regulations of the
SEC and the NASD. Broker shall certify agents' and representatives'
qualifications to the satisfaction of Distributor, including
certifying a General Letter of Recommendation set forth in Exhibit A
hereto. Broker understands and acknowledges that neither it nor its
agents or representatives is authorized by Distributor or Company to
give any information or make any representation in connection with
this Agreement or the offering of the Contracts other than those
contained in the Prospectus or other solicitation material authorized
in writing by Distributor or Company.
(7) Broker shall not have authority on behalf of Distributor or Company
to: make, alter or discharge any Contract or other form; waive any
forfeiture, extend the time of paying any premium; receive any monies
or premiums due, or to become due, to Company, except as set forth in
Section C(3) of this Agreement. Broker shall not expend, nor contract
for the expenditure of the funds of Distributor, nor shall Broker
possess or exercise any authority on behalf of Broker by this
Agreement.
(8) Broker shall have the responsibility for maintaining the records of
its representatives licensed, registered and otherwise qualified to
sell the Contracts. Broker shall maintain such other records as are
required of it by applicable laws and regulations. The books, accounts
and records of the Company, the Account, Distributor and Broker
relating to the sale of the Contracts shall be maintained so as to
clearly and accurately disclose the nature and details of the
transactions. All records maintained by the Broker in connection with
this Agreement shall be the property of the Company and shall be
returned to the Company upon termination of this Agreement, free from
any claims or retention of rights by the Broker. Nothing in this
Section C(8) shall be interpreted to prevent the Broker from retaining
copies of any such records which the Broker, in its discretion, deems
necessary or desirable to keep. The Broker shall keep confidential any
information obtained pursuant to this Agreement and shall disclose
such information only if the Company has authorized such disclosure or
if such disclosure is expressly required by applicable federal or
state regulatory authorities.
D. Compensation
------------
<PAGE>
(1) Pursuant to the Distribution Agreement between Distributor and
Company, Distributor shall cause Company to arrange for the payment of
commissions to Broker as compensation for the sale of each contract
sold by an agent or representative of Broker. Such amounts shall be
paid to Broker or its subsidiary insurance agency, whichever is
authorized to receive insurance commissions under applicable insurance
laws, in accordance with the schedules attached hereto, the General
Agent Agreement, and the commission schedules attached thereto. All
terms and conditions of the General Agent Agreement not otherwise
conflicting with the terms herein, shall be incorporated by reference
herein. Company shall identify to Broker with each such payment the
name of the agent or representative of Broker who solicited each
Contract covered by the payment.
(2) Neither Broker nor any of its agents or representatives shall have any
right to withhold or deduct any part of any premium it shall receive
for purposes of payment of commission or otherwise. Neither Broker nor
any of its agents or representatives shall have an interest in any
compensation paid by Company to Distributor, now or hereafter, in
connection with the sale of any Contracts hereunder.
E. Complaints and Investigations
-----------------------------
(1) Broker and Distributor jointly agree to cooperate fully in any
insurance or securities regulatory investigation or proceeding or
judicial proceeding arising in connection with the Contracts marketed
under this Agreement. Broker, upon receipt, will notify Distributor of
any customer complaint or notice of any regulatory investigation or
proceeding or judicial proceeding in connection with the Contracts.
Broker and Distributor further agree to cooperate fully in any
securities regulatory investigation or proceeding or judicial
proceeding with respect to Broker, Distributor, their affiliates and
their agents or representatives to the extent that such investigation
or proceeding is in connection with Contracts marketed under this
Agreement. Broker shall furnish applicable federal and state
regulatory authorities with any information or reports in connection
with its services under this Agreement which such authorities may
request in order to ascertain whether the Company's operations are
being conducted in a manner consistent with any applicable law or
regulation. Each party shall bear its own costs and expenses of
complying with any regulatory requests, subject to any right of
indemnification that may be available pursuant to Section G of this
Agreement.
F. Term of Agreement
-----------------
(1) This Agreement shall continue in force for one year from its effective
date and thereafter shall automatically be renewed every year for a
further one year period; provided that either party may unilaterally
terminate this Agreement upon thirty (30) days' written notice to the
other party of its intention to do so.
(2) Upon termination of this Agreement, all authorizations, rights and
obligations shall cease except (a) the agreements contained in Section
E hereof; (b) the indemnity set forth in Section G hereof; and (c) the
obligations to settle accounts hereunder, including commission
payments on premiums subsequently received for Contracts in effect at
the time of termination or issued pursuant to applications received by
Broker prior to termination.
(3) Distributor and Company reserve the right, without notice to Broker,
to suspend, withdraw or modify the offering of the Contracts or to
change the conditions of their offering.
G. Indemnity
---------
(1) Broker shall be held to the exercise of reasonable care in carrying
out the provisions of this Agreement.
(2) Distributor agrees to indemnify and hold harmless Broker and each
officer or director of Broker against any losses, claims, damages or
liability, joint or several, to which Broker or such officer or
director become subject, under the 1933 Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact, required to be stated
therein or necessary to make the statements therein not misleading,
contained in any Registration Statement or any post-effective
amendment thereto or in the Prospectus or any amendment or supplement
to the Prospectus, or any sales literature provided by the Company or
by the Distributor.
(3) Broker agrees to indemnify and hold harmless Company and Distributor
and each of their current and former directors and officers and each
person, if any, who controls or has controlled Company or Distributor
within the meaning of the 1933 Act or the 1934 Act, against any
losses, claims, damages or liabilities to which Company or Distributor
and any such director or officer or controlling person may become
subject, under the 1933 Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon:
(a) Any unauthorized use of sales materials or any verbal or written
misrepresentations or any unlawful sales practices concerning the
Contracts by Brokers, its agents, employees or representatives; or
(b) Claims by agents or representatives or employees of Broker for
commissions, service fees, development allowances or other
compensation or remuneration of any type;
(c) The failure of Broker, its officers, employees, or agents to
comply with the provisions of this Agreement; and Broker will
reimburse Company and Distributor and any director or officer or
controlling person of either for any legal or other expenses
reasonably incurred by Company, Distributor, or such director, officer
of controlling
<PAGE>
person in connection with investigating or defending any such loss,
claims, damage, liability or action. This indemnity agreement will be
in addition to any liability which Broker may otherwise have. H.
Assignability This Agreement shall not be assigned by either party
without the written consent of the other.
I. Governing Law
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of Iowa.
J. Notices
-------
All communications under the Agreement shall be in writing and shall
be deemed delivered when mailed by certified mail, postage prepaid.
Alternatively, communications shall be deemed delivered by timely
transmission of the writing, delivery charges prepaid, to a third
party company or governmental entity providing delivery services in
the ordinary course of business, which guarantees delivery to the
other party on the next business day. Notices shall be sent to the
following addresses unless and until the addressee notifies the other
party of a change in address according to the terms of this Section:
<TABLE>
<S> <C>
(1) if to Broker, to: (2) if to the Distributor or Company, send
to the Company, to:
______________________________ AUSA Life Insurance Company, Inc.
______________________________(street address) Financial Markets Division
______________________________ 4333 Edgewood Road NE
______________________________(city, state, zip) Cedar Rapids, Iowa 52499
______________________________(telephone no.)
______________________________(fax no.) (319) 297-8208 (telephone no.)
Attention: ___________________ (319) 297-8132 (fax no.)
</TABLE>
In Witness Whereof, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
_________________________________
(Broker Name)
By:______________________________
Title:___________________________
AFSG SECURITIES CORPORATION
(Distributor)
By:______________________________
Title:___________________________
AUSA LIFE INSURANCE COMPANY, INC.
(Company)
By:______________________________
Title:___________________________
<PAGE>
EXHIBIT A
General Letter of Recommendation
BROKER-DEALER hereby certifies to the Company that all the following
requirements will be fulfilled in conjunction with the submission of
licensing/appointment papers for all applicants as agents of the Company
submitted by BROKER-DEALER. BROKER-DEALER will, upon request, forward proof of
compliance with same to the Company in a timely manner.
1. We have made a thorough and diligent inquiry and investigation relative
to each applicant's identity, residence and business reputation and
declare that each applicant is personally known to us, has been
examined by us, is known to be of good moral character, has a good
business reputation, is reliable, is financially responsible and is
worthy of a license. Each individual is trustworthy, competent and
qualified to act as an agent for the Company to hold himself out in
good faith to the general public.
2. We have on file a U-4 form which was completed (and has been amended,
as required) by each applicant. We have fulfilled all the necessary
investigative requirements for the registration of each applicant as a
registered representative through our NASD member firm, including but
not limited to: (i) checking for and investigating criminal arrest and
conviction records available to Broker-Dealer on the CRD system; and
(ii) communicating with each employer of the applicant for 3 years
prior to the applicant's registration with our firm. Each applicant is
presently registered as an NASD registered representative.
The above information in our files indicates no fact or condition
which would disqualify the applicant from receiving a license and all the
findings of all investigative information is favorable.
At the time of application, in those states required by the Company, we
shall provide the Company with a copy of the entire U-4 form, or
designated pages, thereof, completed by each applicant, including any
amendments or updates thereto, and we certify those items are true
copies of the original.
3. We certify that all educational requirements have been met for the
specified state each applicant is requesting a license in, and that all
such persons have fulfilled the appropriate examination, education and
training requirements.
4. If the applicant is required to submit his picture, his signature, and
securities registration in the state in which he is applying for a
license, we certify that those items forwarded to the Company are those
of the applicant and the securities registration is a true copy of the
original.
5. We hereby warrant that the applicant is not applying for a license with
the Company in order to place insurance chiefly and solely on his life
or property, or lives or property of his relatives, or property or
liability of his associates.
6. We will not permit any applicant to transact insurance in a state as an
agent until duly licensed and appointed therefor with the appropriate
State Insurance Department. No applicants have been given a contract or
furnished supplies, nor have any applicants been permitted to write,
solicit business, or act as an agent in any capacity, and they will not
be so permitted until the certificate of authority or license applied
for is received.
<PAGE>
Exhibit (6)(a)
--------------
Form of Policy for the USA Endevor Variable Annuity.
<PAGE>
EXHIBIT (6)(a)
FORM OF POLICY FOR THE AUSA ENDEAVOR VARIABLE ANNUITY
AUSA LIFE INSURANCE COMPANY, INC.
A Stock Company Home Office located at: 4 Manhattanville Road, Purchase, New
York Adm. Office located at 4333 Edgewood Road NE Cedar Rapids, Iowa 52499 (800)
553-5957 (Hereinafter called the Company, we, our or us)
ANNUITANT JOHN DOE APPROVED
STATE OF NEW YORK
OWNER(S): JOHN DOE
AUG. 11, 1997
POLICY NUMBER: 10-00000001
NEIL D. LEVIN
POLICY DATE: January 10, 1997 SUPERINTENDENT OF INSURANCE
WE AGREE
. To provide annuity payments as set forth in this policy:
. Or to pay withdrawal benefits in accordance with Section 5 of this policy;
. Or to pay death proceeds in accordance with Section 9 of this policy.
The smallest annual rate of investment return which would have to be earned on
Separate Account assets so that the dollar amount of variable account annuity
payments will not decrease, is 6.4% (equal to 5% assumed investment return and a
1.40% maximum mortality and expense risk fee and administrative charge.)
Accumulation unit values reflect a per year mortality and expense risk fee and
administrative charge, shown on page 3 of this policy.
These agreements are subject to the provisions of this policy. This policy is
issued in consideration of any application and payment of the initial premium.
This policy may be issued to qualify as a tax deferred annuity under the
applicable sections of the Internal Revenue Code.
20 DAY RIGHT TO CANCEL
You may cancel this policy by delivering or mailing a written notice or sending
a telegram to us. You must return the policy before midnight of the twentieth
day after the day you receive it. Notice given by mail and return of the policy
by mail are effective on being postmarked, properly addressed and postage
prepaid.
We will pay you an amount equal to the sum of:
. the premiums paid; and
. the accumulated gains or losses, if any, in the Separate Account on the
date of cancellation;
unless otherwise required by law.
Signed for us at our home office.
/s/ Craig D. Vermie /s/ Tom Schlossberg
SECRETARY PRESIDENT
This policy is a legal contract between the policyowner and the company.
READ YOUR POLICY CAREFULLY
Flexible Premium Variable Annuity
Income Payable At Annuity Commencement Date
Benefits Based On The Performance Of The Separate Account
Are Variable And Are Not Guaranteed As To Dollar Amount (See Sections 6 and 10C)
AV343 101 90 396 Non-Participating
<PAGE>
SECTION 1
DEFINITIONS
ANNUITANT
The person to whom annuity payments will be made.
ANNUITY COMMENCEMENT DATE
Date the annuitant will begin receiving payments from this annuity, which may
not be later than the last day of the policy month starting after the Annuitant
attains age 90.
ANNUITY PURCHASE VALUE
Amount defined, in Section 4, that can be used to fund one of the Payment
Options.
CASH VALUE
Amount, defined in Section 5, that can be withdrawn if the annuity is
surrendered.
DISTRIBUTION
A withdrawal or disbursement of funds from the Annuity Purchase Value or Cash
Value.
PAYMENT OPTIONS
Options through which the distribution of the Annuity Purchase Value can be
directed.
POLICY YEAR
The 12 month periods following the Policy Date shown on the Policy Data page.
The first Policy Year starts on the Policy Date. Each subsequent year starts on
the anniversary of the Policy Date.
SEPARATE ACCOUNT
The separate investment account established by us, as described in Section 6.
SUB-ACCOUNT
A division of the Separate Account, as described in Section 6.
WITHDRAWAL
A distribution of funds from the Annuity Purchase Value or Cash Value.
YOU, YOUR
The owner of this policy. Unless otherwise specified on the Policy Data page,
the annuitant and the owner shall be one and the same person.
AVB343 PAGE 2
<PAGE>
SECTION 2 - POLICY DATA
POLICY NUMBER: 10 - 000001
INITIAL PREMIUM PAYMENT: $5,000.00
POLICY DATE: January 10, 1997
ANNUITY COMMENCEMENT DATE: February 1, 2046
ANNUITANT: JOHN DOE
ISSUE AGE/SEX: 35 / MALE
OWNER(S): JOHN DOE
DEATH BENEFIT OPTION: B
Death Benefit Option A -
Mortality and Expense Risk Fee and Administrative Charge: 1 40% (Policy
Years 1 - 7)
Mortality and Expense Risk Fee and Administrative Charge: 1.25% (Policy
Years 8 and thereafter)
Death Benefit Option B -
Mortality and Expense Risk Fee and Administrative Charge: 1.55% (Policy
Years 1 - 7)
Mortality and Expense Risk Fee and Administrative Charge: 1.40% (Policy
Years 8 and thereafter)
Service Charge:
Annual charge equal to the lesser of 2% of the Annuity Purchase Value or
$35.00.
Fixed Account:
Guaranteed Period Option available: 1 year
Minimum Interest Rate: 3%
AV343 101 90 396 SP PAGE 3
<PAGE>
SECTION 3 - PREMIUMS
PAYMENT OF PREMIUMS
Premiums may be paid any time while this policy is in force before the Annuity
Commencement Date. You may start or stop, increase or decrease, or skip any
premium payments.
MAXIMUM AND MINIMUM PREMIUM
The premiums paid may not be more than the amount permitted by law if this is a
tax-qualified annuity. The minimum initial premium is $5,000. If this policy is
being used as a tax-qualified annuity, the minimum initial premium is $1,000
($50 for Tax Deferred 403(b) Annuities). The minimum subsequent premium payment
we will accept is $50. including payments through automatic deduction The
maximum total premiums which we will accept is $1,000,000 without prior Company
approval.
PREMIUM PAYMENT DATE
The premium payment date is the date on which the premium is credited to the
policy. The initial premium payment will be credited to the policy within two
business days of receipt of the premium and the information needed. Subsequent
additional premium payments will be credited to the policy as of the business
day when the premium and required information are received. A business day is
any day on which the New York Stock Exchange is open for trading.
ALLOCATION OF PREMIUM PAYMENTS
Premium payments may be applied to the one year Guaranteed Period of the Fixed
Account, to the Dollar Cost Averaging Fixed Account Option, and/or to one or
more of the Sub-accounts which we make available. You must indicate what percent
of each premium payment to allocate to the one year Guaranteed Period of the
Fixed Account, to the Dollar Cost Avenging Fixed Account Option, and/or among
one or more of the Sub-accounts (making a total of 100%). Each percent may be
either zero or any whole number.
We will use the allocation percentages you choose for the first and any later
premium payments until you change the allocation percentages.
CHANGE OF ALLOCATION
You may change the allocation of premium payments to the one year Guaranteed
Period of the Fixed Account, the Dollar Cost Averaging Fixed Account Option,
and/or among the Sub-accounts. You must tell us in a notice you sign which gives
us the facts that we need Payments received after the date on which we receive
your notice will be applied on the basis of the new allocation.
SECTION 4 - ANNUITY PURCHASE VALUE
ANNUITY PURCHASE VALUE
On or before the Annuity Commencement Date, the Annuity Purchase Value is equal
to your:
(a) premiums paid; minus
(b) partial withdrawals taken; plus
(c) interest credited in the Fixed Account; plus
(d) accumulated gains or losses in the Separate Account; minus
(e) service charges, premium taxes and transfer fees, if any.
You may use the Annuity Purchase Value on the Annuity Commencement Date to
provide lifetime income or income for a period of five or more years under the
Annuity Payment Options in Section 10.
SERVICE CHARGE
On each policy anniversary before the Annuity Commencement Date, we reserve the
right to charge the lesser of 2% of the Annuity Purchase Value on that
anniversary, or $35 for policy administration expenses. It will be deducted from
each Sub-account in proportion to their percentage of the Annuity Purchase Value
in the Sub-accounts before such charge on that policy anniversary. This fee will
not be deducted from the Fixed Account.
The Service Charge will not be deducted on a policy anniversary if the sum of
all premiums paid minus the sum of all withdrawals taken equals at least $50,000
on that policy anniversary.
SECTION 5 - CASH VALUE AND PARTIAL WITHDRAWALS
CASH VALUE
The Cash Value may be partially withdrawn or will be paid in the event of a full
surrender of the policy. We must receive your written withdrawal or surrender
request before the Annuity Commencement Date.
Before the Annuity Commencement Date, the Cash Value is equal to the Annuity
Purchase Value less any surrender charges. On the Annuity Commencement Date, the
Cash Value is equal to the Annuity Purchase Value. There is no Cash Value after
the Annuity Commencement Date. When you ask, we will tell you how much the Cash
Value is.
M769 PAGE 4
<PAGE>
SECTION 5 - CONTD
PARTIAL WITHDRAWALS
We will pay you a portion of or all of the Cash Value as a lump sum partial
withdrawal ($500 minimum) provided we receive your written request while the
policy is in effect and before the Annuity Commencement Date. When you request a
partial withdrawal you must tell us how it is to be allocated among the one year
Guaranteed Period of the Fixed Account and/or the Sub-accounts. If your request
for a partial withdrawal from the one year Guaranteed Period of the Fixed
Account and/or a Sub-account is greater than the Cash Value in that account, we
will pay you the Cash Value of that account.
Partial Withdrawals may be made free of Surrender Charges in three different
ways:
1. Lump Sum
After the first policy year, amounts up to 10% of the Annuity Purchase
Value at the time of withdrawal are available as a lump sum distribution
once per policy year with no Surrender Charges.
2. Systematic Payout Option
During any policy year, including the first, a Systematic Payout Option
(SPO) is available on a monthly, quarterly, semi-annual or annual basis.
SPO payouts must be at least $50 each and may not exceed 10% of the Annuity
Purchase Value at the time SPO is elected divided by the number of payouts
made per year (e.g. 12 f or monthly). Monthly and quarterly payouts must be
sent through electronic funds transfer directly to your checking or savings
account. No Surrender Charges will apply to the SPO payout. You may start
or stop SPO payouts only one time in any twelve months.
Twelve months must pass from the date a SPO is stopped before you may elect
a partial lump sum distribution under number 1 above. If you have elected a
partial lump sum distribution prior to a SPO or if you elected SPO in the
first policy year, you must wait a minimum time before beginning the SPO:
one month for a monthly SPO, three months for quarterly, six months for
semi-annual, or twelve months for annual.
3. Minimum Required Distribution
For a tax-qualified annuity, partial withdrawals taken to satisfy minimum
distribution requirements under Section 401 (a)(9) of the Internal Revenue
Code (IRC) are available with no Surrender Charge. The amount available
from this annuity with respect to the minimum distribution requirement is
based solely on this policy.
The owner must be at least 70 1/2 years old in the calendar year of
distribution, must submit a written request to us and must take the
distribution before year end. If the owner attains age 70 1/2 in the
calendar year of distribution, a written request which is postmarked no
later than the end of the current calendar year must be submitted to us.
Unless the minimum distribution requirement is met under SPO, twelve months
must pass from the date of each Surrender Charge free withdrawal before
future Surrender Charge free withdrawals are permitted. Any amount in
excess of the IRC minimum required distribution will have the appropriate
Surrender Charge applied.
Surrender Charge free withdrawals will reduce the Annuity Purchase Value by the
amounts withdrawn. Withdrawal amounts in excess of the Surrender Charge free
portion are Excess Partial Withdrawals. Excess Partial Withdrawals will reduce
the Annuity Purchase Value by an amount equal to (X+Z) where:
X = Excess Partial Withdrawal
Z = Surrender Charge on X
U769 PAGE 5
<PAGE>
SECTION 5 - CONTD
If any partial withdrawal reduces the Cash Value below $500, we reserve the
right to pay the full Cash Value and terminate this policy. We may delay payment
of the Cash Value for up to 6 months after we receive your request.
Premiums withdrawn seven or more policy anniversaries after their payment date
are not subject to Surrender Charges.
SURRENDER CHARGES
Surrender Charges only apply to premiums less Surrender Charge-free amounts
(that is, Excess Premium Withdrawals), not to the Annuity Purchase Value. The
Surrender Charge will be the applicable percentage, shown in the table below,
multiplied by each Excess Premium Withdrawal.
Number of Years Percentage Applicable to
Since Premium Each Excess Premium
Payment Date Withdrawal
0-1 7%
1-2 6%
2-3 5%
3-4 4%
4-5 3%
5-6 2%
6-7 1%
7 or more 0%
For example, assume one $10,000 premium payment is made under this policy, and
that the owner surrenders the policy at the end of policy year two. The Annuity
Purchase Value at that time is assumed to be $11,025, and the Surrender Charge
percentage is 6%. The Surrender Charge-free amount would be 10% of $11,025, or
$1,102.50. The Surrender Charge would thus be 6% of the Excess Premium
Withdrawal ($10,000 less $1,102.50), or $533.85.
For Surrender Charge purposes, the oldest premium payment is considered to be
withdrawn first.
If the requested withdrawal amount exceeds the oldest premium payment, the next
oldest premium payment is considered to be withdrawn, and so on until the most
recent premium payment is considered to be withdrawn.
After all premium payments are considered to be withdrawn, the remaining Annuity
Purchase Value may be withdrawn free of any Surrender Charge.
GUARANTEED RETURN OF FIXED ACCOUNT PAYMENTS
Upon full surrender of the policy, you will always receive at least the premiums
paid to, less prior withdrawals and transfers from, the Fixed Account.
SECTION 6 - SEPARATE ACCOUNT
SEPARATE ACCOUNT
We have established and will maintain a Separate Account (AUSA Endeavor Variable
Annuity Account) under the laws of the state of New York. Any realized or
unrealized income, net gains and losses from the assets of the Separate Account
are credited to or charged against it without regard to our other income, gains
or losses. Assets are put in the Separate Account for this policy, as well as
for other variable life insurance and annuity policies. The Separate Account may
invest assets in shares of one or more mutual funds. Fund shares are purchased,
redeemed and valued on behalf of the Separate Account.
The Separate Account is divided into Sub-accounts. Each Sub-account invests
exclusively in shares of one of the portfolios of an underlying fund. We reserve
the right to add or remove any Sub-account, of the Separate Account.
The assets of the Separate Account are our property. These assets will equal or
exceed the reserves and other contract liabilities of the Separate Account.
These assets will not be chargeable with liabilities arising out of any other
business we conduct. We reserve the right to transfer assets of a Sub-account in
excess of the reserves and other contract liabilities with respect to that
Sub-account to another Sub-account or to our General Account.
We will determine the fair market value of the assets of the Separate Account in
accordance with a method of valuation which we establish in good faith.
Valuation Period means the period of time from one determination of the value of
each Sub-account to the next. Such determinations are made when the value of the
assets and liabilities of each Sub-account is calculated. This is generally each
day on which the New York Stock Exchange is open.
We also reserve the right, with prior approval of the Insurance Superintendent,
to transfer assets of the Separate Account, which we determine to be associated
with the class of policies to which this policy belongs, to another separate
account. If this type of transfer is made, the term "Separate Account", as used
in this policy, shall then mean the separate account to which the assets were
transferred.
P905 PAGE 6
<PAGE>
SECTION 6 - SEPARATE ACCOUNT - CONTD
We also reserve the right, with prior approval of the Insurance Superintendent,
to:
(a) deregister the Separate Account under the Investment Company Act of 1940;
(b) manage the Separate Account under the direction of a committee at any time;
(c) restrict or eliminate any voting rights of policyowners or other persons
who have voting rights as to the Separate Account; and
(d) combine the Separate Account with one or more other separate accounts.
CHANGE IN INVESTMENT OBJECTIVE OR POLICY OF A MUTUAL FUND
If required by law or regulation, an investment policy of the Separate Account
will only be changed if approved by the appropriate insurance official of the
state of New York or deemed approved in accordance with such law or regulation.
If so required, the process for obtaining such approval is filed with the
insurance official of the state or district in which this policy is delivered.
ACCUMULATION UNITS
The Annuity Purchase Value in the Separate Account before the Annuity
Commencement Date is represented by accumulation units. The dollar value of
accumulation units for each Sub-account may change from day to day reflecting
the investment experience of the Sub-account.
Payments allocated to and any amounts transferred to the Sub-accounts will be
applied to provide accumulation units in those Sub-accounts. The number of
accumulation units purchased in a Sub-account will be determined by dividing the
premium allocated to or any amount transferred to that Sub-account, by the value
of an accumulation unit for that Sub-account on the payment or transfer date.
The number of accumulation units withdrawn or transferred from the Sub-accounts
will be determined by dividing the amount withdrawn or transferred by the value
of an accumulation unit for that Sub-account on the withdrawal or transfer date.
The value of an accumulation unit on any business day is determined by
multiplying the value of that unit at the end of the immediately preceding
valuation period by the net investment factor for the valuation period.
The net investment factor used to calculate the value of an accumulation unit in
each Sub-account for the valuation period is determined by dividing (a) by (b)
and subtracting (c) from the result, where:
(a) is the result of:
(1) the net asset value of a fund share held in that Sub-account
determined as of the end of the current valuation period; plus
(2) the per share amount of any dividend or capital gain distributions
made by the fund for shares held in that Sub-account if the
ex-dividend date occurs during the valuation period; plus or minus
(3) a per share charge or credit for any taxes reserved for, which we
determine to have resulted from the investment operations of that
Sub-account.
(b) is the net asset value of a fund share held in that Sub-account determined
as of the end of the immediately preceding valuation period.
(c) is a factor representing the morality and expense risk fee, and
administrative charge. This factor is less than or equal to, on an annual
basis, the percentage shown on page 3 of the daily net asset value of a
fund share held in that Sub-account.
Since the net investment factor may be greater or less than one, the
accumulation unit value may increase or decrease.
SECTION 7 - FIXED ACCOUNT
FIXED ACCOUNT
Payments applied to and any amounts transferred to the Fixed Account will
reflect a fixed interest rate. The interest rates we set will be credited for
increments of at least one year measured from each premium payment or transfer
date. These rates will never be less than an effective annual interest rate of
3%.
GUARANTEED PERIOD
We will offer a one year Guaranteed Period into which premiums may be paid or
amounts transferred. The current interest rate we set for funds entering this
option is guaranteed until the end of the option's guaranteed period. At that
time, the premium paid or amount transferred into the option less my withdrawals
or transfers from that option, plus accrued interest, will be rolled into a new
option.
We will mail a notice to you at least 15 but not more than 45 days prior to the
end of an expiring option's period, which indicates the option(s) available to
you at the end of the expiring option's period as well as other pertinent
information, including the new interest rate, specific to the new option(s). You
may choose the option(s) you want the funds rolled into by giving us notice
within 30 days before the end of the expiring option's period. In the absence of
such election, the new option will be the one year Guaranteed Period Option.
PB905 PAGE 7
<PAGE>
SECTION 7 - CONT
For purposes of crediting interest when funds are withdrawn from or transferred
into the one year Guaranteed Period, the amount of the oldest premium payment,
transfer, or rollover into that Guaranteed Period plus interest associated with
that amount is considered to be withdrawn or transferred first. If the amount
withdrawn or transferred exceeds this, the next oldest premium payment,
transfer, or rollover plus interest is considered to be withdrawn or transferred
next, and so on until the most recent premium payment, transfer or rollover is
considered to be withdrawn (this is a "First-In, First-Out" or FIFO procedure).
DOLLAR COST AVERAGING FIXED ACCOUNT OPTION
We may offer a Dollar Cost Averaging (DCA) Fixed Account Option separate from
the one year Guaranteed Period Option (GPO). This option will have a one year
interest rate guarantee. The current interest rate we set for the DCA Fixed
Account may differ from the rates credited on the one year GPO in the Fixed
Account. The credited interest rate will never be less than the minimum
effective annual interest rate of 3%. The DCA Fixed Account Option will only be
available under a Dollar Cost Averaging program as described in Section 8.
SECTION 8 - TRANSFERS
A. TRANSFERS BEFORE THE ANNUITY COMMENCEMENT DATE
Prior to the Annuity Commencement Date, you may transfer the value of the
accumulation units from one Sub-account to another within the Separate Account
or to the Fixed Account, or from the one year Guaranteed Period Option (GPO) of
the Fixed Account to the Separate Account. We will offer you the option to
transfer interest earned in the one year GPO to any Sub-account(s) of the
Separate Account. If you want to transfer, you must tell us in a notice you sign
which gives us the facts that we need.
The maximum amount that can be transferred prior to the end of the one year GPO
is 25% of that Guaranteed Period Option's Annuity Purchase Value, less amounts
previously transferred out of that GPO during the current policy year.
No transfers will be allowed out of the Dollar Cost Averaging Fixed Account
Option except through dollar cost averaging.
The minimum amount which may be transferred is the lesser of $500 or the entire
Sub-account or Guaranteed Period value. However, if the remaining Sub-account or
Guaranteed Period value is less than $500, we have the right to include that
amount as part of the transfer.
We reserve the right to limit transfers to no more than 12 in any one policy
year. Any transfers in excess of 12 per policy year may be charged a $10
transfer fee.
DOLLAR COST AVERAGING OPTION
Prior to the Annuity Commencement Date, you may instruct us to automatically
transfer a specified amount from the Money Market Sub-account, the Dollar Cost
Averaging Fixed Account Option or the U.S. Government Securities Sub-account to
any other Sub-account or Sub-accounts of the Separate Account. The automatic
transfers can occur monthly or quarterly and will occur on the 28th day of the
month. If the Dollar Cost Averaging request is received prior to the 28th day of
any month, the first transfer will occur on the 28th day of that month. If the
Dollar Cost Averaging request is received on or after the 28th day of any month,
the first transfer will occur on the 28th day of the following month.
You may elect Dollar Cost Averaging at any time. Transfers will continue until
the Sub-account value is depleted. The amount transferred each time must be at
least $500 A minimum of 6 monthly or 4 quarterly transfers are required each
time the Dollar Cost Avenging program is started or restarted following
termination of the program for any reason.
Except for Dollar Cost Averaging transfers from the Dollar Cost Averaging Fixed
Account Option, you may start or stop, or increase or decrease the amount of the
transfers by sending us a new Dollar Cost Averaging form or you may discontinue
the Dollar Cost Averaging at any time.
ASSET REBALANCING
Prior to the Annuity Commencement Date, you may instruct us to automatically
transfer amounts among the Sub-accounts of the Separate Account on a regular
basis to maintain a desired allocation of the Annuity Purchase Value among the
various Sub-accounts offered. Rebalancing will occur on a monthly, quarterly,
semi-annual or annual basis, beginning on a date you select. You must select the
percentage of the Annuity Purchase Value you desire in each of the various
Sub-accounts offered (totaling 100%). Any amounts in the Fixed Account are
ignored for the purposes of asset rebalancing. Rebalancing can be started,
stopped or changed at any time, except that rebalancing will not be available
when:
1) Dollar Cost Averaging is in effect, or
2) any other transfer is requested.
V886 PAGE 8
<PAGE>
SECTION 8 - CONT
B. TRANSFERS AFTER THE ANNUITY COMMENCEMENT DATE
After the Annuity Commencement Date, you may transfer the value of the variable
annuity units from one Sub-account to another within the Separate Account. If
you want to transfer the value of the variable annuity units, you must tell us
in a notice you sign which gives us the facts that we need.
The minimum amount which may be transferred is the lesser of $10 monthly income
or the entire monthly income of the variable annuity units in the Sub-account
from which the transfer is being made. If the monthly income of the remaining
units in a Sub-account is less than $10, we have the right to include the value
of those variable annuity units as part of the transfer.
After the Annuity Commencement Date, no transfers may be made from the Fixed
Account to the Separate Account or from the Separate Account to the Fixed
Account.
We reserve the right to limit transfers between the Sub-accounts to once per
policy year except under the Dollar Cost Averaging Option.
SECTION 9 - DEATH PROCEEDS
A. DEATH PROCEEDS PRIOR TO ANNUITY COMMENCEMENT DATE
The amount of death proceeds will be the greatest of (a), (b) or (c) where:
(a) is the Annuity Purchase Value on the date we receive due proof of death and
an election of a method of settlement;
(b) is the Cash Value on the date we receive due proof of death and an election
of a method of settlement, and;
(c) is the Guaranteed Minimum Death Benefit (GMDB), plus any additional premium
payments received, less any withdrawals from the date of death to the date
of payment of death proceeds.
If you have not selected a payment option by the date of death, the beneficiary
may make such election within 60 days of the date we receive due proof of death.
The beneficiary may elect to receive the death proceeds as a lump sum payment or
may use the death proceeds to provide any of the annuity payment options
described in Section 10. Interest on death proceeds will be paid as required by
law.
B. GUARANTEED MINIMUM DEATH BENEFIT
The amount of the Guaranteed Minimum Death Benefit (GMDB) depends on the option
shown on page 3. You may not change the GMDB option after the policy is issued.
Option A: Return of Premium Death Benefit
This GMDB is equal to the total premiums paid for this policy, less any
partial withdrawals, as of the date of death.
Option B: Annual Step-Up Death Benefit
This GMDB is equal to the largest Annuity Purchase Value on the issue date
or on any Policy Anniversary prior to the earlier of the date of death or
prior to the owner's 81st birthday plus any premiums paid, less any partial
withdrawals taken, subsequent to the date of the largest anniversary
Annuity Purchase Value.
Each partial withdrawal as used in the above GMDB definition is the sum of (1)
and (2) where:
(1) = The Surrender Charge free withdrawals, as described in Section 5 (Partial
Withdrawals), and
(2) = The Excess Partial Withdrawal as described in Section 5 (Partial
Withdrawals), times a) the amount of the death proceeds on the date of,
but prior to the Excess Partial Withdrawal, divided by b) the Annuity
Purchase Value on the date of, but prior to the Excess Partial Withdrawal.
C. DEATH PRIOR TO ANNUITY COMMENCEMENT DATE
Death proceeds are payable contingent upon the relationships between the owner,
annuitant, successor owner and beneficiary as outlined below. The policy must be
surrendered upon settlement or on proof of death.
1. Annuitant and owner are the same.
When we have due proof that the owner died before the Annuity Commencement
Date, we will provide the death proceeds to the beneficiary.
a) Beneficiary is the deceased owner's surviving spouse. The beneficiary
may elect to continue this policy rather than receiving the death
proceeds. If the policy is continued, an amount equal to the excess,
if any, of the Guaranteed Minimum Death Benefit over the Annuity
Purchase Value will then be added to the Annuity Purchase Value. This
amount will be added only once, at the time of such election.
If this beneficiary elects to have the death proceeds paid, the death
proceeds must be distributed:
(1) by the end of 5 years after the date of the deceased owner's
death, or
(2) payments must begin no later than one year after the deceased
owner's death and must be made for a period certain or for this
beneficiary's lifetime, so long as any period certain does not exceed
this beneficiary's life expectancy.
VB886 PAGE 9
<PAGE>
SECTION 9 - CONT.
b) Beneficiary is not the deceased owner's surviving spouse. The death
proceeds must be distributed as provided below:
(1) by the end of 5 years after the date of the deceased owner's
death, or
(2) payments must begin no later than one year after the deceased
owner's death and must be made for a period certain or for this
beneficiary's lifetime, so long as any period certain does not exceed
this beneficiary's life expectancy.
c) Death proceeds which are not paid to or for the benefit of a natural
person must be distributed by the end of 5 years after the date of the
deceased owner's death.
II. Annuitant and owner are different and the annuitant dies.
When we have due proof that the annuitant died prior to the Annuity
Commencement Date, the owner will become the new annuitant and no death
proceeds are payable. If the owner is also the deceased annuitant's
surviving spouse, an amount equal to the excess, if any, of the Guaranteed
Minimum Death Benefit over the Policy Value will then be added to the
Policy Value. This amount will be added only once.
However, the owner may elect to have the death proceeds paid upon the
annuitant's death if the election is made prior to the annuitant's death
and we agree to such an election. In such case, when we have due proof that
the annuitant died prior to the Annuity Commencement Date, we will provide
the death proceeds to the beneficiary.
a) If the owner has elected to have the death proceeds paid as a lump
sum, the beneficiary must, within 60 days of our receipt of due proof
of the annuitant's death, either:
1) receive the lump sum proceeds; or
2) elect to receive annuity payments. Such payments must begin
within one year of our receipt of due proof of the annuitant's
death and must be made for a period certain or for this
beneficiary's lifetime, so long as any period certain does not
exceed this beneficiary's life expectancy.
b) Death proceeds which are not paid to or for the benefit of a natural
person must be distributed by the end of 5 years after the date of the
annuitant's death.
III. Annuitant and owner are different and the owner dies.
If the owner dies prior to the Annuity Commencement Date and before the entire
interest in the policy is distributed, the successor owner will become the new
owner. The remaining portion of any interest in the policy must be distributed
to the extent provided below in III.a), III.b) or III.c).
a) Successor owner is the deceased owner's surviving spouse. The successor
owner may elect to continue this policy rather than receive the Cash Value.
If the successor owner elects to receive the Cash Value, the Cash Value
must be distributed:
(1) by the end of 5 years after the date of the deceased owner's death, or
(2) payments must begin no later than one year after the deceased owner's
death and must be made for a period certain or for the successor owner's
lifetime, so long as any period certain does not exceed the successor
owner's life expectancy.
b) Successor owner is not the deceased owner's surviving spouse. The Cash
Value must be distributed as provided below:
(1) by the end of 5 years after the date of the deceased owner's death, or
(2) payments must begin no later than one year after the deceased owner's
death and must be made for a period certain or for the successor owner's
lifetime, so long as any period certain does not exceed the successor
owner's life expectancy.
c) No successor owner survives the deceased owner. The deceased owner's estate
will become the new owner and the Cash Value must be distributed by the end
of 5 years after the date of the deceased owner's death.
IV. More than one Owner
If there is more than one owner, then the death of any owner will be treated the
same as the death of the owner.
D. DEATH ON OR AFTER THE ANNUITY COMMENCEMENT DATE
The death proceeds on or after the Annuity Commencement Date depend on the
payment option selected. If any annuitant dies on or after the Annuity
Commencement Date, but before the entire interest under the policy is
distributed, the remaining portion of such interest in the contract will be
distributed at least as rapidly as under the method of distribution being used
as of the date of that annuitant's death.
S883 PAGE 10
<PAGE>
SECTION 9 - CONT.
E. AN OWNER IS NOT AN INDIVIDUAL
In the case of a non tax-qualified annuity, if any owner is not an individual,
then for purposes of the federal income tax mandatory distribution provisions in
subsection C or D above, (1) the primary annuitant will be treated as the owner
of the policy, and (2) if there is any change in the primary annuitant, such a
change will be treated as the death of the owner.
SECTION 10 - ANNUITY PAYMENTS
A. GENERAL PAYMENT PROVISIONS
Payment
If this policy is in force on the Annuity Commencement Date, we will use the
Annuity Purchase Value to make annuity payments to the Payee under Option 3-V
with 10 years certain or if elected, under one or more of the other options
described in this section. You may become the annuitant at the Annuity
Commencement Date, or the prior annuitant may continue as the annuitant.
Payments will be made at 1, 3, 6 or 12 month intervals. We reserve the right to
change the frequency of payments to avoid making payments of less than $50.00.
Before the Annuity Commencement Date, if the death proceeds become payable or if
you surrender this policy, we will pay any proceeds in one sum, or if elected,
all or part of these proceeds may be placed under one or more of the options
described in this section. If we agree, the proceeds may be placed under some
other method of payment instead.
Election of Optional Method of Payment
Before the Annuity Commencement Date you can elect or change a payment option.
You may elect, in a notice you sign which gives us the facts that we need,
annuity payments that may be either variable, fixed, or a combination of both.
If you elect a combination, you must also tell us what part of the policy
proceeds on the Annuity Commencement Date is to be applied to provide each type
of payment. The amount of a combined payment will be the sum of the variable and
fixed payments. Payments under a variable payment option will reflect the
investment performance of the selected Sub-account of the Separate Account.
Payee
Unless you specify otherwise, the payee shall be the annuitant, or the
beneficiary as specified in the Beneficiary provision.
Proof of Age
We may require proof of the age of any person who has an annuity purchased under
Options 3, 3-V, 5 and 5-V of this section before we make the first payment.
Minimum Proceeds
If the proceeds are less than $2,000, we reserve the right to pay them out as a
lump sum instead of applying them to a payment option.
Premium Tax We may be required by law to pay premium tax on the amount applied
to a payment option. If so, we will deduct the premium tax before applying the
proceeds.
Supplementary Contract
Once proceeds become payable and a choice has been made, we will issue a
supplementary contract in exchange for this policy. The contract will name the
payees and will describe the payment schedule.
B. FIXED ACCOUNT PAYMENTS
Guaranteed Payment Options
The fixed account payment is determined by multiplying each $1,000 of policy
proceeds allocated to a fixed payment option by the amounts shown on page 12 for
the option you select. Options 1, 2 and 4 are based on a guaranteed interest
rate of 3%. Options 3 and 5 are based on a guaranteed interest rate of 3% and
the "1983 Table A" (male, female, and unisex if required by law) morality table
improved to the year 2000 with projection scale G.
Option 1 - Interest Payments
The Annuity Purchase Value may be left with us for any term agreed to. We will
pay the interest in periodic payments or it may be left to accumulate.
Withdrawal rights will be agreed upon by you and us when the option is elected.
Option 2 - Income for a Specified Period
Payments are made for the fixed period elected. In the event of the death of the
person receiving payments prior to the end of the guaranteed period, payments
will be continued to that person's beneficiary or their present value may be
paid in a single sum.
Option 3 - Life Income
An election may be made between "No Period Certain", "10 Years Certain" or
"Guaranteed Return of Policy Proceeds". In the event of the death of the person
receiving payments prior to the end of any guaranteed period, payments will be
continued to that person's beneficiary or their present value may be paid in a
single sum.
Option 4 - Income of a Specified Amount
Payments are made for any specified amount until the proceeds with interest are
exhausted. In the event of the death of the person receiving payments prior to
the end of the guaranteed period, payments will be continued to that person's
beneficiary or their present value may be paid in a single sum.
Option 5 - Joint and Survivor Annuity
Payments are made during the joint lifetime of the payee and a nominee of your
selection. Payments will be made as long as either person is living.
Current Payment Options
The amounts shown in the tables on page 12 are the guaranteed amounts. Current
amounts offered to individuals of the same class may be obtained from us.
Current annuity payments will not be less than those which would be offered to
new single consideration immediate annuity (as described in Section 4223
(a)(1)(E) of New York Insurance laws) applicants of the same class.
SB883 PAGE 11
<PAGE>
SECTION 10 - CONT
C. VARIABLE ACCOUNT PAYMENT OPTIONS
Variable Annuity Units
The policy proceeds you tell us to apply to a variable payment option will be
used to purchase variable annuity units in your chosen Sub-accounts. The dollar
value of variable annuity units in your chosen Sub-accounts will increase or
decrease reflecting the investment experience of your chosen Sub-accounts. The
value of a variable annuity unit in a particular Sub-account on any business day
is equal to (a) multiplied by (b) multiplied by (c), where:
(a) is the variable annuity unit value for that Sub-account on the immediately
preceding business day;
(b) is the net investment factor for that Sub-account for the Valuation Period;
and
(c) is the Assumed Investment Return adjustment factor for the Valuation
Period.
The Assumed Investment Return adjustment factor for the valuation period is the
product of discount factors of .99986634 per day to recognize the 5.0% effective
annual Assumed Investment Return.
The net investment factor used to calculate the value of a variable annuity unit
in each Sub-account for the Valuation Period is determined by dividing (a) by
(b) and subtracting (c) from the result, where:
(a) is the net result of:
(1) the net asset value of a fund share held in that Sub-account
determined as of the end of the current valuation period; plus
(2) the per share amount of any dividend or capital gain distributions
made by the fund for shares held in that Sub-account if the
ex-dividend date occurs during the Valuation Period; plus or minus
(3) a per share charge or credit for any taxes reserved for, which we
determine to have resulted from the investment operations of the
Sub-account.
(b) is the net asset value of a fund share held in that Sub-account determined
as of the end of the immediately preceding Valuation Period.
(c) is a factor representing the mortality and expense risk fee and
administrative charge applicable after the Annuity Commencement Date. This
factor is less than or equal to, on an annual basis, 1.40% of the daily net
asset value of a fund share held in the Separate Account for that
Sub-account.
Neither expenses actually incurred, other than taxes on the investment return,
nor mortality actually experienced, shall adversely affect the dollar amount of
variable annuity payments that have commenced.
Determination of the First Variable Payment
The amount of the first variable payment is determined by multiplying each
$1,000 of policy proceeds allocated to a variable payment option by the amounts
shown on page 13 for the variable option you select. The tables are based on a
5% effective annual Assumed Investment Return and the "1983 Table a" (male,
female, and unisex if required by law) mortality table improved to the year 2000
with projection scale G.
The amount of the first payment depends upon the adjusted age of the annuitant.
The adjusted age is the annuitant's actual age on the annuitant's nearest
birthday, at the Annuity Commencement Date, adjusted as follows:
Annuity
Commencement Date Adjusted Age
- ----------------- ------------
Before 2001 Actual Age
2001 - 2010 Actual Age minus 1
2011 - 2020 Actual Age minus 2
2021 - 2030 Actual Age minus 3
2031 - 2040 Actual Age minus 4
After 2040 Actual age minus 5
Option 3-V - Life Income
An election may be made between:
1. "No Period Certain" - Payments will be made during the lifetime of the
annuitant.
2. "10 Years Certain" - Payments will be made for the longer of the
annuitant's lifetime or 10 years.
Option 5-V - Joint and Survivor Annuity
Payments are made as long as either the annuitant or the joint annuitant is
living.
Determination of Subsequent Variable Payments
The amount of each variable annuity payment after the first will increase or
decrease according to the value of the variable annuity units which reflect the
investment experience of the selected Sub-accounts. Each variable annuity
payment after the first will be equal to the number of variable annuity units in
the selected Sub-accounts multiplied by the variable annuity unit value on the
date the payment is made. The number of variable annuity units in each selected
Sub-account is determined by dividing the first variable annuity payment
allocated to the Sub-account by the variable annuity unit value of that
Sub-account on the Annuity Commencement Date.
S860 PAGE 11(A)
<PAGE>
GUARANTEED FIXED ACCOUNT PAYMENT OPTIONS
The amounts shown in these tables are the guaranteed amounts for each $1,000 of
the policy proceeds. Higher current amounts may be available at the time of
settlement.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Option 2, Table 1 Option 3, Table II Option 3, Table III Option 3. Table IV
- --------------------------- -------------------------------------------------------------------------------------------
Number Amount Monthly Installment For Life Monthly Installment For Life Monthly Installment For Life
of Years of Monthly Guaranteed Return Of
Payable Installment No Period Certain 10 Years Certain Policy Proceeds
-------------------------------------------------------------------------------------------------
Age Male Female Unisex Male Female Unisex Male Female Unisex
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 $3.87 $3.55 $3.71 $3.84 $3.54 $3.70 $3.73 $3.49 $3.61
51 3.93 3.60 3.77 3.90 3.59 3.75 3.79 3.53 3.66
52 4.00 3.65 3.83 3.97 3.64 3.81 3.84 3.58 3.71
53 4.07 3.71 3.90 4.04 3.70 3.87 3.90 3.63 3.76
5 $17.91 54 4.15 3.77 3.97 4.11 3.75 3.94 3.96 3.68 3.82
6 15.14 55 4.23 3.83 4.04 4.19 3.82 4.01 4.03 3.73 3.88
7 13.16 56 4.32 3.90 4.11 4.27 3.88 4.08 4.10 3.79 3.94
8 11.68 57 4.41 3.97 4.19 4.35 3.95 4.15 4.17 3.85 4.00
9 10.53 58 4.50 4.05 4.28 4.44 4.02 4.24 4.24 3.91 4.07
10 9.61 59 4.61 4.13 4.37 4.53 4.10 4.32 4.32 3.97 4.14
11 8.86 60 4.72 4.21 4.47 4.63 4.18 4.41 4.40 4.04 4.22
12 8.24 61 4.84 4.30 4.57 4.74 4.26 4.51 4.49 4.12 4.30
13 7.71 62 4.96 4.40 4.68 4.85 4.35 4.61 4.58 4.19 4.38
14 7.26 63 5.10 4.50 4.80 4.97 4.45 4.71 4.68 4.28 4.47
15 6.87 64 5.24 4.61 4.93 5.09 4.55 4.83 4.78 4.36 4.56
16 6.53 65 5.40 4.73 5.06 5.22 4.66 4.95 4.88 4.45 4.66
17 6.23 66 5.56 4.85 5.21 5.36 4.77 5.07 4.99 4.55 4.76
18 5.96 67 5.74 4.99 5.36 5.50 4.89 5.20 5.11 4.65 4.87
19 5.73 68 5.93 5.13 5.53 5.65 5.02 5.34 5.24 4.76 4.98
20 5.51 69 6.13 5.29 5.71 5.80 5.15 5.49 5.37 4.87 5.10
70 6.34 5.45 5.90 5.96 5.30 5.64 5.51 4.99 5.23
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Option 5, Table V
- ----------------------------------------------------------------------------------------------------------------------------
Monthly Installment For Joint and Full Survivor
- ----------------------------------------------------------------------------------------------------------------------------
Age of
Age of Female Annuitant
Male --------------------------------------------------------------------------------------------------------------
15 Years 12 Years 9 Years 6 Years 3 Years 3 Years
Annuitant* Less Than Less Than Less Than Less Than Less Than Same As More Than
Male Male Male Male Male Male Male
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
50 $2.99 $3.05 $3.11 $3.18 $3.25 $3.32 $3.39
55 3.11 3.19 3.27 3.35 3.44 3.53 3.63
60 3.27 3.37 3.47 3.58 3.70 3.82 3.95
65 3.47 3.60 3.74 3.89 4.05 4.22 4.39
70 3.74 3.91 4.10 4.31 4.53 4.77 5.02
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Monthly Installment for Unisex Joint and Full Survivor
- ----------------------------------------------------------------------------------------------------------------------------
Age of
Age of Joint Annuitant *
First --------------------------------------------------------------------------------------------------------------
15 Years 12 Years 9 Years 6 Years 3 Years 3 Years
Annuitant* Less Than Less Than Less Than Less Than Less Than Same As More Than
First First First First First First First
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
50 $3.04 $3.09 $3.15 $3.21 $3.27 $3.33 $3.39
55 3.17 3.24 3.32 3.40 3.48 3.56 3.63
60 3.34 3.44 3.54 3.64 3.75 3.85 3.95
65 3.57 3.70 3.83 3.97 4.11 4.26 4.39
70 3.87 4.04 4.22 4.42 4.62 4.82 5.01
- ----------------------------------------------------------------------------------------------------------------------------
* Age nearest birthday
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The annual, semi-annual or quarterly installments under Option 2 shall be the
monthly installment shown multiplied by 11.84, 5.96 or 2.99 respectively, and
for Options 3 and 5 the monthly installment shown multiplied by 11.80, 5.95 or
2.99 respectively.
- --------------------------------------------------------------------------------
Dollar amounts of monthly installments not shown in the above tables will be
calculated on the same basis as those shown and may be obtained from the
Company.
T819 PAGE 12
<PAGE>
VARIABLE PAYMENT OPTIONS
BASED ON ASSUMED INVESTMENT RETURN
The amounts shown in these tables are the initial payment amounts based on a
5.0% Assumed Investment Return for each $1,000 of the policy proceeds.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Option 3 - V, Table II Option 3 - V, Table III
- ------- ---------------------------------------------------------------------------
Monthly Installment for Life Monthly Installment For Life
No Period Certain 10 Years Certain
-----------------------------------------------------------------------------------
Age Male Female Unisex Male Female Unisex
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
50 $5.11 $4.81 $4.96 $5.07 $4.79 $4.94
51 5.17 4.85 5.02 5.13 4.83 4.99
52 5.24 4.90 5.07 5.19 4.88 5.04
53 5.31 4.95 5.13 5.25 4.93 5.10
54 5.38 5.01 5.20 5.32 4.98 5.16
55 5.46 5.06 5.26 5.39 5.04 5.22
56 5.54 5.12 5.34 5.47 5.09 5.28
57 5.63 5.19 5.41 5.54 5.16 5.36
58 5.72 5.26 5.49 5.63 5.22 5.43
59 5.82 5.34 5.58 5.72 5.29 5.51
60 5.93 5.42 5.68 5.81 5.37 5.60
61 6.04 5.50 5.78 5.91 5.44 5.69
62 6.17 5.60 5.89 6.02 5.53 5.78
63 6.30 5.69 6.00 6.13 5.62 5.88
64 6.44 5.80 6.13 6.25 5.71 5.99
65 6.60 5.91 6.26 6.37 5.82 6.10
66 6.76 6.04 6.40 6.50 5.92 6.22
67 6.94 6.17 6.56 6.63 6.04 6.35
68 7.13 6.31 6.72 6.77 6.16 6.48
69 7.33 6.46 6.90 6.92 6.29 6.62
70 7.55 6.63 7.09 7.07 6.43 6.76
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
Option 5V, Table V
- -------------------------------------------------------------------------------------------------------------
Monthly Installment For Joint and Full Survivor
- -------------------------------------------------------------------------------------------------------------
Age of
Age of Female Annuitant
Male ------------------------------------------------------------------------------------------------
15 Years 12 Years 9 Years 6 Years 3 Years 3 Years
Annuitant * Less Than Less Than Less Than Less Than Less Than Same As More Than
Male Male Male Male Male Male Male
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
50 $4.32 $4.36 $4.41 $4.46 $4.51 $4.57 $4.62
55 4.42 4.47 4.53 4.60 4.67 4.75 4.83
60 4.54 4.62 4.70 4.80 4.90 5.01 5.12
65 4.71 4.82 4.94 5.07 5.22 5.37 5.53
70 4.95 5.10 5.27 5.46 5.67 5.89 6.13
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
Monthly Installment for Unisex Joint and Full Survivor
- -------------------------------------------------------------------------------------------------------------
Age of
Age of Joint Annuitant *
First ------------------------------------------------------------------------------------------------
15 Years 12 Years 9 Years 6 Years 3 Years 3 Years
Annuitant* Less Than Less Than Less Than Less Than Less Than Same As More Than
First First First First First First First
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
50 $4.40 $4.45 $4.50 $4.55 $4.61 $4.67 $4.72
55 4.52 4.59 4.66 4.73 4.81 4.89 4.96
60 4.69 4.78 4.87 4.97 5.08 5.19 5.29
65 4.91 5.04 5.17 5.31 5.46 5.62 5.77
70 5.22 5.40 5.59 5.79 6.02 6.24 6.47
- -------------------------------------------------------------------------------------------------------------
* Age nearest birthday
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The annual, semi-annual or quarterly installments shall be the monthly
installment shown for Options 3-V and 5-V multiplied by 11.70, 5.93 or 2.99
respectively.
- --------------------------------------------------------------------------------
Dollar amounts of monthly installments not shown in the above tables will be
calculated on the same basis as those shown and may be obtained from the
Company.
TB819 PAGE 13
<PAGE>
SECTION 11 - GENERAL PROVISIONS
THE CONTRACT
The entire contract consists of this policy, endorsements, if any, and any
application.
MODIFICATION OF POLICY
No change in this policy is valid unless made in writing by us and approved by
one of our officers. No Registered Representative has authority to change or
waive any provision of your policy.
TAX QUALIFICATION
This policy is intended to qualify as an annuity contract for federal income tax
purposes. The provisions of this policy are to be interpreted to maintain such
qualification. To maintain such tax qualification, we reserve the right to amend
this policy to reflect any clarifications that may be needed or are appropriate
to maintain such tax qualification or to conform this policy to any applicable
changes in the tax qualification requirements. We will send you a copy in the
event of any such amendment. If you refuse such an amendment it must be by
giving us written notice, and your refusal may result in adverse tax
consequences.
NON-PARTICIPATING
This policy will not share in our surplus earnings.
AGE OR SEX CORRECTIONS
If the age or sex of the annuitant has been misstated, the benefits will be
those which the premiums paid would have purchased for the correct age and sex.
If required by law to ignore differences in the sex of the annuitant, the
payment options will be determined using the unisex factors in Section 10.
Any underpayment made by us will be paid with the next payment. Any overpayment
made by us will be deducted from future payments. Any underpayment or
overpayment, will include interest at 5% per year, from the date of the wrong
payment to the date of the adjustment.
INCONTESTABILITY
This policy shall be incontestable from the policy date.
EVIDENCE OF SURVIVAL
We have the right to require satisfactory evidence that a person was alive if a
payment is based on that person being alive. No payment will be made until we
receive the evidence.
SETTLEMENT
Any payment by us under this policy is payable at our Home Office.
PREMIUM TAXES
Your state may impose a premium tax. It may be imposed when a premium payment is
made, or on the Annuity Commencement Date or date of withdrawal. When permitted
by state law, we will not deduct the tax until the Annuity Commencement Date or
date of withdrawal.
RIGHTS OF OWNER
The owner may, while the annuitant is living:
1. Assign this policy.
2. Surrender the policy to us.
3. Amend or modify the policy with our consent.
4. Receive annuity payments or name a Payee to receive the payments.
5. Exercise, receive and enjoy every other right and benefit contained in the
policy.
The use of these rights may be subject to the consent of any assignee or
irrevocable beneficiary.
SUCCESSOR OWNER
A successor owner can be named in any application, or in a notice you sign which
gives us the facts that we need. The successor owner will become the new owner
when you die, if you die before the annuitant. If no successor owner survives
you and you die before the annuitant, your estate will become the new owner.
CHANGE OF OWNERSHIP
In the case of a non-tax qualified annuity, you can change the owner of this
policy, from yourself to a new owner, in a notice you sign which gives us the
facts that we need. When this change takes effect, all rights of ownership in
this policy will pass to the new owner.
A change of owner or successor owner will not be effective until it is recorded
in our records. After it has been so recorded, the change will take effect as of
the date you signed the notice. However, if the annuitant dies before the notice
has been so recorded, it will not be effective as to those proceeds we have paid
before the change was recorded in our records. We may require that the change be
endorsed in the policy. Changing the owner or naming a new successor owner
cancels any prior choice of successor owner, but does not change the beneficiary
or the annuitant.
OPTION TO CHANGE ANNUITY COMMENCEMENT
DATE
You may change the Annuity Commencement Date at any time before the Annuity
Commencement Date. You must give us 30 days written notice. However, the Annuity
Commencement Date may not be later than the last day of the policy month
starting after the Annuitant attains age 90.
H495 PAGE 14
<PAGE>
SECTION 11 - CONT
ASSIGNMENT
(a) In the case of a non-tax qualified annuity, this policy may be assigned.
The assignment must be in writing and filed with us.
(b) We assume no responsibility for the validity of any assignment. Any claim
made under an assignment shall be subject to proof of interest and the
extent of the assignment.
(c) This policy may be applied for and issued to qualify as a tax-qualified
annuity under certain sections of the Internal Revenue Code. Ownership of
this policy then is restricted so that it will comply with provisions of
the Internal Revenue Code.
BENEFICIARY
Death proceeds, when payable in accordance with Section 9, are payable to the
designated beneficiary or beneficiaries. Such beneficiary(ies) must be named in
any application and may be changed without consent (unless irrevocably
designated or required by law) by notifying us in writing on a form acceptable
to us. The change will take effect upon the date you sign it, whether or not you
are living when we receive it. The notice must have been postmarked (or show
other evidence of delivery that is acceptable to us) on or before the date of
death. Your most recent change of beneficiary notice will replace any prior
beneficiary designations. No change will apply to any payment we made before the
written notice was received. If an irrevocable beneficiary dies, you may
designate a new beneficiary.
You may direct that the beneficiary shall not have the right to withdraw, assign
or commute any sum payable under an option. In the absence of such election or
direction, the beneficiary may change the manner of payment or make an election
of any option.
If any primary or contingent beneficiary dies before the annuitant, that
beneficiary's interest in this policy ends with that beneficiary's death. Only
those beneficiaries living at the time of the annuitant's death will be eligible
to receive their share of the Death Proceeds. In the event no contingent
beneficiaries have been named and all primary beneficiaries have died before the
death proceeds become payable, the owner will become the beneficiary unless
elected otherwise in accordance with Section 9. If both primary and contingent
beneficiaries have been named, payment will be made to the named primary
beneficiaries living at the time the death proceeds become payable. If there is
more than one beneficiary and you failed to specify their interest, they will
share equally. Payment will be made to the named contingent beneficiary(ies)
only if all primary beneficiaries have died before the death proceeds become
payable. If any primary beneficiary is alive at the time the death proceeds
become payable, but dies before receiving their payment, their share will be
paid to their estate.
In cases where the annuitant dies and the owner (who is not the annuitant)
elected to receive the death benefit in accordance with Section 9, if the
annuitant's estate has been named as beneficiary, then payment will be made to
the owner.
PROTECTION OF PROCEEDS
Unless you so direct by filing written notice with us, no beneficiary may assign
any payments under this policy before the same are due. To the extent permitted
by law, no payments under this policy will be subject to the claims of creditors
of any beneficiary.
DEFERMENT
We will pay any partial withdrawals or surrender proceeds within 7 days after we
receive all requirements that we need. However, it may happen that the New York
Stock Exchange is closed for trading (other than the usual weekend or holiday
closings), or the Securities and Exchange Commission restricts trading or
determines that an emergency exists. If so, it may not be practical for us to
determine the investment experience of the Separate Account. In that case, we
may defer transfers among the Sub-accounts and to the Fixed Account, and
determination or payment of partial withdrawals or surrender proceeds.
When permitted by law, we may defer paying any partial withdrawals or surrender
proceeds for up to 6 months from the withdrawal or surrender date. Interest will
be paid on any amount deferred for 10 days or more. This rate will be computed
daily at the rate of interest currently paid on proceeds left under the Interest
Payments Settlement Option.
REPORTS TO OWNER
We will give you an annual report at least once each policy year. This report
will show the number and value of the accumulation units held in each of the
Sub-accounts as well as the value of the Fixed Account. It will also give you
the Death Benefit, Surrender Charge, Cash Value, and any other facts required by
law or regulation.
MINIMUM VALUES
Benefits available under this policy are not less than those required by any
statute of the state in which the policy is delivered.
J495 PAGE 15
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
Home Office located at 4 Manhattanville Road, Purchase, New York 10577
Flexible Premium Variable Annuity
Income Payable At Annuity Commencement Date
Benefits Based On The Performance Of The Separate Account
Are Variable And Are Not Guaranteed As To Dollar Amount
(See Sections 6 and 10C.)
Non-Participating
INDEX
Page
Accumulation Units ...................................................... 7
Age or Sex Corrections .................................................. 14
Annuity Payments ........................................................ 11
Annuity Purchase Value .................................................. 4
Assignment .............................................................. 15
Beneficiary ............................................................. 15
Cash Value .............................................................. 4
Contract ................................................................ 14
Death Proceeds .......................................................... 9, 10
Definitions ............................................................. 2
Dollar Cost Averaging ................................................... 8
Evidence of Survival .................................................... 14
Fixed Account ........................................................... 7
Guaranteed Minimum Death Benefit ........................................ 9
Guaranteed Return of Fixed Account Payments ............................. 6
Guaranteed Periods ...................................................... 7, 8
Incontestability ........................................................ 14
Modification of Policy .................................................. 14
Nonparticipation ........................................................ 14
Option to Change Annuity
Commencement Date ....................................................... 14
Owner ................................................................... 14
Partial Withdrawals ..................................................... 5
Payee ................................................................... 11
Payment Option Tables ................................................... 12, 13
Policy Data Page ........................................................ 3
Premiums ................................................................ 4
Proof of Age ............................................................ 11
Protection of Proceeds .................................................. 15
Separate Account ........................................................ 6, 7
Service Charge .......................................................... 3, 4
Settlement .............................................................. 14
Surrender Charges ....................................................... 6
Twenty Day Right to Cancel .............................................. 1
Transfers ............................................................... 8, 9
Y457
<PAGE>
Exhibit (6)(b)
- --------------
Form of Policy Endorsement (AUSA Endeavor Target Account)
<PAGE>
EXHIBIT (6)(b)
FORM OF POLICY ENDORSEMENT
(AUSA ENDEAVOR TARGET ACCOUNT)
AUSA LIFE INSURANCE COMPANY, INC.
A Stock Company Home Office located at: 4 Manhattanville Road, Purchase, New
York Adm. Office located at: 4333 Edgewood Road N.E. Cedar Rapids, Iowa 52499
(800) 553-5957 (Hereafter called the Company, we, our or us)
AMENDATORY ENDORSEMENT
The Policy to which this Amendatory Endorsement is attached is amended as
follows:
We may create new Separate Accounts and add new Subaccounts as stated in
the Policy. Any Separate Account may invest assets in shares of one or more
mutual fund portfolios, or in the case of a managed Separate Account,
direct investments in stocks or other securities as permitted by law.
Fund shares described in the Policy refer to shares of underlying mutual
funds or prorata ownership of the assets held in a Subaccount of a managed
Separate Account.
Net asset values of fund shares described in the Policy reflect investment
advisory fees and other expenses incurred in managing a mutual fund or
managed Separate Account.
This Amendatory Endorsement takes effect and expires concurrently with the
Policy to which it is attached and is subject to all the terms and conditions of
the Policy not inconsistent herewith.
/s/ Craig D. Vernus /s/ Tom Sehlasley
SECRETARY PRESIDENT
<PAGE>
Exhibit (7)(a)
- --------------
Form of Application for the AUSA Endeavor Variable Annuity
<PAGE>
EXHIBIT (7)(a)
FORM OF APPLICATION
FOR THE AUSA ENDEAVOR VARIABLE ANNUITY
AUSA LIFE INSURANCE COMPANY, INC.
HOME OFFICE: 4 MANHATTANVILLE ROAD
PURCHASE, NY 10577
ADMINISTRATIVE OFFICE: 4333 EDGEWOOD ROAD N.E.
CEDAR RAPIDS, IOWA 52499
APPLICATION FOR VARIABLE ANNUITY CONTRACT
- --------------------------------------------------------------------------------
1. DESIGNATED ANNUITANT
NAME:___________________________________________________________________________
ADDRESS:________________________________________________________________________
CITY, STATE:____________________________________________________________________
ZIP:_____________________TELEPHONE: (____)______________________________________
DATE OF BIRTH: ________________________AGE: _____SEX: [_] FEMALE [_] MALE
SS#:_____________________________________ CITIZENSHIP:[_] U.S. [_] OTHER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2. CONTRACT OWNER (IF OTHER THAN ABOVE)
In the event the owner is a trust, please provide verification of trustees.
NAME:___________________________________________________________________________
ADDRESS:________________________________________________________________________
CITY, STATE:____________________________________________________________________
ZIP:_____________________TELEPHONE: (____)_____________________________________
DATE OF BIRTH:_________________________AGE: _____SEX: [_] FEMALE [_] MALE
SS#:______________________________________CITIZENSHIP:[_] U.S. [_] OTHER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3. [_] JOINT CONTRACT OWNER [_] SUCCESSOR CONTRACT OWNER
In the event the owner is a trust, please provide verification of trustees.
NAME:___________________________________________________________________________
ADDRESS:________________________________________________________________________
CITY, STATE:____________________________________________________________________
ZIP:_____________________TELEPHONE: (____)_____________________________________
DATE OF BIRTH:_________________________AGE: _____SEX: [_] FEMALE [_] MALE
SS#:______________________________________CITIZENSHIP:[_] U.S. [_] OTHER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. BENEFICIARY DESIGNATION (Include Relationship to Annuitant)
PRIMARY:________________________________________________________________________
RELATIONSHIP:_________________________________________________________________
CONTINGENT:_____________________________________________________________________
RELATIONSHIP:_________________________________________________________________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5. TYPE OF ANNUITY
[_] NON-QUALIFIED [_] IRA (Also complete Box 6)
[_] HR - 10 [_] SEP (Also complete Box 6)
[_] 403 (b) [_] OTHER _____________________________________________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. IRA/SEP INFORMATION
$ __________ CONTRIBUTION FOR TAX YEAR _________________________________________
$ __________ TRUSTEE TO TRUSTEE TRANSFER
$ __________ ROLLOVER FROM: (Check one) [_] 403(b) [_] Pension [_]
HR - 10 [_] Other:______________________________________________________________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7. WILL THIS ANNUITY REPLACE ANY EXISTING ANNUITY OR LIFE INSURANCE?
[_] NO [_] YES - Please state Policy No. and Company
Name:___________________________________________________________________________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
8. MINIMUM DEATH BENEFIT OPTION (Select Only One)
This selection cannot be changed after the policy has been issued. If no
option has been specified, the policy will be issued with the Return of Premium
Death Benefit (Option A below).
[_] Option A: Return of Premium Death Benefit.
[_] Option B: Annual Step-Up Death Benefit: (Only available if owner(s)
and the annuitant are under age 81 at time of purchase.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
9. PURCHASE PAYMENT (Make check payable to AUSA Life Insurance Company, Inc.)
INITIAL PREMIUM AMOUNT $________________________________________________________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
10. FUTURE PREMIUM PAYMENT $__________________________________________________
[_] BILL ME MONTHLY; OR [_] BILL ME QUARTERLY; OR
[_] I DO NOT WANT TO BE BILLED FOR FUTURE PREMIUM AMOUNTS.
- --------------------------------------------------------------------------------
11. ALLOCATION OF PREMIUM PAYMENTS (Whole percentages only)
- --------------------------------------------------------------------------------
T. Rowe Price Associates, Inc.
EQUITY INCOME PORTFOLIO __________.0%
GROWTH STOCK PORTFOLIO __________.0%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Rowe Price-Fleming International, Inc.
INTERNATIONAL STOCK PORTFLIO __________.0%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TCW Funds Management, Inc.
MANAGED ASSET ALLOCATION PORTFOLIO __________.0%
MONEY MARKET PORTFOLIO __________.0%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OpCap Advisors.
OPPORTUNITY VALUE PORTFOLIO __________.0%
VALUE EQUITY PORTFOLIO __________.0%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Dreyfus Corporation
U.S. GOVERNMENT SECURITIES PORTFOLIO __________.0%
SMALL CAP VALUE PORTFOLIO __________.0%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Janus
GROWTH PORTFOLIO (WRL SERIES FUND) __________.0%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
JP Morgan Investment Management, Inc.
ENHANCED INDEX PORTFOLIO __________.0%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AUSA Life Insurance Company, Inc. - Fixed Account Options
Dollar Cost Averaging (DCA) Fixed Account: __________.0%
- --------------------------------------------------------------------------------
Guaranteed Period 1 YEAR: __________.0%
- --------------------------------------------------------------------------------
Additional: _________________________________________________ ____________.0%
_____________________________________________________________ ____________.0%
_____________________________________________________________ ____________.0%
_____________________________________________________________ ____________.0%
- --------------------------------------------------------------------------------
INVESTMENT ALLOCATIONS MUST TOTAL 100%
- --------------------------------------------------------------------------------
YOUR SIGNATURE IS REQUIRED ON THE BACK PAGE
VA-APP 296 (NY) (CONTINUED ON THE BACK PAGE)
<PAGE>
APPLICATION FOR
VARIABLE ANNUITY CONTRACT
- --------------------------------------------------------------------------------
12. DOLLAR COST AVERAGING
By signing below I (We) authorize AUSA Life Insurance Company, Inc. to transfer
funds from my selected account to invest in the portfolio(s), in the amount
indicated below. Transfers will be made monthly, unless indicated differently
below. I understand that the transfers will continue until I terminate the
program in writing, or until my balance under the program falls below the
minimum transfer amount. If this happens, the balance will be transferred as
indicated below, but on a pro-rata basis. I also understand that AUSA Life's
Dollar Cost Averaging program is subject to the rules and restrictions
associated with the AUSA Life contract and at the time the program begins there
must be sufficient Annuity Purchase Value to cover six month's transfers.
<TABLE>
<S> <C>
Transfer From: [_] DCA Fixed Account; or Please Invest In Following Accounts for Each Transfer (Allocation Must Total
[_] Money Market Portfolio; or 100%):
[_] U.S. Govt. Securities Portfolio TCW Managed Asset Allocation ____.0%__ Dreyfus U.S. Govt. Sec. ____.0%__
Please Invest: $___________________ ($500 min.) Janus WRL Series Fund Growth ____.0%__ Dreyfus Small Cap Value ____.0%__
[_] Money (Six Transfers Minimum) T. Rowe Price Growth ____.0%__ JP Morgan Investment ____.0%__
[_] Quarterly (Four Transfers Minimum) T. Rowe Price Equity Income ____.0%__ Additional:
OpCap Opportunity Value ____.0%__ ________________________ ____.0%__
OpCap Value Equity ____.0%__ ________________________ ____.0%__
Rowe Price-Fleming Int'l ____.0%__ ________________________ ____.0%__
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
13. ASSET REBALANCING...Not available when Dollar Cost Averaging is in effect or
when any other transfer is requested.
[_] Yes, by checking this box, I am authorizing AUSA Life Insurance Company,
Inc. to automatically transfer amounts among the sub-accounts (as indicated
below) on a regular basis to maintain a desired allocation of the Annuity
Purchase Value among the various sub-accounts offered. Asset Rebalancing is not
available for any amounts in the Fixed Account nor when Dollar Cost Averaging is
in effect.
<TABLE>
<S> <C> <C>
Rebalance: Rebalance In Following Accounts (Allocation must equal 100%):
[_] Monthly TCW Managed Asset Allocation _____.0%__ OpCap Value Equity _____.0%__ Additional:
[_] Quarterly TCW Money Market _____.0%__ Rowe Price-Fleming Int'l _____.0%__ _______________ _______.0%__
[_] Semi-Annual Janus WRL Series Fund Growth _____.0%__ Dreyfus U.S. Govt. Sec. _____.0%__ _______________ _______.0%__
[_] Annual T. Rowe Price Growth _____.0%__ Dreyfus Small Cap Value _____.0%__ _______________ _______.0%__
Date to Begin: T. Rowe Price Equity Income _____.0%__ JP Morgan Investment _____.0%__
____/____/____ OpCap Opportunity Value _____.0%__ TOTAL 100.0%__
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
14. If you have chosen to name someone other than yourself as the Annuitant, please select one of the following regarding payment of
the death benefit. If neither is selected, the first option will be utilized.
[_] At the Annuitant's death, I wish to become the annuitant and ___________________________________________________
defer payout of the death benefit until my death. Signature of Contract Owner
[_] At the Annuitant's death, I wish to have the death benefit paid
to the named beneficiary. (Contract Owner Signature required for this ___________________________________________________
option) Signature of Joint/Successor Contract Owner
- ------------------------------------------------------------------------------------------------------------------------------------
To the best of my knowledge and belief, my answers to the questions on this application are correct and true, and I agree that this
application shall be a part of any annuity contract issued to me. I also understand that the Company reserves the right to reject
any application or purchase payment. If this application is declined, there shall be no liability on the part of the Company and any
purchase payments submitted shall be returned.
I UNDERSTAND THAT ANNUITY PAYMENTS AND TERMINATION VALUES, WHEN BASED ON INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT OF THE
COMPANY, ARE VARIABLE AND ARE NOT GUARANTEED AS TO A FIXED DOLLAR AMOUNT.
Receipt of a current prospectus of the AUSA Endeavor Variable Annuity Account, Endeavor Series Trust and WRL Series Fund, Inc.
is hereby acknowledged.
[_] Please check if you wish to receive the Statement of Additional Information.
I HAVE REVIEWED MY EXISTING ANNUITY COVERAGE AND FIND THIS POLICY IS SUITABLE FOR MY NEEDS.
ADDITIONAL FORMS ARE REQUIRED FOR SYSTEMATIC PAYOUT OPTION.
- -----------------------------------------------------------------------------------------------------------------------------------
15. BE SURE TO COMPLETE THIS SECTION
Signed at ________________________________________ this ________ day of ____________________, 19_______
- ---------------------------------- ------------------------------------------------ ------------------------------------------
Annuitant Signature Owner Signature (if different from Annuitant) Joint Owner (successor owner signature)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
16a. SELLING AGENT USE ONLY - NOT TO BE FILLED IN BY APPLICANT
( ) / /
- ---------------------------------- --- ------------------ ------------------------------------------------ -------------------
Agent Name (Please Print) Agent Telephone Agent Signature Date
- -------------------------------------------------------------------------------------- -------------------------------------------
Agent Address Broker/Dealer Client Account No.
- --------------------------------------------------- ------------------------- ---------------------------------------------------
Agent Firm AUSA Life Agent No. (If Applicable) Florida Agent License I.D. No.
16b. Do you have reason to believe the contract applied for is to replace any existing annuity or insurance owned by applicant?
[_] No [_] Yes, Company Name __________________________________________________________________
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Please make check payable to AUSA LIFE INSURANCE COMPANY INC. (Use following
address for mail, Fed. Express, etc.)
Send check with application to AUSA Life Insurance Company, Inc., Attn: Annuity
Department, 4333 Edgewood Road N.E., Cedar Rapids, Iowa 52499-0001
VA-APP 296 B (NY)
PLEASE FILL OUT THE FRONT PAGE
<PAGE>
Exhibit (8)(a)
- --------------
Articles of Incorporation of AUSA Life Insurance Company, Inc.
<PAGE>
STATE OF NEW YORK
INSURANCE DEPARTMENT
EDWARD J. MUHL
SUPERINTENDENT OF INSURANCE
It is hereby certified that the annexed copy of Declaration and Charter of
Zurich Life Insurance Company, now known as AUSA LIFE INSURANCE COMPANY, INC.,
of Purchase, New York, as filed in this Department October 3, 1947, with
Amendments to date,
has been compared with the original on file in this Department and that it is a
correct transcript therefrom and of the whole of said original.
In Witness Whereof, I have hereunto set my hand and affixed the official seal of
this Department at the City of Albany, this 18th day of July,1995.
Special [SIGNATURE APPEARS HERE]
Deputy Superintendent of Insurance
[A SEAL APPEARS HERE]
<PAGE>
EXHIBIT (8)(a)
ARTICLES OF INCORPORATION OF
AUSA LIFE INSURANCE COMPANY, INC.
SHORT CERTIFICATE
STATE OF NEW YORK
INSURANCE DEPARTMENT
EDWARD J. MUHL
SUPERINTENDENT OF INSURANCE
It is hereby certified that the annexed copy of Certificate of Amendment of
Certificate of Incorporation of AUSA LIFE INSURANCE COMPANY, INC., of New
York, New York, to change the location of the principal office to Purchase,
New York, as approved by this Department February 14, 1995 pursuant to
Section 1206 of the New York Insurance Law,
has been compared with the original on file in this Department and that it is
a correct transcript therefrom and of the whole of said original.
In Witness Whereof, I have hereunto set my hand
(SEAL) and affixed the official seal of this Department
at the City of Albany, this 14th day of
February, 1995.
/s/ Robert A. Ginnelly
Special
Deputy Superintendent of Insurance
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
AUSA LIFE INSURANCE COMPANY, INC.
(Under Section 805 of the Business Corporation Law)
We, the undersigned, being the President and Secretary of AUSA LIFE INSURANCE
COMPANY, INC., do hereby certify as follows:
1. The name of the Corporation is AUSA LIFE INSURANCE COMPANY, INC. The
Corporation was originally incorporated under the name of ZURICH LIFE INSURANCE
COMPANY, and its name was thereafter changed to DREYFUS LIFE INSURANCE COMPANY,
and then to AUSA LIFE INSURANCE COMPANY, INC., the Corporation's present name.
2. The Certificate of Incorporation was filed in the Office of the
Department of Insurance of the State of New York on the 3rd day of October,
1947.
3. As authorized by Section 801(b) (3) of the Business Corporation Law, the
Certificate of Incorporation is amended to change the location of the principal
office of the corporation to Purchase, New York.
4. To accomplish the foregoing, the first sentence of Article II of the
Certificate of Incorporation is amended to read as follows:
<PAGE>
"The principal office of the Company is to be located in the
Town of Purchase, County of Westchester, State of New York,
and it shall have power to conduct its business wherever
authorized by laws."
5. The amendment to the Certificate of Amendment was authorized by
resolution of the Board of Directors of the Corporation at a meeting held on
December 6, 1994 and by Written Consent of the Sole Shareholder of the
Corporation dated December 6, 1994.
IN WITNESS WHEREOF, we have made, subscribed and acknowledged this Certificate
this 19th day of December, 1994.
/s/ Tom Schlossberg
----------------------------------
President
/s/ Larry G. Brown
----------------------------------
Secretary
VERIFICATION
State of New York )
) ss:
County of Westchester )
On the 19th day of December, 1994, before me personally came Tom Schlossberg and
______________ known to me to be the persons who executed the foregoing
instrument, and they duly acknowledged before me that they executed the same.
Catherine A. Mohr
----------------------------------
Notary Public
[NOTARIAL STAMP OF CATHERINE A. MOHR
APPEARS HERE]
<PAGE>
SHORT CERTIFICATE
STATE OF NEW YORK
INSURANCE DEPARTMENT
SALVATORE R. CURIALE
SUPERINTENDENT OF INSURANCE
It is hereby certified that the annexed copy of Certificate of Amendment of
Certificate of Incorporation of DREYFUS LIFE INSURANCE COMPANY, of New York, New
York, to change the name of the corporation to AUSA Life Insurance Company,
Inc., as approved by this Department September 27, 1993 pursuant to Section 1206
of the New York Insurance Law,
has been compared with the original on file in this Department and that it is a
correct transcript therefrom and of the whole of said original.
In Witness Whereof, I have hereunto set my
hand and affixed the official seal of this
Department at the City of Albany, this 10th
day of November, 1993.
[SEAL]
/s/ James W. Clyne
Deputy Superintendent of Insurance
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
DREYFUS LIFE INSURANCE COMPANY
(Under section 805 of the Business Corporation Law)
We, the undersigned, being the President and Secretary of DREYFUS LIFE INSURANCE
COMPANY, do hereby certify as follows:
1. The name of the Corporation is DREYFUS LIFE INSURANCE COMPANY. The
Corporation was originally incorporated under the name of ZURICH LIFE INSURANCE
COMPANY, and its name was thereafter changed to DREYFUS LIFE INSURANCE COMPANY,
the Corporation's present name.
2. The Certificate of Incorporation was filed in the Office of the
Department of Insurance of the State of New York on the 3rd day of October,
1947.
3. As authorized by Section 801(b) (1) of the Business Corporation Law, the
Certificate of Incorporation is amended to change the name of the corporation to
"AUSA Life Insurance Company, Inc.".
4. To accomplish the foregoing, Article I of the Certificate of
Incorporation is amended to read as follows:
"The name of this Corporation is AUSA Life Insurance Company, Inc."
<PAGE>
5. The amendment to the Certificate of Amendment was authorized by
unanimous Written Consent of the Board of Directors of the Corporation dated
September 24 , 1993 and by Written consent of the Sole Shareholder of the
Corporation dated September 24, 1993.
IN WITNESS WHEREOF, we have made, subscribed and acknowledged this
Certificate this 24th day of September, 1993.
/s/ Tom Schlossberg
--------------------------------------
President
/s/ Larry G. Brown
--------------------------------------
Secretary
VERIFICATION
State of New York )
) ss:
County of Queens )
On the 24th day of September, 1993, before me personally came Tom Schlossberg
and Larry G. Brown known to me to be the persons who executed the foregoing
instrument, and they duly acknowledged before me that they executed the same.
/s/ Carole Anne Biumi
--------------------------------------
Notary Public
[NOTARIAL STAMP OF CAROLE ANNE BIUMI
APPEARS HERE]
<PAGE>
SHORT CERTIFICATE
STATE OF NEW YORK
INSURANCE DEPARTMENT
SALVATORE R. CURIALE
SUPERINTENDENT OF INSURANCE
It is hereby certified that the annexed copy of Declaration and Charter of
Zurich Life Insurance Company, now known as DREYFUS LIFE INSURANCE COMPANY,
of New York, New York, as filed in this Department October 3, 1947, with
Amendments to date,
has been compared with the original on file in this Department and that it is a
correct transcript therefrom and of the whole of said original.
In Witness Whereof, I have hereunto set
(SEAL) my hand and affixed the official seal of
this Department at the City of Albany,
this 14th day of September, 1993.
/s/ James W. Clyne
Deputy Superintendent of Insurance
<PAGE>
Original
STATE OF NEW YORK INSURANCE DEPARTMENT
$ 250.00 Albany, NY August 11, 1989
RECEIVED from DREYFUS LIFE INSURANCE COMPANY
Two Hundred Fifty and 00/100 ---------------------------------------------------
- ------------------------------------------------------------------------Dollars,
in payment of tax provided by Section 180. Tax Law, as amended by Chapter 794,
Laws of 1923.
<TABLE>
<S> <C>
One-twentieth of one per centum upon $ 500.00 of shares with par value . . . . . . . . $250.00
-------
Five cents per share upon _______ shares without par value . . . . . . . . . . . . . . $
-------
-------
TOTAL . . . . . . . . . . . . . . . . . . . . $250.00
-------
</TABLE>
Superintendent of Insurance
By /s/ Robert A. Ginnelly
-----------------------
Special Deputy Superintendent
of Insurance
<PAGE>
[GRAPHIC APPEARS HERE]
STATE OF NEW YORK
INSURANCE DEPARTMENT
AGENCY BUILDING ONE
THE GOVERNOR NELSON A. ROCKEFELLER
EMPIRE STATE PLAZA
ALBANY, NEW YORK 12257
James P. Corcoran
Superintendent of Insurance
The attached Certificate of Amendment of Certificate of Incorporation of DREYFUS
LIFE INSURANCE COMPANY, of New York, New York, filed pursuant to Section 805 of
the Business Corporation Law to effect the following:
1. To increase the capital stock from $2,000,000 comprised of 20,000
shares with a par value of $100.00 per share to $2,500,000 comprised
of 20,000 shares with a par value of $125.00 per share.
2. To amend Article IV of the Certificate of Incorporation regarding the
limiting of personal liability of directors.
IS HEREBY APPROVED pursuant to Section 1206 of the New York Insurance Law.
In Witness Whereof, I have hereunto set my hand and affixed the official seal of
this Department at the City of Albany, this 11th day of August, 1989.
[A SEAL APPEARS HERE]
JAMES P. CORCORAN
Superintendent of Insurance
By /s/ Robert A. Ginnelly
Special Deputy Superintendent
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
----------------------------
OF
DREYFUS LIFE INSURANCE COMPANY
------------------------------
(Pursuant to Section 805 of the Business Corporation Law)
We, the undersigned, being the President and Secretary of DREYFUS LIFE
INSURANCE COMPANY, do hereby certify as follows:
1. The name of the Corporation is DREYFUS LIFE INSURANCE COMPANY. The
Corporation was originally incorporated under the name of ZURICH LIFE INSURANCE
COMPANY, and its name was thereafter changed to DREYFUS LIFE INSURANCE COMPANY,
the Corporation's present name.
2. The Certificate of Incorporation was filed in the Office of the
Department of Insurance of the State of New York on the 3rd day of October,
1947.
3. As authorized by Section 801(b) (9) of the Business Corporation Law,
the Certificate of Incorporation is amended to increase the authorized capital
from 20,000 shares, par value $100 each, to 20,000 shares, par value $125 each.
4. To accomplish the foregoing, Article VIII of the Certificate of
Incorporation is amended to read as follows:
"The capital stock of the Company shall be two million five
hundred thousand dollars ($2,500,000) divided into twenty
thousand (20,000) shares of the par value of one hundred twenty-
five dollars ($125) each."
<PAGE>
5. As authorized by Section 801(b) (14) of the Business Corporation Law,
the Certificate of Incorporation is amended to add a provision limiting personal
liability of directors of the corporation.
6. To accomplish the foregoing, Article IV of the Certificate of
Incorporation is amended to add a fifth paragraph thereto to read as follows:
"No director shall be personally liable to the Corporation or any
of its shareholders for damages for any breach of duty as a
director; provided, however, that the foregoing provision shall
not eliminate or limit (1) the liability of a director if a
judgment or other final adjudication adverse to him or her
establishes that his or her acts or omissions were in bad faith
or involved intentional misconduct or any violation of the-
Insurance Law or a knowing violation of any other law or that he
or she personally gained in fact a financial profit or other
advantage to which he or she was not legally entitled; or (2) the
liability of a director for any act or omission prior to the
adoption of this amendment by the shareholders of the
Corporation."
7. The amendment to the Certificate of Amendment was authorized by vote
of the holdings of a majority of the outstanding share of the Corporation at a
meeting duly held on the 7th day of June 1989.
IN WITNESS WHEREOF, we have made, subscribed and acknowledged this
Certificate this 19th day of June, 1989.
/s/ Howard Stein
---------------------------------------
President
/s/ Mark N. Jacobs
---------------------------------------
Secretary
<PAGE>
VERIFICATION
State of New York )
) ss:
County of New York )
Mark N. Jacobs, being first duly sworn deposes and says that he is
--------------
Secretary of Dreyfus Life Insurance Company, that he has read the foregoing
Certificate of Amendment and knows the contents thereof, and the statements
contained therein are true.
/s/ Mark N. Jacobs
---------------------------------------
Mark N. Jacobs, Secretary
Sworn to before me
this day of June 19, 1989
/s/ Charles J. DeMarco
- ----------------------
Notary
[NOTARIAL STAMP OF CHARLES J. DEMARCO
APPEARS HERE]
State of New York )
) ss:
County of New York )
On the 19th of June, 1989, before me personally came Howard Stein and Mark
N. Jacobs known to me to be the persons who executed the foregoing instrument,
and they duly acknowledged before me that they executed the same.
/s/ Charles J. DeMarco
---------------------------------------
Notary Public
<PAGE>
================================================================================
Original
STATE OF NEW YORK INSURANCE DEPARTMENT
------
$ 450.00 Albany, NY December 1, 1982
- --------- --------------------------------
RECEIVED from ZURICH LIFE INSURANCE COMPANY
------------------------------------------------------------------
Four Hundred Fifty and 00/100 ------------------------------------------Dollars,
- ------------------------------------------------------------------------
in payment of tax provided by Section 180, Tax Law, as amended by Chapter 794,
Laws of 1923.
One-twentieth of one per centum upon $ 900,000. of shares with par
value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 450.00
--------
Five cents per share upon _______ shares without par value . . . . . . $
========
TOTAL . . . . . . . . . . . . $ 450.00
--------
Superintendent of Insurance
By /s/ James W. Clyne
--------------------------------
================================================================================
Deputy Superintendent of Insurance
<PAGE>
[GRAPHIC APPEARS HERE]
STATE OF NEW YORK
INSURANCE DEPARTMENT
AGENCY BUILDING ONE
THE GOVERNOR NELSON A. ROCKEFELLER
EMPIRE STATE PLAZA
ALBANY, NEW YORK 12257
ALBERT S. LEWIS
Superintendent of Insurance
The attached Certificate of Amendment of the Charter of ZURICH LIFE
INSURANCE COMPANY, of New York, New York, to effect the following:
1. To increase the capital stock from $1,100,000 comprised of 11,000
shares with a par value of $100.00 per share to $2,000,000
comprised of 20,000 shares with a par value of $100.00 per share.
2. To change the name of the Company from ZURICH LIFE INSURANCE
COMPANY to DREYFUS LIFE INSURANCE COMPANY.
IS HEREBY APPROVED pursuant to Section 53 of the New York Insurance Law.
IN WITNESS WHEREOF, I have hereunto set
my hand and affixed the official seal
of this Department at the City of
Albany, New York, this 1st day of
December, 1982.
ALBERT B. LEWIS
Superintendent of Insurance
(SEAL)
By /s/ James W. Clyne
Deputy Superintendent
<PAGE>
CERTIFICATE OF AMENDMENT OF THE CHARTER
of
ZURICH LIFE INSURANCE COMPANY
pursuant to
Section 53 of the Insurance Law of
the State of New York
We, the undersigned, HOWARD STEIN and MARK JACOBS, being the President
and the Secretary respectively of ZURICH LIFE INSURANCE COMPANY (hereinafter
sometimes called "the Company"), for the purpose of amending certain provisions
of the Charter of the Company pursuant to Section 53 of the Insurance Law of the
State of New York, do hereby make, subscribe and acknowledge this certificate
and do hereby certify as follows:
1. That the Charter of the Company was filed in the office of the
Insurance Department of the State of New York on October 3, 1947.
2. That the Company has an authorized capital of one million one
hundred thousand dollars ($1,100,000.00) divided into eleven thousand
(11,000) shares of the par value of one hundred dollars ($100.00) each.
3. That Article I of the Charter of the Company is hereby amended to
read as follows:
<PAGE>
"ARTICLE I.
"The name of this company is:
DREYFUS LIFE INSURANCE COMPANY."
4. That ARTICLE VIII of the Charter of the Company is hereby amended
to read as follows:
"ARTICLE VIII.
"The capital stock of the company shall be two million dollars
($2,000,000.00) divided into twenty thousand (20,000) shares of
the par value of one hundred dollars ($100.00) each."
5. This certificate (a) has been approved by the Board of Directors
of the Company at a meeting thereof duly held at 767 Fifth Avenue, New
York, N.Y., on November 30, 1982, at which a quorum was present and voted,
and (b) has been consented to by the holder of all of the outstanding
shares of capital stock of the Company on November 30, 1982.
-2-
<PAGE>
IN WITNESS WHEREOF, we have made, subscribed and acknowledged this
certificate this 30th day of November, 1982.
/s/ Howard Stein
---------------------------------------
Howard Stein President
(Corporate Seal)
/s/ Mark Jacobs
---------------------------------------
Mark Jacobs Secretary
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On this 30th day of November, 1982, before me personally came HOWARD STEIN
and MARK JACOBS, to me known and known to me to be the individuals described in
and who executed the foregoing certificate, and they severally and duly
acknowledged to me that they have been duly authorized to execute, and have
executed, the same.
(Notarial Seal) /s/ Ann M. Ippolito
---------------------------------------
Notary Public
(SEAL)
-3-
<PAGE>
[GRAPHIC APPEARS HERE]
STATE OF NEW YORK
INSURANCE DEPARTMENT
AGENCY BUILDING ONE
THE GOVERNOR NELSON A. ROCKEFELLER
EMPIRE STATE PLAZA
ALBANY, NEW YORK 12257
ALBERT B. LEWIS
Superintendent of Insurance
The attached Certificate of Amendment of the Certificate of Incorporation
of ZURICH LIFE INSURANCE COMPANY, of New York, New York, filed pursuant to
Section 805 of the Business Corporation Law to effect the following:
To amend Article IV by replacing paragraph 1 regarding the number of
directors.
IS HEREBY APPROVED August 28, 1980 pursuant to Section 53 of the New York
Insurance Law.
IN WITNESS WHEREOF, I have hereunto set
my hand and affixed the official seal
of this Department at the City of
Albany, New York, this 28th day of
August, 1980.
ALBERT B. LEWIS
Superintendent of Insurance
(SEAL)
By
/s/ Robert A. Ginnelly
Special Deputy Superintendent
<PAGE>
CERTIFICATE OF AMENDMENT
OF
THE CERTIFICATE OF INCORPORATION OF
ZURICH LIFE INSURANCE COMPANY
-----------------------------
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
THE UNDERSIGNED, being the holder of record of all of the outstanding
shares of Zurich Life Insurance Company entitled to vote with relation to the
proceedings provided for in this certificate, hereby certifies:
1. The name of the corporation is Zurich Life Insurance Company.
2. The Certificate of Incorporation of said corporation was filed
with the office of the Superintendent of Insurance on the 3rd day of
October, 1947.
3. The Certificate of Incorporation is amended to authorize the board
of directors to fix from time to time the number of directors of the company.
4. Article IV of the Certificate of Incorporation is amended by
replacing paragraph 1 of such Article and substituting therefor the following:
"The corporate powers of the company shall be exercised by a board of
directors, and through such officers and agents as said board shall
empower. The number of directors of the company may be fixed from time
to time by the directors in accordance with the ByLaws, but at no time
shall the number of directors be less than thirteen nor more than
twenty one. At all times a majority of the directors shall be citizens
and residents of the State of New York, or of adjoining states, and not
less than three of such directors shall be residents of the State of
New York. Each director shall be at least eighteen years of age. The
directors shall not be required to own any shares of stock in the
company."
<PAGE>
5. The above amendment was authorized by unanimous written consent
setting forth the action taken, signed by the holder of all outstanding shares
entitled to vote thereon.
IN WITNESS WHEREOF, we have signed this certificate on the 13 day of
August, 1980 and we affirm the statements contained therein as true under
penalties of perjury.
BANKERS TRUST COMPANY
Trustee under a Deed of Trust for the time being
in the United States of America of Zurich
Insurance Company
By /S/ James F. Barrett
----------------------------------------------
James F. Barrett, Assistant Vice President
<PAGE>
STATE OF ILLINOIS )
) ss:
COUNTY OF COOK )
C. M. George, being duly sworn, deposes and says:
That he is the Secretary of Zurich Life Insurance Company and that the
persons who have executed the foregoing certificate in person or by proxy
constitute the holders of record of all of the outstanding shares of the-
corporation entitled to vote with relation to the proceedings provided for in
the certificate.
Subscribed and sworn to
before me this 13th day
of August, 1980. /s/ C.M.George
--------------------------
/s/ Verda Wille
- ---------------------------------------
Notary Public
My Commision Expires September 16, 1982
<PAGE>
================================================================================
Original
STATE OF NEW YORK INSURANCE DEPARTMENT
----------
$ 200.00 Albany, September 13, 1972
- ---------- ---------------------
RECEIVED from ZURICH LIFE INSURANCE COMPANY
-------------------------------------------------------------------
Two Hundred - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
________________________________________________________________________Dollars,
in payment of tax provided by Section 180, Tax Law, as amended by Chapter 794,
Laws of 1923.
<TABLE>
<S> <C>
One-twentieth of one per centum upon $ 400.00 of shares with par value . . . . . . . . . . . . . $ 200.00
------- ------------
Five cents per share upon shares without par value . . . . . . . . . . . . . . . . . . $
------- ============
Total . . . . . . . . . . . $ 200.00
------------
BENJAMIN R. SCHENCK
Superintendent of Insurance
By /s/ Robert J. Bertrand
-----------------------------
=================================================================================================================
Robert J. Bertrand, Deputy Superintendent of Insurance
</TABLE>
<PAGE>
[GRAPHIC APPEARS HERE]
STATE OF NEW YORK
INSURANCE DEPARTMENT
324 STATE STREET
ALBANY 12210
BENJAMIN R. SCHENCK
Superintendent of Insurance
The attached Certificate of Amendment of Charter of ZURICH LIFE
INSURANCE COMPANY, of New York, New York to effect the following:
To increase authorized capital from $700,000 comprised of
7,000 shares with par value of $100 per share to
$1,100,000 comprised of 11,000 shares with par value of
$100 per share ,
IS HEREBY APPROVED September 13, 1972 pursuant to Section 53 of the
New York Insurance Law.
IN WITNESS WHEREOF, I have hereunto set my
hand and affixed the official seal of this
Department at the City of Albany, New York,
this 13th day of September, 1972.
BENJAMIN R. SCHENCK
Superintendent of Insurance
(SEAL)
By /s/ Robert J. Bertrand
Robert J. Bertrand
Deputy Superintendent
<PAGE>
CERTIFICATE OF AMENDMENT OF CHARTER
OF
ZURICH LIFE INSURANCE COMPANY
Under Section 805 of the Business Corporation Law
THE UNDERSIGNED, being the holder of record of all of the outstanding
shares of Zurich Life Insurance Company entitled to vote with relation to the
proceedings provided for in this certificate, hereby certifies:
1. The name of the corporation is Zurich Life Insurance Company.
2. The charter of said life insurance company was filed with the
Insurance Department of the State of New York on the 3rd day of October,
1947.
3. (a) The purpose of this certificate of amendment is to increase
the authorized capital stock of the company from seven hundred thousand
dollars ($700,000.00) to one million one hundred thousand dollars
($1,100,000.00).
(b) To effect the foregoing, ARTICLE VIII of the charter is
hereby amended so that it -shall now read as follows:
"ARTICLE VIII.
The capital stock of the company shall be one million one
hundred thousand dollars ($1,100,000.00) divided into eleven thousand
(11,000) shares of the par value of one hundred dollars ($100.00)
each."
<PAGE>
4. This amendment of the charter is being authorized by the
execution of this certificate by the holder of record of all the
outstanding shares of Zurich Life Insurance Company.
IN WITNESS WHEREOF, the undersigned has made, subscribed and
acknowledged this certificate this 11th day of August, 1972.
BANKERS TRUST COMPANY,
Trustee under a deed of trust for the
time being in the United States of
America of Zurich Insurance Company
By [SIGNATURE APPEARS HERE]
------------------------------
-2-
<PAGE>
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On this 11th day of August, 1972, before me personally came GEORGE E.
MAIER, to me known, who, being by me duly sworn, did depose and say that he
resides at 2018 Hoyt Avenue, Fort Lee, New Jersey; that he is Vice President of
BANKERS TRUST COMPANY, the corporation described in and which executed the above
instrument that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by older of the
board of directors of said corporation; and that he signed his name thereto by
like order.
/s/ Lyle Temple
--------------------------------
Notary Public
[NOTARIAL STAMP OF LYLE TEMPLE
APPEARS HERE]
-3-
<PAGE>
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
THOMAS PARSONS III, being duly sworn, deposes and says that he is the
Secretary of Zurich Life Insurance Company; and that BANKERS TRUST COMPANY,
which executed the foregoing certificate, constitutes the holder of record of
all of the outstanding shares of the corporation entitled to vote with relation
to the proceedings provided for in the certificate.
/s/ Thomas Parsons III
--------------------------------
Thomas Parsons III
Sworn to before me this 14th day of August, 1972.
/s/ Ruth Stark
- ---------------------
Notary Public
[NOTARIAL STAMP OF Ruth Stark
APPEARS HERE]
-4-
<PAGE>
CERTIFICATE OF AMENDMENT OF CHARTER
OF
ZURICH LIFE INSURANCE COMPANY
Pursuant to Section Thirty-Six of the Stock Corporation Law.
THE UNDERSIGNED, being the holder of record of all of the outstanding shares of
Zurich Life Insurance Company entitled
STATE OF NEW YORK
INSURANCE DEPARTMENT
324 STATE STREET
ALBANY- 10
[GRAPHIC APPEARS HERE]
CERTIFICATE OF AMENDMENT OF CHARTER
of
ZURICH LIFE INSURANCE COMPANY
of New York, N. Y.
APPROVED June 22, 1959 pursuant to Section 38 of
the Stock Corporation Law.
THOMAS THACHER
Superintendent of Insurance
By /s/ John F. Joyce
Acting Deputy Superintendent
<PAGE>
CERTIFICATE OF AMENDMENT OF CHARTER
OF
ZURICH LIFE INSURANCE COMPANY
Pursuant to Section Thirty-Six
of the Stock Corporation Law.
THE UNDERSIGNED, being the holder of record of all. of the outstanding
shares of Zurich Life Insurance Company entitled to vote with relation to the
proceedings provided for in this certificate, hereby certifies:
1. The name of the corporation is Zurich Life Insurance Company.
2. The Charter of said life insurance company was filed with the
Insurance Department of the State of New York on the 3rd day of October, 1947.
3. The purpose of this certificate of amendment is to conform paragraph
3(a) of Article 3 of the Charter to the provisions of subparagraph 3(a) of
Section 46 of the Insurance Law, as amended, and to add to the Charter a
provision authorizing the company to transact the kind of insurance provided for
in subparagraph 3(b) of said Section 46.
4. Article 3 of the Charter is hereby amended by adding to paragraph 3(a)
thereof the words "including insurance providing disability benefits pursuant to
article nine of the workmens compensation law" so as to conform said paragraph
to section 46 (3) (a) of the Insurance Law as amended, and by adding thereto a
further provision which shall be paragraph 3(b) of said Article, and said
Article shall now read as follows:
"ARTICLE 3
The company is authorized to transact the kinds of insurance specified in
paragraphs 1, 2 and 3 of Section 46 of the Insurance Law, as follows:
1. "Life insurance," meaning every insurance upon
<PAGE>
the lives of human beings and every insurance appertaining thereto. The
business of life insurance shall be deemed to include the granting of
endowment benefits; additional benefits in the event of death by accident
or accidental means; additional benefits operating to safeguard the
contract from lapse, or. to provide a special surrender value, in the event
of total and permanent disability of the insured,, and optional modes of
settlement of proceeds;
2. "Annuities," meaning all agreements to make periodical payments
where the making or continuance of all or of some of a series of such
payments, or the amount of any such payment, is dependent upon the
continuance of human life, except payments made under the authority of the
previous paragraph;
3. "Accident and health insurance," meaning (a) insurance against
death or personal injury by accident or by any specified kind or kinds of
accident and insurance against sickness, ailment or bodily injury,
including insurance providing disability benefits pursuant to article nine
of the workmen's compensation law, except as specified in subparagraph (b)
following; and
(b) non-cancelable disability insurance, meaning insurance against
disability resulting from sickness, ailment or bodily injury, (but not
including insurance Solely against accidental injury) under any contract
which does not give the insurer the option to cancel otherwise terminate
the contract at or after one year from its effective date or renewal date.
IN WITNESS WHEREOF, the undersigned has made, subscribed and acknowledged
this certificate this 15th day of June, 1959.
BANKERS TRUST COMPANY,
Trustee under a deed of trust
for the time being in the
United States of America of
Zurich Insurance Company
By /s/ J.C. Kennedy
----------------------------
J.C. Kennedy
Vice President
<PAGE>
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On this 15th day of June, 1959, before me personally came J. C. Kennedy
to me known, who, being by me duly sworn, did depose and say: That he resides in
73 Gates Avenue, Montclair, New Jersey; that he is the Vice President of BANKERS
TRUST COMPANY, the corporation described in and which executed the above
instrument; that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by order of the
board of directors of said corporation, and that he signed his name thereto by
like order.
/s/ Aloyse A. Stephens
----------------------
Notary Public
(SEAL)
<PAGE>
STATE OF NEW YORK )
) SS:
COUNTY OF NEW YORK )
THOMAS PARSONS III being duly sworn, deposes and says that he is the
Secretary of Zurich Life Insurance Company; and that BANKERS TRUST COMPANY,
which executed the foregoing certificate, constitutes the holder of record of
all of the outstanding shares of the corporation entitled to vote with relation
to the proceedings provided for in the certificate.
Sworn to before me this /S/ Thomas Parsons III
15th day of June, 1959. ----------------------
/s/ Leopold Miscione
(SEAL)
<PAGE>
[GRAPHIC APPEARS HERE]
STATE OF NEW YORK
DEPARTMENT OF LAW
ALBANY
NATHANIEL L. GOLDSTEIN
ATTORNEY GENERAL
October 2, 1947
I, NATHANIEL L. GOLDSTEIN, Attorney General of the State of New York, do
hereby certify that I have examined the annexed proposed Declaration and Charter
of the ZURICH LIFE INSURANCE COMPANY, of New York, N.Y., organized pursuant to
the Provisions of the Insurance Law of the State of New York, for the purpose of
transacting the kinds of insurance business authorized by Paragraphs 1, 2 and
3(a) of Section 46, and also reinsurances as specified in Section 60, of the
Insurance Law, together with proof of publication of notice of intention to form
such corporation, and I am of the opinion that the instruments submitted conform
to the Insurance Law of the State of New York.
IN WITNESS WHEREOF, I have hereunto set
my hand and affixed the official seal
of my office the day and year first
above written.
NATHANIEL L. GOLDSTEIN,
Attorney General
(SEAL)
[SIGNATURE APPEARS HERE]
--------------------------
Solicitor General
<PAGE>
STATE OF NEW YORK )
) ss:
City and County of New York )
JOHN E. TITTMANN of the City of New York, being duly sworn, says that he is
the Principal Clerk of the Publisher of
The Journal of Commerce
AND COMMERCIAL
a daily newspaper printed and published in the City of New York, and that the
Notice, of which the annexed is a printed copy, has been regularly published in
the said
The Journal of Commerce
AND COMMERCIAL
....................6......... times as follows: ...............................
Sept 10 - 12 - 17 - 19 - 24 - 26 1947
................................................................................
John E. Tittmann
...................
Sworn to before me this... 26th...day
of... September,.. 1947.
Dorothy V. Frese
........................................................
Notary Public
(SEAL)
- --------------------------------------------------------------------------------
NOTICE OF INTENTION
NOTICE HEREBY IS GIVEN that the undersigned, all of whom are natural persons
of full age and at least a majority of whom are citizens and residents of the
State of New York or of adjoining States and not less than three of whom are
residents of the State of New York, intend to form a stock corporation pursuant
to the provisions of the Insurance Law of the State of New York, for the purpose
of transacting a life insurance business as specified in paragraphs 1, 2 and
3(a) of Section Forty-Six, and also reinsurances as specified in Section Sixty
of such law, with the name of ZURICH LIFE INSURANCE COMPANY, whose principal
office is to be located in the City and County of New York, and whose proposed
initial capital is Seven Hundred Thousand Dollars ($700,000).
Dated, New York, N.Y., September 8, 1947.
Name Address
Caryl A. Barnett 266 Main Street, East Rockaway, New York
Robert V. Branion 13 Collinwood Road, Maplewood, New Jersey
John S. Breckinridge 11 Iden Avenue, Larchmont, New York
Alfred W. Andrews 94 Edgewood Ave., Larchmont, New York
Arthur W. Collins 734 Clinton Place, Evanston, Illinois
Samuel Sloan Duryee 333 East 68th Street, New York, New York
Harry H. Fuller 1400 Lake Shore Drive, Chicago, Illinois
William H. Hotenkins 60 Lake Road, Rye, New York
George N. Lindsay Oyster Bay, Long Island, New York
William G. Minner Roundhill Road, Greenwich, Connecticut
Neville Pilling 2123 Central Park, Evanston, Illinois
Rolin E. Talbert 180 Sherman Avenue, Teaneck, New Jersey
Walter Reid Wolf Millbrook, New York
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
Original
STATE OF NEW YORK INSURANCE DEPARTMENT
------
$ 350.00 Albany, October 3, 1947
- -------- -------------------------------
RECEIVED from-----------ZURICH LIFE INSURANCE COMPANY---------------------------
-------------------------------------------------------------------
- -------------------------Three Hundred Fifty Dollars-------------------Dollars,
in payment of tax provided by Section 180, Tax Law, as amended by Chapter 794,
Laws of 1923.
One-twentieth of one per centum upon $700.00 of shares with par value....$350.00
------- -------
Five cents per share upon _______ shares without par value................$_____
TOTAL...........................$350.00
-------
ROBERT E DINEEN
Superintendent of Insurance
By Raymond Harris
-------------------------------------
Deputy Superintendent
================================================================================
<PAGE>
DECLARATION AND CHARTER
of
ZURICH LIFE INSURANCE COMPANY
----------
DECLARATION.
We the undersigned, all of whom are natural persons of full age, and at
least a majority of whom are citizens and residents of the State of New York or
of adjoining States, and not less than three of whom are residents of the State
of New York, hereby declare our intention to form a stock corporation, pursuant
to the provisions of the Insurance Law of the State of New York, for the purpose
of transacting a life insurance business as specified in paragraphs 1, 2 and 3
(a) of Section 46 of such law, and do hereby make, sign, acknowledge and file
this Declaration for that purpose and adopt the following as our Charter:
CHARTER.
Article 1.
---------
The name of this Company is:
ZURICH LIFE INSURANCE COMPANY.
Article 2.
----------
The principal office of the company is to be located in the City, County
and State of New York, and it shall have power to conduct its business wherever
authorized by law. The company may establish other offices, agencies or branches
outside the State of New York and in any part of the world.
Article 3.
---------
The company is authorized to transact the kinds of insurance specified
in paragraphs 1, 2 and 3 (a) of Section 46 of the Insurance Law, as follows:
1. "Life insurance," meaning every insurance upon the lives of human beings
and every insurance appertaining thereto. The business of life insurance shall
be deemed to include the granting of endowment benefits; additional benefits in
the event of death by accident or accidental means; additional benefits
operating to safeguard the contract from lapse, or to provide a
<PAGE>
-2-
special surrender value, in the event of total and permanent disability of
special surrender value the insured; and optional modes of settlement of
proceeds;
2. "Annuities," meaning all agreements to make periodical payments where
the making or continuance of all or of some of a series of such payments, or the
amount of any such payment, is dependent upon the continuance of human life,
except payments made under the authority of the previous paragraph;
3. "Accident and health insurance," meaning insurance against death or
personal injury by accident or by any specified kind or kinds of accident and
insurance against sickness, ailment or bodily injury; except as specified in
sub-paragraph (b) of paragraph 3 of Section 46 of the Insurance Law;
As well as to effect reinsurance of all risks taken by it and to assume
reinsurance of similar risks taken by other insurers and reinsurers;
And to transact such other insurance or other business as a stock life
insurance company now is or hereafter may be permitted to transact under the
Insurance Law and for which the company shall have the required capital and
surplus.
Article 4.
----------
The corporate powers of the company shall be exercised by a board of
directors, consisting of thirteen (13) persons, a majority of whom shall be
citizens and residents of the State of New York or of adjoining States, and not
less than three (3) of whom shall be residents of the State of Now York. number
of directors shall in no case be less than thirteen. The directors: not be
required to own any share of stock in the company.
The directors shall be elected at the annual meeting of the
stockholders. The directors shall hold office for one year and until their
successors are elected, and any vacancy in the board of directors, due to death,
resignation, removal or otherwise, shall be filled by a new incumbent elected
for the balance of the unexpired term of the outgoing director by the remaining
members of the board at any regular or special meeting, and any person so
elected shall serve until his successor has been elected at the next annual
meeting of the stockholders. If because of such vacancy or vacancies in the
<PAGE>
board of directors the number of directors shall be less than thirteen, the
company shall not for that reason be dissolved, but the vacancy or vacancies
shall be filled as herein provided. The stockholders, by a majority vote at any
meeting, may remove any directors.
The officers of the company shall be elected at a meeting of the directors
held immediately after the annual meeting of stockholders. Any vacancy may be
filled and additional officers may be elected or appointed at any meeting of the
directors.
The board of directors shall have power to make such by-laws not
inconsistent with the Constitution or laws of the state of New York or of the
United States or with this Charter, as may be necessary for the management of
the company's property, the government of its officers, the regulation and
conduct of its affairs and the transfer of its capital stock, and shall have
power to alter, amend, suspend or add to the same.
Article 5.
------------
There shall be an annual meeting of the stockholders of the company on the
fourth Tuesday in the month of March of each year, or on such other day as the
directors may by resolution or by-law prescribe. Should the day designated fall
upon a legal holiday, then such annual meeting shall be held on the next full
business day following. At such annual meeting there shall be elected a full
board of directors. Each election of directors shall be by ballots and a
plurality of votes shall elect. At all stockholders' meetings, each stockholder
shall be entitled to one vote, either in person or by proxy, for each share of
stock owned by him and standing in his name on the books of the company not less
than thirty (30) days immediately preceding such meeting.
Article 6.
----------
The following directors shall hold office until the first annual meeting of the
stockholders:
C. A. Barnett, 266 Main Street, East Rockaway, New York
John S. Breckinridge, 11 Iden Avenue, Larchmont, New York
Lawrence M. Cathles, 12 Fenimore Road, Scarsdale, New York
Arthur W. Collins, 734 Clinton Place, Evanston, Illinois
Samuel S. Duryee, 333 East 68th Street, New York, New York
Harry H. Fuller, 1400 Lake Shore Drive, Chicago, Illinois
William H. Hotchkiss, 60 Lake Road, Rye, New York
<PAGE>
-4-
George N. Lindsay, Oyster Bay, Long Island, New York
William G. Minner, Roundhill Road, Greenwich, Connecticut
Robert M. Naef, Zurich, Switzerland
Neville Pilling, 2123 Central Park, Evanston, Illinois
William Schweizer, Zurich, Switzerland
Walter Reid Wolf, Millbrook, New York
Article 7.
----------
The fiscal year of the company shall begin on the first day of January
and shall terminate on the thirty-first day of December in each year.
Article 8.
----------
The capital stock of the company shall be seven hundred thousand dollars
($700,000.00) divided into seven thousand (7,000) shares of the par value of one
hundred dollars ($100.00) each.
Article 9.
----------
The duration of the company shall be perpetual.
IN WITNESS WHEREOF, we have hereunto set our hands
and seals this 11th day of September, 1947.
------ ----------
Caryl A. Barnett
--------------------------------------(L.S.)
Robert V. Branion
--------------------------------------(L.S.)
John S. Breckinridge
--------------------------------------(L.S.)
Alfred W. Andrews
--------------------------------------(L.S.)
Arthur W. Collins
--------------------------------------(L.S.)
Samuel Sloan Duryee
--------------------------------------(L.S.)
Harry H. Fuller
--------------------------------------(L.S.)
William H. Hotenkins
--------------------------------------(L.S.)
George N. Lindsay
--------------------------------------(L.S.)
William G. Minner
--------------------------------------(L.S.)
Neville Pilling
--------------------------------------(L.S.)
Rolin E. Talbert
--------------------------------------(L.S.)
Walter Reid Wolf
--------------------------------------(L.S.)
<PAGE>
STATE OF ILLINOIS :
COUNTY OF COOK : SS:
CITY OF CHICAGO :
On this 11th day of September, 1947, before me personally came Arthur W.
------ ---------
Collins, Neville, Pilling and Harry II. Fuller, to me known and known to me to
be the individuals described in and who executed the foregoing instruments and
they severally duly acknowledged to me that they had executed the same.
[SIGNATURE APPEARS HERE]
-----------------------------------
My Commission expires March 14, 1948
STATE OF NEW YORK :
: SS:
CITY AND COUNTY OF NEW YORK :
On this 15th day of September, 1947, before me personally came
------ ------------
Walter Reid Wolf, Samuel S. Duryee, William H. Hotchkiss, John S. Breckinridge
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
to me known and known to me to be the individuals described in and who executed
the foregoing instruments and they severally duly acknowledged to me that they
had executed the same.
/s/ Geo S. Allen
---------------------------------------
(SEAL)
STATE OF NEW YORK :
: SS:
CITY AND COUNTY OF NEW YORK :
On this 16th day of September 1947, before me personally came Caryl A. Barnett,
------ ----------- ------------------
William G. Minner, Alfred W. Andrews, Rollin E. Talbert, Robert V. Branion
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
to me known and known to me to be the individuals described in and who executed
the foregoing instrument, and they severally duly acknowledged to me that they
had executed the same.
/s/ Geo S. Allen
---------------------------------------
(SEAL)
<PAGE>
STATE OF NEW YORK :
----------
: SS:
COUNTY OF NEW YORK :
----------
On this 18th day of September, 1947, before me personally came George N. Lindsay
------ --------- -----------------
to me known and known to me to be the individual described in and who executed
the foregoing instrument, and he duly acknowledged to me that he had executed
the same.
/s/ Geo S. Allen
--------------------------------------------
(SEAL)
STATE OF :
----------
: SS:
COUNTY OF :
----------
On this day of , 1947, before me personally came
------ --------- -----------------
to me known and known to me to be the individual described in and who executed
the foregoing instrument, and he duly acknowledged to me that he had executed
the same.
--------------------------------------------
(SEAL)
STATE OF :
----------
: SS:
COUNTY OF :
----------
On this day of , 1947, before me personally came
------ --------- -----------------
to me known and known to me to be the individual described in and who executed
the foregoing instrument, and he duly acknowledged to me that he had executed
the same.
--------------------------------------------
(SEAL)
<PAGE>
NOTICE OF INTENTION
------
NOTICE HEREBY IS GIVEN that the undersigned, all of whom are natural persons of
full age and at least a majority of whom are citizens and residents of the State
of New York or of adjoining States and not less than three of whom are residents
of the State of New York, intend to form a stock corporation pursuant to the
provisions of the Insurance Law of the State of New York, for the purpose of
transacting a life insurance business as specified in paragraphs 1, 2 and 3(a)
of Section Forty-Six, and also reinsurances as specified in Section Sixty of
such law, with the name of ZURICH LIFE INSURANCE COMPANY, whose principal
office is to be located in the City and County of New York, and whose proposed
initial capital is Seven Hundred Thousand Dollars ($700,000).
Dated, New York, N.Y., September 8, 1947.
Caryl A. Barnett 266 Main Street, East Rockaway, New York
- --------------------------- --------------------------------------------------
Robert V. Branion 13 Collinwood Road, Maplewood, New Jersey
- ---------------------- --------------------------------------------------
John S. Breckinridge 11 Iden Avenue, Larchmont, New York
- ---------------------- --------------------------------------------------
Alfred W. Andrews 94 Edgewood Ave., Larchmont, New York
- ---------------------- --------------------------------------------------
Arthur W. Collins 734 Clinton Place, Evanston, Illinois
- ---------------------- --------------------------------------------------
Samuel Sloan Duryee 333 East 68th Street, New York, New York
- ---------------------- --------------------------------------------------
Harry H. Fuller 1400 Lake Shore Drive, Chicago, Illinois
- ---------------------- --------------------------------------------------
William H. Hotenkins 60 Lake Road, Rye, New York
- ---------------------- --------------------------------------------------
George N. Lindsay Oyster Bay, Long Island, New York
- ---------------------- --------------------------------------------------
William G. Minner Roundhill Road, Greenwich, Connecticut
- ---------------------- --------------------------------------------------
Neville Pilling 2123 Central Park, Evanston, Illinois
- ---------------------- --------------------------------------------------
Rolin E. Talbert 180 Sherman Avenue, Teaneck, New Jersey
- ---------------------- --------------------------------------------------
Walter Reid Wolf Millbrook, New York
- ---------------------- --------------------------------------------------
<PAGE>
Exhibit (8)(b)
- --------------
Bylaws of AUSA Life Insurance Company, Inc.
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
AMENDED AND RESTATED
BY-LAWS
AS OF SEPTEMBER 1, 1995
ARTICLE I
LOCATION
Section 1. The principal office of the corporation shall be in the county of
Westchester and State of New York. The Corporation may, in addition to the
principal office, establish and maintain such other office or offices, within or
without the State of New York, as the Board of Directors may from time to time
designate or the business of the Corporation may require.
ARTICLE II
CORPORATE SEAL
Section 1. The Corporation shall have a seal. The corporate seal shall have
inscribed thereon the name of the Corporation. The corporate seal shall be in
seal form and have inscribed thereon such additional words and symbols as the
Board of Directors may from time to time prescribe. The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or otherwise
reproduced.
- 1 -
<PAGE>
ARTICLE III
MEETING OF SHAREHOLDERS
Section 1. Time and Place. All meetings of the shareholders for the election
--------------
of directors and all meetings of shareholders for that or any other purpose may
be held at such place within or without the State of New York, and at such time
as may be designated in the notice of meeting.
Section 2. Annual Meetings. The annual meeting of shareholders shall be held
---------------
in March of each year, or at such other time as may be designated by the Board
of Directors.
Section 3. Special Meetings. Except as otherwise provided by statute, special
----------------
meetings of shareholders may be called for any purpose or purposes at any time
by the Chairman of the Board of Directors, the President, the Board of
Directors, or by the President and Secretary upon the written request of one or
more shareholders holding a majority in interest of the stock of the Corporation
issued and outstanding and entitled to vote at such meeting. Any such request
shall state the purpose or purposes of the proposed meeting.
- 2 -
<PAGE>
Section 4. Notice of Meetings. Notice of the time and place of holding each
------------------
annual and special meeting of the shareholders shall be in writing and signed by
the President or a Vice President or the Secretary or an Assistant Secretary and
a copy thereof shall be served, either personally, or by mail, upon each
shareholder entitled to vote at such a meeting, not less than ten (10) nor more
than fifty (50) days before the meeting, and if mailed, it shall be directed to
such shareholder at such shareholder's address as it appears on the books of the
Corporation unless a written request be given that notices intended for such
shareholder be mailed to some other address, in which case it shall be mailed to
the address designated in such request. The notice of every special meeting,
besides stating the time and place of such meeting, shall state the purpose or
purposes thereof, and no business other than that specified in such notice or
germane thereto shall be transacted at the meeting.
Section 5. Waiver of Notice. Notice of meeting need not be given (1) to any
----------------
shareholder who submits a signed waiver of notice, in person or by proxy,
whether before or after the meeting, or (2) to any shareholder who is in
attendance at any meeting, in person or by proxy, without protesting prior to
the conclusion of the meeting the lack of notice of such meeting.
- 3 -
<PAGE>
Section 6. Quorum. At every meeting of the shareholders of the Corporation,
------
except as otherwise provided by law, the holders of a majority of the issued and
outstanding shares of capital stock of the Corporation, present in person or by
proxy and entitled to vote thereat, shall constitute a quorum for the
transaction of business. In the absence of a quorum, a majority in interest of
the shareholders so present or represented and entitled to vote thereat may
adjourn the meeting from time to time and place to place until a quorum is
obtained, and the meeting may be held as adjourned without further notice. At
any such adjourned meeting at which a quorum is present any business may be
transacted which might have been transacted at the meeting as originally called.
The shareholders present at duly called or held meeting at which a quorum is
present may continue to transact business until a final adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
Section 7. Voting. At all meetings of shareholders every shareholder entitled
------
to vote thereat shall be entitled to one (1) vote, in person or by proxy, for
each share of stock outstanding in such shareholder's name on the books of the
Corporation on the date for the determination of shareholders entitled to vote
at such meeting. Every proxy must be executed in writing by the shareholder or
by his duly authorized attorney and must be delivered to the Secretary of the
meeting. No proxy shall be valid after the expiration of eleven months from the
date of its execution unless the shareholder executing it shall have specified
therein a longer duration. At all meetings of the shareholders, a quorum being
present, all matters except as otherwise provided by law, or the Charter of the
Corporation, or these By-Laws shall be decided by a majority in interest of the
shareholders of the Corporation present in person or by proxy and entitled to
vote. All elections of directors may, but need not be, held by ballot.
- 4 -
<PAGE>
Section 8. Organization. Meetings of the shareholders shall be presided over
------------
by the Chairman of the Board of Directors, or, if he is not present, by the
President, and if the President is not present, by a Vice President in the order
determined by the President, or, if none of the foregoing is present, by a
chairman to be chosen by a majority of the shareholders entitled to vote who are
present in person or by proxy at the meeting. The Secretary of the Corporation,
or in his absence an Assistant Secretary, shall act as Secretary of every
meeting, but if neither the Secretary nor an Assistant Secretary is present, the
meeting shall choose any person present to act as Secretary of the meeting.
Section 9. Consents. Whenever by any provision of law or of the Charter of
--------
this Corporation, the vote of shareholders at a meeting thereof is required or
permitted to be taken in connection with any corporate action, the meeting and
vote of shareholders may be dispensed with, if all the shareholders who would
have been entitled to vote upon the action if such meeting were held, shall
consent in writing to such action being taken. However, this section shall not
be construed to alter or modify any provision of law or of the Charter under
which the written consent of the holders of less than all outstanding shares is
sufficient for corporate action.
ARTICLE IV
BOARD OF DIRECTORS
Section 1. Election and Qualification of Directors. Directors shall be elected
---------------------------------------
at the annual meeting of shareholders by plurality of the votes cast and shall
hold office for one year and until their respective successors shall have been
elected and shall have qualified.
- 5 -
<PAGE>
All directors shall be at least eighteen (18) years of age and at least a
majority shall be citizens and residents of the United States and at least three
residents of the State of New York, if required by law or regulations.
Directors need not be shareholders.
Section 2. Number of Directors. The number of directors shall not be less than
-------------------
thirteen (13) nor more than twenty-one (21). Subject to change by action of the
shareholders or by resolution of the Board of Directors, the number of directors
of the Corporation shall be thirteen (13). Any change in the number of
directors made by resolution of the Board of Directors shall require the
affirmative vote of a majority of all directors then in office but no decrease
in the number of directors so made shall shorten the term of any incumbent
director.
Section 3. Composition of Board. Not less than one-third of the directors
--------------------
shall be persons who are not officers or employees or officers or employees of
any entity controlling or controlled by, or under common control with AUSA LIFE
INSURANCE COMPANY, INC. and who are not beneficial owners of a controlling
interest in the voting stock of AUSA LIFE INSURANCE COMPANY, INC. or any such
entity, if required by law or regulations. At least one such person must be
included in any quorum for the transaction of business at any meeting of the
Board of Directors, if required by law or regulations.
- 6 -
<PAGE>
Section 4. Vacancies. A vacancy or vacancies in the Board resulting from
---------
death, resignation or removal of any director or from the increase in the number
of directors, or for any other cause, may be filled for the remainder of the
term by majority vote of the remaining directors at any regular meeting of the
Board or at any special meeting called for that purpose. A director so elected
shall not take office or exercise the duties thereof until ten (10) days after
written notice of his election shall have been filed in the office of the
Superintendent of Insurance of the State of New York.
Section 5. Duties and Powers. The Board of Directors shall have control and
-----------------
management of the affairs and property of the Corporation and may adopt such
rules and regulations for the conduct of their meetings and the management of
the Corporation as they deem proper not inconsistent with law or with the
Charter of the Corporation or with these By-Laws.
Section 6. Meetings. Meetings of the Board of Directors shall be held at such
--------
a place within or without the State of New York as may from time to time be
fixed by resolution of the Board of Directors, or as may be specified in the
notice of the meeting. Regular meetings of the Board of Directors shall be held
four (4) times a year as may be fixed by resolution of the Board of Directors.
One such meeting shall be held on the date of the regular annual shareholders
meeting. Special meetings may be held at any time upon the call of the Chairman
of the Board of Directors, the President or any Vice President or the Secretary
or an Assistant Secretary or any two directors by oral, telegraphic or written
notice duly served on or sent or mailed to each director, not less than two (2)
days before such meeting.
- 7 -
<PAGE>
A meeting of the Board of Directors may be held without notice immediately after
the annual meeting of shareholders. Notice need not be given of regular
meetings of the Board of Directors. Meetings may be held at any time if all the
directors are present, or if at any time before or after the meeting, those not
present waive notice of the meeting in writing. Any one or more members of the
Board of Directors or any committee thereof may participate in a meeting of such
Board of Directors or committee by means of a conference telephone or similar
communications equipment allowing all persons participating in the meeting to
hear each other at the same time. Participation by such means shall constitute
presence in person at a meeting.
Section 7. Quorum. A majority of the Board of Directors then in office at a
------
meeting duly assembled shall be necessary to constitute a quorum for the
transaction of business. Except as otherwise provided by law or by the Charter
of the Corporation, the act of a majority of directors present at such meeting
shall be the act of the Board.
Section 8. Resignations. Any director of the Corporation may resign at any
------------
time by giving written notice to the Board or to the President or to the
Secretary of the Corporation. Such resignation shall take effect at the time
specified therein, and unless otherwise specified therein the acceptance of such
resignation shall not be necessary to make it effective.
Section 9. Removal. Any one or more of the directors may be removed either
-------
with or without cause at any time by a vote of a majority of the shares issued
and outstanding and entitled to vote.
- 8 -
<PAGE>
Notwithstanding Section 5 of this Article, not less than one-third of the
directors may call a special meeting for the purpose of removing for cause any
other director and at such special meeting so called, such director may be
removed by the affirmative vote of a majority of the remaining directors present
at such meeting. Immediately following each vote by which a director is removed
the Board of Directors shall declare the office of the removed director to be
vacant.
Section 10. Compensation of Directors. Directors may, by resolution of the
-------------------------
Board of Directors, be allowed a fixed sum for serving as directors and expenses
for attendance at regular or special meetings of the Board of Directors.
Members of special or standing committees, and others who attend pursuant to
direction, may, by vote of the Board of Directors, be allowed a fixed sum and
expenses for attending committee meetings.
Section 11. Chairman of the Board. The Board of Directors shall, immediately
---------------------
after the organization of the Corporation, and thereafter at their first meeting
following the annual election of directors, elect from among their number a
Chairman of the Board who shall preside at all meetings of the shareholders and
of the Board of Directors. He shall have other powers and perform such other
duties as may be assigned to him by the Board of Directors.
- 9 -
<PAGE>
ARTICLE V
COMMITTEES
Section 1. Executive Committee. The Board of Directors may, by resolution
-------------------
adopted by a majority of the entire Board, designate an Executive Committee from
among its members consisting of five (5) or more directors as it may, in its
discretion, think proper and shall so designate by resolution, subject to
Section 2 and Section 3 of this Article.
Subject to Section 3 of this Article, the Executive Committee shall have and may
exercise, when the Board is not in session, so far as may be permitted by law,
all of the rights and powers of the Board of Directors in the management of the
business and affairs of the Corporation except to the extent such powers of the
Board are by resolution of the Board or by these By-Laws reserved to the Board
or to other committees of the Board, and shall have power to authorize the seal
of the Corporation to be affixed to all papers which may require it; but the
Executive Committee shall not have power to fill vacancies in the Board, or to
change the membership of, or to fill vacancies in any committee of the Board, or
to make or amend the By-Laws of the Corporation.
The Board shall have the power at any time to fill vacancies in, to change the
membership of, to change the number of members of, designate one or all
alternate members of, or to dissolve the Executive Committee. The Executive
Committee may make rules for the conduct of its business and may appoint such
committees and assistants as it shall from time to time deem necessary.
The Committee shall keep a record of its proceedings and shall adopt its own
rules of procedure except that a quorum shall consist of at least three (3)
members, at least one (1) of whom must not be an officer or salaried employee of
the Corporation, its parent or any affiliated Corporation, if required by law or
regulations.
- 10 -
<PAGE>
Section 2. Composition of Committees. If required by law or regulations, not
-------------------------
less than one third of the members of each committee of the Board of Directors
shall be persons who are not officers or employees of AUSA LIFE INSURANCE
COMPANY, INC. or of any entity, controlling, controlled by, or under common
control with AUSA LIFE INSURANCE COMPANY, INC. and who are not beneficial owners
of a controlling interest in the voting stock of AUSA LIFE INSURANCE COMPANY,
INC. or any such entity. At least one (1) such person must be included in any
quorum, if required by law or regulations, for the transaction of business at
any meeting of any committee of the Board of Directors.
Section 3. Oversight Committee. If required by law or regulation, the Board of
-------------------
Directors shall establish one (1) or more committees comprised solely of
directors who are not officers or employees of AUSA LIFE INSURANCE COMPANY, INC.
or of any entity controlling, controlled by, or under common control with AUSA
LIFE INSURANCE COMPANY, INC. and who are not beneficial owners of a controlling
interest in the voting stock of AUSA LIFE INSURANCE COMPANY, INC. or any such
entity. Such committee or committees shall have responsibility for recommending
the selection of independent certified public accountants, reviewing the
company's financial condition, the scope and results of the independent audit
and any internal audit, nominating candidates for director for election by
shareholders or policyholders, and evaluating the performance of officers deemed
to be principal officers of the company and recommending to the Board of
Directors the selection and compensation of such principal officers.
- 11 -
<PAGE>
Section 4. Investment Committee. The investments of the Corporation shall be
--------------------
managed and controlled by an Investment Committee. The Investment Committee
shall consist of at least five (5) members who shall be appointed by the Board
of Directors from its own membership at the annual meeting of the Board of
Directors to serve until the next succeeding annual meeting and until their
successors on the Committee have been appointed. The Board shall have the power
subject to Section 2 and 3 of this Article at any time to fill vacancies in, to
change the membership of, to change the number of members of, to designate one
(1) or more alternate members of, or to dissolve the Investment Committee.
The Investment Committee, subject to Sections 2 and 3 of this Article, shall
have and may exercise, when the Board is not in session, all the rights and
powers of the Board of Directors to make, supervise, and control the investments
of the Corporation, inclusive of all real and personal property acquired by
virtue of or incidental to any investment, to sell, assign, exchange, lease or
otherwise dispose of such investments and property, and to do and perform all
things deemed necessary and proper in relation to such investments and property.
The Committee shall keep a record of its proceedings and shall adopt its own
rules of procedure except that a quorum shall consist of at least three (3)
members, at least one (1) of whom may not be an officer or salaried employee of
the Corporation, its parent or any affiliated Corporation, if required by law or
regulations.
- 12 -
<PAGE>
Section 5. Other Committees. The Board of Directors may from time to time by
----------------
resolution create such other committee or committees of Directors, officers,
employees, or other persons designated by the Board, to advise with the Board,
the Executive Committee and the officers and employees of the Corporation in all
such matters as the Board shall deem advisable, and with such functions and
duties as the Board shall by resolution prescribe subject to Section 2 and
Section 3 of this Article. A majority of all members of any such committee may
determine its action and fix the time and place of its meetings, unless the
Board of Directors shall otherwise provide. The Board of Directors shall have
power to change the members of any such committee at any time, and to discharge
any such committee, either with or without cause at any time.
ARTICLE VI
OFFICERS
Section 1. Officers. The Board of Directors shall, immediately after the
--------
organization of the Corporation, and thereafter at their first meeting following
the annual election of directors, elect from among their number a President, and
shall also elect a Secretary and a Treasurer, who need not be members of the
Board of Directors. The Board may, at any time also elect one (1) or more Vice
Presidents, and such Assistant Treasurers or Assistant Secretaries, or other
officers, as it may deem proper. More than one (1) office may be held by the
same person, except that the offices of President and Secretary may not be held
by the same person.
Section 2. Term. Each officer of the Corporation elected by the Board of
----
Directors shall hold office until his successor is chosen and qualified, or
until he shall have died or resigned or shall have been removed as hereinafter
provided. A vacancy in any office arising from any cause may be filled by the
Board of Directors.
- 13 -
<PAGE>
Section 3. Duties of the President. The President shall be Chief Executive
-----------------------
Officer of the Corporation. He shall have general and active supervision and
direction over the business offices of the Corporation. Subject to the control
of the Board of Directors whose policies he shall execute. He shall see that
all orders and resolutions of the Board of Directors are carried into effect and
shall, in the absence of the Chairman of the Board, preside at all meetings of
shareholders and of the Board of Directors. Except when inconsistent with the
Corporation's Charter, these By-Laws, or with the orders and resolutions of the
Board of Directors, he shall have the power to employ, fix the duties, and
discharge such employees as he may deem necessary and proper. The President
shall make such reports to the Board of Directors as it may require.
Section 4. Duties of Vice President. Each Vice President shall undertake such
------------------------
of the duties of the President, or such other duties, as may be delegated to him
from time to time by the President or the Board of Directors.
Section 5. Duties of Secretary. The Secretary shall attend all meetings of the
-------------------
shareholders, of the Board of Directors, and of the Executive Committee of the
Board, and record their proceedings in a book kept for that purpose. He shall
perform other duties incident to his office and such other duties as may be
delegated to him by the Board of Directors or the President. He shall see that
proper notice is given of all meetings of the shareholders of the Corporation
and the Board of Directors, and he shall have charge of the Corporate Seal, the
minute books, and such other corporate records as are not otherwise provided
for. He shall affix the seal to any instrument requiring the same. Any
Assistant Secretary may perform the duties of the Secretary in his absence, and
such other duties of the Secretary as may be delegated to him by that officer or
by the Board of Directors or the President.
- 14 -
<PAGE>
Section 6. Duties of the Treasurer. The Treasurer shall be charged with the
-----------------------
supervision of the keeping of the funds and books of account of the Corporation
and with their safekeeping, shall carry out such duties as are incident to his
office and shall further perform such other duties as may be delegated to him by
the Board of Directors or by the President. Any Assistant Treasurer may perform
the duties of the Treasurer in his absence, and such of the duties of the
Treasurer as may be delegated to him by that officer or by the Board of
Directors or by the President.
Section 7. Removal. Any officer may be removed either with or without cause at
-------
any time by a vote of a majority of the directors.
ARTICLE VII
SHARE CERTIFICATES
Section 1. Form of Certificates. The shares of the Corporation shall be
--------------------
represented by certificates, in such form as the Board of Directors may from
time to time prescribe, signed by the Chairman of the Board of Directors, the
President or a Vice President and the Secretary or an Assistant Secretary or the
Treasurer or an Assistant Treasurer, and sealed with the seal of the
Corporation. Such seal may be a facsimile, engraved or printed. Where any such
certificate is signed by a transfer agent or transfer clerk and by a registrar,
the signatures of any such Chairman of the Board of Directors, President, Vice
President, Secretary, Assistant Secretary, Treasurer, or Assistant Treasurer
upon such certificates may be facsimiles, engraved or printed. In case any such
officer who has signed or whose facsimile signature has been placed upon such
certificates shall have ceased to be such before such certificate is issued, it
may be issued by the Corporation with the same effect as if such officer had not
ceased to be such at the date of its issue.
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<PAGE>
Every certificate representing shares issued by the Corporation shall plainly
state upon the face thereof the number, kind and class of shares which it
represents.
Section 2. Transfers Transfers of shares shall be made only upon the books of
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the Corporation by the registered holders in person or by power of attorney duly
executed and acknowledged and filed with the Secretary of the Corporation, or
with a duly appointed Transfer Agent acting for an on behalf of the Secretary,
and upon the surrender of the certificate or certificates for such shares.
Section 3. Lost Certificates. If any certificate or shares shall be lost, the
-----------------
holder thereof shall forthwith notify the Corporation of the facts and the Board
of Directors or the Executive Committee may then authorize a new certificate to
be issued to him. The Board of Directors or the Executive Committee may in its
discretion require, as a condition precedent, deposit of a bond in such amounts
and in such form and with surety or sureties as the Board or the said Committee
may direct.
Section 4. Closing Share Books. The Board of Directors or the Executive
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Committee may by resolution prescribe a period not less than ten (10) nor more
than fifty (50) days prior to any meeting of shareholders during which no
transfer of shares on the books of the Corporation may be made; or in lieu of
prohibiting the transfer of shares may fix a day and hour not less than ten (10)
nor more than fifty (50) days prior to the holding of any meeting of
shareholders as the time as of which shareholders entitled to notice of and to
vote at such meeting shall be determined or for the taking of a dividend list.
The share books may also be closed for the payment of dividends for such like
period, if any, as may be prescribed by resolution of the Board of Directors or
the Executive Committee.
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Section 5. Transfer Agents and Registrar. The Board of Directors may appoint
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one (1) or more transfer clerks or one (1) or more transfer agents and one (1)
or more registrars, and may require all certificates for shares to bear the
signature or signatures of any of them.
ARTICLE VIII
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 1. To the extent permitted by law:
(a) The Corporation shall indemnify any person made a party to an action or
proceeding by or in the right of the Corporation to procure a judgment in its
favor, by reason of the fact that he, his testator or intestate, is or was a
director or officer or employee of the Corporation against the reasonable
expenses, including attorney's fees, actually and necessarily incurred by him in
connection with the defense of such action or proceeding, or in connection with
an appeal therein, except in relation to matters as to which such person is
adjudged to have breached his duty or acted outside the scope of his duties to
the corporation; and
(b) The Corporation shall indemnify any person made or threatened to be made a
party to an action or proceeding other than one by or in the right of the
Corporation to procure a judgment in its favor, whether civil or criminal,
including an action by or in the right of any other corporation of any type or
kind, domestic or foreign, which any director or officer or employee of the
Corporation served in any capacity at the request of the Corporation by reason
of the fact that he, his testator or intestate, was a director or officer or
employee of the Corporation, or served such other corporation in any capacity
against judgments, fines, amounts paid in settlement and reasonable expenses,
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including attorneys' fees, actually and necessarily incurred as a result of such
action or proceedings, or any appeal therein, if such person acted in good
faith, for a purpose which he reasonably believed in the best interest of the
Corporation and, in criminal actions or proceedings, in addition, had no
reasonable cause to believe that his conduct was unlawful.
(c) The Corporation may purchase insurance in accordance with the provisions of
Section 727 of the New York Business Corporation Law to indemnify officers and
directors in instances where they may not otherwise be indemnified.
ARTICLE IX
CONFLICT OF INTERESTS
No director or officer of the Corporation shall receive, in addition to his
fixed salary or compensation, any money or valuable thing, either directly or
indirectly or through any substantial interest in any other corporation or
business unit, for negotiating, procuring, recommending or aiding in any
purchase or sale of property, or loan, made by the Corporation or any affiliate,
either as principal, co-principal, agent or beneficiary, either directly or
indirectly or through any substantial interest in any other corporation or
business unit, in any such purchase, sale or loan.
ARTICLE X
DIVIDENDS
Section 1. Dividends. Dividends on the issued and outstanding stock from the
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profits made by the Corporation, not including the surplus arising from the sale
of stock, may be declared by the Board of Directors from time to time. The
Board of Directors shall
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the date of payment of dividends and the record date of stock entitled thereto,
provided that no dividends shall be issued within the first two (2) years of the
company's existence without the approval of the Department of Insurance.
ARTICLE XI
MISCELLANEOUS
Section 1. Execution of Contracts and other Instruments. The President, any
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Vice President, the Secretary, and the Treasurer shall each have general
authority to execute contracts, bonds, deeds and powers of attorney in the name
and on behalf of the Corporation. Any contract, bond, deed or power of attorney
may also be executed in the name of and on behalf of the Corporation by such
other officer or such other agents as the Board of Directors may from time to
time direct. The provisions of this Section 1 are supplementary to any other
provision of these By-Laws.
Section 2. Shares of other Corporations. The President and any Vice President,
----------------------------
is authorized to vote, represent and exercise on behalf of the Corporation, all
rights incident to any and all shares of any other corporation or corporations
standing in the name of the Corporation. The authority herein granted to said
officer to vote or represent on behalf of the Corporation any and all shares
held by the Corporation in any other corporation or corporations may be
exercised either by said officer in person or by any person authorized so to do
by proxy or power of attorney duly executed by said officer. Notwithstanding
the above, however, the Board of Directors in its discretion, may designate by
resolution the person to vote or represent said shares of other corporations.
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ARTICLE XII
AMENDMENTS
Section 1. Power to Amend. These By-Laws may be altered, repealed, or amended
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in whole or in part by the Board of Directors at any regular meeting of the
Board of Directors, or at a special meeting called for that purpose, provided
that notice of the proposed change is incorporated in the notice of such special
meeting.
Section 2. Notice to Shareholders. If any By-Law regulating an impending
----------------------
election of directors is adopted, amended or repealed by the Board of Directors,
there shall be set forth in the notice of the next meeting of shareholders for
the election of directors the By-Law so adopted, amended or repealed, together
with a concise statement of the changes made.
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EXHIBIT (12)
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OPINION AND CONSENT OF COUNSEL
<PAGE>
April 1, 1999
AUSA Life Insurance Company, Inc.
4333 Edgewood Road N.E.
Cedar Rapids, Iowa 52499-0001
Dear Sir/Madam:
With reference to the Registration Statement on Form N-3 by AUSA Life Insurance
Company, Inc. and AUSA Endeavor Target Account with the Securities and Exchange
Commission covering individual variable annuity contracts, I have examined such
documents and such law as I considered necessary and appropriate, and on the
basis of such examination, it is my opinion that:
1. AUSA Life Insurance Company, Inc. is duly organized and validly existing
under the laws of the State of New York and has been duly authorized to
issue individual variable annuity contracts by the Department of Insurance
of the State of New York.
2. AUSA Endeavor Target Account is a duly authorized and existing managed
separate account established pursuant to the provisions of Section 4240 of
the New York Insurance Code.
3. The Individual Variable Annuity Contract, when issued as contemplated by
said Form N-3 Registration Statement, will constitute legal, validly issued
and binding obligations of AUSA Life Insurance Company, Inc.
I hereby consent to the filing of this opinion as an exhibit to said N-3
Registration Statement.
Very truly yours,
AUSA LIFE INSURANCE COMPANY, INC.
/s/ Robert F. Colby
Robert F. Colby
Vice President and Assistant Secretary
<PAGE>
EXHIBIT (13)(a)
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OPINION AND CONSENT OF ACTUARY
<PAGE>
April 1, 1999
AUSA Life Insurance Company, Inc.
4333 Edgewood Road NE
Cedar Rapids, Iowa 52499-0001
Re: AUSA Endeavor Target Account Registration on Form N-3
SEC File No. 333-_____________
Dear Sir/Madam:
With regard to the above registration statement, I have examined such documents
and made such inquiries as I have deemed necessary and appropriate, and on the
basis of such examination, have the following opinions:
Fees and charges deducted under the AUSA Endeavor Variable Annuity policies are
those deemed necessary to appropriately reflect:
(1) the expenses incurred in the acquisition and distribution of the
policies,
(2) the expenses associated with the development and servicing of the
policies,
(3) the assumption of certain risks arising from the operation and management
of the policies and/or riders to the Policy and that provides for a
reasonable margin of profit.
Fees and charges assessed against the policy values in the Variable Account
include:
(i) Service Charge and Administrative Charge
(ii) Contingent Deferred Sales Charge (Surrender Charge)
(iii) Mortality and Expense Risk Fee (M&E)
(iv) Taxes (including Premium and other Taxes if applicable)
The magnitude of each of the individual charges listed above in (i) through (iv)
is established in the pricing of the AUSA Endeavor Variable Annuity, to achieve
a reasonable Return on Investment (ROI), which is within the range of industry
practice with respect to comparable variable annuity products. To maintain a
reasonable ROI, certain fees and charges may be
<PAGE>
AUSA Life Insurance Company, Inc.
April 1, 1999
Page 2
increased in order to support increased expense levels, enhanced death benefit
options, and income benefits.
In the process of determining the reasonable ROI, each individual charge is also
established within the reasonable range of industry practice. For example, in
conjunction with the pricing process the company has analyzed publicly available
information pertaining to similar industry products, taking into consideration
such factors as current charge levels, the existence of charge level guarantees,
guaranteed death benefits, and guaranteed annuity rates. The methodology and
results of the comparative surveys included in this analysis are maintained at
the company's administrative offices.
Except by coincidence, it is not expected that actual charges assessed in a
given year would exactly offset actual expenses incurred. Acquisition expenses
(as well as major product and/or systems development expenses) are incurred "up
front" and recovered, with a reasonable profit margin, through future years'
charges. In addition, the company cannot increase certain charges under the
policies in the pricing process.
Therefore, in my opinion, the fees and charges deducted under the policies, in
the aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by the company.
I hereby consent to the use of this opinion, which is included as an Exhibit to
the Registration Statement.
/s/ Calvin R. Birkey
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Calvin R. Birkey, FSA, MAAA
Managing Actuary
AUSA Life Insurance Company, Inc.