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As filed with the Securities and Exchange Commission on April 30, 1997
Registration No. 33- 83560
811-8750
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C 20549
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FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.___
Post-Effective Amendment No. 4 X
--
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 5 X
--
AUSA ENDEAVOR VARIABLE ANNUITY ACCOUNT
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(Exact Name of Registrant)
AUSA LIFE INSURANCE COMPANY, INC.
---------------------------------
(Name of Depositor)
666 Fifth Avenue, New York, New York 10103
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, including Area Code
(212) 246-5234
Frank A. Camp, Esquire
AUSA Life Insurance Company, Inc.
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499
(Name and Address of Agent for Service)
Copy to:
Frederick R. Bellamy, Esquire
Sutherland, Asbill & Brennan L.L.P.
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
AUSAENDC
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DECLARATION PURSUANT TO RULE 24f-2
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the
Registrant declares that a notice pursuant to Rule 24f-2 for the year
ended December 31, 1996 was filed on February 18, 1996.
______________
It is proposed that this filing will become effective:
______________
_____ immediately upon filing pursuant to paragraph (b) of Rule
485.
__X___ on May 1, 1997 pursuant to paragraph (b) of Rule 485.
_____ 60 days after filing pursuant to paragraph (a)(i) of Rule
485.
_____ on ______ pursuant to paragraph (a)(i) of Rule
485.
_____ 75 days after filing pursuant to paragraph (a)(i)
_____ on _____________ pursuant to paragraph (a)(ii) of Rule
485.
If appropriate, check the following box:
_____ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
2
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CROSS REFERENCE SHEET
Pursuant to Rule 495
Showing Location in Part A (Prospectus) and
Part B (Statement of Additional Information)
of Registration Statement of Information Required by Form N-4
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PART A
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<CAPTION>
Item of Form N-4 Prospectus Caption
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1. Cover Page ...................... Cover Page
2. Definitions ..................... Definitions
3. Synopsis ........................ Summary; Historical Performance
Data
4. Condensed Financial Information Financial Statements
5. General
(a) Depositor ................... AUSA Life
............................. Insurance Company, Inc.
(b) Registrant .................. The Mutual Fund Account
(c) Portfolio Company ........... Underlying Funds
(d) Fund Prospectus ............. Underlying Funds
(e) Voting Rights ............... Voting Rights
6. Deductions and Expenses
(a) General ..................... Charges and Deductions
(b) Sales Load % ................ Contingent Deferred Sales Charge
(c) Special Purchase Plan ....... N/A
(d) Commissions ................. Distributor of the Policies
(e) Expenses - Registrant ....... N/A
(f) Fund Expenses ............... Expenses Including Investment
Advisory Fees
(g) Organizational Expenses ..... N/A
7. Policies
(a) Persons with Rights ......... The Policy; Election of Annuity
Option; Determination of Annuity
Payments; Annuity Commencement
Date; Ownership of the Policy
Voting Rights
(b) (i) Allocation of Premium
Payments .............. Allocation of Premiums
(ii) Transfers ............. Transfers
(iii) Exchanges ............. N/A
(c) Changes ..................... Addition, Deletion or
Substitution of Investments;
Election of Annuity Option;
Annuity Commencement Date;
</TABLE>
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<TABLE>
<S> <C>
Beneficiary; Ownership of the
Policy
(d) Inquiries ................... Summary
8. Annuity Period .................. Annuity Options
9. Death Benefit ................... Death of Annuitant Prior to
Annuity Commencement Date
10. Purchase and Policy Values ......
(a) Purchases ................... Policy Application and Issuance
of Policies; Premiums
(b) Valuation ................... Policy Value; The Mutual Fund
Account Value
(c) Daily Calculation ........... The Mutual Fund Account Value
(d) Underwriter ................. Distributor of the Policies
11. Redemptions
(a) By Owners ................... Surrenders
By Annuitant ................ N/A
(b) Texas ORP ................... Restrictions Under the Texas
Optional Retirement Program
(c) Check Delay ................. Payment not Honored by Bank
(d) Lapse ....................... N/A
(e) Free Look ................... Summary
12. Taxes ........................... Certain Federal Income Tax
Consequences
13. Legal Proceedings ............... Legal Proceedings
14. Table of Contents for the
Statement of Statement of Additional
Additional Information .......... Information
<CAPTION>
PART B
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Item of Form N-4 Statement of Additional
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<S> <C>
15. Cover Page ...................... Cover Page
16. Table of Contents ............... Table of Contents
17. General Information
and History ..................... (Prospectus) AUSA
Life Insurance Company, Inc.
18. Services ........................
(a) Fees and Expenses
of Registrant .............. N/A
(b) Management Policies ........ N/A
(c) Custodian .................. Custody of Assets
Independent
</TABLE>
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<TABLE>
<S> <C>
Auditors ................... Independent Auditors
(d) Assets of Registrant ....... Custody of Assets
(e) Affiliated Person .......... N/A
(f) Principal Underwriter ...... Distribution of the Policies
19. Purchase of Securities
Being Offered ................... Distribution of the Policies
Offering Sales Load ............. N/A
20. Underwriters .................... Distribution of the Policies;
(Prospectus) Distributor of the
Policies
21. Calculation of Performance
Data ............................ Calculation of Yields and Total
Returns; Other Performance Data
22. Annuity Payments ................ (Prospectus) Election of Annuity
Option; (Prospectus)
Determination of Annuity Payments
23. Financial Statements ............ Financial Statements
</TABLE>
PART C -- OTHER INFORMATION
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<TABLE>
<CAPTION>
Item of Form N-4 Part C Caption
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<S> <C>
24. Financial Statements
and Exhibits .................... Financial Statements and Exhibits
(a) Financial Statements ....... Financial Statements
(b) Exhibits ................... Exhibits
25. Directors and Officers of ....... Directors and Officers of the
the Depositor Depositor
26. Persons Controlled By or Under .. Persons Controlled By or Under
Common Control with the Common Control with the
Depositor or Registrant Depositor or Registrant
27. Number of Policyowners .......... Number of Policyowners
28. Indemnification ................. Indemnification
29. Principal Underwriters .......... Principal Underwriters
30. Location of Accounts
and Records ..................... Location of Accounts and Records
31. Management Services ............. Management Services
32. Undertakings .................... Undertakings
Signature Page .................. Signatures
5
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PROSPECTUS
May 1, 1997
THE ENDEAVOR VARIABLE ANNUITY
Issued Through
AUSA ENDEAVOR VARIABLE ANNUITY ACCOUNT
by
AUSA LIFE INSURANCE COMPANY, INC.
The Endeavor Variable Annuity Policy is a Flexible Premium Variable Annuity
that is offered by AUSA Life Insurance Company, Inc. ("AUSA"). You can use the
Policy to accumulate funds for retirement or other long-term financial
planning purposes. You are generally not taxed on any earnings on amounts you
invest until you withdraw them or begin to receive annuity payments. The
Policy is a "variable" annuity because the value of your investments can go up
or down based on the performance of mutual fund portfolios that you select. 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 when AUSA begins making annuity payments to you.
You have twelve investment options to choose from. They include these eleven
mutual fund portfolios:
TCW Managed Asset Allocation Dreyfus Small Cap Value Portfolio
Portfolio
Dreyfus U.S. Government Securities
TCW Money Market Portfolio Portfolio
T. Rowe Price International Stock
Portfolio Value Equity Portfolio
Opportunity Value Portfolio
T. Rowe Price Equity Income
Portfolio Enhanced Index Portfolio
WRL Growth Portfolio, managed by
T. Rowe Price Growth Stock Portfolio Janus Capital Corporation
YOU AS THE OWNER OF THE POLICY, BEAR THE ENTIRE INVESTMENT RISK FOR ALL
AMOUNTS THAT YOU ALLOCATE TO ANY OF THE MUTUAL FUNDS. THIS MEANS THAT YOU
COULD LOSE THE AMOUNT THAT YOU INVEST. But if the mutual fund shares increase
in value, then the value of your Policy will also increase.
The twelfth investment option is the Fixed Account. If you invest in one of
the alternatives offered in the Fixed Account, then AUSA guarantees to return
your investment with interest at rates that AUSA will declare from time to
time.
Of course, you can choose any combination of these investment options. You
can also transfer amounts among these options (subject to some restrictions).
LIKE ALL SECURITIES, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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You should only purchase a Policy as a long-term investment. However, you do
have access to all or some of the current Cash Value of your investments at
any time before the Annuity Commencement Date. But, if you do withdraw cash
from your Policy, there may be a surrender charge. You may also have to pay
income taxes on some or all of the amount you withdraw, and if you are under
the age 59 1/2 there may also be a tax penalty. Finally, there may be an
interest penalty if you make a premature withdrawal from the Fixed Account
(this is called an "Excess Interest Adjustment," and it could also result in
you earning extra interest). AUSA has the right to postpone withdrawals from
the Fixed Account.
Prospectuses for the mutual fund portfolios are attached to the back of this
Prospectus. This Prospectus and the mutual fund prospectuses give you vital
information about the Policies and the mutual funds. Please read them
carefully before you invest. Keep them for future reference.
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
AND ARE NOT GUARANTEED TO ACHIEVE THEIR GOAL.
This Prospectus sets forth the information that a prospective purchaser
should consider before purchasing a Policy. A Statement of Additional
Information about the Policy and the Mutual Fund Account which has the same
date as this Prospectus has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. The Statement of
Additional Information is available at no cost to any person requesting a copy
by writing AUSA at the Administrative and Service Office or by calling 1-800-
525-6205. The table of contents of the Statement of Additional Information is
included at the end of this Prospectus.
This Prospectus and the Statement of Additional Information generally
describe only the Policies and the Mutual Fund Account, except when the Fixed
Account is specifically mentioned.
Service Office
Financial Markets Division--Variable Annuity Department
AUSA Life Insurance Company, Inc.
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001
Administrative Office
AUSA Life Insurance
Company, Inc.
666 Fifth Avenue, 25th Floor
New York, NY 10103
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
DEFINITIONS................................................................ 5
SUMMARY.................................................................... 8
CONDENSED FINANCIAL INFORMATION............................................ 19
FINANCIAL STATEMENTS....................................................... 20
HISTORICAL PERFORMANCE DATA................................................ 20
Standardized Performance Data............................................ 20
TCW Money Market Subaccount.............................................. 21
Other Subaccounts........................................................ 21
Hypothetical Performance Data of Subaccounts............................. 22
Opportunity Value and Equity Index Portfolios............................ 23
Non-Standardized Performance Data........................................ 23
PUBLISHED RATINGS.......................................................... 24
AUSA LIFE INSURANCE COMPANY, INC. ......................................... 24
THE ENDEAVOR ACCOUNTS...................................................... 25
The Mutual Fund Account.................................................. 25
The Fixed Account........................................................ 29
Transfers................................................................ 30
Dollar Cost Averaging.................................................... 31
Reinstatements........................................................... 32
THE POLICY................................................................. 32
Policy Application and Issuance of Policies.............................. 32
Premium Payments......................................................... 33
Policy Value............................................................. 34
Non-participating Policy................................................. 35
Amendments............................................................... 35
DISTRIBUTIONS UNDER THE POLICY............................................. 35
Surrenders............................................................... 35
Systematic Withdrawal Plan............................................... 36
Annuity Payments......................................................... 37
Annuity Commencement Date.............................................. 37
Election of Payment Option............................................. 37
Premium Tax............................................................ 38
Supplementary Policy................................................... 38
Annuity Payment Options.................................................. 38
Death Benefit............................................................ 42
Death of Annuitant Prior to Annuity Commencement Date.................. 42
Death of Annuitant On or After Annuity Commencement Date............... 43
Beneficiary............................................................ 43
Death of Owner........................................................... 44
Restrictions Under Section 403(b) Plans.................................. 44
Restrictions under Qualified Policies.................................... 44
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PAGE
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CHARGES AND DEDUCTIONS..................................................... 44
Contingent Deferred Sales Charge......................................... 45
Mortality and Expense Risk Fee........................................... 45
Administrative Charges................................................... 46
Premium Taxes............................................................ 47
Federal, State and Local Taxes........................................... 47
Transfer Charge.......................................................... 47
Other Expenses Including Investment Advisory Fees........................ 47
Employee and Agent Purchases............................................. 48
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................... 48
Tax Status of the Policy................................................. 49
Taxation of Annuities.................................................... 49
DISTRIBUTOR OF THE POLICIES................................................ 54
VOTING RIGHTS.............................................................. 55
LEGAL PROCEEDINGS.......................................................... 55
STATEMENT OF ADDITIONAL INFORMATION........................................ 56
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<PAGE>
DEFINITIONS
Accumulation Unit--An accounting unit of measure used in calculating the
Policy Value.
Administrative Office--666 Fifth Avenue, 25th Floor, New York, New York
10103.
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.
Annuity Payment Option or Payment Option--A method of receiving a stream of
Annuity Payments.
Annuity Purchase Value--An amount equal to the Policy Value for the
Valuation Period which ends immediately preceding the Annuity Commencement
Date reduced by any applicable premium or similar taxes.
Annuity Unit--An accounting unit of measure used in the calculation of the
amount of the second and each subsequent Variable Annuity Payment.
AUSA--AUSA Life Insurance Company, Inc., the issuer of the Policies.
Beneficiary--Before the Annuity Commencement Date, the person to whom the
death proceeds will be paid if the Annuitant, who is also the owner, dies.
After the Annuity Commencement Date, the person to whom payments will be made
if the Annuitant dies. In the event the Annuitant, who is not the Owner, dies
prior to the Annuity Commencement Date, the Owner will become the Annuitant
unless the Owner specifically requests on the application or in writing that
the death benefit be paid upon the Annuitant's death and AUSA agrees to such
an election.
Business Day--A day when the New York Stock Exchange is open for business.
Cash Value--The Policy Value less the Contingent Deferred Sales Charge, if
any.
Code--The Internal Revenue Code of 1986, as amended.
Current Interest Guarantee--AUSA's guarantee to pay a declared Current
Interest Rate on amounts under a Policy allocated to the Fixed Account. A
particular Current Interest Guarantee will be in effect for at least one year.
Current Interest Guarantee Period--The period during which a Current
Interest Guarantee is in effect.
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Current Interest Rate--The interest rate currently guaranteed to be paid on
amounts under a Policy allocated to the Fixed Account. This interest rate on a
Policy sold pursuant to this Prospectus will always equal or exceed a minimum
of 4%.
Date of Issue--The date the Policy is issued, as shown on the Policy
Schedule Page.
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 will constitute Due Proof of Death.
Fixed Account--All of the assets of AUSA that are not in separate accounts.
Fixed Annuity Payments--Payments made pursuant to an Annuity Payment Option
which do not fluctuate in amount.
Investment Options--The Fixed Account and any of the Subaccounts of the
Mutual Fund Account.
Mutual Fund Account--The AUSA Endeavor Variable Annuity Account, a separate
account established and registered as a unit investment trust under the
Investment Company Act of 1940 to which Premium Payments under the Policies
may be allocated and which invests in the WRL Growth Portfolio of the WRL
Series Fund, Inc., and the Endeavor Series Trust.
Nonqualified Policy--A Policy other than a Qualified Policy.
Policy--One of the variable annuity policies offered by this Prospectus.
Policy Anniversary--Each anniversary of the Date of Issue.
Policy Owner or Owner--The person who may exercise all rights and privileges
under the Policy. The Policy Owner during the lifetime of the Annuitant and
prior to the Annuity Commencement Date is the person designated as the Policy
Owner in the application or a Successor Owner; the Policy Owner on and after
the Annuity Commencement Date is the Annuitant; and the Policy Owner after the
death of the Annuitant who is also the Owner (unless the Owner has elected in
writing that the death benefit be paid upon the Annuitant's death and AUSA
agrees to such an election), is the Beneficiary.
Policy Value--The sum of the value of all Accumulation Units credited to a
Policy for any particular Valuation Period in the Mutual Fund Account, plus
the value in the Fixed Account.
Policy Year--A Policy Year begins on the Date of Issue and each anniversary
of the Date of Issue.
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Premium Payment--An amount paid to AUSA by the Policy Owner or on the Policy
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 Office--Financial Markets Division--Variable Annuity Dept., 4333
Edgewood Road N.E., Cedar Rapids, IA 52499.
Subaccount--A segregated account within the Mutual Fund Account which
invests in a specified Portfolio of the Underlying Funds.
Successor Policy Owner--A person appointed by the Policy Owner to succeed to
ownership of the Policy in the event of the death of the Policy Owner who is
not the Annuitant before the Annuity Commencement Date.
Underlying Funds--The WRL Growth Portfolio of the WRL Series Fund, Inc.,
managed by Janus Capital Corporation, and the Endeavor Series Trust.
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 Mutual Fund
Account.
Written Notice or Request--Written notice, signed by the Policy Owner, that
gives AUSA the information it requires and is received at the Service Office.
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THE ENDEAVOR VARIABLE ANNUITY
SUMMARY
THE POLICY
The Endeavor Variable Annuity is a Flexible Premium Variable Annuity which
can be purchased on a non-tax qualified basis ("Nonqualified Policy") or with
the proceeds from certain plans qualifying for favorable federal income tax
treatment ("Qualified Policy"). The Owner allocates the Premium Payments among
the two Endeavor Accounts of AUSA Life Insurance Company, Inc. ("AUSA"): the
AUSA Endeavor Variable Annuity Account (the "Mutual Fund Account") and the
Fixed Account.
THE ACCOUNTS
The Mutual Fund Account. The Mutual Fund Account is a separate account of
AUSA, which invests exclusively in shares of the ten portfolios of the
Endeavor Series Trust, and the Growth Portfolio of the WRL Series Fund, Inc.
(collectively, the "Underlying Funds"). The Endeavor Series Trust is a mutual
fund managed by Endeavor Investment Advisers, a general partnership between
Endeavor Management Co. and AUSA Financial Markets, Inc. (an affiliate of
AUSA), which contracts with several subadvisers (as described in a separate
prospectus that accompanies this Prospectus) for investment advisory services.
The WRL Growth Portfolio is a portfolio within the WRL Series Fund, Inc. The
WRL Series Fund, Inc. is a mutual fund whose investment adviser is WRL
Investment Management, Inc., a subsidiary of Western Reserve Life Assurance
Co. of Ohio ("Western Reserve"), (an affiliate of AUSA). WRL Investment
Management, Inc. contracts with Janus Capital Corporation as a sub-adviser to
the WRL Growth Portfolio for investment advisory services.
The Underlying Funds currently have eleven Portfolios: the WRL Growth
Portfolio, managed by Janus Capital Corporation; the TCW Managed Asset
Allocation Portfolio; the TCW Money Market Portfolio; the T. Rowe Price
International Stock Portfolio; the Value Equity Portfolio; the Dreyfus Small
Cap Value Portfolio; the Dreyfus U.S. Government Securities Portfolio; the T.
Rowe Price Equity Income Portfolio; the T. Rowe Price Growth Stock Portfolio;
the Opportunity Value Portfolio; and the Enhanced Index Portfolio. Each of the
eleven Subaccounts of the Mutual Fund Account invests solely in a
corresponding Portfolio of the Underlying Funds. Because the Policy Value may
depend on the investment experience of the selected Subaccounts, the Owner
bears the entire investment risk with respect to Premium Payments allocated
to, and amounts transferred to, the Mutual Fund Account. (See "The Mutual Fund
Account," p. 25.)
The Fixed Account. The Fixed Account guarantees safety of principal and a
minimum 4% return on Premium Payments allocated to, and amounts transferred
to, the Fixed Account. AUSA may, in its sole discretion, declare a higher
Current Interest Rate. A Current Interest Rate is guaranteed for at
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least one year. (See "The Fixed Account," p. 29.)
PREMIUM PAYMENTS
A Nonqualified Policy may be purchased with an initial Premium Payment of at
least $5,000, and a Qualified Policy generally may be purchased with an
initial Premium Payment of at least $1,000, but a Policy purchased and used in
connection with a Tax Deferred 403(b) Annuity may be purchased with an initial
Premium Payment of at least $50. An Owner may make additional Premium Payments
of at least $500 each under either a Nonqualified Policy or a Qualified
Policy, or $50 each under a Policy used in connection with a Tax Deferred
403(b) Annuity, at any time before the Annuity Commencement Date. There is
nothing deducted from Premium Payments, so all funds are invested immediately.
(But see "Contingent Deferred Sales Charge," p. 45.)
On the Date of Issue, the initial Premium Payment is allocated among the
Investment Options (that is, among the Fixed Account and/or the Subaccounts of
the Mutual Fund Account) in accordance with the allocation percentages
specified by the Owner in the Policy application. Any allocation must be in
whole percents, and the total allocation must equal 100%. Allocations for
additional Premium Payments may be changed by sending Written Notice to AUSA's
Service Office. (See "Premium Payments," p. 33.)
TRANSFERS
An Owner can transfer Policy Values from one Account or Subaccount to
another Account or Subaccount prior to the Annuity Commencement Date, with
certain limitations. The minimum amount which may be transferred is the lesser
of $500 or the entire Fixed Account or Subaccount Value. However, following a
transfer out of a particular Fixed Account or Subaccount, at least $500 must
remain in that Fixed Account or Subaccount. Transfers out of the Mutual Fund
Account currently may be made as often as the Owner wishes by sending Written
Notice to the Service Office.
For Policies issued under endorsement AE877 695, (after June, 1996),
transfers from the One Year Fixed Account (see "The Fixed Account", p. 29),
except through Dollar Cost Averaging, are not allowed. In addition, transfers
from the Three Year Fixed Account are subject to a yearly limit equal to the
greater of 25% of the current policy value in the Three Year Fixed Account, or
the amount transferred out of the Three Year Fixed Account during the prior
Policy Year.
A charge may be imposed for any transfers in excess of 12 per Policy Year,
but currently there is no charge for any transfers. (See "Transfers," p. 30.)
SURRENDERS
The Owner may elect to surrender all or a portion of the Cash Value ($500
minimum) in exchange for a cash withdrawal payment from AUSA at
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anytime prior to the earlier of the Annuitant's death or the Annuity
Commencement Date. The Cash Value equals the Policy Value less any applicable
Contingent Deferred Sales Charge (described below). A surrender request must
be made by Written Request, and a request for a partial surrender must specify
the Accounts or Subaccounts from which the withdrawal is requested. There is
currently no limit on the frequency or timing of withdrawals. (See
"Surrenders," p. 35.) In addition to the Contingent Deferred Sales Charge and
any applicable premium taxes, surrenders may be subject to income taxes and a
10% tax penalty.
CHARGES AND DEDUCTIONS
Contingent Deferred Sales Charge. In order to permit investment of the
entire Premium Payment, AUSA does not deduct sales or other charges at the
time of investment. However, a Contingent Deferred Sales Charge of up to 7% of
the amount withdrawn is imposed on certain full or partial withdrawals of
Premium Payments in order to cover expenses relating to the sale of the
Policies. The applicable Contingent Deferred Sales Charge is based on the
number of Policy Years that have elapsed since the Premium Payment that is
being withdrawn was made, and there will be no Contingent Deferred Sales
Charge imposed seven or more Policy Years after the Premium Payment(s) was
paid. For purposes of determining the applicable Contingent Deferred Sales
Charge, Premium Payments are considered to be withdrawn on a "first in--first
out" basis. (See "Contingent Deferred Sales Charge," p. 45.) After the first
Policy Year, up to 10% of the Policy Value may be withdrawn without a
Contingent Deferred Sales Charge if it is the first withdrawal in the Policy
Year. Amounts applied to provide Annuity Payments, if applied during the first
five Policy Years and applied under certain Payment Options, may also be
subject to a Contingent Deferred Sales Charge. (See "Surrenders," p. 35.)
Account Charges. AUSA deducts a daily charge equal to a percentage of the
net assets in the Mutual Fund Account for the mortality and expense risks
assumed by AUSA. The effective annual rate of this charge is 1.25% of the
value of the Account's net assets. (See "Mortality and Expense Risk Fee," p.
45.)
AUSA also deducts a daily Administrative Charge from the net assets of the
Mutual Fund Account to partially cover expenses incurred by AUSA in connection
with the administration of the Account and the Policies. The effective annual
rate of this charge is currently .15% of the value of each Account's net
assets. This charge is guaranteed never to exceed .30% during the term of the
Policy. (See "Administrative Charges," p. 46.)
The account charges for mortality and expense risks and administrative
expenses are guaranteed not to exceed their current level of a total of 1.40%
during the term of the Policy.
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Policy Charges. There is also an annual Service Charge each year for Policy
maintenance and related administrative expenses prior to the Annuity
Commencement Date. This charge is the lesser of 2% of the Policy Value or $35
per year and is deducted only from the Mutual Fund Account. For Policies
issued under Endorsement AE877 695 (after June, 1996), this charge is waived
if the sum of the Premium Payments made less the sum of all partial
withdrawals is at least $50,000 on the Policy Anniversary. THIS CHARGE WILL
NOT BE INCREASED DURING THE TERM OF THE POLICY. (See "Administrative Charges,"
p. 46.)
Taxes. AUSA may incur premium taxes relating to the Policies. When permitted
by state law, AUSA will not deduct any premium taxes related to a particular
Policy from the Policy Value until the later of the date of payment of the
death proceeds, the withdrawal of all Policy Value, or the Annuity
Commencement Date. (See "Premium Taxes," p. 47.)
No charges are currently made against any of the Accounts for federal,
state, or local income taxes. Should AUSA determine that any such taxes may be
imposed with respect to any of the Accounts, AUSA may deduct such taxes from
amounts held in the relevant Account. (See "Federal, State and Local Taxes,"
p. 47.)
Charges Against the Underlying Funds. The value of the net assets of the
Subaccounts of the Mutual Fund Account will reflect the investment advisory
fee and other expenses incurred by the Underlying Funds. Those fees and
expenses are detailed in the prospectuses for the Underlying Funds that
accompany this Prospectus.
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Expense Data. The charges and deductions are summarized in the following
tables. This tabular information regarding expenses assumes that the entire
Policy Value is in the Mutual Fund Account.
<TABLE>
<CAPTION>
DREYFUS
TCW T. ROWE U.S.
TCW MANAGED PRICE DREYFUS GOVERNMENT
MONEY ASSET INTERNATIONAL VALUE SMALL CAP SECURITIES
MARKET ALLOCATION STOCK EQUITY VALUE PORTFOLIO
------ ---------- ------------- ------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Policy Owner Transaction
Expenses
Sales Load(/1/) On Pur-
chase Payments........ 0 0 0 0 0 0
Maximum Surrender
Charge (as a % of Pre-
mium Payment Surren-
dered)(/2/)........... 7 7 7 7 7 7
Surrender Fees......... 0 0 0 0 0 0
Annual Service
Charge(/1/)........... $35 Per Policy
-----------------------------------------------------
Transfer Fee(/1/)...... Currently no fee
-----------------------------------------------------
Mutual Fund Account An-
nual Expenses (as a
percentage of account
value)
Mortality and Expense
Risk Fees............. 1.25 1.25 1.25 1.25 1.25 1.25
Administrative Charge.. 0.15 0.15 0.15 0.15 0.15 0.15
Total Mutual Fund Ac-
count Annual Ex-
penses................ 1.40 1.40 1.40 1.40 1.40 1.40
Underlying Funds Annual
Expenses(/3/) (as a
percentage of average
net assets and after
expense reimbursements)
Management Fees........ 0.50 0.75 0.90 0.80 0.80 0.65
Other Expenses......... 0.10 0.10 0.28 0.11 0.12 0.17
Total Underlying Funds
Annual
Expense(/3/)(/4/)..... 0.60 0.85 1.18 0.91 0.92 0.82
</TABLE>
<TABLE>
<CAPTION>
T. ROWE T. ROWE
PRICE PRICE
EQUITY GROWTH OPPORTUNITY ENHANCED WRL
INCOME STOCK VALUE INDEX GROWTH
------- ------- ----------- -------- ------
<S> <C> <C> <C> <C> <C>
Policy Owner Transaction Ex-
penses
Sales Load On Purchase Pay-
ments(/1/).................. 0 0 0 0 0
Maximum Surrender Charge (as
a % of Premium Payment
Surrendered)(/2/)........... 7 7 7 7 7
Surrender Fees............... 0 0 0 0 0
Annual Service Charge(/1/)... $35 Per Policy
-----------------------------------------------
Transfer Fee(/1/)............ Currently no fee
-----------------------------------------------
Mutual Fund Account Annual
Expenses
(as a percentage of account
value)
Mortality and Expense Risk
Fees........................ 1.25 1.25 1.25 1.25 1.25
Administrative Charge........ 0.15 0.15 0.15 0.15 0.15
Total Mutual Fund Account
Annual Expenses............. 1.40 1.40 1.40 1.40 1.40
Underlying Funds Annual
Expenses(/3/) (as a
percentage of average net
assets and after expense
reimbursements)
Management Fees.............. 0.80 0.80 0.80 0.75 0.80
Other Expenses............... 0.16 0.21 0.50 0.55 0.08
Total Underlying Funds
Annual Expenses(/3/)(/4/)... 0.96 1.01 1.30 1.30 0.88
</TABLE>
- 12 -
<PAGE>
- ----------------------------------
/1/The Contingent Deferred Sales Charge and Transfer Fee, if any is imposed,
apply to each Policy, regardless of how Policy Value is allocated among the
Mutual Fund Account and the Fixed Account. The Annual Service Charge and
Mutual Fund Account Annual Expenses do not apply to the Fixed Account. The
Service Charge is deducted on each Policy Anniversary before the Annuity
Commencement Date. (See "Other Expenses Including Investment Advisory
Fees," p. 47.)
/2/The Surrender Charge is decreased based on the number of Policy Years since
the Premium Payment date in which the withdrawal is made, from 7% in the
first Policy Year since the Premium Payment date to 0% in the eighth Policy
Year since the Premium Payment date.
/3/Endeavor Investment Advisers has agreed, until terminated by Endeavor
Investment Advisers, to assume expenses of the Portfolios that exceed the
following rates: TCW Money Market--0.99%; TCW Managed Asset Allocation--
1.25%; T. Rowe Price International Stock--1.53%; Value Equity--1.30%;
Dreyfus Small 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%;
Opportunity Value--1.30%; Enhanced Index--1.30%. Amounts shown for the
Enhanced Index Portfolios are estimated for 1997. During 1996, Endeavor
Investment Advisers waived fees relative to, or reimbursed, the Opportunity
Value Portfolio. The annualized operating expense ratio before
waiver/reimbursement by Endeavor Investment Advisers for the period ended
December 31, 1996, was 12.69%. The fee table information relating to the
Underlying Funds was provided to AUSA by the Underlying Funds, and AUSA has
not independently verified such information.
/4/Effective January 1, 1997, the WRL Series Fund, Inc. has adopted a Plan of
Distribution pursuant to Rule 12b-1 under the Investment Company Act of
1940 (the "1940 Act") ("Distribution Plan") and pursuant to the
Distribution Plan, has entered into a Distribution Agreement with
InterSecurities, Inc. ("ISI"), principal underwriter for the WRL Series
Fund, Inc. Under the Distribution Plan, the WRL Series Fund, Inc., on
behalf of the WRL Growth Portfolio, is authorized to pay to various service
providers, as direct payment for expenses incurred in connection with the
distribution of the Portfolio's shares, amounts equal to actual expenses
associated with distributing the Portfolio's shares, up to a maximum rate
of 0.15% (fifteen one-hundredths of one percent) on an annualized basis of
the average daily net assets. This fee is measured and accrued daily and
paid monthly. ISI has determined that it will not seek payment by the WRL
Series Fund, Inc. of distribution expenses with respect to any portfolio
(including the WRL Growth Portfolio) during the fiscal year ending December
31, 1997. Owners will be notified in advance prior to ISI's seeking such
reimbursement.
- 13 -
<PAGE>
Examples
I. An Owner would pay the following expenses on a $1,000 investment, assuming
5% Annually Compounding Death Benefit or Annual Step-Up Death Benefit, a
hypothetical 5% annual return on assets, and assuming the entire Policy Value
is in the applicable Subaccount:
1. If the Policy is surrendered at the end of the applicable time period:*
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
TCW Money Market Portfolio..................... $91 $109 $136 $237
TCW Managed Asset Allocation Portfolio......... $93 $116 $149 $263
T. Rowe Price International Stock Portfolio.... $97 $126 $166 $296
Value Equity Portfolio......................... $94 $118 $152 $269
Dreyfus Small Cap Value Portfolio.............. $94 $118 $153 $270
Dreyfus U.S. Government Securities Portfolio... $93 $115 $148 $260
T. Rowe Price Equity Income Portfolio.......... $94 $119 $155 $274
T. Rowe Price Growth Stock Portfolio........... $95 $121 $157 $279
Opportunity Value Portfolio.................... $98 $130 $172 $307
Enhanced Index Portfolio....................... $98 $130 $172 $307
WRL Growth Portfolio........................... $94 $117 $151 $266
2. If the Policy is annuitized at the end of the applicable time period:
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
TCW Money Market Portfolio..................... $21 $ 64 $110 $237
TCW Managed Asset Allocation Portfolio......... $23 $ 72 $123 $263
T. Rowe Price International Stock Portfolio.... $27 $ 81 $139 $296
Value Equity Portfolio......................... $24 $ 73 $126 $269
Dreyfus Small Cap Value Portfolio.............. $24 $ 74 $126 $270
Dreyfus U.S. Government Securities Portfolio... $23 $ 71 $121 $260
T. Rowe Price Equity Income Portfolio.......... $24 $ 75 $128 $274
T. Rowe Price Growth Stock Portfolio........... $25 $ 76 $131 $279
Opportunity Value Portfolio.................... $28 $ 85 $145 $307
Enhanced Index Portfolio....................... $28 $ 85 $145 $307
WRL Growth Portfolio........................... $24 $ 72 $124 $266
3. If the Policy is not surrendered or annuitized:
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
TCW Money Market Portfolio..................... $21 $ 64 $110 $237
TCW Managed Asset Allocation Portfolio......... $23 $ 72 $123 $263
T. Rowe Price International Stock Portfolio.... $27 $ 81 $139 $296
Value Equity Portfolio......................... $24 $ 73 $126 $269
Dreyfus Small Cap Value Portfolio.............. $24 $ 74 $126 $270
Dreyfus U.S. Government Securities Portfolio... $23 $ 71 $121 $260
T. Rowe Price Equity Income Portfolio.......... $24 $ 75 $128 $274
T. Rowe Price Growth Stock Portfolio........... $25 $ 76 $131 $279
Opportunity Value Portfolio.................... $28 $ 85 $145 $307
Enhanced Index Portfolio....................... $28 $ 85 $145 $307
WRL Growth Portfolio........................... $24 $ 72 $124 $266
</TABLE>
- 14 -
<PAGE>
II. An Owner would pay the following expenses on a $1,000 investment, assuming
Return of Premium Death Benefit, a hypothetical 5% annual return on assets, and
assuming the entire Policy Value is in the applicable Subaccount:
1. If the Policy is surrendered at the end of the applicable time period:*
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
TCW Money Market Portfolio..................... $89 $104 $129 $221
TCW Managed Asset Allocation Portfolio......... $92 $112 $142 $247
T. Rowe Price International Stock Portfolio.... $95 $122 $158 $281
Value Equity Portfolio......................... $92 $113 $145 $254
Dreyfus Small Cap Value Portfolio.............. $92 $114 $145 $255
Dreyfus U.S. Government Securities Portfolio... $91 $111 $140 $244
T. Rowe Price Equity Income Portfolio.......... $93 $115 $147 $259
T. Rowe Price Growth Stock Portfolio........... $93 $116 $150 $264
Opportunity Value Portfolio.................... $96 $125 $164 $293
Enhanced Index Portfolio....................... $96 $125 $164 $293
WRL Growth Portfolio........................... $92 $113 $143 $250
2. If the Policy is annuitized at the end of the applicable time period:
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
TCW Money Market Portfolio..................... $19 $ 59 $102 $221
TCW Managed Asset Allocation Portfolio......... $22 $ 67 $115 $247
T. Rowe Price International Stock Portfolio.... $25 $ 77 $132 $281
Value Equity Portfolio......................... $22 $ 69 $118 $254
Dreyfus Small Cap Value Portfolio.............. $22 $ 69 $119 $255
Dreyfus U.S. Government Securities Portfolio... $21 $ 66 $113 $244
T. Rowe Price Equity Income Portfolio.......... $23 $ 70 $121 $259
T. Rowe Price Growth Stock Portfolio........... $23 $ 72 $123 $264
Opportunity Value Portfolio.................... $26 $ 81 $138 $293
Enhanced Index Portfolio....................... $26 $ 81 $138 $293
WRL Growth Portfolio........................... $22 $ 68 $117 $250
</TABLE>
- 15 -
<PAGE>
3. If the Policy is not surrendered or annuitized:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
TCW Money Market Portfolio..................... $19 $59 $102 $221
TCW Managed Asset Allocation Portfolio......... $22 $67 $115 $247
T. Rowe Price International Stock Portfolio.... $25 $77 $132 $281
Value Equity Portfolio......................... $22 $69 $118 $254
Dreyfus Small Cap Value Portfolio.............. $22 $69 $119 $255
Dreyfus U.S. Government Securities Portfolio... $21 $66 $113 $244
T. Rowe Price Equity Income Portfolio.......... $23 $70 $121 $259
T. Rowe Price Growth Stock Portfolio........... $23 $72 $123 $264
Opportunity Value Portfolio.................... $26 $81 $138 $293
Enhanced Index Portfolio....................... $26 $81 $138 $293
WRL Growth Portfolio........................... $22 $68 $117 $250
</TABLE>
- ----------------------------------
* If the Policy is annuitized during the first five Policy Years, under a
period certain only payment option, with payments of less than five years,
then the expenses would be the same as if the Policy were surrendered.
The above tables are intended to assist the Owner in understanding the costs
and expenses that will be borne, directly or indirectly. These include the
expenses of the Underlying Funds. See "Charges and Deductions," p. 44, and the
Underlying Funds' prospectuses. In addition to the expenses listed above,
premium taxes may be applicable.
THE 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. The figures and data for the Underlying Fund
annual expenses have been provided by Western Reserve Life Assurance Co. of
Ohio and Endeavor Investment Advisers, and while AUSA does not dispute these
figures, AUSA has not independently verified their accuracy.
In these examples, the $35 Annual Service Charge is reflected as a charge of
.0583% based on an average Policy Value of $60,083. For Policies issued under
Endorsement AE877 695 (issued after June, 1996), the $35 Service Charge will
be waived if the Premium Payments less partial withdrawals is at least
$50,000. It has been included in these examples for illustrative purposes.
DEATH BENEFIT
In the event that the Annuitant who is not the Owner dies prior to the
Annuity Commencement Date, the Owner will become the Annuitant unless the
Owner specifically requests on the application or in writing that the death
benefit be paid upon the Annuitant's death and AUSA agrees to such an
election. Upon receipt of proof that the Annuitant, who is the Owner, has died
before the Annuity Commencement Date, (or the Annuitant has died, if
- 16 -
<PAGE>
the Owner has elected to have the death proceeds paid upon the Annuitant's
death) the Death Benefit is calculated and is payable to the Beneficiary when
AUSA receives an election of the method of settlement and return of the
Policy.
During the first seven policy years, the Death Benefit will be the greater
of (a) the Policy Value on the date proof of death and election of the method
of settlement are received; or (b) the total Premiums paid less any Adjusted
Partial Withdrawals (see page 42) taken. After the seventh Policy Anniversary,
the Death Benefit amount will be the greatest of (a), (b), and (c), where (a)
and (b) are defined above and where (c) is the Policy Value on the seventh
Policy Anniversary plus all Premiums paid less any Adjusted Partial
Withdrawals (see page 42) taken since that Policy Anniversary. This death
benefit does not apply on the death of the Owner if the Owner is not the
Annuitant (see "Death of Owner", p. 44). These death benefit provisions may
vary depending on which state the Policy is issued and when it was issued. No
Contingent Deferred Sales Charge is imposed upon amounts received as a Death
Benefit. The Death Benefit may be paid as either a lump sum cash benefit or as
an Annuity as permitted by federal or state law. Interest on death proceeds
will be paid as required by applicable law. (See "Death Benefit," p. 42.)
For Policies issued under Endorsement AE877 695 (issued after June, 1996)
the amount of the death proceeds will be the greater of (a) or (b) where:
(a) is the Policy Value on the date AUSA receives due proof of death and
an election of a method of settlement, and:
(b) is the Guaranteed Minimum Death Benefit.
The "Guaranteed Minimum Death Benefit" is equal to the largest Policy Value on
the Date of Issue or on any Policy Anniversary prior to the Owner's 81st
birthday, plus any premiums paid, less any Adjusted Partial Withdrawals taken,
subsequent to the date of the largest anniversary Policy Value.
RIGHT TO RETURN THE POLICY
The Policy Owner may, until the end of the period of time specified in the
Policy, examine the Policy and return it for a refund. The applicable period
will depend on the state in which the Policy is issued. In New York it is
twenty (20) days (in other states it may be ten (10) days) after the Policy is
delivered to the Policy Owner. The amount of refund will also depend on the
state in which the Policy is issued. Most states, including New York, require
the amount of the refund to be the sum of all Premium Payments made under the
Policy and the accumulated gains or losses in the Mutual Fund Account, if any.
However, some states may require a return of the premium(s) paid, or the
greater of the premium(s) paid or Cash Value. AUSA will pay the refund within
seven (7) days after it receives written notice of cancellation and the
returned Policy.
- 17 -
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES OF INVESTMENT IN THE POLICY
With respect to Owners who are natural persons, there should be no federal
income tax on increases in the Policy Value until a distribution under the
Policy occurs (e.g., a surrender or Annuity Payment) or is deemed to occur
(e.g., a pledge or assignment of a Policy). Generally, all or a portion of any
distribution or deemed distribution will be taxable as ordinary income. The
taxable portion of certain distributions will be subject to withholding unless
the recipient elects otherwise. In addition, prior to age 59 1/2 a ten percent
penalty tax may apply to certain distributions or deemed distributions under
the Policy. (See "Certain Federal Income Tax Consequences," p. 48)
INQUIRIES AND WRITTEN NOTICES AND REQUESTS
Any questions about procedures or the Policy, or any Written Notice or
Written Request required to be sent to AUSA, should be sent to AUSA's Service
Office, Financial Markets Division--Variable Annuity Dept., 4333 Edgewood Road
N.E., Cedar Rapids, Iowa 52499. Inquiries may be made by calling 800-525-6205.
All inquiries, Notices and Requests should include the Policy number, the
Owner's name and the Annuitant's name.
* * *
Note: The foregoing summary is qualified in its entirety by the detailed
information in the remainder of this Prospectus and in the Statement of
Additional Information and in the prospectuses for the Underlying Funds and in
the Policy, all of which should be referred to for more detailed information.
This Prospectus generally describes only the Policy and the Mutual Fund
Account. Separate prospectuses describe the Underlying Funds. (There is no
prospectus for the Fixed Account since interests in the Fixed Account are not
securities. See "The Fixed Account," p. 29.)
- 18 -
<PAGE>
CONDENSED FINANCIAL INFORMATION
The following Accumulation Unit Values and the number of Accumulation Units
outstanding for each Subaccount from the date of inception (January 1, 1995,
except as noted below) is derived from the financial statements of the Mutual
Fund Account. The data should be read in connection with those financial
statements, which are contained in the Statement of Additional Information.
<TABLE>
<CAPTION>
TCW MONEY MARKET SUBACCOUNT*
--------------------------------------------------
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF YEAR END OF YEAR AT END OF YEAR
----------------- ------------- ------------------
<S> <C> <C> <C>
1996......................... 1.115718 1.154219 665,174.123
1995......................... 1.072424 1.115718 271,034.756
<CAPTION>
TCW MANAGED ASSET ALLOCATION SUBACCOUNT**
--------------------------------------------------
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF YEAR END OF YEAR AT END OF YEAR
----------------- ------------- ------------------
<S> <C> <C> <C>
1996......................... 1.577873 1.833135 1,123,469.170
1995......................... 1.301669 1.577873 607,869.454
<CAPTION>
T. ROWE PRICE INTERNATIONAL STOCK SUBACCOUNT
--------------------------------------------------
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF YEAR END OF YEAR AT END OF YEAR
----------------- ------------- ------------------
<S> <C> <C> <C>
1996......................... 1.171039 1.330640 2,084,832.841
1995......................... 1.073958 1.171039 681,093.799
<CAPTION>
VALUE EQUITY SUBACCOUNT***
--------------------------------------------------
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF YEAR END OF YEAR AT END OF YEAR
----------------- ------------- ------------------
<S> <C> <C> <C>
1996......................... 1.387903 1.694854 1,565,599.143
1995......................... 1.045610 1.387903 547,233.586
<CAPTION>
DREYFUS SMALL CAP VALUE SUBACCOUNT****
--------------------------------------------------
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF YEAR END OF YEAR AT END OF YEAR
----------------- ------------- ------------------
<S> <C> <C> <C>
1996......................... 1.206843 1.496065 1,239,443.264
1995......................... 1.072941 1.206843 535,283.029
<CAPTION>
DREYFUS U.S. GOVERNMENT SECURITIES SUBACCOUNT*****
--------------------------------------------------
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF YEAR END OF YEAR AT END OF YEAR
----------------- ------------- ------------------
<S> <C> <C> <C>
1996......................... 1.124292 1.128769 589,799.900
1995(1)...................... 1.072051 1.124292 204,813.593
<CAPTION>
T. ROWE PRICE EQUITY INCOME SUBACCOUNT
--------------------------------------------------
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF YEAR END OF YEAR AT END OF YEAR
----------------- ------------- ------------------
<S> <C> <C> <C>
1996......................... 1.287240 1.521680 1,387,607.312
1995(2)...................... 1.116497 1.287240 293,619.530
</TABLE>
- 19 -
<PAGE>
<TABLE>
<CAPTION>
T. ROWE PRICE GROWTH STOCK SUBACCOUNT
--------------------------------------------------
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF YEAR END OF YEAR AT END OF YEAR
----------------- ------------- ------------------
<S> <C> <C> <C>
1996......................... 1.353339 1.611613 964,658.085
1995(/3/).................... 1.145983 1.353339 189,613.999
<CAPTION>
OPPORTUNITY VALUE SUBACCOUNT
--------------------------------------------------
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF YEAR END OF YEAR AT END OF YEAR
----------------- ------------- ------------------
<S> <C> <C> <C>
1996(/4/).................... .999050 1.004355 178,913.412
<CAPTION>
ENHANCED INDEX SUBACCOUNT
--------------------------------------------------
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF YEAR END OF YEAR AT END OF YEAR
----------------- ------------- ------------------
<S> <C> <C> <C>
1996(/5/).................... -- -- --
<CAPTION>
WRL GROWTH SUBACCOUNT
--------------------------------------------------
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF YEAR END OF YEAR AT END OF YEAR
----------------- ------------- ------------------
<S> <C> <C> <C>
1996......................... 14.583843 16.964068 306,855.075
1995......................... 10.051117 14.583843 97,436.321
</TABLE>
- ----------------------------------
* Prior to May 1, 1996, known as the Money Market Subaccount
** Prior to May 1, 1996, known as the Managed Asset Allocation Subaccount
*** Prior to May 1, 1996, known as the Quest for Value Equity Subaccount
**** Prior to October 29, 1996, known as the Value Small Cap Subaccount, and
prior to May 1, 1996, known as the Quest for Value Small Cap Subaccount
***** Prior to May 1, 1996, known as the U.S. Government Securities Subaccount
(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) The offering of the Enhanced Index Subaccount is expected to commence on
or about the date of this Prospectus. Accordingly, no comparable data is
available for that Subaccount.
FINANCIAL STATEMENTS
The financial statements of AUSA and the independent auditors' report
thereon are in the Statement of Additional Information which is available free
upon request.
HISTORICAL PERFORMANCE DATA
STANDARDIZED PERFORMANCE DATA
From time to time, AUSA may advertise historical yields and total returns
for the Subaccounts of the Mutual Fund Account. In addition, AUSA
- 20 -
<PAGE>
may advertise the effective yield of the Money Market Subaccount. These
figures will be calculated according to standardized methods prescribed by the
Securities and Exchange Commission ("SEC"). They will be based on historical
earnings and are not intended to indicate future performance.
TCW MONEY MARKET SUBACCOUNT
The yield of the 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 Subaccount of the Mutual Fund Account (other than the 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 of the Mutual Fund Account refers to return
quotations assuming an investment under a Policy has been held in the
Subaccount for various periods of time including, but not limited to, 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 first day of each of the periods for which
total return quotations are provided.
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 Contingent Deferred
Sales Charge that may be applicable to a particular Policy. To the extent that
a premium tax and/or Contingent Deferred Sales 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 AUSA.
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, 1996, and for the one and five year periods
ended December 31, 1996 are shown below.
- 21 -
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
ONE YEAR INCEPTION
PERIOD FIVE YEARS OF THE SUBACCOUNT
ENDED ENDED SUBACCOUNT TO INCEPTION
SUBACCOUNT 12/31/96 12/31/96 12/31/96 DATE
---------- -------- ---------- ------------- -----------------
<S> <C> <C> <C> <C>
TCW Managed Asset Alloca-
tion.................... 10.81% N/A 16.75% January 1,1995
T. Rowe Price Interna-
tional Stock............ 8.25% N/A 9.25% January 1, 1995
Value Equity............. 16.80% N/A 25.23% January 1, 1995
Dreyfus Small Cap Value.. 18.64% N/A 16.15% January 1, 1995
Dreyfus U.S. Government
Securities.............. (5.06)% N/A (0.11)% June 16, 1995
T. Rowe Price Equity In-
come.................... 12.85% N/A 19.55% June 28, 1995
T. Rowe Price Growth
Stock................... 13.73% N/A 19.75% April 28, 1995
Opportunity Value........ N/A N/A (6.47)% December 13, 1996
Enhanced Index(/1/)...... N/A N/A N/A --
WRL Growth............... 10.99% N/A 28.23% January 1, 1995
</TABLE>
- ----------------------------------
(1) The Enhanced Index Subaccount is expected to begin operations on or about
the date of this Prospectus, therefore comparable information is not
available.
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.
HYPOTHETICAL PERFORMANCE DATA OF SUBACCOUNTS
Prior to December 31, 1994, the Subaccounts had not yet commenced
operations. However, the following is standardized average annual total return
information based on the hypothetical assumption that the Subaccounts had been
available to the AUSA Endeavor Variable Annuity Account since inception of the
corresponding Portfolio, with a level of charges equal to those currently
assessed against the Subaccounts or against Owners' Policy Values. Performance
data for periods of less than seven years reflects deduction of the Contingent
Deferred Sales Charge.
HYPOTHETICAL AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
TEN YEARS* CORRESPONDING
FIVE YEARS OR PORTFOLIO PORTFOLIO
ENDED INCEPTION TO INCEPTION
SUBACCOUNT 12/31/96 12/31/96 DATE
---------- ---------- ------------ -----------------
<S> <C> <C> <C>
TCW Managed Asset Allocation........ 9.97% 10.93% April 8, 1991
T. Rowe Price International
Stock(/1/)......................... 4.69% 4.83% April 8, 1991
Value Equity........................ N/A 14.97% May 27, 1993
Dreyfus Small Cap Value............. N/A 10.88% May 4, 1994
Dreyfus U.S. Government Securities.. N/A 3.11% May 9, 1994
T. Rowe Price Equity Income......... N/A 21.26% January 3, 1995
T. Rowe Price Growth Stock.......... N/A 24.95% January 3, 1995
Opportunity Value................... N/A (6.57)% November 18, 1996
Enhanced Index(/2/)................. N/A N/A --
WRL Growth(/3/)..................... 9.14% 16.26%* October 2, 1986
</TABLE>
- 22 -
<PAGE>
- ----------------------------------
(1) 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).
(2) The Enhanced Index Portfolio is expected to begin operations on or about
the date of this Prospectus, therefore comparable information is not
available.
(3) The WRL Growth Portfolio, commenced operations on October 2, 1986. For
purposes of the calculation of the performance data prior to July 1, 1992,
the deductions for the Mortality and Expense Risk Fee, and Administrative
Charge are made 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 which would have resulted if the Subaccount
had actually been in existence since the inception of the WRL Growth
Portfolio.
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.
OPPORTUNITY VALUE AND EQUITY INDEX PORTFOLIOS
The Opportunity Value Portfolio and the Equity Index Portfolio are new and
therefore do not have (in the case of the Opportunity Value Portfolio, no
significant) historical performance data. However, their investment managers
(OpCap Advisors and J.P. Morgan Investment Management Inc. respectively) have
years of experience managing very similar portfolios with substantially the
same investment objectives and policies. Historical performance data showing
the results the investment managers achieved for those other portfolios is in
the prospectus for the Endeavor Series Trust, which is included with this
Prospectus. See "Performance Information" in the Endeavor Series Trust's
prospectus. That performance information in the Endeavor Series Trust's
prospectus does not take into account the fees and charges under the Policy;
if those fees and charges were reflected, the investment returns would be
lower.
NON-STANDARDIZED PERFORMANCE DATA
AUSA may from time to time also advertise or disclose average annual total
return or other performance data in non-standard formats for a Subaccount of
the Mutual Fund Account. The non-standard performance data may assume that no
Contingent Deferred Sales Charge is applicable, and may also make other
assumptions.
- 23 -
<PAGE>
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, a copy of which may be obtained from AUSA.
PUBLISHED RATINGS
AUSA 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 purpose of the ratings is to reflect the financial
strength and/or claims-paying ability of AUSA and should not be considered as
bearing on the investment performance of assets held in the Mutual Fund
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 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). These ratings do not reflect the
investment performance of the Mutual Fund Account or Fixed Account or the
degree of risk associated with an investment in either account.
AUSA LIFE INSURANCE COMPANY, INC.
AUSA Life Insurance Company, Inc. ("AUSA"), 666 Fifth Avenue, New York, New
York 10103, is a stock life insurance company. It was incorporated under the
laws of the State of New York on October 3, 1947. It is principally engaged in
the sale of life insurance and annuity policies, and is licensed in the
District of Columbia, and in all states except Alabama, Arkansas, Hawaii,
Idaho, Montana, and Oregon. As of December 31, 1996, AUSA had assets of $9.0
billion. AUSA is a wholly-owned indirect subsidiary of AEGON USA, Inc., which
conducts substantially all 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. AEGON n.v., a holding company, conducts its business
through subsidiary companies engaged primarily in the insurance business.
- 24 -
<PAGE>
THE ENDEAVOR ACCOUNTS
Premiums paid under a Policy may be allocated to the Mutual Fund Account, to
the Fixed Account, or to a combination of these Accounts.
THE MUTUAL FUND ACCOUNT
The AUSA Endeavor Variable Annuity Account of AUSA Life Insurance Company,
Inc. (the "Mutual Fund Account") was established as a separate investment
account under the laws of the State of New York on September 27, 1994. The
Mutual Fund Account was created due to the assumption of certain policies of
AUSA's former affiliate, International Life Investors Insurance Company
("ILI"). The assumed policies have terms identical to those policies being
issued by AUSA. The ILI policies have been transferred to allow AUSA to
succeed to the variable annuity business of ILI. The Mutual Fund Account
receives and invests the Premiums under the Policies that are allocated to it
for investment in shares of the WRL Growth Portfolio of the WRL Series Fund,
Inc. managed by Janus Capital Corporation, and the Endeavor Series Trust.
The Mutual Fund Account currently is divided into eleven Subaccounts.
Additional Subaccounts may be established in the future at the discretion of
AUSA. Each Subaccount invests exclusively in shares of one of the Portfolios
of the Underlying Funds. Under New York law, the assets of the Mutual Fund
Account are owned by AUSA, but they are held separately from the other assets
of AUSA and are not chargeable with liabilities incurred in any other business
operation of AUSA (except to the extent that assets in the Mutual Fund Account
exceed the reserves and other liabilities of the Mutual Fund Account). Income,
gains, and losses incurred on the assets in the Subaccounts of the Mutual Fund
Account, whether or not realized, are credited to or charged against that
Subaccount without regard to other income, gains or losses of any other
Account or Subaccount of AUSA. Therefore, the investment performance of any
Subaccount should be entirely independent of the investment performance of
AUSA's general account assets or any other Account or Subaccount maintained by
AUSA.
The Mutual Fund Account is registered with the SEC under the Investment
Company Act of 1940 (the "1940 Act") as a unit investment trust 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 Mutual Fund Account or AUSA.
Underlying Funds. The Mutual Fund Account will invest exclusively in shares
of Endeavor Series Trust and the WRL Growth Portfolio of the WRL Series Fund,
Inc. (collectively the "Underlying Funds"). The Endeavor Series Trust is a
series-type mutual fund registered with the SEC under the 1940 Act as an open-
end, diversified management investment company. The registration of the
Underlying Funds does not involve supervision of the management or investment
practices or policies of the Underlying Funds by the SEC. The Underlying Funds
currently consist of the following eleven
- 25 -
<PAGE>
Portfolios: the WRL Growth Portfolio, managed by Janus Capital Corporation,
the TCW Managed Asset Allocation Portfolio, the TCW Money Market Portfolio,
the T. Rowe Price International Stock Portfolio, the Value Equity Portfolio,
the Dreyfus Small Cap Value Portfolio, the Dreyfus U.S. Government Securities
Portfolio, the T. Rowe Price Equity Income Portfolio, the T. Rowe Price Growth
Stock Portfolio, the Opportunity Value Portfolio and the Enhanced Index
Portfolio. The assets of each Portfolio are held separate from the assets of
the other Portfolios, and each Portfolio has its own distinct investment
objectives and policies. Each Portfolio operates as a separate investment
fund, and the income or losses of one Portfolio generally have no effect on
the investment performance of any other Portfolio.
Endeavor Investment Advisers (the "Manager"), an investment adviser
registered with the SEC under the Investment Advisers Act of 1940, is the
Endeavor Series Trust's manager. The Manager selects and contracts with
advisers for investment services for the Portfolios of Endeavor Series Trust,
reviews the advisers' activities, and otherwise performs administerial and
managerial functions for the Endeavor Series Trust. Six advisers, TCW Funds
Management, Inc. (a wholly-owned subsidiary of The TCW Group, Inc.) T. Rowe
Price Associates, Inc., Rowe Price-Fleming International, Inc. (a joint
venture between T. Rowe Price Associates, Inc. and Robert Fleming Holdings
Limited), OpCap Advisors (formerly known as Quest for Value Advisors), J.P.
Morgan Investment Management Inc. (a wholly owned subsidiary of J.P. Morgan
and Co. Incorporated), and The Dreyfus Corporation, (a wholly-owned subsidiary
of Mellon Bank, N.A.) (the "Advisers"), each perform investment advisory
services for particular Portfolios of Endeavor Series Trust.
TCW Funds Management, Inc. is the Adviser for the TCW Managed Asset
Allocation Portfolio and the TCW Money Market Portfolio. T. Rowe Price
Associates, Inc. is the Adviser for the T. Rowe Price Equity Income Portfolio
and the T. Rowe Price Growth Stock Portfolio. Rowe Price-Fleming
International, Inc. is the Adviser for the T. Rowe Price International Stock
Portfolio. OpCap Advisors is the Adviser for the Value Equity Portfolio and
the Opportunity Value Portfolio. The Dreyfus Corporation is the Adviser for
the Dreyfus U.S. Government Securities Portfolio, and the Dreyfus Small Cap
Value Portfolio. J.P. Morgan Investment Management Inc. ("Morgan") is the
Adviser for the Enhanced Index Portfolio. WRL Investment Management, Inc., a
subsidiary of Western Reserve Life Assurance Co. of Ohio, (an affiliate of
AUSA) is the Adviser for the WRL Series Fund, Inc. and contracts with Janus
Capital Corporation (also an "Adviser") as a sub-adviser to the WRL Growth
Portfolio.
The Adviser of a Portfolio is responsible for selecting the investments of
the Portfolio consistent with the investment objectives and policies of the
Portfolio, and will conduct securities trading for the Portfolio. All Advisers
are investment advisers registered with the SEC under the Investment Advisers
Act of 1940.
- 26 -
<PAGE>
The investment objectives of each Portfolio are summarized as follows:
TCW Money Market Portfolio--seeks current income, preservation of capital
and maintenance of liquidity through investment in short-term money market
securities. The Portfolio seeks to maintain a constant net asset value of
$1.00 per share although no assurances can be given that such constant net
asset value will be maintained.
TCW Managed Asset Allocation Portfolio--seeks high total return through a
managed asset allocation portfolio of equity, fixed income and money market
securities.
T. Rowe Price International Stock Portfolio--seeks long-term growth of
capital through investments primarily in common stocks of established non-U.S.
companies.
Value Equity Portfolio--seeks long-term capital appreciation through
investment in securities (primarily equity securities) of companies that are
believed by the Portfolio's Adviser to be undervalued in the marketplace in
relation to factors such as the companies' assets or earnings.
Dreyfus Small Cap Value Portfolio--seeks capital appreciation through
investments in a diversified portfolio consisting primarily of equity
securities of companies with a median capitalization of approximately $750
million, provided that under normal market conditions at least 75% of the
Portfolio's investments will be in equity securities of companies with
capitalizations at the time of purchase between $150 million and $1.5 billion.
Dreyfus U.S. Government Securities Portfolio--seeks as high a level of total
return as is consistent with prudent investment strategies by investing under
normal conditions at least 65% of its assets in debt obligations and mortgage-
backed securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
T. Rowe Price Equity Income Portfolio--seeks to provide substantial dividend
income and also capital appreciation by investing primarily in dividend paying
stocks of established companies.
T. Rowe Price Growth Stock Portfolio--seeks long-term growth of capital and
to increase dividend income through investment primarily in common stocks of
well established growth companies.
Opportunity Value Portfolio--seeks growth of capital over time through
investment in a portfolio consisting of common stocks, bonds and cash
equivalents, the percentages of which will vary based upon the Portfolio
Adviser's assessment of relative values.
- 27 -
<PAGE>
Enhanced Index Portfolio--seeks to earn a total return modestly in excess of
the total return performance of the Standard & Poor's 500 Composite Stock
Index (the "S&P 500 Index") while maintaining a volatility of return similar
to the S&P 500 Index.
WRL Growth Portfolio, managed by Janus Capital Corporation--seeks growth of
capital. At most times, this Portfolio will be invested primarily in equity
securities which are selected solely for their capital growth potential;
investment income is not a consideration.
THERE IS NO ASSURANCE THAT ANY PORTFOLIO WILL ACHIEVE ITS STATED OBJECTIVE.
MORE DETAILED INFORMATION, INCLUDING A DESCRIPTION OF EACH PORTFOLIO'S
INVESTMENT OBJECTIVE AND POLICIES AND A DESCRIPTION OF RISKS INVOLVED IN
INVESTING IN EACH OF THE PORTFOLIOS AND OF EACH PORTFOLIO'S FEES AND EXPENSES
IS CONTAINED IN THE PROSPECTUSES FOR THE UNDERLYING FUNDS, CURRENT COPIES OF
WHICH ARE ATTACHED TO THIS PROSPECTUS. INFORMATION CONTAINED IN THE UNDERLYING
FUNDS' PROSPECTUSES SHOULD BE READ CAREFULLY BEFORE INVESTING IN A SUBACCOUNT
OF THE MUTUAL FUND ACCOUNT.
An investment in the Mutual Fund Account, or in any Portfolio, including the
TCW Money Market Portfolio, and the Dreyfus U.S. Government Securities
Portfolio is not insured or guaranteed by the U.S. government or any
Government Agency.
Addition, Deletion, or Substitution of Investments. AUSA cannot and does not
guarantee that any of the Portfolios will always be available for Premium
Payments, allocations, or transfers. AUSA retains the right, with prior
approval of the New York Insurance Superintendent, subject to any applicable
law, to make changes in the Mutual Fund Account and its investments. AUSA
reserves the right to eliminate the shares of any Portfolio held by a
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'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 an Owner's interest in a Subaccount will not be made without
prior notice to the Owner and the prior approval of the SEC. 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 requests made by Owners.
New Subaccounts may be established when, in the sole discretion of AUSA,
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.
Each additional Subaccount will purchase shares in a mutual fund portfolio or
other investment vehicle. AUSA may also eliminate
- 28 -
<PAGE>
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 will notify Owners and
request a reallocation of the amounts invested in the eliminated Subaccount.
If no such reallocation is provided by the Owner, AUSA will reinvest the
amounts invested in the eliminated Subaccount in the Subaccount that invests
in the TCW Money Market Portfolio (or in a similar portfolio of money market
instruments) or in another Subaccount, if appropriate.
In the event of any such substitution or change, AUSA 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 separate accounts. To the extent permitted by
applicable law, AUSA also may transfer the assets of the Mutual Fund Account
associated with the Policies to another account or accounts.
THE FIXED ACCOUNT
This Prospectus is generally intended to serve as a disclosure document only
for the Policy and the Mutual Fund Account. For complete details regarding the
Fixed Account, see the Policy itself.
Premiums allocated and amounts transferred to the Fixed Account become part
of the general account of AUSA, which supports insurance and annuity
obligations. 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 and
AUSA has been advised that the staff of the Securities and Exchange Commission
has not reviewed the disclosures in this Prospectus which relate to the fixed
portion.
The Fixed Account is made up of all the general assets of AUSA, other than
those in the Mutual Fund Account or in any other segregated asset account. The
Policy Owner may allocate Premium Payments to the Fixed Account at the time of
Premium Payment or by subsequent transfers from the Mutual Fund Account.
Instead of the Policy Owner bearing the investment risk as is the case for
Policy Value in the Mutual Fund Account, AUSA bears the full investment risk
for all Policy Value in the Fixed Account. AUSA has sole discretion to invest
the assets of its general account, including the Fixed Account, subject to
applicable law.
AUSA currently offers two interest rate guarantee periods in the Fixed
Account, a "One Year Option" and a "Three Year Option." The One Year
- 29 -
<PAGE>
Option is only available if the premium paid or the amount transferred into it
is set up on Dollar Cost Averaging (see "Dollar Cost Averaging," p. ), or will
be set up on Dollar Cost Averaging in the future. Except as otherwise provided
in the Contract, transfers out of the One Year Option, except through Dollar
Cost Averaging, are not allowed. The "One Year Option" guarantees the current
interest rate for one year from the payment or transfer date. At the end of
the one year period, AUSA will declare a renewal rate which will be guaranteed
for at least one year. AUSA also offers a "Three Year Option" which guarantees
the current interest rate for three years from the payment or transfer date.
At the end of the three year period, AUSA will declare a renewal rate which
will be guaranteed for at least one year.
AUSA guarantees that it will credit interest to amounts in the Fixed Account
at an effective annual rate of at least 4.0% per year. AUSA may, in its sole
discretion, credit amounts in the Fixed Account with interest at a Current
Interest Rate in excess of 4.0%. Once declared, a Current Interest Rate will
be guaranteed for at least one year. Transfers out of the Fixed Account are
subject to restrictions on amount and timing. (See "Transfers," p. , and
"Surrenders," p. ). For purposes of crediting interest, the oldest payment or
transfer into the Fixed Account, plus interest allocable to that payment or
transfer, is considered to be withdrawn or transferred out first; the next
oldest payment plus interest is considered to be transferred out next, and so
on (this is a "first-in, first-out" procedure). The Owner bears the risk that
AUSA will not credit interest in excess of 4% per year.
AUSA guarantees that, at any time prior to the Annuity Commencement Date,
the amount in the Fixed Account allocable to a particular Policy will be not
less than the amount of the Premium Payments allocated or transferred to the
Fixed Account, plus interest at the rate of 4.0% per year, plus any excess
interest credited to amounts in the Fixed Account, less any applicable premium
or other taxes allocable to the Fixed Account, and less any amounts deducted
from the Fixed Account in connection with partial surrenders (including any
Contingent Deferred Sales Charges) or transfers to the Mutual Fund Account.
The Current Interest Rates will be determined by AUSA in its sole discretion
regardless of market interest rates. There is no obligation to declare a rate
in excess of 4%; The Policy Owner bears the risk that no interest will be
credited in excess of 4.0% per year.
AUSA'S MANAGEMENT HAS COMPLETE AND SOLE DISCRETION TO DETERMINE THE
GUARANTEED INTEREST RATES. AUSA CANNOT PREDICT OR GUARANTEE THE LEVEL OF
FUTURE GUARANTEED INTEREST RATES, EXCEPT THAT AUSA GUARANTEES THAT FUTURE
GUARANTEED EFFECTIVE INTEREST RATES WILL NOT BE BELOW 4% PER YEAR.
TRANSFERS
An Owner can transfer Policy Value from one Investment Option to another
within certain limits.
- 30 -
<PAGE>
Subject to the limitations and restrictions described below, transfers from
an Investment Option may be made, up to thirty days prior to the Annuity
Commencement Date, by sending Written Notice, signed by the Policy Owner, to
the Service Office. The minimum amount which may be transferred is the lesser
of $500 or the entire Account or Subaccount Value. If the Account or
Subaccount Value remaining after a transfer is less than $500, AUSA reserves
the right, at its discretion, to include that amount as part of the transfer.
Transfers out of a Subaccount of the Mutual Fund Account currently may be
made as often as the Owner wishes, subject to the minimum amount specified
above (AUSA reserves the right to otherwise limit or restrict transfers in the
future).
For Policies issued under Endorsement AE876 695 (issued after June, 1996)
transfers will be allowed out of the One Year Fixed Account except through
Dollar Cost Averaging.
Transfers from the Three Year Fixed Account are subject to a yearly limit
equal to 25% of the current Three Year Fixed Account Value, or an amount equal
to the amount the Owner transferred out of the Three Year Fixed Account during
the prior year, whichever is greater. After the Annuity Commencement Date,
transfers out of the Fixed Account are not permitted. See "Annuity Payment
Options", page 38.
A transfer charge may be imposed for any transfer in excess of 12 per Policy
Year; however, currently there is no charge for any transfers. Transfers by
telephone or other electronic means are not permitted.
DOLLAR COST AVERAGING
Under the Dollar Cost Averaging program, the Policy Owner can instruct AUSA
to automatically transfer an amount specified by the Policy Owner from the
Money Market Subaccount, the One Year Fixed Account or the U.S. Government
Securities Subaccount to any other Subaccount or Subaccounts of the Mutual
Fund Account. The automatic transfers can occur monthly or quarterly, and will
occur on the 28th day of the month. The first transfer will occur on the 28th
day of the month following AUSA's receipt of the Dollar Cost Averaging
request. The amount transferred each time must be at least $500. A minimum of
six monthly or four quarterly transfers are required. Dollar Cost Averaging
results in the purchase of more Units when the Unit Value is low, and less
units when the Unit Value is high. However, there is no guarantee that the
Dollar Cost Averaging program will result in higher Policy Values or otherwise
be successful.
The Policy Owner can request Dollar Cost Averaging when purchasing the
Policy or at a later date. The program will terminate when the amount in the
Money Market Subaccount, the One Year Fixed Account or the U.S. Government
Securities Subaccount is insufficient for the next transfer, at which time the
remaining balance is transferred.
- 31 -
<PAGE>
The Owner can increase or decrease the amount of the transfers by sending
AUSA a new Dollar Cost Averaging form. The owner can discontinue the program
by sending a Written Notice to the Service Office. There is no charge for this
program.
REINSTATEMENTS
Requests are occasionally received by AUSA to reinstate funds which had been
transferred to another company via a Section 1035 exchange or trustee-to-
trustee transfer under the Code. In this situation AUSA will require the Owner
to replace the same total amount of money in the applicable Subaccounts and/or
Fixed Account as was taken from them to effect the Exchange. The total dollar
amount of funds reapplied to the Separate Account will be used to purchase a
number of Accumulation Units available for each Subaccount based on the
Accumulation Unit prices at the date of Reinstatement (within two days of the
date the funds are received by AUSA). It should be noted that the number of
Accumulation Units available on the Reinstatement date may be more or less
than the number surrendered for the Exchange. Amounts reapplied to the Fixed
Account will receive the effective annual interest rate they would otherwise
have received, had they not been withdrawn. However, an adjustment will be
made to the amount reapplied to compensate AUSA for the additional interest
credited during the period of time between the withdrawal and the
reapplication of the funds. Owners should consult a qualified tax adviser
concerning the tax consequences of any Section 1035 exchanges or
reinstatements.
THE POLICY
The Endeavor Variable Annuity Policy is a Flexible Premium Variable Annuity
Policy. The rights and benefits under the Policy are summarized below;
however, the description of the Policy contained in this Prospectus is
qualified in its entirety by the Policy itself, a copy of which is available
upon request from AUSA. The Policy may be purchased on a non-tax qualified
basis ("Nonqualified Policy"). The Policy may also be purchased and used in
connection with retirement plans or individual retirement accounts that
qualify for favorable federal income tax treatment ("Qualified Policy").
POLICY APPLICATION AND ISSUANCE OF POLICIES
Before it will issue a Policy, AUSA must receive a completed Policy
application or transmittal form and a minimum initial Premium Payment of
$5,000 for a Nonqualified Policy, $50 for a Policy purchased for use in
connection with a Tax Deferred 403(b) Annuity, or $1,000 for any other
Qualified Policy. A Policy ordinarily will be issued only in respect of
Annuitants Age 0 through 80. Acceptance or declination of an application shall
be based on AUSA's underwriting standards, and AUSA reserves the right to
reject any application or Premium Payment based on those underwriting
standards.
- 32 -
<PAGE>
If the application can be accepted in the form received, the initial Premium
Payment will be credited to the Policy Value within two Business Days after
the later of receipt of the application or receipt of the initial Premium
Payment. If the initial Premium Payment cannot be credited because the
application or other issuing requirements are incomplete, the applicant will
be contacted within five Business Days and given an explanation for the delay
and the initial Premium Payment will be returned at that time unless the
applicant consents to AUSA's retaining the initial Premium Payment and
crediting it as soon as the necessary requirements are fulfilled.
The date on which the initial Premium Payment is credited to the Policy
Value is the Policy Date. The Policy Date is the date used to determine Policy
Years and Policy Anniversaries.
PREMIUM PAYMENTS
All initial Premium Payment checks or drafts should be made payable to AUSA
Life Insurance Company, Inc. and sent to the Administrative Office. Additional
premium payments should be sent to the Service Office. The Death Benefit will
not take effect until the check or draft for the Premium Payment is honored.
Initial Premium Payment. The minimum initial Premium Payment that AUSA
currently will accept under a Policy is $5,000 under a Nonqualified Policy,
$50 under a Policy purchased for use in connection with a Tax Deferred 403(b)
Annuity, and $1,000 under any other Qualified Policy. AUSA reserves the right
to increase or decrease this amount for a class of Policies issued after some
future date. The initial Premium Payment is the only Premium Payment required
to be paid under a Policy.
Additional Premium Payments. While the Annuitant is living and prior to the
Annuity Commencement Date, the Owner may make additional Premium Payments at
any time, and in any frequency. The minimum additional Premium Payment under
both a Nonqualified Policy and a Qualified Policy is $500 with the exception
of Policies used in connection with Tax Deferred 403(b) Annuities, for which
the minimum additional Premium Payment is $50. Additional Premium Payments
will be credited to the Policy and added to the Policy Value as of the
Business Day when they are received.
Allocation of Premium Payments. An Owner must allocate Premium Payments to
one or more of the Investment Options. The Owner must specify the initial
allocation in the Policy application. This allocation will be used for
additional Premium Payments unless the Owner requests a change of allocation.
All allocations must be made in whole percentages and must total 100%. The
minimum amount that can be allocated to any Investment Option is $500 ($50 for
Policies used in connection with Tax Deferred Section 403(b) Annuities). If
the Owner fails to specify how Premium Payments are to be allocated, the
Premium Payment(s) cannot be accepted.
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All additional Premium Payments will be allocated and credited to the Owner's
Policy as of the Valuation Period during which they are received.
The Owner may change the allocation instructions for future additional
Premium Payments by sending Written Notice, signed by the Owner, to AUSA's
Service Office. The allocation change will apply to payments received after
the date the Written Notice is received.
Payment Not Honored by Bank. Any payment due under the Policy which is
derived, all or in part, from any amount paid to AUSA by check or draft may be
postponed until such time as AUSA determines that such instrument has been
honored.
POLICY VALUE
On the Policy Date, the Policy Value equals the initial Premium Payment.
Thereafter, the Policy Value equals the sum of the values in the Mutual Fund
Account and the Fixed Account. The Policy Value will increase by (1) any
additional Premium Payments received by AUSA; and (2) any increases in the
Policy Value due to investment results of the selected Account(s). The Policy
Value will decrease by (1) any surrenders, including Contingent Deferred Sales
Charges; (2) any decreases in the Policy Value due to investment results of
the selected Accounts or Subaccounts; and (3) the charges imposed by AUSA.
The Policy Value is expected to change from Valuation Period to Valuation
Period, reflecting the investment experience of the selected Account(s) and/or
Subaccount(s), as well as Additional Premium Payments and the deductions for
charges. A Valuation Period is the period between successive Business Days. It
begins at the close of business on each Business Day and ends at the close of
business on the next succeeding Business Day. A Business Day is each day that
the New York Stock Exchange is open for business. Holidays are generally not
Business Days.
The Mutual Fund Account Value. When a Premium is allocated or an amount is
transferred to a Subaccount of the Mutual Fund Account, it is credited to the
Policy Value in the form of Accumulation Units. Each Subaccount of the Mutual
Fund Account has a distinct Accumulation Unit value (the "Unit Value"). The
number of units credited is determined by dividing the Premium Payment or
amount transferred by the Unit Value of the Subaccount as of the end of the
Valuation Period during which the allocation is made. When amounts are
transferred out of, or surrendered or withdrawn from an Account or Subaccount,
units are canceled or redeemed in a similar manner.
For each Subaccount, the 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. Therefore, the Unit Values will fluctuate from day to day based on the
investment experience of the corresponding Portfolio. The
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determination of Subaccount Unit Values is described in detail in the
Statement of Additional Information.
NON-PARTICIPATING POLICY
The Policy does not participate or share in the profits or surplus earnings
of AUSA. No dividends are payable on the Policy.
AMENDMENTS
No change in the Policy is valid unless made in writing by AUSA and approved
by one of AUSA's officers. No registered representative has authority to
change or waive any provision of the Policy.
AUSA 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
DISTRIBUTIONS UNDER THE POLICY
SURRENDERS
The Owner may surrender all or a portion of the Cash Value in exchange for a
cash withdrawal payment from AUSA. The Cash Value is the Policy Value less any
applicable Contingent Deferred Sales Charge. (See "Annuity Payment Options,"
p. 38).
The Owner may surrender the Cash Value from the Mutual Fund Account at any
time during the life of the Annuitant and prior to the Annuity Commencement
Date by sending a Written Request to AUSA's Service Office. The minimum amount
that can be withdrawn from any Subaccount or Fixed Account is $500. After the
Annuity Commencement Date, the Policy can only be surrendered if Annuity
Payment Option 4-V is in effect. (See "Annuity Payments," p. 38).
Surrenders from the Fixed Account may be delayed for up to six months.
Currently, the only charge for surrenders is the Contingent Deferred Sales
Charge, if it applies. Premium taxes may also be deducted from the Policy
Value. Accordingly, the amount available for surrender is the Cash Value,
which is the Policy Value less any applicable Contingent Deferred Sales
Charge. However, beginning in the second Policy Year, an Owner may surrender
up to 10% of the Policy Value without a Contingent Deferred Sales Charge if no
withdrawal has been made in the current Policy Year. Amounts withdrawn in
excess of this free withdrawal amount or withdrawn in the same Policy Year as
a previous withdrawal (and all surrenders in the first Policy Year) are
subject to the Contingent Deferred Sales Charge. In addition, a Contingent
Deferred Sales Charge will not be assessed if the
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withdrawal is necessary to meet the minimum distribution requirements for that
policy specified by the IRS for tax qualified plans or if the Policy Value is
applied to provide an Annuity under one of the Annuity Payment Options, unless
the Policy Value is applied, during the first five Policy Years, under Payment
Option 2, 4, or 4-V with payments for less than five years. The Owner must
specify the Investment Option from which surrendered amounts should be taken
(otherwise, the surrender request is incomplete and cannot be processed). For
a discussion of the Contingent Deferred Sales Charge, see "Contingent Deferred
Sales Charge," p. 45.
Since the Owner assumes the investment risk with respect to Premium Payments
allocated to the Mutual Fund Account, and because withdrawals are subject to a
Contingent Deferred Sales Charge, and possibly premium taxes, the total amount
paid upon total surrender of the Cash Value (taking any prior surrenders into
account) may be more or less than the total Premium Payments made. Following a
surrender of the total Cash Value, or at any time the Policy Value is zero,
all rights of the Owner and Annuitant will terminate.
In addition to the Contingent Deferred Sales Charges and any applicable
premium taxes, surrenders may be subject to income taxes and, prior to age 59
1/2, a ten percent Federal tax penalty. (See "Certain Federal Income Tax
Consequences", page 48.)
SYSTEMATIC WITHDRAWAL PLAN
Under the Systematic Withdrawal Plan Policy Owners can instruct AUSA to make
automatic payments to them monthly, quarterly, semi-annually or annually from
a specified Subaccount. Monthly and quarterly payments can only be sent by
electronic funds transfer directly to a checking or savings account. The
minimum monthly payment is $50, the minimum quarterly payment is $100, and the
minimum semi-annual or annual payment is $250. If the withdrawal is less than
the minimum then it can only be sent on an annual basis. The maximum payment
is 10% of the Policy Value divided by the number of payments made per year
(e.g. 12 for monthly). If this amount is below the minimum distribution
requirements for that policy specified by the IRS for tax qualified plans, the
maximum payment will be increased to this minimum required distribution
amount. The "Request for Systematic Withdrawal" form must specify a date for
the first payment, which must be at least 30 days but not more than one year
after the form is submitted.
The Contingent Deferred Sales Charge will be waived for Policy Owners under
age 59 1/2 of Qualified Policies if they take Systematic Withdrawals using one
of the three payout methods described in I.R.S. Notice 89-25, Q&A-12 (the Life
Expectancy Recalculation Option, Amortization, or Annuity Factor) which
generally require payments for life or life expectancy. These payments must be
continued until the later of age 59 1/2 or five years from their commencement.
No additional withdrawals may be taken during this time. For Qualified
Policies, Policy Owners age 59 1/2 or older, the
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Contingent Deferred Sales Charge will be waived if payments are made using the
Life Expectancy Recalculation Option.
In addition, for either Qualified or Nonqualified policies, the Contingent
Deferred Sales Charge will not be imposed on Systematic Withdrawals that do
not exceed 10% of the Policy Value (that is, the Sales Charge will apply as if
the "annualized" payments were a single payment). For other Systematic
Withdrawals, the Contingent Deferred Sales Charge will apply in accordance
with its terms.
Systematic Withdrawals will not be available for Tax Deferred 403(b)
Annuities under age 59 1/2 or that have an outstanding loan, and AUSA will
terminate the option under such Policies if a loan is taken out.
Qualified Policies are subject to complex rules with respect to restrictions
on and taxation of distributions, including the applicability of penalty
taxes. In addition, the treatment of periodic withdrawals from Nonqualified
Policies is unclear, particularly with respect to avoiding the 10% Federal tax
penalty. Therefore, a qualified tax adviser should be consulted before a
Systematic Withdrawal Plan is requested. In certain circumstances withdrawn
amounts may be included in the Policy Owner's gross income. (See "Certain
Federal Income Tax Consequences," Page .)
ANNUITY PAYMENTS
Annuity Commencement Date. Unless the Annuity Commencement Date is changed,
Annuity Payments under a Policy will begin on the Annuity Commencement Date
which is selected by the Policy Owner at the time the Policy is applied for.
The Annuity Commencement Date may be changed from time to time by the Policy
Owner by Written Notice to AUSA, provided that notice of each change is
received by AUSA at its Service Office at least thirty (30) days prior to the
then current Annuity Commencement Date. Except as otherwise permitted by AUSA,
a new Annuity Commencement Date must be a date which is: (1) after the
Annuitant attains age 40; (2) at least thirty (30) days after the date notice
of the change is received by AUSA; and (3) not later than the first day of the
first month following the Annuitant's 90th birthday.
The Annuity Commencement Date may also be changed by the Beneficiary's
election of the Annuity Option after the Annuitant's death.
Election of Payment Option. During the lifetime of the Annuitant and prior
to the Annuity Commencement Date, the Policy 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 at its Service Office at least
thirty (30) days prior to the Annuity Commencement Date. If no election is
made prior to the Annuity Commencement Date, Annuity Payments will be made
under Option 3-V, life income with variable payments for 10 years certain. If
the Annuity Purchase Value on the Annuity
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Commencement Date is less than $2000, AUSA reserves the right to pay it in one
lump sum in lieu of applying it under an Annuity Payment Option.
Prior to the Annuity Commencement Date, the Beneficiary may elect to receive
the Death Benefit in a lump sum or under one of the Payment Options, to the
extent allowed by law and subject to the terms of any settlement agreement.
(See "Death Benefit," p 42.) Annuity Payments will be made on either a fixed
basis or a variable basis as selected by the Policy Owner (or the Beneficiary,
after the Annuitant's death).
The person who elects a Payment Option can also name one or more successor
payees to receive any unpaid amount AUSA 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 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 in writing and AUSA
agrees.
Unless the Policy Owner specifies otherwise, the payee shall be the
Annuitant, or, after the Annuitant's death, the Beneficiary. AUSA may require
written proof of the age of any person who has an annuity purchased under
Option 3, 3-V, 5 or 5-V.
Premium Tax. AUSA may be required by state law to pay premium tax on the
amount applied to a payment option or upon withdrawal. If so, AUSA will deduct
the premium tax before applying or paying the proceeds.
Supplementary Policy. Once proceeds become payable and a choice has been
made, AUSA will issue a Supplementary Policy in settlement of the option
elected under the Policy setting forth the terms of the option elected. The
Supplementary Policy will name the payees and will describe the payment
schedule.
ANNUITY PAYMENT OPTIONS
The Policy provides five Payment Options which are described below. Three of
these are offered as either "Fixed Payment Options" or "Variable Payment
Options," and two are only available as Fixed Payment Options. The Policy
Owner may elect a Fixed Payment Option, a Variable Payment Option, or a
combination of both. If the Policy Owner elects a combination, he must specify
what part of the Annuity Purchase Value is to be applied to the Fixed and
Variable Options.
NOTE CAREFULLY: Under Payment Options 3(1) and 5 (including 3-V(1) and 5-V),
it would be possible for only one Annuity Payment to be made if the
Annuitant(s) were to die before the due date of the second annuity payment;
only two Annuity Payments if the Annuitant(s) were to die before the due date
of the third annuity payment; and so forth.
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On the Annuity Commencement Date, the Policy's Annuity Purchase Value will
be applied to provide for Annuity Payments under the selected Annuity Option
as specified. The Annuity Purchase Value is the Policy Value for the Valuation
Period which ends immediately preceding the Annuity Commencement Date, reduced
by any applicable premium or similar taxes and in some cases during the first
five Policy Years, any applicable Contingent Deferred Sales Charge.
The effect of choosing a Fixed Annuity Option is that the amount of each
payment will be set on the Annuity Commencement Date and will not change. If a
Fixed Annuity Option is selected, the Policy Value will be transferred to the
general account of AUSA, and the Annuity Payments will be fixed in amount by
the fixed annuity provisions selected and the age and sex (if consideration of
sex is allowed) of the Annuitant. For further information, contact AUSA at its
Service Office.
Guaranteed Values. There are five Fixed Annuity Options. 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% using the "1983 Table a" (male, female, and
unisex if required by law) mortality table 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.)
Option 1--Interest Payments. The policy proceeds may be left with AUSA for
any term agreed to. AUSA will pay the interest in equal payments or it may be
left to accumulate. Withdrawal rights will be agreed upon by the Owner and
AUSA when the option is elected.
Option 2--Income for a Specified Period. Level payments of the proceeds with
interest are made for the fixed period elected, at which time the funds are
exhausted.
Option 3--Life Income. An election may be made between:
1. "No Period Certain"--Level payments will be made during the lifetime of
the Annuitant.
2. "10 Years Certain"--Level Payments will be made for the longer of the
Annuitant's lifetime or ten years.
3. "Guaranteed Return of Policy Proceeds"--Level payments will be made for
the longer of the Annuitant's lifetime or the number of payments which,
when added together, equals the proceeds applied to the income option.
Option 4--Income of a Specified Amount. Payments are made for any specified
amount until the proceeds with interest are exhausted.
Option 5--Joint and Survivor Annuity. Payments are made during the joint
lifetime of the payee and a joint payee of the Owner's selection. Payments
will be made as long as either person is living.
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Other options may be arranged by agreement with AUSA. Certain options may
not be available in some states.
Current immediate annuity rates for the same class of annuities will be used
if higher than the guaranteed amount (guaranteed amounts are based upon the
tables contained in the Policy). Current amounts may be obtained from AUSA.
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
the "1983 Table a" 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.) with a 5% effective
annual Assumed Interest Rate and assume a retirement date in the year 2000.
The dollar amount of every subsequent Variable Annuity Payment will vary based
on the investment performance of the Subaccount of the Mutual Fund Account
selected by the Annuitant or Beneficiary. If the actual investment performance
exactly matched the Assumed Interest Rate of 5% at all times, the amount of
each Variable Annuity Payment would remain equal. If actual investment
performance exceeds the Assumed Interest Rate, the amount of the payments
would increase. Conversely, if actual investment performance is worse than the
Assumed Interest Rate, the amount of the payments would decrease.
Determination of the First Variable Payment. The amount of the first
variable payment depends upon the sex (if consideration of sex is allowed) and
adjusted age of the Annuitant. The adjusted age is the annuitant's actual age
nearest birthday, at the Annuity Commencement Date, adjusted as follows:
<TABLE>
<CAPTION>
ANNUITY COMMENCEMENT DATE ADJUSTED AGE
------------------------- ------------
<S> <C>
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
</TABLE>
This adjustment assumes an increase in life expectancy, and therefore it
results in lower payments than without such an adjustment.
The following Variable Payment Options generally are available:
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 ten years.
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Option 4-V--Income of a specified Amount. Payments are made for any
specified amount until the proceeds with accumulated gains or losses are
exhausted. At any time this option is in effect, the Annuitant can surrender
the Policy for the remaining value. Payments under this option are considered
withdrawals for federal income tax purposes.
Option 5-V--Joint and Survivor Annuity. Payments are made as long as either
the annuitant or the joint annuitant is living.
Certain options may not be available in some states.
Determination of Subsequent Variable Payments. All Variable Annuity Payments
other than the first are calculated using "Annuity Units" which 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 for the Annuity Commencement Date. The number of
Annuity Units of each particular Subaccount credited to the Policy then
remains fixed. 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.
Unless restricted by a particular Account or Subaccount, a Policy Owner may
transfer the value of the Annuity Units from one Subaccount to another within
the Mutual Fund Account or to the Fixed Account. However, after the Annuity
Commencement Date no transfers may be made from the Fixed Account to the
Mutual Fund Account. The minimum amount which may be transferred is the lesser
of $10 of monthly income or the entire monthly income of the variable Annuity
Units in the Subaccount from which the transfer is being made. The remaining
Annuity Units in the Subaccount must provide at least $10 of monthly income.
If, after a transfer, the monthly income of the remaining Annuity Units in a
Subaccount would be less than $10, AUSA reserves the right to include those
Annuity Units as part of the transfer. AUSA reserves the right to limit
transfers between Subaccounts or to the Fixed Account to once per Policy Year.
Tax Withholding. A portion or the entire amount of the Annuity Payments may
be taxable as ordinary income. If, at the time the Annuity Payments begin, the
Policy Owner has not provided AUSA with a written election not to have federal
income taxes withheld, AUSA must by law withhold such taxes from the taxable
portion of such annuity payments and remit that amount to the federal
government. Withholding is mandatory as to certain Qualified Policies. (See
"Certain Federal Income Tax Consequences," p. 48).
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Adjustment of Annuity Payments. Payments will be made at 1, 3, 6, or 12
month intervals. If the individual payments provided for would be or become
less than $30, AUSA may change, at its discretion, the frequency of payments
to such intervals as will result in payments of at least $30. If the Annuity
Purchase Value on the Annuity Commencement Date is less than $2,000, AUSA may
pay such value in one sum in lieu of the payments otherwise provided for.
DEATH BENEFIT
Death of Annuitant Prior to Annuity Commencement Date. If the Annuitant who
is the Owner dies prior to the Annuity Commencement Date, a Death Benefit will
be payable to the Beneficiary. During the first seven policy years, the Death
Benefit will equal the larger of (a) the sum of the Premium Payments, less
Adjusted Partial Withdrawals taken, or (b) the Policy Value as of the date Due
Proof of Death and an election of a method of settlement and return of the
Policy are received by AUSA's Service Office. After the seventh Policy
Anniversary, the Death Benefit amount will be the greatest of (a), (b), and
(c), where (a) and (b) are defined above and where (c) is the Policy Value on
the seventh Policy Anniversary plus all Premiums paid less any Adjusted
Partial Withdrawals taken since that Policy Anniversary. The Adjusted Partial
Withdrawal amount for each partial withdrawal is equal to the product of (a)
times (b), where:
(a) is the ratio of the amount of partial withdrawal taken to the Policy
Value on the date of, but prior to the partial withdrawal; and
(b) is the Death Benefit on the date of, but prior to the partial
withdrawal.
If a partial withdrawal is taken when the Death Benefit exceeds the Policy
Value, then the Adjusted Partial Withdrawal amount will exceed the amount of
the partial withdrawal. In that case, the total proceeds of a partial
withdrawal followed by a Death Benefit could be less than total Premium
Payments.
For Policies issued under Endorsement AE877 695 (issued after June 1996) the
amount of the death proceeds will be the greater of (a) or (b) where:
(a) is the Policy Value on the date AUSA receives due proof of death and
an election of a method of settlement, and:
(b) is the Guaranteed Minimum Death Benefit.
The "Guaranteed Minimum Death Benefit" is equal to the largest Policy Value on
the Date of Issue or on any Policy Anniversary prior to the Owner's 81st
birthday, plus any premiums paid, less any Adjusted Partial Withdrawals taken,
subsequent to the date of the largest anniversary Policy Value.
Note that the Death Benefit is payable on the death of the Annuitant who is
the owner, not the death of the Owner, if different. If the Annuitant
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who is not the Owner dies, the Owner will become the Annuitant unless the
Owner specifically requests on the application or in writing that the death
benefit be paid upon the Annuitant's death and AUSA agrees to such an
election.
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 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 Annuitant preventing such election.
If the Annuitant was the Policy Owner, and the Beneficiary was not the
Annuitant's spouse, then (1) the Death Benefit must be distributed within five
years of the Annuitant's death, or (2) payments under a Payment Option must
begin within one year of the Annuitant'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 Annuitant's death. If the sole Beneficiary is the Annuitant's
surviving spouse, such spouse may elect to continue the Policy as the new
Annuitant and Policy Owner instead of receiving the Death Benefit. (See
"Federal Tax Matters" in the Statement of Additional Information.)
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 Adjusted Policy Value. If the Successor Owner is not the deceased Owner's
surviving spouse, however, this amount must be distributed within five years
after the date of death of the Owner, or payments under a Payment Option must
begin within one year of 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 of Annuitant On or After Annuity Commencement Date. The death benefit
payable if the Annuitant dies on or after the Annuity Commencement Date
depends on the Payment Option selected. Upon the Annuitant's death, the
remaining portion of the entire interest in the Policy, if any, will be
distributed at least as rapidly as under the method of distribution being used
as of the date of the Annuitant's death.
Beneficiary. The Beneficiary designation in the application will remain in
effect until changed. The Policy Owner may change the designated Beneficiary
by sending Written Notice to AUSA. The Beneficiary's consent to such change is
not required unless the Beneficiary was irrevocably
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designated or consent is required by law. (If an irrevocable Beneficiary dies,
the Policy Owner may then designate a new Beneficiary.) The change will take
effect as of the date the Policy Owner signs the Written Notice, whether or
not the Policy Owner is living when the Notice is received by AUSA. AUSA will
not be liable for any payment made before the Written Notice is received. If
more than one Beneficiary is designated, and the Policy Owner fails to specify
their interests, they will share equally.
DEATH OF OWNER
Federal tax law requires that if any Policy Owner (including any joint Owner
or any Successor Policy 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 Policy Owner or
the Contingent Policy Owner. Certain rules apply where 1) the spouse of the
deceased Owner is the sole Beneficiary, 2) the Policy Owner is not a natural
person and the primary Annuitant dies or is changed, or 3) any Policy Owner
dies after the Annuity Commencement Date. See "Federal Tax Matters" in the
Statement of Additional Information for a detailed description of these rules.
Other rules may apply to Qualified Contracts.
RESTRICTIONS UNDER SECTION 403(B) PLANS
Section 403(b) of the Internal Revenue Code provides for tax-deferred
retirement savings plans for employees of certain non-profit and educational
organizations. In accordance with the requirements of Section 403(b), any
Policy used for a 403(b) plan will prohibit distributions of elective
contributions and earnings on elective contributions except upon death of the
employee, attainment of age 59 1/2, separation from service, disability, or
financial hardship. In addition, income attributable to elective contributions
may not be distributed in the case of hardship.
RESTRICTIONS UNDER QUALIFIED POLICIES
Other restrictions with respect to the election, commencement, or
distribution of benefits may apply under Qualified Policies or under the terms
of the plans in respect of which Qualified Policies are issued.
CHARGES AND DEDUCTIONS
No deductions are made from Premium Payments, so that the full amount of
each Premium Payment is invested in one or more of the Accounts. AUSA will
make certain charges and deductions in connection with the Policy in order to
compensate it for incurring expenses in distributing the Policy, bearing
mortality and expense risks under the Policy, and administering the Accounts
and the Policies. Charges may also be made for premium taxes, federal, state
or local taxes, or for certain transfers or other transactions. Charges and
expenses are also deducted from the Underlying Funds.
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CONTINGENT DEFERRED SALES CHARGE
AUSA will incur expenses relating to the sale of Policies, including
commissions to registered representatives and other promotional expenses. AUSA
may apply a Contingent Deferred Sales Charge to any amount surrendered (i.e.,
withdrawn) in connection with a full or partial Policy surrender in order to
cover distribution expenses. A Contingent Deferred Sales Charge will not be
applied to withdrawal, after the first Policy Year, of up to 10% of the Policy
Value, if there have been no withdrawals in the current Policy Year. A
Contingent Deferred Sales Charge will also not be applied if the withdrawal is
necessary to meet the minimum distribution requirements for that policy
specified by the IRS for tax qualified plans or if the Policy Value is applied
to provide an Annuity under one of the Annuity Payment Options, unless the
Policy Value is applied, during the first five Policy Years, under Payment
Options 2, 4, or 4-V with payments for less than five years. The Contingent
Deferred Sales Charge is also waived upon certain Systematic Withdrawals (see
p. 36).
The amount of the Contingent Deferred Sales Charge is determined by
multiplying the amount of the premium withdrawn by the applicable Contingent
Deferred Sales Charge Percentage. The applicable Contingent Deferred Sales
Charge Percentage will depend upon the number of Policy Anniversaries that
have elapsed since the Premium Payment that is being withdrawn was made. For
this purpose, surrenders are allocated to Premium Payments on a "first in-
first out" basis, i.e., first to the oldest Premium Payment, then to the next
oldest Premium Payment, and so on. Premium Payments are deemed to be withdrawn
before earnings, and after all Premium Payments have been withdrawn, the
remaining Cash Value may be withdrawn without any Contingent Deferred Sales
Charge. The following is the table of Contingent Deferred Sales Charge
Percentages:
<TABLE>
<CAPTION>
NUMBER OF POLICY APPLICABLE CONTINGENT
YEARS SINCE DEFERRED SALES
PREMIUM PAYMENT CHARGE PERCENTAGE
---------------- ---------------------
<S> <C>
Less than 1.......................................... 7%
At least 1 and less than 2........................... 6%
At least 2 and less than 3........................... 5%
At least 3 and less than 4........................... 4%
At least 4 and less than 5........................... 3%
At least 5 and less than 6........................... 2%
At least 6 and less than 7........................... 1%
</TABLE>
AUSA anticipates that the Contingent Deferred Sales Charge will not generate
sufficient funds to pay the cost of distributing the Policies. If this charge
is insufficient to cover the distribution expenses, the deficiency will be met
from AUSA's general funds, which will include amounts derived from the charge
for mortality and expense risks.
MORTALITY AND EXPENSE RISK FEE
AUSA imposes a daily charge as compensation for bearing certain mortality
and expense risks in connection with the Policies. This charge is
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<PAGE>
equal to an effective annual rate of 1.25% of the value of net assets in the
Mutual Fund Account. The Mortality and Expense Risk Fee is reflected in the
Accumulation or Annuity Unit Values for the Policy for each Subaccount.
Policy Values and Annuity Payments are not affected by changes in actual
mortality experience nor by actual expenses incurred by AUSA. The mortality
risks assumed by AUSA arise from its contractual obligations to make Annuity
Payments (determined in accordance with the Annuity tables and other
provisions contained in the Policy) and to pay Death Benefits prior to the
Annuity Commencement Date. Thus, Owners are assured that neither an
Annuitant's own longevity nor an unanticipated improvement in general life
expectancy will adversely affect the monthly Annuity payments that the
Annuitant will receive under the Policy.
AUSA also bears substantial risk in connection with the Death Benefit
Guarantee since AUSA will pay a Death Benefit equal to the Premium Payments,
less withdrawals, (or the Policy Value on the seventh policy anniversary, as
set out in Death Benefits Section, page 42) if that amount is higher than the
Policy Value at the date of the Annuitant's death.
The expense risk assumed by AUSA is the risk that AUSA's actual expenses in
administering the Policy and the Accounts will exceed the amount recovered
through the Administrative and Service Charges.
If the Mortality and Expense Risk Fee is insufficient to cover AUSA's actual
costs, AUSA will bear the loss; conversely, if the charge is more than
sufficient to cover costs, the excess will be profit to AUSA. AUSA expects a
profit from this charge. To the extent that the Contingent Deferred Sales
Charge is insufficient to cover the actual cost of Policy distribution, the
deficiency will be met from AUSA's general corporate assets, which may include
amounts, if any, derived from the Mortality and Expense Risk Fee. A Mortality
and Expense Risk Fee is also assessed during the annuity phase for all
Variable Annuity Options including those that do not carry a life contingency.
ADMINISTRATIVE CHARGES
In order to cover the costs of administering the Policies and the Accounts,
AUSA deducts a Service Charge from the Policy Value of each Policy, and also
deducts a daily Administrative Expense Charge from the assets of each
Subaccount of the Mutual Fund Account.
The annual Service Charge is deducted from the Policy Value of each Policy
on each Policy Anniversary prior to the Annuity Commencement Date. After the
Annuity Commencement Date, the charge is not deducted. This annual Service
Charge is $35 and it will not be increased during the term of the Policy. It
will never exceed 2% of the Policy Value. For Policies issued after June, 1,
1996, this charge is waived if the sum of the Premium Payments made less the
sum of all Partial Withdrawals is at least $50,000 on the Policy Anniversary.
AUSA does not anticipate realizing any profit from
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<PAGE>
this charge. The Service Charge will be deducted only from the Subaccounts in
the Mutual Fund Account, in the same proportion that the Policy Owner's
interest in each Subaccount bears to the Policy Value in the Mutual Fund
Account.
AUSA also deducts a daily Administrative Expense Charge from the assets of
each Subaccount of the Mutual Fund Account. This charge currently is equal to
an effective annual rate of .15% of the net assets of each Subaccount of the
Mutual Fund Account. The Administrative Expense Charge may be increased in the
future (but it will never exceed .30%, and the combined total of this charge
and the Mortality and Expense Risk Fee will never exceed the current level of
1.40%).
PREMIUM TAXES
AUSA currently makes no deduction from the Premium Payments for any state
premium taxes AUSA pays in connection with Premium Payments under the
Policies. However, AUSA will deduct the aggregate premium taxes paid on behalf
of a particular Policy from the Policy Value on the later of (i) the Annuity
Commencement Date (thus reducing the Policy Value), (ii) the total surrender
of a Policy, or (iii) date of payment of the death proceeds of a Policy.
Premium taxes currently range from 0% to 3.50% of Premium Payments.
FEDERAL, STATE AND LOCAL TAXES
No charges are currently made for federal, state, or local taxes other than
premium taxes. However, AUSA reserves the right to deduct charges in the
future from the Accounts or Subaccounts for any taxes or other economic burden
resulting from the application of any tax laws that AUSA determines to be
attributable to the accounts or the policies.
TRANSFER CHARGE
There is no charge for the first 12 transfers between Investment Options in
each Policy Year. AUSA reserves the right to impose a $25 charge for the
thirteenth and each subsequent transfer request made by the Owner during a
single Policy Year. For the purpose of determining whether a transfer charge
is payable, initial Premium Payment allocations are not considered transfers.
All transfer requests made simultaneously will be treated as a single request.
No transfer charge will be imposed for any transfer which is not at the
Owner's request.
OTHER EXPENSES INCLUDING INVESTMENT ADVISORY FEES
Each of the Portfolios of the Underlying Funds is responsible for all of its
expenses. In addition, charges will be made against each of the Portfolios of
the Underlying Funds for investment advisory services provided to the
Portfolio. The net assets of each Portfolio of the Underlying Funds will
reflect deductions in connection with the investment advisory fee and other
expenses.
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<PAGE>
For more information concerning the investment advisory fee and other
charges against the Portfolios, see the prospectuses for the Underlying Funds,
current copies of which accompany this Prospectus.
EMPLOYEES 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 or its affiliated companies or their spouse or minor children. In such
a case, a bonus of 5% of each premium deposit may be credited to the Policy
due to lower acquisition costs AUSA experiences on those purchases.
Compensation to the registered representative and broker/dealer will be
reduced by the amount of such bonus.
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 (the "Code"), 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.
At the time the initial Premium Payment is paid, a prospective purchaser
must specify whether he or she is purchasing a Nonqualified Policy or a
Qualified Policy. If the initial Premium Payment is derived from an exchange
or surrender of another annuity policy, AUSA may require that the prospective
purchaser provide information with regard to the federal income tax status of
the previous annuity policy. AUSA will require that persons purchase separate
Policies if they desire to invest monies qualifying for different annuity tax
treatment under the Code. Each such separate Policy would require the minimum
initial Premium Payment stated above. Additional Premium Payments under a
Policy must qualify for the same federal income tax treatment as the initial
Premium Payment under the Policy; AUSA will not accept an additional Premium
Payment under a Policy if the federal income tax treatment of such Premium
Payment would be different from that of the initial Premium Payment.
The Qualified Policies were designed for use by retirement plans and
individual retirement accounts that qualify for special federal income tax
treatment under Sections 401(a), 403(b), or 408(a) of the Code and individuals
purchasing individual retirement annuities that qualify for special federal
income tax treatment under Section 408(b) of the Code. Certain
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<PAGE>
requirements must be satisfied in purchasing a Qualified Policy in order for
the plan, account or annuity to retain its special tax treatment. This summary
is not intended to cover such requirements, and assumes that Qualified
Policies are purchased pursuant to retirement plans or individual retirement
accounts, or are individual retirement annuities, that qualify for such
special tax treatment. This summary was prepared by AUSA after consultation
with tax counsel, but no opinion of tax counsel has been obtained.
THE DISCUSSION SET FORTH BELOW IS INCLUDED FOR GENERAL PURPOSES ONLY. EACH
POTENTIAL PURCHASER IS URGED TO CONSULT HIS/HER OWN TAX ADVISER AS TO THE
CONSEQUENCES OF INVESTMENT IN A POLICY UNDER FEDERAL AND APPLICABLE STATE,
LOCAL AND FOREIGN TAX LAWS.
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. The
Statement of Additional Information discusses the tax requirements for
qualifying as an annuity contract.
TAXATION OF ANNUITIES
The discussion below applies only to those Policies owned by natural
persons, and that qualify as annuity contracts for federal income tax
purposes. With respect to Owners who are natural persons, the Policy should be
treated as an annuity contract for federal income tax purposes.
In General. Except as described below with respect to Owners who are not
natural persons, an Owner who holds a Policy satisfying the diversification
and distribution requirements described in the Statement of Additional
Information should not be taxed on increases in the Policy Value until an
amount is received or deemed received, e.g., upon a partial or full surrender
or as Annuity Payments under the Annuity Option selected. Generally, any
amount received or deemed received under a Nonqualified Annuity Contract prior
to the Annuity Commencement Date is deemed to come first from any "Income on
the Contract" and then from the "Investment in the Contract." The "Investment
in the Contract" generally equals total premium payments less amounts received
which were not includable in gross income. To the extent that the Policy Value
(Cash Value in the event of a surrender) exceeds the "Investment in the
Contract," such excess constitutes the "Income on the Contract." As a result,
any such amount received or deemed received (i) shall be includable in gross
income to the extent that such amount does not exceed any such "Income on the
Contract," and (ii) shall not be includable in gross income to the extent that
such amount does exceed any such "Income on the Contract." For these purposes
such "Income on the Contract" shall be computed by reference to the
aggregation rules described below, and the amount includable in gross income
will be taxable as ordinary income. If at the time that any amount is
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<PAGE>
received or deemed received there is no "Income on the Contract" (e.g.,
because the gross Policy Value does not exceed the "Investment in the
Contract" and no aggregation rule applies), then such amount received or
deemed received will not be includable in gross income, and will simply reduce
the "Investment in the Contract."
For this purpose, the assignment, pledge or agreement to assign or pledge
any portion of the Policy Value (including assignment of Owner's right to
receive Annuity Payments prior to the Annuity Commencement Date) generally
will be treated as a distribution in the amount of such portion of the Policy
Value. Additionally, if an Owner designates a new Owner prior to the Annuity
Commencement Date without receiving full and adequate consideration, the old
Owner generally will be treated as receiving a distribution under the Policy
in an amount equal to the Policy Value. A transfer of ownership or an
assignment of a Policy, or designation of an Annuitant or Beneficiary who is
not also the Owner, may result in certain tax consequences to the Owner that
are not discussed herein. An Owner contemplating any such transfer,
designation or assignment of a Policy should contact a competent tax adviser
with respect to the potential tax effects of such a transaction.
Aggregation Rules. Generally all nonqualified deferred annuity contracts
issued by the same company (or an affiliated company) to the same owner during
any calendar year shall be treated as one annuity contract, and "aggregated"
for purposes of determining the amount includable in gross income. In
addition, for such purposes all individual retirement annuities and accounts
under Section 408 of the Code for an individual are aggregated, and generally
all distributions therefrom during a calendar year are treated as one
distribution made as of the end of such year.
Surrenders. In the case of a partial surrender (including systematic
withdrawals) under a Nonqualified Policy or the amount received generally will
be includable in gross income only up to the amount of the "Income on the
Contract." In the case of a partial surrender (including systematic
withdrawals) under a Qualified Policy, (other than one qualified under Section
457 of the Code), a ratable portion of the amount received is generally
excludable from gross income, based on the ratio of the "Investment in the
Contract" to the individual's total account balance or accrued benefit under
the retirement plan at the time of each such payment. For a Qualified Policy,
the "Investment in the Contract" can be zero. Special tax rules may be
available for certain distributions from a Qualified Policy. In the case of a
full surrender under a Nonqualified Policy or a Qualified Policy, the amount
received generally will be taxable only to the extent it exceeds the
"Investment in the Contract."
Annuity Payments. Although the tax consequences may vary depending on the
Annuity Payment Option elected under the Policy, in general, only a portion of
the Annuity Payments received after the Annuity Commencement Date will be
includable in the gross income of the recipient.
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<PAGE>
For Fixed Annuity Payments, in general the excludable portion of each
payment is determined by dividing the Investment in the Contract on the
Annuity Commencement Date by the total expected return resulting from Annuity
Payments for the term of the payments. 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 received
is includable in gross income.
For Variable Annuity Payments, the includable portion is generally
determined by an equation that establishes a specific dollar amount of each
payment that is excludable from gross income. This dollar amount is determined
by dividing the "Investment in the Contract" on the Annuity Commencement Date
by the total number of expected periodic payments. 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.
Where an Owner allocates a portion of the Annuity Purchase Value on the
Annuity Commencement Date to more than one annuity payment option (fixed or
variable), special rules govern the allocation of the Policy's entire
"Investment in the Contract" on such date to each such option, for purposes of
determining the excludable amount of each payment received under that option.
AUSA makes no attempt to describe these allocation rules, because they would
prescribe a complex variety of results, depending on how the allocations were
made among the various types of options. Instead, any Owner is advised to
consult a competent tax adviser as to the potential tax effects of allocating
any amount of Annuity Purchase Value to any particular annuity payment option.
If, after the Annuity Commencement Date, Annuity Payments cease by reason of
the death of the Annuitant, the excess (if any) of the Investment in the
Contract as of the Annuity Commencement Date over the aggregate amount of
Annuity Payments received on or after the Annuity Commencement Date that was
excluded from gross income is allowable as a deduction for the last taxable
year of the Annuitant.
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 as follows: (1) if
distributed in a lump sum, they are taxed in the same manner as a full
surrender, as described above, or (2) if distributed under an Annuity Payment
Option, they are taxed in the same manner as Annuity Payments, as described
above. 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.
Penalty Taxes. In the case of any amount received or deemed received from
the Policy, e.g., upon a surrender of a Policy (including systematic
withdrawals) or a deemed distribution under a Policy resulting
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<PAGE>
from a pledge, assignment or agreement to pledge or assign or an Annuity
Payment with respect to a Policy, there may be imposed on the recipient a
Federal tax penalty equal to 10% of the amount includable in gross income. The
penalty tax generally will not apply to any distribution: (i) made on or after
the date on which the taxpayer attains age 59 1/2; (ii) made as a result of
the death of the holder (generally the Owner); (iii) attributable to the
disability of the taxpayer; or (iv) which is part of a series of substantially
equal periodic payments made (not less frequently than annually) for the life
(or life expectancy) of the taxpayer or the joint lives (or joint life
expectancies) of such taxpayer and his/her beneficiary. Other rules may apply
to Qualified Policies.
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.
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; aggregate distributions
in excess of a specified annual amount; 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.
AUSA 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 an 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 be transferable by the Owner, e.g., the Owner may not
designate a new Owner, a Successor 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
following the calendar year in which the Annuitant attains age 70 1/2;
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(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 individual retirement annuities
under Section 408(b) of the Code contain such provisions.
Section 408 of the Code also indicates that no part of the funds for an
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.
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. 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. Section 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.
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 which enjoy special treatment. The Policies can be used with
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such plans. Under such plans a participant may specify the form of investment
in which his or her participation will be made. 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, the
employer may be entitled to draw on deferred amounts for purposes unrelated to
its section 457 plan obligations. In general, all amounts required 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 sentence, 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 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."
Possible Changes in Taxation. In past years, legislation has been proposed
in the U.S. Congress that would have adversely modified the federal taxation
of certain annuities. For example, one such proposal would have changed the
tax treatment of non-qualified annuities that did not have "substantial life
contingencies" by taxing income as it is credited to the annuity. Although as
of the date of this Prospectus Congress was not actively considering any
legislation regarding the taxation of annuities, there is always the
possibility that the tax treatment of annuities could change by legislation or
other means (such as IRS regulations, revenue rulings, judicial decisions,
etc.). Moreover, it is also possible that any change could be retroactive
(that is, effective prior to the date of the change).
DISTRIBUTOR OF THE POLICIES
AEGON USA Securities, Inc., an affiliate of AUSA, is the principal
underwriter of the Policies. AEGON USA Securities, Inc. has entered or will
enter into one or more agreements with various broker-dealers for the
distribution of the Policies. Commissions on Policy sales ar paid to
broker/dealers. Commissions payable to broker/dealers will be up to 6% of
Premium Payments. In addition, certain broker/dealers may receive additional
commissions or expense allowances based upon sales volume, agent or service
training responsibilities, and other factors. These commissions and expense
allowances are not deducted from Premium Payments, they are paid by AUSA.
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VOTING RIGHTS
To the extent required by law, AUSA 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 the Underlying Funds do
not hold regular annual shareholders meetings). If, however, the 1940 Act or
any regulation thereunder should be amended or if the present interpretation
thereof should be amended or if the present interpretation thereof should
change, and as a result AUSA determines that it is permitted to vote the
Underlying Funds' shares in its own right, it may elect to do so.
Before the Annuity Commencement Date, the Policy Owner holds the voting
interest in the selected Portfolios. The number of votes that an Owner has the
right to instruct will be calculated separately for each Subaccount. The
number of votes that an Owner has the right to instruct for a particular
Subaccount will be determined by dividing his or her 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 the Owner or person receiving income payments has
the right to instruct will be determined as of the date established by the
Underlying Funds for determining shareholders eligible to vote at the meeting
of the Underlying Funds. AUSA will solicit voting instructions by sending
Owners or other persons entitled to vote written requests for instructions
prior to that meeting in accordance with procedures established by the
Underlying Funds. Portfolio shares as to which no timely instructions are
received and shares held by AUSA in which Owners 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.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Mutual Fund Account is a party
or to which the assets of the Account are subject. AUSA is not involved in any
litigation that is of material importance in relation to its total assets or
that relates to the Mutual Fund Account.
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STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information is available (at no cost) which
contains more details concerning the subjects discussed in this Prospectus.
The following is the Table of Contents for that Statement:
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Policy-General Provisions.............................................. 3
Owner.................................................................... 3
Entire Policy............................................................ 3
Delay of Payment and Transfers........................................... 3
Misstatement of Age or Sex............................................... 3
Reallocation of Policy Values After the Annuity Commencement Date........ 4
Assignment............................................................... 4
Evidence of Survival..................................................... 4
Amendments............................................................... 4
Federal Tax Matters........................................................ 5
Tax Status of the Policy................................................. 5
Taxation of AUSA......................................................... 6
Investment Experience...................................................... 6
State Regulation of AUSA................................................... 10
Records and Reports........................................................ 10
Distribution of the Policies............................................... 10
Custody of Assets.......................................................... 10
Historical Performance Data................................................ 11
Money Market Yields...................................................... 11
Other Subaccount Yields.................................................. 12
Total Returns............................................................ 12
Other Performance Data................................................... 13
Legal Matters.............................................................. 13
Independent Auditors....................................................... 13
Other Information.......................................................... 14
Financial Statements....................................................... 14
</TABLE>
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STATEMENT OF ADDITIONAL INFORMATION
THE ENDEAVOR VARIABLE ANNUITY
ISSUED THROUGH
AUSA ENDEAVOR VARIABLE
ANNUITY 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 Policy (the "Policy")
offered by AUSA Life Insurance Company, Inc. You may obtain a copy of the
Prospectus dated May 1, 1997 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. Terms used in the current
Prospectus for the Policy are incorporated in this Statement.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE
READ ONLY IN CONJUNCTION WITH THE PROSPECTUSES FOR THE POLICY, ENDEAVOR SERIES
TRUST AND THE WRL GROWTH PORTFOLIO OF THE WRL SERIES FUND, INC.
Dated: May 1, 1997
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TABLE OF CONTENTS
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Page
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The Policy-General Provisions......................................... 3
Owner............................................................... 3
Entire Policy....................................................... 3
Delay of Payment and Transfers...................................... 3
Misstatement of Age or Sex.......................................... 3
Reallocation of Policy Values After the
Annuity Commencement Date......................................... 4
Assignment.......................................................... 4
Evidence of Survival................................................ 4
Amendments.......................................................... 4
Federal Tax Matters (48).............................................. 5
Tax Status of the Policy............................................ 5
Taxation of AUSA.................................................... 6
Investment Experience................................................. 6
State Regulation of AUSA.............................................. 10
Records and Reports................................................... 10
Distribution of the Policies (35)..................................... 10
Custody of Assets..................................................... 10
Historical Performance Data (20)...................................... 11
Money Market Yields................................................. 11
Other Subaccount Yields............................................. 12
Total Returns....................................................... 12
Other Performance Data.............................................. 13
Legal Matters......................................................... 13
Independent Auditors.................................................. 13
Other Information..................................................... 14
Financial Statements (20)............................................. 14
</TABLE>
(Numbers in parenthesis indicate corresponding sections of the Prospectus).
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In order to supplement the description in the Prospectus, the following
provides additional information about AUSA and the Policy which may be of
interest to an Owner.
THE POLICY - GENERAL PROVISIONS
OWNER
The Policy shall belong to the Policy 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'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 Policy 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.
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 has made or action AUSA 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 and any endorsements thereon and the Policy application constitute
the entire contract between AUSA 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.
DELAY OF PAYMENT AND TRANSFERS
Payment of any amount due from the Mutual Fund Account in respect of a
surrender, the Death Benefit or the death of the Owner of a Nonqualified Policy
generally will occur within seven business days from the date the Written Notice
(and any other required documentation or information) is received, except that
AUSA may be permitted to defer such payment from the Mutual Fund Account if:
(1) the New York Stock Exchange is closed for other than usual weekends or
holidays or trading on the Exchange is otherwise restricted; or (2) an emergency
exists as defined by the SEC or the SEC requires that trading be restricted; or
(3) the SEC permits a delay for the protection of Owners. In addition,
transfers of amounts from the Subaccounts may be deferred under these
circumstances.
Certain delays and restrictions apply to transfers of amounts out of the Fixed
Account. See page 29 of the Policy Prospectus.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Annuitant has been misstated, AUSA 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
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underpayment made by AUSA shall be paid in full with the next payment due such
person or the Beneficiary. The dollar amount of any overpayment made by AUSA 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.
If the age or sex of the Annuitant has been misstated, AUSA will also change
the Death Benefit to that which the Premium Payments would have purchased for
the correct age or sex.
REALLOCATION OF ANNUITY UNIT VALUES AFTER THE ANNUITY COMMENCEMENT DATE
After the Annuity Commencement Date, the Policy Owner may reallocate the value
of a designated number of Annuity Units of a Subaccount of the Mutual Fund
Account then credited to a Policy into an equal value of Annuity Units of one or
more other Subaccounts of the Mutual Fund Account, or the Fixed Account. The
reallocation shall be based on the relative value of the Annuity Units of the
Account(s) or 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
Account or Subaccount from which the transfer is being made. If the monthly
income of the Annuity Units remaining in an Account or Subaccount after a
reallocation is less than $10, AUSA reserves the right to include the value of
those Annuity Units as part of the transfer. The request must be in writing to
AUSA's Service Office. There is no charge assessed in connection with such
reallocation. AUSA reserves the right to limit the number of times a
reallocation of Policy Value may be made in any given Policy Year.
ASSIGNMENT
During the lifetime of the Annuitant the Policy Owner may assign any rights or
benefits provided by the Policy. An assignment will not be binding on AUSA
until a copy has been filed at its Service Office. The rights and benefits of
the Policy Owner and Beneficiary are subject to the rights of the assignee.
AUSA 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.
Unless the Policy Owner so directs by filing written notice with AUSA, 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.
EVIDENCE OF SURVIVAL
AUSA 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 receives such evidence.
AMENDMENTS
No change in the Policy is valid unless made in writing by AUSA and approved
by one of AUSA's officers. No Registered Representative has authority to change
or waive any provision of the Policy.
AUSA reserves the right to amend the Policies to meet the requirements of the
Internal Revenue Code, regulations or published rulings. A Policy Owner can
refuse such a change by giving Written Notice, but a refusal may result in
adverse tax consequences.
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FEDERAL TAX MATTERS
TAX STATUS OF THE POLICY
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 Subaccounts of
the Mutual Fund Account. The Mutual Fund Account, through the Underlying Funds
and their Portfolios, intend to comply with the diversification requirements of
the Treasury. AUSA has entered into agreements regarding participation in the
Endeavor Series Trust and WRL Series Fund, Inc. that require the Underlying
Funds and their Portfolios 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 separate accounts used to support their contracts. In those
circumstances, income and gains from the separate account assets would be
includable in the variable contract owner's gross income. The IRS has stated in
published rulings that a variable contract owner will be considered the owner of
separate account assets if the contract owner possesses incidents of ownership
in those assets, such as the ability to exercise investment control over the
assets. The Treasury Department has also announced, in connection with the
issuance of regulations concerning diversification, that those regulations Ado
not provide guidance concerning the circumstances in which investor control of
the investments of a segregated asset account may cause the investor (i.e., the
Owner), 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 Policy 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 separate account assets. For example,
the Owner has 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. These differences could result in an
Owner being treated as the owner of a pro rata portion of the assets of the
Mutual Fund Account. In addition, AUSA does not know what standards will be set
forth, in any, in the regulations or rulings which the Treasury Department has
stated it expects to issue. AUSA therefore reserves the right to modify the
Policy as necessary to attempt to prevent an Owner from being considered the
owner of a pro rata share of the assets of the Mutual Fund Account.
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 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 the Owner,
and any death or change of such primary Annuitant shall be treated as the death
of the 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.
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TAXATION OF AUSA
AUSA at present is taxed as a life insurance company under part I of
Subchapter L of the Code. The Mutual Fund Account is treated as part of AUSA
and, accordingly, will not be taxed separately as a "regulated investment
company" under Subchapter M of the Code. AUSA 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 with
respect to the Mutual Fund Account, AUSA may make a charge to the Mutual Fund
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
Upon allocation to the selected 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 Policy application is
completed, whichever is later. The value of an Accumulation Unit was arbitrarily
established at $1 (except the WRL Growth Subaccount which was 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.
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 Policy 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 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 or credit for any taxes
determined by AUSA 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.
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(c) is a factor representing the charge for mortality and expense risk fee
during the Valuation Period equal on an annual basis to 1.25% of the daily net
asset value of the Subaccount, plus the .15% administrative charge.
ILLUSTRATION OF ACCUMULATION UNIT VALUE CALCULATIONS
FORMULA AND ILLUSTRATION FOR DETERMINING
THE INVESTMENT EXPERIENCE FACTOR
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 and
administrative charges, which totals 1.40% on an annual
basis.
On a daily basis..................... = .0000380909
Then, the Investment Experience Factor =
11.57 - 0 - 0 - .0000380909 = Z = 1.0148741898
-------------
11.40
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
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ANNUITY UNIT VALUE AND ANNUITY PAYMENT RATES
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 interest rate of 5% annually. Conversely, Annuity Unit
Values fall if the net investment performance of the Subaccount is less than the
assumed rate. The value of a Variable Annuity Unit in each Subaccount was
established at $1.00 on the date operations began for that Subaccount. 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.
The net investment factor for the Policy used to calculate the value of a
variable Annuity Unit in each Subaccount for the valuation period is determined
by dividing (i) by (ii) and subtracting (iii) from the result, where:
(i) is the result of:
(1) the net asset value of a fund share held in the Mutual Fund
Account for that Subaccount determined at 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 the Mutual Fund Account for
that Subaccount if the ex-dividend date occurs during the valuation period.
(ii) is the net asset value of a fund share held in the Mutual Fund
Account for that Subaccount determined as of the end of the immediately
preceding valuation period.
(iii) is a factor representing the mortality and expense risk fee and
administrative charge. This factor is equal, on an annual basis, to 1.40% of
the daily net asset value of a fund share held in the Mutual Fund Account for
that Subaccount.
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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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 interest rate 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 x 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
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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
STATE REGULATION OF AUSA
AUSA 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 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's contract liabilities and
reserves so that the Department may determine the items are correct. AUSA'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 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 will be
maintained by AUSA. As presently required by the Investment Company Act of 1940
and regulations promulgated thereunder, AUSA will mail to all Policy 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. Policy 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 does not anticipate discontinuing the offering
of the Policies. However, AUSA reserves the right to discontinue the offering
of the Policies.
AEGON USA Securities, Inc., an affiliate of AUSA, will be the principal
underwriter of the Policies. AEGON USA Securities, Inc. has entered into
agreements with broker-dealers for the distribution of the Policies. During
1996, the amount paid to AEGON USA Securities, Inc. and/or broker-dealers for
their services was $1,115.508. Amount paid for these services in 1995 were
$397,382.
CUSTODY OF ASSETS
The assets of each of the Subaccounts of the Mutual Fund Account are
held by AUSA. The assets of each of the Subaccounts of the Mutual Fund Account
are segregated and held separate and apart from the assets of
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the other Subaccounts and from AUSA's general account assets. AUSA maintains
records of all purchases and redemptions of shares of the Underlying Funds held
by each of the Subaccounts. Additional protection for the assets of the Mutual
Fund Account is afforded by AUSA's fidelity bond, presently in the amount of
$5,000,000, covering the acts of officers and employees of AUSA.
HISTORICAL PERFORMANCE DATA
MONEY MARKET YIELDS
AUSA may from time to time disclose the current annualized yield of the
TCW Money Market Subaccount, which invests in the TCW 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 TCW 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) at the
end of the 7-day period in the value of a hypothetical account; having a balance
of 1 unit of the TCW 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 Fee 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) 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 Money Market Subaccount will be lower than the yield for the Money
Market Portfolio. The yield calculations do not reflect the effect of any
premium taxes or Contingent Deferred Sales Charges that may be applicable to a
particular Policy. Contingent Deferred Sales Charges range from 7% to 0% of the
amount of premium withdrawn based on the Policy Year since payment of the
premium.
AUSA may also disclose the effective yield of the TCW 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) 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.
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UV = The unit value on the first day of the 7-day period.
The yield on amounts held in the 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 Money Market Subaccount's actual yield is affected by changes in
interest rates on money market securities, average portfolio maturity of the
Money Market Portfolio, the types and quality of portfolio securities held by
the Money Market Portfolio and its operating expenses. For the seven days
ended December 31, 1996, the yield of the TCW Money Market Subaccount was 2.75
%, and the effective yield was 2.79 %.
OTHER SUBACCOUNT YIELDS
AUSA may from time to time advertise or disclose the current annualized yield
of one or more of the Subaccounts of the Mutual Fund Account (except the TCW
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 Fee Mortality and Expense Risk Charge. The 30-day
yield is calculated according to the following formula:
Yield = 2 x ((((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 Subaccount of the Mutual Fund Account 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.
Contingent Deferred Sales Charges range from 7% to 0% of the amount of premium
withdrawn based on the Policy Year since payment of the premium.
The yield on amounts held in the Subaccounts of the Mutual Fund Account
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. A Subaccount's actual yield is affected by the types and quality of its
investments and its operating expenses.
TOTAL RETURNS
AUSA may from time to time also advertise or disclose total returns for
one or more of the Subaccounts of the Mutual Fund Account 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
12
<PAGE>
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
calculates on each Business Day based on the performance of the Subaccount's
underlying Portfolio, and the deductions for the Mortality and Expense Risk
Fee Mortality and Expense Risk Charge and the Administrative Charges. Total
return calculations will reflect the effect of Contingent Deferred Sales Charges
that may be applicable to a particular period. The total return will then be
calculated according to the following formula:
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 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 that the
Contingent Deferred Sales Charge percentage will be assumed to be 0%.
AUSA 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 Contingent
Deferred Sales 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.
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 by
Sutherland, Asbill & Brennan, L.L.P., of Washington D.C.
INDEPENDENT AUDITORS
The Financial Statements of AUSA, at December 31, 1996 and 1995, and for
each of the three years in the period ended December 31, 1996, and the Financial
Statements of the AUSA Endeavor Variable Annuity Account at December 31, 1996,
and for each of the two years in the period then ended, included in this
Statement of
13
<PAGE>
Additional Information have been audited by Ernst & Young LLP, Independent
Auditors, 801 Grand Avenue, Suite 3400, Des Moines, Iowa, 50309-2764.
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.
FINANCIAL STATEMENTS
The values of the interest of Policy Owners in the Mutual Fund 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, which are included in this
Statement of Additional Information, should be considered only as bearing on the
ability of AUSA 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.
14
<PAGE>
- --------------------------------------------------------------------------------
THE AUSA ENDEAVOR VARIABLE ANNUITY ACCOUNT
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND CONTRACT OWNERS OF
THE AUSA ENDEAVOR VARIABLE ANNUITY ACCOUNT,
AUSA LIFE INSURANCE COMPANY, INC.:
We have audited the accompanying balance sheet of The AUSA Endeavor Variable
Annuity Account (comprising, respectively, the TCW Money Market, TCW Managed
Asset Allocation, T. Rowe Price International Stock, Value Equity, Dreyfus
Small Cap Value, Dreyfus U.S. Government Securities, T. Rowe Price Equity
Income, T. Rowe Price Growth Stock, Opportunity Value and Growth subaccounts)
as of December 31, 1996, and the related statements of operations and changes
in contract owners' equity for the periods indicated therein. 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,
1996 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 each of the respective
subaccounts constituting The AUSA Endeavor Variable Annuity Account at December
31, 1996, and the results of their operations and changes in their contract
owners' equity for the periods indicated therein in conformity with generally
accepted accounting principles.
Ernst & Young LLP
Des Moines, Iowa
January 31, 1997
15
<PAGE>
- --------------------------------------------------------------------------------
THE AUSA ENDEAVOR VARIABLE ANNUITY ACCOUNT
BALANCE SHEET
December 31, 1996
<TABLE>
<CAPTION>
TCW
TCW MANAGED
MONEY ASSET
MARKET ALLOCATION
TOTAL SUBACCT. SUBACCT.
----------- -------- ----------
<S> <C> <C> <C>
ASSETS
Cash.......................................... $ 45 -- --
Investments in mutual funds, at current market
value (Note 2):
Endeavor Series Trust--TCW Money Market
Portfolio................................... 767,863 767,863 --
Endeavor Series Trust--TCW Managed Asset
Allocation Portfolio........................ 2,059,658 -- 2,059,658
Endeavor Series Trust--T. Rowe Price
International Stock Portfolio............... 2,774,308 -- --
Endeavor Series Trust--Value Equity
Portfolio................................... 2,653,713 -- --
Endeavor Series Trust--Dreyfus Small Cap
Value Portfolio............................. 1,854,244 -- --
Endeavor Series Trust--Dreyfus U.S.
Government Securities Portfolio............. 665,734 -- --
Endeavor Series Trust--T. Rowe Price Equity
Income Portfolio............................ 2,111,546 -- --
Endeavor Series Trust--T. Rowe Price Growth
Stock Portfolio............................. 1,554,683 -- --
Endeavor Series Trust--Opportunity Value
Portfolio................................... 179,692 -- --
WRL Series Fund, Inc.--Growth Portfolio...... 5,205,872 -- --
----------- ------- ---------
Total investments in mutual funds............ 19,827,313 767,863 2,059,658
----------- ------- ---------
Total Assets................................. $19,827,358 767,863 2,059,658
=========== ======= =========
LIABILITIES AND CONTRACT OWNERS' EQUITY
Liabilities:
Contract terminations payable................ $ 1,141 106 187
----------- ------- ---------
Total Liabilities............................ 1,141 106 187
Contract Owners' Equity:
Deferred annuity contracts terminable by
owners (Notes 3 and 6)...................... 19,826,217 767,757 2,059,471
----------- ------- ---------
$19,827,358 767,863 2,059,658
=========== ======= =========
</TABLE>
See accompanying Notes to Financial Statements.
16
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
T. ROWE T. ROWE T. ROWE
PRICE DREYFUS DREYFUS U.S. PRICE PRICE
INT'L. VALUE SMALL CAP GOV'T. EQUITY GROWTH OPPORTUNITY
STOCK EQUITY VALUE SECURITIES INCOME STOCK VALUE GROWTH
SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT.
-------- --------- --------- ------------ --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
-- -- 44 -- -- -- 1 --
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
2,774,308 -- -- -- -- -- -- --
-- 2,653,713 -- -- -- -- -- --
-- -- 1,854,244 -- -- -- -- --
-- -- -- 665,734 -- -- -- --
-- -- -- -- 2,111,546 -- -- --
-- -- -- -- -- 1,554,683 -- --
-- -- -- -- -- -- 179,692 --
-- -- -- -- -- -- -- 5,205,872
--------- --------- --------- ------- --------- --------- ------- ---------
2,774,308 2,653,713 1,854,244 665,734 2,111,546 1,554,683 179,692 5,205,872
--------- --------- --------- ------- --------- --------- ------- ---------
2,774,308 2,653,713 1,854,288 665,734 2,111,546 1,554,683 179,693 5,205,872
========= ========= ========= ======= ========= ========= ======= =========
146 251 -- 9 52 28 -- 362
--------- --------- --------- ------- --------- --------- ------- ---------
146 251 -- 9 52 28 -- 362
2,774,162 2,653,462 1,854,288 665,725 2,111,494 1,554,655 179,693 5,205,510
--------- --------- --------- ------- --------- --------- ------- ---------
2,774,308 2,653,713 1,854,288 665,734 2,111,546 1,554,683 179,693 5,205,872
========= ========= ========= ======= ========= ========= ======= =========
</TABLE>
17
<PAGE>
- --------------------------------------------------------------------------------
THE AUSA ENDEAVOR VARIABLE ANNUITY ACCOUNT
STATEMENT OF OPERATIONS
Year Ended December 31, 1996, Except as Noted
<TABLE>
<CAPTION>
TCW
MONEY
MARKET
TOTAL SUBACCT.
---------- --------
<S> <C> <C>
NET INVESTMENT INCOME (LOSS)
Income:
Dividends................................................. $ 499,367 27,558
Expenses (Note 5):
Administrative fee........................................ 5,211 181
Mortality and expense risk charge......................... 168,854 8,063
---------- -------
Net investment income (loss)............................ 325,302 19,314
---------- -------
NET REALIZED AND UNREALIZED CAPITAL GAIN (LOSS) FROM
INVESTMENTS
Net realized capital gain (loss) from sales of investments:
Proceeds from sales....................................... 1,050,069 414,686
Cost of investments sold.................................. 960,815 414,686
---------- -------
Net realized capital gain (loss) from sales of
investments............................................... 89,254 --
---------- -------
Net change in unrealized appreciation/depreciation of
investments:
Beginning of the period................................... 354,489 --
End of the period......................................... 1,762,593 --
---------- -------
Net change in unrealized appreciation/depreciation of
investments............................................ 1,408,104 --
---------- -------
Net realized and unrealized capital gain (loss) from
investments............................................ 1,497,358 --
---------- -------
INCREASE (DECREASE) FROM OPERATIONS........................ $1,822,660 19,314
========== =======
</TABLE>
/1/Period from December 13, 1996 (commencement of operations) to December 31,
1996
See accompanying Notes to Financial Statements.
18
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TCW T. ROWE DREYFUS T. ROWE T. ROWE
MANAGED PRICE DREYFUS U.S. PRICE PRICE
ASSET INT'L. VALUE SMALL CAP GOV'T. EQUITY GROWTH OPPORTUNITY
ALLOCATION STOCK EQUITY VALUE SECURITIES INCOME STOCK VALUE GROWTH
SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT./1/ SUBACCT.
- ---------- -------- -------- --------- ---------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
24,797 9,703 38,881 46,612 15,913 10,384 14,414 -- 311,105
791 563 616 468 167 651 309 -- 1,465
19,583 22,343 23,500 16,062 6,488 16,576 12,146 8 44,085
------- ------- ------- ------- ------ ------- ------- ---- -------
4,423 (13,203) 14,765 30,082 9,258 (6,843) 1,959 (8) 265,555
------- ------- ------- ------- ------ ------- ------- ---- -------
92,138 65,520 64,146 154,397 88,868 62,231 32,296 -- 75,787
75,827 60,515 43,398 135,314 91,441 50,909 27,721 -- 61,004
------- ------- ------- ------- ------ ------- ------- ---- -------
16,311 5,005 20,748 19,083 (2,573) 11,322 4,575 -- 14,783
------- ------- ------- ------- ------ ------- ------- ---- -------
109,510 22,294 60,104 45,750 5,718 21,338 15,903 -- 73,872
299,221 236,578 348,773 278,785 7,435 227,251 174,087 (106) 190,569
------- ------- ------- ------- ------ ------- ------- ---- -------
189,711 214,284 288,669 233,035 1,717 205,913 158,184 (106) 116,697
------- ------- ------- ------- ------ ------- ------- ---- -------
206,022 219,289 309,417 252,118 (856) 217,235 162,759 (106) 131,480
------- ------- ------- ------- ------ ------- ------- ---- -------
210,445 206,086 324,182 282,200 8,402 210,392 164,718 (114) 397,035
======= ======= ======= ======= ====== ======= ======= ==== =======
</TABLE>
19
<PAGE>
- --------------------------------------------------------------------------------
THE AUSA ENDEAVOR VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY
Years Ended December 31, 1996 and 1995, Except as Noted
<TABLE>
<CAPTION>
TCW
TCW MANAGED T. ROWE PRICE
MONEY ASSET INTERNATIONAL
MARKET ALLOCATION STOCK
TOTAL SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------------------- ------------------ ------------------ ------------------
1996 1995 1996 1995 1996 1995 1996 1995
----------- --------- -------- -------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income
(loss).................. $ 325,302 127,095 19,314 3,105 4,423 70 (13,203) 2,658
Net realized capital gain
(loss).................. 89,254 31,866 -- -- 16,311 3,066 5,005 (5,399)
Net change in unrealized
appreciation/depreciation
of investments.......... 1,408,104 426,743 -- -- 189,711 126,529 214,284 45,378
----------- --------- -------- -------- --------- ------- --------- -------
Increase (decrease) from
operations.............. 1,822,660 585,704 19,314 3,105 210,445 129,665 206,086 42,637
----------- --------- -------- -------- --------- ------- --------- -------
CONTRACT TRANSACTIONS
Net contract purchase
payments................ 8,945,238 3,101,963 849,831 364,210 451,716 171,807 996,418 414,317
Transfer payments from
(to) other subaccounts
or general account...... 3,698,118 359,061 (403,786) (120,602) 506,790 123,270 843,943 (11,421)
Contract terminations,
withdrawals, and other
deductions.............. (390,272) (116,242) -- -- (68,621) (36,468) (69,872) (27,021)
----------- --------- -------- -------- --------- ------- --------- -------
Increase from contract
transactions............ 12,253,084 3,344,782 446,045 243,608 889,885 258,609 1,770,489 375,875
----------- --------- -------- -------- --------- ------- --------- -------
Net increase in contract
owners' equity.......... 14,075,744 3,930,486 465,359 246,713 1,100,330 388,274 1,976,575 418,512
----------- --------- -------- -------- --------- ------- --------- -------
CONTRACT OWNERS' EQUITY
Beginning of period...... 5,750,473 1,819,987 302,398 55,685 959,141 570,867 797,587 379,075
----------- --------- -------- -------- --------- ------- --------- -------
End of period............ $19,826,217 5,750,473 767,757 302,398 2,059,471 959,141 2,774,162 797,587
=========== ========= ======== ======== ========= ======= ========= =======
</TABLE>
/1/Period from June 16, 1995 (commencement of operations) to December 31, 1995
/2/Period from June 28, 1995 (commencement of operations) to December 31, 1995
/3/Period from April 28, 1995 (commencement of operations) to December 31, 1995
/4/Period from December 13, 1996 (commencement of operations) to December 31,
1996
See accompanying Notes to Financial Statements.
20
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DREYFUS DREYFUS U.S. T. ROWE PRICE T. ROWE PRICE
VALUE SMALL CAP GOVERNMENT EQUITY GROWTH OPPORTUNITY
EQUITY VALUE SECURITIES INCOME STOCK VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------------ ------------------ ---------------- ------------------ ------------------ -----------
1996 1995 1996 1995 1996 1995/1/ 1996 1995/2/ 1996 1995/3/ 1996/4/
- --------- ------- --------- ------- ------- ------- --------- ------- --------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
14,765 (2,984) 30,082 2,286 9,258 (658) (6,843) (702) 1,959 (930) (8)
20,748 12,440 19,083 3,137 (2,573) 802 11,322 2,964 4,575 810 --
288,669 58,248 233,035 45,887 1,717 5,718 205,913 21,338 158,184 15,903 (106)
- --------- ------- --------- ------- ------- ------- --------- ------- --------- ------- -------
324,182 67,704 282,200 51,310 8,402 5,862 210,392 23,600 164,718 15,783 (114)
- --------- ------- --------- ------- ------- ------- --------- ------- --------- ------- -------
1,032,776 452,866 581,260 337,487 336,517 223,574 1,120,024 269,068 890,676 203,721 179,807
598,804 138,439 367,127 (3,930) 111,586 834 458,878 86,340 250,896 38,125 --
(61,807) (2,005) (22,302) (23,639) (21,050) -- (55,759) (1,049) (8,247) (1,017) --
- --------- ------- --------- ------- ------- ------- --------- ------- --------- ------- -------
1,569,773 589,300 926,085 309,918 427,053 224,408 1,523,143 354,359 1,133,325 240,829 179,807
- --------- ------- --------- ------- ------- ------- --------- ------- --------- ------- -------
1,893,955 657,004 1,208,285 361,228 435,455 230,270 1,733,535 377,959 1,298,043 256,612 179,693
- --------- ------- --------- ------- ------- ------- --------- ------- --------- ------- -------
759,507 102,503 646,003 284,775 230,270 -- 377,959 -- 256,612 -- --
- --------- ------- --------- ------- ------- ------- --------- ------- --------- ------- -------
2,653,462 759,507 1,854,288 646,003 665,725 230,270 2,111,494 377,959 1,554,655 256,612 179,693
========= ======= ========= ======= ======= ======= ========= ======= ========= ======= =======
<CAPTION>
GROWTH
SUBACCOUNT
--------------------
1995 1996
--------- ---------
<C> <C>
124,250 265,555
14,046 14,783
107,742 116,697
--------- ---------
246,038 397,035
--------- ---------
664,913 2,506,213
108,006 963,880
(25,043) (82,614)
--------- ---------
747,876 3,387,479
--------- ---------
993,914 3,784,514
--------- ---------
427,082 1,420,996
--------- ---------
1,420,996 5,205,510
========= =========
</TABLE>
21
<PAGE>
- --------------------------------------------------------------------------------
THE AUSA ENDEAVOR VARIABLE ANNUITY ACCOUNT
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization -- Effective January 1, 1995, AUSA Life Insurance Company, Inc.
assumed the Endeavor Variable Annuity contracts issued by International Life
Investors Insurance Company, another indirect, wholly-owned subsidiary of AEGON
USA, Inc. ("AUSA"). In conjunction with this assumption, The AUSA Endeavor
Variable Annuity Account ("Mutual Fund Account") commenced operations on
January 1, 1995. On that same day, all the assets and liabilities of The ILI
Endeavor Variable Annuity Account were merged into the Mutual Fund Account. The
Mutual Fund Account is a segregated investment account of AUSA Life Insurance
Company, Inc. ("AUSA Life"), an indirect, wholly-owned subsidiary of AUSA, a
holding company. AUSA is an indirect, wholly-owned subsidiary of AEGON nv, a
holding company organized under the laws of The Netherlands.
The Opportunity Value Subaccount commenced operations on December 13, 1996. The
T. Rowe Price Equity Income, the U.S. Government Securities and the T. Rowe
Price Growth Stock subaccounts, as part of the Mutual Fund Account, commenced
operations on June 28, 1995, June 16, 1995, and April 28, 1995. Effective May
1, 1996, the names of the Money Market, Managed Asset Allocation, Quest for
Value Equity, Quest for Value Small Cap and U.S. Government Securities
Portfolios and Subaccounts were changed to TCW Money Market, TCW Managed Asset
Allocation, Value Equity, Value Small Cap and Dreyfus U.S. Government
Securities Portfolios and Subaccounts, respectively. Effective October 29,
1996, the names of the Value Small Cap Portfolio and Subaccount were changed to
Dreyfus Small Cap Value Portfolio and Subaccount, respectively. Effective March
24, 1995, the names of the Global Growth Portfolio and Subaccount were changed
to T. Rowe Price International Stock Portfolio and Subaccount, respectively.
The investment objective of the portfolio was changed from an investment on a
global basis to an investment on an international basis (i.e. non-U.S.
companies). The investment advisor of the Endeavor Series Trust is Endeavor
Investment Advisors, a general partnership between Endeavor Management Co. and
AUSA Financial Markets, Inc., an affiliate of AUSA Life. The investment advisor
for the WRL Series Fund, Inc. is Western Reserve Life Assurance Co. of Ohio, an
affiliate of AUSA Life.
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.
Investments -- Net purchase payments received by the Mutual Fund Account 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, 1996.
Realized capital gains and losses from 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 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.
22
<PAGE>
- --------------------------------------------------------------------------------
2. INVESTMENTS
A summary of the mutual fund investment at December 31, 1996 follows:
<TABLE>
<CAPTION>
NUMBER OF NET ASSET VALUE MARKET
SHARES HELD PER SHARE VALUE COST
----------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Endeavor Series Trust
TCW Money Market Portfo-
lio...................... 767,863.040 $ 1.00 $ 767,863 $ 767,863
TCW Managed Asset Alloca-
tion Portfolio........... 109,323.685 18.84 2,059,658 1,760,437
T. Rowe Price Interna-
tional Stock Portfolio... 198,875.152 13.95 2,774,308 2,537,730
Value Equity Portfolio.... 154,195.969 17.21 2,653,713 2,304,940
Dreyfus Small Cap Value
Portfolio................ 126,139.028 14.70 1,854,244 1,575,459
Dreyfus U.S. Government
Securities Portfolio..... 59,281.758 11.23 665,734 658,299
T. Rowe Price Equity In-
come Portfolio........... 136,316.691 15.49 2,111,546 1,884,295
T. Rowe Price Growth Stock
Portfolio................ 95,437.886 16.29 1,554,683 1,380,596
Opportunity Value Portfo-
lio...................... 17,862.080 10.06 179,692 179,798
WRL Series Fund, Inc.
Growth Portfolio.......... 148,733.752 35.001280 5,205,872 5,015,303
----------- -----------
$19,827,313 $18,064,720
=========== ===========
</TABLE>
3. CONTRACT OWNERS' EQUITY
A summary of deferred annuity contracts terminable by owners at December 31,
1996 follows:
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION TOTAL
SUBACCOUNT UNITS OWNED UNIT VALUE CONTRACT VALUE
- ---------- ------------- ------------ --------------
<S> <C> <C> <C>
TCW Money Market..................... 665,174.123 $ 1.154219 $ 767,757
TCW Managed Asset Allocation......... 1,123,469.170 1.833135 2,059,471
T. Rowe Price International Stock.... 2,084,832.841 1.330640 2,774,162
Value Equity......................... 1,565,599.143 1.694854 2,653,462
Dreyfus Small Cap Value.............. 1,239,443.264 1.496065 1,854,288
Dreyfus U.S. Government Securities... 589,779.900 1.128769 665,725
T. Rowe Price Equity Income.......... 1,387,607.312 1.521680 2,111,494
T. Rowe Price Growth Stock........... 964,658.085 1.611613 1,554,655
Opportunity Value.................... 178,913.412 1.004355 179,693
Growth............................... 306,855.075 16.964068 5,205,510
-----------
$19,826,217
===========
</TABLE>
A summary of changes in contract owners' account units follows:
<TABLE>
<CAPTION>
TCW T. ROWE DREYFUS T. ROWE T. ROWE
TCW MANAGED PRICE DREYFUS U.S. PRICE PRICE
MONEY ASSET INT'L. VALUE SMALL CAP GOV'T. EQUITY GROWTH OPPORTUNITY
MARKET ALLOCATION STOCK EQUITY VALUE SECURITIES INCOME STOCK VALUE GROWTH
SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT.
-------- ---------- --------- --------- --------- ---------- --------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Units outstanding
at 1/1/95....... 51,924 438,566 352,970 98,032 265,416 -- -- -- -- 42,491
Units purchased.. 329,022 110,905 362,256 344,140 292,146 204,064 223,477 160,519 -- 48,457
Units redeemed
and
transferred..... (109,911) 58,398 (34,132) 105,062 (22,279) 750 70,143 29,095 -- 6,488
-------- --------- --------- --------- --------- ------- --------- ------- ------- -------
Units outstanding
at 12/31/95..... 271,035 607,869 681,094 547,234 535,283 204,814 293,620 189,614 -- 97,436
Units purchased.. 750,980 264,897 798,316 680,695 445,979 305,474 810,397 615,741 178,913 156,541
Units redeemed
and
transferred..... (356,841) 250,703 605,423 337,670 258,181 79,492 283,590 159,303 -- 52,878
-------- --------- --------- --------- --------- ------- --------- ------- ------- -------
Units outstanding
at 12/31/96..... 665,174 1,123,469 2,084,833 1,565,599 1,239,443 589,780 1,387,607 964,658 178,913 306,855
======== ========= ========= ========= ========= ======= ========= ======= ======= =======
</TABLE>
23
<PAGE>
- --------------------------------------------------------------------------------
4. TAXES
Operations of the Mutual Fund Account form a part of AUSA Life, 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 Life 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 Life. 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 Life.
5. 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, the fee is waived if the sum of the premium payments made less the
sum of all partial withdrawals is at least $50,000 on the policy anniversary.
Charges for administrative fees to the variable annuity contracts are an
expense of the Mutual Fund Account.
AUSA Life deducts a daily charge equal to an annual rate of 1.25% of the value
of the contract owners' account as a charge for assuming certain mortality and
expense risks. AUSA Life also deducts a daily charge equal to an annual rate of
.15% of the contract owners' account for administrative expenses.
6. NET ASSETS
At December 31, 1996 contract owners' equity was comprised of:
<TABLE>
<CAPTION>
TCW T. ROWE DREYFUS DREYFUS T. ROWE T. ROWE
TCW MANAGED PRICE SMALL U.S. PRICE PRICE
MONEY ASSET INT'L. VALUE CAP GOV'T. EQUITY GROWTH
MARKET ALLOCATION STOCK EQUITY VALUE SECURITIES INCOME STOCK
TOTAL SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT.
----------- -------- ---------- --------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit transac-
tions, accumu-
lated net in-
vestment income
and realized
capital gains.. $18,063,624 767,757 1,760,250 2,537,584 2,304,689 1,575,503 658,290 1,884,243 1,380,568
Adjustment for
appreciation/depreciation
to market
value.......... 1,762,593 -- 299,221 236,578 348,773 278,785 7,435 227,251 174,087
----------- ------- --------- --------- --------- --------- ------- --------- ---------
Total Contract
Owners'
Equity......... $19,826,217 767,757 2,059,471 2,774,162 2,653,462 1,854,288 665,725 2,111,494 1,554,655
=========== ======= ========= ========= ========= ========= ======= ========= =========
<CAPTION>
OPPORTUNITY
VALUE GROWTH
SUBACCT. SUBACCT.
----------- ---------
<S> <C> <C>
Unit transac-
tions, accumu-
lated net in-
vestment income
and realized
capital gains.. 179,799 5,014,941
Adjustment for
appreciation/depreciation
to market
value.......... (106) 190,569
----------- ---------
Total Contract
Owners'
Equity......... 179,693 5,205,510
=========== =========
</TABLE>
7. PURCHASES AND SALES OF INVESTMENT SECURITIES
The aggregate cost of purchases and proceeds from sales of investments were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 OR
COMMENCEMENT OF OPERATIONS TO
DECEMBER 31
---------------------------------------
1996 1995
--------------------- -----------------
PURCHASES SALES PURCHASES SALES
----------- --------- --------- -------
<S> <C> <C> <C> <C>
Endeavor Series Trust
TCW Money Market Portfolio............ $ 880,105 414,686 396,123 149,327
TCW Managed Asset Allocation
Portfolio............................ 986,607 92,138 380,622 123,035
T. Rowe Price International Stock
Portfolio............................ 1,822,939 65,520 482,406 104,421
Value Equity Portfolio................ 1,648,916 64,146 639,975 53,908
Dreyfus Small Cap Value Portfolio..... 1,110,497 154,397 436,139 124,482
Dreyfus U.S. Government Securities
Portfolio............................ 525,184 88,868 274,251 50,497
T. Rowe Price Equity Income
Portfolio............................ 1,578,572 62,231 406,641 52,973
T. Rowe Price Growth Stock Portfolio.. 1,167,599 32,296 245,760 5,852
Opportunity Value Portfolio........... 179,798 -- -- --
WRL Series Fund, Inc.
Growth Portfolio...................... 3,729,079 75,787 970,989 100,431
----------- --------- --------- -------
$13,629,296 1,050,069 4,232,906 764,926
=========== ========= ========= =======
</TABLE>
24
<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, 1996 and 1995, 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, 1996.
Our audits also included the accompanying statutory-basis financial statement
schedules pursuant to Article 7 of Regulation S-X. These financial statements
and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules 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, 1996 and 1995, or the
results of its operations or its cash flows for each of the three years in the
period ended December 31, 1996.
25
<PAGE>
Also, 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, 1996 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996 in
conformity with accounting practices prescribed or permitted by the Department
of Insurance of the State of New York. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
statutory-basis financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
/s/ Ernst & Young LLP
Des Moines, Iowa
February 21, 1997
26
<PAGE>
AUSA Life Insurance Company, Inc.
Balance Sheets - Statutory Basis
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
------------------------------
(RESTATED)
<S> <C> <C>
ADMITTED ASSETS
Cash and invested assets:
Cash and short-term investments $ 25,391 $ 111,533
Bonds 3,495,667 3,198,777
Stocks:
Preferred 125 426
Common, at market (cost: $13 in 1996 and $4,212 in 1995) 18 4,407
Mortgage loans on real estate 618,633 768,424
Real estate acquired in satisfaction of debt, at cost less
accumulated depreciation ($1,087 in 1996 and $404 in 1995) 58,100 29,333
Policy loans 755 759
Other invested assets 3,393 722
------------------------------
Total cash and invested assets 4,202,082 4,114,381
Premiums deferred and uncollected 3,257 3,365
Accrued investment income 62,258 63,062
Federal income taxes recoverable 416 1,195
Receivable from affiliates - 1,932
Other assets 5,177 8,432
Separate account assets 4,755,131 4,249,345
------------------------------
Total admitted assets $9,028,321 $8,441,712
==============================
</TABLE>
See accompanying notes.
27
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
--------------------------------
(RESTATED)
<S> <C> <C>
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate reserves for policies and contracts:
Life $ 19,716 $ 18,159
Annuity 768,212 709,122
Accident and health 10,180 10,851
Policy and contract claim reserves:
Life 3,826 3,716
Accident and health 11,160 13,515
Other policyholders' funds 3,088,016 2,993,918
Remittances and items not allocated 16,252 28,560
Asset valuation reserve 44,849 38,958
Interest maintenance reserve 5,494 2,913
Payable to affiliates 8,074 4,028
Short-term note payable to affiliate 600 19,800
Deferred income 18,023 19,182
Payable under assumption reinsurance agreement 67,217 73,546
Other liabilities 10,748 23,662
Separate account liabilities 4,721,974 4,230,472
--------------------------------
Total liabilities 8,794,341 8,190,402
Commitments and contingencies
Capital and surplus:
Common stock, $125 par value, 20 shares authorized,
issued and outstanding 2,500 2,500
Paid-in surplus 306,694 306,694
Unassigned surplus (deficit) (75,214) (57,884)
--------------------------------
Total capital and surplus 233,980 251,310
--------------------------------
Total liabilities and capital and surplus $9,028,321 $8,441,712
================================
</TABLE>
See accompanying notes.
28
<PAGE>
AUSA Life Insurance Company, Inc.
Statements of Operations - Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
----------------------------------------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net of reinsurance:
Life $ 9,344 $ 9,066 $ 9,048
Annuity 1,060,655 1,144,423 656,806
Accident and health 47,695 53,346 45,411
Net investment income 323,828 318,004 292,007
Amortization of interest maintenance reserve 1,903 1,931 208
Commissions and expense allowances on reinsurance ceded 11,280 8,826 11,961
----------------------------------------
1,454,705 1,535,596 1,015,441
Benefits and expenses:
Benefits paid or provided for:
Life and accident and health benefits 39,921 40,719 37,852
Surrender benefits 852,745 815,882 488,243
Other benefits 9,778 7,804 5,068
Increase (decrease) in aggregate reserves for policies
and contracts:
Life 1,557 1,570 433
Annuity 59,090 127,403 212,984
Accident and health (671) 775 606
Other 609 609 270
Increase in liability for premium and other deposit
type funds 93,893 229,485 34,294
----------------------------------------
1,056,922 1,224,247 779,750
Insurance expenses:
Commissions 87,861 95,900 110,731
General insurance expenses 79,310 69,933 68,136
Taxes, licenses and fees 2,643 1,638 1,399
Transfers to separate accounts 227,802 139,912 64,922
Other expenses 479 (37) (6)
----------------------------------------
398,095 307,346 245,122
----------------------------------------
1,455,017 1,531,593 1,024,872
----------------------------------------
Gain (loss) from operations before federal income taxes
and net realized capital losses on investments (312) 4,003 (9,431)
Federal income tax expense 1,305 5,588 1,293
----------------------------------------
Loss from operations before net realized capital losses on
investments (1,617) (1,585) (10,724)
Net realized capital losses on investments (net of related federal
income taxes and amounts transferred to interest maintenance reserve) (12,097) (3,464) (957)
----------------------------------------
Net loss $ (13,714) $ (5,049) $ (11,681)
========================================
</TABLE>
See accompanying notes.
29
<PAGE>
AUSA Life Insurance Company, Inc.
Statements of Changes in Capital and Surplus - Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
UNASSIGNED TOTAL
COMMON PAID-IN SURPLUS CAPITAL AND
STOCK SURPLUS (DEFICIT) SURPLUS
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1994 (restated) $2,500 $246,894 $(16,772) $232,622
Capital contribution - 18,800 - 18,800
Net loss for 1994 - - (11,681) (11,681)
Net unrealized capital losses - - (123) (123)
Increase in non-admitted assets - - (920) (920)
Increase in asset valuation reserve - - (14,168) (14,168)
Seed money contributed to separate
account, net of redemptions - - (15,000) (15,000)
Decrease in liability for reinsurance
in unauthorized companies - - 2 2
Increase in surplus in separate account - - 15,698 15,698
Change in reserve valuation methodology - - (80) (80)
-------------------------------------------------------------------------------
Balance at December 31, 1994 (restated) 2,500 265,694 (43,044) 225,150
Capital contribution - 41,000 - 41,000
Net loss for 1995 - - (5,049) (5,049)
Net unrealized capital losses - - (501) (501)
Increase in non-admitted assets - - (920) (920)
Increase in asset valuation reserve - - (10,370) (10,370)
Surplus effect of reinsurance - - (70) (70)
Seed money contributed to separate
account, net of redemptions - - (1,000) (1,000)
Increase in liability for reinsurance
in unauthorized companies - - (51) (51)
Increase in surplus in separate account - - 3,121 3,121
-------------------------------------------------------------------------------
Balance at December 31, 1995 (restated) 2,500 306,694 (57,884) 251,310
Net loss for 1996 - - (13,714) (13,714)
Net unrealized capital losses - - (486) (486)
Decrease in non-admitted assets - - 520 520
Increase in liability for reinsurance
in unauthorized companies - - (42) (42)
Increase in asset valuation reserve - - (5,891) (5,891)
Seed money contributed to separate
account, net of redemptions - - (12,500) (12,500)
Increase in surplus in separate account - - 14,783 14,783
-------------------------------------------------------------------------------
Balance at December 31, 1996 $2,500 $306,694 $(75,214) $233,980
===============================================================================
</TABLE>
See accompanying notes.
30
<PAGE>
AUSA Life Insurance Company, Inc.
Statements of Cash Flows - Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
--------------------------------------------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
SOURCES OF CASH
Premiums and other considerations, net of reinsurance $1,128,792 $1,215,941 $ 724,388
Net investment income 329,948 316,494 282,678
--------------------------------------------
1,458,740 1,532,435 1,007,066
Life and accident and health claims (42,143) (39,194) (35,132)
Surrender benefits and other fund withdrawals (852,745) (815,882) (488,243)
Other benefits to policyholders (9,776) (7,789) (5,051)
Commissions, other expenses and other taxes (187,930) (183,810) (111,031)
Net transfers to separate accounts (229,556) (139,912) (64,922)
Federal income taxes, excluding tax on capital gains (526) (6,299) (1,039)
--------------------------------------------
Net cash provided by operations 136,064 339,549 301,648
Proceeds from investments sold, matured or repaid:
Bonds 703,936 529,363 525,148
Common stocks 5,288 2,957 6,559
Mortgage loans 165,460 138,243 189,421
Net decrease in policy loans 4 - -
Real estate - 4,953 32
--------------------------------------------
Total cash from investments 874,688 675,516 721,160
Capital contribution - 41,000 18,800
Issuance of intercompany notes payable, net - 14,600 5,200
Other sources 9,071 29,930 34,370
--------------------------------------------
Total sources of cash 1,019,823 1,100,595 1,081,178
APPLICATIONS OF CASH
Cost of investments acquired:
Bonds 1,016,678 1,018,097 1,375,143
Common stocks 589 5,174 6,481
Mortgage loans 42,118 54,140 1,544
Net increase in policy loans - 40 101
Real estate 521 - -
Issuance of intercompany notes receivable, net 19,200 - -
Other invested assets 2,881 747 48
--------------------------------------------
Total investments acquired 1,081,987 1,078,198 1,383,317
Other applications 23,978 23,043 3,854
--------------------------------------------
Total applications of cash 1,105,965 1,101,241 1,387,171
--------------------------------------------
Net change in cash and short-term investments (86,142) (646) (305,993)
Cash and short-term investments at beginning of year 111,533 112,179 418,172
--------------------------------------------
Cash and short-term investments at end of year $ 25,391 $ 111,533 $ 112,179
============================================
</TABLE>
See accompanying notes.
31
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis
(Dollars in thousands)
December 31, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
AUSA Life Insurance Company, Inc. ("the Company") is a stock life insurance
company and is a wholly-owned subsidiary of First AUSA Life Insurance Company
("First AUSA") which, in turn, is a wholly-owned subsidiary of AEGON USA
("AEGON"). AEGON is a wholly-owned subsidiary of AEGON nv, a holding company
organized under the laws of The Netherlands. 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. Separate
results of operations for the periods prior to the merger with ILI are as
follows:
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31
(UNAUDITED) 1995 1994
-------------------------------------------
<S> <C> <C> <C>
Revenues:
The Company $730,485 $1,386,871 $ 692,957
ILI 59,947 148,725 322,484
-------------------------------------------
Combined $790,432 $1,535,596 $1,015,441
===========================================
Net income (loss):
The Company $ (4,448) $ (14,745) $ (11,522)
ILI 3,714 9,696 (159)
Combined $ (734) $ (5,049) $ (11,681)
===========================================
Capital and surplus:
The Company $194,144 $ 202,639 $ 183,830
ILI 53,044 48,671 41,320
Combined $247,188 $ 251,310 $ 225,150
===========================================
</TABLE>
32
<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)
NATURE OF BUSINESS
The Company primarily sells group fixed and variable annuities. The Company is
licensed in 48 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.
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, 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 (carried as a liability), changes to which are
33
<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)
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) adjustments to federal
income taxes of prior years are charged or credited directly to unassigned
surplus, rather than reported as a component of expense in the statement of
operations; and (m) 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.
The National Association of Insurance Commissioners (NAIC) currently is in the
process of recodifying statutory accounting practices, the result of which is
expected to constitute the only source of "prescribed" statutory accounting
practices. Accordingly, that project, which is expected to be completed in
1997, 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.
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, which may include
34
<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)
shares of mutual funds (money market and other), 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 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, net of amounts attributed to changes in the
general level of interest rates. 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, 1996, 1995 and 1994, the
Company excluded investment income due and accrued of $469, $216 and $1,092,
respectively, with respect to such practices.
MONY entered into foreign exchange interest rate swap agreements to modify the
interest characteristics of certain of its outstanding fixed maturity securities
from a fixed rate in a foreign currency to a fixed rate in U. S. Dollars prior
to the reinsurance assumption agreement. These agreements were assigned to the
Company in connection with the reinsurance assumption agreement. The interest
rate swap agreements involve the exchange of a fixed rate in a foreign currency
for fixed rate interest payments in U. S. Dollars over the life of the agreement
without an exchange of the underlying principal amount of $32,500 at December
31, 1996, 1995 and 1994. The differential to be paid or received is accrued as
incurred and recognized as an adjustment to interest related to the underlying
fixed maturity. The related amount payable to or receivable from counterparties
is included in other liabilities or assets. The fair values of the swap
agreements are not recognized in the financial statements.
35
<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)
The Company entered into an interest rate swap agreement to modify the interest
characteristics of certain outstanding fixed maturity securities from a fixed
rate to a variable rate. The agreement involved the exchange of a fixed rate
for a variable rate interest payment over the life of the agreement without an
exchange of the underlying principal amount of $4,000 at December 31, 1996, 1995
and 1994. The differential to be paid or received is accrued as interest rates
change and recognized as an adjustment to interest related to the underlying
fixed maturity. The related amount payable to or receivable from counterparts
is included in other liabilities or assets. The fair values of the swap
agreements are not recognized in the financial statements.
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 and
American Experience 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
Methods.
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 and without life contingencies are
equal to the present value of future payments assuming interest rates ranging
from 3.00 to 8.25 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.
36
<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)
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 ACCOUNT
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. The Company received nonguaranteed
separate account premiums of $716,524, $536,128 and $182,465 in 1996, 1995 and
1994, respectively. The assets in the separate accounts for the variable
annuities and participating annuities are held at a market value of $4,141,566,
$3,650,091 and $2,399,949 for the years ended December 31, 1996, 1995 and 1994,
respectively. The separate account assets in the fixed government accounts and
stable fund accounts are carried at an amortized cost of $613,565, $599,254 and
$509,549 for the years ended December 31, 1996, 1995 and 1994, respectively.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 and 1994 financial
statements to conform to the 1996 presentation.
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
37
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
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 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 are assumed to equal their 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 swap: Estimated fair value of the interest rate swaps are
based upon the pricing differential for similar swap agreements. The fair
value of the interest rate swaps has been included with the fair value of
the underlying fixed maturities.
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.
38
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The following sets forth a comparison of the fair values and carrying values of
the Company's financial instruments subject to the provisions of Statement of
Financial Accounting Standards No. 107 and No. 119:
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
----------------------------- ---------------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
----------------------------- ---------------------------
<S> <C> <C> <C> <C>
ADMITTED ASSETS
Bonds $3,495,667 $3,530,250 $3,198,777 $3,314,015
Preferred stocks 125 120 426 366
Common stock 18 18 4,407 4,407
Mortgage loans on real estate 618,633 619,479 768,424 806,395
Policy loans 755 755 759 759
Cash and short-term investments 25,391 25,391 111,533 111,533
Separate account assets 4,755,131 4,754,781 4,249,345 4,261,843
LIABILITIES
Investment contract liabilities 3,855,787 3,731,340 3,701,584 3,663,253
Separate account annuities 4,707,568 4,677,289 4,237,983 4,219,281
</TABLE>
3. INVESTMENTS
The carrying value and estimated market 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, 1996
Bonds:
United States Government and agencies $ 122,355 $ 1,170 $ 1,086 $ 122,439
State, municipal and other government 25,027 519 36 25,510
Public utilities 229,732 2,086 2,977 228,841
Industrial and miscellaneous 2,031,086 33,621 14,895 2,049,812
Mortgage-backed securities 1,087,467 22,579 6,398 1,103,648
------------------------------------------------------------------------
3,495,667 59,975 25,392 3,530,250
Preferred stocks 125 5 10 120
------------------------------------------------------------------------
$3,495,792 $59,980 $25,402 $3,530,370
========================================================================
</TABLE>
39
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
3. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS GAINS VALUE
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1995
Bonds:
United States Government and agencies $ 101,736 $ 2,141 $ 21 $ 103,856
State, municipal and other government 29,522 1,337 16 30,843
Public utilities 203,495 4,863 499 207,859
Industrial and miscellaneous 1,859,496 71,268 8,672 1,922,092
Mortgage-backed securities 1,004,528 47,612 2,775 1,049,365
----------------------------------------------------------------------
3,198,777 127,221 11,983 3,314,015
Preferred stocks 426 - 60 366
----------------------------------------------------------------------
$3,199,203 $127,221 $12,043 $3,314,381
======================================================================
</TABLE>
The carrying value and estimated market value of bonds at December 31, 1996, 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.
<TABLE>
<CAPTION>
CARRYING ESTIMATED
VALUE FAIR VALUE
-----------------------------
<S> <C> <C>
Due in one year or less $ 136,961 $ 137,460
Due after one year through five years 1,188,865 1,198,864
Due after five years through ten years 892,453 902,918
Due after ten years 189,921 187,360
-----------------------------
2,408,200 2,426,602
Mortgage-backed securities 1,087,467 1,103,648
-----------------------------
$3,495,667 $3,530,250
=============================
</TABLE>
40
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
3. INVESTMENTS (CONTINUED)
A detail of net investment income is presented below:
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995 1994
--------------------------------
<S> <C> <C> <C>
Interest on bonds and notes $251,923 $231,206 $184,048
Mortgage loans 83,511 98,653 117,859
Real estate 7,225 2,400 322
Dividends on equity investments 25 137 70
Interest on policy loans 34 40 35
Other investment loss (5,511) (3,926) (2,449)
--------------------------------
Gross investment income 337,207 328,510 299,885
Investment expenses 13,379 10,506 7,878
--------------------------------
Net investment income $323,828 $318,004 $292,007
================================
</TABLE>
Proceeds from sales and maturities of debt securities and related gross realized
gains and losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995 1994
--------------------------------
<S> <C> <C> <C>
Proceeds $703,936 $529,363 $525,148
================================
Gross realized gains $ 9,527 $ 8,541 $ 8,693
Gross realized losses (11,595) (15,255) (15,984)
--------------------------------
Net realized losses $ (2,068) $ (6,714) $ (7,291)
================================
</TABLE>
At December 31, 1996, investments with an aggregate carrying value of $2,329
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.
41
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
3. INVESTMENTS (CONTINUED)
Realized investment gains (losses) and changes in unrealized gains (losses) for
investments are summarized below:
<TABLE>
<CAPTION>
REALIZED
---------------------------------
YEAR ENDED DECEMBER 31
1996 1995 1994
---------------------------------
<S> <C> <C> <C>
Debt securities $ (2,068) $ (6,714) $ (7,291)
Common stock 244 - -
Preferred stock (44) - -
Short-term investments (115) (24) (93)
Mortgage loans on real estate (12,415) (3,650) 1,067
Real estate - (628) -
Other invested assets 6,872 11,109 5,412
---------------------------------
(7,526) 93 (905)
Tax effect (87) 247 414
Transfer to interest maintenance reserve (4,484) (3,804) (466)
---------------------------------
Total realized losses $(12,097) $ (3,464) $ (957)
=================================
</TABLE>
<TABLE>
<CAPTION>
CHANGE IN UNREALIZED
---------------------------------
YEAR ENDED DECEMBER 31
1996 1995 1994
---------------------------------
<S> <C> <C> <C>
Debt securities $(80,600) $265,890 $(166,278)
Equity securities (190) 74 (47)
---------------------------------
Change in unrealized appreciation $(80,790) $265,964 $(166,325)
=================================
</TABLE>
Gross unrealized gains and gross unrealized losses on equity securities at
December 31, 1996, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
---------------------------------
<S> <C> <C> <C>
Unrealized gains $ 16 $ 206 $ 133
Unrealized losses (11) (11) (12)
---------------------------------
Net unrealized gains $ 5 $ 195 $ 121
=================================
</TABLE>
42
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
3. INVESTMENTS (CONTINUED)
During 1996, the Company issued mortgage loans with interest rates ranging from
7.46% to 8.75%. The maximum percentage of any one loan to the value of the
underlying real estate at origination was 86%. 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.
During 1996, the Company refinanced the mortgage loans of three properties with
an aggregate carrying value of $98,543 to reduce the interest rates, as a result
of the current interest rate environment. The Company requires all mortgage
loans to carry fire insurance equal to the value of the underlying property.
During 1996, 1995 and 1994, there were $28,929, $14,264 and $10,587,
respectively, in foreclosed mortgage loans that were transferred to real estate.
At December 31, 1996 and 1995, the Company held a mortgage loan loss reserve in
the asset valuation reserve of $8,368 and $9,921, 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
1996 1995 1996 1995
-------------- ---------------
<S> <C> <C> <C> <C> <C>
South Atlantic 37% 31% Retail 30% 37%
E. North Central 21 21 Office 42 33
Mountain 15 16 Apartment 10 17
New England 10 11 Other 17 10
W. North Central 5 10 Industrial 1 3
W. South Central 5 8
Mid-Atlantic 5 -
Pacific 2 3
</TABLE>
At December 31, 1996, the Company had the following 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:
<TABLE>
<CAPTION>
CARRYING
DESCRIPTION OF SECURITY VALUE
- ------------------------------------------- ---------------
<S> <C>
Bonds:
Chase Manhattan Corp. $42,469
Citibank 42,197
Connecticut National Bank 32,463
PSEG Capital 28,157
</TABLE>
43
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
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>
1996 1995 1994
-------------------------------------
<S> <C> <C> <C>
Direct premiums $1,135,315 $1,207,720 $ 685,212
Reinsurance assumed 9,962 37,423 132,314
Reinsurance ceded (27,583) (38,308) (106,261)
-------------------------------------
Net premiums earned $1,117,694 $1,206,835 $ 711,265
=====================================
</TABLE>
The Company received reinsurance recoveries in the amounts of $953, $533 and
$149 during 1996, 1995 and 1994, respectively.
The aggregate reserves for policies and contracts were reduced for reserve
credits for reinsurance ceded at December 31, 1996 and 1995 of $157,396 and
$136,439, respectively.
At December 31, 1995, reserve credits for reinsurance ceded to unauthorized
reinsurers of $103,182 were associated with a single reinsurer. No significant
reinsurance credits were ceded to unauthorized reinsurers at December 31, 1996.
The Company holds collateral under these reinsurance agreements in the form of
trust agreements and letters of credit totaling $111,891 at December 31, 1995
that can be drawn on for unpaid balances. In addition, the reinsurer has an
investment management agreement, with an affiliate, to manage the investments
held in the trust account.
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
44
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
4. REINSURANCE (CONTINUED)
December 31, 1993, and on all new business written after that date. At the end
of nine years, the Company will purchase from MONY the remaining transferred
business inforce based upon a formula described in the agreement. At
December 31, 1996 and 1995, the Company owed MONY $67,217 and $73,546,
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.
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 pension 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.
On October 1, 1995, the Company entered into a reinsurance agreement with a non-
affiliate. As a result, the Company received $4,242 of assets, including $38 of
cash, and $4,312 of liabilities. The difference between the assets and the
liabilities of $70 was charged directly to unassigned surplus.
45
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
5. INCOME TAXES
The Company files a separate federal income tax return.
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to loss from operations before taxes and
realized capital losses for the following reasons:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
---------------------------
<S> <C> <C> <C>
Computed tax expense (benefit) at
federal statutory rate (35%) $ (109) $1,402 $(3,301)
Tax reserve adjustment (211) 755 189
Deferred acquisition cost - tax basis 465 636 992
Carryforward of current year operating 2,611 3,351 3,460
loss
Excess tax depreciation (13) - -
Dividend received deduction (4) - -
Prior year (over)/under accrual 114 (67) (85)
IMR amortization (666) (676) (73)
Other items - net (882) 187 111
---------------------------
Federal income tax expense $1,305 $5,588 $ 1,293
===========================
</TABLE>
Federal income tax expense (benefit) differs from the amount computed by
applying the statutory federal income tax rate to realized gains (losses) 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 ($797 at December 31, 1996). 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 $279.
At December 31, 1996, the Company had net operating loss carryforwards of
approximately $22,400 which expire through 2011.
An examination by the Internal Revenue Service is underway for years 1993 -
1995.
46
<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
1996 1995
-------------------------------------------------------------
PERCENT OF PERCENT OF
AMOUNT TOTAL AMOUNT TOTAL
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal
with market value adjustment $ 834,176 10% $ 797,367 10%
Subject to discretionary withdrawal at
book value less surrender charge 1,583,989 18 2,173,509 27
Subject to discretionary withdrawal at
market value 2,254,074 26 1,589,721 20
Subject to discretionary withdrawal at
book value (minimal or no charges or 1,913,542 22 1,213,021 15
adjustments)
Not subject to discretionary withdrawal
provision 2,136,222 24 2,303,747 28
-------------------------------------------------------------
8,722,003 100% 8,077,365 100%
================ ================
Less reinsurance ceded 157,039 136,130
------------ -------------
Total policy reserves on annuities and
deposit fund liabilities $8,564,964 $7,941,235
============ =============
</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. 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, are summarized as
follows:
<TABLE>
<CAPTION>
GUARANTEED NON-GUARANTEED
SEPARATE SEPARATE
ACCOUNT ACCOUNT TOTAL
----------------------------------------------------------
<S> <C> <C> <C>
DECEMBER 31, 1996
Subject to discretionary withdrawal
with market value adjustment $ 269,991 $ - $ 269,991
Subject to discretionary withdrawal at
book value less surrender charge 279,399 - 279,399
Subject to discretionary withdrawal at
market value 181,158 2,071,160 2,252,318
Not subject to discretionary withdrawal 1,905,860 - 1,905,860
----------------------------------------------------------
$2,636,408 $ 2,071,160 $4,707,568
==========================================================
</TABLE>
47
<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, 1995
Subject to discretionary withdrawal
with market value adjustment $ 290,684 $ - $ 290,684
Subject to discretionary withdrawal at
book value less surrender charge 280,770 - 280,770
Subject to discretionary withdrawal at
market value 97,049 1,492,670 1,589,719
Not subject to discretionary withdrawal 2,076,810 - 2,076,810
----------------------------------------------------------
$2,745,313 $1,492,670 $4,237,983
==========================================================
</TABLE>
A reconciliation of the amounts transferred to and from the separate accounts is
presented below:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------------------------------------------
<S> <C> <C> <C>
Transfers as reported in the summary of
operations of the separate accounts
statement:
Transfers to separate accounts $ 716,525 $ 536,128 $ 180,789
Transfers from separate accounts 502,244 404,120 117,442
---------------------------------------------------------------
Net transfers to separate accounts 214,281 132,008 63,347
Reconciling adjustments - HUB level
fees not paid to AUSA general account 13,520 7,904 1,575
---------------------------------------------------------------
Transfers as reported in the summary of
operations of the life, accident and
health annual statement $ 227,802 $ 139,912 $ 64,922
===============================================================
</TABLE>
48
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
6. POLICY AND CONTRACT ATTRIBUTES (CONTINUED)
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, 1996 and 1995, these assets (which are reported as
premiums deferred and uncollected) and the amounts of the related gross premiums
and loadings, are as follows:
<TABLE>
<CAPTION>
GROSS LOADING NET
---------------------------
<S> <C> <C> <C>
DECEMBER 31, 1996
Ordinary direct first year business $ 83 $(1) $ 84
Ordinary direct renewal business 3,078 25 3,053
Group life direct business 135 22 113
Credit life 5 - 5
Reinsurance ceded (163) - (163)
---------------------------
3,138 46 3,092
Accident and health:
Direct 165 - 165
Reinsurance ceded - - -
---------------------------
Total accident and health 165 - 165
---------------------------
$3,303 $46 $3,257
===========================
DECEMBER 31, 1995
Ordinary direct first year business $ 60 $42 $ 18
Ordinary direct renewal business 3,147 32 3,115
Group life direct business 109 24 85
Credit life - - -
Reinsurance ceded (16) - (16)
---------------------------
3,300 98 3,202
Accident and health:
Direct 163 - 163
Reinsurance ceded - - -
---------------------------
Total accident and health 163 - 163
---------------------------
$3,463 $98 $3,365
===========================
</TABLE>
At December 31, 1996 and 1995, the Company had insurance in force aggregating
$615,025 and $688,470, 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 $1,520 and $1,272 to cover these deficiencies at December 31,
1996 and 1995, respectively.
49
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
6. POLICY AND CONTRACT ATTRIBUTES (CONTINUED)
In 1994, the NAIC enacted a guideline to clarify reserving methodologies for
contracts that require immediate payment of claims upon proof of death of the
insured. A direct charge to surplus of $80 was made for the year ended December
31, 1994, related to the change in reserve methodology.
7. DIVIDEND RESTRICTIONS
Generally, an insurance company's ability to pay dividends is limited to the
amount that their net assets, as determined in accordance with statutory
accounting practices, exceed minimum statutory capital requirements. However,
payment of such amounts as dividends may be subject to approval by regulatory
authorities. The Company is not entitled to pay out any dividends in 1997
without prior approval.
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 $13, $14 and $12 of pension expense for
the years ended December 31, 1996, 1995 and 1994, 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 $21, $8 and $6 of expense for the years ended December
31, 1996, 1995 and 1994, respectively.
50
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
8. RETIREMENT AND COMPENSATION PLANS (CONTINUED)
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 $2 for the
years ended December 31, 1996, 1995 and 1994.
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 1996,
1995 and 1994, the Company paid $3,539, $3,961 and $1,332, 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 5.48% at December 31, 1996. During 1996, 1995 and
1994, the Company paid net interest of $29, $289 and $72, respectively, to
affiliates.
51
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
10. COMMITMENTS AND CONTINGENCIES
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.
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. Assessments attributable to business reinsured from MONY for
premiums received prior to the date of the transaction will be paid by MONY.
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 Association (NOLHGA). The
Company has established a reserve of $199 and $432 at December 31, 1995 and
1994, respectively, for its estimated share of future guaranty fund assessments
related to several major insurer insolvencies. No such reserve was established
at December 31, 1996. The guaranty fund expense was $167, $(207) and $61 for
the years ended December 31, 1996, 1995 and 1994, respectively.
52
<PAGE>
AUSA Life Insurance Company, Inc.
Summary of Investments - Other Than
Investments in Related Parties
(Dollars in thousands)
December 31, 1996
SCHEDULE I
<TABLE>
<CAPTION>
AMOUNT AT WHICH
MARKET SHOWN IN THE
TYPE OF INVESTMENT COST (1) VALUE BALANCE SHEET (2)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FIXED MATURITIES
Bonds:
United States Government and
government agencies and
authorities $ 674,877 $ 680,987 $ 674,241
States, municipalities and political
subdivisions 8,948 9,399 8,933
Foreign governments 16,283 16,111 16,094
Public utilities 233,895 228,841 229,732
All other corporate bonds 2,591,226 2,594,912 2,566,667
Redeemable preferred stock 125 120 125
---------------------------------------------------
Total fixed maturities 3,525,354 3,530,370 3,495,792
EQUITY SECURITIES
Common stocks - industrial,
miscellaneous and all other 13 18 18
---------------------------------------------------
Total equity securities 13 18 18
Mortgage loans on real estate 618,633 618,633
Real estate 58,100 58,100
Policy loans 755 755
Cash and short-term investments 25,391 25,391
------------ -----------------
Total investments $4,228,246 $4,198,689
============ =================
</TABLE>
(1) Original cost of equity securities and, as to fixed maturities, original
cost reduced by repayments.
(2) Amounts differ from cost as certain bonds have been adjusted to reflect
other than temporary declines in value charged to surplus, as prescribed by
the NAIC.
53
<PAGE>
AUSA Life Insurance Company, Inc.
Supplementary Insurance Information
(Dollars in thousands)
SCHEDULE III
<TABLE>
<CAPTION>
FUTURE POLICY POLICY AND
BENEFITS AND UNEARNED CONTRACT
EXPENSES PREMIUMS LIABILITIES
-------------------------------------------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Individual life $ 19,493 $ - $ 3,826
Individual health 7,687 2,493 11,160
Group life and health 223 - -
Annuity 768,212 - -
-------------------------------------------------
$795,615 $2,493 $14,986
=================================================
YEAR ENDED DECEMBER 31, 1995
Individual life $ 17,935 $ - $ 3,716
Individual health 8,009 2,842 13,515
Group life and health 224 - -
Annuity 709,122 - -
-------------------------------------------------
$735,290 $ 2,842 $17,231
=================================================
YEAR ENDED DECEMBER 31, 1994
Individual life $ 16,357 $ - $ 3,481
Individual health 3,630 2,267 12,037
Group life and health 232 - -
Annuity 581,717 - -
-------------------------------------------------
$601,936 $ 2,267 $15,518
=================================================
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
NET BENEFITS, CLAIMS OTHER
PREMIUM INVESTMENT LOSSES AND OPERATING PREMIUMS
REVENUE INCOME* SETTLEMENT EXPENSES EXPENSES* WRITTEN
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 8,468 $ 2,040 $ 9,087 $ 734 -
40,479 1,734 25,674 12,534 $40,098
8,092 372 6,056 3,044 10,683
1,060,655 319,682 1,016,105 381,783 -
------------------------------------------------------------------------------
$1,117,694 $323,828 $1,056,922 $398,095
==============================================================================
$ 8,388 $ 1,634 $ 8,062 $ 770 -
46,975 1,438 29,657 15,204 $46,558
7,049 306 5,293 970 6,074
1,144,423 314,626 1,181,235 290,402
------------------------------------------------------------------------------
$1,206,835 $318,004 $1,224,247 $307,346
==============================================================================
$ 8,238 $ 1,521 $ 8,404 $ 952 -
42,086 1,209 27,665 14,603 $ 4,326
4,135 261 2,897 854 42,168
656,806 289,016 740,784 228,713 -
------------------------------------------------------------------------------
$ 711,265 $292,007 $ 779,750 $245,122
==============================================================================
</TABLE>
* Allocations of net investment income and other operating expenses are based on
a number of assumptions and estimates, and the results would change if
different methods were applied.
55
<PAGE>
AUSA Life Insurance Company, Inc.
Reinsurance
(Dollars in thousands)
SCHEDULE IV
<TABLE>
<CAPTION>
ASSUMED PERCENTAGE
CEDED TO FROM OF AMOUNT
GROSS OTHER OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1996
Life insurance in force $1,238,554 $ 68,804 $241,117 $1,410,867 17%
======================================================================================
Premiums:
Individual life $ 7,652 $ 560 $ 1,376 $ 8,468 16%
Individual health 39,593 4 890 40,479 2
Group life and health 8,085 - 7 8,092 -
Annuity 1,079,985 27,019 7,689 1,060,655 1
--------------------------------------------------------------------------------------
$1,135,315 $ 27,583 $ 9,962 $1,117,694 1%
======================================================================================
YEAR ENDED DECEMBER 31,
1995
Life insurance in force $1,497,961 $ 34,206 $266,127 $1,729,882 15%
======================================================================================
Premiums:
Individual life $ 7,348 $ 359 $ 1,399 $ 8,388 17%
Individual health 46,609 5 371 46,975 1
Group life and health 7,043 - 6 7,049 -
Annuity 1,146,720 37,944 35,647 1,144,423 3
--------------------------------------------------------------------------------------
$1,207,720 $ 38,308 $ 37,423 $1,206,835 3%
======================================================================================
YEAR ENDED DECEMBER 31,
1994
Life insurance in force $1,616,254 $ 40,221 $296,942 $1,872,975 16%
======================================================================================
Premiums:
Individual life $ 7,143 $ 349 $ 1,442 $ 8,238 18%
Individual health 41,912 6 180 42,086 -
Group life and health 4,129 - 6 4,135 -
Annuity 632,026 105,906 130,686 656,806 20
--------------------------------------------------------------------------------------
$ 685,212 $106,261 $132,314 $ 711,265 19%
======================================================================================
</TABLE>
56
<PAGE>
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
All required financial statements are included in Part B
of this Registration Statement.
(b) Exhibits:
(1) (a) Resolution of the Board of Directors of
AUSA Life Insurance Company, Inc. authorizing
establishment of the Mutual Fund Account.
Note 2.
(2) Not Applicable.
(3) (a) Principal Underwriting Agreement by and between
AUSA Life Insurance Company, Inc. on its own
behalf and on the behalf of the Mutual Fund
Account, and AEGON USA Securities, Inc.
Note 1.
(b) Form of Broker/Dealer Supervision and Sales
Agreement by and between AEGON USA Securities,
Inc. and the Broker/Dealer. Note 1.
(4) (a) Form of Policy for the Endeavor Variable
Annuity. Note 2.
(b) Form of Policy Endorsement. (Dollar Cost Averaging)
Note 4.
(c) Form of Policy Endorsement. (Annuity Commencement
Date, Service Charge) Note 4.
(5) (a) Form of Application for the Endeavor Variable
Annuity. Note 2.
(b) Form of Application for the Endeavor Variable
Annuity. Note 4.
(6) (a) Articles of Incorporation of AUSA
Life Insurance Company, Inc. Note 1.
(b) ByLaws of AUSA Life
Insurance Company, Inc. Note 1.
(7) Not Applicable.
(8) (a) Participation Agreement by and between
AUSA Life Insurance Company, Inc.
and Endeavor Series Trust and Addendum thereto
Note 2.
(b) Participation Agreement with WRL Series Fund,
Inc. and Addendum thereto. Note 2.
(c) Amendment to Participation Agreement by and between
PFL Life Insurance Company and Endeavor Series
Trust. Note 4.
(9) (a) Opinion and Consent of Counsel. Note 2.
1
<PAGE>
(b) Consent of Counsel. Note 2.
(10) (a) Consent of Independent Auditors. Note 4.
(b) Opinion and consent of Actuary Note 4.
(11) Not Applicable.
(12) Not Applicable.
(13) Performance Data Calculations. Note 2.
(14) Powers of Attorney. Note 2. (C.H. Verhagen, L.G. Brown,
W.L. Busler, J.R. Dykhouse, S.E. Frushtick, C.T. Hanson,
B.L. Jenkins, V.F. Mihaic, P.P. Post, T.A. Schlossberg,
E.K. Warren, R.J. Kontz) Note 3. (William Brown, Jr.,
Colette Vargas), (Brenda K. Clancy) Note 4.
Note 1. Filed with the initial filing of this Form N-4 Registration
Statement (File No. 33-83560) on September 1, 1994.
Note 2. Filed with Pre-Effective Amendment No. 1 to Form N-4
Registration Statement (File No. 33-83560) on December 21,
1994.
Note 3. Filed with Post-Effective Amendment No.3 to Form N-4
Registration Statement (File No. 33-83560) on April 24,
1996.
Note 4. Filed Herewith.
Item 25. Directors and Officers of the Depositor
<TABLE>
<CAPTION>
Principal
Positions
Name and and Offices with
Business Address Depositor
- ---------------- ---------
<S> <C>
Larry G. Brown Director,
4333 Edgewood Road, N.E. Chairman of the Board
Cedar Rapids, IA 52499 and Secretary
Tom A. Schlossberg Director and President
4 Manhattanville Road
Purchase, NY 10577
Craig D. Vermie Vice President
4333 Edgewood Road, N.E.
Cedar Rapids, IA 52499
Patrick S. Baird Vice President and
4333 Edgewood Road, N.E. Chief Financial Officer
Cedar Rapids, IA 52499 Officer
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Douglas C. Kolsrud Director and
4333 Edgewood Road, N.E. Chief Actuary
Cedar Rapids, IA 52499
Robert J. Kontz Controller
4333 Edgewood Road, N.E.
Cedar Rapids, IA 52499
Brenda K. Clancy Treasurer
4333 Edgewood Road, N.E.
Cedar Rapids, IA 52499
</TABLE>
Item 26. Persons Controlled by or Under Common Control with the
Depositor or Registrant
<TABLE>
<S> <C> <C> <C> <C> <C>
---------------------------
VERENIGING AEGON
NETHERLANDS MEMBERSHIP
ASSOCIATION
---------------------------
+
53.00%
---------------------------
AEGON N.V.
NETHERLANDS CORPORATION
----------------------------
+
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ + + +
100% 100% 100% 100%
---------------------- ------------------------ ------------------------ -----------------------------
AEGON Netherland N.V. AEGON INTERNATIONAL N.V. AEGON NEWAK HOLDING S.V. GRONINGER FINANCIERINGEN B.V.
Netherlands Corporation Netherlands Corporation Netherlands Corporation Netherlands Corporation
---------------------- ------------------------ ------------------------ -----------------------------
+
DE
-------------------
VOTING TRUST
Trustees: K.J. Storm
Donald J. Sheperd
H.B. Van Wild
Dennis Hersch
-------------------
+
DE 100%
-------------------
AEGON U.S. HOLDING
CORPORATION
-------------------
+ +
++++++++++++++++++++++++++++++++++++ +
+ IA 100%(1)
+ -------------------
+ AEGON USA, INC.
+ -------------------
+ +
+ +++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ + +
+ MD 100% MD
+ ----------------- ------------
+ FIRST AUSA LIFE AUSA HOLDING
+ INSURANCE COMPANY COMPANY
+ ----------------- ------------
+ + +
+ + ++++++++++++++++++++++++++++++++++++++++++++++
+ + + ++
+ + MD 100% IA 100% DE
+ + -------------------- ------------- ++ ----------------------
+ + MONUMENTAL GENERAL AUSA FINACIAL +++ DIVERSIFIED INVESTMENT
+ + INSURANCE GROUP, INC ++ MARKETS, INC. ++ ADVISORS, INC.
+ + -------------------- + ------------- ++ ----------------------
NJ 100% + NY + MD 100% + ++
- ----------------- + ------------------- + ----------------- + ++
SHORT HILLS + AUSA LIFE INSURANCE +++ MONUMENTAL LIFE + IA 100% ++ DE 100%
MANAGEMENT COMPANY+ COMPANY, INC + INSURANCE COMPANY++ MD 100% + ----------- ++ ---------------------
- ----------------- + ------------------- + ----------------- + ------------------- + UNIVERSAL ++ DIVERSIFIED INVESTORS
+ + + MONUMENTAL GENERAL + BENEFITS +++++++ SECURITIES CORP.
+ + + ADMINISTRATORS, INC.+ CORPORATION ++ --------------------
+ + MD 100% + ------------------- + ++
NY + ----------------- + ----------------- + + ----------- ++
- ---------------- + LIFE INVESTORS + MONUMENTAL GENERAL+ + + ++ IA 100%
CORPA REINSURANCE + INSURANCE COMPANY + CASUALTY COMPANY + + IA 100% ++ ----------------
COMPANY ++ ++ OF AMERICA ++ ----------------- + MD 100% + ---------- ++++++++ AEGON USA
- ---------------- ++ ----------------- + MD 100% + ----------------- + INVESTORS ++ +++ SECURITIES, INC.
++ + --------------- + EXECUTIVE MANAGE- + WARRANTY ++ + ----------------
IN 100% ++ ------------------- + UNITED FINACIAL + MENT AND CONSULT- + OF AMERICA, ++ +
- ---------------- +++BANKERS UNITED LIFE + SERVICES, INC. +++ ANT SERVICES, INC.+ + INC. ++ +
AEGON MANAGEMENT ++ ASSURANCE COMPANY +++ --------------- + ----------------- + ---------- ++ + MD
COMPANY + ------------------- + + MD 100% + IA 100% ++ + -----------------
- ---------------- + + AZ (*) + ------------------ + ------------- ++ +++ AEGON USA MANAGED
+ ----------------- + ---------------- + MONUMENTAL GENERAL+ + MASSACHUSETTS ++ PORTFOLIOS INC.
DE 100% + PFL LIFE ++++ BANKERS FINACIAL + MASS MARKETING INC. FIDELTY TRUST +++ -----------------
- ----------------- + INSURANCE COMPANY + LIFE INSURANCE +++ ------------------- COMPANY ++
RCC NORTH AMERICA + ----------------- + COMPANY + ------------ ++
INC. ++ AZ 100% VOTING + ---------------- + DE 100% ++ IA 100%
- ----------------- + CHAIRMAN MD 100% + ------------------ ++ ------------------
---------------------+ -------------- + MONEY SERVICES, INC.++++ AMERICAN FORUM FOR
SOUTHWEST EQUITY LIFE+ THE WHITESTONE + ------------------- ++ FISCAL FITNESS, INC.
INSURANCE COMPANY+++ CORPORATION +++++ CA 100% -------------------
---------------------+ -------------- ------------------- ++ IN 100%
AZ 100% Voting Chairman (2) + IA 100% ZAHORIK COMPANY INC+++ --------------
----------------------- + ------------------ --------------------++ SUPPLEMENTAL
IOWA FIDELITY LIFE +++ CADET HOLDING CORP + ++ INSURANCE
INSURANCE COMPANY + ------------------ AL 100% ++ DIVISION INC.
----------------------- + ---------- +++++++ --------------
OH 100% + ZCI, INC. ++ MI 100%
--------------------- --------- +++++++ ------------------
WESTERN RESERVE LIFE + +++++++++++++++++++++++++++++++++++++ CREDITOR RESOURCES
++++ ASSURANCE CO. OF OHIO+++ DE + ++ INC.
+ --------------------- --------------- + ++ ------------------
+ --------------- INTERSECURITIES+++++++++++++ ++ +
++++++++ WRL SERIES FUND ++++++ INC. +++++ + ++ CN 100%
INC. + --------------- + + ++ -------------------
--------------- + + + ++ CRC CREDITOR
MA + CA 100% + + MN 100% RESOURCES CANADIAN
--------- + ---------------- + + ------------------------ ++ DEALER NETWORK, INC.
IDEX FUND++++++ ISI INSURANCE + + AUSA INSTITUTIONAL ++++++++++ -------------------
--------- + AGENCY INC. AND+++++ + MARKETING PARTNERS, INC. ++
+ ITS SUBSIDIARIES + + ------------------------ ++ IA 100%
MA + ---------------- + + MN 100% ++ --------------------
----------- + MN 100% + + ---------------- ++++ AEGON USA INVEST-
IDEX II +++++++ ------------------- + + COLORADO ANNUITY+++++++++++++++ MENT MANAGEMENT, INC.
SERIES FUND + ASSOCIATED MARINER ++ + AGENCY INC. + ---------------------
----------- + FINANCIAL GROUP, INC.+++ + ---------------- + IA 100%(12)
MA + ------------------- + + + -----------------
----------- + MI 100% + +++++ AEGON USA REALTY
IDEX FUND 3 +++++ ----------------- + + ++++ ADVISORS, INC.
----------- + MARINER FINANCIAL+++++ + + -----------------
+ SERVICES, INC. + + + DE 100%
+ ----------------- + + + -----------
+ + + +++++++ QUANTRA
+ MI 100% + + + CORPORATION
+ ------------------ + + + -----------
+ MARINER'S PLANNING + + + +
+ CORPORATION + + + DE 100%
+ ------------------ + + + ----------------
+ + + + QUANTRA SOFTWARE
+ MI 100%(10) + + + CORPORATION
+ ------------------- + + + ----------------
+ ASSOCIATED MARINER + + + IA 100%
+ AGENCY INC. AND ITS++++ + + ---------------
+ SUBSIDIARIES + + ++++LANDAUER REALTY
+ ------------------- + + + ADVISORS, INC.
+ MI 100% + + + ---------------
+ ---------------- + + + DE 100%
+ MARINER MORTGAGE + + + ----------------
+ CORP. ++++++ + ++++++ LANDAUER
+ ---------------- + + ASSOCIATES, INC.
+ + + ----------------
+ FL 100% + + IA 100%
+ -------------- + + ----------------
+ IDEX INVESTOR +++++++++++++ ++++++ AEGON USA REALTY
+++++SERVICES, INC. + + MANAGEMENT, INC
+ -------------- + + ----------------
+ DE 50%(7) + + IA 100%(11)
+ --------------- + + ------------------
+ IDEX MANAGEMENT,+++++++++++ +++++ REALTY INFORMATION
++++ INC. SYSTEMS, INC.
--------------- ------------------
IA (4)
----------------
USP REAL ESTATE++++
INVESTMENT TRUST +
---------------- +
(5) +
----------------- +
CEDAR INCOME FUND+++
LTD.
-----------------
</TABLE>
See Footnotes Page 2
Effective January 1, 1997
Page 2
Footnotes
(1) 150,000 shares of Class B Non-Voting Common Stock owned by Ennia
Reinsurance Antilles N.V.
(2) Ordinary common stock is allowed 60% of total cumulative vote.
Participating common stock is allowed 40% of total cumulative vote.
(3) Denotes relationships as advisor, administrator, sponsor, underwriter or
general partner.
(4) First AUSA Life Insurance Company owns 12.89%. PFL Life Insurance Company
owns 13.11%. Bankers United Life Assurance Company owns 4.86%.
(5) PFL Life Insurance Company owns 16.73%. Bankers United Life Assurance
Company owns 3.77%. Life Investors Insurance Company of America owns
3.38%. AEGON USA Realty Advisors, Inc. owns 1.97%. First AUSA Life
Insurance Company owns .18%.
(6) Class B Common stock is allocated 75% of total cumulative vote. Class A
Common stock is allocated 25% of total cumulative vote.
(7) 50% of Idex Management, Inc. is owned by Janus Capital Corporation, a
Colorado corporation.
(8) RCC Group: FGH Realty Credit Corp., FGH USA, Inc., RCC North America,
Inc., FGH USA Realty, Inc., FGH Eastern Region, Inc., FGH Appraisal
Services, Inc., FGH Western Region, Inc., ALH Properties, Inc., First FGP,
Inc., Second FGP, Inc., Third FGP, Inc., Fourth FGP, Inc., Fifth FGP, Inc.,
Sixth FGP, Inc., Seventh FGP, Inc., FGP Midwood, Inc., FGP Parsippany,
Inc., ALH Properties Two, Inc., ALH Properties Three, Inc., ALH Properties
Four, Inc., ALH Properties Five, Inc., ALH Properties Six, Inc., ALH
Properties Seven, Inc., ALH Properties Eight, Inc., ALH Properties Nine,
Inc., ALH Properties Ten, Inc., ALH Properties Eleven, Inc., ALH Properties
Twelve, Inc., ALH Properties Thirteen, Inc., ALH Properties Fourteen, Inc.,
ALH Properties Fifteen, Inc., ALH Properties Sixteen, Inc., ALH Properties
Seventeen, Inc., FGP Keene, Inc., FGP Broadway, Inc., FGP West Street,
Inc., FGP West Street Two, Inc., FGP 90 West Street, Inc., FGP Branford,
Inc., FGP Franklin, Inc., FGP Bala, Inc., FGP Twenty-One, Inc., FGP Twenty-
Two, Inc., FGP Twenty-Five, Inc., FGP Schenectady, Inc., FGP Country
Estates, Inc., FGP Eleventh Street, Inc., FGP 109th Street, Inc., FGP
Seventy-Second Street, Inc., FGP Gaithersburg, Inc., FGP West 32nd Street,
Inc., FGP Beekman, Inc., Dutch Hotel Management, Inc., FGP Landmark, Inc.,
FGP Islandia, Inc., FGP Bridgeport, Inc., FGP Varick, Inc., The RCC Group,
Inc., FGP Union Gardens, Inc., FGP Burkewood, Inc., FGP Stamford, Inc., FGP
Meadow Lane, Inc., FGP Main Street, Inc., FGP Property Services, Inc., FGP
Merrick, Inc., FGP West 14th Street, Inc., FGP 106 Fulton, Inc., FGP Bush
Terminal, Inc., FGP Northern Boulevard, Inc., FGP Seventh Avenue, Inc., FGP
Parsons, Inc., FGP City Hall, Inc., FGP West 88th Street, Inc., FGP
Lincoln, Inc., FGP Emerson, Inc., FGP Brooke, Inc., FGP 86th Street, Inc.,
FGP Edison, Inc., FGP Rider Avenue, Inc., FGP Remsen, Inc., FGP Rockbeach,
Inc., FGP Carter Drive, Inc., FGP Centereach, Inc., FGP Colonial Plaza,
Inc., FGP Coram, Inc., FGP Herald Center, Inc., Eighty Six Yorkville, Inc.
(9) Subsidiaries of ISI Insurance Agency, Inc. are: ISI Insurance Agency of
Ohio, Inc., ISI Insurance Agency of Massachusetts, Inc., and ISI Insurance
Agency of Texas, Inc.
(10) Subsidiaries of Associated Mariner Agency, Inc. are Associated Mariner
Agency of Hawaii, Inc., Associated Mariner Insurance Agency of
Massachusetts, Inc., Associated Mariner Agency Ohio, Inc., Associated
Mariner Agency Texas, Inc., and Associated Mariner Agency New Mexico, Inc.
(11) Owns 50% interest in DJA Partners (a.k.a. "Teleres"), a Delaware general
partnership. Also owns 10% interest in Datalytics, Inc., an Ohio
corporation.
(12) Owns 49% of Quantra Consulting, Inc., a Delaware corporation.
*Includes qualifying shares for Directors.
AEGON USA, Inc. - Holding Company
Life Investors Insurance Company of America - Insurance
International Life Investors Insurance Company - Insurance
Transunion Casualty Company - Insurance
Investors Warranty of America, Inc. - Provider of automobile extended
maintenance contracts
Supplemental Insurance Division, Inc. - Insurance
AEGON USA, Inc. - Holding Company
Life Investors Insurance Company of America - Insurance
PFL Life Insurance Company
Transunion Casualty Company - Insurance
Investors Warranty of America, Inc. - Provider of automobile extended
maintenance contracts
Supplemental Insurance Division, Inc. - Insurance
Creditor Resources, Inc. - Credit Insurance
AEGON USA Investment Management, Inc. - Investment Advisor
AEGON USA Realty Advisors, Inc. - Provides real estate administrative
and real estate investment services
AEGON USA Realty Management, Inc. - Real Estate Management
AEGON USA Securities, Inc. - Broker-Dealer
AEGON USA Managed Portfolios, Inc. - Mutual Fund
USP Real Estate Investment Trust - Real Estate Investment Trust
Cedar Income Fund, Ltd. - Real Estate Investment Trust
First AUSA Life Insurance Company - Insurance
Bankers United Life Assurance Company - Insurance
3
<PAGE>
Universal Benefits Corporation - Third party administrator
Massachusetts Fidelity Trust Company - Trust company
Money Services, Inc. - Provides financial counseling for employees and
agents of affiliated companies
Zahorik Company, Inc. - Broker-Dealer
Cadet Holding Corp. - Holding company
ISI Insurance Agency, Inc. - Broker/Dealer
Southwest Equity Life Insurance Company - Insurance
Iowa Fidelity Life Insurance Company - Insurance
The Whitestone Corporation - Insurance agency
Monumental Life Insurance Company - Insurance
United Financial Services, Inc. - General agency
Monumental General Insurance Group, Inc. - Holding company
Monumental General Administrators, Inc. - Provides management services
to unaffiliated third party administrator
Executive Management and Consultant Services, Inc. - Provides
actuarial consulting services
Monumental General Mass Marketing, Inc. - Marketing arm for sale of
mass marketed insurance coverages
Bankers Financial Life Insurance Company - Insurance
Monumental General Casualty Company - Insurance
4
<PAGE>
AUSA Holding Company - Holding company
JLW Financial Management Systems, Inc. - Management and Administrative
Services
ZCI, Inc. - Insurance agency
AUSA Financial Markets, Inc. - Marketing
CRC Creditor Resources Canadian Dealer Network Inc. - Insurance agency
American Forum For Fiscal Fitness, Inc. - Marketing
Western Reserve Life Assurance Co. of Ohio - Insurance
Landauer Realty Advisors, Inc. - Real estate counseling
Landauer Associates, Inc. - Real estate counseling
WRL Series Fund, Inc. - Mutual fund
Intersecurities, Inc. - Broker-dealer
Idex Investor Services, Inc. - Shareholder services
Idex Management, Inc. - Investment advisor
Idex Total Income Trust - Mutual fund
Idex Fund - Mutual fund
Idex II Series Fund - Mutual fund
Idex Fund 3 - Mutual fund
Diversified Investment Advisors, Inc. - Registered Investment Adviser
Diversified Investors Securities Corp. - Broker-Dealer
AUSA Life Insurance Company, Inc. - Insurance
International Life Investors Insurance Company - Insurance
AMCORP, Inc. - Insurance agency
Colorado Annuity Agency, Inc. - Insurance agency
Realty Information Systems, Inc. - Dow Jones joint venture
Associated Mariner Financial Group, Inc. - Holding company management
services
5
<PAGE>
Mariner Financial Services, Inc. - Broker-dealer
Mariner/ISI Planning Corporation - Financial planning
Associated Mariner Agency, Inc. - Insurance agency
Mariner Mortgage Corp. - Mortgage origination
Melson and Associates, Inc. - Real estate financial management consulting
Item 27. Number of Policyowners
As of December 31, 1996, there were 783 Owners of the
Policies.
Item 28. 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 29. Principal Underwriter
AEGON USA Securities, Inc.
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499
The directors and officers of
AEGON USA Securities, Inc.
are as follows:/5/
6
<PAGE>
Patrick E. Falconio
Director
William L. Busler
Director
Brenda K. Clancy
Director
Robert A. Thelen
Senior Vice-President
Lorri E. Mehaffey
President
Billy J. Berger
Vice President and Assistant Treasurer
Lisa Wachendorf
Vice President
Linda Gilmer
Vice President and Treasurer
Donna M. Craft
Vice President
Frank A. Camp
Secretary
Shelley Davenport
Assistant Vice President
_____________________
/5/ The principal business address of each person listed is AEGON USA
Securities, Inc., 4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499.
Commissions and Other Compensation Received by Principal Underwriter.
- --------------------------------------------------------------------
AEGON USA Securities, Inc. and/or the broker-dealers received $1,628,150 from
the Registrant during the last fiscal year 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.
Item 30. 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,
7
<PAGE>
Inc. at 666 Fifth Avenue, New York, New York 10103, or its Service Office,
Financial Markets Division - Variable Annuity Dept., 4333 Edgewood Road N.E.,
Cedar Rapids, Iowa 52499.
Item 31. Management Services.
All management Policies are discussed in Part A or
Part B.
Item 32. Undertakings
(a) 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.
(b) 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.
(c) 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 at the address or phone
number listed in the Prospectus.
(d) AUSA Life Insurance Company hereby represents that the fees and
charges deduted 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.
Section 403(b) Representations
- ------------------------------
AUSA 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.
8
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant hereby certifies that this Amendment to the Registration
Statement meets the requirements for effectiveness pursuant to paragraph (b) of
Rule 485 and has caused this Registration Statement to be signed on its behalf,
in the City of Cedar Rapids and State of Iowa, on this 29th day of April, 1997.
AUSA ENDEAVOR VARIABLE
ANNUITY ACCOUNT
AUSA LIFE INSURANCE
COMPANY, INC.
Depositor
/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 duties indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ William Brown, Jr. Director April 29, 1997
- ------------------------
William Brown, Jr.
/s/ Larry G. Brown Director April 29, 1997
- ------------------------
Larry G. Brown
/s/ William L. Busler Director April 29, 1997
- ------------------------
William L. Busler
/s/ Jack R. Dykhouse Director April 29, 1997
- ------------------------
Jack R. Dykhouse
/s/ Steven E. Frushtick Director April 29, 1997
- ------------------------
Steven E. Frushtick
/s/ Carl T. Hanson Director April 29, 1997
- ------------------------
Carl T. Hanson
/s/ B. Larry Jenkins Director April 29, 1997
- ------------------------
B. Larry Jenkins
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Colette Vargas Director April 29, 1997
- ----------------------------
Colette Vargas
/s/ Vera F. Mihaic Director April 29, 1997
- ----------------------------
Vera F. Mihaic
/s/ Peter P. Post Director April 29, 1997
- ----------------------------
Peter P. Post
/s/ Tom A. Schlossberg Director April 29, 1997
- ---------------------------- (Principal
Tom A. Schlossberg Executive Officer)
/s/ Cor H. Verhagen Director April 29, 1997
- ----------------------------
Cor H. Verhagen
/s/ E. Kirby Warren Director April 29, 1997
- ----------------------------
E. Kirby Warren
/s/ Brenda K. Clancy Treasurer April 29, 1997
- ----------------------------
Brenda k. Clancy
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION OF EXHIBIT NO.*
------- ---------------------- ----
<S> <C> <C>
(4)(b) Form of policy Endorsement
(Dollar Cost Averaging) Note 4
(4)(c) Form of Policy Endorsement
(Annuity Commencement Date,
service charge) Note 4.
(5)(b) Form of Application for the
Endeavor Variable Annuity. Note 4.
(8)(c) Amendment to Participation Agreement
by and between PFL Life Insurance
Company and Endeavor Series Trust.
(10)(a) Consent of Independent Auditors
(10)(b) Opinion and Consent of Actuary
(14) Powers of Attorney
</TABLE>
_________________________________________________________
*Page numbers included only in manually executed original.
<PAGE>
REGISTRATION NO.
33-83560
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
EXHIBITS
TO
FORM N-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FOR
AUSA ENDEAVOR VARIABLE ANNUITY ACCOUNT
_______________
<PAGE>
EXHIBIT (4)(B)
--------------
FORM OF POLICY ENDORSEMENT
(DOLLAR COST AVERAGING)
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC
A Stock Company Home Office located at: Purchase, New York
Adm. Office located at: 4333 Edgewood Road N.E., Cedar Rapids, Iowa 52499
(Hereafter called the Company, we, our or us)
AMENDATORY ENDORSEMENT
The Policy to which this Amendatory Endorsement is attached is amended by the
addition of the following language:
DOLLAR COST AVERAGING
You may instruct us to automatically transfer a specified amount from the
Money Market Subaccount, the One Year Fixed Subaccount or the U.S.
Government Securities Subaccount to any other Subaccount or Subaccounts of
the Mutual Fund Account. The automatic transfers can occur monthly or
quarterly and will occur on the 28th day of the month. The first transfer
will occur on the 28th day of the month following our receipt of the Dollar
Cost Averaging request.
You may elect Dollar Cost Averaging at any time. Transfers will continue
until the Subaccount value is depleted. The amount transferred each time
must be at least $500.00. A minimum of 6 monthly or 4 quarterly transfers
are required.
You may increase or decrease the amount of the transfers by sending us a
new Dollar Cost Averaging form. You may discontinue the Dollar Cost
Averaging at any time by sending a written notice to us.
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.
Signed for us at our home office.
/s/ Larry G. Brown /s/ Tom A. Schlossberg
SECRETARY PRESIDENT
[SEAL APEARS HERE]
<PAGE>
EXHIBIT (4)(C)
--------------
FORM OF POLICY ENDORSEMENT
(ANNUITY COMMENCEMENT DATE, SERVICE CHARGE)
<PAGE>
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
[SEAL APPEARS HERE]
Section 1 is amended as follows:
BENEFICIARY
Before the Annuity Commencement Date, the person to whom the death proceeds
will be paid if the annuitant who is the owner dies (or is the annuitant
who is not the owner dies, and the owner has elected to have the death
proceeds paid upon the annuitant's death and we agree with such election).
After the Annuity Commencement Date, the person to whom payments will be
made if the annuitant dies.
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. If
there is more than one owner, then the death of any owner will be treated
the same as the death of the owner.
The Service Charge in Section 4 is amended b the addition of the following:
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 equal at least
$50,000 on that policy anniversary.
The Guaranteed Return of Fixed Account Payments in Section 5 is amended to be:
You will always receive at least the premiums paid to, less prior
withdrawals and transfers from, the Fixed Account.
The maximum amount that can be transferred out of the Fixed Account during any
policy year as stated in Section 7 is amended to be:
The maximum amount that can be transferred out of the Fixed Account during
any policy years is the larger of 1) 25% of the current policy value in the
Fixed Account or 2) the amount transferred out of the Fixed Account during
the previous policy year. No transfers will be allowed out of the one year
Fixed Account except through dollar cost averaging.
Section 8 is amended to be:
A. PRIOR TO ANNUITY COMMENCEMENT DATE
Unless the owner has elected to have the death proceeds paid to the
Beneficiary upon the annuitant's death, and we agree to such election, the
owner will become the annuitant if the annuitant who is not the owner dies
before the Annuity Commencement Date.
When we have proof that the annuitant who is the owner has died before the
Annuity Commencement Date (or that the annuitant has died, if the owner has
elected to have the death proceeds paid upon the annuitant's death and we
agree to such election), we will provide death proceeds to the beneficiary
upon return of the policy.
The amount of the death proceeds will be the greater of (a) or (b) where:
(a) is the policy value on the date we receive due proof of death and
an election of a method of settlement, and:
(b) is the Guaranteed Minimum Death Benefit.
<PAGE>
The Guaranteed Minimum Death Benefit is equal to the largest Policy Value
on the issue date or on any policy anniversary prior to the owner's 81st
birthday, plus any premiums paid, less any Adjusted Partial Withdrawals
taken, subsequent to the date of the largest anniversary Policy Value.
Adjusted Partial Withdrawals are equal to the ratio of a) the amount of
partial withdrawal taken to b) the Policy Value on the date of, but prior
to the partial withdrawal, times c) the amount of the death proceeds on the
date of, but prior to the partial withdrawal.
Interest on death proceeds will be paid as required by law.
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 Section 9.
The beneficiary who is the deceased owner's surviving spouse may elect to
continue this policy rather than receiving the death proceeds. If the
beneficiary is not the deceased owner's surviving spouse, or if the death
proceeds are being paid upon the death of the annuitant who was not an
owner, the death proceeds must be distributed: a) within five years of the
date of death, or b) payments must begin within one year of the date of
death and must be made for a period certain or for the beneficiary's
lifetime, so long as any period certain does not exceed that beneficiary's
life expectancy. Death proceeds which are not paid to or for the benefit of
a natural person must be distributed within 5 years of the date of death.
B. 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 owner dies on or after the Annuity
Commencement Date, the remaining portion of any 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 owner's death.
The payment provision of Section 9.A. is amended to be:
PAYMENT
If the annuitant is living and this policy is in force on the Annuity
Commencement Date, we will use the Policy 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. Before the Annuity
Commencement Date, if the annuitant who is the owner dies (or if the
annuitant dies, and the owner has elected to have the death proceeds paid
upon the annuitant's death and we agree with such election) 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 the selection. If we agree, the proceeds may be placed
under some other method of payment instead.
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 an option.
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. Vermie /s/ Tom A. Schlossberg
SECRETARY PRESIDENT
<PAGE>
EXHIBIT (5)(B)
--------------
FORM OF APPLICATION
<PAGE>
AUSA LIFE INSURANCE COMPANY
HOME OFFICE: 4 MANHATTANVILLE ORAD, PURCHASE, NY 10577 APPLICATION FOR
ADMINISTRATIVE OFFICE: 4333 EDGEWOOD ROAD NE VARIABLE ANNUITY
CEDAR RAPIDS, IOWA 52499 CONTRACT
- --------------------------------------------------------------------------------
1. DESIGNATED ANNUITANT
- --------------------------------------------------------------------------------
NAME:
- --------------------------------------------------------------------------------
ADDRESS:
- --------------------------------------------------------------------------------
CITY, STATE:
- ------------------------------- -----------------------------------------------
ZIP:_____ ______ TELEPHONE:
- ------------------------------- -----------------------------------------------
DATE OF BIRTH: SEX: MALE [_] FEMALE [_]
- -------------------------------- -----------------------------------------------
SS#: CITIZENSHIP: U.S. [_] OTHER [_]
- -------------------------------- -----------------------------------------------
2. CONTRACT OWNER (IF OTHER THAN ABOVE)
- --------------------------------------------------------------------------------
NAME:
- --------------------------------------------------------------------------------
ADDRESS:
- --------------------------------------------------------------------------------
CITY, STATE: ZIP:
- --------------------------------------------------------------------------------
TELEPHONE:
- --------------------------------------------------------------------------------
- ----------------------------------------- ------------------------------------
DATE OF BIRTH: SEX: MALE [_] FEMALE [_]
- ----------------------------------------- ------------------------------------
SS#/TAX ID#: CITIZENSHIP: U.S. [_] OTHER [_]
- ----------------------------------------- ------------------------------------
3. JOINT CONTRACT OWNER* [_] SUCCESSOR CONTRACT OWNER* [_]
- --------------------------------------------------------------------------------
NAME:
- --------------------------------------------------------------------------------
ADDRESS:
- --------------------------------------------------------------------------------
CITY, STATE, ZIP
- --------------------------------------------------------------------------------
TELEPHONE:
- --------------------------------------------------------------------------------
DATE OF BIRTH: SEX: MALE [_] FEMALE [_]
- ------------------------------------ ----------------------------------------
SS#/TAX ID#: CITIZENSHIP: U.S. [_] OTHER [_]
- ------------------------------------ ----------------------------------------
*In the event the owner is a trust or plan, a copy of the trust/plan agreement
must be submitted.
4. BENEFICIARY DESIGNATION
------------------------------------------------------------------------------
NAME
------------------------------------------------------------------------------
RELATIONSHIP TO ANNUITANT
------------------------------------------------------------------------------
NAME OF CONTINGENT BENEFICIARY
------------------------------------------------------------------------------
RELATIONSHIP TO ANNUITANT
------------------------------------------------------------------------------
5. TYPE OF ANNUITY
------------------------------------------------------------------------------
NON-QUALIFIED [_] SEP (Complete Box 6) [_]
HR-10 [_] IRA (Complete Box 6) [_]
403(b) (Complete Box 6) [_]
OTHER [_]
_________________________________________________________
------------------------------------------------------------------------------
6. IRA/SEP INFORMATION
$ __________ CONTRIBUTION FOR TAX YEAR ________________
$ __________ TRUSTEE TO TRUSTEE TRANSFER
$ __________ ROLLOVER FROM: (Check one) 403(b) [_] Pension [_] HR-10[_]
OTHER:[_] ___________________________________
------------------------------------------------------------------------------
7. PURCHASE PAYMENTS
(MAKE CHECK PAYABLE TO PFL LIFE INSURANCE COMPANY, INC.)
------------------------------------------------------------------------------
PREMIUM AMOUNT(S) $ ______________________________
------------------------------------------------------------------------------
I WOULD LIKE TO BE BILLED FOR FUTURE PAYMENTS: NO [_]
YES [_]...ANNUALLY [_] QUARTERLY [_]
------------------------------------------------------------------------------
8. ALLOCATION OF PREMIUM PAYMENTS (WHOLE PERCENTAGES ONLY)
------------------------------------------------------------------------------
TRUST COMPANY OF THE WEST
MANAGED ASSET ALLOCATION SUB-ACCOUNT .0%
--------------
MONEY MARKET SUB-ACCOUNT .0%
--------------
------------------------------------------------------------------------------
QUEST FOR VALUE ADVISORS
SMALL CAP SUB-ACCOUNT .0%
--------------
EQUITY SUB-ACCOUNT .0%
--------------
------------------------------------------------------------------------------
BOSTON ADVISORS
U.S. GOVERNMENT SECURITIES PORTFOLIO .0%
--------------
------------------------------------------------------------------------------
JANUS CAPITAL CORP.
GROWTH PORTFOLIO .0%
--------------
------------------------------------------------------------------------------
ROWE PRICE FLEMING
INTERNATIONAL STOCK PORTFOLIO .0%
--------------
------------------------------------------------------------------------------
AUSA LIFE INSURANCE COMPANY, INC.
FIXED ACCOUNT - 1 YEAR GUARANTEE (FOR DOLLAR COST
AVERAGING ONLY) .0%
--------------
FIXED ACCOUNT - 3 YEAR GUARANTEE .0%
--------------
------------------------------------------------------------------------------
OTHER: .0%
----------------------------------------------------- --------------
.0%
------------------------------------------------------------ --------------
.0%
------------------------------------------------------------ --------------
.0%
------------------------------------------------------------ --------------
.0%
------------------------------------------------------------ --------------
------------------------------------------------------------------------------
INVESTMENT ALLOCATIONS MUST TOTAL 100%
9. WILL THIS ANNUITY REPLACE ANY EXISTING ANNUITY OR LIFE INSURANCE?
------------------------------------------------------------------------------
NO [_] YES [_]
IF ANSWER IS YES, PLEASE STATE COMPANY NAME AND POLICY NUMBER.
_____________________________________________________________________________
_____________________________________________________________________________
------------------------------------------------------------------------------
[SEAL APPEARS HERE]
VA-APP 995 (CONTINUED ON THE BACK PAGE)
YOUR SIGNATURE IS REQUIRED ON THE BACK PAGE
<PAGE>
APPLICATION FOR
VARIABLE ANNUITY CONTRACT
- --------------------------------------------------------------------------------
10. DOLLAR COST AVERAGING
- --------------------------------------------------------------------------------
By signing below I (We) authorize PFL Life Insurance Company to transfer funds
from my selected account to invest in the portfolio(s), in the amount
indicated below. Transfers ill 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 PFL Life's
Dollar Cost Averaging program is subject to the rules and restrictions
associated with the PFL Life contract and at the time the program begins there
must be sufficient Annuity Purchase Value to cover six month's transfers.
<TABLE>
<CAPTION>
<S> <C> <C>
TRANSFER FROM: [_] One Year Fixed Account; or PLEASE INVEST IN FOLLOWING ACCOUNTS FOR EACH TRANSFER:
[_] Domestic Money Market Portfolio; or Domestic Managed Asset Allocation .0% International Stock .0%
-------- ---------
[_] U.S. Govt. Securities Portfolio Growth Portfolio (Mang. by Janus) .0% U.S. Govt. Sec. Port. .0%
-------- ---------
PLEASE INVEST: $______________________ [_] Monthly Quest for Value Small Cap. .0% Quest for Value Equity .0%
-------- ---------
Other: .0%
--------------------------------------------------- ---------
[_] Quarlerly, [_] Semi-Annually, or [_] Annual
</TABLE>
- --------------------------------------------------------------------------------
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 not 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.
[_] Please check if you wish to receive the Statement of Additional
Information. Receipt of a current prospectus of the PFL Endeavor Variable
annuity Account, Endeavor Series Trust and WRL Series Fund, Inc. is hereby
acknowledged.
ADDITIONAL FORMS ARE REQUIRED FOR SYSTEMATIC WITHDRAWALS.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
BE SURE TO COMPLETE THIS SECTION
<S> <C>
SIGNED AT:
_______________________________________ _________________________________________________________________________________
CITY SIGNATURE OF CONTRACT OWNER
_______________________________________
STATE
_______________________________________ _________________________________________________________________________________
ZIP SIGNATURE OF JOINT/SUCCESSOR OWNER (WHERE APPLICABLE)
_______________________________________ _________________________________________________________________________________
DATE SIGNED: SIGNATURE OF ANNUITANT
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SELLING AGENT USE ONLY - NOT TO BE FILLED IN BY APPLICANT
<S> <C> <C>
___________________________________________________________ ______________________________________________________________
AGENT NAME (PLEASE PRINT) AGENTS FIRM
______________________________________________________________
AGENTS ADDRESS
___________________________________________________________ ______________________________________________________________
SIGNATURE OF LICENSED AGENT AGENTS PHONE NO.
___________________________________________________________ _____________________________________________________________
BROKER/DEALER CLIENT ACCOUNT # ILI AGENT # DATE
DO YOU HAVE REASON TO BELIEVE THE CONTRACT APPLIED FOR IS TO REPLACE ANY
EXISTING ANNUITY OR INSURANCE OWNED BY APPLICANT? NO [_] YES [_]
If yes, what Company: _____________________________________________________________________________________________________________
- ------------------------------------------------------------------------------------------------------------------------------------
</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 995 PLEASE FILL OUT THE FRONT PAGE TXS0911SC 995
- --------------------------------------------------------------------------------
<PAGE>
Exhibit (8) (c)
---------------
Amendment to Participation Agreement by and between PFL Life Insurance company
and Endrouce Series Trust Notes 12.
<PAGE>
AMENDED
SCHEDULE A
EFFECTIVE MARCH 13, 1997
Account(s), Policy(ies) and Portfolio(s)
Subject to the Participant Agreement
------------------------------------
Account PFL Endeavor Variable Annuity Account
- -------
AUSA Endeavor Variable Annuity Account
PFL Life Variable Annuity Account A
Policies The Endeavor Variable Annuity
- --------
The Endeavor Platinum Variable Annuity
The AUSA Endeavor Variable Annuity
The Atlas Portfolio Builder Variable Annuity
Portfolios TCW Managed Asset Allocation
- ----------
TCW Money Market
T. Rowe Price International Stock
Value Equity
Dreyfus Small Cap Value
Dreyfus U.S. Government Securities
T. Rowe Price Equity Income
T. Rowe Price Growth Stock
Opportunity Value
Enhanced Index
Approved:
ENDEAVOR MANAGEMENT CO. PFL LIFE INSURANCE COMPANY
By: /s/ Vincent J. McGuinness By: /s/ William L. Busler
------------------------------ ----------------------------
Vincent J. McGuinness, Sr. William L. Busler
Title: CEO Title: President
------------------------------ ----------------------------
Date: March 13, 1997 Date: March 13, 1997
------------------------------ ----------------------------
AUSA LIFE INSURANCE COMPANY ENDEAVOR SERIES TRUST
By: /s/ William L. Busler By: /s/ James R. McInnis
------------------------------ ----------------------------
Williams L. Busler James R. McInnis
Title: Vice President Title: President
------------------------------ ----------------------------
Date: March 13, 1997 Date: March 13, 1997
------------------------------ ----------------------------
<PAGE>
EXHIBIT (10)(A)
---------------
CONSENT OF INDEPENDENT AUDITORS
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP]
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Statements" in the Prospectus and "Independent Auditors" in the Statement of
Additional Information and to the use of our report dated January 31, 1997 with
respect to the financial statements of The AUSA Endeavor Variable Annuity
Account, and to the use of our report dated February 21, 1997 with respect to
the statutory-basis financial statements and schedules of AUSA Life Insurance
Company, Inc., included in Post-Effective Amendment No. 4 to the Registration
Statement (Form N-4 No. 33-83560) and related Prospectus of the AUSA Endeavor
Variable Annuity Account.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
Des Moines, Iowa
April 25, 1997
<PAGE>
EXHIBIT (10)(B)
---------------
OPINION AND CONSENT OF ACTUARY
<PAGE>
April 10, 1997
AUSA Life Insurance Company
666 Fifth Avenue
New York, NY 10103
RE: AUSA ENDEAVOR VARIABLE ANNUITY ACCOUNT REGISTRATION ON FORM N-4
SEC FILE NO. 33-83560
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 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.
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
<PAGE>
AUSA Life Insurance Company
April 10, 1997
Page 2
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
<PAGE>
EXHIBIT (14)
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POWER OF ATTORNEY
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO
AUSA ENDEAVOR VARIABLE ANNUITY
Know all men by these presents that BRENDA K. CLANCY, whose signature appears
below, constitutes and appoints Larry G. Brown and Craig D. Vermie, and each of
them, her attorneys-in-fact, each with the power of substitution, for her in any
and all capacities, to sign any registration statements and amendments thereto
for the AUSA Endeavor Variable Annuity, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute, may do or cause to be done by virtue
hereof.
/s/ Brenda K. Clancy
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Brenda K. Clancy
Treasurer
AUSA Life Insurance Company
April 29, 1997
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Date
