As filed with the Securities and Exchange
Commission on April 21, 2000
Registration File Nos. 333-38343/811-8878
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 2
FORM S-6
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FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
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AUSA SERIES LIFE ACCOUNT
(Exact Name of Trust)
AUSA LIFE INSURANCE COMPANY, INC.
(Name of Depositor)
4 Manhattanville Road
Purchase, New York 10577
(Complete Address of Depositor's Principal Executive Offices)
Thomas E. Pierpan, Esq.
Assistant Secretary
AUSA Life Insurance Company, Inc.
P.O. Box 9054
Clearwater, Florida 33758-9054
(Name and Complete Address of Agent for Service)
Copies to:
Stephen E. Roth, Esq.
Sutherland Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2415
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Title of Securities being registered: Units of interest in the separate account
under flexible payment deferred variable life policies.
It is proposed that this filing will become effective (check appropriate space):
immediately upon filing pursuant to paragraph (b) of Rule 485
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X on May 1, 2000, pursuant to paragraph (b) of Rule 485
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60 days after filing pursuant to paragraph (a) of Rule 485
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on _____________, pursuant to paragraph (a) of Rule 485
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P R O S P E C T U S
MAY 1, 2000
AUSA FINANCIAL FREEDOM BUILDER(SM)
issued through
AUSA Series Life Account
by
AUSA Life Insurance Company, Inc.
ADMINISTRATIVE OFFICE:
570 Carillon Parkway
St. Petersburg, Florida 33716
1-800-322-7353
(727) 299-1800
PLEASE SEND ALL PREMIUM PAYMENTS, LOAN REPAYMENTS,
CORRESPONDENCE AND NOTICES TO THE ADMINISTRATIVE OFFICE ONLY.
HOME OFFICE:
4 Manhattanville Road
Purchase, New York 10577
AN INDIVIDUAL FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
CONSIDER CAREFULLY THE RISK
FACTORS BEGINNING ON PAGE 9
OF THIS PROSPECTUS.
An investment in this Policy is
not a bank deposit. The Policy
is not insured or guaranteed by
the Federal Deposit Insurance
Corporation or any other
government agency.
THE SECURITIES AND EXCHANGE
COMMISSION HAS NOT APPROVED
OR DISAPPROVED THESE SECURITIES If you already own a life
OR PASSED UPON THE ADEQUACY insurance policy, it may not be
OF THIS PROSPECTUS. ANY to your advantage to buy
REPRESENTATION TO THE CONTRARY additional insurance or to
IS A CRIMINAL OFFENSE. replace your policy with the
Policy described in this
prospectus.
The prospectus for the WRL
Series Fund, Inc. must
accompany this prospectus.
Certain portfolios may not be
available. Please read this
document before investing and
save it for future reference.
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TABLE OF CONTENTS
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<TABLE>
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Glossary ....................................................... 1
Policy Summary ................................................. 4
Risk Summary ................................................... 9
Portfolio Annual Expense Table ................................. 12
AUSA Life and the Fixed Account ................................ 13
AUSA Life .................................................. 13
The Fixed Account .......................................... 14
The Separate Account and the Portfolios ........................ 14
The Separate Account ....................................... 14
The Fund ................................................... 15
Addition, Deletion, or Substitution of Investments ......... 18
Your Right to Vote Portfolio Shares ........................ 19
The Policy ..................................................... 19
Purchasing a Policy ........................................ 19
Underwriting Standards ..................................... 20
When Insurance Coverage Takes Effect ....................... 20
Ownership Rights ........................................... 22
Canceling a Policy ......................................... 23
Premiums ....................................................... 23
Premium Flexibility ........................................ 23
Planned Periodic Payments .................................. 24
Minimum Monthly Guarantee Premium .......................... 24
No Lapse Period ............................................ 24
Premium Limitations ........................................ 25
Making Premium Payments .................................... 25
Allocating Premiums ........................................ 25
Policy Values .................................................. 26
Cash Value ................................................. 26
Net Surrender Value ........................................ 27
Subaccount Value ........................................... 27
Subaccount Unit Value ...................................... 27
Fixed Account Value ........................................ 28
Transfers ...................................................... 28
General .................................................... 28
Fixed Account Transfers .................................... 30
Conversion Rights .......................................... 30
Dollar Cost Averaging ...................................... 30
Asset Rebalancing Program .................................. 31
Third Party Asset Allocation Services ...................... 32
This Policy is available only in the State of New York.
</TABLE>
i
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<TABLE>
<S> <C>
Charges and Deductions ....................................... 33
Premium Charges .......................................... 33
Monthly Deduction ........................................ 33
Mortality and Expense Risk Charge ........................ 35
Surrender Charge ......................................... 35
Pro Rata Decrease Charge ................................. 37
Transfer Charge .......................................... 37
Cash Withdrawal Charge ................................... 37
Taxes .................................................... 38
Portfolio Expenses ....................................... 38
Death Benefit ................................................ 38
Death Benefit Proceeds ................................... 38
Death Benefit ............................................ 38
Effects of Cash Withdrawals on the Death Benefit ......... 41
Choosing Death Benefit Options ........................... 41
Changing the Death Benefit Option ........................ 41
Decreasing the Specified Amount .......................... 41
No Increases in the Specified Amount ..................... 42
Payment Options .......................................... 42
Surrenders and Cash Withdrawals .............................. 42
Surrenders ............................................... 42
Cash Withdrawals ......................................... 42
Loans ........................................................ 43
General .................................................. 43
Interest Rate Charged .................................... 44
Loan Reserve Interest Rate Credited ...................... 45
Effect of Policy Loans ................................... 45
Policy Lapse and Reinstatement ............................... 45
Lapse .................................................... 45
No Lapse Period .......................................... 46
Reinstatement ............................................ 46
Federal Income Tax Considerations ............................ 47
Tax Status of the Policy ................................. 47
Tax Treatment of Policy Benefits ......................... 48
Special Rules for 403(b) Arrangements .................... 50
Other Policy Information ..................................... 51
Our Right to Contest the Policy .......................... 51
Suicide Exclusion ........................................ 51
Misstatement of Age or Gender ............................ 51
Modifying the Policy ..................................... 51
Benefits at Maturity ..................................... 51
Payments We Make ......................................... 51
Settlement Options ....................................... 52
</TABLE>
ii
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<TABLE>
<S> <C>
Reports to Owners .................................................... 53
Records .............................................................. 54
Policy Termination ................................................... 54
Supplemental Benefits (Riders) ........................................... 54
Children's Insurance Rider ........................................... 54
Accidental Death Benefit Rider ....................................... 54
Other Insured Rider .................................................. 55
Primary Insured Rider ("PIR") ........................................ 55
Terminal Illness Accelerated Death Benefit Rider ..................... 56
IMSA ..................................................................... 57
Performance Data ......................................................... 57
Rates of Return ...................................................... 57
Hypothetical Illustrations Based on Subaccount Performance ........... 58
Other Performance Data in Advertising Sales Literature ............... 67
AUSA Life's Published Ratings ........................................ 68
Additional Information ................................................... 68
Sale of the Policies ................................................. 68
Legal Matters ........................................................ 68
Legal Proceedings .................................................... 69
Experts .............................................................. 69
Financial Statements ................................................. 69
Additional Information about AUSA Life ............................... 69
AUSA Life's Directors and Officers ................................... 70
Additional Information about the Separate Account .................... 72
Appendix A -- Illustrations .............................................. 73
Appendix B -- Wealth Indices of Investments in the U.S. Capital Market ... 77
Appendix C -- Surrender Charge Per Thousand (Based on the gender and
rate class of the insured) ................................. 79
Index to Financial Statements ............................................ 81
AUSA Series Life Account ............................................. 82
AUSA Life Insurance Company, Inc. .................................... 103
</TABLE>
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GLOSSARY
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accounts The options to which you can allocate your money. The accounts include the
fixed account and the subaccounts in the separate account.
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attained age The issue age of the person insured, plus the number of completed years
since the Policy date.
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beneficiary(ies) The person or persons you select to receive the death benefit from this Policy.
You can name the primary beneficiary and contingent beneficiaries.
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cash value The sum of your Policy's value in the subaccounts and the fixed account. If
there is a Policy loan outstanding, the cash value includes any amounts held
in our general account to secure the Policy loan.
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death benefit The amount we will pay to the beneficiary on the insured's death. We will
proceeds reduce the death benefit proceeds by the amount of any outstanding loan
amount and any due and unpaid monthly deductions. We will increase the
death benefit proceeds by any interest you paid in advance on the loan for the
period between the date of death and the next Policy anniversary.
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fixed account An option to which you may allocate premiums and cash value. We guarantee
that any amounts you allocate to the fixed account will earn interest at a
declared rate.
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free-look period The period during which you may return the Policy and receive a refund as
described in this prospectus. The free-look period is listed in the Policy.
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fund(s) The WRL Series Fund, Inc., an investment company which is registered with
the U.S. Securities and Exchange Commission. The Policy allows you to
invest in the portfolios of the fund through our subaccounts. We reserve the
right to add other registered investment companies to the Policy in the future.
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home office Our home office address is 4 Manhattanville Road, Purchase, New York
10577. PLEASE DO NOT SEND ANY MONEY, CORRESPONDENCE OR NOTICES TO THIS
ADDRESS.
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in force While coverage under the Policy is active and the insured's life remains
insured.
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initial premium The amount you must pay before insurance coverage begins under this Policy.
The initial premium is shown on the schedule page of your Policy.
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insured The person whose life is insured by this Policy.
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issue age The insured's age on his or her birthday nearest to the Policy date.
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lapse When life insurance coverage ends because you do not have enough cash
value in the Policy to pay the monthly deduction, the surrender charge and
any outstanding loan amount, and you have not made a sufficient payment by
the end of a grace period.
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</TABLE>
1
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<TABLE>
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loan amount The total amount of all outstanding Policy loans, including both principal and
interest due.
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loan reserve A part of the fixed account to which amounts are transferred as collateral for
Policy loans.
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maturity date The Policy anniversary nearest the insured's 95th birthday if the insured is
living and the Policy is still in force. It is the date when life insurance
coverage under this Policy ends.
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minimum The amount shown on your Policy schedule page (unless changed when you
monthly change death benefit options or decrease the specified amount) that we use
guarantee during the no lapse period to determine whether a grace period will begin. We
premium will adjust the minimum monthly guarantee premium if you change death
benefit options, decrease the specified amount or increase or add a rider. We
make this determination whenever your net surrender value is not enough to
meet monthly deductions.
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Monthiversary This is the day of each month when we determine Policy charges and deduct
them from cash value. It is the same date each month as the Policy date. If
there is no valuation date in the calendar month that coincides with the Policy
date, the Monthiversary is the next valuation date.
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monthly The monthly Policy charge, plus the monthly cost of insurance, plus the
deduction monthly charge for any riders added to your Policy, plus, if any, the pro rata
decrease charge incurred as a result of a decrease in your specified amount.
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net premium The part of your premium that we allocate to the fixed account or the
subaccounts. The net premium is equal to the premium you paid minus the
premium expense charges and the premium collection charge.
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net surrender The amount we will pay you if you surrender the Policy while it is in force.
value The net surrender value on the date you surrender is equal to: the cash value,
minus any surrender charge, minus any outstanding loan amount, plus any
interest you paid in advance on the loan for the period between the date of
surrender and the next Policy anniversary.
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no lapse period The first five Policy years during which the Policy will not lapse if certain
conditions are met.
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office Our administrative office and mailing address is P.O. Box 9054, Clearwater,
Florida 33758-9054 (570 Carillon Parkway, St. Petersburg, Florida for
overnight deliveries). Our phone number is 1-800-322-7353. ALL PREMIUM
PAYMENTS, LOAN REPAYMENTS, CORRESPONDENCE AND NOTICES SHOULD BE SENT TO
THIS ADDRESS.
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planned periodic A premium payment you make in a level amount at a fixed interval over a
premium specified period of time.
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</TABLE>
2
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<TABLE>
<S> <C>
Policy date The date when our underwriting process is complete, full life insurance
coverage goes into effect, we begin to make the monthly deductions, and your
initial premium is allocated to the WRL J.P. Morgan Money Market
subaccount. The Policy date is shown on the schedule page of your Policy.
We measure Policy months, years, and anniversaries from the Policy date.
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portfolio One of the separate investment portfolios of the fund.
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premiums All payments you make under the Policy other than loan repayments.
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record date The date we record your Policy on our books as an in force Policy, and we
allocate your cash value from the WRL J.P. Morgan Money Market
subaccount to the accounts that you elected on your application.
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separate account The AUSA Series Life Account. It is a separate investment account that is
divided into subaccounts. We established the separate account to receive and
invest net premiums under the Policy and other variable life insurance
policies we issue.
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specified amount The minimum death benefit we will pay under the Policy provided the Policy
is in force. It is the amount shown on the Policy's schedule page, unless you
decrease the specified amount. In addition, we will reduce the specified
amount by the dollar amount of any cash withdrawal if you choose the
Option A (level) death benefit.
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subaccount A subdivision of the separate account that invests exclusively in shares of one
investment portfolio of the fund.
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surrender charge If, during the first 15 Policy years, you fully surrender the Policy, we will
deduct a surrender charge from the cash value.
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termination When the insured's life is no longer insured under the Policy.
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valuation date Each day the New York Stock Exchange is open for trading. Western Reserve
is open for business whenever the New York Stock Exchange is open.
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valuation period The period of time over which we determine the change in the value of the
subaccounts. Each valuation period begins at the close of normal trading on
the New York Stock Exchange (currently 4:00 p.m. Eastern time on each
valuation date) and ends at the close of normal trading of the New York
Stock Exchange on the next valuation date.
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we, us, our AUSA Life Insurance Company, Inc.
(AUSA Life)
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written notice The written notice you must sign and send us to request or exercise your
rights as owner under the Policy. To be complete, it must: (1) be in a form
we accept, (2) contain the information and documentation that we determine
we need to take the action you request, and (3) be received at our office.
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you, your The person entitled to exercise all rights as owner under the Policy.
(owner or
policyowner)
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</TABLE>
3
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POLICY SUMMARY AUSA FINANCIAL FREEDOM BUILDER(SM)
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This summary provides only a brief overview of the more important features
of the Policy. More detailed information about the Policy appears later in this
prospectus. PLEASE READ THE REMAINDER OF THIS PROSPECTUS CAREFULLY.
THE POLICY IN GENERAL
The AUSA Financial Freedom Builder(SM) is an individual flexible premium
variable life insurance policy.
The Policy is designed to be long-term in nature in order to provide
significant life insurance benefits for you. However, purchasing this Policy
involves certain risks. (See Risk Summary p. 9.) You should consider the Policy
in conjunction with other insurance you own. THE POLICY IS NOT SUITABLE AS A
SHORT-TERM SAVINGS VEHICLE.
PREMIUMS
/bullet/ You select a payment plan but are not required to pay premiums
according to the plan. You can vary the frequency and amount, within
limits, and can skip premium payments.
/bullet/ Unplanned premiums may be made, within limits.
/bullet/ Premium payments must be at least $50 if paid monthly and $600 if
paid annually.
/bullet/ You increase your risk of lapse if you do not regularly pay premiums
at least as large as the current minimum monthly guarantee premium.
/bullet/ Until the no lapse date shown on your Policy schedule page, we
guarantee that your Policy will not lapse, so long as you have paid
total premiums (MINUS any withdrawals, MINUS any outstanding loans,
and MINUS any pro rata decrease charge) that equal or exceed the sum
of the minimum monthly guarantee premiums in effect for each month
since the Policy date up to and including the current month. If you
take a withdrawal, a loan, or if you decrease your specified amount,
you may need to pay additional premiums in order to keep the no lapse
guarantee in place.
/bullet/ The minimum monthly guarantee premium on the Policy date is shown on
your Policy schedule page. We will adjust the minimum monthly
guarantee premium if you change death benefit options, decrease the
specified amount, or increase or add a rider.
/bullet/ Under certain circumstances, extra premiums may be required to
prevent lapse.
/bullet/ Once we deliver your Policy, the FREE-LOOK PERIOD begins. You may
return the Policy during this period and receive a refund.
DEDUCTIONS FROM PREMIUM BEFORE WE PLACE IT IN A SUBACCOUNT AND/OR THE FIXED
ACCOUNT
/bullet/ For the first ten Policy years: 6.0% premium expense charge.
/bullet/ After the tenth year: 2.5% premium expense charge.
/bullet/ A premium collection charge of $3.00 from each premium payment.
4
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INVESTMENT OPTIONS
SUBACCOUNTS. You may direct the money in your Policy to any of the
subaccounts of the AUSA Series Life Account, a separate account. Each
subaccount invests exclusively in one investment portfolio of the WRL Series
Fund, Inc. (the "fund"). THE MONEY YOU PLACE IN THE SUBACCOUNTS IS NOT
GUARANTEED. THE VALUE OF EACH SUBACCOUNT WILL INCREASE OR DECREASE, DEPENDING
ON INVESTMENT PERFORMANCE OF THE CORRESPONDING PORTFOLIO. YOU COULD LOSE SOME
OR ALL OF YOUR MONEY.
The portfolios available to you are:
<TABLE>
<S> <C>
- WRL VKAM Emerging Growth - WRL Salomon All Cap
- WRL T. Rowe Price Small Cap - WRL Dreyfus Mid Cap
- WRL Goldman Sachs Small Cap - WRL C.A.S.E. Growth
- WRL Pilgrim Baxter Mid Cap Growth - WRL NWQ Value Equity
- WRL Alger Aggressive Growth - WRL T. Rowe Price Dividend Growth
- WRL Third Avenue Value - WRL Dean Asset Allocation
- WRL GE International Equity - WRL LKCM Strategic Total Return
(formerly, WRL GE/Scottish Equitable - WRL Federated Growth & Income
International Equity) - WRL J.P. Morgan Real Estate Securities
- WRL Janus Global - WRL AEGON Balanced
- WRL Janus Growth - WRL AEGON Bond
- WRL Goldman Sachs Growth - WRL J.P. Morgan Money Market
- WRL GE U.S. Equity
</TABLE>
FIXED ACCOUNT. You may also direct the money in your Policy to the fixed
account. Money you place in the fixed account is guaranteed, and will earn
interest at a current interest rate declared from time to time. The annual
interest rate will equal at least 4.0%.
CASH VALUE
/bullet/ Cash value equals the sum of your Policy's value in the subaccounts
and the fixed account. If there is a loan outstanding, the cash value
includes any amounts held in our fixed account to secure the Policy
loan.
/bullet/ Cash value varies from day to day, depending on the investment
experience of the subaccounts you choose, the interest credited to
the fixed account, the charges deducted and any other Policy
transactions (such as additional premium payments, transfers,
withdrawals, and Policy loans).
/bullet/ Cash value is the starting point for calculating important values
under the Policy, such as net surrender value and the death benefit.
/bullet/ There is no guaranteed minimum cash value. The Policy may lapse if
you do not have sufficient cash value in the Policy to pay the
monthly deductions, the surrender charge and/or any outstanding loan
amount (including interest you owe on any Policy loan(s)).
/bullet/ The Policy will not lapse during the no lapse period so long as you
have paid sufficient premiums.
TRANSFERS
/bullet/ You can transfer cash value among the subaccounts and the fixed
account. We charge a $25 transfer processing fee for each transfer
after the first 12 transfers in a Policy year.
/bullet/ You may make transfers in writing, by telephone or by fax.
/bullet/ Policy loans reduce the amount of cash value available for transfers.
5
<PAGE>
/bullet/ Dollar cost averaging and asset rebalancing programs are available.
/bullet/ You may make one transfer per Policy year from the fixed account, and
we must receive your request to transfer from the fixed account
within 30 days after a Policy anniversary unless you select dollar
cost averaging from the fixed account. The amount of your transfer is
limited to the greater of;
/arrow/ 25% of your value in the fixed account; OR
/arrow/ the amount you transferred from the fixed account in the
preceding Policy year.
CHARGES AND DEDUCTIONS
/bullet/ PREMIUM EXPENSE CHARGE: We deduct 6.0% from each premium payment
during the first ten Policy years. After the tenth year we reduce the
charge to 2.5%.
/bullet/ PREMIUM COLLECTION CHARGE: We deduct $3.00 from each premium payment
to compensate us for billing and collection costs.
/bullet/ MONTHLY POLICY CHARGE: Currently, we deduct $5.00 from your cash
value each month. We guarantee that this charge will never be more
than $7.50 per month.
/bullet/ COST OF INSURANCE CHARGES: Deducted monthly from your cash value.
Your charges vary each month with the insured's attained age, gender,
the specified amount, the death benefit option you choose, insured's
rate class, and the investment experience of the portfolios in which
you invest.
/bullet/ MORTALITY AND EXPENSE RISK CHARGE: Deducted daily from each
subaccount at an annual rate of 0.90% of the average daily net assets
of each subaccount.
/bullet/ SURRENDER CHARGE: Deducted when a full surrender occurs during the
first 15 Policy years. It is calculated by multiplying the specified
amount as of the Policy date by the surrender charge per thousand of
specified amount for the Policy year in which a surrender occurs. We
reduce the total surrender charge factor at the rate of 0.10% per
year, beginning in Policy year 6, until it reaches zero at the end of
the 15th Policy year. THIS CHARGE MAY BE SIGNIFICANT. You may have no
net surrender value if you surrender your Policy in the first few
Policy years.
/bullet/ PRO RATA DECREASE CHARGE: If you decrease the specified amount during
the first 15 Policy years, we will deduct a decrease charge equal to
a pro rata portion of the surrender charge.
/bullet/ TRANSFER FEE: We deduct a $25 transfer fee for each transfer in
excess of 12 per Policy year.
/bullet/ RIDER CHARGES: We deduct charges each month for the optional
insurance benefits (riders) you select. Each rider will have its own
charge.
/bullet/ CASH WITHDRAWAL FEE: We deduct a processing fee for cash withdrawals
equal to the lesser of $25 or 2% of the withdrawal.
/bullet/ PORTFOLIO EXPENSES: The portfolios deduct management fees and
expenses from the amounts you have invested in the portfolios. These
fees and expenses currently range from 0.44% to 1.20% annually,
depending on the portfolios. See Portfolio Annual Expense Table p.
12. See also the fund prospectus.
LOANS
/bullet/ After the first Policy year (as long as your Policy is in force), you
may take a loan against the Policy up to 90% of the cash value, less
any surrender charge and any already outstanding loan amount.
6
<PAGE>
/bullet/ The minimum loan amount is generally $500.
/bullet/ You may request a loan by calling us or by writing or faxing us
written instructions.
/bullet/ We currently charge 5.66% interest annually. You will be charged the
interest in advance each year on any outstanding loan amount.
/bullet/ To secure the loan, we transfer a portion of your cash value to a
loan reserve account. The amount we transfer is equal to the loan
plus interest in advance until the next Policy anniversary. The loan
reserve account is part of the fixed account. You will earn at least
4.0% interest on amounts in the loan reserve account.
/bullet/ Federal income taxes and a penalty tax may apply to loans you take
against the Policy.
/bullet/ There are risks involved in taking a Policy loan. See the Risk
Summary p. 9.
DEATH BENEFIT
/bullet/ You must choose one of three death benefit options. We offer the
following:
/bullet/ Option A is the greater of:
/arrow/ the current specified amount, or
/arrow/ a specified percentage, multiplied by the Policy's
cash value on the date of the insured's death.
/bullet/ Option B is the greater of:
/arrow/ the current specified amount, plus the Policy's
cash value on the date of the insured's death, or
/arrow/ a specified percentage, multiplied by the Policy's
cash value on the date of the insured's death.
/bullet/ Option C is the greater of:
/arrow/ the amount payable under Option A, or
/arrow/ the current specified amount, multiplied by an
age-based "factor," plus the Policy's cash value
on the date of the insured's death.
/bullet/ So long as the Policy does not lapse, the minimum death benefit we
pay under any option will be the current specified amount.
/bullet/ The minimum specified amount for a Policy for issue ages 0-45 is
$50,000. It declines to $25,000 for issue ages 46-80. We will state
the minimum specified amount in your Policy. You cannot decrease the
specified amount below this minimum.
/bullet/ We will reduce the death benefit proceeds by the amount of any
outstanding Policy loan, and any due and unpaid charges.
/bullet/ We will increase the death benefit proceeds by any additional
insurance benefits you add by rider, and any interest you paid in
advance on any loan for the period between the date of death and the
next Policy anniversary.
/bullet/ After the third Policy year, you may change the death benefit option
or decrease the specified amount (but not both) once each Policy
year. A change in your death benefit option or a decrease in
specified amount cannot reduce your specified amount below the
mimimum specified amount as shown in your Policy.
/bullet/ Under current tax law, the death benefit should be income tax free to
the beneficiary.
/bullet/ The death benefit is available in a lump sum or a variety of payout
options.
7
<PAGE>
CASH WITHDRAWALS AND SURRENDERS
/bullet/ You may take one withdrawal of cash value per Policy year after the
first Policy year.
/bullet/ The amount of the withdrawal must be:
/arrow/ at least $500; and
/arrow/ no more than 10% of the net surrender value.
/bullet/ We will deduct a processing fee equal to $25 or 2% of the amount you
withdraw (whichever is less) from the withdrawal, and we will pay you
the balance.
/bullet/ There is no surrender charge assessed when you take a cash
withdrawal.
/bullet/ A cash withdrawal will reduce the death benefit by at least the
amount of the withdrawal.
/bullet/ If you choose death benefit Option A, we will reduce the current
specified amount by the dollar amount of the withdrawal. We will not
impose a pro rata decrease charge when the specified amount is
decreased as a result of taking a cash withdrawal.
/bullet/ Federal income taxes and a penalty tax may apply to cash withdrawals
and surrenders.
/bullet/ You may fully surrender the Policy at any time before the insured's
death or the maturity date. You will receive the net surrender value.
The surrender charge will apply during the first 15 Policy years.
INQUIRIES:
If you need more information, please contact us at:
AUSA Life
P.O. Box 9054
Clearwater, Florida 33758-9054
1-800-322-7353
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RISK SUMMARY
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INVESTMENT If you invest your cash value in one or more subaccounts,
RISK you will be subject to the risk that investment performance
could be unfavorable and that the cash value of your Policy
would decrease. YOU COULD LOSE EVERYTHING YOU INVEST, AND
YOUR POLICY COULD LAPSE. If you select the fixed account,
your cash value in the fixed account is credited with a
declared rate of interest, but you assume a risk that the
rate may decrease, although it will never be lower than a
guaranteed minimum annual effective rate of 4.0%.
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RISK OF LAPSE If your Policy fails to meet certain conditions, we will
notify you that the Policy has entered a 61-day grace period
and will lapse unless you make a sufficient payment during
the grace period.
Your Policy contains a 5-year no lapse period. Your Policy
will not lapse before the no lapse date stated in your
Policy, as long as you pay sufficient minimum monthly
guarantee premiums. If you do not pay these premiums, you
will automatically lose the no lapse guarantee and you will
increase the risk that your Policy will lapse. In addition,
if you take a withdrawal, or take a Policy loan, or if you
decrease your specified amount, you will increase the risk
of losing the no lapse guarantee. We deduct the total amount
of your withdrawals, any outstanding loans and any pro rata
decrease charge from your premiums paid when we determine
whether your minimum monthly guarantee premiums are high
enough to keep the no lapse period in effect.
If you change death benefit options, decrease the specified
amount or add or increase a rider, we will adjust the amount
of your minimum monthly guarantee premium.
You will lessen the risk of Policy lapse if you keep the no
lapse period in effect during the first 5 Policy years.
Before you take a cash withdrawal, loan, decrease the
specified amount or increase or add a rider, you should
consider carefully the effect it will have on the no lapse
guarantee.
After the no lapse period, your Policy may lapse if loans,
withdrawals, the monthly deduction of insurance charges, and
insufficient investment returns reduce the net surrender
value to zero. The Policy will enter a grace period if on
any Monthiversary the net surrender value (that is, the cash
value, minus the surrender charge, and minus any outstanding
loans, plus any interest you paid in advance on the loan
between the date of surrender and the next Policy
anniversary) is not enough to pay the monthly deduction due.
A Policy lapse will have adverse tax consequences. See
Federal Income Tax Considerations p. 47 and Policy Lapse and
Reinstatement p. 45.
You may reinstate this Policy within five years after it has
lapsed (and prior to the maturity date), if the insured
meets the insurability requirements and you pay the amount
we require.
--------------------------------------------------------------------------------
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--------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
TAX RISKS We expect that the Policy will generally be deemed a life
(INCOME TAX insurance contract under federal tax law, so that the death
AND MEC) benefit paid to the beneficiary will not be subject to
federal income tax. However, due to lack of guidance, there
is less certainty in this regard with respect to Policies
issued on a substandard basis. Depending on the total amount
of premiums you pay, the Policy may be treated as a modified
endowment contract ("MEC") under federal tax laws. If a
Policy is treated as a MEC, partial withdrawals, surrenders
and loans will be taxable as ordinary income to the extent
there are earnings in the Policy. In addition, a 10% penalty
tax may be imposed on cash withdrawals, surrenders and loans
taken before you reach age 59 1/2. If a Policy is not
treated as a MEC, partial surrenders and withdrawals will
not be subject to tax to the extent of your investment in
the Policy. Amounts in excess of your investment in the
Policy, while subject to tax as ordinary income, will not be
subject to a 10% penalty tax. You should consult a qualified
tax advisor for assistance in all tax matters involving your
Policy.
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LIMITS ON CASH The Policy permits you to take only one cash withdrawal per
WITHDRAWALS Policy year, after the first Policy year has been completed.
The amount you may withdraw is limited to 10% of the net
surrender value.
A cash withdrawal will reduce cash value, so it will
increase the risk that the Policy will lapse. A cash
withdrawal may also increase the risk that the no lapse
period will end.
A cash withdrawal will reduce the death benefit. If you
select death benefit Option A, a cash withdrawal will
permanently reduce the specified amount of the Policy by the
amount of the withdrawal. A cash withdrawal also reduces the
death benefit under Options B and C because the cash value
is reduced. In some circumstances, a cash withdrawal may
reduce the death benefit by more than the dollar amount of
the withdrawal.
Federal income taxes and a penalty tax may apply to cash
withdrawals and surrenders.
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LOAN RISKS A Policy loan, whether or not repaid, will affect cash value
over time because we subtract the amount of the loan from
the subaccounts and the fixed account and place that amount
in the loan reserve as collateral. We then credit a fixed
interest rate of not less than 4.0% to the loan collateral.
We currently credit interest at 4.75% annually, but we are
not obligated to do so in the future. As a result, the loan
collateral does not participate in the investment results of
the subaccounts and may not continue to receive the current
interest rates credited. The longer the loan is outstanding,
the greater the effect is likely to be. Depending on the
investment results of the subaccounts and the interest rates
credited to the fixed account, the effect could be favorable
or unfavorable.
We also charge interest on Policy loans at a rate of 5.66%
to be paid in advance. Interest is added to the amount of
the loan to be repaid.
A Policy loan affects the death benefit because a loan
reduces the death benefit proceeds and net surrender value
by the amount of the outstanding loan.
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
A Policy loan could make it more likely that a Policy would
lapse. A Policy loan will increase the risk that the no
lapse period will end. There is also a risk that if the
loan, insurance charges and unfavorable investment
experience reduce your net surrender value, and the no lapse
period is no longer in effect, then the Policy will lapse.
Adverse tax consequences will result.
If a loan from a Policy is outstanding when the Policy is
canceled or lapses, then the amount of the outstanding
indebtedness will be taxed as if it were a distribution from
the Policy. See Federal Income Tax Considerations p. .
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EFFECTS OF THE The surrender charge under this Policy is significant,
SURRENDER especially in the early Policy years. It is likely you will
CHARGE receive no net surrender value if you surrender your Policy
in the first few Policy years. You should purchase this
Policy only if you have the financial ability to keep it in
force at the initial specified amount for a substantial
period of time.
Even if you do not ask to surrender your Policy, the
surrender charge plays a role in determining whether your
Policy will lapse. Each month we will use the cash value
(reduced by the surrender charge and reduced by outstanding
loans and interest paid in advance not yet earned) to
measure whether your Policy will remain in force or will
enter a grace period.
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COMPARISON Like fixed benefit life insurance, the Policy offers a death
WITH OTHER benefit and can provide a cash value, loan privileges and a
INSURANCE value on surrender. However, the Policy differs from a fixed
POLICIES benefit policy because it allows you to place your premiums
in investment subaccounts. The amount and duration of life
insurance protection and of the Policy's cash value will
vary with the investment performance of the amounts you
place in the subaccounts. In addition, the cash value and
net surrender value will always vary with the investment
results of your selected subaccounts.
As you consider purchasing this Policy, keep in mind that it
may not be to your advantage to replace existing insurance
with the Policy.
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ILLUSTRATIONS The hypothetical illustrations in this prospectus are based
on hypothetical rates of return that are not guaranteed.
They illustrate how the specified amount, Policy charges and
hypothetical rates of return affect death benefit levels,
cash value and net surrender value of the Policy. We may
also illustrate Policy values based on the adjusted
historical performance of the portfolios since the
portfolios' inception, reduced by Policy and subaccount
charges. The hypothetical and adjusted historic portfolio
rates illustrated should not be considered to represent past
or future performance. It is almost certain that actual
rates of return may be higher or lower than those il-
lustrated, so that the values under your Policy will be
different from those in the illustrations.
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</TABLE>
11
<PAGE>
PORTFOLIO ANNUAL EXPENSE TABLE
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This table shows the fees and expenses charged by each portfolio. More
detail concerning each portfolio's fees and expenses is contained in the fund
prospectus.
ANNUAL PORTFOLIO OPERATING EXPENSES(1)(9)
(As a percentage of average portfolio assets after fee waivers and expense
reimbursements)
<TABLE>
<CAPTION>
TOTAL PORTFOLIO
MANAGEMENT OTHER RULE 12B-1 ANNUAL
PORTFOLIO FEES EXPENSES FEES EXPENSES
<S> <C> <C> <C> <C>
WRL VKAM Emerging Growth 0.80% 0.07% N/A 0.87%
WRL T. Rowe Price Small Cap(5) 0.75% 0.25% N/A 1.00%
WRL Goldman Sachs Small Cap(5) 0.90% 0.10% N/A 1.00%
WRL Pilgrim Baxter Mid Cap Growth(5) 0.90% 0.10% N/A 1.00%
WRL Alger Aggressive Growth 0.80% 0.09% N/A 0.89%
WRL Third Avenue Value 0.80% 0.20% N/A 1.00%
WRL GE International Equity(2) 1.00% 0.20% N/A 1.20%
WRL Janus Global(3) 0.80% 0.12% N/A 0.92%
WRL Janus Growth(4) 0.80% 0.05% N/A 0.85%
WRL Goldman Sachs Growth(5) 0.90% 0.10% N/A 1.00%
WRL GE U.S. Equity 0.80% 0.13% N/A 0.93%
WRL Salomon All Cap(5) 0.90% 0.10% N/A 1.00%
WRL C.A.S.E. Growth 0.80% 0.20% N/A 1.00%
WRL Dreyfus Mid Cap(5) 0.85% 0.15% N/A 1.00%
WRL NWQ Value Equity 0.80% 0.10% N/A 0.90%
WRL T. Rowe Price Dividend Growth(5) 0.90% 0.10% N/A 1.00%
WRL Dean Asset Allocation 0.80% 0.07% N/A 0.87%
WRL LKCM Strategic Total Return 0.80% 0.06% N/A 0.86%
WRL J.P. Morgan Real Estate Securities 0.80% 0.20% N/A 1.00%
WRL Federated Growth & Income 0.75% 0.14% N/A 0.89%
WRL AEGON Balanced 0.80% 0.09% N/A 0.89%
WRL AEGON Bond 0.45% 0.08% N/A 0.53%
WRL J.P. Morgan Money Market 0.40% 0.04% N/A 0.44%
</TABLE>
(1) Effective January 1, 1997, the fund's Board authorized the fund to charge
each portfolio of the fund an annual Rule 12b-1 fee of up to 0.15% of each
portfolio's average daily net assets. However, the fund will not deduct
the fee from any portfolio before April 30, 2001. You will receive advance
written notice if a Rule 12b-1 fee is to be deducted. See the fund
prospectus for more details.
(2) Prior to May 1, 2000 this portfolio was known as WRL GE/Scottish Equitable
International Equity. The fee table reflects estimated 2000 expenses
because the expense limit for this portfolio will be reduced from 1.50% to
1.20% effective May 1, 2000.
(3) WRL Investment Management, Inc. ("WRL Management") currently waives 0.025%
of its advisory fee on portfolio average daily net assets over $2 billion
(net fee -- 0.775%). This waiver is voluntary and will be terminated on
June 25, 2000.
(4) WRL Management currently waives 0.025% of its advisory fee for the first $3
billion of the portfolio's average daily net assets (net fee -- 0.775%);
and a 0.05% for the portfolio's average daily net assets above $3 billion
(net fee - 0.75%). This waiver is voluntary and will be terminated on June
25, 2000. The fee table reflects estimated 2000 expenses because of the
termination of the fee waiver.
(5) Because these portfolios did not commence operations until May 3, 1999, the
percentages set forth as "Other Expenses" and "Total Annual Expenses" are
annualized.
(6) WRL Management, the investment adviser of the fund, has undertaken, until
at least April 30, 2001, to pay expenses on behalf of the portfolios of
the fund to the extent normal operating expenses of a portfolio exceed a
stated
12
<PAGE>
percentage of each portfolio's average daily net assets. The expense limit,
the amount reimbursed by WRL Management during 1999 and the expense ratio
without the reimbursement are listed below for each portfolio:
<TABLE>
<CAPTION>
EXPENSE RATIO
EXPENSE REIMBURSEMENT WITHOUT
LIMIT AMOUNT REIMBURSEMENT
<S> <C> <C> <C>
WRL VKAM Emerging Growth 1.00% $ N/A N/A
WRL T. Rowe Price Small Cap 1.00% 63,542 2.46%
WRL Goldman Sachs Small Cap 1.00% 60,555 5.57%
WRL Pilgrim Baxter Mid Cap Growth 1.00% 34,986 1.40%
WRL Alger Aggressive Growth 1.00% N/A N/A
WRL Third Avenue Value 1.00% 10,734 1.06%
WRL GE International Equity 1.20% 112,088 1.84%
WRL Janus Global 1.00% N/A N/A
WRL Janus Growth 1.00% N/A N/A
WRL Goldman Sachs Growth 1.00% 49,677 2.68%
WRL GE U.S. Equity 1.00% N/A N/A
WRL Salomon All Cap 1.00% 53,174 2.87%
WRL C.A.S.E. Growth 1.00% N/A N/A
WRL Dreyfus Mid Cap 1.00% 34,541 4.89%
WRL NWQ Value Equity 1.00% N/A N/A
WRL T. Rowe Price Dividend Growth 1.00% 46,989 2.35%
WRL Dean Asset Allocation 1.00% N/A N/A
WRL LKCM Strategic Total Return 1.00% N/A N/A
WRL J.P. Morgan Real Estate Securities 1.00% 51,924 2.69%
WRL Federated Growth & Income 1.00% N/A N/A
WRL AEGON Balanced 1.00% N/A N/A
WRL AEGON Bond 0.70% N/A N/A
WRL J.P. Morgan Money Market 0.70% N/A N/A
</TABLE>
The purpose of the preceding table is to help you understand the various
costs and expenses that you will bear directly and indirectly. The table
reflects charges and expenses of the portfolios of the fund for the fiscal year
ended December 31, 1999 (except as noted in the footnotes). Expenses of the
fund may be higher or lower in the future. For more information on the charges
described in this table, see the fund prospectus which accompanies this
prospectus.
AUSA LIFE AND THE FIXED ACCOUNT
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AUSA LIFE
AUSA Life Insurance Company, Inc. is the insurance company issuing the
Policy. AUSA Life was incorporated under the name Zurich Life Insurance Company
on October 3, 1947. The name was changed to Dreyfus Life Insurance Company and
then to AUSA Life Insurance Company, Inc. on September 24, 1993. AUSA Life
merged with International Life Investors Insurance Company on July 1, 1996 and
merged with First Providian Life and Health Insurance Company on October 1,
1998, with AUSA Life being the surviving entity. We have established the
separate account to support the investment options under this Policy and under
other variable life insurance policies we issue. Our general account supports
the fixed account under the Policy. AUSA Life intends to sell this Policy only
in the State of New York.
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<PAGE>
THE FIXED ACCOUNT
The fixed account is part of AUSA Life's general account. We use general
account assets to support our insurance and annuity obligations other than
those funded by separate accounts. Subject to applicable law, AUSA Life has
sole discretion over the investment of the fixed account's assets. AUSA Life
bears the full investment risk for all amounts contributed to the fixed
account. AUSA Life guarantees that the amounts allocated to the fixed account
will be credited interest daily at a net effective interest rate of at least
4.0%. We will determine any interest rate credited in excess of the guaranteed
rate at our sole discretion. We have no specific formula for determining
interest rates.
Money you place in the fixed account will earn interest compounded daily
at a current interest rate in effect at the time of your allocation. We may
declare current interest rates from time to time. We may declare more than one
interest rate for different money based upon the date of allocation or transfer
to the fixed account. When we declare a higher current interest rate on amounts
allocated to the fixed account, we guarantee the higher rate on those amounts
for at least one year (the "guarantee period") unless those amounts are
transferred to the loan reserve. At the end of the guarantee period we may
declare a new current interest rate on those amounts and any accrued interest
thereon. We will guarantee this new current interest rate for another guarantee
period. We credit interest greater than 4.0% during any guarantee period at our
sole discretion. You bear the risk that interest we credit will not exceed
4.0%.
We allocate amounts from the fixed account for cash withdrawals, transfers
to the subaccounts, or monthly deduction charges on a last in, first out basis
("LIFO") for the purpose of crediting interest.
THE FIXED ACCOUNT HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION AND THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
REVIEWED THE DISCLOSURE IN THIS PROSPECTUS RELATING TO THE FIXED ACCOUNT.
THE SEPARATE ACCOUNT AND THE PORTFOLIOS
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THE SEPARATE ACCOUNT
The separate account is divided into subaccounts, each of which invests in
shares of a specific portfolio of the fund. These subaccounts buy and sell
portfolio shares at net asset value without any sales charge. Any dividends and
distributions from a portfolio are reinvested at net asset value in shares of
that portfolio.
Income, gains, and losses credited to, or charged against, a subaccount of
the separate account reflect the subaccount's own investment experience and not
the investment experience of our other assets. The separate account's assets
may not be used to pay any of our liabilities other than those arising from the
Policies. If the separate account's assets exceed the required reserves and
other liabilities, we may transfer the excess to our general account.
14
<PAGE>
The separate account may include other subaccounts that are not available
under the Policies and are not discussed in this prospectus. We may substitute
another subaccount, portfolio or insurance company separate account under the
Policies if, in our judgment, investment in a subaccount or portfolio would no
longer be possible or becomes inappropriate to the purposes of the Policies, or
if investment in another subaccount or insurance company separate account is in
the best interest of owners. No substitution shall take place without notice to
owners and prior approval of the Securities and Exchange Commission ("SEC") and
insurance company regulators, to the extent required by the Investment Company
Act of 1940, as amended (the "1940 Act") and applicable law.
THE FUND
The separate account invests in shares of the fund, a series mutual fund
that is registered with the SEC as an open-end management investment company.
Such registration does not involve supervision of the management or investment
practices or policies of the portfolios by the SEC.
Each portfolio's assets are held separate from the assets of the other
portfolios, and each portfolio has investment objectives and policies that are
different from those of the other portfolios. Thus, each portfolio operates as
a separate investment fund, and the income or losses of one portfolio has no
effect on the investment performance of any other portfolio. Pending any prior
approval by a state insurance regulatory authority, certain subaccounts and
corresponding portfolios may not be available to residents of some states.
Each portfolio's investment objective(s) and policies are summarized
below. THERE IS NO ASSURANCE THAT ANY OF THE PORTFOLIOS WILL ACHIEVE ITS STATED
OBJECTIVE(S). Certain portfolios may have investment objectives and policies
similar to other portfolios that are managed by the same investment adviser or
sub-adviser. The investment results of the portfolios, however, may be higher
or lower than those of such other portfolios. We do not guarantee or make any
representation that the investment results of the portfolios will be comparable
to any other portfolio, even those with the same investment adviser or manager.
YOU CAN FIND MORE DETAILED INFORMATION ABOUT THE PORTFOLIOS, INCLUDING A
DESCRIPTION OF RISKS, IN THE FUND PROSPECTUS. YOU SHOULD READ THE FUND
PROSPECTUS CAREFULLY.
<TABLE>
<CAPTION>
PORTFOLIO SUB-ADVISER INVESTMENT OBJECTIVE
- ----------------- ----------------------- -----------------------------------
<S> <C> <C> <C> <C>
WRL VKAM /arrow/ Van Kampen /arrow/ Seeks capital appreciation by
EMERGING Asset Management Inc. investing primarily in common
GROWTH stocks of small and medium-sized
companies.
WRL T. ROWE /arrow/ T. Rowe Price /arrow/ Seeks long-term growth of capital
PRICE SMALL CAP Associates, Inc. by investing primarily in common
stocks of small growth companies.
WRL GOLDMAN /arrow/ Goldman Sachs Asset /arrow/ Seeks long-term growth of capital.
SACHS SMALL CAP Management
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO SUB-ADVISER INVESTMENT OBJECTIVE
- ---------------- ------------------------ ------------------------------------
<S> <C> <C> <C> <C>
WRL PILGRIM /arrow/ Pilgrim Baxter & /arrow/ Seeks capital appreciation.
BAXTER MID CAP Associates, Ltd.
GROWTH
WRL ALGER /arrow/ Fred Alger /arrow/ Seeks long-term capital
AGGRESSIVE Management, Inc. appreciation.
GROWTH
WRL THIRD /arrow/ EQSF Advisers, Inc. /arrow/ Seeks long-term capital
AVENUE VALUE appreciation.
WRL GE /arrow/ GE Asset /arrow/ Seeks long-term growth of capital.
INTERNATIONAL Management
EQUITY Incorporated*
WRL JANUS /arrow/ Janus Capital /arrow/ Seeks long-term growth of capital
GLOBAL Corporation in a manner consistent with the
preservation of capital.
WRL JANUS /arrow/ Janus Capital /arrow/ Seeks growth of capital.
GROWTH Corporation
WRL GOLDMAN /arrow/ Goldman Sachs Asset /arrow/ Seeks long-term growth of capital.
SACHS GROWTH Management
WRL GE U.S. /arrow/ GE Asset Management /arrow/ Seeks long-term growth of capital.
EQUITY Incorporated
WRL SALOMON /arrow/ Salomon Brothers Asset /arrow/ Seeks capital appreciation.
ALL CAP Management Inc
WRL C.A.S.E. /arrow/ C.A.S.E. /arrow/ Seeks annual growth of capital
GROWTH Management, Inc. through investment in companies
whose management, financial
resources and fundamentals appear
attractive on a scale measured
against each company's present
value.
WRL DREYFUS /arrow/ The Dreyfus /arrow/ Seeks total investment returns
MID CAP Corporation (including capital appreciation and
income), which consistently
outperform the S&P 400 Mid Cap
Index.
WRL NWQ VALUE /arrow/ NWQ Investment /arrow/ Seeks to achieve maximum,
EQUITY Management consistent total return with
Company, Inc. minimum risk to principal.
* Effective May 1, 2000, GE Asset Management Incorporated will be the sole sub-adviser.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO SUB-ADVISER INVESTMENT OBJECTIVE
- ----------------- ------------------------ -------------------------------------
<S> <C> <C> <C> <C>
WRL T. ROWE /arrow/ T. Rowe Price /arrow/ Seeks to provide an increasing
PRICE DIVIDEND Associates, Inc. level of dividend income,
GROWTH long-term capital appreciation and
reasonable current income through
investments primarily in dividend
paying stocks.
WRL DEAN ASSET /arrow/ Dean Investment /arrow/ Seeks preservation of capital and
ALLOCATION Associates competitive investment returns.
WRL LKCM /arrow/ Luther King Capital /arrow/ Seeks to provide current income,
STRATEGIC Management long-term growth of income and
TOTAL RETURN Corporation capital appreciation.
WRL J.P. MORGAN /arrow/ J.P. Morgan Investment /arrow/ Seeks long-term total return from
REAL ESTATE Management Inc. investments primarily in equity
SECURITIES securities of real estate companies.
Total return will consist of
realized and unrealized capital
gains and losses plus income.
WRL FEDERATED /arrow/ Federated Investment /arrow/ Seeks total return by investing in
GROWTH & INCOME Counseling securities that have defensive
characteristics.
WRL AEGON /arrow/ AEGON USA /arrow/ Seeks preservation of capital,
BALANCED Investment reduced volatility, and superior
Management, Inc. long-term risk-adjusted returns.
WRL AEGON /arrow/ AEGON USA /arrow/ Seeks the highest possible current
BOND Investment income within the confines of the
Management, Inc. primary goal of insuring the
protection of capital.
WRL J.P. MORGAN /arrow/ J.P. Morgan Investment /arrow/ Seeks to obtain maximum current
MONEY MARKET Management Inc. income consistent with the
preservation of principal and
maintenance of liquidity.
</TABLE>
WRL Management, located at 570 Carillon Parkway, St. Petersburg, Florida
33716, a wholly-owned subsidiary of Western Reserve Life Assurance Co. of Ohio
("Western Reserve"), serves as investment adviser to the fund and manages the
fund in accordance with policies and guidelines established by the fund's Board
of Directors. AUSA Life, WRL Management and Western Reserve are affiliates. For
certain portfolios, WRL Management has engaged investment sub-advisers to
provide portfolio management services. WRL Management and each investment
sub-adviser are registered investment advisers under the Investment Advisers
Act of 1940, as amended. See the fund prospectus for more information regarding
WRL Management and the investment sub-advisers.
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<PAGE>
In addition to the separate account, shares of the portfolios are also
sold to other separate accounts that we (or our affiliates) establish to
support variable annuity contracts and variable life insurance policies. It is
possible that, in the future, it may become disadvantageous for variable life
insurance separate accounts and variable annuity separate accounts to invest in
the portfolios simultaneously. Neither we nor the fund currently foresee any
such disadvantages, either to variable life insurance policyowners or to
variable annuity contract owners. However, the fund's Board of Directors will
monitor events in order to identify any material conflicts between the
interests of such variable life insurance policyowners and variable annuity
contract owners, and will determine what action, if any, it should take. Such
action could include the sale of portfolio shares by one or more of the
separate accounts, which could have adverse consequences. Material conflicts
could result from, for example, (1) changes in state insurance laws, (2)
changes in federal income tax laws, or (3) differences in voting instructions
between those given by variable life insurance policyowners and those given by
variable annuity contract owners.
If the fund's Board of Directors were to conclude that separate funds
should be established for variable life insurance and variable annuity separate
accounts, AUSA Life will bear the attendant expenses, but variable life
insurance policyowners and variable annuity contract owners would no longer
have the economies of scale resulting from a larger combined fund.
ADDITION, DELETION, OR SUBSTITUTION OF INVESTMENTS
We reserve the right to transfer separate account assets to another
separate account that we determine to be associated with the class of contracts
to which the Policy belongs. We also reserve the right, subject to compliance
with applicable law, to add to, delete from, or substitute the investments that
are held by any subaccount, or that any subaccount may purchase. We will only
add, delete or substitute shares of another portfolio of the fund (or of
another open-end, registered investment company) if the shares of a portfolio
are no longer available for investment, or if in our judgement further
investment in any portfolio would become inappropriate in view of the purposes
of the separate account. We will not add, delete or substitute any shares
attributable to your interest in a subaccount without notice to you and prior
approval of the SEC, to the extent required by the 1940 Act or other applicable
law. We may also decide to purchase for the separate account securities from
other portfolios.
We also reserve the right to establish additional subaccounts of the
separate account, each of which would invest in a new portfolio of the fund, or
in shares of another investment company, with specified investment objectives.
We may establish new subaccounts when, in our sole discretion, marketing, tax
or investment conditions warrant. We will make any new subaccounts available to
existing owners on a basis we determine. We may also eliminate one or more
subaccounts for the same reasons as stated above.
In the event of any such substitution or change, we may make such changes
in this and other policies as may be necessary or appropriate to reflect such
substitution or change. If we deem it to be in the best interests of persons
having voting rights under the Policies, and when permitted by law, the
separate account may be (1) operated as a management
18
<PAGE>
company under the 1940 Act, (2) deregistered under the 1940 Act in the event
such registration is no longer required, (3) managed under the direction of a
committee, or (4) combined with one or more other separate accounts, or
subaccounts.
YOUR RIGHT TO VOTE PORTFOLIO SHARES
Even though we are the legal owner of the portfolio shares held in the
subaccounts, and have the right to vote on all matters submitted to
shareholders of the portfolios, we will vote our shares only as policyowners
instruct, so long as such action is required by law. See Tax Status of the
Policy p. 47.
Before a vote of a portfolio's shareholders occurs, you will receive
voting materials from us. We will ask you to instruct us on how to vote and to
return your proxy to us in a timely manner. You will have the right to instruct
us on the number of portfolio shares that corresponds to the amount of cash
value you have in that portfolio (as of a date set by the portfolio).
If we do not receive voting instructions on time from some policyowners,
we will vote those shares in the same proportion as the timely voting
instructions we receive. Should federal securities laws, regulations and
interpretations change, we may elect to vote portfolio shares in our own right.
If required by state insurance officials, or if permitted under federal
regulation, we may disregard certain owner voting instructions. If we ever
disregard voting instructions, we will send you a summary in the next annual
report to policyowners advising you of the action and the reasons we took such
action.
THE POLICY
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PURCHASING A POLICY
To purchase a Policy, you must submit a completed application and an
initial premium to us. You may also send the application and initial premium to
us through any licensed life insurance agent who is also a registered
representative of a broker-dealer having a selling agreement with AFSG
Securities Corporation, the principal underwriter for the Policy.
Please submit your applications to:
AUSA Life
P.O. Box 9054
Clearwater, Florida 33758-9054
You select the specified amount for your Policy within the following
limits. Our current minimum specified amount for a Policy for issue ages 0-45
is generally $50,000. It declines to $25,000 for issue ages 46-80. We will
generally only issue a Policy to you if you provide sufficient evidence that
the insured meets our insurability standards. Your application is subject to
our underwriting rules, and we may reject any application for any reason
permitted by law. We will not issue a Policy to you if the insured is over age
80. The insured must be insurable and acceptable to us under our underwriting
rules on the
later of:
/bullet/ the date of your application; or
/bullet/ the date the insured completes all of the medical tests and
examinations that we require.
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<PAGE>
UNDERWRITING STANDARDS
This Policy uses mortality tables that distinguish between men and women.
As a result, the Policy pays different benefits to men and women of the same
age.
Your cost of insurance charge will also depend on the insured's rate
class. We currently place insureds into the following standard rate classes:
/bullet/ ultimate select, non-tobacco use;
/bullet/ select, non-tobacco use;
/bullet/ ultimate standard, tobacco use; and
/bullet/ standard, tobacco use.
We also place insureds in various sub-standard rate classes, which involve
a higher mortality risk and higher charges. We generally charge higher rates
for insureds who use tobacco. We charge lower cost of insurance rates for
insureds who are in an "ultimate class." An ultimate class is only available if
our underwriting guidelines require you to take a blood test because of the
specified amount you have chosen.
WHEN INSURANCE COVERAGE TAKES EFFECT
Insurance coverage under the Policy will take effect only if the
insured(s) is alive and in the same condition of health as described in the
application when the Policy is delivered to the owner, and if the initial
premium required under the Policy as issued is paid.
CONDITIONAL INSURANCE COVERAGE. If you pay the full initial premium listed
in the conditional receipt attached to the application, and we deliver the
conditional receipt to you, the insured will have conditional insurance
coverage under the terms of the conditional receipt. Conditional insurance
coverage is void if the check or draft you gave us to pay the initial premium
is not honored when we first present it for payment.
<TABLE>
<S> <C>
THE AMOUNT OF /bullet/ the specified amount applied for; or
CONDITIONAL INSURANCE /bullet/ $300,000
COVERAGE IS THE LESSER OF: reduced by all amounts payable under all other life insurance
applications that the insured has pending with us.
</TABLE>
<TABLE>
<S> <C>
CONDITIONAL LIFE INSURANCE /bullet/ the date of your application; or
COVERAGE BEGINS ON THE /bullet/ the date the insured completes all of the medical tests and
LATER OF: examinations that we require; or
/bullet/ the date of issue, if any, requested in the application.
</TABLE>
20
<PAGE>
<TABLE>
<S> <C>
CONDITIONAL LIFE INSURANCE /bullet/ the date we determine the insured has satisfied our
COVERAGE TERMINATES underwriting requirements and the insurance applied for
AUTOMATICALLY ON THE takes effect (the Policy date); or
EARLIEST OF: /bullet/ 60 days from the date the application was completed; or
/bullet/ the date we determine that any person proposed for
insurance in the application is not insurable according to
our rules, limits and standards for the plan, amount and
rate class shown in the application; or
/bullet/ the date we modify the plan, amount, riders and/or the
premium rate class shown in the application, or any
supplemental agreements.
After 5 days we will mail notice of the ending of coverage and
we will refund the first premium to the applicant at the address
shown on the application.
</TABLE>
<TABLE>
<S> <C>
SPECIAL LIMITATIONS OF THE /bullet/ the conditional receipt will be void:
CONDITIONAL RECEIPT: /arrow/ if not signed by an authorized agent of AUSA
Life; or
/arrow/ in the event the application contains any fraud or
material misrepresentation; or
/arrow/ if, on the date of the conditional receipt, the
proposed insured is under 15 days of age or over
80 years of age.
/bullet/ the conditional receipt does not provide benefits for
accidental death benefits.
/bullet/ the conditional receipt does not provide benefits if any
proposed insured commits suicide. In this case, AUSA
Life's liability will be limited to return of the first
premium paid with the application.
</TABLE>
FULL INSURANCE COVERAGE AND ALLOCATION OF INITIAL PREMIUM. Once we
determine that the insured meets our underwriting requirements and you have
paid the initial premium, full insurance coverage will begin and we will begin
to take the monthly deductions from your net premium. This date is the Policy
date. On the Policy date, we will allocate your initial net premium, minus
monthly deductions, to the WRL J.P. Morgan Money Market subaccount. On the
record date, which is the date we record your Policy on our books as an in
force Policy, we will allocate your cash value from the WRL J.P. Morgan Money
Market subaccount to the accounts you elect on your application.
On any day we credit net premiums or transfer cash value to a subaccount,
we will convert the dollar amount of the net premium (or transfer) into
subaccount units at the unit value for that subaccount, determined at the end
of the day on which we receive the premium or transaction request at our
office. We will credit amounts to the subaccounts only on a valuation date,
that is, on a date the New York Stock Exchange ("NYSE") is open for trading.
See Policy Values p. 26.
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<PAGE>
OWNERSHIP RIGHTS
The Policy belongs to the owner named in the application. The owner may
exercise all of the rights and options described in the Policy. The owner is
the insured unless the application specifies a different person as the insured.
If the owner dies before the insured and no contingent owner is named, then
ownership of the Policy will pass to the owner's estate. The owner may exercise
certain rights described below.
<TABLE>
<S> <C>
CHANGING THE /bullet/ Change the owner by providing written notice to us at our
OWNER office at any time while the insured is alive and the Policy
is in force.
/bullet/ Change is effective as of the date that the written
notice is accepted by us.
/bullet/ Changing the owner does not automatically change the
beneficiary.
/bullet/ Changing the owner may have tax consequences. You
should consult a tax advisor before changing the
owner.
/bullet/ We are not liable for payments we made before we
received the written notice at our office.
</TABLE>
<TABLE>
<S> <C>
CHOOSING THE /bullet/ The owner designates the beneficiary (the person to
BENEFICIARY receive the death benefit when the insured dies) in the
application.
/bullet/ If the owner designates more than one beneficiary,
then each beneficiary shares equally in any death
benefit proceeds unless the beneficiary designation
states otherwise.
/bullet/ If the beneficiary dies before the insured, then any
contingent beneficiary becomes the beneficiary.
/bullet/ If both the beneficiary and contingent beneficiary
die before the insured, then the death benefit will
be paid to the owner or the owner's estate upon the
insured's death.
</TABLE>
<TABLE>
<S> <C>
CHANGING THE /bullet/ The owner changes the beneficiary by providing written
BENEFICIARY notice to us at our office.
/bullet/ Change is effective as of the date the owner signs
the written notice.
/bullet/ We are not liable for any payments we made before we
received the written notice at our office.
</TABLE>
22
<PAGE>
<TABLE>
<S> <C>
ASSIGNING THE /bullet/ The owner may assign Policy rights while the insured is
POLICY alive.
/bullet/ The owner retains any ownership rights that are not
assigned.
/bullet/ Assignee may not change the owner or the
beneficiary, and may not elect or change an optional
method of payment. Any amount payable to the
assignee will be paid in a lump sum.
/bullet/ Claims under any assignment are subject to proof of
interest and the extent of the assignment.
/bullet/ We are not:
/arrow/ bound by any assignment unless we receive a
written notice of the assignment;
/arrow/ responsible for the validity of any
assignment;
/arrow/ liable for any payment we made before we
received written notice of the assignment;
or
/arrow/ bound by any assignment which results in
adverse tax consequences to the owner,
insured(s) or beneficiary(ies).
/bullet/ Assigning the Policy may have tax consequences. You
should consult a tax advisor before assigning the
Policy.
</TABLE>
CANCELING A POLICY
You may cancel a Policy for a refund during the "free-look period" by
returning it to our office, to one of our branch offices or to the agent who
sold you the Policy. The free-look period expires 10 days after you receive the
Policy. If you decide to cancel the Policy during the free-look period, we will
treat the Policy as if it had never been issued. We will pay the refund within
seven days after we receive the returned Policy. The amount of the refund will
be the total of all premiums you paid under the Policy.
PREMIUMS
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PREMIUM FLEXIBILITY
You generally have flexibility to determine the frequency and the amount
of the premiums you pay. Unlike conventional insurance policies, you do not
have to pay your premiums according to a rigid and inflexible premium schedule.
Before we issue the Policy to you, we may require you to pay a premium at least
equal to a minimum monthly guarantee premium set forth in your Policy.
Thereafter (subject to the limitations described below), you may make
unscheduled premium payments at any time and in any amount over $50. Under some
circumstances, you may be required to pay extra premiums to prevent a lapse.
Your minimum monthly guarantee premium may change if you request a change in
your Policy. If this happens, we will notify you of the new minimum monthly
guarantee premium.
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<PAGE>
PLANNED PERIODIC PAYMENTS
You will determine a planned periodic payment schedule which allows you to
pay level premiums at fixed intervals over a specified period of time. You are
not required to pay premiums according to this schedule. You may change the
amount, frequency, and the time period over which you make your planned
periodic payments. Please be sure to notify us or your agent/registered
representative of any address changes so that we may be able to keep your
current address on record.
Even if you make your planned periodic payments on schedule, your Policy
may still lapse. The duration of your Policy depends on the Policy's net
surrender value. If the net surrender value is not high enough to pay the
monthly deduction when due (and your no lapse period has expired) then your
Policy will lapse (unless you make the payment we specify during the 61-day
grace period). See Policy Lapse and Reinstatement p. 45.
MINIMUM MONTHLY GUARANTEE PREMIUM
The full initial premium is the only premium you are required to pay under
the Policy. However, you greatly increase your risk of lapse if you do not
regularly pay premiums at least as large as the current minimum monthly
guarantee premium.
Until the no lapse date shown on your Policy schedule page, we guarantee
that your Policy will not lapse, so long as you have paid total premiums (MINUS
any withdrawals, MINUS any outstanding loans, and MINUS any pro rata decrease
charge) that equal or exceed the minimum monthly guarantee premium in effect
for each month times the number of months since the Policy date, including the
current month. If you take a withdrawal, a loan, or if you decrease your
specified amount, you may need to pay additional premiums in order to keep the
no lapse guarantee in place.
The initial minimum monthly guarantee premium is shown on your Policy's
schedule page, and depends on a number of factors, including the age, gender,
and rate class of the insured, and the specified amount requested. The minimum
monthly guarantee premium will change if you change death benefit options or
decrease the specified amount.
AFTER THE NO LAPSE PERIOD ENDS, PAYING THE CURRENT MINIMUM MONTHLY
GUARANTEE PREMIUM EACH MONTH WILL NOT NECESSARILY KEEP YOUR POLICY IN FORCE.
YOU MAY NEED TO PAY ADDITIONAL PREMIUMS TO KEEP THE POLICY IN FORCE.
NO LAPSE PERIOD
During the first five Policy years, your Policy will remain in force and
no grace period will begin, even if your net surrender value is too low to pay
the monthly deduction, so long as:
/bullet/ the total amount of the premiums you paid (minus any cash
withdrawals, outstanding loans, and any pro rata decrease charge)
is equal to or exceeds:
/arrow/ the sum of the minimum monthly guarantee premiums in
effect for each month from the Policy date up to and
including the current month.
24
<PAGE>
PREMIUM LIMITATIONS
Premium payments must be at least $50 if paid monthly and $600 if paid
annually ($1,000 if by wire). We may return premiums less than $50. We will not
allow you to make any premium payments that would cause the total amount of the
premiums you pay to exceed the current maximum premium limitations which
qualify the Policy as life insurance according to federal tax laws. This
maximum is set forth in your Policy. If you make a payment that would cause
your total premiums to be greater than the maximum premium limitations, we will
return the excess portion of the premium payment. We will not permit you to
make additional premium payments until they are allowed by the maximum premium
limitations. In addition, we reserve the right to refund a premium if the
premium would increase the death benefit by more than the amount of the
premium.
MAKING PREMIUM PAYMENTS
We will deduct certain charges from your premium payments (see Premium
Charges p. 33). We will accept premium payments by wire transfer.
If you wish to make payments by wire transfer, you should instruct your
bank to wire federal funds as follows:
All First Bank of Baltimore
ABA #: 052000113
For credit to: AUSA Life
Account #: 89573171
Policyowner's Name:
Policy Number:
Attention: General Accounting
TAX-FREE EXCHANGES ("1035 Exchanges"). We will accept as part or all of
your initial premium money from one or more contracts insuring the same insured
that qualify for tax-free exchanges under section 1035 of the Internal Revenue
Code. If you contemplate such an exchange, you should consult a competent tax
advisor to learn the potential tax effects of such a transaction.
Subject to our underwriting requirements, we will permit you to make one
additional cash payment within three business days of our receipt of the
proceeds from the 1035 Exchange before we determine your Policy's specified
amount.
ALLOCATING PREMIUMS
You must instruct us on how to allocate your net premium among the
subaccounts and the fixed account. You must follow these guidelines:
/bullet/ allocation percentages must be in whole numbers;
/bullet/ if you select dollar cost averaging, you must have at least
$5,000 in each subaccount from which we will make transfers and
you must transfer at least a total of $1,000 monthly; and
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<PAGE>
/bullet/ if you select asset rebalancing, the cash value of your Policy,
if an existing Policy, or your minimum initial premium, if a new
policy, must be at least $5,000.
You may change the allocation instructions for additional premium payments
without charge at any time by writing us or calling us at 1-800-322-7353. This
change will be effective at the end of the valuation date on which we receive
the change. Upon instructions from you, the registered representative/agent of
record for your Policy may also change your allocation instructions for you.
The minimum amount you can allocate to a particular subaccount is 10% of a net
premium payment. We reserve the right to limit the number of premium allocation
changes you make to one per calendar quarter.
Whenever you direct money into a subaccount, we will credit your Policy
with the number of units for that subaccount that can be bought for the net
premium. We price each subaccount unit using the unit value determined at the
end of the day after the closing of the regular business session of the NYSE
(usually at 4:00 p.m. Eastern time). We will credit amounts to the subaccounts
only on a valuation date, that is, on a date the NYSE is open for trading. See
Policy Values below. Your cash value will vary with the investment experience
of the subaccounts in which you invest. YOU BEAR THE INVESTMENT RISK FOR
AMOUNTS YOU ALLOCATE TO THE SUBACCOUNTS.
You should review periodically how your cash value is allocated among the
subaccounts and the fixed account because market conditions and your overall
financial objectives may change.
POLICY VALUES
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<TABLE>
<S> <C>
CASH VALUE /bullet/ varies from day to day, depending on the investment
experience of the subaccounts you choose, the interest
credited to the fixed account, the charges deducted
and any other Policy transactions (such as additional
premium payments, transfers, withdrawals and Policy
loans).
/bullet/ serves as the starting point for calculating values
under a Policy.
/bullet/ equals the sum of all values in each subaccount and
the fixed account.
/bullet/ is determined on the Policy date and on each valuation
date.
/bullet/ has no guaranteed minimum amount and may be more or
less than premiums paid.
/bullet/ includes any amounts held in the fixed account to
secure any outstanding Policy loan.
</TABLE>
26
<PAGE>
NET SURRENDER VALUE
The net surrender value is the amount we pay when you surrender your
Policy. We determine the net surrender value at the end of the valuation period
when we receive your written surrender request at our office.
<TABLE>
<S> <C>
NET SURRENDER /bullet/ the cash value as of such date; MINUS
VALUE ON ANY /bullet/ any surrender charge as of such date; MINUS
VALUATION DATE /bullet/ any outstanding Policy loan(s); PLUS
EQUALS: /bullet/ any interest you paid in advance on the loan(s) for the
period between the date of the surrender and the next
Policy anniversary.
</TABLE>
SUBACCOUNT VALUE
Each subaccount's value is the cash value in that subaccount. At the end
of any valuation period, the subaccount's value is equal to the number of units
that the Policy has in the subaccount, multiplied by the unit value of that
subaccount.
<TABLE>
<S> <C>
THE NUMBER OF /bullet/ the initial units purchased at unit value on the Policy date;
UNITS IN ANY PLUS
SUBACCOUNT ON /bullet/ units purchased with additional net premium(s); PLUS
ANY VALUATION /bullet/ units purchased via transfers from another subaccount or
DATE EQUALS: the fixed account; MINUS
/bullet/ units redeemed to pay for monthly deductions; MINUS
/bullet/ units redeemed to pay for cash withdrawals; MINUS
/bullet/ units redeemed as part of a transfer to another subaccount
or the fixed account; MINUS
/bullet/ units redeemed to pay any pro rata decrease charge.
</TABLE>
Every time you allocate, transfer or withdraw money to or from a
subaccount, we convert that dollar amount into units. We determine the number
of units we credit to, or subtract from, your Policy by dividing the dollar
amount of the allocation, transfer or cash withdrawal by the unit value for
that subaccount next determined at the end of the valuation period on which the
premium, transfer request or cash withdrawal request is received at our office.
SUBACCOUNT UNIT VALUE
The value (or price) of each subaccount unit will reflect the investment
performance of the portfolio in which the subaccount invests. Unit values will
vary among subaccounts. The unit value of each subaccount was originally
established at $10 per unit. The unit value will increase or decrease from one
valuation period to the next.
27
<PAGE>
<TABLE>
<S> <C>
THE UNIT VALUE /bullet/ the total value of the portfolio shares held in the
OF ANY subaccount, determined by multiplying the number of
SUBACCOUNT AT portfolio shares owned by the subaccount times the
THE END OF A portfolio's net asset value per share determined at the end
VALUATION of the valuation period; MINUS
PERIOD /bullet/ a deduction for the mortality and expense risk charge;
IS CALCULATED AS: MINUS
/bullet/ the accrued amount of reserve for any taxes or other
economic burden resulting from applying tax laws that we
determine to be properly attributable to the subaccount;
AND THE RESULT DIVIDED BY
/bullet/ the number of outstanding units in the subaccount.
</TABLE>
The portfolio in which any subaccount invests will determine its net asset
value per share once daily, as of the close of the regular business session of
the NYSE (usually 4:00 p.m. Eastern time), which coincides with the end of each
valuation period.
FIXED ACCOUNT VALUE
On the record date, the fixed account value is equal to the cash value
allocated to the fixed account from the WRL J.P. Morgan Money Market
subaccount.
<TABLE>
<S> <C>
THE FIXED ACCOUNT /bullet/ the sum of net premium(s) allocated to the fixed account;
VALUE AT THE END OF PLUS
ANY VALUATION /bullet/ any amounts transferred from a subaccount to the fixed
PERIOD IS EQUAL TO: account; PLUS
/bullet/ total interest credited to the fixed account; MINUS
/bullet/ amounts charged to pay for monthly deductions; MINUS
/bullet/ amounts withdrawn or surrendered from the fixed account;
MINUS
/bullet/ amounts transferred from the fixed account to a
subaccount; MINUS
/bullet/ amounts withdrawn from the fixed account to pay any pro
rata decrease charge incurred due to a decrease in specified
amount.
</TABLE>
TRANSFERS
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GENERAL
You or your agent/registered representative of record may make transfers
among the subaccounts or from the subaccounts to the fixed account. We
determine the amount you have available for transfers at the end of the
valuation period when we receive your transfer
28
<PAGE>
request at our office. WE MAY MODIFY OR REVOKE THE TRANSFER PRIVILEGE AT ANY
TIME. The following features apply to transfers under the Policy:
/check/ You may make an unlimited number of "non-substantive" transfers
in a Policy year among the subaccounts, although we do limit
"substantive" transfers, as discussed below.
/check/ You may make one transfer from the fixed account in a Policy year
(unless you choose dollar cost averaging from the fixed account).
/check/ You may request transfers in writing (in a form we accept), by
fax or by telephone.
/check/ There is no minimum amount that must be transferred.
/check/ There is no minimum amount that must remain in a subaccount after
a transfer.
/check/ We deduct a $25 charge from the amount transferred for each
transfer in excess of 12 transfers in a Policy year.
/check/ We consider all transfers made in any one day to be a single
transfer.
/check/ Transfers resulting from loans, conversion rights, reallocation
of cash value immediately after the record date, and transfers
from the fixed account are NOT treated as transfers for the
purpose of the transfer charge.
/check/ Transfers under dollar cost averaging and asset rebalancing are
treated as transfers for purposes of the transfer charge.
The Policy's transfer privilege is not intended to afford policyowners a
way to speculate on short-term movements in the market. Excessive use of the
transfer privilege can disrupt the management of the portfolios and increase
transaction costs. Accordingly, we have established a policy of limiting
excessive transfer activity. We will limit transfer activity to two substantive
transfers (at least 30 days apart) from each portfolio, except from WRL J.P.
Morgan Money Market, during any 12-month period. We interpret "substantive" to
mean either a dollar amount large enough to have a negative impact on a
portfolio's operations or a series of movements between portfolios. We will not
limit non-substantive transfers.
Your Policy, as applied for and issued, will automatically receive
telephone transfer privileges unless you provide other instructions. The
telephone transfer privileges allow you to give authority to the registered
representative or agent of record for your Policy to make telephone transfers
and to change the allocation of future payments among the subaccounts and the
fixed account on your behalf according to your instructions. To make a
telephone transfer, you may call 1-800-322-7353 or fax your instructions to
800-322-7361.
Please note the following regarding telephone or fax transfers:
/arrow/ We are not liable for any loss, damage, cost or expense from
complying with telephone instructions we reasonably believe to be
authentic. You bear the risk of any such loss.
/arrow/ We will employ reasonable procedures to confirm that telephone
instructions are genuine.
/arrow/ If we do not employ reasonable confirmation procedures, we may be
liable for losses due to unauthorized or fraudulent instructions.
29
<PAGE>
/arrow/ Such procedures may include requiring forms of personal
identification prior to acting upon telephone instructions,
providing written confirmation of transactions to owners, and/or
tape recording telephone instructions received from owners.
/arrow/ We may also require written confirmation of your request.
/arrow/ If you do not want the ability to make telephone transfers, you
should notify us in writing.
/arrow/ Telephone or fax requests must be received at our office before
4:00 p.m. Eastern time to assure same-day pricing of the
transaction.
/arrow/ WE WILL NOT BE RESPONSIBLE FOR SAME-DAY PROCESSING OF TRANSFERS
IF FAXED TO A NUMBER OTHER THAN 800-322-7361.
/arrow/ We will not be responsible for any transmittal problems when you
fax us your request unless you report it to us within five
business days and send us proof of your fax transmittal.
/arrow/ We may discontinue this option at any time.
We will process any transfer request we receive at our office before the
NYSE closes (usually 4:00 p.m Eastern time) using the subaccount unit value
determined at the end of that session of the NYSE. If we receive the transfer
request after the NYSE closes, we will process the request using the subaccount
unit value determined at the close of the next regular business session of the
NYSE.
FIXED ACCOUNT TRANSFERS
You may make one transfer per Policy year from the fixed account unless
you select dollar cost averaging from the fixed account. We reserve the right
to require that you make the transfer request in writing. We must receive the
transfer request no later than 30 days after a Policy anniversary. We will make
the transfer at the end of the valuation date on which we receive the written
request. The maximum amount you may transfer is limited to the greater of:
/arrow/ 25% of the amount in the fixed account, or
/arrow/ the amount you transferred from the fixed account in the preceding
Policy year.
CONVERSION RIGHTS
If within 24 months of your Policy date, you transfer all of your
subaccount values to the fixed account, then we will not charge you a transfer
fee, even if applicable. You must make your request in writing.
DOLLAR COST AVERAGING
Dollar cost averaging is an investment strategy designed to reduce the
average purchase price per unit. The strategy spreads the allocation of your
premium into the subaccounts over a period of time. This potentially allows you
to reduce the risk of investing most of your premium into the subaccounts at a
time when prices are high. The success of this strategy is not assured and
depends on market trends. You should consider carefully your financial ability
to continue the program over a long enough period of time to
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<PAGE>
purchase units when their value is low as well as when it is high. We make no
guarantee that dollar cost averaging will result in a profit or protect you
against loss.
Under dollar cost averaging, we automatically transfer a set dollar amount
from the WRL J.P. Morgan Money Market subaccount, the WRL AEGON Bond
subaccount, the fixed account, or any combination of these to a subaccount that
you choose. We will make the transfers monthly as of the end of the valuation
date. We will make the first transfer in the month after we receive your
request, provided that we receive the form by the 25th day of the month.
<TABLE>
<S> <C>
TO START DOLLAR COST /arrow/ you must submit a completed form to us at our office
AVERAGING: requesting dollar cost averaging;
/arrow/ you must have at least $5,000 in each account from
which we will make transfers;
/arrow/ your total transfers each month under dollar cost
averaging must be at least $100; and
/arrow/ each month, you may not transfer more than one-tenth of
the amount that was in your fixed account at the
beginning of dollar cost averaging.
</TABLE>
You may request dollar cost averaging at any time. There is no charge for
dollar cost averaging. However, each transfer under dollar cost averaging
counts towards your 12 free transfers each year.
<TABLE>
<S> <C>
DOLLAR /arrow/ we receive your request to cancel your participation;
COST AVERAGING /arrow/ the value in the accounts from which we make the
WILL TERMINATE IF: transfers is depleted;
/arrow/ you elect to participate in the asset rebalancing program;
OR
/arrow/ you elect to participate in any asset allocation services
provided by a third party.
</TABLE>
We may modify, suspend, or discontinue dollar cost averaging at any time.
ASSET REBALANCING PROGRAM
We also offer an asset rebalancing program under which you may transfer
amounts periodically to maintain a particular percentage allocation among the
subaccounts you have selected. Cash value allocated to each subaccount will
grow or decline in value at different rates. The asset rebalancing program
automatically reallocates the cash value in the subaccounts at the end of each
period to match your Policy's currently effective premium allocation schedule.
Cash value in the fixed account and the dollar cost averaging program is not
available for this program. This program does not guarantee gains. A subaccount
may still have losses.
You may elect asset rebalancing to occur on each quarterly, semi-annual or
annual anniversary of the Policy date. Once we receive the asset rebalancing
request form, we will
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<PAGE>
effect the initial rebalancing of cash value on the next such anniversary, in
accordance with the Policy's current premium allocation schedule. You may
modify your allocations quarterly. We will credit the amounts transferred at
the unit value next determined on the dates the transfers are made. If a day on
which rebalancing would ordinarily occur falls on a day on which the NYSE is
closed, rebalancing will occur on the next day the NYSE is open.
<TABLE>
<S> <C>
TO START /arrow/ you must submit a completed asset rebalancing request
ASSET REBALANCING: form to us at our office before the maturity date; and
/arrow/ you must have a minimum cash value of $5,000 or make
a $5,000 initial premium payment.
</TABLE>
There is no charge for the asset rebalancing program. However, each
reallocation we make under the program counts towards your 12 free transfers
each year.
<TABLE>
<S> <C>
ASSET REBALANCING /arrow/ you elect to participate in the dollar cost averaging
WILL CEASE IF: program;
/arrow/ we receive your request to discontinue participation;
/arrow/ you make ANY transfer to or from any subaccount other
than under a scheduled rebalancing; or
/arrow/ you elect to participate in any asset allocation services
provided by a third party.
</TABLE>
You may start and stop participation in the asset rebalancing program at
any time; but we may restrict your right to re-enter the program to once each
Policy year. If you wish to resume the asset rebalancing program, you must
complete a new request form. We may modify, suspend, or discontinue the asset
rebalancing program at any time.
THIRD PARTY ASSET ALLOCATION SERVICES
We may provide administrative or other support services to independent
third parties you authorize to conduct transfers on your behalf, or who provide
recommendations as to how your subaccount values should be allocated. This
includes, but is not limited to, transferring subaccount values among
subaccounts in accordance with various investment allocation strategies that
these third parties employ. These independent third parties may or may not be
appointed AUSA Life agents for the sale of Policies. AUSA LIFE DOES NOT ENGAGE
ANY THIRD PARTIES TO OFFER INVESTMENT ALLOCATION SERVICES OF ANY TYPE, SO THAT
PERSONS OR FIRMS OFFERING SUCH SERVICES DO SO INDEPENDENT FROM ANY AGENCY
RELATIONSHIP THEY MAY HAVE WITH AUSA LIFE FOR THE SALE OF POLICIES. AUSA LIFE
THEREFORE TAKES NO RESPONSIBILITY FOR THE INVESTMENT ALLOCATIONS AND TRANSFERS
TRANSACTED ON YOUR BEHALF BY SUCH THIRD PARTIES OR ANY INVESTMENT ALLOCATION
RECOMMENDATIONS MADE BY SUCH PARTIES. AUSA Life does not currently charge you
any additional fees for providing these support services. AUSA Life reserves
the right to discontinue providing administrative and support services to
owners utilizing independent third parties who provide investment allocation
and transfer recommendations.
32
<PAGE>
CHARGES AND DEDUCTIONS
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This section describes the charges and deductions that we make under the
Policy to compensate for: (1) the services and benefits we provide; (2) the
costs and expenses we incur; and (3) the risks we assume.
<TABLE>
<S> <C>
SERVICES AND BENEFITS WE /bullet/ the death benefit, cash and loan benefits;
PROVIDE UNDER THE POLICY: /bullet/ investment options, including premium allocations;
/bullet/ administration of elective options; and
/bullet/ the distribution of reports to owners.
</TABLE>
<TABLE>
<S> <C>
COSTS AND EXPENSES /bullet/ costs associated with processing and underwriting
WE INCUR: applications;
/bullet/ expenses of issuing and administering
the Policy (includ- ing any Policy
riders);
/bullet/ overhead and other expenses for
providing services and benefits, sales
commissions and marketing expenses; and
/bullet/ other costs of doing business, such as
collecting premiums, maintaining
records, processing claims, effecting
transac- tions, and paying federal,
state and local premium and other taxes
and fees.
</TABLE>
<TABLE>
<S> <C>
RISKS WE ASSUME: /bullet/ that the charges we may deduct may be insufficient to
meet our actual claims because insureds die sooner than
we estimate; and
/bullet/ that the costs of providing the services and benefits under
the Policies may exceed the charges we are allowed to
deduct.
</TABLE>
PREMIUM CHARGES
Before we allocate the net premiums you make, we will deduct the following
charges.
<TABLE>
<S> <C>
PREMIUM EXPENSE CHARGE /bullet/ This charge equals:
/arrow/ 6.0% of premiums during the first ten Policy
years; and
/arrow/ 2.5% of premiums thereafter.
/bullet/ This charge compensates us for distribution expenses and
state premium taxes.
</TABLE>
<TABLE>
<S> <C>
PREMIUM COLLECTION /bullet/ This charge equals $3.00 per premium payment.
CHARGE /bullet/ This charge compensates us for premium billing and
collection costs.
/bullet/ We will not increase this charge.
</TABLE>
MONTHLY DEDUCTION
We take a monthly deduction from the cash value on the Policy date and on
each Monthiversary. We deduct this charge from each subaccount and the fixed
account in
33
<PAGE>
accordance with the current premium allocation instructions. If the value of
any account is insufficient to pay that account's portion of the monthly
deduction, we will take the monthly deduction on a pro rata basis from all
accounts (i.e., in the same proportion that the value in each subaccount and
the fixed account bears to the total cash value on the Monthiversary). Because
portions of the monthly deduction (such as cost of insurance) can vary monthly,
the monthly deduction will also vary.
<TABLE>
<S> <C>
THE MONTHLY DEDUCTION IS /bullet/ the monthly Policy charge; PLUS
EQUAL TO: /bullet/ the monthly cost of insurance charge for the Policy; PLUS
/bullet/ the monthly charge for any benefits provided by riders
attached to the Policy; PLUS
/bullet/ the pro rata decrease charge (if applicable) incurred as a
result of a decrease in the specified amount.
MONTHLY POLICY CHARGE:
/bullet/ This charge equals $5.00 each Policy month.
/bullet/ We guarantee this charge will never be more than $7.50
per month.
/bullet/ We may waive this charge at issue on additional policies
(not on the original Policy) purchased naming the same
owner and insured.
/bullet/ This charge compensates us for administrative expenses
such as recordkeeping, processing death benefit claims and
Policy changes, and overhead costs.
COST OF INSURANCE CHARGE:
/bullet/ We deduct this charge each month. It varies each month
and is equal to:
/arrow/ the death benefit on the Monthiversary; DIVIDED
BY
/arrow/ 1.0032737 (this factor reduces the net amount at
risk, for purposes of computing the cost of
insurance, by taking into account assumed
monthly earnings at an annual rate of 4%); MINUS
/arrow/ the cash value on the Monthiversary;
MULTIPLIED BY
/arrow/ the monthly cost of insurance rate for the Policy.
OPTIONAL INSURANCE RIDERS:
/bullet/ The monthly deduction will include charges for any
optional insurance benefits you add to your Policy by rider
(see Supplemental Benefits (Riders) p. 54).
</TABLE>
We base the cost of insurance rates on the insured's attained age, gender,
and rate class, and the length of time that the Policy has been in force. The
actual monthly cost of insurance rates are based on our expectations as to
future mortality experience. The rates
34
<PAGE>
will never be greater than the guaranteed amount stated in your Policy. These
guaranteed rates are based on the 1980 Commissioners Standard Ordinary (C.S.O.)
Mortality Tables and the insured's attained age and rate class. For standard
rate classes, these guaranteed rates will never be greater than the rates in
the C.S.O. tables. We may also guarantee a rate for a specific period of time
(E.G., one year). For a listing of rate classes, see Underwriting Standards p.
20.
MORTALITY AND EXPENSE RISK CHARGE
We deduct a daily charge from your cash value in each subaccount to
compensate us for certain mortality and expense risks we assume. This charge is
equal to:
/bullet/ your Policy's cash value in each subaccount MULTIPLIED BY
/bullet/ the daily pro rata portion of the annual mortality and expense
risk charge rate of 0.90% (this annual rate is equal to 0.90% of
the average daily net assets of each subaccount).
/bullet/ We will not increase this charge.
The mortality risk is that an insured will live for a shorter time than we
project. The expense risk is that the expenses that we incur will exceed the
administrative charge limits we set in the Policy.
If this charge does not cover our actual costs, we absorb the loss.
Conversely, if the charge more than covers actual costs, the excess is added to
our surplus. We expect to profit from this charge. We may use any profits to
cover distribution costs.
SURRENDER CHARGE
If you surrender your Policy completely during the first 15 years, we
deduct a surrender charge from your cash value and pay the remaining cash value
(less any outstanding loan amounts) to you. There is no surrender charge if you
wait until the 15th Policy anniversary to surrender your Policy. The payment
you receive is called the net surrender value. The formula we use reduces the
surrender charge at older ages in compliance with state laws.
THE SURRENDER CHARGE MAY BE SIGNIFICANT. YOU SHOULD CALCULATE THIS CHARGE
CAREFULLY BEFORE YOU CONSIDER A SURRENDER. Under some circumstances the level
of surrender charges might result in no net surrender value available if you
surrender your Policy in the first few Policy years. This will depend on a
number of factors, but is more likely if:
/bullet/ you pay premiums equal to or not much higher than the minimum
monthly guarantee premium shown in your Policy; and/or
/bullet/ investment performance is too low.
35
<PAGE>
<TABLE>
<S> <C>
THE SURRENDER CHARGE IS /bullet/ the SURRENDER CHARGE PER THOUSAND; multipled by
EQUAL TO: /bullet/ the number of thousands in the Policy's specified
amount as it is stated in the Policy; multiplied by
/bullet/ the SURRENDER CHARGE FACTOR.
</TABLE>
The SURRENDER CHARGE PER THOUSAND is calculated for each $1,000 of
specified amount stated in your Policy. It varies with the insured's issue age,
gender and rate classifications. See the surrender charge table, found at
Appendix C.
The SURRENDER CHARGE FACTOR varies with the insured's age and the number
of years the Policy has been in force. For insureds ages 0-39, the surrender
charge factor is equal to 1.00 during Policy years 1-5. It decreases by 0.10
each year until the fifteenth Policy year when it is zero. If you are older
than 39 when we issue your Policy, the factor is less than 1.00 at the end of
the first Policy year and decreases to zero at the fifteenth Policy year. We
always determine the surrender charge factor from the Policy date to the
surrender date, regardless of whether there were any prior lapses and
reinstatements.
SURRENDER CHARGE FACTORS
ISSUE AGES 0 - 39
<TABLE>
<CAPTION>
END OF POLICY YEAR* FACTOR
---------------------- -------
<S> <C>
At Issue ........... 1.00
1-5 ................ 1.00
6 .................. .90
7 .................. .80
8 .................. .70
9 .................. .60
10 ................. .50
11 ................. .40
12 ................. .30
13 ................. .20
14 ................. .10
15 ................. 0
16+ ................ 0
</TABLE>
* The factor on any date other than a Policy anniversary will be
determined proportionately using the factor at the end of the Policy
year prior to surrender and the factor at the end of the Policy year
of surrender.
/bullet/ SURRENDER CHARGE EXAMPLE: Assume a male tobacco user purchases
the Policy at issue age 35 with a specified amount of $100,000.
The Policy is surrendered in Policy year 5. The surrender charge
per thousand is $16.48. This is multiplied by the surrender
charge factor of 1.00
The surrender charge = the surrender charge per thousand ($16.48) X the
number of thousands of initial specified
amount (100) X the surrender charge factor
(1.0)
= $1,648.
The surrender charge helps us to recover distribution expenses that we
incur in connection with the Policy, including agent sales commissions and
printing and advertising costs.
36
<PAGE>
PRO RATA DECREASE CHARGE
If you decrease the specified amount during the first 15 Policy years, we
will deduct a pro rata decrease charge from the cash value.
<TABLE>
<S> <C>
THE PRO RATA DECREASE /bullet/ the surrender charge per thousand; MULTIPLIED BY
CHARGE IS EQUAL TO: /bullet/ the number of thousands in the specified amount
decrease; MULTIPLIED BY
/bullet/ the surrender charge factor applicable at the time of
the decrease. (See Appendix C.)
</TABLE>
We will not deduct the pro rata decrease charge from the cash value when a
specified amount decrease results from:
/bullet/ a change in the death benefit option; or
/bullet/ a cash withdrawal (when you select death benefit Option A).
We will determine the pro rata decrease charge from the Policy date to the
date of the decrease using the above formula, regardless of whether your Policy
has lapsed and been reinstated, or you have previously decreased your specified
amount.
If we deduct a pro rata decrease charge due to a decrease in specified
amount, we will reduce proportionately any future surrender charge incurred
during the first 15 Policy years. This means that when we calculate the
surrender charge, we will reduce it by an amount equal to the surrender charge
multiplied by the ratio of any prior decreases in the specified amount to the
full initial specified amount. A decrease in specified amount will generally
decrease the insurance protection of the Policy.
TRANSFER CHARGE
/bullet/ We currently allow you to make 12 transfers each year free from
charge.
/bullet/ We charge $25 for each additional transfer.
/bullet/ For the purposes of assessing the transfer charge, all transfers
made in one day, regardless of the number of subaccounts affected
by the transfer, is considered a single transfer.
/bullet/ We deduct the transfer charge from the amount being transferred.
/bullet/ Transfers due to loans, exercise of conversion rights, or from
the fixed account do not count as transfers for the purpose of
assessing this charge.
/bullet/ Transfers under dollar cost averaging and asset rebalancing are
transfers for purposes of this charge.
/bullet/ We will not increase this charge.
CASH WITHDRAWAL CHARGE
/bullet/ After the first Policy year, you may take one cash withdrawal
per Policy year.
/bullet/ When you make a cash withdrawal, we charge a processing fee of
$25 or 2% of the amount you withdraw, whichever is less.
37
<PAGE>
/bullet/ We deduct this amount from the withdrawal, and we pay you the
balance.
/bullet/ We will not increase this charge.
TAXES
We currently do not make any deductions for taxes from the separate
account. We may do so in the future if such taxes are imposed by federal or
state agencies.
PORTFOLIO EXPENSES
The portfolios deduct management fees and expenses from the amounts you
have invested in the portfolios. These fees and expenses currently range from
0.44% to 1.20%. See the Portfolio Annual Expense Table (p. 12) in this
prospectus, and the fund prospectus.
DEATH BENEFIT
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DEATH BENEFIT PROCEEDS
As long as the Policy is in force, we will pay the death benefit proceeds
on an individual Policy once we receive satisfactory proof of the insured's
death. We may require return of the Policy. We will pay the death benefit
proceeds to the primary beneficiary(ies), if living, or to a contingent
beneficiary. If each beneficiary dies before the insured and there is no
contingent beneficiary, we will pay the death benefit proceeds to the owner or
the owner's estate. We will pay the death benefit proceeds in a lump sum or
under a payment option. See Payment Options p. 42.
<TABLE>
<S> <C>
DEATH BENEFIT /bullet/ the death benefit (described below); MINUS
PROCEEDS EQUAL: /bullet/ any monthly deductions due during the grace period (if
applicable); MINUS
/bullet/ any outstanding Policy loan amount; PLUS
/bullet/ any additional insurance in force provided by rider; PLUS
/bullet/ any interest you paid in advance on the loan(s) for the
period between the date of death and the next Policy
anniversary.
</TABLE>
We may further adjust the amount of the death benefit proceeds if we
contest the Policy or if you misstate the insured's age or gender. See Our
Right to Contest the Policy p. 51; and Misstatement of Age or Gender p. 51.
DEATH BENEFIT
The Policy provides a death benefit. The death benefit is determined at
the end of the valuation period in which the insured dies. You must select one
of the three death benefit options we offer in your application. No matter
which death benefit option you choose, we guarantee that, so long as the Policy
does not lapse, the death benefit will never be less than the specified amount
on the date of the insured's death.
38
<PAGE>
<TABLE>
<S> <C>
DEATH BENEFIT /bullet/ the current specified amount; OR
OPTION A EQUALS THE /bullet/ a specified percentage called the "limitation percentage,"
GREATER OF: MULTIPLIED BY
/arrow/ the cash value on the insured's date of death.
</TABLE>
Under Option A, your death benefit remains level unless the limitation
percentage multiplied by the cash value is greater than the specified amount;
then the death benefit will vary as the cash value varies.
The limitation percentage is the minimum percentage of cash value we must
pay as the death benefit under federal tax requirements. It is based on the
attained age of the insured at the beginning of each Policy year. The following
table indicates the limitation percentages for different ages:
<TABLE>
<CAPTION>
ATTAINED
AGE LIMITATION PERCENTAGE
<S> <C>
40 and under 250%
41 to 45 250% of cash value minus 7% for each age over age 40
46 to 50 215% of cash value minus 6% for each age over age 45
51 to 55 185% of cash value minus 7% for each age over age 50
56 to 60 150% of cash value minus 4% for each age over age 55
61 to 65 130% of cash value minus 2% for each age over age 60
66 to 70 120% of cash value minus 1% for each age over age 65
71 to 75 115% of cash value minus 2% for each age over age 70
76 to 90 105%
91 to 95 105% of cash value minus 1% for each age over age 90
</TABLE>
If the federal tax code requires us to determine the death benefit by
reference to these limitation percentages, the Policy is described as "in the
corridor." An increase in the cash value will increase our risk, and we will
increase the cost of insurance we deduct from the cash value.
OPTION A ILLUSTRATION. Assume that the insured's attained age is under 40,
there have been no withdrawals or decreases in specified amount, and that there
is no outstanding indebtedness. Under Option A, a Policy with a $50,000
specified amount will generally pay $50,000 in death benefits. However, because
the death benefit must be equal to or be greater than 250% of cash value, any
time the cash value of the Policy exceeds $20,000, the death benefit will
exceed the $50,000 specified amount. Each additional dollar added to the cash
value above $20,000 will increase the death benefit by $2.50.
Similarly, so long as the cash value exceeds $20,000, each dollar taken
out of the cash value will reduce the death benefit by $2.50. If at any time
the cash value multiplied by the limitation percentage is less than the
specified amount, the death benefit will equal the specified amount of the
Policy reduced by the dollar value of any cash withdrawals.
39
<PAGE>
<TABLE>
<S> <C>
DEATH BENEFIT /bullet/ the current specified amount; PLUS
OPTION B EQUALS THE /arrow/ the cash value on the insured's date of death; OR
GREATER OF: /bullet/ the limitation percentage, MULTIPLIED BY
/arrow/ the cash value on the insured's date of death.
</TABLE>
Under Option B, the death benefit always varies as the cash value varies.
OPTION B ILLUSTRATION. Assume that the insured's attained age is under 40
and that there is no outstanding indebtedness. Under Option B, a Policy with a
specified amount of $50,000 will generally pay a death benefit of $50,000 plus
cash value. Thus, a Policy with a cash value of $10,000 will have a death
benefit of $60,000 ($50,000 + $10,000). The death benefit, however, must be at
least 250% of cash value. As a result, if the cash value of the Policy exceeds
$33,333, the death benefit will be greater than the specified amount plus cash
value. Each additional dollar of cash value above $33,333 will increase the
death benefit by $2.50.
Similarly, any time cash value exceeds $33,333, each dollar taken out of
cash value will reduce the death benefit by $2.50. If at any time, cash value
multiplied by the limitation percentage is less than the specified amount plus
the cash value, then the death benefit will be the specified amount plus the
cash value of the Policy.
<TABLE>
<S> <C>
DEATH BENEFIT /bullet/ death benefit Option A; OR
OPTION C EQUALS THE /bullet/ the current specified amount, MULTIPLIED BY
GREATER OF: /arrow/ a "factor" equal to the lesser of:
/bullet/ 1.0 or
/bullet/ 0.04 TIMES (95 MINUS insured's attained age
at death); PLUS
/arrow/ the cash value on the insured's date of death.
</TABLE>
Under Option C, the death benefit varies as the cash value and the
insured's attained age varies.
OPTION C -- THREE ILLUSTRATIONS.
1. Assume that the insured is under age 40 and that there is no
outstanding indebtedness. Under Option C, a Policy with a specified amount of
$50,000 and with a cash value of $10,000 will have a death benefit of $60,000
($50,000 x the minimum of (1.0 and (0.04 x (95 - 40))) + $10,000). So long as
the insured is under age 71, this benefit is the same as the Option B benefit.
2. Assume that the insured is attained age 75 and that there is no
outstanding indebtedness. Under Option C, a Policy with a specified amount of
$50,000 and with a cash value of $12,000 will have a death benefit of $52,000
($50,000 x the minimum of (1.0 and (0.04 x (95 - 75))) + $12,000). The death
benefit, however, must be at least 105% of cash value as shown in the
limitation percentage table above.
3. Assume that the insured is attained age 75 and that there is no
outstanding indebtedness. Under Option C, a Policy with a specified amount of
$50,000 and with a cash
40
<PAGE>
value of $9,000 will have a death benefit equal to the specified amount of
$50,000, since the calculation of $50,000 times the minimum of (1.0 and (0.04 x
(95 - 75))) plus $9,000 is less than the specified amount.
EFFECTS OF CASH WITHDRAWALS ON THE DEATH BENEFIT
If you choose Option A, a cash withdrawal will reduce the specified amount
by an amount equal to the amount of the cash withdrawal. We will not impose a
decrease charge when the specified amount is decreased as a result of taking a
cash withdrawal. Regardless of the death benefit option you choose, a cash
withdrawal will reduce the death benefit by at least the amount of the
withdrawal.
CHOOSING DEATH BENEFIT OPTIONS
You must choose one death benefit option on your application. This is an
important decision. The death benefit option you choose will have an impact on
the dollar value of the death benefit, on your cash value, and on the amount of
cost of insurance charges you pay.
You may find Option A more suitable for you if your goal is to increase
your cash value through positive investment experience. You may find Option B
more suitable if your goal is to increase your total death benefit. You may
find Option C more suitable if your goal is to increase your total death
benefit before you reach attained age 70, and to increase your cash value
through positive investment experience thereafter.
CHANGING THE DEATH BENEFIT OPTION
After the third Policy year, you may change your death benefit option once
each Policy year if you have not decreased the specified amount that year. We
will notify you of the new specified amount.
/bullet/ You must make your request in writing.
/bullet/ The effective date of the change will be the Monthiversary on or
following the date when we receive your request for a change at
our office.
/bullet/ You may not make a change that would decrease the specified
amount below the minimum specified amount stated in your Policy.
/bullet/ There may be adverse federal tax consequences. You should
consult a tax advisor before changing your Policy's death benefit
option.
DECREASING THE SPECIFIED AMOUNT
After the Policy has been in force for three years, you may decrease the
specified amount once each Policy year if you have not changed the death
benefit option that year. A decrease in the specified amount may affect your
cost of insurance charge and may have adverse federal tax consequences. You
should consult a tax advisor before decreasing your Policy's specified amount.
41
<PAGE>
<TABLE>
<S> <C>
CONDITIONS FOR /bullet/ you must make your request in writing;
DECREASING THE SPECIFIED /bullet/ you may not change your death benefit option in the same
AMOUNT: Policy year that you decrease your specified amount;
/bullet/ you may not decrease your specified amount lower than
the minimum specified amount stated in your Policy;
/bullet/ you may not decrease your specified amount if it would
disqualify your Policy as life insurance under the Internal
Revenue Code;
/bullet/ we may limit the amount of the decrease to no more than
20% of the specified amount;
/bullet/ a decrease in specified amount will take effect on the
Monthiversary on or after we receive your written request;
and
/bullet/ we will assess a pro rata decrease charge against the cash
value if you decrease your specified amount within the
first 15 Policy years.
</TABLE>
NO INCREASES IN THE SPECIFIED AMOUNT
We do not allow increases in the specified amount. If you want additional
insurance, you may purchase a term rider (PIR) or purchase an additional
policy(ies) naming the same owner and insured. We may waive the Policy charge
at issue on these additional policies.
PAYMENT OPTIONS
There are several ways of receiving proceeds under the death benefit and
surrender provisions of the Policy, other than in a lump sum. See Settlement
Options p. 52 for information concerning these settlement options.
SURRENDERS AND CASH WITHDRAWALS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SURRENDERS
You may make a written request to surrender your Policy for its net
surrender value as calculated at the end of the valuation date on which we
receive your request at our office. The insured must be alive and the Policy
must be in force when you make your written request. A surrender is effective
as of the date when we receive your written request. You will incur a surrender
charge if you surrender the Policy during the first 15 Policy years (see
Charges and Deductions - Surrender Charge p. 35). Once you surrender your
Policy, all coverage and other benefits under it cease and cannot be
reinstated. We will normally pay you the net surrender value in a lump sum
within seven days or under a settlement option. A surrender may have tax
consequences. See Federal Income Tax Considerations p. 47.
CASH WITHDRAWALS
After the first Policy year, you may request a cash withdrawal of a
portion of your cash value subject to certain conditions.
42
<PAGE>
<TABLE>
<S> <C>
CASH /bullet/ You must make your cash withdrawal request to us in
WITHDRAWAL writing.
CONDITIONS: /bullet/ We only allow one cash withdrawal per Policy year.
/bullet/ We may limit the amount you can withdraw to at least
$500, and to no more than 10% of the net surrender value.
/bullet/ The remaining net surrender value after the cash
withdrawal must be at least $500.
/bullet/ You may not take a cash withdrawal if it will reduce the
specified amount below the minimum specified amount set
forth in the Policy.
/bullet/ You may specify the subaccount(s) and the fixed account
from which to make the withdrawal. If you do not specify
an account, we will take the withdrawal from each account
in accordance with your current premium allocation
instructions.
/bullet/ We generally will pay a cash withdrawal request within
seven days following the valuation date we receive the
request.
/bullet/ We will deduct a processing fee equal to $25 or 2% of the
amount you withdraw, whichever is less. We deduct this
amount from the withdrawal, and we pay you the balance.
/bullet/ You may not take a cash withdrawal that would disqualify
your Policy as life insurance under the Internal Revenue
Code.
/bullet/ A cash withdrawal may have tax consequences (see
Federal Income Tax Considerations p. 47).
</TABLE>
A cash withdrawal will reduce the cash value by the amount of the cash
withdrawal, and will reduce the death benefit by at least the amount of the
cash withdrawal. When death benefit Option A is in effect, a cash withdrawal
will reduce the specified amount by an amount equal to the amount of the cash
withdrawal. We will not impose a pro rata decrease charge when the specified
amount is decreased as a result of taking a cash withdrawal.
LOANS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GENERAL
After the first Policy year (as long as the Policy is in force) you may
borrow money from us using the Policy as the only security for the loan. We may
permit a loan prior to the first anniversary for Policies issued pursuant to
1035 Exchanges. A loan that is taken from, or secured by, a Policy may have tax
consequences. See Federal Income Tax Considerations p. 47.
43
<PAGE>
<TABLE>
<S> <C>
POLICY LOANS ARE /bullet/ we may require you to borrow at least $500; and
SUBJECT TO CERTAIN /bullet/ the maximum amount you may borrow is 90% of the cash
CONDITIONS: value, less any surrender charge and any outstanding loan
amount.
</TABLE>
When you take a loan, we will withdraw an amount equal to the requested
loan plus interest in advance until the next Policy anniversary from each of
the subaccounts and the fixed account based on your current premium allocation
instructions (unless you specify otherwise). We will transfer that amount to
the loan reserve. The loan reserve is the portion of the fixed account used as
collateral for a Policy loan.
We normally pay the amount of the loan within seven days after we receive
a proper loan request. We may postpone payment of loans under certain
conditions. See Payments We Make p. 51.
You may request a loan by telephone by calling us at 1-800-322-7353. If
the loan amount you request exceeds $50,000 or if the address of record has
been changed within the past 10 days, we may reject your request. If you do not
want the ability to request a loan by telephone, you should notify us in
writing. You will be required to provide certain information for identification
purposes when you request a loan by telephone. We may ask you to provide us
with written confirmation of your request. We will not be liable for processing
a loan request if we believe the request is genuine.
You may also fax your loan request to us at 1-800-322-7361. We will not be
responsible for any transmittal problems when you fax your request unless you
report it to us within five business days and send us proof of your fax
transmittal.
You can repay a loan at any time while the Policy is in force.
At each Policy anniversary, we will compare the amount of the outstanding
loan to the amount in the loan reserve. We will also make this comparison any
time you repay all or part of the loan, or make a request to borrow an
additional amount. At each such time, if the amount of the outstanding loan
exceeds the amount in the loan reserve, we will withdraw the difference from
the subaccounts and the fixed account and transfer it to the loan reserve, in
the same manner as when a loan is made. If the amount in the loan reserve
exceeds the amount of the outstanding loan, we will withdraw the difference
from the loan reserve and transfer it to the subaccounts and the fixed account
in the same manner as current premiums are allocated. No charge will be imposed
for these transfers, and these transfers are not treated as transfers in
calculating the transfer charge. We reserve the right to require a transfer to
the fixed account if the loans were originally transferred from the fixed
account.
INTEREST RATE CHARGED
We will charge you an annual interest rate on a Policy loan that is equal
to 5.66% and is payable annually in advance (equivalent to an effective annual
rate of 6.0%). Loan interest that is unpaid when due will be added to the
amount of the loan on each Policy anniversary and will bear interest at the
same rate.
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LOAN RESERVE INTEREST RATE CREDITED
We will credit the amount in the loan reserve with interest at an
effective annual rate of at least 4.0%. We may credit a higher rate, but we are
not obligated to do so.
/bullet/ We currently credit interest at an effective annual rate of
4.75% on amounts you borrow during the first ten Policy years.
/bullet/ After the tenth Policy year, on all amounts that you have
borrowed, we currently credit interest to part of the cash value
in excess of the premiums paid less withdrawals at an interest
rate equal to the interest rate we charge on the total loan. The
remaining portion, equal to the cost basis, is currently credited
4.75%.
EFFECT OF POLICY LOANS
A Policy loan reduces the death benefit proceeds and net surrender value
by the amount of any outstanding loan. Repaying the loan causes the death
benefit proceeds and net surrender value to increase by the amount of the
repayment. As long as a loan is outstanding, we hold an amount equal to the
loan plus interest charged in advance until the next Policy anniversary in the
loan reserve. This amount is not affected by the separate account's investment
performance and the loan reserve may be credited with an interest rate lower
than the interest rates accruing on the fixed account. Amounts transferred from
the separate account to the loan reserve will affect the value in the separate
account because we credit such amounts with an interest rate declared by us
rather than a rate of return reflecting the investment performance of the
separate account.
There are risks involved in taking a Policy loan, a few of which include
the potential for a Policy to lapse if projected earnings, taking into account
outstanding loans, are not achieved. A Policy loan may also have possible
adverse tax consequences (see Federal Income Tax Considerations p. 47). You
should consult a tax advisor before taking out a Policy loan.
We will notify you (and any assignee of record) if the sum of your loans
plus any interest you owe on the loans is more than the net surrender value. If
you do not submit a sufficient payment within 61 days from the date of the
notice, your Policy may lapse.
POLICY LAPSE AND REINSTATEMENT
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LAPSE
Your Policy may not necessarily lapse (terminate without value) if you
fail to make a planned periodic payment. However, even if you make all your
planned periodic payments, there is no guarantee that your Policy will not
lapse. This Policy provides a no lapse period. See below. Once your no lapse
period ends, your Policy may lapse (terminate without value) if the net
surrender value on any Monthiversary is less than the monthly deductions due on
that day. Such lapse might occur if unfavorable investment experience, loans
and cash withdrawals cause a decrease in the net surrender value, or you have
not paid sufficient premiums as discussed below to offset the monthly
deductions.
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If the net surrender value is not enough to pay the monthly deductions, we
will mail a notice to your last known address and any assignee of record. The
notice will specify the minimum payment you must pay and the final date by
which we must receive the payment to prevent a lapse. We generally require that
you make the payment within 61 days after the date of the notice. This 61-day
period is called the GRACE PERIOD. If we do not receive the specified minimum
payment by the end of the grace period, all coverage under the Policy will
terminate without value.
NO LAPSE PERIOD
This Policy provides a no lapse period for the first five Policy years. As
long as you keep the no lapse period in effect, your Policy will not lapse and
no grace period will begin. Even if your net surrender value is not enough to
pay your monthly deduction, the Policy will not lapse so long as the no lapse
period is in effect. The no lapse period will not extend beyond the no lapse
date stated in your Policy. Each month we determine whether the no lapse period
is still in effect.
<TABLE>
<S> <C>
EARLY TERMINATION OF THE /bullet/ The no lapse period coverage will end immediately if you
NO LAPSE PERIOD do not pay sufficient premiums.
/bullet/ You must pay total premiums (minus withdrawals,
outstanding loans, and any pro rata decrease charge) that
equal at least:
/arrow/ the sum of the minimum monthly guarantee
premiums in effect each month from the Policy
date up to and including the current month.
</TABLE>
You will lessen the risk of Policy lapse if you keep the no lapse period
in effect. Before you take a cash withdrawal or a loan or decrease the
specified amount, you should consider carefully the effect it will have on the
no lapse period guarantee. See Minimum Monthly Guarantee Premium p. 24.
REINSTATEMENT
We will reinstate a lapsed Policy if within five years after the lapse
(and prior to the maturity date). To reinstate the Policy you must:
/bullet/ submit a written application for reinstatement;
/bullet/ provide evidence of insurability satisfactory to us;
/bullet/ make a minimum premium payment sufficient to provide a net
premium that is large enough to cover:
/arrow/ three monthly deductions; and
/arrow/ any surrender charge calculated from the Policy date to
the date of reinstatement. (Although we do not currently
assess this charge, we reserve the right to do so in the
future.)
We will not reinstate any indebtedness. The cash value of the loan reserve on
the reinstatement date will be zero. Your net surrender value on the
reinstatement date will equal
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the net premiums you pay at reinstatement, MINUS one monthly deduction and any
surrender charge. The reinstatement date for your Policy will be the
Monthiversary on or following the day we approve your application for
reinstatement. We may decline a request for reinstatement.
FEDERAL INCOME TAX CONSIDERATIONS
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The following summarizes some of the basic federal income tax
considerations associated with a Policy and does not purport to be complete or
to cover all situations. THIS DISCUSSION IS NOT INTENDED AS TAX ADVICE. Please
consult counsel or other qualified tax advisors for more complete information.
We base this discussion on our understanding of the present federal income tax
laws as they are currently interpreted by the Internal Revenue Service (the
"IRS"). Federal income tax laws and the current interpretations by the IRS may
change.
TAX STATUS OF THE POLICY
A Policy must satisfy certain requirements set forth in the Internal
Revenue Code (the "Code") in order to qualify as a life insurance policy for
federal income tax purposes and to receive the tax treatment normally accorded
life insurance policies under federal tax law. Guidance as to how these
requirements are to be applied is limited. Nevertheless, we believe that a
Policy issued on the basis of a standard rate class should generally satisfy
the applicable Code requirements. Because of the absence of pertinent
interpretations of the Code requirements, there is, however, less certainty
about the application of such requirements to a Policy issued on a substandard
basis. If it is subsequently determined that a Policy does not satisfy the
applicable requirements, we may take appropriate steps to bring the Policy into
compliance with such requirements and we reserve the right to restrict Policy
transactions in order to do so.
In certain circumstances, owners of variable life insurance policies have
been considered for federal income tax purposes to be the owners of the assets
of the separate account supporting their policies due to their ability to
exercise investment control over those assets. Where this is the case, the
policyowners have been currently taxed on income and gains attributable to the
separate account assets. There is little guidance in this area, and some
features of the Policies, such as your flexibility to allocate premiums and
cash values, have not been explicitly addressed in published rulings. While we
believe that the Policy does not give you investment control over separate
account assets, we reserve the right to modify the Policy as necessary to
prevent you from being treated as the owner of the separate account assets
supporting the Policy.
In addition, the Code requires that the investments of the separate
account be "adequately diversified" in order to treat the Policy as a life
insurance policy for federal income tax purposes. We intend that the separate
account, through the portfolios, will satisfy these diversification
requirements.
The following discussion assumes that the Policy will qualify as a life
insurance policy for federal income tax purposes.
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TAX TREATMENT OF POLICY BENEFITS
IN GENERAL. We believe that the death benefit under a Policy should be
excludible from the beneficiary's gross income. Federal, state and local
transfer, and other tax consequences of ownership or receipt of Policy proceeds
depend on your circumstances and the beneficiary's circumstances. A tax advisor
should be consulted on these consequences.
Generally, you will not be deemed to be in constructive receipt of the
cash value until there is a distribution. When distributions from a Policy
occur, or when loans are taken out from or secured by a Policy (e.g., by
assignment), the tax consequences depend on whether the Policy is classified as
a "Modified Endowment Contract" ("MEC").
MODIFIED ENDOWMENT CONTRACTS. Under the Code, certain life insurance
policies are classified as MECs and receive less favorable tax treatment than
other life insurance policies. The rules are too complex to summarize here, but
generally depend on the amount of premiums paid during the first seven Policy
years. Certain changes in the Policy after it is issued could also cause the
Policy to be classified as a MEC. Due to the Policy's flexibility, each
Policy's circumstances will determine whether the Policy is classified as a
MEC. Among other things, a reduction in benefits at any time could cause a
Policy to become a MEC. If you do not want your Policy to be classified as a
MEC, you should consult a tax advisor to determine the circumstances, if any,
under which your Policy would not be classified as a MEC.
Upon issue of your Policy, we will notify you as to whether or not your
Policy is classified as a MEC based on the initial premium we receive. If your
Policy is not a MEC at issue, you will also be notified of the maximum amount
of additional premiums you can pay without causing your Policy to be classified
as a MEC. If a payment would cause your Policy to become a MEC, you and your
agent will be notified. At that time, you will need to notify us if you want to
continue your Policy as a MEC.
Distributions (other than Death Benefits) from Modified Endowment
Contracts. Policies classified as MECs are subject to the following tax rules:
/bullet/ All distributions other than death benefits from a MEC, including
distributions upon surrender and cash withdrawals, will be
treated first as distributions of gain taxable as ordinary
income. They will be treated as tax-free recovery of the owner's
investment in the Policy only after all gain has been
distributed. Your investment in the Policy is generally your
total premium payments. When a distribution is taken from the
Policy, your investment in the Policy is reduced by the amount of
the distribution that is tax-free.
/bullet/ Loans taken from or secured by (e.g., by assignment) such a
Policy are treated as distributions and taxed accordingly.
/bullet/ A 10% additional federal income tax is imposed on the amount
included in income except where the distribution or loan is made
when you have attained age 591/2 or are disabled, or where the
distribution is part of a series of
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substantially equal periodic payments for your life (or life
expectancy) or the joint lives (or joint life expectancies) of
you and the beneficiary.
/bullet/ If a Policy becomes a MEC, distributions that occur during the
Policy year will be taxed as distributions from a MEC. In
addition, distributions from a Policy within two years before it
becomes a MEC will be taxed in this manner. This means that a
distribution from a Policy that is not a MEC at the time when the
distribution is made could later become taxable as a distribution
from a MEC.
Distributions (other than Death Benefits) from Policies that are not
Modified Endowment Contracts. Distributions from a Policy that is not a MEC are
generally treated first as a recovery of your investment in the Policy, and as
taxable income after the recovery of all investment in the Policy. However,
certain distributions which must be made in order to enable the Policy to
continue to qualify as a life insurance policy for federal income tax purposes
if Policy benefits are reduced during the first 15 Policy years may be treated
in whole or in part as ordinary income subject to tax.
Loans from or secured by a Policy that is not a MEC are generally not
treated as distributions. Instead, such loans are treated as indebtedness.
However, the tax consequences associated with Policy loans that are outstanding
after the first 10 Policy years are less clear and a tax advisor should be
consulted about such loans.
Finally, neither distributions from nor loans from or secured by a Policy
that is not a MEC are subject to the 10% additional tax.
Multiple Policies. All MECs that we issue (or that our affiliates issue)
to the same owner during any calendar year are treated as one MEC for purposes
of determining the amount includible in the owner's income when a taxable
distribution occurs.
INVESTMENT IN THE POLICY. Your investment in the Policy is generally the
sum of the premium payments you made. When a distribution from the Policy
occurs, your investment in the Policy is reduced by the amount of the
distribution that is tax-free.
POLICY LOANS. If a loan from a Policy is outstanding when the Policy is
canceled or lapses, then the amount of the outstanding indebtedness will be
taxed as if it were a distribution.
DEDUCTIBILITY OF POLICY LOAN INTEREST. In general, interest you pay on a
loan from a Policy will not be deductible. Before taking out a Policy loan, you
should consult a tax advisor as to the tax consequences.
BUSINESS USES OF THE POLICY. The Policy may be used in various
arrangements, including nonqualified deferred compensation or salary
continuance plans, split dollar insurance plans, executive bonus plans, retiree
medical benefit plans and others. The tax consequences of such plans and
business uses of the Policy may vary depending on the particular facts and
circumstances of each individual arrangement and business uses of the Policy.
Therefore, if you are contemplating using the Policy in any arrangement the
value of
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which depends in part on its tax consequences, you should be sure to consult a
tax advisor as to tax attributes of the arrangement. In recent years, moreover,
Congress has adopted new rules relating to life insurance owned by businesses.
Any business contemplating the purchase of a new Policy or a change in an
existing Policy should consult a tax advisor.
TERMINAL ILLNESS ACCELERATED DEATH BENEFIT RIDER. We believe that the
single-sum payment we make under this rider should be fully excludible from the
gross income of the beneficiary, as long as the beneficiary is an insured under
the Policy. You should consult a tax advisor about the consequences of adding
this rider to your Policy, or requesting a single-sum payment.
POSSIBLE TAX LAW CHANGES. Although the likelihood of legislative changes
is uncertain, there is always a possibility that the tax treatment of the
Policies could change by legislation or otherwise. You should consult a tax
advisor with respect to legal developments and their effect on the Policy.
SPECIAL RULES FOR 403(B) ARRANGEMENTS
If this Policy is purchased by public school systems and certain
tax-exempt organizations for their employees, then the federal, state and
estate tax consequences could differ from those stated in the prospectus. A
competent tax advisor should be consulted in connection with such purchase.
Certain restrictions apply. The Policy must be purchased in connection
with a tax-sheltered annuity described in section 403(b) of the Code. Premiums,
distributions, and other transactions in connection with the Policy must be
administered in coordination with the section 403(b) annuity.
The amount of life insurance that may be purchased on behalf of a
participant in a 403(b) plan is limited. The current cost of insurance for the
net amount at risk is treated under the Code as a "current fringe benefit" and
must be included annually in the plan participant's gross income. This cost
(generally referred to as the "P.S. 58" cost) is reported to the participant
annually.
If the plan participant dies while covered by the 403(b) plan and the
Policy proceeds are paid to the participant's beneficiary, then the excess of
the death benefit over the cash value will generally not be taxable. However,
the cash value will generally be taxable to the extent it exceeds the
participant's cost basis in the Policy.
Policies owned under these types of plans may be subject to the Employee
Retirement Income Security Act of 1974 ("ERISA"), which may impose additional
requirements of Policy loans and other Policy provisions. Plan loans must also
satisfy tax requirements in order to be treated as non-taxable. Plan loan
requirements and provisions may differ from the Policy loan provisions stated
in the prospectus. You should consult a qualified advisor regarding ERISA.
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OTHER POLICY INFORMATION
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OUR RIGHT TO CONTEST THE POLICY
In issuing this Policy, we rely on all statements made by or for the
insured in the application or in a supplemental application. Therefore, if you
make any material misrepresentation of a fact in the application (or any
supplemental application), then we may contest the Policy's validity or may
resist a claim under the Policy.
In the absence of fraud, we cannot bring any legal action to contest the
validity of the Policy after the Policy has been in force during the insured's
lifetime for two years from the Policy date, or if reinstated, for two years
from the date of reinstatement.
SUICIDE EXCLUSION
If the insured commits suicide within two years of the Policy date (or two
years from the reinstatement date; if the Policy lapses and is reinstated), the
Policy will terminate and our liability is limited to an amount equal to the
premiums paid, less any outstanding loans, and less any cash withdrawals. We
will pay this amount to the beneficiary in one sum.
MISSTATEMENT OF AGE OR GENDER
If the age or gender of the insured was stated incorrectly in the
application or any supplemental application, then the death benefit will be
adjusted based on what the cost of insurance charge for the most recent monthly
deduction would have purchased based on the insured's correct age and gender.
MODIFYING THE POLICY
Only our President or Secretary may modify this Policy or waive any of our
rights or requirements under this Policy. Any modification or waiver must be in
writing. No agent may bind us by making any promise not contained in this
Policy.
If we modify the Policy, we will provide you notice and we will make
appropriate endorsements to the Policy.
BENEFITS AT MATURITY
If the insured is living and the Policy is in force, the Policy will
mature on the Policy anniversary nearest the insured's 95th birthday. This is
the maturity date. On the maturity date we will pay you the net surrender value
of your Policy.
PAYMENTS WE MAKE
We usually pay the amounts of any surrender, cash withdrawal, death
benefit proceeds, or settlement options within seven business days after we
receive all applicable written
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notices and/or due proofs of death at our office. However, we can postpone such
payments if:
/bullet/ the NYSE is closed, other than customary weekend and holiday
closing, or trading on the NYSE is restricted as determined by
the SEC; OR
/bullet/ the SEC determines that an emergency exists that would make
the disposal of securities held in the separate account or the
determination of their value not reasonably practicable.
If you have submitted a recent check or draft, we have the right to defer
payment of surrenders, cash withdrawals, death benefit proceeds, or payments
under a settlement option until such check or draft has been honored. We also
reserve the right to defer payment of transfers, cash withdrawals, death
benefit proceeds, or surrenders from the fixed account for up to six months.
SETTLEMENT OPTIONS
If you surrender the Policy, you may elect to receive the net surrender
value in either a lump sum or as a series of regular income payments under one
of the three settlement options described below. In either event, life
insurance coverage ends. Also, when the insured dies, the beneficiary may apply
the lump sum death benefit proceeds to one of the same settlement options. If
the regular payment under a settlement option would be less than $100, we will
instead pay the proceeds in one lump sum. We may make other settlement options
available in the future.
Once we begin making payments under a settlement option, you or the
beneficiary will no longer have any value in the subaccounts or the fixed
account. Instead, the only entitlement will be the amount of the regular
payment for the period selected under the terms of the settlement option
chosen. Depending upon the circumstances, the effective date of a settlement
option is the surrender date or the insured's date of death.
Under any settlement option, the dollar amount of each payment will depend
on four things:
/bullet/ the amount of the surrender or death benefit proceeds on the
surrender date or insured's date of death;
/bullet/ the interest rate we credit on those amounts (we guarantee a
minimum annual interest rate of 3%);
/bullet/ the mortality tables we use; and
/bullet/ the specific payment option(s) you choose.
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OPTION 1 - EQUAL /bullet/ We will pay the proceeds, plus interest, in
MONTHLY INSTALLMENTS equal monthly installments for a fixed
FOR A FIXED PERIOD period of your choice, but not longer than
240 months.
/bullet/ We will stop making payments once we have
made all the payments for the period
selected.
OPTION 2 - EQUAL At your or the beneficiary's direction, we
MONTHLY INSTALLMENTS will make equal monthly installments:
FOR LIFE (LIFE INCOME)
/bullet/ only for the life of the payee, at the end
of which payments will end; or
/bullet/ for the longer of the payee's life, or 10
years if the payee dies before the end of
the first 10 years of payments; or
/bullet/ until the total amount of all payments we
have made equals the proceeds that were
applied to the settlement option.
OPTION 3 - EQUAL /bullet/ We will make equal monthly payments during
MONTHLY INSTALLMENTS FOR the joint lifetime of two persons, first to
THE LIFE OF THE PAYEE AND a chosen payee, and then to a co-payee, if
THEN TO A DESIGNATED living, upon the death of the payee.
SURVIVOR (JOINT AND
SURVIVOR) /bullet/ Payments to the co-payee, if living, upon
the payee's death will equal either:
/arrow/ the full amount made to the payee before the
payee's death; or
/arrow/ two-thirds of the amount paid to the payee
before the payee's death. All payments will
cease upon the death of the co-payee.
REPORTS TO OWNERS
At least once each year, or more often as required by law, we will mail to
policyowners at their last known address a report showing the following
information as of the end of the report period:
<TABLE>
<S> <C>
/check/ the current cash value /check/ any activity since the last report
/check/ the current net surrender value /check/ projected values
/check/ the current death benefit /check/ investment experience of each subaccount
/check/ any outstanding loans /check/ any other information required by law
</TABLE>
You may request additional copies of reports, but we may charge a fee for
such additional copies. In addition, we will send written confirmations of any
premium payments and other financial transactions you request. We also will
send copies of the annual and semi-annual report to shareholders for each
portfolio in which you are indirectly invested.
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RECORDS
We will maintain all records relating to the separate account and the
fixed account.
POLICY TERMINATION
Your Policy will terminate on the earliest of:
<TABLE>
<S> <C>
/bullet/ the maturity date; /bullet/ the end of the grace period; or
/bullet/ the date the insured dies; /bullet/ the date the Policy is surrendered.
</TABLE>
SUPPLEMENTAL BENEFITS (RIDERS)
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The following supplemental benefits (riders) are available and may be
added to a Policy. Monthly charges for these riders are deducted from cash
value as part of the monthly deduction. The riders available with the Policies
provide fixed benefits that do not vary with the investment experience of the
separate account. For purposes of the riders, the primary insured is the person
insured under the Policy, and the face amount is the level term insurance
amount we pay at death.
CHILDREN'S INSURANCE RIDER
This rider provides a face amount on the primary insured's children. Our
current minimum face amount for this rider for issue ages 0 - 18 is $2,000. The
maximum face amount is $10,000. At the age of 25 or upon the death of the
primary insured, whichever happens first, this rider may be converted to a new
policy with a maximum face amount of up to five times the face amount of the
rider. We will pay a death benefit once we receive proof that the insured child
died while both the rider and coverage were in force for that child. If the
primary insured dies while the rider is in force, we will terminate the rider
31 days after the death, and we will offer a separate life insurance policy to
each insured child.
ACCIDENTAL DEATH BENEFIT RIDER
Our current minimum face amount for this rider for issue ages 15 - 59 is
$10,000. The maximum face amount available for this rider is $150,000 (up to
150% of specified amount).
Subject to certain limitations, we will pay a face amount if the primary
insured's death results solely from accidental bodily injury where:
/bullet/ the death is caused by external, violent, and accidental means;
/bullet/ the death occurs within 90 days of the accident; and
/bullet/ the death occurs while the rider is in force.
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The rider will terminate on the earliest of:
/bullet/ the Policy anniversary nearest the primary insured's 70th
birthday;
/bullet/ the date the Policy terminates; or
/bullet/ the Monthiversary when the rider terminates at the owner's
request.
OTHER INSURED RIDER
This rider insures the spouse or life partner and/or dependent children of
the primary insured. We will pay the rider's face amount when we receive proof
of the other insured's death. On any Monthiversary while the rider is in force,
you may replace it with a new policy on the other insured's life (without
evidence of insurability).
CONDITIONS TO /bullet/ your request must be in writing;
REPLACE THE
RIDER: /bullet/ the rider has not reached the anniversary
nearest to the other insured's 70th
birthday;
/bullet/ the new policy is any permanent insurance
plan that we currently offer;
/bullet/ subject to the minimum specified amount
required for the new policy, the amount of
the insurance under the new policy will
equal the face amount in force under the
rider as long as it meets the minimum face
amount requirements of the original Policy;
and
/bullet/ we will base your premium on the other
insured's rate class under the rider.
PRIMARY INSURED RIDER ("PIR")
Under the PIR, we provide term insurance coverage on a different basis
from the coverage in your Policy.
FEATURES OF /bullet/ the rider increases the Policy's death
PIR: benefit by the rider's face amount;
/bullet/ the rider may be purchased from issue ages 0
- 80;
/bullet/ the rider terminates when the insured turns
90;
/bullet/ the minimum purchase amount for the rider is
$25,000. There is no maximum purchase
amount;
/bullet/ we do not assess any additional surrender
charge for the PIR;
/bullet/ generally PIR coverage costs less than the
insurance coverage under the Policy, but has
no cash value;
/bullet/ you may cancel or reduce your rider coverage
without decreasing your Policy's specified
amount; and
/bullet/ you may generally decrease your specified
amount without reducing your rider coverage.
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It may cost you less to reduce your PIR coverage than to decrease your
specified Policy's amount, because we do not deduct a surrender charge in
connection with your PIR. It may cost you more to keep a higher specified
amount, because the specified amount may have a cost of insurance that is
higher than the cost of the same amount of coverage under your PIR.
You should consult your registered representative to determine if you
would benefit from PIR. We may discontinue offering PIR at any time. We may
also modify the terms of these riders for new policies.
TERMINAL ILLNESS ACCELERATED DEATH BENEFIT RIDER
This rider allows us to pay all or a portion of the death benefit once we
receive satisfactory proof that the insured is ill and has a life expectancy of
one year or less. A doctor must certify the insured's life expectancy.
We will pay a "single-sum benefit" equal to:
/bullet/ the death benefit on the date we pay the single-sum benefit;
MULTIPLIED BY
/bullet/ the election percentage of the death benefit you elect to
receive; DIVIDED BY
/bullet/ 1 + i ("i" equals the current yield on 90-day Treasury bills
or the Policy loan interest rate, whichever is greater); MINUS
/bullet/ any indebtedness at the time we pay the single-sum benefit,
multiplied by the election percentage.
The maximum terminal illness death benefit we will pay is equal to:
/bullet/ the death benefit available under the Policy at the insured's
death; PLUS
/bullet/ the benefit available under any PIR in force.
/bullet/ a single-sum benefit may not be greater than $500,000.
The election percentage is a percentage that you select. It may not be
greater than 100% of your Policy's death benefit under the rider.
We will not pay a benefit under the rider if the insured's terminal
condition results from self-inflicted injuries which occur during the period
specified in your Policy's suicide provision.
The rider terminates at the earliest of:
/bullet/ the date the Policy terminates;
/bullet/ the date a settlement option takes effect;
/bullet/ the date we pay a single-sum benefit; or
/bullet/ the date you terminate the rider.
We do not charge for this rider.
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IMSA
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We are a member of the Insurance Marketplace Standards Association
("IMSA"). IMSA is an independent, voluntary organization of life insurance
companies. It promotes high ethical standards in the sales and advertising of
individual life insurance and annuity products. Companies must undergo a
rigorous self and independent assessment of their practices to become a member
of IMSA. The IMSA logo in our sales literature shows our ongoing commitment to
these standards.
PERFORMANCE DATA
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RATES OF RETURN
This section shows the historical investment experience of the portfolios
based on the portfolios' historical investment experience. This information
does not represent or project future investment performance.
We base the rates of return that we show below on each portfolio's actual
investment performance. We deduct investment management fees and direct fund
expenses. The rates are average annual total return for the periods ended on
December 31, 1999.
These rates of return do not reflect any charges that are deducted under
the Policy or from the separate account (such as the annual mortality and
expense risk charge, the monthly deduction, or the surrender charge). IF THESE
CHARGES WERE DEDUCTED, PERFORMANCE WOULD BE SIGNIFICANTLY LOWER. These rates of
return are not estimates, projections or guarantees of future performance.
We also show below comparable figures for the unmanaged Standard & Poor's
Index of 500 Common Stocks ("S&P 500"), a widely used measure of stock market
performance. The S&P 500 does not reflect any deduction for the expenses of
operating and managing an investment portfolio.
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AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED ON DECEMBER 31, 1999
<TABLE>
<CAPTION>
INCEPTION
FUND PORTFOLIO INCEPTION 10 YEARS 5 YEARS 3 YEARS 1 YEAR DATE
- ------------------------------------------------ ------------- ---------- ----------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
WRL VKAM Emerging Growth ....................... 32.64% N/A 42.96% 50.69% 105.16% 03/01/1993
WRL T. Rowe Price Small Cap .................... 38.49% N/A N/A N/A N/A 05/03/1999
WRL Goldman Sachs Small Cap .................... 17.82% N/A N/A N/A N/A 05/03/1999
WRL Pilgrim Baxter Mid Cap Growth .............. 78.00% N/A N/A N/A N/A 05/03/1999
WRL Alger Aggressive Growth .................... 30.35% N/A 36.62% 46.16% 69.02% 03/01/1994
WRL Third Avenue Value ......................... 3.84% N/A N/A N/A 15.72% 01/02/1998
WRL GE International Equity .................... 14.90% N/A N/A N/A 24.95% 01/02/1997
WRL Janus Global ............................... 27.91% N/A 32.94% 38.24% 71.10% 12/03/1992
WRL Janus Growth ............................... 23.47% 23.62% 39.89% 45.60% 59.67% 10/02/1986
WRL Goldman Sachs Growth ....................... 17.50% N/A N/A N/A N/A 05/03/1999
WRL GE U.S. Equity ............................. 22.76% N/A N/A N/A 18.41% 01/02/1997
WRL Salomon All Cap ............................ 15.57% N/A N/A N/A N/A 05/03/1999
WRL C.A.S.E. Growth ............................ 18.80% N/A N/A 16.41% 33.84% 05/01/1995
WRL Dreyfus Mid Cap ............................ 7.20% N/A N/A N/A N/A 05/03/1999
WRL NWQ Value Equity ........................... 10.76% N/A N/A 8.73% 7.95% 05/01/1996
WRL T. Rowe Price Dividend Growth .............. (7.40)% N/A N/A N/A N/A 05/03/1999
WRL Dean Asset Allocation ...................... 10.38% N/A N/A 6.02% (5.64)% 01/03/1995
WRL LKCM Strategic Total Return ................ 13.82% N/A 16.50% 14.40% 12.07% 03/01/1993
WRL J.P. Morgan Real Estate Securities ......... (11.31)% N/A N/A N/A (3.77)% 05/01/1998
WRL Federated Growth & Income .................. 8.82% N/A 11.41% 7.07% (4.45)% 03/01/1994
WRL AEGON Balanced ............................. 8.53% N/A 11.34% 8.86% 3.03% 03/01/1994
WRL AEGON Bond ................................. 7.03% 7.33% 7.36% 5.02% (2.94)% 10/02/1986
WRL J.P. Morgan Money Market* .................. 5.00% 4.67% 5.11% 5.04% 4.63% 10/02/1986
S&P 500 ........................................ 18.11% 18.20% 28.54% 27.56% 21.04% 10/02/1986
</TABLE>
* Yield more closely reflects current earnings than its total return.
The annualized yield for the WRL J.P. Morgan Money Market portfolio for
the seven days ended December 31, 1999 was 5.15%.
Additional information regarding the investment performance of the
portfolios appears in the attached fund prospectus.
HYPOTHETICAL ILLUSTRATIONS BASED ON ADJUSTED SUBACCOUNT PERFORMANCE
This section contains hypothetical illustrations of Policy values based on
the historical experience of the subaccounts. We started selling the Policies
in 1999. The separate account was established on October 24, 1994 and commenced
operations in June 1999. The fund commenced operations on October 2, 1986. The
rates of return below show the actual investment experience of each subaccount
for the periods shown. The illustrations of cash value and net surrender value
below depict these Policy values as if you had purchased the Policy on the last
valuation date prior to January 1 of the year after the subaccount began
operations and had elected death benefit Option A. The illustrations are based
on the historical investment experience of the subaccount indicated as of the
last valuation date prior to January 1 of the year after the subaccount began
operations. WE ASSUMED THE RATE
58
<PAGE>
OF RETURN FOR EACH SUBACCOUNT IN EACH CALENDAR YEAR TO BE UNIFORMLY EARNED
THROUGHOUT THE YEAR; HOWEVER, THE SUBACCOUNT'S ACTUAL PERFORMANCE DID AND WILL
VARY THROUGHOUT THE YEAR.
In order to demonstrate how the actual investment experience of the
subaccounts could have affected the cash value and net surrender value of the
Policy, we provide hypothetical illustrations for a hypothetical insured. THESE
HYPOTHETICAL ILLUSTRATIONS ARE DESIGNED TO SHOW THE PERFORMANCE THAT COULD HAVE
RESULTED IF THE HYPOTHETICAL INSURED HAD HELD THE POLICY DURING THE PERIOD
ILLUSTRATED. These illustrations do not represent what may happen in the
future.
The amounts we show for cash values and net surrender values take into
account all charges and deductions from the Policy, the separate account, and
the subaccounts. For each subaccount, we base one illustration on the
guaranteed cost of insurance rates and one on the current cost of insurance
rates for a hypothetical male insured age 35. The insured's age, gender and
rate class, amount and timing of premium payments, cash withdrawals, and loans
would affect individual Policy benefits.
For each subaccount, the illustrations below assume death benefit Option A
was selected based on an annual premium of $2,000 and a specified amount of
$165,000 for a male age 35, non-tobacco use, ultimate select rate class.
The following example shows how the hypothetical net return of the WRL Janus
Growth subaccount would have affected benefits for a Policy dated on the last
valuation date prior to January 1, 1987. This example assumes that net premiums
and cash values were invested in the subaccount for the entire period and that
the values were determined on each Policy anniversary thereafter.
WRL JANUS GROWTH
Male Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Tobacco Use, Ultimate Select Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------- ------------------------
Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed
- ------------------------------------------ ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
1988 ..................................... $ 1,734 $ 1,734 $ 0 $ 0
1989 ..................................... 3,900 3,869 1,339 1,308
1990 ..................................... 8,023 7,932 5,462 5,372
1991 ..................................... 9,468 9,332 6,907 6,771
1992 ..................................... 17,533 17,254 14,972 14,693
1993 ..................................... 19,342 19,008 17,037 16,704
1994 ..................................... 21,495 21,097 19,446 19,048
1995 ..................................... 20,875 20,458 19,082 18,666
1996 ..................................... 32,665 32,003 31,128 30,466
1997 ..................................... 39,926 39,111 38,646 37,830
1998 ..................................... 48,299 47,323 47,275 46,299
1999 ..................................... 81,362 79,737 80,594 78,969
2000 ..................................... 131,252 128,656 130,740 128,144
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
59
<PAGE>
The following example shows how the hypothetical net return of the WRL AEGON
Bond subaccount would have affected benefits for a Policy dated on the last
valuation date prior to January 1, 1987. This example assumes that net premiums
and cash values were invested in the subaccount for the entire period and that
the values were determined on each Policy anniversary thereafter.
WRL AEGON BOND
Male Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Tobacco Use, Ultimate Select Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed
- ------------------------------------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1988 ..................................... $ 1,454 $ 1,454 $ 0 $ 0
1989 ..................................... 3,228 3,198 667 637
1990 ..................................... 5,454 5,381 2,893 2,820
1991 ..................................... 7,380 7,254 4,819 4,693
1992 ..................................... 10,529 10,326 7,968 7,765
1993 ..................................... 12,762 12,494 10,457 10,189
1994 ..................................... 16,051 15,689 14,002 13,641
1995 ..................................... 16,158 15,767 14,365 13,975
1996 ..................................... 21,502 20,974 19,965 19,438
1997 ..................................... 22,749 22,184 21,468 20,904
1998 ..................................... 26,197 25,558 25,173 24,534
1999 ..................................... 29,950 29,226 29,182 28,457
2000 ..................................... 30,150 29,417 29,638 28,904
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of the WRL J.P.
Morgan Money Market subaccount would have affected benefits for a Policy dated
on the last valuation date prior to January 1, 1987. This example assumes that
net premiums and cash values were invested in the subaccount for the entire
period and that the values were determined on each Policy anniversary
thereafter.
WRL J.P. MORGAN MONEY MARKET
Male Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Tobacco Use, Ultimate Select Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed
- ------------------------------------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1988 ..................................... $ 1,627 $ 1,627 $ 0 $ 0
1989 ..................................... 3,348 3,319 788 758
1990 ..................................... 5,262 5,192 2,702 2,632
1991 ..................................... 7,239 7,116 4,678 4,555
1992 ..................................... 9,157 8,977 6,596 6,417
1993 ..................................... 10,902 10,666 8,598 8,361
1994 ..................................... 12,593 12,296 10,544 10,247
1995 ..................................... 14,430 14,064 12,638 12,271
1996 ..................................... 16,585 16,154 15,049 14,617
1997 ..................................... 18,738 18,246 17,458 16,966
1998 ..................................... 21,050 20,508 20,025 19,484
1999 ..................................... 23,438 22,841 22,670 22,073
2000 ..................................... 25,748 25,089 25,235 24,577
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
60
<PAGE>
The following example shows how the hypothetical net return of the WRL Janus
Global subaccount would have affected benefits for a Policy dated on the last
valuation date prior to January 1, 1993. This example assumes that net premiums
and cash values were invested in the subaccount for the entire period and that
the values were determined on each Policy anniversary thereafter.
WRL JANUS GLOBAL
Male Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Tobacco Use, Ultimate Select Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed
- ------------------------------------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1994 ..................................... $ 2,146 $ 2,146 $ 0 $ 0
1995 ..................................... 3,682 3,653 1,121 1,093
1996 ..................................... 6,421 6,345 3,860 3,784
1997 ..................................... 10,135 9,985 7,574 7,425
1998 ..................................... 13,768 13,539 11,207 10,978
1999 ..................................... 19,758 19,404 17,454 17,100
2000 ..................................... 36,215 35,545 34,167 33,497
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of the WRL VKAM
Emerging Growth subaccount would have affected benefits for a Policy dated on
the last valuation date prior to January 1, 1994. This example assumes that net
premiums and cash values were invested in the subaccount for the entire period
and that the values were determined on each Policy anniversary thereafter.
WRL VKAM EMERGING GROWTH
Male Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Tobacco Use, Ultimate Select Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed
- ------------------------------------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1995 ..................................... $ 1,425 $ 1,425 $ 0 $ 0
1996 ..................................... 4,415 4,379 1,854 1,818
1997 ..................................... 7,061 6,980 4,501 4,419
1998 ..................................... 10,400 10,250 7,840 7,689
1999 ..................................... 16,312 16,050 13,751 13,489
2000 ..................................... 36,481 35,875 34,176 33,571
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
61
<PAGE>
The following example shows how the hypothetical net return of the WRL LKCM
Strategic Total Return subaccount would have affected benefits for a Policy
dated on the last valuation date prior to January 1, 1994. This example assumes
that net premiums and cash values were invested in the subaccount for the
entire period and that the values were determined on each Policy anniversary
thereafter.
WRL LKCM STRATEGIC TOTAL RETURN
Male Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Tobacco Use, Ultimate Select Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed
- ------------------------------------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1995 ..................................... $ 1,540 $ 1,540 $ 0 $ 0
1996 ..................................... 3,867 3,834 1,306 1,274
1997 ..................................... 6,201 6,125 3,640 3,564
1998 ..................................... 9,394 9,250 6,833 6,689
1999 ..................................... 11,892 11,683 9,331 9,123
2000 ..................................... 14,918 14,632 12,613 12,327
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of the WRL Alger
Aggressive Growth subaccount would have affected benefits for a Policy dated on
the last valuation date prior to January 1, 1995. This example assumes that net
premiums and cash values were invested in the subaccount for the entire period
and that the values were determined on each Policy anniversary thereafter.
WRL ALGER AGGRESSIVE GROWTH
Male Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Tobacco Use, Ultimate Select Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed
- ------------------------------------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1996 ..................................... $ 2,196 $ 2,196 $ 0 $ 0
1997 ..................................... 4,128 4,097 1,567 1,537
1998 ..................................... 7,034 6,956 4,473 4,395
1999 ..................................... 12,731 12,558 10,170 9,997
2000 ..................................... 24,032 23,679 21,471 21,118
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
62
<PAGE>
The following example shows how the hypothetical net return of the WRL Dean
Asset Allocation subaccount would have affected benefits for a Policy dated on
the last valuation date prior to January 1, 1995. This example assumes that net
premiums and cash values were invested in the subaccount for the entire period
and that the values were determined on each Policy anniversary thereafter.
WRL DEAN ASSET ALLOCATION
Male Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Tobacco Use, Ultimate Select Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed
- ------------------------------------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1996 ..................................... $1,891 $1,891 $ 0 $ 0
1997 ..................................... 3,934 3,903 1,373 1,342
1998 ..................................... 6,366 6,291 3,806 3,730
1999 ..................................... 8,512 8,382 5,951 5,821
2000 ..................................... 9,385 9,216 6,825 6,655
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of the WRL
Federated Growth & Income subaccount would have affected benefits for a Policy
dated on the last valuation date prior to January 1, 1995. This example assumes
that net premiums and cash values were invested in the subaccount for the
entire period and that the values were determined on each Policy anniversary
thereafter.
WRL FEDERATED GROWTH & INCOME
Male Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Tobacco Use, Ultimate Select Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed
- ------------------------------------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1996 ..................................... $1,978 $1,978 $ 0 $ 0
1997 ..................................... 3,932 3,902 1,372 1,341
1998 ..................................... 6,816 6,737 4,255 4,176
1999 ..................................... 8,548 8,420 5,987 5,859
2000 ..................................... 9,540 9,371 6,980 6,810
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
63
<PAGE>
The following example shows how the hypothetical net return of the WRL AEGON
Balanced subaccount would have affected benefits for a Policy dated on the last
valuation date prior to January 1, 1995. This example assumes that net premiums
and cash values were invested in the subaccount for the entire period and that
the values were determined on each Policy anniversary thereafter.
WRL AEGON BALANCED
Male Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Tobacco Use, Ultimate Select Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed
- ------------------------------------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1996 ..................................... $ 1,886 $1,886 $ 0 $ 0
1997 ..................................... 3,796 3,766 1,236 1,205
1998 ..................................... 6,235 6,160 3,674 3,599
1999 ..................................... 8,260 8,132 5,699 5,571
2000 ..................................... 10,005 9,824 7,444 7,263
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of the WRL C.A.S.E.
Growth subaccount would have affected benefits for a Policy dated on the last
valuation date prior to
January 1, 1996. This example assumes that net premiums and cash values were
invested in the subaccount for the entire period and that the values were
determined on each Policy anniversary thereafter.
WRL C.A.S.E. GROWTH
Male Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Tobacco Use, Ultimate Select Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed
- ------------------------------------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1997 ..................................... $1,846 $1,846 $ 0 $ 0
1998 ..................................... 3,905 3,874 1,345 1,314
1999 ..................................... 5,547 5,479 2,987 2,918
2000 ..................................... 9,467 9,321 6,906 6,760
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
64
<PAGE>
The following example shows how the hypothetical net return of the WRL GE
U.S. Equity subaccount would have affected benefits for a Policy dated on the
last valuation date prior to January 1, 1997. This example assumes that net
premiums and cash values were invested in the subaccount for the entire period
and that the values were determined on each Policy anniversary thereafter.
WRL GE U.S. EQUITY
Male Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Tobacco Use, Ultimate Select Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed
- ------------------------------------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1998 ..................................... $2,008 $2,008 $ 0 $ 0
1999 ..................................... 4,380 4,348 1,819 1,787
2000 ..................................... 6,992 6,914 4,431 4,354
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of the WRL NWQ
Value Equity subaccount would have affected benefits for a Policy dated on the
last valuation date prior to January 1, 1997. This example assumes that net
premiums and cash values were invested in the subaccount for the entire period
and that the values were determined on each Policy anniversary thereafter.
WRL NWQ VALUE EQUITY
Male Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Tobacco Use, Ultimate Select Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed
- ------------------------------------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1998 ..................................... $1,975 $1,975 $ 0 $ 0
1999 ..................................... 3,328 3,300 768 740
2000 ..................................... 5,234 5,166 2,673 2,605
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
65
<PAGE>
The following example shows how the hypothetical net return of the WRL GE
International Equity subaccount would have affected benefits for a Policy dated
on the last valuation date prior to January 1, 1997. This example assumes that
net premiums and cash values were invested in the subaccount for the entire
period and that the values were determined on each Policy anniversary
thereafter.
WRL GE INTERNATIONAL EQUITY
Male Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Tobacco Use, Ultimate Select Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed
- ------------------------------------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1998 ..................................... $1,676 $1,676 $ 0 $ 0
1999 ..................................... 3,638 3,607 1,077 1,047
2000 ..................................... 6,468 6,388 3,907 3,828
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
The following example shows how the hypothetical net return of the WRL Third
Avenue Value subaccount would have affected benefits for a Policy dated on the
last valuation date prior to January 1, 1998. This example assumes that net
premiums and cash values were invested in the subaccount for the entire period
and that the values were determined on each Policy anniversary thereafter.
WRL THIRD AVENUE VALUE
Male Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Tobacco Use, Ultimate Select Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed
- ------------------------------------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
1999 ..................................... $1,434 $1,434 $ 0 $ 0
2000 ..................................... 3,456 3,425 895 864
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
66
<PAGE>
The following example shows how the hypothetical net return of the WRL J.P.
Morgan Real Estate Securities subaccount would have affected benefits for a
Policy dated on the last valuation date prior to January 1, 1999. This example
assumes that net premiums and cash values were invested in the subaccount for
the entire period and that the values were determined on each Policy
anniversary thereafter.
WRL J.P. MORGAN REAL ESTATE SECURITIES
Male Issue Age 35, $2,000 Annual Premium
($165,000 Specified Amount, Non-Tobacco Use, Ultimate Select Class)
Death Benefit Option A
Both Current and Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
Cash Value Net Surrender Value
------------------------ -----------------------
Last valuation date prior to January 1*: Current Guaranteed Current Guaranteed
- ------------------------------------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
2000 ..................................... $1,486 $1,486 $0 $0
</TABLE>
* For each year shown, benefits and values reflect only premiums paid during
previous Policy years.
Because the WRL Goldman Sachs Growth, WRL Goldman Sachs Small Cap, WRL T.
Rowe Price Dividend Growth, WRL T. Rowe Price Small Cap, WRL Salomon All Cap,
WRL Pilgrim Baxter Mid Cap Growth, and WRL Dreyfus Mid Cap subaccounts did not
commence operations until May 3, 1999, there are no hypothetical illustrations
for these subaccounts.
OTHER PERFORMANCE DATA IN ADVERTISING SALES LITERATURE
We may compare each subaccount's performance to the performance of:
/bullet/ other variable life issuers in general;
/bullet/ variable life insurance policies which invest in mutual funds
with similar investment objectives and policies, as reported
by Lipper Analytical Services, Inc. ("Lipper") and
Morningstar, Inc. ("Morningstar"); and other services,
companies, individuals, or industry or financial publications
(E.G., FORBES, MONEY, THE WALL STREET JOURNAL, BUSINESS WEEK,
BARRON'S, KIPLINGER'S PERSONAL FINANCE, and FORTUNE);
/arrow/ Lipper and Morningstar rank variable annuity
contracts and variable life policies. Their
performance analysis ranks such policies and
contracts on the basis of total return, and assumes
reinvestment of distributions; but it does not show
sales charges, redemption fees or certain expense
deductions at the separate account level.
/bullet/ the Standard & Poor's Index of 500 Common Stocks, or other
widely recognized indices;
/arrow/ unmanaged indices may assume the reinvestment of
dividends, but usually do not reflect deductions for
the expenses of operating or managing an investment
portfolio; or
/bullet/ other types of investments, such as:
/arrow/ certificates of deposit;
/arrow/ savings accounts and U.S. Treasuries;
/arrow/ certain interest rate and inflation indices (E.G., the
Consumer Price Index);
67
<PAGE>
or
/arrow/ indices measuring the performance of a defined group
of securities recognized by investors as representing
a particular segment of the securities markets (E.G.,
Donoghue Money Market Institutional Average, Lehman
Brothers Corporate Bond Index, or Lehman Brothers
Government Bond Index).
AUSA LIFE'S PUBLISHED RATINGS
We may publish in advertisements, sales literature, or reports we send to
you the ratings and other information that an independent ratings organization
assigns to us. These organizations include: A.M. Best Company, Moody's
Investors Service, Inc., Standard & Poor's Insurance Rating Services, and Duff
& Phelps Credit Rating Co. These ratings are opinions regarding an operating
insurance company's financial capacity to meet the obligations of its insurance
policies in accordance with their terms. These ratings do not apply to the
separate account, the subaccounts, the fund or its portfolios, or to their
performance.
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SALE OF THE POLICIES
The Policy will be sold by individuals who are licensed as our life
insurance agents and who are also registered representatives of broker-dealers
having written sales agreements for the Policy with AFSG Securities Corporation
("AFSG"), the principal underwriter of the Policy. AFSG is located at 4333
Edgewood Road, N.E., Cedar Rapids, Iowa 52499. AFSG is registered with the SEC
under the Securities Exchange Act of 1934 as a broker-dealer, and is a member
of the National Association of Securities Dealers, Inc. The sales commission
payable to AUSA Life agents or other registered representatives may vary with
the sales agreement, but it is not expected to be greater than:
/bullet/ 55% of all premiums you make during the first Policy year, PLUS
/bullet/ 2.50% of all premiums you make during Policy years 2 through 10.
We will pay an additional sales commission of up to 0.15% of the Policy's cash
value on the fifth Policy anniversary and each anniversary thereafter where the
cash value (minus amounts attributable to loans) equals at least $5,000. In
addition, certain production, persistency and managerial bonuses may be paid.
LEGAL MATTERS
Sutherland Asbill & Brennan LLP of Washington, D.C. has provided advice on
certain matters relating to the federal securities laws. All matters of New
York law pertaining to the Policy have been passed upon by Robert F. Colby,
Esq., Director, Vice President, Assistant Secretary and Associate General
Counsel of AUSA Life.
68
<PAGE>
LEGAL PROCEEDINGS
Like other life insurance companies, we are involved in lawsuits. We are
not aware of any class action lawsuits naming us as a defendant or involving
the separate account. In some lawsuits involving other insurers, substantial
damages have been sought and/or material settlement payments have been made.
Although the outcome of any litigation cannot be predicted with certainty, we
believe that at the present time there are no pending or threatened lawsuits
that are reasonably likely to have a material adverse impact on us, or AFSG, or
the separate account.
EXPERTS
The financial statements of AUSA Series Life Account as of December 31,
1999 and for the year then ended have been included herein in reliance upon the
report of PricewaterhouseCoopers LLP, independent certified public accountants,
and upon the authority of that firm as experts in accounting and auditing.
The statutory-basis financial statements of AUSA Life at December 31, 1999
and 1998 and for each of the three years in the period ended December 31, 1999,
appearing in this prospectus and registration statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein which is based in part on the report of
PricewaterhouseCoopers LLP, independent certified public accountants. The
financial statements referred to above are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
Actuarial matters included in this prospectus and registration statement
have been examined by Alan Yaeger as stated in the opinion filed as an exhibit
to the registration statement.
FINANCIAL STATEMENTS
AUSA Life's financial statements appear on the following pages. These
financial statements should be distinguished from the separate account
financial statements and you should consider these financial statements only as
bearing upon AUSA Life's ability to meet its obligations under the Policies.
You should not consider our financial statements as bearing upon the investment
performance of the assets held in the separate account.
AUSA Life's financial statements for the years ended December 31, 1999 and
1998 and for each of the three years in the period ended December 31, 1999 have
been prepared on the basis of statutory accounting principles rather than
generally accepted accounting principles.
ADDITIONAL INFORMATION ABOUT AUSA LIFE
AUSA Life is a stock life insurance company that is wholly-owned by First
AUSA Life Insurance Company, which, in turn, is indirectly wholly-owned by
AEGON USA, Inc. AUSA Life's office is located at 4 Manhattanville Road,
Purchase, New York 10577 and the mailing address is P.O. Box 9054, Clearwater,
Florida 33758-9054.
69
<PAGE>
AUSA Life was incorporated under the name Zurich Life Insurance Company in
1947 under the laws of New York and is subject to regulation by the
Superintendent of Insurance of the State of New York, as well as by the
insurance departments of all other states and jurisdictions in which it does
business. AUSA Life is licensed to sell insurance in 49 states (including New
York) and in the District of Columbia. AUSA Life submits annual statements on
its operations and finances to insurance officials in all states and
jurisdictions in which it does business. The Policy described in this
prospectus has been filed with, and where required, approved by, insurance
officials in those jurisdictions in which it is sold.
AUSA LIFE'S DIRECTORS AND OFFICERS
We are governed by a board of directors. The following table sets forth
the name, address and principal occupation during the past five years of each
of our directors.
BOARD OF DIRECTORS
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS POSITION WITH AUSA LIFE DURING PAST 5 YEARS
<S> <C> <C>
Tom A. Schlossberg Chairman of the Board President (1993 - present), Diversified
4 Manhattanville Road and President Investment Advisors, Purchase, New
Purchase, New York 10577 York; Executive Vice President (1983 -
1993), Mutual of New York, Purchase,
New York.
William Brown, Jr. Director Management Consultant (1992 -
14 Windward Avenue present), Brownstone Management
White Plains, New York 10615 Consultants, Inc., White Plains, New
York; Vice President (1987 - 1992),
Mutual of New York, Purchase, New
York.
William L. Busler Director President, Annuity Division (1980 -
4333 Edgewood Rd., N.E. present), AEGON USA, Inc.
Cedar Rapids, Iowa 52499
Jack R. Dykhouse Director Executive Vice President (1996 -
Suite 302, present), AEGON Insurance Group;
2705 Brown Trail Senior Vice President (1976 - 1996),
Bedford, TX 76021 AEGON USA, Inc.
Steven E. Frushtick Director Partner (1961 - present) Wiener,
500 Fifth Avenue Frushtick & Straub, New York, New
New York, New York 10110 York.
Vice Admiral Carl Thor Hanson Director Retired (1993 - present), Director (1982
900 Birdseye Road - present), President and Chief Execu-
Orient, New York 11957-0112 tive Officer (1982 - 1993), National
Multiple Sclerosis Society, Orient, New
York.
Peter P. Post Director Owner and President (1992 - present),
415 Madison Avenue Emmerling Post, Inc., New York, New
New York, New York 10017 York; President and Director (1989 -
1992), Lintas: Marketing Communica-
tions, New York, New York.
</TABLE>
70
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS POSITION WITH AUSA LIFE DURING PAST 5 YEARS
<S> <C> <C>
Colette F. Vargas Director and Actuary (1993 - present), Diversified
4 Manhattanville Road Chief Actuary Investment Advisors, Purchase, New
Purchase, New York 10577 York; Actuary (1982 - 1993), Mutual of
New York, Purchase, New York.
Cor H. Verhagen Director President and Director (1990 - present),
51 JFK Parkway CORPA Reinsurance Co. of America,
Short Hills, New Jersey 07078 Short Hills, New Jersey; President
(1990 - 1996), International Life
Investors Insurance Company, New
York, New York; Vice President (1993 -
present), AEGON USA, Inc.; Vice
President (July 1985 - present), AEGON
US Holding Company, Short Hills, New
Jersey.
E. Kirby Warren Director Professor (1961 - present), Columbia
116th Street and Broadway University School of Business, New
New York, New York 10025 York, New York.
Robert F. Colby Director, Vice President, Vice President (January 1994 - present),
4 Manhattanville Road Assistant Secretary and Diversified Investment Advisors; Vice
Purchase, New York 10577 Associate General President (August 1985 - January 1994),
Counsel Mutual of New York, New York, New
York.
Eric B. Goodman Director Head of Portfolio Management
400 West Market Street (1995 - present), AEGON USA
Louisville, Kentucky 40202 Investment Management, Inc.; Portfolio
Manager (1990 - 1994), Providian Corp.
(AEGON), Louisville, Kentucky.
Robert S. Rubinstein Director and Senior Vice President (July 1993 -
100 Manhattanville Road Vice President present), Transamerica Life Insurance
Purchase, New York 10577-2135 Company of New York; Vice President
and Actuary (April 1986 - July 1993),
Integrity Life Insurance Company, New
York, New York.
</TABLE>
71
<PAGE>
The following table gives the name, address and principal occupation during the
past five years of the principal officers of AUSA Life (other than officers
listed above as directors).
PRINCIPAL OFFICERS
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND ADDRESS POSITION WITH AUSA LIFE DURING PAST 5 YEARS
<S> <C> <C>
Patrick S. Baird Vice President and Executive Vice President (1995 -
4333 Edgewood Road, N.E. Chief Financial present), Chief Operating Officer (1996
Cedar Rapids, Iowa 52499 Officer - present), Chief Financial Officer (1992
- 1995), Vice President and Chief Tax
Officer (1984 - 1995) of AEGON USA,
Inc.
Brenda Clancy Treasurer Senior Vice President and Treasurer
4333 Edgewood Road, N.E. (1997 - present), AEGON USA, Inc.;
Cedar Rapids, Iowa 52499 Vice President and Controller 1992 -
1997), AEGON USA, Inc.
Robert J. Kontz Controller Vice President and Controller (1990 -
4333 Edgewood Road, N.E. present), AEGON USA, Inc.; Vice
Cedar Rapids, Iowa 52499 President - Corporate Accounting (1982
- 1989), Life Investors Insurance
Company of America, Cedar Rapids,
Iowa.
Craig D. Vermie Secretary Vice President and General Counsel
4333 Edgewood Road, N.E. (1986 - present), AEGON USA, Inc.
Cedar Rapids, Iowa 52499
</TABLE>
AUSA Life holds the assets of the separate account physically segregated
and apart from the general account. AUSA Life maintains records of all
purchases and sales of portfolio shares by each of the subaccounts. A blanket
bond was issued to AEGON USA, Inc. ("AEGON USA") in the aggregate amount of $12
million, covering all of the employees of AEGON USA and its affiliates,
including AUSA Life. A Stockbrokers Blanket Bond, issued to AEGON U.S.A.
Securities, Inc. providing fidelity coverage, covers the activities of
registered representative of AFSG to a limit of $10 million.
ADDITIONAL INFORMATION ABOUT THE SEPARATE ACCOUNT
AUSA Life established the separate account as a separate investment
account under New York law in 1994. We own the assets in the separate account
and are obligated to pay all benefits under the Policies. The separate account
is used to support other life insurance policies of AUSA Life, as well as for
other purposes permitted by law. The separate account is registered with the
SEC as a unit investment trust under the 1940 Act and qualifies as a "separate
account" within the meaning of the federal securities laws.
72
<PAGE>
APPENDIX A
ILLUSTRATIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The following illustrations show how certain values under a sample Policy
would change with different rates of fictional investment performance over an
extended period of time. In particular, the illustrations show how the death
benefit, cash value, and net surrender value under a Policy issued to an
insured of a given age, would change over time if the premiums indicated were
paid and the return on the assets in the subaccounts were a uniform gross
annual rate (before any expenses) of 0%, 6% or 12%. The tables illustrate
Policy values that would result based on assumptions that you pay the premiums
indicated, you do not change your specified amount, and you do not take any
cash withdrawals or Policy loans. The values under the Policy will be different
from those shown even if the returns averaged 0%, 6% or 12%, but fluctuated
over and under those averages throughout the years shown.
We based the illustration on page 75 on a Policy for an insured who is a
35 year old male in the ultimate select, non-tobacco use rate class, annual
premiums of $2,000, a $165,000 specified amount and death benefit Option A. The
illustration on that page also assumes cost of insurance charges based on our
CURRENT cost of insurance rates.
The illustration on page 76 is based on the same factors as those on page
75, except that cost of insurance rates are based on the GUARANTEED cost of
insurance rates (based on the 1980 Commissioners Standard Ordinary Mortality
Table).
The amounts we show for the death benefits, cash values and net surrender
values take into account (1) the daily charge for assuming mortality and
expense risks assessed against each subaccount. This charge is equivalent to an
annual charge of 0.90% of the average net assets of the subaccounts during the
first 15 Policy years; (2) estimated daily expenses equivalent to an effective
average annual expense level of 0.91% of the portfolios' average daily net
assets; and (3) all applicable premium expense charges and cash value charges
using the current monthly Policy charge. The 0.91% average portfolio expense
level assumes an equal allocation of amounts among the 23 subaccounts. We used
annualized actual audited expenses incurred during 1999 as shown in the
Portfolio Annual Expense Table for the portfolios to calculate the average
annual expense level.
During 1999, WRL Management undertook to pay normal operating expenses of
certain portfolios that exceeded a certain stated percentage of those
portfolios' average daily net assets. WRL Management has undertaken until at
least April 30, 2001 to pay expenses to the extent normal operating expenses of
certain portfolios of the fund exceed a stated percentage of the portfolio's
average daily net assets. For details on these expense limits, the amounts
reimbursed by WRL Management during 1999, and the expense ratios without the
reimbursements, see the Portfolio Annual Expense Table on p. 12.
Without these waivers and reimbursements, total annual expenses for the
portfolios would have been greater, and the illustrations would have assumed
that the assets in the
73
<PAGE>
portfolios were subject to an average annual expense level of 1.53%. Taking
into account the assumed charges of 1.81%, the gross annual investment return
rates of 0%, 6% and 12% are equivalent to net annual investment return rates of
- -1.81%, 4.19%, and 10.19%.
THE HYPOTHETICAL RETURNS SHOWN IN THE TABLES ARE PROVIDED ONLY TO
ILLUSTRATE THE MECHANICS OF A HYPOTHETICAL POLICY AND DO NOT REPRESENT PAST OR
FUTURE INVESTMENT RATES OF RETURN. Tax charges that may be attributable to the
separate account are not reflected because we are not currently making such
charges. In order to produce after tax returns of 0%, 6% or 12% if such charges
are made in the future, the separate account would have to earn a sufficient
amount in excess of 0%, 6% or 12% to cover any tax charges.
The "Premium Accumulated at 5%" column of each table shows the amount
which would accumulate if you invested an amount equal to the premium to earn
interest at 5% per year, compounded annually.
We will furnish, upon request, a comparable illustration reflecting the
proposed insured's age, gender, risk classification and desired Policy
features.
74
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 35
Specified Amount $165,000 Ultimate Select Class
Annual Premium $2,000 Option Type A
Using Current Cost of Insurance Rates
<TABLE>
<CAPTION>
END OF PREMIUMS DEATH BENEFIT
POLICY ACCUMULATED ASSUMING HYPOTHETICAL GROSS AND NET
YEAR AT 5% ANNUAL INVESTMENT RETURN OF
0.00% (GROSS) 6.00% (GROSS) 12.00% (GROSS)
-1.81% (NET) 4.19% (NET) 10.19% (NET)
<S> <C> <C> <C> <C>
1 2,100 165,000 165,000 165,000
2 4,305 165,000 165,000 165,000
3 6,620 165,000 165,000 165,000
4 9,051 165,000 165,000 165,000
5 11,604 165,000 165,000 165,000
6 14,284 165,000 165,000 165,000
7 17,098 165,000 165,000 165,000
8 20,053 165,000 165,000 165,000
9 23,156 165,000 165,000 165,000
10 26,414 165,000 165,000 165,000
15 45,315 165,000 165,000 165,000
20 69,439 165,000 165,000 165,000
30 (AGE 65) 139,522 165,000 165,000 348,991
40 (AGE 75) 253,680 165,000 165,000 828,831
50 (AGE 85) 439,631 * 249,288 2,151,988
60 (AGE 95) 742,526 * 377,556 5,379,270
</TABLE>
<TABLE>
<CAPTION>
END OF CASH VALUE NET SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND NET ASSUMING HYPOTHETICAL GROSS AND NET
YEAR ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
0.00% (GROSS) 6.00% (GROSS) 12.00% (GROSS) 0.00% (GROSS) 6.00% (GROSS) 12.00% (GROSS)
-1.81% (NET) 4.19% (NET) 10.19% (NET) -1.81% (NET) 4.19% (NET) 10.19% (NET)
<S> <C> <C> <C> <C> <C> <C>
1 1,534 1,636 1,739 0 0 0
2 3,036 3,337 3,652 475 777 1,091
3 4,504 5,103 5,753 1,943 2,542 3,192
4 5,939 6,937 8,063 3,378 4,376 5,502
5 7,333 8,832 10,594 4,772 6,272 8,033
6 8,683 10,790 13,366 6,379 8,486 11,062
7 9,989 12,811 16,404 7,940 10,762 14,356
8 11,251 14,898 19,735 9,459 13,105 17,943
9 12,448 17,031 23,370 10,912 15,495 21,833
10 13,591 19,224 27,349 12,311 17,944 26,069
15 18,770 31,514 54,302 18,770 31,514 54,302
20 22,504 45,784 97,975 22,504 45,784 97,975
30 (AGE 65) 27,434 84,972 286,058 27,434 84,972 286,058
40 (AGE 75) 23,406 143,955 774,608 23,406 143,955 774,608
50 (AGE 85) * 237,417 2,049,512 * 237,417 2,049,512
60 (AGE 95) * 373,818 5,326,010 * 373,818 5,326,010
</TABLE>
* In the absence of an additional payment, the Policy would lapse.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future rates of return. Actual investment rates of return may be more
or less than those shown and will depend on a number of factors, including the
investment allocations by an owner and the different investment rates of return
for the fund. The death benefit, cash value and net surrender value for a
Policy would be different from those shown if the actual investment rates of
return averaged 0%, 6% and 12% over a period of years, but fluctuated above or
below that average for individual Policy years. No representation can be made
by AUSA Life or the fund that these hypothetical investment rates of return can
be achieved for any one year or sustained over any period of time. This
illustration must be preceded or accompanied by a current fund prospectus.
75
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 35
Specified Amount $165,000 Ultimate Select Class
Annual Premium $2,000 Option Type A
Using Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
END OF PREMIUMS DEATH BENEFIT
POLICY ACCUMULATED ASSUMING HYPOTHETICAL GROSS AND NET
YEAR AT 5% ANNUAL INVESTMENT RETURN OF
0.00% (GROSS) 6.00% (GROSS) 12.00% (GROSS)
-1.81% (NET) 4.19% (NET) 10.19% (NET)
<S> <C> <C> <C> <C>
1 2,100 165,000 165,000 165,000
2 4,305 165,000 165,000 165,000
3 6,620 165,000 165,000 165,000
4 9,051 165,000 165,000 165,000
5 11,604 165,000 165,000 165,000
6 14,284 165,000 165,000 165,000
7 17,098 165,000 165,000 165,000
8 20,053 165,000 165,000 165,000
9 23,156 165,000 165,000 165,000
10 26,414 165,000 165,000 165,000
15 45,315 165,000 165,000 165,000
20 69,439 165,000 165,000 165,000
30 (AGE 65) 139,522 165,000 165,000 334,923
40 (AGE 75) 253,680 * 165,000 775,155
50 (AGE 85) 439,631 * 165,000 1,951,075
60 (AGE 95) 742,526 * 223,373 4,607,438
</TABLE>
<TABLE>
<CAPTION>
END OF CASH VALUE NET SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND NET ASSUMING HYPOTHETICAL GROSS AND NET
YEAR ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
0.00% (GROSS) 6.00% (GROSS) 12.00% (GROSS) 0.00% (GROSS) 6.00% (GROSS) 12.00% (GROSS)
-1.81% (NET) 4.19% (NET) 10.19% (NET) -1.81% (NET) 4.19% (NET) 10.19% (NET)
<S> <C> <C> <C> <C> <C> <C>
1 1,534 1,636 1,739 0 0 0
2 3,007 3,308 3,621 446 747 1,060
3 4,439 5,034 5,680 1,878 2,474 3,119
4 5,828 6,817 7,934 3,268 4,256 5,373
5 7,174 8,656 10,399 4,613 6,096 7,838
6 8,475 10,553 13,097 6,170 8,248 10,792
7 9,727 12,505 16,048 7,679 10,457 14,000
8 10,933 14,517 19,281 9,140 12,725 17,488
9 12,088 16,587 22,820 10,552 15,051 21,284
10 13,194 18,718 26,701 11,914 17,438 25,421
15 18,219 30,685 53,029 18,219 30,685 53,029
20 21,492 44,253 95,467 21,492 44,253 95,467
30 (AGE 65) 18,375 75,026 274,527 18,375 75,026 274,527
40 (AGE 75) * 107,621 724,444 * 107,621 724,444
50 (AGE 85) * 144,295 1,858,167 * 144,295 1,858,167
60 (AGE 95) * 221,161 4,561,820 * 221,161 4,561,820
</TABLE>
* In the absence of an additional payment, the Policy would lapse.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual investment rates of return
may be more or less than those shown and will depend on a number of factors,
including the investment allocations by an owner and the different investment
rates for the fund. The death benefit, cash value and net surrender value for a
Policy would be different from those shown if the actual investment rates of
return averaged 0%, 6% and 12% over a period of years, but fluctuated above or
below that average for individual Policy years. No representation can be made
by AUSA Life or the fund that these hypothetical investment rates of return can
be achieved for any one year or sustained over any period of time. This
illustration must be preceded or accompanied by a current fund prospectus.
76
<PAGE>
APPENDIX B
WEALTH INDICES OF INVESTMENTS IN THE U.S. CAPITAL MARKET
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The information below graphically depicts the growth of $1.00 invested in
large company stocks, small company stocks, long-term government bonds,
Treasury bills, and hypothetical asset returning the inflation rate over the
period from the end of 1925 to the end of 1999. All results assume reinvestment
of dividends on stocks or coupons on bonds and no taxes. Transaction costs are
not included, except in the small stock index starting in 1982.
Each of the cumulative index values is initialized at $1.00 at year-end
1925. The graph illustrates that large company stocks and small company stocks
have the best performance over the entire 74-year period: investments of $1.00
in these assets would have grown to $2,845.63 and $6,640.79, respectively, by
year-end 1999. This higher growth was earned by investments involving
substantial risk. In contrast, long-term government bonds (with an approximate
20-year maturity), which exposed the holder to much less risk, grew to only
$40.22.
The lowest-risk strategy over the past 74 years (for those with short-term
time horizons) was to buy U.S. Treasury bills. Since U.S. Treasury bills tended
to track inflation, the resulting real (inflation-adjusted) returns were near
zero for the entire 1926 - 1999 period.
77
<PAGE>
[graph appears here]
COMPOUND ANNUAL RATES OF RETURN BY DECADE
<TABLE>
<CAPTION>
1920s* 1930s 1940s 1950s 1960s 1970s 1980s 1990s
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Large Company ............ 19.2% -0.1% 9.2% 19.4% 7.8% 5.9% 17.5% 18.2%
Small Company ............ -4.5 1.4 20.7 16.9 15.5 11.5 15.8 15.1
Long-Term Corp. .......... 5.2 6.9 2.7 1.0 1.7 6.2 13.0 8.3
Long-Term Govt. .......... 5.0 4.9 3.2 -0.1 1.4 5.5 12.6 9.0
Inter-Term Govt. ......... 4.2 4.6 1.8 1.3 3.5 7.0 11.9 7.2
Treasury Bills ........... 3.7 0.6 0.4 1.9 3.9 6.3 8.9 4.9
Inflation ................ -1.1 -2.0 5.4 2.2 2.5 7.4 5.1 2.9
</TABLE>
- ----------------
* Based on the period 1926-1929.
Used with permission. /copyright/2000 Ibbotson Associates, Inc. All rights
reserved. [Certain portions of this work were derived from copyrighted works of
Roger G. Ibbotson and Rex Sinquefield.]
78
<PAGE>
APPENDIX C
SURRENDER CHARGE PER THOUSAND
(BASED ON THE GENDER AND RATE CLASS OF THE INSURED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MALE MALE FEMALE FEMALE
ISSUE ULTIMATE SELECT/ ULTIMATE STANDARD/ ULTIMATE SELECT/ ULTIMATE STANDARD/
AGE SELECT STANDARD SELECT STANDARD
<S> <C> <C> <C> <C>
0 N/A 10.94 N/A 10.35
1 N/A 8.16 N/A 8.16
2 N/A 8.16 N/A 8.16
3 N/A 7.92 N/A 7.92
4 N/A 7.68 N/A 7.68
5 N/A 7.68 N/A 7.68
6 N/A 7.68 N/A 7.68
7 N/A 7.68 N/A 7.68
8 N/A 7.68 N/A 7.68
9 N/A 7.68 N/A 7.68
10 N/A 7.68 N/A 7.68
11 N/A 7.68 N/A 7.68
12 N/A 7.68 N/A 7.68
13 N/A 7.92 N/A 7.92
14 N/A 8.16 N/A 8.16
15 N/A 8.40 N/A 8.40
16 N/A 8.52 N/A 8.52
17 N/A 8.88 N/A 8.88
18 8.72 9.20 8.72 9.20
19 8.84 9.32 8.84 9.32
20 8.96 9.44 8.96 9.44
21 9.16 9.88 9.16 9.64
22 9.32 10.04 9.32 9.80
23 9.52 10.24 9.52 10.00
24 9.68 10.40 9.68 10.40
25 9.88 10.84 9.88 10.60
26 10.56 11.28 10.32 11.04
27 11.00 11.72 10.76 11.48
28 11.40 12.12 11.16 12.12
29 12.08 12.80 11.84 12.56
30 12.52 13.24 12.28 13.00
31 13.04 14.00 12.80 13.52
32 13.76 14.48 13.52 14.24
33 14.28 15.24 14.04 14.76
34 14.76 15.96 14.52 15.48
35 15.52 16.48 15.04 16.00
</TABLE>
79
<PAGE>
APPENDIX C -- (CONTINUED)
SURRENDER CHARGE PER THOUSAND
(BASED ON THE GENDER AND RATE CLASS OF THE INSURED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MALE MALE FEMALE FEMALE
ISSUE ULTIMATE SELECT/ ULTIMATE STANDARD/ ULTIMATE SELECT/ ULTIMATE STANDARD/
AGE SELECT STANDARD SELECT STANDARD
<S> <C> <C> <C> <C>
36 16.20 17.40 15.34 16.56
37 16.85 18.40 15.65 16.93
38 17.25 19.56 15.98 17.32
39 17.66 20.56 16.32 17.73
40 20.28 21.96 19.32 20.52
41 21.64 23.56 20.68 22.12
42 23.08 25.24 21.30 23.24
43 23.90 27.08 21.80 23.82
44 24.57 29.12 22.33 24.43
45 25.27 30.04 22.89 25.06
46 26.02 31.02 23.48 25.73
47 26.81 32.05 24.10 26.43
48 27.64 33.13 24.75 27.16
49 28.53 34.28 25.45 27.94
50 29.47 35.49 26.18 28.75
51 30.47 36.77 26.95 29.61
52 31.53 38.12 27.76 30.51
53 32.66 39.55 28.63 31.46
54 33.86 41.05 29.54 32.45
55 35.12 42.62 30.51 33.51
56 36.47 44.29 31.53 34.62
57 37.90 46.04 32.63 35.80
58 39.43 47.89 33.80 37.07
59 41.05 49.86 35.05 38.43
60 42.78 51.94 36.40 39.89
61 44.63 54.15 37.84 41.45
62 46.60 56.48 39.39 43.11
63 48.69 57.00 41.03 44.88
64 50.91 57.00 42.79 46.75
65 53.28 57.00 44.66 48.73
66 55.80 57.00 46.66 50.84
67 57.00 57.00 48.81 53.09
68 57.00 57.00 51.13 55.53
69 57.00 57.00 53.64 57.00
70 57.00 57.00 56.37 57.00
71 and over 57.00 57.00 57.00 57.00
</TABLE>
80
<PAGE>
Index to Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AUSA SERIES LIFE ACCOUNT
Report of Independent Certified Public Accountants dated February 16, 2000
Statements of Assets and Liabilities as of December 31, 1999
Statements of Operations for the period ended December 31, 1999
Statements of Changes in Net Assets for the year ended December 31, 1999
Financial Highlights for the year ended December 31, 1999
Notes to the Financial Statements
AUSA LIFE INSURANCE COMPANY, INC.:
Report of Independent Auditors dated February 11, 2000
Statutory-Basis Balance Sheets at December 31, 1999 and 1998
Statutory-Basis Statements of Operations for the years ended December 31, 1999,
1998
and 1997
Statutory-Basis Statements of Changes in Capital and Surplus for the years
ended December 31, 1999, 1998 and 1997
Statutory-Basis Statements of Cash Flows for the years ended December 31, 1999,
1998,
and 1997
Notes to Statutory-Basis Financial Statements
AG07413 - 5/2000
81
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of AUSA Life Insurance Co., Inc. and
Policy Owners of the AUSA Series Life Account
In our opinion, the accompanying statements of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
each of the Subaccounts constituting the AUSA Series Life Account (a separate
account of AUSA Life Insurance Company, Inc. ("AUSA")) at December 31, 1999,
the results of each of their operations, the changes in each of their net
assets and financial highlights for each of the periods indicated, in
conformity with accounting principles generally accepted in the United States.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of AUSA's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
[signature of PricewaterhouseCoopers LLP]
PricewaterhouseCoopers LLP
Tampa, Florida
February 16, 2000
82
<PAGE>
AUSA SERIES LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1999
ALL AMOUNTS (EXCEPT PER UNIT AMOUNTS) IN THOUSANDS
<TABLE>
<CAPTION>
WRL WRL WRL WRL
J.P. MORGAN AEGON JANUS JANUS
MONEY MARKET BOND GROWTH GLOBAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C>
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares ............................................. 30 2 5 6
== = = =
Cost ............................................... $ 30 $ 27 $ 376 $ 188
======= ======= ======= =======
Investment, at net asset value ...................... $ 30 $ 25 $ 397 $ 234
Transfers receivable from depositor ................. 0 0 7 1
------- ------- ------- -------
Total assets ....................................... 30 25 404 235
------- ------- ------- -------
LIABILITIES:
Accrued expenses .................................... 0 0 0 0
Transfers payable to depositor ...................... 0 0 0 0
------- ------- ------- -------
Total liabilities .................................. 0 0 0 0
------- ------- ------- -------
Net assets ......................................... $ 30 $ 25 $ 404 $ 235
======= ======= ======= =======
NET ASSETS CONSISTS OF:
Policy Owners' equity ............................... $ 4 $ 0 $ 404 $ 235
Depositor's equity .................................. 26 25 0 0
------- ------- ------- -------
Net assets applicable to units outstanding ......... $ 30 $ 25 $ 404 $ 235
======= ======= ======= =======
Policy Owners' units ................................ 0 0 29 15
Depositor's units ................................... 3 3 0 0
------- ------- ------- -------
Units outstanding .................................. 3 3 29 15
======= ======= ======= =======
Accumulation unit value ............................ $ 10.22 $ 10.04 $ 13.96 $ 15.25
======= ======= ======= =======
</TABLE>
See Notes to the Financial Statements, which is an integral part of this report.
83
<PAGE>
AUSA SERIES LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1999
ALL AMOUNTS (EXCEPT PER UNIT AMOUNTS) IN THOUSANDS
<TABLE>
<CAPTION>
WRL WRL WRL
LKCM VKAM ALGER WRL
STRATEGIC EMERGING AGGRESSIVE AEGON
TOTAL RETURN GROWTH GROWTH BALANCED
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C>
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares ............................................. 2 3 7 2
= = = =
Cost ............................................... $ 29 $ 115 $ 200 $ 29
======= ======= ======= ======
Investment, at net asset value ...................... $ 30 $ 135 $ 229 $ 29
Transfers receivable from depositor ................. 0 1 6 0
------- ------- ------- ------
Total assets ....................................... 30 136 235 29
------- ------- ------- ------
LIABILITIES:
Accrued expenses .................................... 0 0 0 0
Transfer payable to depositor ....................... 0 0 0 0
------- ------- ------- ------
Total liabilities .................................. 0 0 0 0
------- ------- ------- ------
Net Assets ......................................... $ 30 $ 136 $ 235 $ 29
======= ======= ======= ======
NET ASSETS CONSISTS OF:
Policy Owners' equity ............................... $ 3 $ 136 $ 235 $ 4
Depositor's equity .................................. 27 0 0 25
------- ------- ------- ------
Net assets applicable to units outstanding ......... $ 30 $ 136 $ 235 $ 29
======= ======= ======= ======
Policy Owners' units ................................ 0 8 15 0
Depositor's units ................................... 3 0 0 3
------- ------- ------- ------
Units outstanding .................................. 3 8 15 3
======= ======= ======= ======
Accumulation unit value ............................ $ 10.72 $ 17.90 $ 15.36 $ 9.93
======= ======= ======= ======
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
84
<PAGE>
AUSA SERIES LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1999
ALL AMOUNTS (EXCEPT PER UNIT AMOUNTS) IN THOUSANDS
<TABLE>
<CAPTION>
WRL
FEDERATED WRL WRL WRL
GROWTH & DEAN C.A.S.E. NWQ
INCOME ASSET ALLOCATION GROWTH VALUE EQUITY
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C>
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares ............................................. 2 2 2 2
= = = =
Cost ............................................... $ 26 $ 27 $ 35 $ 25
====== ====== ======= ======
Investment, at net asset value ...................... $ 23 $ 25 $ 35 $ 23
Transfers receivable from depositor ................. 0 0 0 0
------ ------ ------- ------
Total assets ....................................... 23 25 35 23
------ ------ ------- ------
LIABILITIES:
Accrued expenses .................................... 0 0 0 0
Transfers payable to depositor ...................... 0 0 0 0
------ ------ ------- ------
Total liabilities .................................. 0 0 0 0
------ ------ ------- ------
Net assets ......................................... $ 23 $ 25 $ 35 $ 23
====== ====== ======= ======
NET ASSETS CONSISTS OF:
Policy Owners' equity ............................... $ 0 $ 1 $ 8 $ 0
Depositor's equity .................................. 23 24 27 23
------ ------ ------- ------
Net assets applicable to units outstanding ......... $ 23 $ 25 $ 35 $ 23
====== ====== ======= ======
Policy Owners' units ................................ 0 0 0 0
Depositor's units ................................... 3 3 3 3
------ ------ ------- ------
Units outstanding .................................. 3 3 3 3
====== ====== ======= ======
Accumulation unit value ............................ $ 9.31 $ 9.43 $ 10.96 $ 9.34
====== ====== ======= ======
</TABLE>
See Notes to the Financial Statements, which is an integral part of this report.
85
<PAGE>
AUSA SERIES LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1999
ALL AMOUNTS (EXCEPT PER UNIT AMOUNTS) IN THOUSANDS
<TABLE>
<CAPTION>
WRL
GE/SCOTTISH WRL WRL
EQUITABLE WRL THIRD J.P. MORGAN
INTERNATIONAL GE AVENUE REAL ESTATE
EQUITY U.S. EQUITY VALUE SECURITIES
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C>
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares ............................................. 2 2 3 3
= = = =
Cost ............................................... $ 28 $ 30 $ 26 $ 27
======= ======= ======= ======
Investment, at net asset value ...................... $ 33 $ 30 $ 29 $ 26
Transfers receivable from depositor ................. 0 0 0 0
------- ------- ------- ------
Total assets ....................................... 33 30 29 26
------- ------- ------- ------
LIABILITIES:
Accrued expenses .................................... 0 0 0 0
Transfers payable to depositor ...................... 0 0 0 0
------- ------- ------- ------
Total liabilities .................................. 0 0 0 0
------- ------- ------- ------
Net assets ......................................... $ 33 $ 30 $ 29 $ 26
======= ======= ======= ======
NET ASSETS CONSISTS OF:
Policy Owners' equity ............................... $ 2 $ 3 $ 0 $ 3
Depositor's equity .................................. 31 27 29 23
------- ------- ------- ------
Net assets applicable to units outstanding ......... $ 33 $ 30 $ 29 $ 26
======= ======= ======= ======
Policy Owners' units ................................ 0 0 0 0
Depositor's units ................................... 3 3 3 3
------- ------- ------- ------
Units outstanding .................................. 3 3 3 3
======= ======= ======= ======
Accumulation unit value ............................ $ 12.32 $ 10.79 $ 11.34 $ 9.16
======= ======= ======= ======
</TABLE>
See Notes to the Financial Statements, which is an integral part of this report.
86
<PAGE>
AUSA SERIES LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1999
ALL AMOUNTS (EXCEPT PER UNIT AMOUNTS) IN THOUSANDS
<TABLE>
<CAPTION>
WRL WRL WRL WRL
GOLDMAN SACHS GOLDMAN SACHS T. ROWE PRICE T. ROWE PRICE
GROWTH SMALL CAP DIVIDEND GROWTH SMALL CAP
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C>
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares ............................................. 3 3 3 3
= = = =
Cost ............................................... $ 32 $ 29 $ 31 $ 38
======= ======= ====== =======
Investment, at net asset value ...................... $ 36 $ 31 $ 30 $ 46
Transfers receivable from depositor ................. 0 0 0 0
------- ------- ------ -------
Total assets ....................................... 36 31 30 46
------- ------- ------ -------
LIABILITIES:
Accrued expenses .................................... 0 0 0 0
Transfers payable to depositor ...................... 0 0 0 0
------- ------- ------ -------
Total liabilities .................................. 0 0 0 0
------- ------- ------ -------
Net assets ......................................... $ 36 $ 31 $ 30 $ 46
======= ======= ====== =======
NET ASSETS CONSISTS OF:
Policy Owners' equity ............................... $ 6 $ 3 $ 6 $ 14
Depositor's equity .................................. 30 28 24 32
------- ------- ------ -------
Net assets applicable to units outstanding ......... $ 36 $ 31 $ 30 $ 46
======= ======= ====== =======
Policy Owners' units ................................ 0 0 0 1
Depositor's units ................................... 3 3 3 3
------- ------- ------ -------
Units outstanding .................................. 3 3 3 4
======= ======= ====== =======
Accumulation unit value ............................ $ 11.94 $ 11.35 $ 9.42 $ 12.89
======= ======= ====== =======
</TABLE>
See Notes to the Financial Statements, which is an integral part of this report.
87
<PAGE>
AUSA SERIES LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
AT DECEMBER 31, 1999
ALL AMOUNTS (EXCEPT PER UNIT AMOUNTS) IN THOUSANDS
<TABLE>
<CAPTION>
WRL WRL WRL
SALOMON PILGRIM BAXTER DREYFUS
ALL CAP MID CAP GROWTH MID CAP
SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C>
ASSETS:
Investment in WRL Series Fund, Inc.:
Shares ............................................. 3 3 3
= = =
Cost ............................................... $ 30 $ 31 $ 32
======= ======= =======
Investment, at net asset value ...................... $ 31 $ 46 $ 34
Transfers receivable from depositor ................. 0 0 0
------- ------- -------
Total assets ....................................... 31 46 34
------- ------- -------
LIABILITIES:
Accrued expenses .................................... 0 0 0
Transfers payable to depositor ...................... 0 0 0
------- ------- -------
Total liabilities .................................. 0 0 0
------- ------- -------
Net assets ......................................... $ 31 $ 46 $ 34
======= ======= =======
NET ASSETS CONSISTS OF:
Policy Owners' equity ............................... $ 3 $ 3 $ 8
Depositor's equity .................................. 28 43 26
------- ------- -------
Net assets applicable to units outstanding ......... $ 31 $ 46 $ 34
======= ======= =======
Policy Owners' units ................................ 0 0 0
Depositor's units ................................... 3 3 3
------- ------- -------
Units outstanding .................................. 3 3 3
======= ======= =======
Accumulation unit value ............................ $ 10.97 $ 17.24 $ 10.47
======= ======= =======
</TABLE>
See Notes to the Financial Statements, which is an integral part of this report.
88
<PAGE>
AUSA SERIES LIFE ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1999
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
WRL WRL WRL WRL
J.P. MORGAN AEGON JANUS JANUS
MONEY MARKET BOND GROWTH GLOBAL
SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1)
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend income .................................. $ 1 $ 2 $ 6 $ 0
Capital gain distributions ....................... 0 0 45 11
----- ----- ----- -----
Total investment income ......................... 1 2 51 11
EXPENSES:
Mortality and expense risk ....................... 0 0 1 0
----- ----- ----- -----
Net investment income (loss) .................... 1 2 50 11
----- ----- ----- -----
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investment securities 0 0 8 10
Change in unrealized appreciation (depreciation) . 0 (2) 21 47
----- ------ ----- -----
Net gain (loss) on investment securities ........ 0 (2) 29 57
----- ------ ----- -----
Net increase (decrease) in net assets resulting
from operations .............................. $ 1 $ 0 $ 79 $ 68
===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
WRL WRL WRL
LKCM VKAM ALGER WRL
STRATEGIC EMERGING AGGRESSIVE AEGON
TOTAL RETURN GROWTH GROWTH BALANCED
SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1)
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ..................................... $ 0 $ 1 $ 7 $ 0
Capital gain distributions .......................... 1 15 11 0
----- ----- ----- -----
Total investment income ............................ 1 16 18 0
EXPENSES:
Mortality and expense risk .......................... 0 0 0 0
----- ----- ----- -----
Net investment income (loss) ....................... 1 16 18 0
----- ----- ----- -----
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investment securities ... 0 13 9 0
Change in unrealized appreciation (depreciation) .... 1 20 29 0
----- ----- ----- -----
Net gain (loss) on investment securities ........... 1 33 38 0
----- ----- ----- -----
Net increase (decrease) in net assets resulting
from operations ................................. $ 2 $ 49 $ 56 $ 0
===== ===== ===== =====
</TABLE>
See Notes to the Financial Statements, which is an integral part of this report.
89
<PAGE>
AUSA SERIES LIFE ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1999
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
WRL
FEDERATED WRL WRL WRL
GROWTH & DEAN C.A.S.E. NWQ
INCOME ASSET ALLOCATION GROWTH VALUE EQUITY
SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1)
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ....................................... $ 1 $ 1 $ 2 $ 0
Capital gain distributions ............................ 0 0 0 0
----- ----- ----- -----
Total investment income .............................. 1 1 2 0
EXPENSES:
Mortality and expense risk ............................ 0 0 0 0
----- ----- ----- -----
Net investment income (loss) ......................... 1 1 2 0
----- ----- ----- -----
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investment securities ..... 0 0 0 0
Change in unrealized appreciation (depreciation) ...... (3) (2) 0 (2)
------ ------ ----- ------
Net gain (loss) on investment securities ............. (3) (2) 0 (2)
------ ------ ----- ------
Net increase (decrease) in net assets resulting
from operations ................................... $ (2) $ (1) $ 2 $ (2)
===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
WRL
GE/SCOTTISH WRL WRL
EQUITABLE WRL THIRD J.P. MORGAN
INTERNATIONAL GE AVENUE REAL ESTATE
EQUITY U.S. EQUITY VALUE SECURITIES
SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1)
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ..................................... $ 0 $ 1 $ 0 $ 0
Capital gain distributions .......................... 1 1 0 0
----- ----- ----- -----
Total investment income ............................ 1 2 0 0
EXPENSES:
Mortality and expense risk .......................... 0 0 0 0
----- ----- ----- -----
Net investment income (loss) ....................... 1 2 0 0
----- ----- ----- -----
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investment securities ... 0 0 0 (1)
Change in unrealized appreciation (depreciation) .... 5 0 3 (1)
----- ----- ----- ------
Net gain (loss) on investment securities ........... 5 0 3 (2)
----- ----- ----- ------
Net increase (decrease) in net assets resulting
from operations ................................. $ 6 $ 2 $ 3 $ (2)
===== ===== ===== =====
</TABLE>
See Notes to the Financial Statements, which is an integral part of this report.
90
<PAGE>
AUSA SERIES LIFE ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1999
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
WRL WRL WRL WRL
GOLDMAN SACHS GOLDMAN SACHS T. ROWE PRICE T. ROWE PRICE
GROWTH SMALL CAP DIVIDEND GROWTH SMALL CAP
SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1)
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ........................................... $ 0 $ 2 $ 0 $ 1
Capital gain distributions ................................ 0 0 0 0
----- ----- ----- -----
Total investment income .................................. 0 2 0 1
EXPENSES:
Mortality and expense risk ................................ 0 0 0 0
----- ----- ----- -----
Net investment income (loss) ............................. 0 2 0 1
----- ----- ----- -----
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investment securities ......... 1 0 0 0
Change in unrealized appreciation (depreciation) .......... 4 2 (1) 8
----- ----- ------ -----
Net gain (loss) on investment securities ................. 5 2 (1) 8
----- ----- ------ -----
Net increase (decrease) in net assets resulting
from operations ....................................... $ 5 $ 4 $ (1) $ 9
===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
WRL WRL WRL
SALOMON PILGRIM BAXTER DREYFUS
ALL CAP MID CAP GROWTH MID CAP
SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1)
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividend income ....................................... $ 1 $ 0 $ 0
Capital gain distributions ............................ 0 0 0
----- ----- -----
Total investment income .............................. 1 0 0
EXPENSES:
Mortality and expense risk ............................ 0 0 0
----- ----- -----
Net investment income (loss) ......................... 1 0 0
----- ----- -----
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investment securities ..... 1 3 0
Change in unrealized appreciation (depreciation) ...... 1 15 2
----- ----- -----
Net gain (loss) on investment securities ............. 2 18 2
----- ----- -----
Net increase (decrease) in net assets resulting
from operations ................................... $ 3 $ 18 $ 2
===== ===== =====
</TABLE>
See Notes to the Financial Statements, which is an integral part of this report.
91
<PAGE>
AUSA SERIES LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1999
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
WRL WRL WRL WRL
J.P. MORGAN AEGON JANUS JANUS
MONEY MARKET BOND GROWTH GLOBAL
SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1)
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ........................................ $ 1 $ 2 $ 50 $ 11
Net gain (loss) on investment securities ............................ 0 (2) 29 57
----- ------ ------ ------
Net increase (decrease) in net assets resulting from operations ..... 1 0 79 68
----- ----- ------ ------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) .............................. 9 0 353 187
----- ----- ------ ------
Less cost of units redeemed:
Administrative charges ............................................. 5 0 21 11
Policy loans ....................................................... 0 0 0 0
Surrender benefits ................................................. 0 0 0 0
Death benefits ..................................................... 0 0 0 0
----- ----- ------ ------
5 0 21 11
----- ----- ------ ------
Increase (decrease) in net assets from capital unit transactions ... 4 0 332 176
----- ----- ------ ------
Net increase (decrease) in net assets .............................. 5 0 411 244
Depositor's equity contribution (net redemption) .................... 25 25 (7) (9)
NET ASSETS:
Beginning of period ................................................. 0 0 0 0
----- ----- ------ ------
End of period ....................................................... $ 30 $ 25 $ 404 $ 235
===== ===== ====== ======
UNIT ACTIVITY:
Units outstanding - beginning of period ............................. 0 0 0 0
Units issued ........................................................ 79 3 36 20
Units redeemed ...................................................... (76) 0 (7) (5)
----- ----- ------- -------
Units outstanding - end of period ................................... 3 3 29 15
===== ===== ====== ======
</TABLE>
See Notes to the Financial Statements, which is an integral part of this report.
92
<PAGE>
AUSA SERIES LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1999
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
WRL WRL WRL
LKCM VKAM ALGER WRL
STRATEGIC EMERGING AGGRESSIVE AEGON
TOTAL RETURN GROWTH GROWTH BALANCED
SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1)
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ....................................... $ 1 $ 16 $ 18 $ 0
Net gain(loss) on investment securities ............................ 1 33 38 0
----- ------ ----- -----
Net increase (decrease) in net assets resulting from operations .... 2 49 56 0
----- ------ ----- -----
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ............................. 3 107 198 4
----- ------ ----- -----
Less cost of units redeemed:
Administrative charges ............................................ 0 8 11 0
Policy loans ...................................................... 0 0 0 0
Surrender benefits ................................................ 0 0 0 0
Death benefits .................................................... 0 0 0 0
----- ------ ----- -----
0 8 11 0
----- ------ ----- -----
Increase (decrease) in net assets from capital unit transactions .. 3 99 187 4
----- ------ ----- -----
Net increase (decrease) in net assets ............................. 5 148 243 4
Depositor's equity contribution (net redemption) ................... 25 (12) (8) 25
NET ASSETS:
Beginning of period ................................................ 0 0 0 0
----- ------ ----- -----
End of period ...................................................... $ 30 $ 136 $ 235 $ 29
===== ====== ===== =====
UNIT ACTIVITY:
Units outstanding - beginning of period ............................ 0 0 0 0
Units issued ....................................................... 3 12 21 3
Units redeemed ..................................................... 0 (4) (6) 0
----- ------- ------ -----
Units outstanding - end of period .................................. 3 8 15 3
===== ====== ===== =====
</TABLE>
See Notes to the Financial Statements, which is an integral part of this report.
93
<PAGE>
AUSA SERIES LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1999
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
WRL
FEDERATED WRL WRL WRL
GROWTH & DEAN C.A.S.E. NWQ
INCOME ASSET ALLOCATION GROWTH VALUE EQUITY
SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1)
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ....................................... $ 1 $ 1 $ 2 $ 0
Net gain(loss) on investment securities ............................ (3) (2) 0 (2)
------ ------ ----- -----
Net increase (decrease) in net assets resulting from operations .... (2) (1) 2 (2)
------ ------ ----- -----
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ............................. 0 1 8 0
----- ----- ----- ----
Less cost of units redeemed:
Administrative charges ............................................ 0 0 0 0
Policy loans ...................................................... 0 0 0 0
Surrender benefits ................................................ 0 0 0 0
Death benefits .................................................... 0 0 0 0
----- ----- ----- ----
0 0 0 0
----- ----- ----- ----
Increase (decrease) in net assets from capital unit transactions .. 0 1 8 0
----- ----- ----- ----
Net increase (decrease) in net assets ............................. (2) 0 10 (2)
Depositor's equity contribution (net redemption) ................... 25 25 25 25
NET ASSETS:
Beginning of period ................................................ 0 0 0 0
----- ----- ----- ----
End of period ...................................................... $ 23 $ 25 $ 35 $ 23
===== ===== ===== ====
UNIT ACTIVITY:
Units outstanding - beginning of period ............................ 0 0 0 0
Units issued ....................................................... 3 3 3 3
Units redeemed ..................................................... 0 0 0 0
----- ----- ----- ----
Units outstanding - end of period .................................. 3 3 3 3
===== ===== ===== ====
</TABLE>
See Notes to the Financial Statements, which is an integral part of this report.
94
<PAGE>
AUSA SERIES LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1999
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
WRL
GE/SCOTTISH WRL WRL
EQUITABLE WRL THIRD J.P. MORGAN
INTERNATIONAL GE AVENUE REAL ESTATE
EQUITY U.S. EQUITY VALUE SECURITIES
SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1)
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ....................................... $ 1 $ 2 $ 0 $ 0
Net gain(loss) on investment securities ............................ 5 0 3 (2)
----- ----- ----- ------
Net increase (decrease) in net assets resulting from operations .... 6 2 3 (2)
----- ----- ----- ------
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ............................. 2 3 1 3
----- ----- ----- -----
Less cost of units redeemed:
Administrative charges ............................................ 0 0 0 0
Policy loans ...................................................... 0 0 0 0
Surrender benefits ................................................ 0 0 0 0
Death benefits .................................................... 0 0 0 0
----- ----- ----- -----
0 0 0 0
----- ----- ----- -----
Increase (decrease) in net assets from capital unit transactions .. 2 3 1 3
----- ----- ----- -----
Net increase (decrease) in net assets ............................. 8 5 4 1
Depositor's equity contribution (net redemption) ................... 25 25 25 25
NET ASSETS:
Beginning of period ................................................ 0 0 0 0
----- ----- ----- -----
End of period ...................................................... $ 33 $ 30 $ 29 $ 26
===== ===== ===== =====
UNIT ACTIVITY:
Units outstanding - beginning of period ............................ 0 0 0 0
Units issued ....................................................... 3 3 3 4
Units redeemed ..................................................... 0 0 0 (1)
----- ----- ----- ------
Units outstanding - end of period .................................. 3 3 3 3
===== ===== ===== =====
</TABLE>
See Notes to the Financial Statements, which is an integral part of this report.
95
<PAGE>
AUSA SERIES LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1999
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
WRL WRL WRL WRL
GOLDMAN SACHS GOLDMAN SACHS T. ROWE PRICE T. ROWE PRICE
GROWTH SMALL CAP DIVIDEND GROWTH SMALL CAP
SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1)
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ....................................... $ 0 $ 2 $ 0 $ 1
Net gain(loss) on investment securities ............................ 5 2 (1) 8
---- ----- ------ -----
Net increase (decrease) in net assets resulting from operations .... 5 4 (1) 9
---- ----- ------ -----
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ............................. 6 2 6 13
---- ----- ----- -----
Less cost of units redeemed:
Administrative charges ............................................ 0 0 0 1
Policy loans ...................................................... 0 0 0 0
Surrender benefits ................................................ 0 0 0 0
Death benefits .................................................... 0 0 0 0
---- ----- ----- -----
0 0 0 1
---- ----- ----- -----
Increase (decrease) in net assets from capital unit transactions .. 6 2 6 12
---- ----- ----- -----
Net increase (decrease) in net assets ............................. 11 6 5 21
Depositor's equity contribution (net redemption) ................... 25 25 25 25
NET ASSETS:
Beginning of period ................................................ 0 0 0 0
---- ----- ----- -----
End of period ...................................................... $ 36 $ 31 $ 30 $ 46
==== ===== ===== =====
UNIT ACTIVITY:
Units outstanding - beginning of period ............................ 0 0 0 0
Units issued ....................................................... 4 3 4 4
Units redeemed ..................................................... (1) 0 (1) 0
----- ----- ------ -----
Units outstanding - end of period .................................. 3 3 3 4
==== ===== ===== =====
</TABLE>
See Notes to the Financial Statements, which is an integral part of this report.
96
<PAGE>
AUSA SERIES LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1999
ALL AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
WRL WRL WRL
SALOMON PILGRIM BAXTER DREYFUS
ALL CAP MID CAP GROWTH MID CAP
SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1)
<S> <C> <C> <C>
OPERATIONS:
Net investment income (loss) .......................................... $ 1 $ 0 $ 0
Net gain (loss) on investment securities .............................. 2 18 2
----- ---- -----
Net increase (decrease) in net assets resulting from operations ....... 3 18 2
----- ---- -----
CAPITAL UNIT TRANSACTIONS:
Proceeds from units sold (transferred) ................................ 3 3 8
----- ---- -----
Less cost of units redeemed:
Administrative charges ............................................... 0 0 1
Policy loans ......................................................... 0 0 0
Surrender benefits ................................................... 0 0 0
Death benefits ....................................................... 0 0 0
----- ---- -----
0 0 1
----- ---- -----
Increase (decrease) in net assets from capital unit transactions ..... 3 3 7
----- ---- -----
Net increase (decrease) in net assets ................................ 6 21 9
Depositor's equity contribution (net redemption) ...................... 25 25 25
NET ASSETS:
Beginning of period ................................................... 0 0 0
----- ---- -----
End of period ......................................................... $ 31 $ 46 $ 34
===== ==== =====
UNIT ACTIVITY:
Units outstanding - beginning of period ............................... 0 0 0
Units issued .......................................................... 4 3 4
Units redeemed ........................................................ (1) 0 (1)
------ ---- ------
Units outstanding - end of period ..................................... 3 3 3
===== ==== =====
</TABLE>
See Notes to the Financial Statements, which is an integral part of this report.
97
<PAGE>
AUSA SERIES LIFE ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
WRL WRL WRL WRL
J.P. MORGAN AEGON JANUS JANUS
MONEY MARKET BOND GROWTH GLOBAL
SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1)
<S> <C> <C> <C> <C>
Accumulation unit value, beginning of period ..................... $ 10.00 $ 10.00 $ 10.00 $ 10.00
Income from operations:
Net investment income (loss) ................................... 0.22 0.53 3.71 1.34
Net realized and unrealized gain (loss) on investment .......... 0.00 (0.49) 0.25 3.91
------- ------- -------- --------
Net income (loss) from operations ............................. 0.22 0.04 3.96 5.25
------- ------- -------- --------
Accumulation unit value, end of period ........................... $ 10.22 $ 10.04 $ 13.96 $ 15.25
======= ======= ======== ========
Total return ..................................................... 2.15 % 0.41 % 39.59 % 52.55 %
Ratios and supplemental data:
Net assets at end of period (in thousands) ...................... $ 30 $ 25 $ 404 $ 235
Ratio of net investment income (loss) to average net assets ..... 4.16 % 10.25 % 60.96 % 21.93 %
</TABLE>
<TABLE>
<CAPTION>
WRL WRL WRL
LKCM VKAM ALGER WRL
STRATEGIC EMERGING AGGRESSIVE AEGON
TOTAL RETURN GROWTH GROWTH BALANCED
SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1)
<S> <C> <C> <C> <C>
Accumulation unit value, beginning of period ..................... $ 10.00 $ 10.00 $ 10.00 $ 10.00
Income from operations:
Net investment income (loss) ................................... 0.55 3.26 2.28 0.12
Net realized and unrealized gain (loss) on investment .......... 0.17 4.64 3.08 (0.19)
-------- -------- -------- -------
Net income (loss) from operations ............................. 0.72 7.90 5.36 (0.07)
-------- -------- -------- -------
Accumulation unit value, end of period ........................... $ 10.72 $ 17.90 $ 15.36 $ 9.93
======== ======== ======== =======
Total return ..................................................... 7.20 % 79.01 % 53.58 % (0.67)%
Ratios and supplemental data:
Net assets at end of period (in thousands) ...................... $ 30 $ 136 $ 235 $ 29
Ratio of net investment income (loss) to average net assets ..... 10.69 % 49.12 % 36.41 % 2.32 %
</TABLE>
See Notes to the Financial Statements, which is an integral part of this report.
98
<PAGE>
AUSA SERIES LIFE ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
WRL
FEDERATED WRL WRL WRL
GROWTH & DEAN C.A.S.E. NWQ
INCOME ASSET ALLOCATION GROWTH VALUE EQUITY
SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1)
<S> <C> <C> <C> <C>
Accumulation unit value, beginning of period .................... $ 10.00 $ 10.00 $ 10.00 $ 10.00
Income from operations:
Net investment income (loss) .................................. 0.39 0.23 0.67 0.14
Net realized and unrealized gain (loss) on investment ......... (1.08) (0.80) 0.29 (0.80)
------- ------- -------- -------
Net income (loss) from operations ............................ (0.69) (0.57) 0.96 (0.66)
------- ------- -------- -------
Accumulation unit value, end of period .......................... $ 9.31 $ 9.43 $ 10.96 $ 9.34
======= ======= ======== =======
Total return .................................................... (6.88)% (5.66)% 9.63 % (6.59)%
Ratios and supplemental data:
Net assets at end of period (in thousands) ..................... $ 23 $ 25 $ 35 $ 23
Ratio of net investment income (loss) to average net assets .... 7.92 % 4.75 % 13.01 % 2.97 %
</TABLE>
<TABLE>
<CAPTION>
WRL
GE/SCOTTISH WRL WRL
EQUITABLE WRL THIRD J.P. MORGAN
INTERNATIONAL GE AVENUE REAL ESTATE
EQUITY U.S. EQUITY VALUE SECURITIES
SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1)
<S> <C> <C> <C> <C>
Accumulation unit value, beginning of period ..................... $ 10.00 $ 10.00 $ 10.00 $ 10.00
Income from operations:
Net investment income (loss) ................................... 0.56 0.64 0.07 (0.04)
Net realized and unrealized gain (loss) on investment .......... 1.76 0.15 1.27 (0.80)
-------- -------- -------- -------
Net income (loss) from operations ............................. 2.32 0.79 1.34 (0.84)
-------- -------- -------- -------
Accumulation unit value, end of period ........................... $ 12.32 $ 10.79 $ 11.34 $ 9.16
======== ======== ======== =======
Total return ..................................................... 23.22 % 7.89 % 13.39 % (8.39)%
Ratios and supplemental data:
Net assets at end of period (in thousands) ...................... $ 33 $ 30 $ 29 $ 26
Ratio of net investment income (loss) to average net assets ..... 10.46 % 12.34 % 1.42 % (0.81)%
</TABLE>
See Notes to the Financial Statements, which is an integral part of this report.
99
<PAGE>
AUSA SERIES LIFE ACCOUNT
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
WRL
WRL WRL T. ROWE PRICE WRL
GOLDMAN SACHS GOLDMAN SACHS DIVIDEND T. ROWE PRICE
GROWTH SMALL CAP GROWTH SMALL CAP
SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1)
<S> <C> <C> <C> <C>
Accumulation unit value, beginning of period ..................... $ 10.00 $ 10.00 $ 10.00 $ 10.00
Income from operations:
Net investment income (loss) ................................... (0.04) 0.49 (0.04) 0.46
Net realized and unrealized gain (loss) on investment .......... 1.98 0.86 (0.54) 2.43
------- -------- ------- --------
Net income (loss) from operations ............................. 1.94 1.35 (0.58) 2.89
------- -------- ------- --------
Accumulation unit value, end of period ........................... $ 11.94 $ 11.35 $ 9.42 $ 12.89
======= ======== ======= ========
Total return ..................................................... 19.40 % 13.51 % (5.81)% 28.89 %
Ratios and supplemental data:
Net assets at end of period (in thousands) ...................... $ 36 $ 31 $ 30 $ 46
Ratio of net investment income (loss) to average net assets ..... (0.83)% 9.45 % (0.82)% 8.35 %
</TABLE>
<TABLE>
<CAPTION>
WRL WRL WRL
SALOMON PILGRIM BAXTER DREYFUS
ALL CAP MID CAPITAL GROWTH MID CAP
SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(1)
<S> <C> <C> <C>
Accumulation unit value, beginning of period .................... $ 10.00 $ 10.00 $ 10.00
Income from operations:
Net investment income (loss) .................................. 0.31 (0.01) (0.04)
Net realized and unrealized gain (loss) on investment ......... 0.66 7.25 0.51
------- ------- -------
Net income (loss) from operations ............................ 0.97 7.24 0.47
------- ------- -------
Accumulation unit value, end of period .......................... $ 10.97 $ 17.24 $ 10.47
======= ======= =======
Total return .................................................... 9.71 % 72.42 % 4.66 %
Ratios and supplemental data:
Net assets at end of period (in thousands) ..................... $ 31 $ 46 $ 34
Ratio of net investment income (loss) to average net assets .... 5.98 % (0.09)% (0.82)%
</TABLE>
See Notes to the Financial Statements, which is an integral part of this
report.
100
<PAGE>
AUSA SERIES LIFE ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS
AT DECEMBER 31, 1999
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The AUSA Series Life Account (the "Life Account"), was established as a
variable life insurance separate account of AUSA Life Insurance Co., Inc.
("AUSA" or the "depositor") and is registered as a unit investment trust under
the Investment Company Act of 1940, as amended. The Life Account contains
twenty-three investment options referred to as subaccounts. Each subaccount
invests in the corresponding Portfolio of the WRL Series Fund, Inc.
(collectively referred to as the "Fund" and individually as a "Portfolio"), a
registered management investment company under the Investment Company Act of
1940, as amended.
The Fund has entered into annually renewable investment advisory agreements for
each Portfolio with WRL Investment Management, Inc. ("WRL Management") as
investment adviser. Costs incurred in connection with the advisory services
rendered by WRL Management are paid by each Portfolio. WRL Management has
entered into sub-advisory agreements with various management companies
("Sub-Advisers"), some of which are affiliates of AUSA. Each Sub-Adviser is
compensated directly by WRL Management.
The inception date for all AUSA subaccounts was June 28, 1999. The Financial
Statements reflect activity since this date. On inception date, AUSA made
initial contributions to the Life Account of $25,000 for 2,500 units per
subaccount totaling $575,000.
The Life Account holds assets to support the benefits under certain flexible
premium variable universal life insurance policies (the "Policies") issued by
AUSA. The Life Account's equity transactions are accounted for using the
appropriate effective date at the corresponding accumulation unit value.
The following significant accounting policies, which are in conformity with
accounting principles generally accepted in the United States, have been
consistently applied in the preparation of the Life Account Financial
Statements. The preparation of the Financial Statements required management to
make estimates and assumptions that affect the reported amounts and
disclosures. Actual results could differ from those estimates.
A. VALUATION OF INVESTMENTS AND SECURITIES TRANSACTIONS
Investments in the Fund's shares are valued at the closing net asset value
("NAV") per share of the underlying Portfolio as determined by the Fund.
Investment transactions are accounted for on the trade date at the Portfolio
NAV next determined after receipt of sale or redemption orders without sales
charges. Dividend income and capital gains distributions are recorded on the
ex-dividend date. The cost of investments sold is determined on a first-in,
first-out basis.
B. FEDERAL INCOME TAXES
The operations of the Life Account are a part of and are taxed with the total
operations of AUSA, which is taxed as a life insurance company under the
Internal Revenue Code. Under the Internal Revenue Code law, the investment
income of the Life Account, including realized and unrealized capital gains, is
not taxable to AUSA. Accordingly, no provision for Federal income taxes has
been made.
NOTE 2 -- CHARGES AND DEDUCTIONS
Charges are assessed by AUSA in connection with the issuance and administration
of the Policies.
A. POLICY CHARGES
Under some forms of the Policies, a sales charge and premium taxes are deducted
by AUSA prior to allocation of Policy Owner payments to the subaccounts.
Contingent surrender charges may also apply.
Under all forms of the Policy, monthly charges against Policy cash values are
made to compensate AUSA for costs of insurance provided.
B. LIFE ACCOUNT CHARGES
A daily charge equal to an annual rate of .90% of average daily net assets is
assessed to compensate AUSA for assumption of mortality and expense risks for
administrative services in connection with issuance and administration of the
Policies. This charge (not assessed at the individual contract level)
effectively reduces the value of a unit outstanding during the year.
101
<PAGE>
AUSA SERIES LIFE ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AT DECEMBER 31, 1999
NOTE 3 -- DIVIDEND DISTRIBUTIONS
Dividends are not declared by the Life Account, since the increase in the value
of the underlying investment in the Fund is reflected daily in the accumulation
unit value used to calculate the equity value within the Life Account.
Consequently, a dividend distribution by the underlying Fund does not change
either the accumulation unit value or equity values within the Life Account.
NOTE 4 -- SECURITIES TRANSACTIONS
Securities transactions for the period ended December 31, 1999 are as follows
(in thousands):
<TABLE>
<CAPTION>
PURCHASES PROCEEDS
OF FROM SALES
SUBACCOUNT SECURITIES OF SECURITIES
- --------------------------------- ------------ --------------
<S> <C> <C>
WRL J.P. Morgan Money Market $ 38 $ 8
WRL AEGON Bond 27 0
WRL Janus Growth 410 42
WRL Janus Global 217 39
WRL LKCM Strategic Total Return 29 0
WRL VKAM Emerging Growth 143 41
WRL Alger Aggressive Growth 232 41
WRL AEGON Balanced 29 0
WRL Federated Growth & Income 26 0
WRL Dean Asset Allocation 27 0
WRL C.A.S.E. Growth 35 0
WRL NWQ Value Equity 25 0
WRL GE/Scottish Equitable
International Equity 28 0
WRL GE U.S. Equity 30 0
WRL Third Avenue Value 26 0
WRL J.P. Morgan Real Estate
Securities 35 7
WRL Goldman Sachs Growth 39 8
WRL Goldman Sachs Small Cap 29 0
WRL T. Rowe Price Dividend
Growth 38 7
WRL T. Rowe Price Small Cap 38 0
WRL Salomon All Cap 37 8
WRL Pilgrim Baxter Mid Cap
Growth 37 9
WRL Dreyfus Mid Cap 40 8
</TABLE>
NOTE 5 -- FINANCIAL HIGHLIGHTS
Per unit information has been computed using average units outstanding
throughout each period. Total return is not annualized for periods of less than
one year. The ratio of net investment income (loss) to average net assets is
annualized for periods of less than one year.
102
<PAGE>
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., an indirect wholly-owned subsidiary of AEGON
N.V., as of December 31, 1999 and 1998 and the related statutory-basis
statements of operations, changes in capital and surplus, and cash flow for
each of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the "Separate Account Assets" and "Separate
Account Liabilities" in the statutory-basis balance sheets of the Company. The
Separate Account financial statements were audited by other auditors whose
reports have been furnished to us, and our opinion, insofar as it relates to
the data included for the Separate Accounts, is based solely upon the reports
of the other auditors.
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 and the reports of other
auditors 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 matter 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, 1999
and 1998, or the results of its operations or its cash flows for each of the
three years in the period ended December 31, 1999.
However, in our opinion, based on our audits and the reports of other
auditors, the financial statements referred to above present fairly, in all
material respects, the financial position of AUSA Life Insurance Company, Inc.
at December 31, 1999 and 1998, and the results of its operations and its cash
flow for each of the three years in the period ended December 31, 1999, in
conformity with accounting practices prescribed or permitted by the Department
of Insurance of the State of New York.
ERNST & YOUNG
Des Moines, Iowa
February 18, 2000
103
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
BALANCE SHEETS -- STATUTORY BASIS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
ADMITTED ASSETS
Cash and invested assets:
Bonds .................................................. $ 3,864,509 $ 4,151,780
Stocks:
Preferred ............................................. 6,789 2,582
Common, at market (cost: $14 in 1999 and 1998)......... 2 2
Mortgage loans on real estate .......................... 449,603 413,107
Real estate acquired in satisfaction of debt, at cost
less accumulated depreciation ($1,239 in 1999 and
$2,474 in 1998)....................................... 16,865 33,986
Policy loans ........................................... 3,276 3,181
Cash and short-term investments ........................ 81,390 61,065
Other invested assets .................................. 62,759 30,795
Short-term notes receivable from affiliates ............ 136,300 10,400
----------- -----------
Total cash and invested assets .......................... 4,621,493 4,706,898
Receivable from affiliates .............................. 17,851 14,731
Premiums deferred and uncollected ....................... 6,572 6,408
Accrued investment income ............................... 58,103 64,859
Federal income taxes recoverable ........................ -- 527
Other assets ............................................ 14,901 12,567
Separate account assets ................................. 6,881,195 6,517,152
----------- -----------
Total admitted assets ................................... $11,600,115 $11,323,142
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
104
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
BALANCE SHEETS -- STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate reserves for policies and contracts:
Life .................................................. $ 138,147 $ 109,132
Annuity ............................................... 796,401 868,294
Accident and health ................................... 16,432 16,416
Policy and contract claim reserves:
Life .................................................. 5,004 4,927
Accident and health ................................... 8,190 10,302
Other policyholders' funds ............................. 3,145,632 3,267,417
Remittances and items not allocated .................... 44,643 58,724
Asset valuation reserve ................................ 82,997 84,077
Interest maintenance reserve ........................... 27,244 37,253
Deferred interest on assets purchased .................. 733 5,230
Payable under assumption reinsurance agreement ......... 39,118 52,837
Other liabilities ...................................... 23,566 7,422
Federal income taxes payable ........................... 4,507 --
Separate account liabilities ........................... 6,874,006 6,497,865
----------- -----------
Total liabilities ....................................... 11,206,620 11,019,896
=========== ===========
Commitments and contingencies (NOTE 10)
Capital and surplus:
Common stock, $125 par value, 20,000 shares authorized,
issued and outstanding ............................... 2,500 2,500
Paid-in surplus ........................................ 319,180 319,180
Special surplus funds .................................. 2,017 1,827
Unassigned surplus (deficit) ........................... 69,798 (20,261)
----------- -----------
Total capital and surplus ............................... 393,495 303,246
----------- -----------
Total liabilities and capital and surplus ............... $11,600,115 $11,323,142
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
105
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
STATEMENTS OF OPERATIONS -- STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net of reinsurance:
Life ........................................................... $ 48,276 $ 22,664 $ 71,899
Annuity ........................................................ 1,475,991 1,132,120 1,199,470
Accident and health ............................................ 29,748 32,869 39,999
Net investment income ........................................... 325,049 345,660 341,540
Amortization of interest maintenance reserve .................... 4,078 6,116 3,392
Commissions and expense allowances on reinsurance ceded ......... 424 302 374
Separate account fee income ..................................... 51,872 43,525 --
Other income .................................................... 5,531 -- 17,240
---------- ---------- ----------
1,940,969 1,583,256 1,673,914
Benefits and expenses:
Benefits paid or provided for:
Life and accident and health benefits .......................... 32,871 32,464 39,045
Surrender benefits ............................................. 1,937,450 1,117,653 1,175,051
Other benefits ................................................. 21,747 20,886 14,316
Increase (decrease) in aggregate reserves for policies and
contracts:
Life ........................................................... 29,016 5,762 52,500
Annuity ........................................................ (71,893) (42,781) 65,982
Accident and health ............................................ 16 (131) (1,357)
Other .......................................................... 778 (67) 580
Increase (decrease) in liability for premium and other deposit
type funds .................................................... (122,644) 85,461 92,280
---------- ---------- ----------
1,827,341 1,219,247 1,438,397
Insurance expenses:
Commissions ..................................................... 50,265 69,009 79,099
General insurance expenses ...................................... 58,034 95,169 92,613
Taxes, licenses and fees ........................................ 1,836 1,466 3,717
Net transfers to (from) separate accounts ....................... (79,470) 174,435 42,490
Other ........................................................... (16) 978 181
---------- ---------- ----------
30,649 341,057 218,100
---------- ---------- ----------
1,857,990 1,560,304 1,656,497
---------- ---------- ----------
Gain from operations before federal income tax expense and
net realized capital gains on investments ....................... 82,979 22,952 17,417
Federal income tax expense ....................................... 7,976 4,021 5,247
---------- ---------- ----------
Gain from operations before net realized capital gains on
investments ..................................................... 75,003 18,931 12,170
Net realized capital gains on investments (net of related federal
income taxes and amounts transferred to interest maintenance
reserve) ........................................................ 11,471 3,770 831
---------- ---------- ----------
Net income ....................................................... $ 86,474 $ 22,701 $ 13,001
========== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
106
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
STATEMENTS OF CHANGES IN CAPITAL AND
SURPLUS -- STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SPECIAL UNASSIGNED TOTAL
COMMON PAID-IN SURPLUS SURPLUS CAPITAL AND
STOCK SURPLUS FUNDS (DEFICIT) SURPLUS
-------- ----------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 ................. $2,500 $319,180 $1,473 $ (4,246) $ 318,907
Net income ................................ -- -- 134 12,867 13,001
Change in net unrealized capital gains
(losses) ................................ -- -- -- (2,710) (2,710)
Change in non-admitted assets ............. -- -- -- (8,483) (8,483)
Change in liability for reinsurance in
unauthorized companies .................. -- -- -- 29 29
Change in asset valuation reserve ......... -- -- -- (20,446) (20,446)
Net change in separate account surplus..... -- -- -- (49) (49)
Prior year federal income tax
adjustment .............................. -- -- -- 59 59
------ -------- ------ --------- ---------
Balance at December 31, 1997 ............... 2,500 319,180 1,607 (22,979) 300,308
Net income ................................ -- -- 220 22,481 22,701
Change in net unrealized capital gains
(losses) ................................ -- -- -- 4,439 4,439
Change in non-admitted assets ............. -- -- -- (291) (291)
Change in liability for reinsurance in
unauthorized companies .................. -- -- -- 18 18
Change in asset valuation reserve ......... -- -- -- (16,753) (16,753)
Net change in separate account
surplus ................................. -- -- -- 824 824
Dividend to stockholder ................... -- -- -- (8,000) (8,000)
------ -------- ------ --------- ---------
Balance at December 31, 1998 ............... 2,500 319,180 1,827 (20,261) 303,246
Net income ................................ -- -- 190 86,284 86,474
Change in net unrealized capital gains
(losses) ................................ -- -- -- (2,666) (2,666)
Change in non-admitted assets ............. -- -- -- 8,957 8,957
Change in liability for reinsurance in
unauthorized companies .................. -- -- -- (394) (394)
Change in asset valuation reserve ......... -- -- -- 1,080 1,080
Net change in separate account
surplus ................................. -- -- -- (3,202) (3,202)
------ -------- ------ --------- ---------
Balance at December 31, 1999 ............... $2,500 $319,180 $2,017 $ 69,798 $ 393,495
====== ======== ====== ========= =========
</TABLE>
SEE ACCOMPANYING NOTES.
107
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
STATEMENTS OF CASH FLOW -- STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------------
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Premiums and other considerations, net of reinsurance .......... $ 1,569,443 $ 1,191,035 $ 1,340,757
Net investment income .......................................... 343,327 353,054 340,150
Life and accident and health claims ............................ (34,919) (33,979) (40,151)
Surrender benefits and other fund withdrawals .................. (1,937,450) (1,117,653) (1,175,051)
Other benefits to policyholders ................................ (21,733) (20,876) (14,290)
Commissions, other expenses and other taxes .................... (125,507) (169,784) (184,457)
Net transfers (to) from separate account ....................... 131,083 (130,976) (43,309)
Federal income taxes paid ...................................... (2,942) (5,558) (4,704)
Other, net ..................................................... (26,319) (3,806) (3,744)
------------ ------------ ------------
Net cash provided by (used in) operating activities ............ (105,017) 61,457 215,201
INVESTING ACTIVITIES
Proceeds from investments sold, matured or repaid:
Bonds and preferred stocks .................................... 1,843,152 1,381,784 968,184
Common stocks ................................................. 55,050 164 --
Mortgage loans on real estate ................................. 144,620 138,723 179,810
Real estate ................................................... 46,449 22,067 25,104
Policy loans .................................................. -- -- 16
Other ......................................................... 3,847 (21) --
------------ ------------ ------------
2,093,118 1,542,717 1,173,114
Cost of investments acquired:
Bonds and preferred stocks .................................... (1,588,268) (1,554,838) (1,260,122)
Common stocks ................................................. (55,050) -- (103)
Mortgage loans on real estate ................................. (178,473) (51,862) (60,722)
Real estate ................................................... (27,721) (561) --
Policy loans .................................................. (95) (135) (146)
Other ......................................................... 7,731 5,756 (17,805)
------------ ------------ ------------
(1,841,876) (1,601,640) (1,338,898)
------------ ------------ ------------
Net cash provided by (used in) investing activities ............ 251,242 (58,923) (165,784)
FINANCING ACTIVITIES
Issuance of intercompany notes, net ............................ (125,900) (1,600) (9,400)
Dividends to stockholders ...................................... -- (8,000) --
------------ ------------ ------------
Net cash used in financing activities .......................... (125,900) (9,600) (9,400)
------------ ------------ ------------
Increase (decrease) in cash and short-term investments ......... 20,325 (7,066) 40,017
Cash and short-term investments at beginning of year ........... 61,065 68,131 28,114
------------ ------------ ------------
Cash and short-term investments at end of year ................. $ 81,390 $ 61,065 $ 68,131
============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
108
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS
(DOLLARS IN THOUSANDS)
December 31, 1999
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
AUSA Life Insurance Company, Inc. ("the Company") is a stock life
insurance company and is 82 percent owned by First AUSA Life Insurance Company
("First AUSA"), a wholly-owned subsidiary of AEGON USA, Inc. ("AEGON"), and 18
percent owned by Veterans Life Insurance Company, an indirect wholly-owned
subsidiary of AEGON. AEGON is a wholly-owned subsidiary of AEGON N.V., a
holding company organized under the laws of The Netherlands. Effective
September 24, 1993, First AUSA purchased from The Dreyfus Corporation
("Dreyfus"), its entire interest in Dreyfus Life Insurance Company and
subsequently changed the name to AUSA Life Insurance Company, Inc. On December
31, 1993, the Company entered into an assumption reinsurance agreement with
Mutual of New York ("MONY") to transfer certain group pension business of MONY
to the Company.
On October 1, 1998, the Company completed a merger with First Providian
Life and Health Insurance Company ("FPLH"), an indirect wholly-owned subsidiary
of Commonwealth General Corporation which, in turn, is an indirect wholly-owned
subsidiary of AEGON, whereby FPLH was merged directly into the Company. The
accompanying financial statements give retroactive effect as if the merger had
occurred on January 1, 1997 in conformity with the practices of the National
Association of Insurance Commissioners (NAIC) and accounting practices
prescribed or permitted by the Department of Insurance of the State of New
York. This merger was accounted for as a statutory merger, which is similar to
the pooling of interests method of accounting and, accordingly, the historical
book values carried over from the separate companies to the Company.
NATURE OF BUSINESS
The Company primarily sells group fixed and variable annuities and group
life coverages. The Company is licensed in 49 states and the District of
Columbia and is in the process of becoming licensed in New Jersey. 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.
109
<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)
Significant estimates and assumptions are utilized in the calculation of
aggregate policy reserves, policy and contract reserves, guarantee fund
assessment accruals and valuation allowances on investments. It is reasonably
possible that actual experience could differ from the estimates and assumptions
utilized which could have a material impact on the financial statements.
The accompanying financial statements have been prepared on the basis of
accounting practices prescribed or permitted by the Department of Insurance of
the State of New York ("Insurance Department"), which practices differ in some
respects from generally accepted accounting principles. The more significant of
these differences are as follows: (a) bonds are generally reported at amortized
cost rather than segregating the portfolio into held-to-maturity (reported at
amortized cost), available-for-sale (reported at fair value), and trading
(reported at fair value) classifications; (b) acquisition costs of acquiring
new business are charged to current operations as incurred rather than deferred
and amortized over the life of the policies; (c) certain separate accounts
provide policyholders with a guaranteed return; these separate accounts are
included in the general account assets and liabilities for GAAP purposes due to
the nature of the guaranteed return, (d) 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; (e) policy reserves on certain investment products use
discounting methodologies utilizing statutory interest rates rather than full
account values; (f) reinsurance amounts are netted against the corresponding
asset or liability rather than shown as gross amounts on the balance sheet; (g)
deferred income taxes are not provided for the difference between the financial
statement and income tax bases of assets and liabilities; (h) 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; (i) declines in the estimated realizable
value of investments are provided for through the establishment of a formula-
determined statutory investment reserve (reported as a liability), changes to
which are charged directly to surplus, rather than through recognition in the
statement of operations for declines in value, when such declines are judged to
be other than temporary; (j) certain assets designated as "non-admitted assets"
have been charged to surplus rather than being reported as assets; (k) 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; (l)
pension expense is recorded as amounts are paid; (m) stock options settled in
cash are recorded as an expense of the Company's indirect parent rather than
charged to current operations; (n) adjustments to federal income taxes
110
<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)
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 (o)
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, but are
presumed to be material.
In 1998, the NAIC adopted codified statutory accounting principles
("Codification"), effective January 1, 2001. Codification will likely change,
to some extent, prescribed statutory accounting practices and may result in
changes to the accounting practices that the Company uses to prepare its
statutory-basis financial statements. Codification will require adoption by the
various states before it becomes the prescribed statutory basis of accounting
for insurance companies domesticated within those states. Accordingly, before
Codification becomes effective for the Company, the State of New York must
adopt Codification as the prescribed basis of accounting on which domestic
insurers must report their statutory-basis results to the Insurance Department.
At this time, it is unclear whether the State of New York will adopt
Codification. However, based on current guidance, management believes that the
impact of Codification will not be material to the Company's statutory-basis
financial statements.
CASH AND SHORT-TERM INVESTMENTS
For purposes of the statements of cash flow, the Company considers all
highly liquid investments with remaining maturity of one year or less when
purchased to be short-term investments.
INVESTMENTS
Investments in bonds (except those to which the Securities Valuation
Office of the NAIC has ascribed a value), mortgage loans on real estate and
short-term investments are reported at cost adjusted for amortization of
premiums and accrual of discounts. Amortized costs for bonds and mortgage loans
on real estate that were acquired through the reinsurance agreement described
earlier were initially recorded at market value, consistent with the
aforementioned agreement and as prescribed by the Department of Insurance of
the State of New York. Amortization is computed using methods which result in a
level yield over the expected life of the security. The Company reviews its
prepayment assumptions on mortgage and other asset-backed securities at regular
intervals and adjusts amortization rates retrospectively when such assumptions
are changed due to experience and/or expected future patterns. Investments in
preferred stocks in good standing are reported at cost. Investments in
preferred stocks not in good standing are reported at the lower of cost or
market. Common stocks are carried at
111
<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)
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 potential
losses in the event of default by issuers of certain invested assets. These
amounts are determined using a formula prescribed by the NAIC and are reported
as a liability. The formula for the AVR provides for a corresponding adjustment
for realized gains and losses. Under a formula prescribed by the NAIC, the
Company defers, in the Interest Maintenance Reserve (IMR), the portion of
realized gains and losses on sales of fixed income investments, principally
bonds and mortgage loans, attributable to changes in the general level of
interest rates and amortizes those deferrals over the remaining period to
maturity of the security.
Interest income is recognized on an accrual basis. The Company does not
accrue income on bonds in default, mortgage loans on real estate in default
and/or foreclosure or which are delinquent more than twelve months, or real
estate where rent is in arrears for more than three months. Further, income is
not accrued when collection is uncertain. During 1999, 1998 and 1997, the
Company excluded investment income due and accrued of $261, $216 and $473,
respectively, with respect to such practices.
The Company uses interest rate swaps as part of its overall interest rate
risk management strategy for certain life insurance and annuity products. The
net interest effect of such swap transactions is reported as an adjustment of
interest income from the hedged items as incurred.
Deferred income for unrealized gains and losses on the securities valued
at market at the time of the assumption reinsurance agreement (described in
Note 4) are returned to MONY at the time of realization pursuant to the
agreement.
AGGREGATE POLICY RESERVES
Life, annuity and accident and health benefit reserves are developed by
actuarial methods and are determined based on published tables using
statutorily specified interest rates and valuation methods that will provide,
in the aggregate, reserves that are greater than or equal to the minimum
required by law.
112
<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 aggregate policy reserves for life insurance policies are based
principally upon the 1941, 1958 and 1980 Commissioners' Standard Ordinary
Mortality Tables. The reserves are calculated using interest rates ranging from
2.50 to 6.50 percent and are computed principally on the Net Level Premium
Valuation and the Commissioners' Reserve Valuation Method. Reserves for
universal life policies are based on account balances adjusted for the
Commissioners' Reserve Valuation Method.
Deferred annuity reserves are calculated according to the Commissioners'
Annuity Reserve Valuation Method including excess interest reserves to cover
situations where the future interest guarantees plus the decrease in surrender
charges are in excess of the maximum valuation rates of interest. Reserves for
immediate annuities and supplementary contracts with life contingencies are
equal to the present value of future payments assuming interest rates ranging
from 3.00 to 8.50 percent and mortality rates, where appropriate, from a
variety of tables.
Accident and health policy reserves are equal to the greater of the gross
unearned premiums or any required midterminal reserves plus net unearned
premiums and the present value of amounts not yet due on both reported and
unreported claims.
POLICY AND CONTRACT CLAIM RESERVES
Claim reserves represent the estimated accrued liability for claims
reported to the Company and claims incurred but not yet reported through the
statement date. These reserves are estimated using either individual case-basis
valuations or statistical analysis techniques. These estimates are subject to
the effects of trends in claim severity and frequency. The estimates are
continually reviewed and adjusted as necessary as experience develops or new
information becomes available.
SEPARATE ACCOUNTS
Assets held in trust for purchases of separate account contracts and the
Company's corresponding obligation to the contract owners are shown separately
in the balance sheets. Income and gains and losses with respect to these assets
accrue to the benefit of the contract owners and, accordingly, the operations
of the separate accounts are not included in the accompanying financial
statements.
Certain separate account assets and liabilities reported in the
accompanying financial statements contain contractual guarantees. Guaranteed
separate accounts represent funds invested by the Company for the benefit of
individual contract holders who are guaranteed certain returns as specified in
the contracts. Separate account asset performance different than guaranteed
requirements is either transferred to or received
113
<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)
from the general account and reported in the statements of operations.
Guaranteed separate account assets and liabilities are reported at estimated
fair value except for certain government and fixed-rate separate accounts,
which are carried at amortized cost. The assets and liabilities of the
nonguaranteed separate accounts are carried at estimated fair value.
STOCK OPTION PLAN
AEGON N.V. sponsors a stock option plan for eligible employees of the
Company. Under this plan, certain employees have indicated a preference to
immediately sell shares received as a result of their exercise of the stock
options; in these situations, AEGON N.V. has settled such options in cash
rather than issuing stock to these employees. These cash settlements are paid
by the Company, and AEGON N.V. subsequently reimburses the Company for such
payments. Under statutory accounting principles, the Company does not record
any expense related to this plan, as the expense is recognized by AEGON N.V.
However, the Company is allowed to record a deduction in the consolidated tax
return filed by the Company and certain affiliates.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1999 financial statements
to conform to the 1998 and 1997 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 No. 107 and No. 119 exclude certain financial instruments
and all
114
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS--(CONTINUED)
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 is assumed to equal its carrying
amount.
SHORT-TERM NOTES RECEIVABLE FROM AFFILIATES: The fair values for
short-term notes receivable from affiliates 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 SWAPS: Estimated fair value of interest rate swaps are based
upon the pricing differential for similar swap agreements.
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure to
changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
115
<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
amounts of the Company's financial instruments subject to the provisions of
SFAS No. 107 and No. 119:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------------------------
1999 1998
--------------------------- ---------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ADMITTED ASSETS
Cash and short-term
investments ....................... $ 81,390 $ 81,390 $ 61,065 $ 61,065
Bonds .............................. 3,864,509 3,767,465 4,151,780 4,246,901
Preferred stock .................... 6,789 6,579 2,582 2,529
Common stock ....................... 2 2 2 2
Mortgage loans on real
estate ............................ 449,603 439,799 413,107 429,716
Interest rate swap ................. -- (174) -- --
Policy loans ....................... 3,276 3,276 3,181 3,181
Short-term notes receivable
from affiliates ................... 136,000 136,300 10,400 10,400
Separate account assets ............ 6,881,195 6,866,675 6,517,152 6,527,180
LIABILITIES
Investment contract
liabilities ....................... 3,940,657 3,841,080 4,134,507 4,057,004
Separate account annuities ......... 6,798,987 6,753,227 6,408,436 6,387,445
</TABLE>
116
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS
The carrying amounts and estimated fair values of investments in debt
securities were as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
AMOUNT GAINS LOSSES VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1999
Bonds:
United States Government and
agencies ............................ $ 59,439 $ 85 $ 2,589 $ 56,935
State, municipal and other
government .......................... 74,897 454 1,410 73,941
Public utilities ..................... 281,024 693 9,538 272,179
Industrial and miscellaneous ......... 2,190,297 10,886 69,634 2,131,549
Mortgage-backed and asset-
backed securities ................... 1,258,852 4,816 30,807 1,232,861
---------- -------- -------- ----------
3,864,509 16,934 113,978 3,767,465
Preferred stocks ...................... 6,789 8 218 6,579
---------- -------- -------- ----------
$3,871,298 $ 16,942 $114,196 $3,774,044
========== ======== ======== ==========
DECEMBER 31, 1998
Bonds:
United States Government and
agencies ............................ $ 99,834 $ 1,776 $ 285 $ 101,325
State, municipal and other
government .......................... 38,387 1,427 1,625 38,189
Public utilities ..................... 355,719 10,239 825 365,133
Industrial and miscellaneous ......... 2,398,132 88,051 25,538 2,460,645
Mortgage-backed and asset-
backed securities ................... 1,259,708 27,387 5,486 1,281,609
---------- -------- -------- ----------
4,151,780 128,880 33,759 4,246,901
Preferred stocks ...................... 2,582 -- 53 2,529
---------- -------- -------- ----------
$4,154,362 $128,880 $ 33,812 $4,249,430
========== ======== ======== ==========
</TABLE>
117
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS--(CONTINUED)
The carrying amounts and estimated fair values of bonds at December 31,
1999, 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
AMOUNT FAIR VALUE
<S> <C> <C>
Due in one year or less ............................. $ 182,460 $ 182,521
Due after one year through five years ............... 1,643,466 1,601,064
Due after five years through ten years .............. 592,008 574,987
Due after ten years ................................. 187,723 176,032
---------- ----------
2,605,657 2,534,604
Mortgage-backed and asset-backed securities ......... 1,258,852 1,232,861
---------- ----------
$3,864,509 $3,767,465
========== ==========
</TABLE>
A detail of net investment income is presented below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Interest on bonds and notes ............. $290,534 $290,967 $285,730
Mortgage loans .......................... 34,863 46,027 57,659
Real estate ............................. 7,176 12,741 13,976
Dividends on equity investments ......... -- 254 223
Interest on policy loans ................ 49 317 168
Derivative instruments .................. (2,600) (3,265) 100
Other investment income ................. 9,139 9,568 1,543
-------- -------- --------
Gross investment income ................. 339,161 356,609 359,399
Less investment expenses ................ 14,112 10,949 17,859
-------- -------- --------
Net investment income ................... $325,049 $345,660 $341,540
======== ======== ========
</TABLE>
Proceeds from sales and maturities of debt securities and related gross
realized gains and losses were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------
1999 1998 1997
------------- ------------- -----------
<S> <C> <C> <C>
Proceeds ............................ $1,843,152 $1,381,784 $ 968,184
========== ========== =========
Gross realized gains ................ $ 11,207 $ 19,871 $ 19,165
Gross realized losses ............... (22,545) (5,974) (11,997)
---------- ---------- ---------
Net realized gains (losses) ......... $ (11,338) $ 13,897 $ 7,168
========== ========== =========
</TABLE>
118
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS--(CONTINUED)
At December 31, 1999, investments with an aggregate carrying amount of
$2,853 were on deposit with regulatory authorities or were restrictively held
in bank custodial accounts for the benefit of such regulatory authorities as
required by statute.
Realized investment gains (losses) for investments are summarized below:
<TABLE>
<CAPTION>
REALIZED
-------------------------------------------
YEAR ENDED DECEMBER 31
-------------------------------------------
1999 1998 1997
------------- ------------ ------------
<S> <C> <C> <C>
Debt securities ......................................... $ (11,338) $ 13,897 $ 7,168
Common stock ............................................ -- 60 --
Preferred stock ......................................... -- 170 (7)
Short-term investments .................................. 373 (41) (6)
Mortgage loans on real estate ........................... 1,161 325 287
Real estate ............................................. 2,463 3,967 4,059
Other invested assets ................................... 9,407 2,859 5,035
--------- --------- ---------
2,066 21,237 16,536
Federal income tax effect ............................... 3,474 20 (747)
Transfer (to) from interest maintenance reserve ......... 5,931 (17,487) (14,958)
--------- --------- ---------
Total realized gains .................................... $ 11,471 $ 3,770 $ 831
========= ========= =========
</TABLE>
During 1999, the Company issued mortgage loans with interest rates ranging
from 6.77% to 8.49%. The maximum percentage of any one loan to the value of the
underlying real estate at origination was 95%. No mortgage loans were
non-income producing for the previous twelve months and, accordingly, no
accrued interest related to these mortgage loans was excluded from investment
income. The Company requires all mortgage loans to carry fire insurance equal
to the value of the underlying property.
119
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS--(CONTINUED)
During 1999, 1998 and 1997, there were $17,959, $2,796 and $4,427,
respectively, in foreclosed mortgage loans that were transferred to real
estate. At December 31, 1999 and 1998, the Company held a mortgage loan loss
reserve in the asset valuation reserve of $36,273 and $34,083, 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
--------------- --------------
1999 1998 1999 1998
------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
South Atlantic 26% 22% Office 37% 37%
E. North Central 15 20 Retail 23 24
Mountain 14 20 Industrial 20 29
Mid-Atlantic 13 9 Apartment 6 4
W. South Central 12 9 Agricultural 8 2
Pacific 10 8 Other 6 4
New England 4 7
W. North Central 4 3
E. South Central 2 2
</TABLE>
At December 31, 1999, the Company had no investments, excluding U. S.
Government guaranteed or insured issues, which individually represented more
than ten percent of capital and surplus and the asset valuation reserve.
The Company utilizes interest rate swap agreements as part of its efforts
to hedge and manage fluctuations in the market value of its investment
portfolio attributable to changes in general interest rate levels and to manage
duration mismatch of assets and liabilities. The contract or notional amounts
of those instruments reflect the extent of involvement in the various types of
financial instruments.
The Company's exposure to credit risk is the risk of loss from a
counterparty failing to perform according to the terms of the contract. That
exposure includes settlement risk (i.e., the risk that the counterparty
defaults after the Company has delivered funds or securities under terms of the
contract) that would result in an accounting loss and replacement cost risk
(i.e., the cost to replace the contract at current market rates should the
counterparty default prior to settlement date). Credit loss exposure resulting
from nonperformance by a counterparty for commitments to extend credit is
represented by the contractual amounts of the instruments.
120
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS--(CONTINUED)
At December 31, 1999 and 1998, the Company's outstanding financial
instruments with on and off-balance sheet risks, shown in notional amounts, are
summarized as follows:
<TABLE>
<CAPTION>
NOTIONAL AMOUNT
------------------------
1999 1998
----------- ----------
<S> <C> <C>
Derivative securities:
Interest rate swaps:
Receive fixed -- pay floating ......... $103,700 $74,588
Receive floating-- pay fixed .......... 10,000 --
</TABLE>
4. REINSURANCE
The Company reinsures portions of risk on certain insurance policies which
exceed its established limits, thereby providing a greater diversification of
risk and minimizing exposure on larger risks. The Company remains contingently
liable with respect to any insurance ceded, and this would become an actual
liability in the event that the assuming insurance company became unable to
meet its obligation under the reinsurance treaty.
Premiums earned reflect the following reinsurance assumed and ceded
amounts for the year ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Direct premiums .............. $1,548,392 $1,183,777 $1,309,731
Reinsurance assumed .......... 8,301 6,415 6,905
Reinsurance ceded ............ (2,678) (2,539) (5,268)
---------- ---------- ----------
Net premiums earned .......... $1,554,015 $1,187,653 $1,311,368
========== ========== ==========
</TABLE>
The Company received reinsurance recoveries in the amounts of $2,983,
$2,493 and $1,992 during 1999, 1998 and 1997, respectively.
The aggregate reserves for policies and contracts were reduced for reserve
credits for reinsurance ceded at December 31, 1999 and 1998 of $118,070 and
$143,819, respectively.
On December 31, 1993, the Company and MONY entered into an assumption
reinsurance agreement whereby all of the general account liabilities were
novated to the Company from MONY as state approvals were received. In
accordance with the agreement, MONY will receive payments relating to the
performance of the assets and liabilities that existed 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
121
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
4. REINSURANCE--(CONTINUED)
December 31, 1993 of the business in-force at December 31, 1993, and on all new
business written after that date. At the end of nine years from the date of
closing, the Company will purchase from MONY the remaining transferred business
inforce based upon a formula described in the agreement. At December 31, 1999
and 1998, the Company owed MONY $39,118 and $52,837, respectively, which
represents the amount earned by MONY under the gain sharing calculation and
certain fees for investment management services for the respective years. In
connection with the transaction, MONY purchased $150,000 and $50,000 in Series
A and Series B notes, respectively, of AEGON. The proceeds were used to enhance
the surplus of the Company. Both the Series A and Series B notes bear a market
rate of interest and mature in nine years from the date of closing.
AEGON provides general and administrative services for the transferred
business under a related agreement with MONY. The agreement specifies
prescribed rates for expenses to administer the business up to certain levels.
In addition, AEGON also provides investment management services on the assets
underlying the new business written by the Company while MONY continues to
provide investment management services for assets supporting the remaining
policy liabilities which were transferred at December 31, 1993.
5. INCOME TAXES
For federal income tax purposes, the Company joins in a consolidated
income tax return filing with certain affiliated companies. Under the terms of
a tax-sharing agreement between the Company and its affiliates, the Company
computes federal income tax expense as if it were filing a separate income tax
return, except that tax credits and net operating loss carryforwards are
determined on the basis of the consolidated group. Additionally, the
alternative minimum tax is computed for the consolidated group and the
resulting tax, if any, is allocated back to the separate companies on the basis
of the separate companies' alternative minimum taxable income.
Federal income tax expense differs from the amount computed by applying
the statutory federal income tax rate to gain from operations before federal
income tax expense and net realized capital gains (losses) on investments
primarily due to differences in the statutory and tax treatment of certain
investments, deferred policy acquisition costs, stock options exercised,
dividends received deduction, carryforward (utilization) of net operating loss,
IMR amortization, and certain adjustments related to the agreement between MONY
and the Company. These adjustments caused the Company to calculate federal
income tax expense using alternative minimum tax requirements in 1998.
122
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
5. INCOME TAXES--(CONTINUED)
Federal income tax expense differs from the amount computed by applying
the statutory federal income tax rate to net realized capital gains (losses) on
investments due to the agreement between MONY and the Company, as discussed in
Note 4 to the financial statements. In accordance with this agreement, these
gains and losses are included in the net payments MONY will receive relating to
the performance of the assets that existed at the date of closing. Accordingly,
income taxes relating to gains and losses on such assets are not provided for
on the income tax return filed by the Company.
Prior to 1984, as provided for under the Life Insurance Company Tax Act of
1959, a portion of statutory income was not subject to current taxation but was
accumulated for income tax purposes in a memorandum account referred to as the
policyholders' surplus account. No federal income taxes have been provided for
in the financial statements on income deferred in the policyholders' surplus
account ($2,427 at December 31, 1999). To the extent dividends are paid from
the amount accumulated in the policyholders' surplus account, net earnings
would be reduced by the amount of tax required to be paid. Should the entire
amount in the policyholders' surplus account become taxable, the tax thereon
computed at current rates would amount to approximately $849.
The Company expects to utilize a net operating loss carryforward of
$32,539 in the 1999 consolidated tax return.
In 1998, the Company reached a final settlement with the Internal Revenue
Service for years 1993 through 1995 resulting in no tax due or refunded. An
examination of 1996 and 1997 is currently in process.
123
<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
------------------------------------------------------------
1999 1998
----------------------------- ----------------------------
PERCENT OF PERCENT OF
AMOUNT TOTAL AMOUNT TOTAL
-------------- ------------ -------------- -----------
<S> <C> <C> <C> <C>
Subject to discretionary
withdrawal with market
value adjustment .............. $ 924,075 8% $ 912,692 9%
Subject to discretionary
withdrawal at book value
less surrender charge ......... 998,443 9 1,013,495 10
Subject to discretionary
withdrawal at market
value ......................... 4,418,345 41 3,678,649 34
Subject to discretionary
withdrawal at book value
(minimal or no charges or
adjustments) .................. 2,395,732 22 2,666,670 25
Not subject to discretionary
withdrawal .................... 2,121,526 20 2,416,602 22
----------- -- ----------- --
10,858,121 100% 10,688,108 100%
=== ===
Less reinsurance ceded ......... 117,178 143,475
----------- -----------
Total policy reserves on
annuities and deposit
fund liabilities .............. $10,740,943 $10,544,633
=========== ===========
</TABLE>
124
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
6. POLICY AND CONTRACT ATTRIBUTES--(CONTINUED)
Separate account assets held by the Company represent contracts where the
benefit is determined by the performance of the investments held in the
separate account. Information regarding the separate accounts of the Company as
of and for the years ended December 31, 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
GUARANTEED NON-GUARANTEED
SEPARATE SEPARATE
ACCOUNT ACCOUNT TOTAL
------------ --------------- -------------
<S> <C> <C> <C>
Premiums, deposits and other
considerations for the year ended
December 31, 1999 ................ $ 205,834 $1,002,770 $1,208,604
========== ========== ==========
Reserves for separate accounts with
assets at:
Fair value ....................... $1,925,973 $4,310,332 $6,236,305
Amortized cost ................... 562,682 -- 562,682
---------- ---------- ----------
Total ............................. $2,488,655 $4,310,332 $6,798,987
========== ========== ==========
Premiums, deposits and other
considerations for the year ended
December 31, 1998 ................ $ 84,150 $ 767,676 $ 851,826
========== ========== ==========
Reserves for separate accounts with
assets at:
Fair value ....................... $2,350,983 $3,461,715 $5,812,698
Amortized cost ................... 595,738 -- 595,738
---------- ---------- ----------
Total ............................. $2,946,721 $3,461,715 $6,408,436
========== ========== ==========
Premiums, deposits and other
considerations for the year ended
December 31, 1997 ................ $ 147,638 $ 648,056 $ 795,694
Reserves for separate accounts with
assets at:
Fair value ....................... $2,204,931 $2,767,245 $4,972,176
Amortized cost ................... 622,703 -- 622,703
---------- ---------- ----------
Total ............................. $2,827,634 $2,767,245 $5,594,879
========== ========== ==========
</TABLE>
125
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
6. POLICY AND CONTRACT ATTRIBUTES--(CONTINUED)
There may be certain restrictions placed upon the amount of funds that can
be withdrawn without penalty. The amount of separate account liabilities on
these products, by withdrawal characteristics, is summarized as follows:
<TABLE>
<CAPTION>
GUARANTEED NON-GUARANTEED
SEPARATE SEPARATE
ACCOUNT ACCOUNT TOTAL
------------ --------------- ------------
<S> <C> <C> <C>
DECEMBER 31, 1999
Subject to discretionary withdrawal
with market value adjustment ................... $ 335,351 $ -- $ 335,351
Subject to discretionary withdrawal
at book value less surrender charge ............ 227,331 -- 227,331
Subject to discretionary withdrawal
at market value ................................ 108,013 4,310,332 4,418,345
Not subject to discretionary withdrawal ......... 1,817,960 -- 1,817,960
---------- ---------- ----------
$2,488,655 $4,310,332 $6,798,987
========== ========== ==========
DECEMBER 31, 1998
Subject to discretionary withdrawal
with market value adjustment ................... $ 345,379 $ -- $ 345,379
Subject to discretionary withdrawal
at book value less surrender charge ............ 250,359 -- 250,359
Subject to discretionary withdrawal
at market value ................................ 216,935 3,461,715 3,678,650
Not subject to discretionary withdrawal ......... 2,134,048 -- 2,134,048
---------- ---------- ----------
$2,946,721 $3,461,715 $6,408,436
========== ========== ==========
</TABLE>
126
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
6. POLICY AND CONTRACT ATTRIBUTES--(CONTINUED)
A reconciliation of the amounts transferred to and from the separate
accounts is presented below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------
1999 1998 1997
--------------- ------------- -------------
<S> <C> <C> <C>
Transfers as reported in the summary of
operations of the separate accounts
annual statement:
Transfers to separate accounts .................... $ 1,207,636 $ 851,826 $ 795,663
Transfers from separate accounts .................. (1,290,346) (679,796) (767,049)
------------ ---------- ----------
Net transfers to (from) separate accounts ......... (82,710) 172,030 28,614
Reconciling adjustments -- HUB level fees
not paid to AUSA general account ................. 3,240 1,317 13,756
Fees paid to external fund manager ................ -- -- 120
Assumption of liabilities via merger of
FPLH ............................................. -- 1,088 --
------------ ---------- ----------
Net adjustments ................................... 3,240 2,405 13,876
------------ ---------- ----------
Net transfers as reported in the summary of
operations of the life, accident and health
annual statement ................................. $ (79,470) $ 174,435 $ 42,490
============ ========== ==========
</TABLE>
127
<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, 1999 and 1998, 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, 1999
Life and annuity:
Ordinary direct first year business ......... $ 400 $ 276 $ 124
Ordinary direct renewal business ............ 6,454 1,080 5,374
Group life direct business .................. 1,030 427 603
Credit life ................................. 42 -- 42
Reinsurance ceded ........................... (15) -- (15)
------ ------ ------
7,911 1,783 6,128
Accident and health:
Direct ...................................... 484 -- 484
Reinsurance ceded ........................... (40) -- (40)
------ ------ ------
Total accident and health .................... 444 -- 444
------ ------ ------
$8,355 $1,783 $6,572
====== ====== ======
DECEMBER 31, 1998
Life and annuity:
Ordinary direct first year business ......... $ 351 $ 339 $ 12
Ordinary direct renewal business ............ 6,760 1,087 5,673
Group life direct business .................. 851 482 369
Credit life ................................. 37 -- 37
Reinsurance ceded ........................... (6) -- (6)
------- ------ -------
7,993 1,908 6,085
Accident and health:
Direct ...................................... 363 -- 363
Reinsurance ceded ........................... (40) -- (40)
------ ------ ------
Total accident and health .................... 323 -- 323
------ ------ ------
$8,316 $1,908 $6,408
====== ====== ======
</TABLE>
At December 31, 1999 and 1998, the Company had insurance in force
aggregating $425,151 and $474,471, 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 $1,250 and $1,348 to cover these deficiencies at
December 31, 1999 and 1998, respectively.
128
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
7. DIVIDEND RESTRICTIONS
The Company is subject to certain limitations relative to statutory
surplus, imposed by the State of New York, on the payment of dividends to its
parent company.
The Company paid dividends to its parent of $8,000 in 1998. The Company is
not entitled to pay out any dividends in 1999 without prior approval.
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
SFAS 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's allocation of pension expense for each of
the years ended December 31, 1999, 1998 and 1997 was negligible. 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 $10, $9 and $12 of expense for
the years ended December 31, 1999, 1998 and 1997, respectively.
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's allocation of postretirement expenses was negligible for each of the
years ended December 31, 1999, 1998 and 1997.
129
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
9. RELATED PARTY TRANSACTIONS
In accordance with an agreement between AEGON and the Company, AEGON will
ensure the maintenance of certain minimum tangible net worth, operating
leverage and liquidity levels of the Company, as defined in the agreement,
through the contribution of additional capital by the Company's parent as
needed.
The Company shares certain officers, employees and general expenses with
affiliated companies.
The Company receives data processing, investment advisory and management,
marketing and administration services from certain affiliates. During 1999,
1998 and 1997, the Company paid $6,940, $5,650 and $7,330, 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 5.7% at December 31, 1999. During 1999,
1998 and 1997, the Company paid net interest of $485, $232 and $142,
respectively, to affiliates.
10. COMMITMENTS AND CONTINGENCIES
The Company has issued Trust (synthetic) GIC contracts to plan sponsors
totaling $186,478 and $153,146 at December 31, 1999 and 1998, respectively,
pursuant to terms under which the plan sponsor retains ownership of the assets
related to these contracts. The Company guarantees benefit responsiveness in
the event that plan benefit requests and other contractual commitments exceed
plan cash flows. The plan sponsor agrees to reimburse the Company for such
benefit payments with interest, either at a fixed or floating rate, from future
plan and asset cash flows. In return for this guarantee, the Company receives a
premium which varies based on such elements as benefit responsive exposure and
contract size. The Company underwrites the plans for the possibility of having
to make benefit payments and also must agree to the investment guidelines to
ensure appropriate credit quality and cash flow matching. Funding requirements
to date have been minimal and management does not anticipate any future
material funding requirements that would have a material effect on reported
financial results. The assets relating to such contracts are not recognized in
the Company's statutory-basis financial statements.
The Company is a party to legal proceedings incidental to its business.
Although such litigation sometimes includes substantial demands for
compensatory and punitive damages, in addition to contract liability, it is
management's opinion, after consultation with counsel and a review of available
facts, that damages arising from such demands will not be material to the
Company's financial position.
130
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
10. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
The Company is subject to insurance guaranty laws in the states in which
it writes business. These laws provide for assessments against insurance
companies for the benefit of policyholders and claimants in the event of
insolvency of other insurance companies. In accordance with the purchase
agreement, assessments related to periods prior to the purchase of the Company
will be paid by Dreyfus and assessments attributable to business reinsured from
MONY for premiums received prior to the date of the transaction will be paid by
MONY (see Note 1). The Company will be responsible for assessments, if any,
attributable to premium income after the date of purchase. Assessments are
charged to operations when received by the Company except where right of offset
against other taxes paid is allowed by law; amounts available for future
offsets are recorded as an asset on the Company's balance sheet. Potential
future obligations for unknown insolvencies are not determinable by the
Company. The future obligation has been based on the most recent information
available from the National Organization of Life and Health Insurance Guaranty
Associations. The guaranty fund expense was $46, $126 and $586 for the years
ended December 31, 1999, 1998 and 1997, respectively.
131
<PAGE>
PART II.
OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
---------------------------
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that Section.
REPRESENTATION PURSUANT TO SECTION 26(e) (2) (A)
------------------------------------------------
AUSA Life Insurance Company, Inc. ("AUSA Life") hereby represents that
the fees and charges deducted under the Contracts, in the aggregate, are
reasonable in relation to the services rendered, the expenses expected to be
incurred, and the risks assumed by AUSA Life.
STATEMENT WITH RESPECT TO INDEMNIFICATION
-----------------------------------------
Provisions exist under the New York Code and the Amended and Restated
By-Laws of AUSA Life whereby AUSA Life may indemnify certain persons against
certain payments incurred by such persons. The following excerpts contain the
substance of these provisions.
NEW YORK BUSINESS CORPORATION LAW
SECTION 722. AUTHORIZATION FOR INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) A corporation may indemnify any person made, or threatened to be made, a
party to an action or proceeding (other than one by or in the right of the
corporation to procure a judgment in its favor), whether civil or criminal,
including an action by or in the right of any other corporation of any type or
kind, domestic or foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise, which any director or officer of the
corporation served in any capacity at the request of the corporation, by reason
of the fact that he, his testator or intestate, was a director or officer of the
corporation, or served such other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise in any capacity, against
judgments, fines, amounts paid in settlement and reasonable expenses, including
attorneys' fees actually and necessarily incurred as a result of such action or
proceeding, or any appeal therein, if such director or officer acted, in good
faith, for a purpose which he reasonably believed to be in, or, in the case of
service for any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise, not opposed to, the best interests of
the corporation and, in criminal actions or proceedings, in addition, had no
reasonable cause to believe that his conduct was unlawful.
(b) The termination of any such civil or criminal action or proceeding by
judgment, settlement, conviction or upon a plea of nolo contendere, or its
equivalent, shall not in itself create a presumption that any such director or
officer did not act, in good faith, for a purpose which he reasonably believed
to be in, or, in the case of service for any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise,
not opposed to, the best interests of the corporation or that he had reasonable
cause to believe that his conduct was unlawful.
(c) A corporation may indemnify any person made, or threatened to be made, a
party to an action by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that he, this testator or intestate, is or
was a director or officer of the corporation, or is or was serving at the
request of the corporation as a director or officer of any other corporation of
any type or kind, domestic or foreign, of any partnership, joint venture, trust,
employee benefit plan or other enterprise, against amounts paid in settlement
and reasonable expenses, including attorneys' fees, actually and necessarily
incurred by him
II-1
<PAGE>
in connection with the defense or settlement of such action, or in connection
with an appeal therein, if such director or officer acted in good faith, for a
purpose which he reasonably believed to be in, or, in the case of service for
any other corporation or any partnership, joint venture, trust, employee benefit
plan or other enterprise, not opposed to, the best interests of the corporation,
except that no indemnification under this paragraph shall be made in respect of
(1) a threatened action, or a pending action which is settled or otherwise
disposed of, or (2) any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation, unless and only to the
extent that the court in which the action was brought, or, if no action was
brought, any court of competent jurisdiction, determines upon application that,
in view of all the circumstances of the case, the person is fairly and
reasonably entitled to indemnify for such portion of the settlement amount and
expenses as the court deems proper.
(d) For the purpose of this section, a corporation shall be deemed to have
requested a person to serve an employee benefit plan where the performance by
such person of his duties to the corporation also imposes duties on, or
otherwise involves services by, such person to the plan or participants or
beneficiaries of the plan; excise taxes assessed on a person with respect to an
employee benefit plan pursuant to applicable law shall be considered fines; and
action taken or omitted by a person with respect to an employee benefit plan in
the performance of such person's duties for a purpose reasonably believed by
such person to be in the interest of the participants and beneficiaries of the
plan shall be deemed to be for a purpose which is not opposed to the best
interests of the corporation.
Amended and Restated Bylaws
---------------------------
ARTICLE II
----------
DIRECTORS AND THEIR MEETINGS
SEC.7. Any person made a party to any action, suit, or proceeding by
reason of the fact that he, his testator or intestate, is or was a director,
officer, or employee of the Company or of any Company which he served as such at
the request of the Company, shall be indemnified by the Company against the
reasonable expenses, including attorney's fees, actually and necessarily
incurred by him in connection with the defense of such action, suit or
proceeding, or in connection with appeal therein, except in relation to matters
as to which it shall be adjudged in such action, suit or proceeding that such
officer, Director, or employee is liable for negligence or misconduct in the
performance of his duties. The Company may also reimburse to any Director,
officer, or employee the reasonable costs of settlement of any such action,
suit, or proceeding, if it shall be found by a majority of a committee composed
of the Directors not involved in the matter of controversy (whether or not a
quorum) that it was in the interest of the Company that such settlement be made
and that such Director, officer or employee was not guilty of negligence or
misconduct. The amount to be paid, in each instance, pursuant to action of the
Board of Directors, and the stockholders shall be given notice thereof in
accordance with applicable provisions of law. Such right of indemnification
shall not be deemed exclusive of any other rights to which such Director,
officer, or employee may be entitled.
RULE 484 UNDERTAKING
--------------------
Insofar as indemnification for liability arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant 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
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant 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.
II-2
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The facing sheet
The Prospectus, consisting of 135 pages
The undertaking to file reports
Representation pursuant to Section 26(e)(2)(A)
Statement with respect to indemnification
Rule 484 undertaking
The signatures
Written consent of the following persons:
(a) Sutherland Asbill & Brennan LLP
(b) Ernst & Young LLP
(c) PricewaterhouseCoopers LLP
The following exhibits:
1. The following exhibits correspond to those required by paragraph A to the
instructions as to exhibits in Form N-8B-2:
A. (1) Resolution of the Board of Directors of AUSA Life establishing
the Series Account (1)
(2) Not Applicable
(3) Distribution of Policies:
(a) Form of Participation Agreement Among AUSA Life Insurance
Company, Inc., Western Reserve Life Assurance Co. of Ohio and
WRL Series Fund, Inc. (3)
(b) Master Service and Distribution Compliance Agreement (6)
(c) Amendment to Master Service and Distribution Compliance
Agreement (5)
(d) Form of Broker/Dealer Supervisory and Service Agreement (5)
(e) Principal Underwriting Agreement (5)
(f) First Amendment to Principal Underwriting Agreement (5)
(g) See Exhibit 1.A.(3)(b)(ii)
(4) Not Applicable
(5) (a) Specimen Flexible Premium Variable Life Insurance Policy (2)
(b) Children's Insurance Rider (2)
(c) Disability Waiver Rider (2)
(d) Accidental Death Benefit Rider (2)
(e) Primary Insured Rider (2)
(f) Other Insured Rider (2)
(g) Terminal Illness Accelerated Death Benefit Rider (2)
(h) Endorsement - Asset Rebalancing (2)
(I) Endorsement - Dollar Cost Averaging (2)
(6) (a) Certificate of Incorporation of AUSA Life (1)
(b) Amended and Restated By-Laws of AUSA Life (1)
(7) Not Applicable
(8) Not Applicable
(9) Not Applicable
(10) Application for Flexible Premium Variable Life Insurance
Policy (1)
(11) Memorandum describing issuance, transfer and redemption
procedures (4)
2. See Exhibit 1.A.
3. Opinion of Counsel as to the legality of the securities being registered
(2)
II-3
<PAGE>
4. No financial statement will be omitted from the Prospectus pursuant to
Instruction 1(b) or (c) of Part I
5. Not Applicable
6. Opinion and consent of Alan Yaeger as to actuarial matters pertaining to
the securities being registered (4)
7. Consent of Robert F. Colby, Esq. (4)
8. Consent of Sutherland Asbill & Brennan LLP
9. Consent of Ernst & Young LLP
10. Consent of PricewaterhouseCoopers LLP
11. Powers of Attorney (1)
12. Powers of Attorney for:
Tom A. Schlossberg
Eric B. Goodman
Robert F. Colby
- ----------------------------------------
(1) This exhibit was previously filed on Pre-Effective Amendment No. 2 to Form
S-6 Registration Statement dated October 20, 1997 (File No. 33-86696) and
is incorporated herein by reference.
(2) This exhibit was previously filed on initial Form S-6 Registration
Statement dated October 21, 1997 (File No. 333-38343) and is incorporated
herein by reference.
(3) This exhibit was previously filed on Pre-Effective Amendment No. 3 to Form
S-6 Registration Statement dated June 23, 1998 (File No. 33-86696) and is
incorporated herein by reference.
(4) This exhibit was previously filed on Pre-Effective Amendment No. 1 to Form
S-6 Registration Statement dated June 24, 1998 (File No. 333-38343) and is
incorporated herein by reference.
(5) This exhibit was previously filed on Post-Effective Amendment No. 4 to Form
S-6 Registration Statement dated April 21, 1999 (File No. 333-23359) and is
incorporated herein by reference.
(6) This exhibit was previously filed on Post-Effective Amendment No. 11 to
Form N-4 Registration Statement dated April 20, 1998 (File No. 33-49556)
and is incorporated herein by reference.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, AUSA Series Life Account, certifies that it meets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment No. 2 to the Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, and its seal to be hereunto affixed and
attested, all in the City of St. Petersburg, County of Pinellas, Florida on the
20th day of April, 2000.
(SEAL) AUSA SERIES LIFE ACCOUNT
------------------------
Registrant
AUSA LIFE INSURANCE COMPANY, INC.
---------------------------------
Depositor
ATTEST:
/s/ Priscilla I. Hechler By: /s/ Tom A. Schlossberg
- ------------------------------ -----------------------
Priscilla I. Hechler Tom A. Schlossberg
Assistant Vice President and Chairman of the Board and
Assistant Secretary President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 2 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
Signature and Title DATE
------------------- ----
/s/ Tom A. Schlossberg April 20, 2000
- -------------------------------
Tom A. Schlossberg, Chairman of the
Board and President
/s/ William Brown, Jr. April 20, 2000
- ----------------------------------
William Brown, Jr., Director*
/s/ Patrick S. Baird April 20, 2000
- ------------------------------------
Patrick S. Baird, Vice President
and Chief Financial Officer*
/s/ William L. Busler April 20, 2000
- -----------------------------------
William L. Busler, Director*
<PAGE>
/s/ Jack R. Dykhouse April 20, 2000
- ----------------------------------
Jack R. Dykhouse, Director*
/s/ Steven E. Frushtick April 20, 2000
- ----------------------------------
Steven E. Frushtick, Director*
/s/ Carl T. Hanson April 20, 2000
- -----------------------------------
Carl T. Hanson, Director*
/s/ B. Larry Jenkins April 20, 2000
- ------------------------------------
B. Larry Jenkins, Director*
/s/ Peter P. Post April 20, 2000
- -------------------------------------
Peter P. Post, Director*
/s/ Cor H. Verhagen April 20, 2000
- ----------------------------------
Cor H. Verhagen, Director*
/s/ E. Kirby Warren April 20, 2000
- ------------------------------------
E. Kirby Warren, Director*
/s/ Colette F. Vargas April 20, 2000
- -----------------------------------
Colette F. Vargas, Director
and Chief Actuary*
/s/ Vera F. Mihaic April 20, 2000
- --------------------------------
Vera F. Mihaic, Director
and Vice President*
/s/ Eric B. Goodman April 20, 2000
- ------------------------------------------
Eric B. Goodman, Director
/s/ Robert F. Colby April 20, 2000
- -------------------------------------
Robert F. Colby, Director, Vice
President and Assistant Secretary
/s/ Brenda Clancy April 20, 2000
- -------------------------------------
Brenda Clancy, Treasurer*
* /s/ Priscilla I. Hechler
-------------------------------
Signed by Priscilla I. Hechler
as Attorney-in-Fact
<PAGE>
Exhibit Index
Exhibit Description
No. of Exhibit
--- ----------
8. Consent of Sutherland Asbill & Brennan LLP
9. Consent of Ernst & Young LLP
10. Consent of PricewaterhouseCoopers LLP
12. Powers of Attorney for:
Tom A. Schlossberg
Eric B. Goodman
Robert F. Colby
EXHIBIT 8
Consent of Sutherland Asbill & Brennan LLP
<PAGE>
S.A.B. LETTERHEAD
April 17, 2000
Board of Directors
AUSA Life Insurance Company, Inc.
AUSA Series Life Account
4 Manhattanville Road
Purchase, New York 10577
RE: AUSA Series Life Account
AUSA Financial Freedom Builder
File No. 333-38343
Gentlemen:
We hereby consent to the use of our name under the caption "Legal
Matters" in the Prospectus for the AUSA Financial Freedom Builder contained in
Post-Effective Amendment No. 2 to the Registration Statement on Form S-6 (File
No. 333-38343) of the AUSA Series Life Account filed by AUSA Life Insurance
Company, Inc. with the Securities and Exchange Commission. In giving this
consent, we do not admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933.
Very truly yours,
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/ Stephen E. Roth
Stephen E. Roth
EXHIBIT 9
Consent of Ernst & Young LLP
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 18, 2000, with respect to the statutory-basis
financial statements of AUSA Life Insurance Company, Inc. included in
Post-Effective Amendment No. 2 to the Registration Statement (Form S-6 No.
333-38343) and related Prospectus of AUSA Series Life Account.
ERNST & YOUNG LLP
Des Moines, Iowa
April 17, 2000
EXHIBIT 10
Consent of PricewaterhouseCoopers LLP
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-6 of our
report dated February 16, 2000, relating to the financial statements and
financial highlights of the sub-accounts constituting the AUSA Series Life
Account, which appear in such Registration Statement. We also consent to the
reference to us under the heading "Experts" in such Registration Statement.
PRICEWATERHOUSECOOPERS LLP
Tampa, Florida
April 17, 2000
EXHIBIT 12
Powers of Attorney for
Tom A. Schlossberg
Eric B. Goodman
Robert F. Colby
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby makes,
constitutes and appoints Thomas E. Pierpan, Priscilla I. Hechler and Kimberly
Scouller and each of them, severally, his true and lawful attorney-in-fact and
agent, in his name, place and stead and on his behalf (a) to sign and cause to
be filed registration statements of AUSA Series Life Account under the
Securities Act of 1933 and under the Investment Company Act of 1940, as amended,
and any and all amendments, consents and exhibits thereto; (b) to withdraw such
statements or any amendments or exhibits and make requests for acceleration in
connection therewith; (c) to take all other action of whatever kind or nature in
connection with such registration statements which said attorneys-in-fact may
deem advisable; and (d) to make, file, execute, amend and withdraw documents of
every kind, and to take other action of whatever kind they may elect, for the
purpose of complying with the laws of any state relating to the sale of
securities of the AUSA Series Life Account, hereby ratifying and confirming all
actions of any of said attorneys-in-fact and agents hereunder. Said
attorneys-in-fact or agents may act jointly or severally, and the action of one
shall bind the undersigned as fully as if two or more had acted together.
/s/ Tom A. Schlossberg
-----------------------------------
Tom A. Schlossberg
Chairman of the Board and President
Date: 4/20/2000
--------------------
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby makes,
constitutes and appoints Thomas E. Pierpan, Priscilla I. Hechler and Kimberly
Scouller and each of them, severally, his true and lawful attorney-in-fact and
agent, in his name, place and stead and on his behalf (a) to sign and cause to
be filed registration statements of AUSA Series Life Account under the
Securities Act of 1933 and under the Investment Company Act of 1940, as amended,
and any and all amendments, consents and exhibits thereto; (b) to withdraw such
statements or any amendments or exhibits and make requests for acceleration in
connection therewith; (c) to take all other action of whatever kind or nature in
connection with such registration statements which said attorneys-in-fact may
deem advisable; and (d) to make, file, execute, amend and withdraw documents of
every kind, and to take other action of whatever kind they may elect, for the
purpose of complying with the laws of any state relating to the sale of
securities of the AUSA Series Life Account, hereby ratifying and confirming all
actions of any of said attorneys-in-fact and agents hereunder. Said
attorneys-in-fact or agents may act jointly or severally, and the action of one
shall bind the undersigned as fully as if two or more had acted together.
/s/ Eric B. Goodman
---------------------------
E. Goodman
Director
Date: 4/20/2000
--------------------
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby makes,
constitutes and appoints Thomas E. Pierpan, Priscilla I. Hechler and Kimberly
Scouller and each of them, severally, his true and lawful attorney-in-fact and
agent, in his name, place and stead and on his behalf (a) to sign and cause to
be filed registration statements of AUSA Series Life Account under the
Securities Act of 1933 and under the Investment Company Act of 1940, as amended,
and any and all amendments, consents and exhibits thereto; (b) to withdraw such
statements or any amendments or exhibits and make requests for acceleration in
connection therewith; (c) to take all other action of whatever kind or nature in
connection with such registration statements which said attorneys-in-fact may
deem advisable; and (d) to make, file, execute, amend and withdraw documents of
every kind, and to take other action of whatever kind they may elect, for the
purpose of complying with the laws of any state relating to the sale of
securities of the AUSA Series Life Account, hereby ratifying and confirming all
actions of any of said attorneys-in-fact and agents hereunder. Said
attorneys-in-fact or agents may act jointly or severally, and the action of one
shall bind the undersigned as fully as if two or more had acted together.
/s/ Robert F. Colby
----------------------------
Robert F. Colby
Director, Vice President and Assistant
Secretary
Date: 4/20/2000
--------------------
