<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 1, 1998
REGISTRATION NO. 333-____
& 811-9062
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ( )
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. ( )
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 5 (X)
AUSA LIFE INSURANCE COMPANY, INC.
SEPARATE ACCOUNT C
(Exact Name of Registrant)
Ausa Life Insurance Company, Inc.
(Formerly First Providian Life and Health Insurance Company)
(Name of Depositor)
666 Fifth Avenue
New York, New York 10103
(Address of Depositor's Principal Executive Office)
Depositor's Telephone Number: (212) 246-5234
Gregory E. Miller-Breetz, Esq.
Ausa Life Insurance Company, Inc.
400 West Market Street
P.O. Box 32830
Louisville, Kentucky 40232
(Name and Address of Agent for Service)
Copies to:
Michael Berenson, Esquire
James Bernstein, Esquire
Jorden Burt Boros Cicchetti Berenson & Johnson LLP
1025 Thomas Jefferson Street, N.W.
Suite 400 East
Washington, D.C. 20007-0805
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of this Registration Statement.
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b) of Rule 485.
On _____________, pursuant to paragraph (b)(1)(v) of Rule 485.
60 days after filing pursuant to paragraph (a)(1) of Rule 485.
On _____________, pursuant to paragraph (a)(1) of Rule 485.
75 days after filing pursuant to paragraph (a)(2) of Rule 485.
On _____________, 1995 pursuant to paragraph (a)(2) of Rule 485.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a)
shall determine.
<PAGE>
PURSUANT TO RULE 481
SHOWING LOCATION IN PART A (PROSPECTUS) AND PART B
(STATEMENT OF ADDITIONAL INFORMATION) OF REGISTRATION
STATEMENT OF INFORMATION REQUIRED BY FORM N-4
PART A
<TABLE>
<CAPTION>
ITEM OF
- -------
FORM N-4 PROSPECTUS CAPTION
- -------- ------------------
<S> <C>
1. Cover Page............................. Cover Page
2. Definitions............................ GLOSSARY
3. Synopsis............................... HIGHLIGHTS; FEE TABLE;
Performance Measures
4. Condensed Financial Information........ Condensed Financial Information
5. General Description of Registrant,
Depositor, and Portfolio Companies..... AUSA Life
Insurance Company, Inc.;
AUSA Life
Insurance Company, Inc.
Separate Account C; The
Portfolios; Voting Rights
6. Deductions............................. Charges and Deductions;
FEDERAL TAX CONSIDERATIONS;
FEE TABLE
7. General Description of Variable Annuity CONTRACT FEATURES;
Contracts.............................. Distribution-at-Death Rules;
Voting Rights; Allocation of
Purchase Payments; Exchanges
Among the Portfolios;
Additions, Deletions, or
Substitutions of Investments
8. Annuity Period......................... Annuity Payment Options
9. Death Benefit.......................... Death of Annuitant Prior to
Annuity Date
10. Purchases and Contract Value........... Contract Application and
Purchase Payments; Accumulated
Value
11. Redemptions............................ Full and Partial Withdrawals;
Annuity Payment Options; Right
to Cancel Period
12. Taxes.................................. FEDERAL TAX CONSIDERATIONS
13. Legal Proceedings...................... Part B: Legal Proceedings
14. Table of Contents of the Statement
of Additional Information.............. Table of Contents of the
AUSA Marquee Variable Annuity
Statement of Additional
Information
</TABLE>
<PAGE>
PART B
<TABLE>
<CAPTION>
ITEM OF STATEMENT OF ADDITIONAL
- ------- -----------------------
FORM N-4 INFORMATION CAPTION
- -------- -------------------
<S> <C>
15. Cover Page............................. Cover Page
16. Table of Contents...................... Table of Contents
17. General Information and History........ AUSA LIFE
18. Services............................... Part A: Auditors; Part B:
SAFEKEEPING OF ACCOUNT
ASSETS; DISTRIBUTION OF THE
CONTRACTS
19. Purchase of Securities Being DISTRIBUTION OF THE
Offered................................ CONTRACTS; Exchanges
20. Underwriters........................... DISTRIBUTION OF THE
CONTRACTS
21. Calculation of Performance Data........ PERFORMANCE INFORMATION
22. Annuity Payments....................... Computations of Annuity Income
Payments
23. Financial Statements................... FINANCIAL STATEMENTS
</TABLE>
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
SEPARATE ACCOUNT C
PROSPECTUS
FOR THE
AUSA MARQUEE VARIABLE ANNUITY
OFFERED BY
AUSA LIFE INSURANCE COMPANY, INC.
(A NEW YORK STOCK COMPANY)
ADMINISTRATIVE OFFICES
4333 EDGEWOOD ROAD, N.E.
CEDAR RAPIDS, IOWA 52499
The AUSA Marquee variable annuity contract (the "Contract"), offered through
AUSA Life Insurance Company, Inc. ("AUSA Life", "us", "we" or "our"), provides
a vehicle for investing on a tax-deferred basis in 12 investment company
Portfolios. The Contract is a group variable annuity contract and is intended
for retirement savings or other long-term investment purposes.
The minimum initial Purchase Payment for Non-Qualified Contracts is $5,000.
The minimum initial Purchase Payment for Qualified Contracts is $2,000 (or $50
monthly by payroll deduction). The Contract is a flexible-premium deferred
variable annuity that provides for a Right to Cancel Period of 10 days (20
days for replacement) plus a 5 day grace period to allow for mail delivery,
during which you may cancel your investment in the Contract.
You may allocate your Net Purchase Payments for the Contract among 12
Subaccounts of AUSA Life's Separate Account C. Assets of each Subaccount are
invested in one of the following Portfolios (which are contained within six
open-end, diversified investment companies):
. Fidelity VIP Money Market Portfolio
. T. Rowe Price Equity Income Portfolio
. Fidelity VIP Equity-Income Portfolio
. T. Rowe Price New America Growth Portfolio
. Fidelity VIP Growth Portfolio . T. Rowe Price International Stock
Portfolio
. Fidelity VIP II Asset Manager Portfolio
. OCC Accumulation Trust Managed Portfolio
. Dreyfus Growth and Income Portfolio
. Dreyfus Quality Bond Portfolio. OCC Accumulation Trust Small Cap Portfolio
. OCC Accumulation Trust U.S. Government
Income Portfolio
Your initial Net Purchase Payment(s) will, when your Contract is issued, be
invested immediately in your chosen Portfolios, unless you indicate otherwise.
The Contract's Accumulated Value varies with the investment performance of the
Portfolios you select. You bear all investment risk associated with the
Portfolios. Investment results for your Contract are not guaranteed. The
Contract offers a number of ways of withdrawing monies at any future time,
although in many instances withdrawals made prior to age 59 1/2 are subject to
a 10% penalty tax (and a portion may be subject to ordinary income taxes) and
may be subject to a surrender charge of up to 7%. If you elect an Annuity
Payment Option, Annuity Payments may be received on a fixed and/or variable
basis. You also have significant flexibility in choosing the Annuity Date on
which Annuity Payments begin.
This Prospectus sets forth the information you should know before investing in
the Contract. It must be accompanied by a current Prospectus for each Fund.
Please read the Prospectuses carefully and retain them for future reference. A
Statement of Additional Information for the Contract Prospectus, which has the
same date as this Prospectus, has also been filed with the Securities and
Exchange Commission, is incorporated herein by reference and is available free
by calling our Administrative Offices at 1-800-866-6007. The Table of Contents
of the Statement of Additional Information is included at the end of this
Prospectus.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The Contract is available only in the State of New York.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION WHERE IT
WOULD BE UNLAWFUL TO MAKE AN OFFERING LIKE THIS. WE HAVE NOT AUTHORIZED ANYONE
TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS ABOUT THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS. YOU SHOULD NOT RELY ON ANY OTHER
INFORMATION OR REPRESENTATIONS.
The date of this Prospectus is October 1, 1998.
ARC0016N8Y 9-98
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
GLOSSARY .............................................................. 2
HIGHLIGHTS ............................................................ 5
FEE TABLE ............................................................. 7
Condensed Financial Information ....................................... 9
Financial Statements .................................................. 9
Performance Measures .................................................. 9
Additional Performance Measures ....................................... 10
Yield and Effective Yield ............................................. 11
AUSA Life and the Separate Account .................................... 11
Variable Insurance Products Fund and Variable Insurance
Products Fund II ..................................................... 12
Dreyfus Variable Investment Fund ...................................... 12
T. Rowe Price Equity Series, Inc. ..................................... 12
T. Rowe Price International Series, Inc. .............................. 13
OCC Accumulation Trust ................................................ 13
The Portfolios ........................................................ 13
CONTRACT FEATURES ..................................................... 15
Contract Application and Purchase Payments .......................... 15
Purchasing by Wire .................................................. 15
Right to Cancel Period .............................................. 15
Allocation of Purchase Payments ..................................... 16
Exchanges Among the Portfolios ...................................... 16
Dollar Cost Averaging Option ........................................ 16
Accumulated Value ................................................... 16
Charges and Deductions .............................................. 16
Minimum Balance Requirement ......................................... 18
DISTRIBUTIONS UNDER THE CONTRACT ...................................... 18
Full and Partial Withdrawals ........................................ 18
Lump Sum Payment Option ............................................. 19
Systematic Withdrawal Option ........................................ 19
Annuity Date ........................................................ 19
Annuity Payment Options ............................................. 20
Death Benefit ....................................................... 21
Deferment of Payment ................................................ 22
FEDERAL TAX CONSIDERATIONS ............................................ 23
GENERAL INFORMATION ................................................... 27
</TABLE>
GLOSSARY
Accumulation Unit - A measure of your ownership interest in the Contract prior
to the Annuity Date.
Accumulation Unit Value - The value of each Accumulation Unit which is
calculated each Valuation Period.
Accumulated Value - The value of all amounts accumulated under the Contract
prior to the Annuity Date.
Adjusted Death Benefit - The sum of all Net Purchase Payments made during the
first six Contract Years, less any partial withdrawals taken. During each
subsequent six-year period, the Adjusted Death Benefit will be the Death
Benefit on the last day of the previous six-year period plus any Net Purchase
Payments made, less any partial withdrawals taken during the current six-year
period. After the Annuitant attains age 75, the Adjusted Death Benefit will
remain equal to the Death Benefit on the last day of the six-year period
before age 75 occurs plus any Net Purchase Payments subsequently made, less
any partial withdrawals subsequently taken.
2
<PAGE>
Annual Contract Fee - The $30 annual fee charged by AUSA Life to cover the
cost of administering each Contract. The Annual Contract Fee will be deducted
on each Contract Anniversary and upon surrender, on a pro rata basis, from
each Subaccount.
Annuitant - The person whose life is used to determine the duration of any
Annuity Payments and upon whose death, prior to the Annuity Date, benefits
under the Contract are paid.
Annuitant's Beneficiary - The person(s) to whom any benefits are due upon the
Annuitant's death prior to the Annuity Date.
Annuity Date - The date on which Annuity Payments begin. The Annuity Date is
always the first day of the month you specify.
Annuity Payment - One of a series of payments made under an Annuity Payment
Option.
Annuity Payment Option - One of several ways in which withdrawals from the
Contract may be made. Under a Fixed Annuity Option (see "Annuity Payment
Options," page 20), the dollar amount of each Annuity Payment does not change
over time. Under a Variable Annuity Option (see "Annuity Payment Options,"
page 20), the dollar amount of each Annuity Payment may change over time,
depending upon the investment experience of the Portfolio or Portfolios you
choose. Annuity Payments are based on the Contract's Accumulated Value as of
10 Business Days prior to the Annuity Date.
Annuity Unit - Unit of measure used to calculate Variable Annuity Payments
(see "Annuity Payment Options," page 20).
Annuity Unit Value - The value of each Annuity Unit which is calculated each
Valuation Period.
AUSA Life ("we", "us", "our") - AUSA Life Insurance Company, Inc., a New York
stock company.
Business Day - A day when the New York Stock Exchange is open for trading.
Code - The Internal Revenue Code of 1986, as amended.
Contract - The group flexible premium variable annuity contract described in
this Prospectus, participation in which may be evidenced by a certificate
issued to the Contract Owner.
Contract Anniversary - Any anniversary of the Contract Date.
Contract Date - The date of issue of this Contract.
Contract Owner ("you", "your") - The person or persons designated as the
Contract Owner in the Contract application. The term shall also include any
person named as Joint Owner. A Joint Owner shares ownership in all respects
with the Contract Owner. Prior to the Annuity Date, the Contract Owner has the
right to assign ownership, designate beneficiaries, make permitted withdrawals
and Exchanges among Subaccounts.
Contract Year - A period of 12 months starting with the Contract Date or any
Contract Anniversary.
Death Benefit - The greater of the Contract's Accumulated Value on the date
AUSA Life receives due Proof of Death of the Annuitant or the Adjusted Death
Benefit.
Exchange - One Exchange will be deemed to occur with each voluntary transfer
from any Subaccount.
Funds - Each of (i) Variable Insurance Products Fund, (ii) Variable Insurance
Products Fund II, (iii) Dreyfus Variable Investment Fund, (iv) T. Rowe Price
Equity Series, Inc., (v) T. Rowe Price International Series, Inc. and (vi) OCC
Accumulation Trust. The Separate Account invests in the Portfolios contained
within the Funds.
General Account - The account which contains all of our assets other than
those held in our separate accounts.
Net Purchase Payment - Any Purchase Payment less the Premium Tax, if any.
3
<PAGE>
Non-Qualified Contract - Any Contract other than those described under the
Qualified Contract reference in this Glossary.
Owner's Designated Beneficiary - The person to whom ownership of this Contract
passes upon the Contract Owner's death, unless the Contract Owner was also the
Annuitant, in which case the Annuitant's Beneficiary is entitled to the Death
Benefit. (Note: this transfer of ownership to the Owner's Designated
Beneficiary will generally not be subject to probate, but will be subject to
estate and inheritance taxes. Consult with your tax and estate adviser to be
sure which rules will apply to you.)
Payee - The Contract Owner, Annuitant, Annuitant's Beneficiary, or any other
person, estate, or legal entity to whom benefits are to be paid.
Portfolio - A separate investment portfolio of the Funds. The Funds currently
offer 12 portfolios in the AUSA Marquee variable annuity: the Fidelity VIP
Money Market Portfolio, the Fidelity VIP Equity-Income Portfolio and the
Fidelity VIP Growth Portfolio of Variable Insurance Products Fund; the
Fidelity VIP II Asset Manager Portfolio of Variable Insurance Products Fund
II; the Dreyfus Growth and Income Portfolio ("Dreyfus Growth and Income") and
the Dreyfus Quality Bond Portfolio ("Dreyfus Quality Bond") of Dreyfus
Variable Investment Fund; the T. Rowe Price Equity Income Portfolio ("T. Rowe
Price Equity Income") and the T. Rowe Price New America Growth Portfolio ("T.
Rowe Price New America Growth") of T. Rowe Price Equity Series, Inc.; the T.
Rowe Price International Stock Portfolio ("T. Rowe Price International Stock")
of T. Rowe Price International Series, Inc.; and the OCC Accumulation Trust
Managed Portfolio ("OCC Accumulation Trust Managed"), the OCC Accumulation
Trust Small Cap Portfolio ("OCC Accumulation Trust Small Cap") and the OCC
Accumulation Trust U.S. Government Income Portfolio ("OCC Accumulation Trust
U.S. Government Income") of OCC Accumulation Trust (each, a "Portfolio" and
collectively, the "Portfolios"). In this Prospectus, Portfolio will also be
used to refer to the Subaccount that invests in the corresponding Portfolio.
Premium Tax - A regulatory tax that may be assessed by your state on the
Purchase Payments you make to this Contract. The amount which we must pay as
Premium Tax, if any, will be deducted from each Purchase Payment or from your
Accumulated Value as it is incurred by us.
Proof of Death - (a) A certified death certificate; (b) a certified decree of
a court of competent jurisdiction as to the finding of death; (c) a written
statement by a medical doctor who attended the deceased; or (d) any other
proof of death satisfactory to AUSA Life.
Purchase Payment - Any premium payment. The minimum initial Purchase Payment
is $5,000 for Non-Qualified Contracts and $2,000 for Qualified Contracts (or
$50 monthly by payroll deduction for Qualified Contracts); each additional
Purchase Payment must be at least $500 for Non-Qualified Contracts or $50 for
Qualified Contracts. Purchase Payments may be made at any time prior to the
Annuity Date as long as the Annuitant is living.
Qualified Contract - An annuity contract as defined under Sections 403(b),
408(b), and 408A of the Code.
Right to Cancel Period - The period during which the Contract can be canceled
and treated as void from the Contract Date.
Separate Account - That portion of AUSA Life Insurance Company, Inc. Separate
Account C dedicated to the Contract. The Separate Account consists of assets
that are segregated by AUSA Life Insurance Company, Inc. and, for Contract
Owners, invested in the Portfolios. The Separate Account is independent of the
general assets of AUSA Life.
Subaccount - That portion of the Separate Account that invests in shares of
the Funds' Portfolios. Each Subaccount will only invest in a single Portfolio.
The investment performance of each Subaccount is linked directly to the
investment performance of one of the 12 Portfolios.
Surrender Value - The Accumulated Value, less any applicable contingent
deferred sales load (i.e., surrender charge) and any Premium Taxes incurred
but not yet deducted.
Valuation Period - The relative performance of your Contract is measured by
the Accumulation Unit Value. This value is calculated each Valuation Period. A
Valuation Period is defined as the period of time between the close of
business on one Business Day and the close of business on the following
Business Day.
4
<PAGE>
HIGHLIGHTS
You can find definitions of important terms in the Glossary (page 2).
THE AUSA MARQUEE VARIABLE ANNUITY
The Contract provides a vehicle for investing on a tax-deferred basis in 12
investment company Portfolios. You may subsequently withdraw monies from the
Contract either as a lump sum or as annuity income as permitted under the
Contract. Accumulated Values and Annuity Payments depend on the investment
experience of the selected Portfolios. The investment performance of the
Portfolios is not guaranteed. Thus, you bear all investment risk for monies
invested under the Contract.
WHO SHOULD INVEST
The Contract is designed for investors seeking long term, tax-deferred
accumulation of funds, generally for retirement but also for other long-term
investment purposes. The tax-deferred feature of the Contract is most
attractive to investors in high federal and state marginal income tax
brackets. The Contract is offered as both a Qualified Contract and a Non-
Qualified Contract. Both Qualified and Non-Qualified Contracts offer tax-
deferral on increases in the Contract's value prior to withdrawal or
distribution--however, Purchase Payments made by Contract Owners of Qualified
Contracts may be excludible or deductible from gross income in the year such
payments are made, subject to certain statutory restrictions and limitations.
(See "Federal Tax Considerations," page 23.)
INVESTMENT CHOICES
Your investment in the Contract may be allocated among 12 Subaccounts of the
Separate Account. The Subaccounts in turn invest exclusively in the following
12 Portfolios offered by the Funds: Fidelity VIP Money Market, Fidelity VIP
Equity-Income, Fidelity VIP Growth, Fidelity VIP II Asset Manager, Dreyfus
Growth and Income, Dreyfus Quality Bond, T. Rowe Price Equity Income, T. Rowe
Price New America Growth, T. Rowe Price International Stock, OCC Accumulation
Trust Managed, OCC Accumulation Trust Small Cap and OCC Accumulation Trust
U.S. Government Income. The assets of each Portfolio are separate, and each
Portfolio has distinct investment objectives and policies as described in the
corresponding Fund or Portfolio Prospectus..............................Page 13
CONTRACT OWNER
The Contract Owner is the person designated as the owner of the Contract in
the Contract application. The Contract Owner may designate any person as a
Joint Owner. A Joint Owner shares ownership in all respects with the Contract
Owner. Prior to the Annuity Date, the Contract Owner has the right to assign
ownership, designate beneficiaries, and make permitted withdrawals and
Exchanges among the Subaccounts.
ANNUITANT
The Annuitant is a person whose life is used to determine the duration of any
Annuity Payments and upon whose death, prior to the Annuity Date, benefits
under the Contract are paid.
ANNUITANT'S BENEFICIARY
The Contract Owner may designate any person to receive benefits under the
Contract which are payable upon the death of the Annuitant prior to the
Annuity Date.
HOW TO INVEST
To invest in the Contract, please consult your agent, who will assist you in
completing the Contract application. You will need to select an Annuitant. The
Annuitant may not be older than age 75. The minimum initial Purchase Payment
is $5,000 for Non-Qualified Contracts, and $2,000 (or $50 monthly by payroll
deduction) for Qualified Contracts; subsequent Purchase Payments must be at
least $500 for Non-Qualified Contracts or $50 for Qualified Contracts. You may
make subsequent Purchase Payments at any time before the Contract's Annuity
Date, as long as the Annuitant specified in the Contract is living......Page 15
5
<PAGE>
ALLOCATION OF PURCHASE PAYMENTS
Your initial Net Purchase Payment(s) will, unless you indicate otherwise, be
invested in your chosen Portfolios immediately upon our receipt thereof, IN
WHICH CASE YOU WILL BEAR FULL INVESTMENT RISK FOR ANY AMOUNTS ALLOCATED TO THE
PORTFOLIOS DURING THE RIGHT TO CANCEL PERIOD. You must fill out and send us
the appropriate form or comply with other designated AUSA Life procedures if
you would like to change how subsequent Net Purchase Payments are
allocated...............................................................Page 16
RIGHT TO CANCEL PERIOD
The Contract provides for a Right to Cancel Period of 10 days (20 days for
replacement) plus a 5 day period to allow for mail delivery, during which you
may cancel your investment in the Contract. To cancel your investment, please
return your Contract to us or to the agent from whom you purchased the
Contract. When we receive the Contract, we will return the Accumulated Value
of your Purchase Payment(s) invested in the Portfolios plus any loads, fees
and/or Premium Taxes that may have been subtracted from such amount.....Page 15
EXCHANGES
You may make unlimited Exchanges among the Portfolios, provided you maintain a
minimum balance of $250, except in cases where Purchase Payments are made by
monthly payroll deduction, in each Subaccount to which you have allocated a
portion of your Accumulated Value. No fee is currently imposed for such
Exchanges; however, we reserve the right to charge a $15 fee for Exchanges in
excess of 12 per Contract Year. Exchanges must not reduce the value of any
Subaccount below $250, except in cases where Purchase Payments are made by
monthly payroll deduction, or that remaining amount will be transferred to
your other Subaccounts on a pro rata basis. (See also "Charges and
Deductions," page 16)...................................................Page 16
DEATH BENEFIT
If the Annuitant specified in your Contract dies prior to the Annuity Date,
your named Annuitant's Beneficiary will receive the Death Benefit under the
Contract. The Death Benefit is the greater of your Accumulated Value or the
Adjusted Death Benefit on the date we receive due proof of the Annuitant's
death. During the first six Contract Years, the Adjusted Death Benefit will be
the sum of all Net Purchase Payments made, less any partial withdrawals taken.
During each subsequent six-year period, the Adjusted Death Benefit will be the
Death Benefit on the last day of the previous six-year period plus any Net
Purchase Payments made, less any partial withdrawals taken during the current
six-year period. After the Annuitant attains age 75, the Adjusted Death
Benefit will remain equal to the Death Benefit on the last day of the six-year
period before age 75 occurs plus any Net Purchase Payments subsequently made,
less any partial withdrawals subsequently taken. The Annuitant's Beneficiary
may elect to receive these proceeds as a lump sum or as Annuity Payments. If
the Annuitant dies on or after the Annuity Date, any unpaid payments certain
will be paid, generally to the Annuitant's Beneficiary, in accordance with the
Contract. ..............................................................Page 21
ANNUITY PAYMENT OPTIONS
In addition to the full and partial withdrawal privileges, you may also choose
to create an income stream by requesting an annuity income from us. As the
Contract Owner, you may elect one of several Annuity Payment Options. By
electing an Annuity Payment Option, you are asking us to systematically
liquidate your annuity. We provide you with a variety of payment options. At
your discretion, payments may be either fixed or variable or both. Fixed
payouts are guaranteed for a designated period or for life (either single or
joint). Variable payments will vary depending on the performance of the
underlying Portfolio or Portfolios selected.............................Page 20
CONTRACT AND POLICYHOLDER INFORMATION
If you have questions about your Contract, please telephone our Administrative
Offices at 1-800-866-6007 between the hours of 8:00 A.M. to 5:00 P.M. Eastern
time. Please have the Contract number and the Contract Owner's name ready when
you call. As Contract Owner you will receive periodic statements confirming
any financial transactions that take place, as well as quarterly statements
and an annual statement.
6
<PAGE>
CHARGES AND DEDUCTIONS UNDER THE CONTRACT
The Contract has an annual mortality and expense risk charge of 1.25%. The
Contract has no front-end sales load and you may withdraw up to 10% of the
Accumulated Value once per year without a surrender charge. However,
additional withdrawals are subject to a surrender charge of up to 7% during
the first six Contract Years.
The Contract also includes administrative charges and policy fees which pay
for administering the Contract, and management, advisory and other fees, which
reflect the costs of the Funds..........................................Page 16
FULL AND PARTIAL WITHDRAWALS
You may withdraw all or part of the Surrender Value of the Contract before the
earlier of the Annuity Date or the Annuitant's death. Withdrawals made prior
to age 59 1/2 may be subject to a 10% penalty tax (and a portion may be
subject to ordinary income taxes).......................................Page 18
FEE TABLE
The following table illustrates all expenses (except for Premium Taxes that
may be assessed) that you would incur as an owner of a Contract (see page 16).
The purpose of this table is to assist you in understanding the various costs
and expenses that you would bear directly or indirectly as a purchaser of the
Contract. The fee table reflects all expenses for both the Separate Account
and the Funds. For a complete discussion of Contract costs and expenses, see
"Charges and Deductions," page 16.
<TABLE>
<S> <C>
CONTRACTOWNER TRANSACTION EXPENSES
Sales Load Imposed on Purchases........................................ None
Contingent Deferred Sales Load (surrender charge)...................... 7%*
Exchange Fees.......................................................... None
ANNUAL CONTRACT FEE $30
SEPARATE ACCOUNT ANNUAL EXPENSES (as a percentage of assets in the
Separate Account)
Mortality and Expense Risk Charge...................................... 1.25%
Administrative Charge.................................................. .15%
-----
Total Annual Separate Account Expenses................................. 1.40%
</TABLE>
*Up to 10% of the Accumulated Value as of the last Contract Anniversary (10%
of the initial Net Purchase Payment during the first Contract Year) can be
withdrawn once per year, or pursuant to a series of systematic withdrawals,
without a surrender charge (the "Penalty Free Amount"). Additional
withdrawals in excess of the Penalty Free Amount in the first Contract Year
are subject to a 7% charge on the portion of such withdrawal that consists
of Net Purchase Payments. The charge decreases one percentage point per
year until after the sixth Contract Year at which time there is no
surrender charge. The total surrender charges assessed will not exceed 8.5%
of the Purchase Payments under the Contract.
PORTFOLIO ANNUAL EXPENSES
Except as indicated, the figures below are based on expenses for fiscal year
1997 (as a percentage of each Portfolio's average net assets after fee waiver
and/or expense reimbursement limitation, if applicable).
<TABLE>
<CAPTION>
MANAGEMENT AND OTHER TOTAL PORTFOLIO
ADVISORY EXPENSES EXPENSES ANNUAL EXPENSES
----------------- -------- ---------------
<S> <C> <C> <C>
Fidelity VIP Money Market*.......... 0.21% 0.10% 0.31%
Fidelity VIP Equity-Income*......... 0.50% 0.08% 0.58%
Fidelity VIP Growth*................ 0.60% 0.09% 0.69%
Fidelity VIP II Asset Manager*...... 0.55% 0.10% 0.65%
Dreyfus Growth and Income**......... 0.75% 0.05% 0.80%
Dreyfus Quality Bond**.............. 0.65% 0.10% 0.75%
T. Rowe Price Equity Income......... 0.85% 0.00% 0.85%
T. Rowe Price New America Growth.... 0.85% 0.00% 0.85%
T. Rowe Price International Stock... 1.05% 0.00% 1.05%
OCC Accumulation Trust Managed***... 0.80% 0.07% 0.87%
OCC Accumulation Trust Small Cap***. 0.80% 0.17% 0.97%
OCC Accumulation Trust U.S. Govern-
ment Income***..................... 0.47% 0.46% 0.93%
</TABLE>
7
<PAGE>
*A portion of the brokerage commissions that certain funds pay was used to
reduce funds expenses. In addition, certain funds have entered into
arrangements with their custodian whereby credits realized, as a result of
uninvested cash balances, were used to reduce custodian expenses. Including
these reductions, the Total Portfolio Annual Expenses would have been 0.57%
for Equity-Income Portfolio, 0.67% for Growth Portfolio and 0.64% for Asset
Manager Portfolio.
**From time to time, the Dreyfus Growth and Income and Quality Bond
Portfolios' investment adviser in its sole discretion may waive all or part
of its fees and/or voluntarily assume certain of the Portfolios' expenses.
For a more complete description of the Portfolios' fees and expenses, see
the Dreyfus Variable Investment Fund's Prospectus.
***Total Portfolio Annual Expenses are limited by OpCap Advisors so that each
of the OCC Accumulation Trust Portfolios' annualized operating expenses
(net of any expense offsets) do not exceed 1.00% of average daily net
assets. Without such limitation and without giving effect to any expense
offsets, the Management and Advisory Expenses, Other Expenses, and Total
Annual Portfolio Expenses would have been: 0.80%, 0.07%, and 0.87%,
respectively, for the Managed Portfolio; 0.80%, 0.17%, and 0.97%,
respectively, for the Small Cap Portfolio; and 0.60%, 0.46%, and 1.06%,
respectively, for the U.S. Government Income Portfolio.
The following example illustrates the expenses that you would incur on a
$1,000 Purchase Payment over various periods, assuming (1) a 5% annual rate of
return and (2) redemption at the end of each period.
<TABLE>
<CAPTION>
10
1 YEAR 3 YEARS 5 YEARS YEARS
------ ------- ------- -------
<S> <C> <C> <C> <C>
Fidelity VIP Money Market................. $80.81 $ 99.81 $121.47 $205.85
Fidelity VIP Equity-Income................ 83.53 108.09 135.42 234.48
Fidelity VIP Growth....................... 84.63 111.44 141.06 245.90
Fidelity VIP II Asset Manager............. 84.23 110.23 139.01 241.76
Dreyfus Growth and Income................. 85.73 114.79 146.65 257.20
Dreyfus Quality Bond...................... 85.23 113.27 144.11 252.08
T. Rowe Price Equity Income............... 86.24 116.30 149.19 262.28
T. Rowe Price New America Growth.......... 86.24 116.30 149.19 262.28
T. Rowe Price International Stock......... 88.24 122.34 159.26 282.37
OCC Accumulation Trust Managed............ 86.44 116.91 150.20 264.31
OCC Accumulation Trust Small Cap.......... 87.44 119.93 155.25 274.39
OCC Accumulation Trust U.S. Government
Income................................... 87.04 118.72 153.23 270.37
</TABLE>
The following example illustrates the expenses that you would incur on a
$1,000 Purchase Payment over various periods, assuming (1) a 5% annual rate of
return and (2) you do not surrender your Contract or you annuitize at the end
of each period.
<TABLE>
<CAPTION>
3 10
1 YEAR YEARS 5 YEARS YEARS
------ ------ ------- -------
<S> <C> <C> <C> <C>
Fidelity VIP Money Market.................. $17.81 $55.14 $ 94.88 $205.85
Fidelity VIP Equity-Income................. 20.53 63.39 108.80 234.48
Fidelity VIP Growth........................ 21.63 66.74 114.41 245.90
Fidelity VIP II Asset Manager.............. 21.23 65.52 112.38 241.76
Dreyfus Growth and Income.................. 22.73 70.07 120.00 257.20
Dreyfus Quality Bond....................... 22.23 68.55 117.46 252.08
T. Rowe Price Equity Income................ 23.24 71.58 122.53 262.28
T. Rowe Price New America Growth........... 23.24 71.58 122.53 262.28
T. Rowe Price International Stock.......... 25.24 77.60 132.57 282.37
OCC Accumulation Trust Managed............. 23.44 72.18 123.54 264.31
OCC Accumulation Trust Small Cap........... 24.44 75.19 128.57 274.39
OCC Accumulation Trust U.S. Government
Income.................................... 24.04 73.99 126.56 270.37
</TABLE>
The Annual Contract Fee is reflected in these examples as a percentage equal
to the estimated total amount of fees collected during a calendar year divided
by the estimated total average net assets of the Portfolios during the same
calendar year. The fee is assumed to remain the same in each year of the above
periods. (With respect to partial year periods, if any, in the examples, the
Annual Contract Fee is pro-rated to reflect only the applicable portions of
the
8
<PAGE>
partial year period.) The Annual Contract Fee will be deducted on each
Contract Anniversary and upon surrender, on a pro rata basis, from each
Subaccount. AUSA Life may deduct Premium Taxes, if any, as incurred by AUSA
Life.
This example should not be considered a representation of past or future
expenses or performance. Actual expenses may be higher or lower than those
shown, subject to the guarantees in the Contract.
CONDENSED FINANCIAL INFORMATION
(For the period January 1, 1997 through December 31, 1997)
<TABLE>
<CAPTION>
FIDELITY VIP DREYFUS
FIDELITY VIP EQUITY- FIDELITY VIP II FIDELITY VIP GROWTH AND DREYFUS
MONEY MARKET INCOME ASSET MANAGER GROWTH INCOME QUALITY BOND
------------ ------------- --------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value
as of:
Start Date*........... 10.000 10.000 10.000 10.000 10.000 10.000
12/31/97.............. 10.271 12.117 11.561 11.964 11.546 10.769
Number of units
outstanding as of:
12/31/97.............. 0 580.740 0 220.094 608.751 147.184
<CAPTION>
OCC
OCC OCC ACCUMULATION
TRP ACCUMULATION ACCUMULATION TRUST
TRP EQUITY INTERNATIONAL TRP NEW AMERICA TRUST TRUST U.S. GOV'T
INCOME STOCK GROWTH MANAGED SMALL CAP INCOME
------------ ------------- --------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value
as of:
Start Date*........... 10.000 10.000 10.000 10.000 10.000 10.000
12/31/97.............. 12.084 10.157 12.435 11.537 12.224 10.533
Number of units
outstanding as of:
12/31/97.............. 591.446 1,446.938 171.777 594.827 212.793 149.603
</TABLE>
*Date of commencement of operations for all Subaccounts was May 1, 1997. The
information presented above reflects operations of the Subaccounts as
offered through First Providian Life and Health Insurance Company Separate
Account C, which was acquired intact by AUSA Life Insurance Company, Inc.
on October 1, 1998.
FINANCIAL STATEMENTS
The audited supplemental statutory-basis financial statements of AUSA Life and
the financial statements for the Separate Account (as well as the Independent
Auditors' Report thereon) are contained in the Statement of Additional
Information.
PERFORMANCE MEASURES
Performance for the Subaccounts of the Separate Account, including the yield
and effective yield of the Fidelity Money Market Subaccount, the yield of the
other Subaccounts, and the total return of all Subaccounts may appear in
reports and promotional literature to current or prospective Contract Owners.
On September 16, 1994, an investment company then called Quest for Value
Accumulation Trust (the "Old Trust") was effectively divided into two
investment funds, the Old Trust and the Quest for Value Accumulation Trust
(now known as the OCC Accumulation Trust) that is included in the Contract
(the "New Trust"), at which time the New Trust commenced operations. The total
net assets for each of the OCC Accumulation Trust Small Cap and OCC
Accumulation Trust Managed Portfolios immediately after the transaction were
$139,812,573 and $682,601,380, respectively, with respect to the Old Trust
and, with respect to the New Trust were $8,129,274 and $51,345,102, for the
OCC Accumulation Trust Small Cap and OCC Accumulation Trust Managed
Portfolios, respectively. For the period prior to September 16, 1994,
performance figures for each of the OCC Accumulation Trust Small Cap and OCC
Accumulation Trust Managed Portfolios reflect the performance of the
corresponding Portfolios of the Old Trust.
Please refer to the discussion below and to the Statement of Additional
Information for a more detailed description of the method used to calculate a
Portfolio's yield and total return, and a list of the indexes and other
benchmarks used in evaluating a Portfolio's performance.
9
<PAGE>
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
When advertising performance of the Subaccounts, AUSA Life will show the
Standardized Average Annual Total Return for a Subaccount which, as prescribed
by the rules of the Securities and Exchange Commission (the "SEC"), is the
effective annual compounded rate of return that would have produced the cash
redemption value over the stated period had the performance remained constant
throughout. The Standardized Average Annual Total Return assumes a single
$1,000 payment made at the beginning of the period and full redemption at the
end of the period. It reflects the deduction of all applicable sales loads
(including the contingent deferred sales load), the Annual Contract Fee and
all other Portfolio, Separate Account and Contract level charges except
Premium Taxes, if any.
ADDITIONAL PERFORMANCE MEASURES
NON-STANDARDIZED CUMULATIVE TOTAL RETURN AND NON-STANDARDIZED AVERAGE ANNUAL
TOTAL RETURN
AUSA Life may show Non-Standardized Cumulative Total Return (i.e., the
percentage change in the value of an Accumulation Unit) for one or more
Subaccounts with respect to one or more periods. AUSA Life may also show Non-
Standardized Average Annual Total Return (i.e., the average annual change in
Accumulation Unit Values) with respect to one or more periods. For one year,
the Non-Standardized Cumulative Total Return and the Non-Standardized Average
Annual Total Return are effective annual rates of return and are equal. For
periods greater than one year, the Non-Standardized Average Annual Total
Return is the effective annual compounded rate of return for the periods
stated. Because the value of an Accumulation Unit reflects the Separate
Account and Portfolio expenses (see "Fee Table"), the Non-Standardized
Cumulative Total Return and Non-Standardized Average Annual Total Return also
reflect these expenses. These returns do not reflect the Annual Contract Fee,
any sales loads or Premium Taxes (if any), which, if included, would reduce
the percentages reported.
NON-STANDARDIZED TOTAL RETURN YEAR-TO-DATE
AUSA Life may show Non-Standardized Total Return Year-to-Date as of a
particular date, or simply Total Return YTD, for one or more subaccounts with
respect to one or more non-standardized base periods commencing at the
beginning of a calendar year. Total Return YTD figures reflect the percentage
change in actual Accumulation Unit Values during the relevant period. These
returns reflect a deduction for the Separate Account and Portfolio expenses,
but do not include the Annual Contract Fee, any sales loads or Premium Taxes
(if any), which, if included, would reduce the percentages reported by AUSA
Life.
NON-STANDARDIZED ONE YEAR RETURN
AUSA Life may show Non-Standardized One Year Return for one or more
Subaccounts with respect to one or more non-standardized base periods
commencing at the beginning of a calendar year (or date of Portfolio
inception, if during the relevant year) and ending at the end of such calendar
year. One Year Return figures reflect the historical performance of the
Portfolios as if the Contract were in existence before its inception date
(which it was not). After the Contract's inception date, the figures reflect
the percentage change in actual Accumulation Unit Values during the relevant
period. These returns reflect a deduction for the Separate Account and
Portfolio expenses, but do not include the Annual Contract Fee, any sales
loads or Premium Taxes (if any), which, if included, would reduce the
percentage reported by AUSA Life.
NON-STANDARDIZED HYPOTHETICAL CUMULATIVE RETURN AND NON-STANDARDIZED
HYPOTHETICAL AVERAGE ANNUAL TOTAL RETURN
AUSA Life may show Non-Standardized Hypothetical Cumulative Return and Non-
Standardized Hypothetical Average Annual Total Return, calculated on the basis
of the historical performance of the Portfolios, and may assume the Contract
was in existence prior to its inception date (which it was not). After the
Contract's inception date, the calculations will reflect actual Accumulation
Unit Values. These returns are based on specified premium patterns which
produce the resulting Accumulated Values. These returns reflect a deduction
for the Separate Account expenses and Portfolio expenses. These returns do not
include the Annual Contract Fee, any sales loads or Premium Taxes (if any)
which, if included, would reduce the percentages reported.
10
<PAGE>
The Non-Standardized Hypothetical Cumulative Return for a Subaccount is the
effective annual rate of return that would have produced the ending
Accumulated Value of the stated one-year period.
The Non-Standardized Hypothetical Average Annual Total Return for a Subaccount
is the effective annual compounded rate of return that would have produced the
ending Accumulated Value over the stated period had the performance remained
constant throughout.
YIELD AND EFFECTIVE YIELD
AUSA Life may also show yield and effective yield figures for the Subaccount
investing in shares of the Fidelity VIP Money Market Portfolio. "Yield" refers
to the income generated by an investment in Fidelity VIP Money Market over a
seven-day period, which is then "annualized." That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly but, when annualized, the income
earned by an investment in Fidelity VIP Money Market is assumed to be
reinvested. Therefore the effective yield will be slightly higher than the
yield because of the compounding effect of this assumed reinvestment. These
figures do not reflect the Annual Contract Fee, any sales loads or Premium
Taxes (if any) which, if included, would reduce the yields reported.
From time to time a Portfolio of a Fund may advertise its yield and total
return investment performance. For each Subaccount other than Fidelity VIP
Money Market for which AUSA Life advertises yield, AUSA Life shall furnish a
yield quotation referring to the Portfolio computed in the following manner:
the net investment income per Accumulation Unit earned during a recent one
month period is divided by the Accumulation Unit Value on the last day of the
period.
Please refer to the Statement of Additional Information for a description of
the method used to calculate a Portfolio's yield and total return, and a list
of the indexes and other benchmarks used in evaluating a Portfolio's
performance.
The performance measures discussed above reflect results of the Portfolios and
are not intended to indicate or predict future performance. For more detailed
information, see the Statement of Additional Information.
Performance information for the Subaccounts may be contrasted with other
comparable variable annuity separate accounts or other investment products
surveyed by Lipper Analytical Services, a nationally recognized independent
reporting service which ranks mutual funds and other investment companies by
overall performance, investment objectives and assets. Performance may also be
tracked by other ratings services, companies, publications or persons who rank
separate accounts or other investment products on overall performance or other
criteria. Performance figures will be calculated in accordance with
standardized methods established by each reporting service.
AUSA LIFE AND THE SEPARATE ACCOUNT
AUSA LIFE INSURANCE COMPANY, INC.
AUSA Life is a stock life insurance company incorporated under the laws of the
State of New York on October 3, 1947, with administrative offices at 4333
Edgewood Road, N.E., Cedar Rapids, Iowa 52499. AUSA Life is principally
engaged in the sale of life insurance and annuity contracts, and is licensed
in the District of Columbia and all states except Hawaii. As of December 31,
1997, AUSA Life had assets of approximately $9.9 billion. AUSA Life is a
wholly-owned indirect subsidiary of AEGON USA, Inc., which conducts
substantially all of its operations through subsidiary companies engaged in
the insurance business or in providing non-insurance financial services. All
of the stock of AEGON USA, Inc. is indirectly owned by AEGON n.v. of the
Netherlands. AEGON n.v., a holding company, conducts its business through
subsidiary companies engaged primarily in the insurance business.
On October 1, 1998, First Providian Life and Health Insurance Company ("First
Providian") merged with and into AUSA Life. First Providian was a stock life
insurance company incorporated under the laws of the State of New York on
March 23, 1970. Upon the merger, First Providian's existence ceased and AUSA
Life became the surviving company under the name AUSA Life Insurance Company,
Inc. As a result of the merger, the Separate Account became a separate account
of AUSA Life. All of the Contracts issued by First Providian before the merger
were, at the time of the merger, assumed by AUSA Life. The merger did not
affect any provisions of, or rights or obligations under, those Contracts. In
approving the merger on May 26, 1998, and May 29, 1998, respectively, the
boards of directors of AUSA Life and First
11
<PAGE>
Providian determined that the merger of two financially strong stock life
insurance companies would result in an overall enhanced capital position and
reduced expenses, which, together, would be in the long-term interests of the
Contract Owners. On May 26, 1998, 100% of the stockholders of AUSA Life voted
to approve the merger, and on May 29, 1998, 100% of the stockholders of First
Providian voted to approve the merger. In addition, the New York Insurance
Department has approved the merger.
AUSA LIFE INSURANCE COMPANY, INC. SEPARATE ACCOUNT C
The Separate Account was established by First Providian Life and Health
Insurance Company, a former affiliate of AUSA Life, as a separate account
under the laws of New York on November 4, 1994. On October 1, 1998, First
Providian, together with the Separate Account, was merged into AUSA Life. The
Separate Account survived the merger intact.
The Separate Account is a unit investment trust registered with the SEC under
the Investment Company Act of 1940 (the "1940 Act"). Such registration does
not signify that the SEC supervises the management or the investment practices
or policies of the Separate Account. The Separate Account meets the definition
of a "separate account" under the federal securities laws.
The assets of the Separate Account are now owned by AUSA Life and the
obligations under the Contract are obligations of AUSA Life. These assets are
held separately from the other assets of AUSA Life and are not chargeable with
liabilities incurred in any other business operation of AUSA Life (except to
the extent that assets in the Separate Account exceed the reserves and other
liabilities of the Separate Account). Income, gains and losses incurred on the
assets in the Separate Account, whether or not realized, are credited to or
charged against the Separate Account without regard to other income, gains or
losses of AUSA Life. Therefore, the investment performance of the Separate
Account is entirely independent of the investment performance of the General
Account assets or any other separate account maintained by AUSA Life.
The Separate Account has dedicated 12 Subaccounts to the Contract, each of
which invests solely in a corresponding Portfolio of the Funds. Additional
Subaccounts may be established at the discretion of AUSA Life. The Separate
Account also includes other subaccounts which are not available under the
Contract.
VARIABLE INSURANCE PRODUCTS FUND AND VARIABLE INSURANCE PRODUCTS FUND II
Variable Insurance Products Fund and Variable Insurance Products Fund II
(each, a "Fidelity Fund" and collectively, the "Fidelity Funds") are
diversified, open-end management investment companies organized by Fidelity
Management & Research Company ("FMR") and registered under the 1940 Act. Each
Fidelity Fund consists of several investment portfolios, including the Money
Market, Equity-Income, Growth and Asset Manager Portfolios available as part
of the AUSA Marquee. FMR serves as the Fidelity Funds' investment adviser.
("VIP" and "VIP II" refer to Variable Insurance Products Fund and Variable
Insurance Products Fund II, respectively.)
DREYFUS VARIABLE INVESTMENT FUND
Dreyfus Variable Investment Fund is an open-end management investment company
organized under the 1940 Act. The Dreyfus Variable Investment Fund consists of
thirteen separate investment portfolios, including the Growth and Income and
Quality Bond Portfolios, which are the only portfolios available as part of
the AUSA Marquee. The Dreyfus Corporation serves as this Fund's investment
adviser.
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Series Inc. is a Maryland corporation organized in 1994
and is registered with the SEC under the 1940 Act as a diversified, open-end
management investment company, commonly known as a "mutual fund." Currently,
the fund consists of the Equity Income and the New America Growth Portfolios,
each of which represents a separate class of shares having different
objectives and investment policies, and both of which are available as part of
the AUSA Marquee. T. Rowe Price Associates, Inc. is responsible for the
selection and management of this Fund's portfolio investments and serves as
the Fund's investment adviser.
12
<PAGE>
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Series, Inc. is a Maryland corporation organized
in 1994 and is registered with the SEC under the 1940 Act as a diversified,
open-end management investment company, commonly known as a "mutual fund." The
corporation is a series fund and has the authority to issue other series in
addition to the International Stock Portfolio currently available as part of
the AUSA Marquee. Rowe Price-Fleming International, Inc. is responsible for
selection and management of this Fund's portfolio investments and serves as
the Fund's investment adviser.
OCC ACCUMULATION TRUST
OCC Accumulation Trust is a Massachusetts business trust and is registered
with the SEC under the 1940 Act as a diversified, open-end management
investment company. The Fund receives investment advice with respect to each
of its portfolios from OpCap Advisors, a subsidiary of Oppenheimer Capital, a
registered investment adviser. The Fund currently consists of seven series,
including the Managed, Small Cap and Government Income Portfolios available as
part of the AUSA Marquee. The OCC Accumulation Trust was formerly known as the
Quest for Value Accumulation Trust.
THE PORTFOLIOS (SEE ACCOMPANYING PROSPECTUSES)
FOR MORE INFORMATION CONCERNING THE RISKS ASSOCIATED WITH EACH PORTFOLIO'S
INVESTMENTS, PLEASE REFER TO THE APPLICABLE UNDERLYING FUND PROSPECTUS.
FIDELITY VIP MONEY MARKET PORTFOLIO
Fidelity VIP Money Market seeks to obtain as high a level of current income,
while maintaining a stable $1.00 share price, as is consistent with preserving
capital and providing liquidity. It invests only in high-quality U.S. dollar
denominated money market instruments of domestic and foreign issuers.
FIDELITY VIP EQUITY-INCOME PORTFOLIO
Fidelity VIP Equity-Income seeks reasonable income by investing primarily in
income-producing equity securities. In choosing these securities the Portfolio
will also consider the potential for capital appreciation. The Portfolio's
goal is to achieve a yield which exceeds the composite yield on the securities
comprising the Standard & Poor's Composite Index of 500 Stocks.
FIDELITY VIP GROWTH PORTFOLIO
Fidelity VIP Growth seeks to achieve capital appreciation normally through the
purchase of common stocks (although the Portfolio's investments are not
restricted to any one type of security). Capital appreciation may also be
found in other types of securities, including bonds and preferred stocks.
FIDELITY VIP II ASSET MANAGER PORTFOLIO
Fidelity VIP II Asset Manager seeks high total return with reduced risk over
the long term by allocating its assets among domestic and foreign stocks,
bonds and short-term and money market instruments.
DREYFUS GROWTH AND INCOME PORTFOLIO ("DREYFUS GROWTH AND INCOME")
Dreyfus Growth and Income is a non-diversified Portfolio, the goal of which is
long-term capital growth, current income and growth of income, consistent with
reasonable investment risk. The Portfolio invests in equity and debt
securities and money market instruments of domestic and foreign issuers.
DREYFUS QUALITY BOND PORTFOLIO ("DREYFUS QUALITY BOND")
Dreyfus Quality Bond is a diversified Portfolio, the goal of which is to
provide the maximum amount of current income to the extent consistent with the
preservation of capital and the maintenance of liquidity. The Dreyfus Quality
Bond
13
<PAGE>
Portfolio invests in debt obligations of corporations, the U.S. Government and
its agencies and instrumentalities, and major U.S. banking institutions.
T. ROWE PRICE EQUITY INCOME PORTFOLIO ("T. ROWE PRICE EQUITY INCOME")
T. Rowe Price Equity Income seeks to provide substantial dividend income as
well as long-term capital appreciation by investing primarily in dividend-
paying common stocks of established companies. In pursuing its objective, the
Portfolio emphasizes companies with favorable prospects for both increasing
dividend income and capital appreciation.
T. ROWE PRICE NEW AMERICA GROWTH PORTFOLIO ("T. ROWE PRICE NEW AMERICA
GROWTH")
T. Rowe Price New America Growth seeks long-term growth of capital through
investments primarily in the common stocks of U.S. growth companies which
operate in service industries. In pursuing its objective, this Portfolio
invests primarily in companies deriving a majority of their revenues or
operating earnings from service-related activities and in companies whose
prospects are closely tied to service industries. This Portfolio may also
invest up to 25% of its assets in growth companies outside the service sector.
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO ("T. ROWE PRICE INTERNATIONAL
STOCK")
T. Rowe Price International Stock seeks long-term growth of capital, through
investments primarily in common stocks of established, non-U.S. companies.
OCC ACCUMULATION TRUST MANAGED PORTFOLIO ("OCC ACCUMULATION TRUST MANAGED")
OCC Accumulation Trust Managed seeks to achieve growth of capital over time
through investment in a portfolio consisting of common stocks, bonds and cash
equivalents, the percentages of which will vary over time based on the
investment manager's assessments of the relative outlook for such investments.
OCC ACCUMULATION TRUST SMALL CAP PORTFOLIO ("OCC ACCUMULATION TRUST SMALL
CAP")
OCC Accumulation Trust Small Cap seeks capital appreciation through
investments in a diversified portfolio consisting primarily of equity
securities of companies with market capitalizations under $1 billion.
OCC ACCUMULATION TRUST U.S. GOVERNMENT INCOME PORTFOLIO ("OCC ACCUMULATION
TRUST U.S. GOVERNMENT INCOME")
The investment objective of OCC Accumulation Trust U.S. Government Income is
to seek a high level of current income together with the protection of
capital. This Portfolio seeks to achieve its investment objective by investing
exclusively in debt obligations, including mortgage-backed securities, issued
or guaranteed by the U.S. Government, its agencies or instrumentalities.
OTHER PORTFOLIO INFORMATION
There is no assurance that a Portfolio will achieve its stated investment
objective.
Additional information concerning the investment objectives and policies of
the Portfolios and the investment advisory services, total expenses and
charges can be found in the current prospectuses for the corresponding Funds.
THE FUNDS' OR PORTFOLIOS' PROSPECTUSES SHOULD BE READ CAREFULLY BEFORE ANY
DECISION IS MADE CONCERNING THE ALLOCATION OF NET PURCHASE PAYMENTS TO A
PORTFOLIO.
The Portfolios may be made available to registered separate accounts offering
variable annuity and variable life products of AUSA Life as well as other
insurance companies or to a person or plan, including a pension or retirement
plan receiving favorable tax treatment under the Code, that qualifies to
purchase shares of the Funds under Section 817(h) of the Code. Although we
believe it is unlikely, a material conflict could arise among the interests of
the Separate Account and one or more of the other participating separate
accounts and other qualified persons or plans. In the event of a material
conflict, the affected insurance companies agree to take any necessary steps,
including removing their separate accounts from the Funds if required by law,
to resolve the matter.
14
<PAGE>
CONTRACT FEATURES
The rights and benefits under the Contract are described below; however, the
description of the Contract contained in this Prospectus is qualified in its
entirety by the Contract itself, including any endorsements to it, a copy of
which is available from AUSA Life. AUSA Life reserves the right to make any
modification to conform the Contract to, or give the Contract Owner the
benefit of, any federal or state statute or any rule or regulation of the
United States Treasury Department.
CONTRACT APPLICATION AND PURCHASE PAYMENTS
If you wish to purchase a Contract, you should send your completed application
and your initial Purchase Payment to the address indicated on your
application, or to such other location as AUSA Life may from time to time
designate. If you wish to make personal delivery by hand or courier to AUSA
Life of your completed application and initial Purchase Payment (rather than
through the mail), you must do so at our Administrative Offices, 4333 Edgewood
Road, N.E., Cedar Rapids, Iowa 52499. Your initial Purchase Payment for a Non-
Qualified Contract must be equal to at least the $5,000 minimum investment
requirement. The initial Purchase Payment for a Qualified Contract must be
equal to at least $2,000 (or you may establish a payment schedule of $50 a
month by payroll deduction).
The Contract will be issued and the initial Purchase Payment less any Premium
Taxes will be credited within two Business Days after acceptance of the
application and the initial Purchase Payment. Acceptance is subject to the
application being received in good order, and AUSA Life reserves the right to
reject any application or initial Purchase Payment.
If the initial Purchase Payment cannot be credited because the application is
incomplete, we will contact the applicant, explain the reason for the delay
and refund the initial Purchase Payment within five Business Days, unless the
applicant instructs us to retain the initial Purchase Payment and credit it as
soon as the necessary requirements are fulfilled.
You may make additional Purchase Payments at any time before the Annuity Date,
as long as the Annuitant is living. Any additional Purchase Payments must be
for at least $500 for Non-Qualified Contracts, or $50 for Qualified Contracts.
If additional Purchase Payments are received prior to the close of the New
York Stock Exchange (generally 4:00 P.M. Eastern time) they will be credited
to the Accumulated Value at the close of business that same day. Additional
Purchase Payments received after the close of the New York Stock Exchange are
processed the next Business Day.
Total Purchase Payments may not exceed $1,000,000 without our prior approval.
AUSA Life reserves the right to refuse to issue this Contract in cases
involving an exchange for another Contract. In cases where a Contract Owner or
former Contract Owner requests AUSA Life to reverse a surrender or withdrawal
transaction, whether full or partial, AUSA Life reserves the right to refuse
such requests or to grant such requests on the condition that the Contract's
Accumulated Value be adjusted to reflect appropriate investment results,
administrative costs, or loss of interest during the relevant period.
PURCHASING BY WIRE
For wiring instructions please contact our Administrative Offices at 1-800-
866-6007.
RIGHT TO CANCEL PERIOD
A Right to Cancel Period exists for 10 days after you receive the Contract (20
days for replacement) plus a 5 day grace period to allow for mail delivery.
You may cancel the Contract during the Right to Cancel Period by returning the
Contract to our Administrative Offices, 4333 Edgewood Road, N.E., Cedar
Rapids, Iowa 52499, or to the agent from whom you purchased the Contract or
mailing it to us at P.O. Box 3183, Cedar Rapids, Iowa 52406-3183. Upon
cancellation, the Contract is treated as void from the Contract Date and when
we receive the Contract, we will return the Accumulated Value of your Purchase
Payment(s) invested in the Portfolios plus any loads, fees and/or Premium
Taxes that may have been subtracted from such amount.
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ALLOCATION OF PURCHASE PAYMENTS
You specify in the Contract application how your Net Purchase Payments will be
allocated. You may allocate each Net Purchase Payment to one or more of the
Portfolios as long as such portions are whole number percentages provided that
no Portfolio may contain a balance of less than $250, except in cases where
Purchase Payments are made by monthly payroll deduction. You may choose not to
allocate any monies to a particular Portfolio. You may change allocation
instructions for future Net Purchase Payments by sending us the appropriate
AUSA Life form or by complying with other designated AUSA Life procedures.
Your initial Net Purchase Payment(s) will, unless you indicate otherwise, be
invested in your Portfolios immediately upon our receipt thereof, IN WHICH
CASE YOU WILL BEAR FULL INVESTMENT RISK FOR ANY AMOUNTS ALLOCATED TO THE
PORTFOLIOS DURING THE RIGHT TO CANCEL PERIOD.
EXCHANGES AMONG THE PORTFOLIOS
Should your investment goals change, you may exchange Accumulated Value among
the Portfolios of the Funds. Requests for Exchanges, received by mail prior to
the close of the New York Stock Exchange (generally 4:00 P.M. Eastern time),
are processed at the close of business that same day. Requests received after
the close of the New York Stock Exchange are processed the next Business Day.
DOLLAR COST AVERAGING OPTION
If you have at least $5,000 of Accumulated Value in Fidelity VIP Money Market,
you may choose to have a specified dollar amount transferred from this
Portfolio to other Portfolios in the Separate Account on a monthly basis. The
main objective of Dollar Cost Averaging is to shield your investment from
short term price fluctuations. Since the same dollar amount is transferred to
other Portfolios each month, more units are purchased in a Portfolio if the
value per unit is low and less units are purchased if the value per unit is
high. Therefore, a lower average cost per unit may be achieved over the long
term. This plan of investing allows investors to take advantage of market
fluctuations but does not assure a profit or protect against a loss in
declining markets.
This Dollar Cost Averaging Option may be elected on the application or at a
later date. The minimum amount that may be transferred each month into any
Portfolio is $250. The maximum amount which may be transferred is equal to the
Accumulated Value in Fidelity VIP Money Market when elected, divided by 12.
The transfer date will be the same calendar day each month as the Contract
Date. The dollar amount will be allocated to the Portfolios in the proportions
you specify on the appropriate AUSA Life form, or, if none are specified, in
accordance with your original investment allocation. If, on any transfer date,
the Accumulated Value is equal to or less than the amount you have elected to
have transferred, the entire amount will be transferred and the option will
end. You may change the transfer amount once each Contract Year, or cancel
this option by sending the appropriate AUSA Life form to our Administrative
Offices which must be received at least seven days before the next transfer
date.
ACCUMULATED VALUE
At the commencement of the Contract, the Accumulated Value equals the initial
Net Purchase Payment. Thereafter, the Accumulated Value equals the Accumulated
Value from the previous Business Day increased by: (i) any additional Net
Purchase Payments received by AUSA Life and (ii) any increase in the
Accumulated Value due to investment results of the selected Portfolio(s); and
reduced by: (i) any decrease in the Accumulated Value due to investment
results of the selected Portfolio(s), (ii) a daily charge to cover the
mortality and expense risks assumed by AUSA Life, (iii) any charge to cover
the cost of administering the Contract, (iv) any partial withdrawals, and (v)
any charges for any Exchanges made after the first twelve in any Contract
Year.
CHARGES AND DEDUCTIONS
SURRENDER CHARGE SCHEDULE
No sales load is deducted from Purchase Payments and up to 10% of the
Accumulated Value as of the last Contract Anniversary (10% of the initial Net
Purchase Payment during the first Contract Year), can be withdrawn once per
year,
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or pursuant to a series of systematic withdrawals, without a surrender charge
(the "Penalty Free Amount"). Additional withdrawals in excess of the Penalty
Free Amount are subject to a surrender charge (i.e., a contingent deferred
sales load) according to the following schedule on the portion of such
withdrawal that consists of Net Purchase Payments:
<TABLE>
<CAPTION>
SURRENDER
CONTRACT YEAR CHARGE
------------- ---------
<S> <C>
1............................ 7%
2............................ 6%
3............................ 5%
4............................ 4%
5............................ 3%
6............................ 2%
7............................ 0%
</TABLE>
The total surrender charges assessed will not exceed 8.5% of the Purchase
Payments under the Contract. There will be no surrender charge assessed on the
death of the Annuitant or after the sixth Contract Year.
MORTALITY AND EXPENSE RISK CHARGE
We impose a charge as compensation for bearing certain mortality and expense
risks under the Contract. The annual charge is assessed daily based on the net
asset value of the Separate Account. The annual mortality and expense risk
charge is 1.25% of the net asset value of the Separate Account.
We guarantee that this annual charge will never increase. If this charge is
insufficient to cover actual costs and assumed risks, the loss will fall on
us. Conversely, if the charge proves more than sufficient, any excess will be
added to AUSA Life surplus and will be used for any lawful purpose, including
any shortfall on the costs of distributing the Contract.
The mortality risk borne by us under the Contract, where one of the life
Annuity Payment Options is selected, is to make monthly Annuity Payments
(determined in accordance with the annuity tables and other provisions
contained in the Contract) regardless of how long all Annuitants may live. We
also assume mortality risk as a result of our guarantee of a Death Benefit in
the event the Annuitant dies prior to the Annuity Date.
The expense risk borne by us under the Contract is the risk that the charges
for administrative expenses which are guaranteed for the life of the Contract
may be insufficient to cover the actual costs of issuing and administering the
Contract.
ADMINISTRATIVE CHARGE AND ANNUAL CONTRACT FEE
An administrative charge equal to .15% annually of the net asset value of the
Separate Account is assessed daily along with the Annual Contract Fee of $30.
The Annual Contract Fee is deducted proportionately from the Subaccounts. For
any Contract with amounts allocated to the Subaccounts, the $30 fee is
assessed per Contract, not per Portfolio chosen. The Annual Contract Fee will
be deducted on each Contract Anniversary and upon surrender, on a pro rata
basis, from each Subaccount. These deductions represent reimbursement for the
costs expected to be incurred over the life of the Contract for issuing and
maintaining each Contract and the Separate Account.
EXCHANGE FEE
Each Contract Year you may make an unlimited number of free Exchanges between
Portfolios, provided that after an Exchange no Portfolio may contain a balance
less than $250, except in cases where Purchase Payments are made by monthly
payroll deduction. We reserve the right to charge a $15 fee in the future for
Exchanges in excess of 12 per Contract Year.
TAXES
Under present laws, AUSA Life will not incur New York state or local taxes. If
there is a change in state or local tax laws, charges for such taxes may be
made. AUSA Life does not expect to incur any federal income tax liability
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attributable to investment income or capital gains retained as part of the
reserves under the Contract. (See "Federal Tax Considerations," page 23.)
Based upon these expectations, no charge is currently being made to the
Separate Account for corporate federal income taxes that may be attributable
to the Separate Account.
AUSA Life will periodically review the question of a charge to the Separate
Account for federal income taxes related to the Separate Account. Such a
charge may be made in future years for any federal income taxes incurred by
AUSA Life. This might become necessary if the tax treatment of AUSA Life is
ultimately determined to be other than what AUSA Life currently believes it to
be, if there are changes made in the federal income tax treatment of annuities
at the corporate level, or if there is a change in AUSA Life's tax status. In
the event that AUSA Life should incur federal income taxes attributable to
investment income or capital gains retained as part of the reserves under the
Contracts, the Accumulated Value of the Contract would be correspondingly
adjusted by any provision or charge for such taxes.
PORTFOLIO EXPENSES
The value of the assets in the Separate Account reflects the fees and expenses
paid by the Portfolios. A complete description of these expenses is found in
the "Fee Table" section of this Prospectus and in each Fund's Prospectus and
Statement of Additional Information.
EXCEPTIONS TO CHARGES AND TO TRANSACTION OR BALANCE REQUIREMENTS
The contingent deferred sales load or other administrative charges or fees may
be reduced for sales of Contracts to a trustee, employer or similar entity
representing a group where AUSA Life determines that such sales result in
savings of sales and/or administrative expenses. In addition, directors,
officers and bona fide full-time employees (and their spouses and minor
children) of AUSA Life, its ultimate parent company, and certain of their
affiliates and certain sales representatives for the Contract are permitted to
purchase Contracts with substantial reduction of the contingent deferred sales
load or other administrative charges or fees or with a waiver or modification
of certain minimum or maximum purchase and transaction amounts or balance
requirements. Contracts so purchased are for investment purposes only and may
not be resold except to AUSA Life.
In no event will reduction or elimination of the contingent deferred sales
loads or other fees or charges or waiver or modification of transaction or
balance requirements be permitted where such reduction, elimination, waiver or
modification will be unfairly discriminatory to any person. Additional
information about reductions in charges is contained in the Statement of
Additional Information.
MINIMUM BALANCE REQUIREMENT
We will transfer the balance in any Portfolio that falls below $250, except in
cases where Purchase Payments are made by monthly payroll deduction, due to a
partial withdrawal or Exchange, to the remaining Portfolios held under that
Contract on a pro rata basis. In the event that the entire value of the
Contract falls below $1,000, and if no Purchase Payment has been received
within three years, we reserve the right to liquidate the account. You would
be notified that the Accumulated Value of your account is below the Contract's
minimum requirement and be allowed 60 days to make an additional investment
before the account is liquidated. Proceeds would be promptly paid to the
Contract Owner. The full proceeds would be taxable as a withdrawal. We will
not exercise this right with respect to Qualified Contracts.
DISTRIBUTIONS UNDER THE CONTRACT
FULL AND PARTIAL WITHDRAWALS
At any time before the Annuity Date and while the Annuitant is living, you may
make a partial or full withdrawal of the Contract to receive all or part of
the Surrender Value by sending a written request to our Administrative
Offices. Full or partial withdrawals may only be made before the Annuity Date
and all partial withdrawal requests must be for at least $500. The amount
available for full or partial withdrawal is the Surrender Value at the end of
the Valuation Period during which the written request for withdrawal is
received. The Surrender Value is an amount equal to the Accumulated Value,
less any applicable contingent deferred sales load (i.e., surrender charge)
and any Premium
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Taxes incurred but not yet deducted. The withdrawal amount may be paid in a
lump sum to you, or if elected, all or any part may be paid out under an
Annuity Payment Option. (See "Annuity Payment Options," page 20.)
You can make a withdrawal by sending the appropriate AUSA Life form to our
Administrative Offices. Your proceeds will normally be processed and mailed to
you within two Business Days after the receipt of the request but in no event
will it be later than seven calendar days, subject to postponement in certain
circumstances. (See "Deferment of Payment," page 22.)
Payments under the Contract of any amounts derived from premiums paid by check
may be delayed until the check has cleared your bank. If, at the time the
Contract Owner requests a full or partial withdrawal, he has not provided AUSA
Life with a written election not to have federal income taxes withheld, AUSA
Life must by law withhold 10% from the taxable portion of any full or partial
withdrawal and remit that amount to the federal government. Moreover, the Code
provides that a 10% penalty tax may be imposed on certain early withdrawals.
(See "Federal Tax Considerations," page 23.)
Since the Contract Owner assumes the investment risk with respect to amounts
allocated to the Separate Account, the total amount paid upon withdrawal of
the Contract (taking into account any prior withdrawals) may be more or less
than the total Net Purchase Payments made.
LUMP SUM PAYMENT OPTION
You may surrender the Contract at any time while the Annuitant is living and
before the Annuity Date. The Surrender Value is equal to the Accumulated
Value, less any applicable deferred sales load (i.e., surrender charge) and
any Premium Taxes incurred but not yet deducted.
SYSTEMATIC WITHDRAWAL OPTION
You may choose to have a specified dollar amount provided to you on a regular
basis from the portion of your Contract's Accumulated Value that is allocated
to the Portfolios. By electing the Systematic Withdrawal Option, withdrawals
may be made on a monthly, quarterly, semiannual or annual basis. The minimum
amount for each withdrawal is $100.
This option may be elected by completing the Systematic Withdrawal Request
Form. This form must be received by us at least 30 days prior to the date
systematic withdrawals will begin. Each withdrawal will be processed on the
day and at the frequency indicated on the Systematic Withdrawal Request Form.
The start date for the systematic withdrawals must be between the first and
twenty-eighth day of the month. You may discontinue the Systematic Withdrawal
Option at any time by notifying us in writing at least 30 days prior to your
next scheduled withdrawal date.
A surrender charge will apply when withdrawals in any of the first six
Contract Years exceed 10% of that year's beginning Accumulated Value. (See
"Charges and Deductions," page 16.) Like any other partial withdrawal, each
Systematic Withdrawal is subject to taxes on earnings. If the Contract Owner
has not provided AUSA Life with a written election not to have federal income
taxes withheld, AUSA Life must by law withhold 10% from the taxable portion of
the Systematic Withdrawal and remit that amount to the federal government.
Moreover, the Code provides that a 10% penalty tax may be imposed on certain
early withdrawals. (See "Federal Tax Considerations," page 23.) You may wish
to consult a tax adviser regarding any tax consequences that might result
prior to electing the Systematic Withdrawal Option.
We reserve the right to discontinue offering the Systematic Withdrawal Option
upon 30 days' written notice. We also reserve the right to charge a fee for
such service.
ANNUITY DATE
You may specify an Annuity Date in the application, which can be no later than
the first day of the month after the Annuitant's 85th birthday, without AUSA
Life's prior approval. The Annuity Date is the date that Annuity Payments are
scheduled to commence under the Contract unless the Contract has been
surrendered or an amount has been paid as proceeds to the designated
Annuitant's Beneficiary prior to that date.
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You may advance or defer the Annuity Date. However, the Annuity Date may not
be advanced to a date prior to 30 days after the date of receipt of a written
request or, without AUSA Life's prior approval, deferred to a date beyond the
first day of the month after the Annuitant's 85th birthday. The Annuity Date
may be changed only by written request during the Annuitant's lifetime and
must be made at least 30 days before the then-scheduled Annuity Date. The
Annuity Date and Annuity Payment Options available for Qualified Contracts may
also be controlled by endorsements, the plan or applicable law.
ANNUITY PAYMENT OPTIONS
All Annuity Payment Options (except for the Designated Period Annuity Option)
are offered as "Variable Annuity Options." This means that Annuity Payments,
after the initial payment, will reflect the investment experience of the
Portfolio or Portfolios you have chosen. All Annuity Payment Options are also
offered as "Fixed Annuity Options." This means that the amount of each payment
will be set on the Annuity Date and will not change. The following Annuity
Payment Options are available under the Contract:
LIFE ANNUITY--Monthly Annual Payments are paid for the life of an Annuitant,
ceasing with the last Annuity Payment due prior to the Annuitant's death.
JOINT AND LAST SURVIVOR ANNUITY--Monthly Annuity Payments are paid for the
life of two Annuitants and thereafter for the life of the survivor, ceasing
with the last Annuity Payment due prior to the survivor's death.
LIFE ANNUITY WITH PERIOD CERTAIN--Monthly Annuity Payments are paid for the
life of an Annuitant, with a Period Certain of not less than 120, 180, or 240
months, as elected.
INSTALLMENT OR UNIT REFUND LIFE ANNUITY--Available as either a Fixed
(Installment Refund) or Variable (Unit Refund) Annuity Option. Monthly Annuity
Payments are paid for the life of an Annuitant, with a Period Certain
determined by dividing the Accumulated Value by the first Annuity Payment.
DESIGNATED PERIOD ANNUITY--Only available as a Fixed Annuity Option. Monthly
Annuity Payments are paid for a Period Certain as elected, which may be from
10 to 30 years.
Before the Annuity Date and while the Annuitant is living, you may change the
Annuity Payment Option by written request. The request for change must be made
at least 30 days prior to the Annuity Date and is subject to the approval of
AUSA Life. If an Annuity Payment Option is chosen that depends on the
continuation of the life of the Annuitant, proof of birth date may be required
before Annuity Payments begin. For Annuity Payment Options involving life
income, the actual age of the Annuitant will affect the amount of each
payment. Since payments to older Annuitants are expected to be fewer in
number, the amount of each Annuity Payment will generally be greater.
All or part of the Accumulated Value may be placed under one or more Annuity
Payment Options. If Annuity Payments are to be paid under more than one
option, AUSA Life must be told what part of the Accumulated Value is to be
paid under each option.
If at the time of any Annuity Payment you have not provided AUSA Life with a
written election not to have federal income taxes withheld, AUSA Life must by
law withhold such taxes from the taxable portions of such Annuity Payment and
remit that amount to the federal government.
In the event that an Annuity Payment Option is not selected, AUSA Life will
make monthly Annuity Payments that will go on for as long as the Annuitant
lives (120 payments guaranteed) in accordance with the Life Annuity with
Period Certain Option and the annuity benefit sections of the Contract. That
portion of the Accumulated Value that has been held in a Portfolio prior to
the Annuity Date will be applied under a Variable Annuity Option based on the
performance of the Portfolio. Subject to approval by AUSA Life, you may select
any other Annuity Payment Option then being offered by AUSA Life. All Fixed
Annuity Payments and the initial Variable Annuity Payment are guaranteed to be
not less than as provided by the Annuity Tables and the Annuity Payment Option
elected by the Contract Owner. The minimum payment, however, is $100. If the
Accumulated Value is less than $2,000, AUSA Life has the right to pay that
amount in a lump sum. From time to time, AUSA Life may require proof that the
Annuitant or Contract Owner is living. Annuity Payment Options are not
available to: (1) an assignee; or (2) any other than a natural person, except
with the consent of AUSA Life.
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We may, at the time of election of an Annuity Payment Option, offer more
favorable rates in lieu of the guaranteed rates specified in the Annuity
Tables found in the Contract.
The value of Variable Annuity Payments will reflect the investment experience
of the chosen Portfolio. Only one Variable Annuity Option may be chosen from
among those made available by AUSA Life for each Portfolio. The Annuity
Tables, which are contained in the Contract and are used to calculate the
value of the initial Variable Annuity Payment, are based on an assumed
interest rate of 4%. If the actual net investment experience exactly equals
the assumed interest rate, then the Variable Annuity Payments will remain the
same (equal to the first Annuity Payment). However, if actual investment
experience exceeds the assumed interest rate, the Variable Annuity Payments
will increase; conversely, they will decrease if the actual experience is
lower. The method of computation of Variable Annuity Payments is described in
more detail in the Statement of Additional Information.
The value of all payments, both fixed and variable, will be greater for
shorter guaranteed periods than for longer guaranteed periods, and greater for
life annuities than for joint and survivor annuities, because they are
expected to be made for a shorter period.
After the Annuity Date, you may change the Portfolio funding the Variable
Annuity Payments on the appropriate AUSA Life form or by calling our
Administrative Offices at 1-800-866-6007.
If you choose an Annuity Payment Option and the postal or other delivery
service is unable to deliver checks to the Payee's address of record, no
interest will accrue on amounts represented by uncashed Annuity Payment
checks. It is the Payee's responsibility to keep AUSA Life informed of the
Payee's current address of record.
DEATH BENEFIT
Generally, federal tax law requires that if any Contract Owner is a natural
person and dies before the Annuity Date, then the entire value of the Contract
must be distributed within five years of the date of death of the Contract
Owner. If the Contract Owner is not a natural person, the death of the Primary
Annuitant triggers the same distribution requirement. Special rules may apply
to a surviving spouse.
DEATH OF ANNUITANT BEFORE ANNUITY DATE
If the Annuitant dies prior to the Annuity Date, an amount will be paid as
proceeds to the Annuitant's Beneficiary. The Death Benefit is calculated and
is payable upon receipt of due Proof of Death of the Annuitant as well as
proof that the Annuitant died prior to the Annuity Date. Upon receipt of this
proof, the Death Benefit will be paid within seven days, or as soon thereafter
as AUSA Life has sufficient information about the Annuitant's Beneficiary to
make the payment. The Annuitant's Beneficiary may receive the amount payable
in a lump sum cash benefit or under one of the Annuity Payment Options.
The Death Benefit is the greater of:
(1) The Accumulated Value on the date we receive due Proof of Death; or
(2) The Adjusted Death Benefit.
During the first six Contract Years, the Adjusted Death Benefit will be the
sum of all Net Purchase Payments made, less any partial withdrawals taken.
During each subsequent six-year period, the Adjusted Death Benefit will be the
Death Benefit on the last day of the previous six-year period plus any Net
Purchase Payments made, less any partial withdrawals taken during the current
six-year period. After the Annuitant attains age 75, the Adjusted Death
Benefit will remain equal to the Death Benefit on the last day of the six year
period before age 75 occurs plus any Net Purchase Payments subsequently made,
less any partial withdrawals subsequently taken.
DEATH OF ANNUITANT ON OR AFTER ANNUITY DATE
The Death Benefit, if any, payable if the Annuitant dies on or after the
Annuity Date depends on the Annuity Payment Option selected. Upon the
Annuitant's death, the remaining portion of the value of the Contract will be
distributed to the Annuitant's Beneficiary at least as rapidly as under the
method of distribution being used on the date of the Annuitant's death.
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DESIGNATION OF AN ANNUITANT'S BENEFICIARY
The Contract Owner may select one or more Annuitant's Beneficiaries and name
them in the application. Thereafter, while the Annuitant is living, the
Contract Owner may change the Annuitant's Beneficiary by sending us the
appropriate AUSA Life form. Such change will take effect on the date such form
is signed by the Contract Owner but will not affect any payment made or other
action taken before AUSA Life acknowledges such form. You may also make the
designation of Annuitant's Beneficiary irrevocable by sending us the
appropriate AUSA Life form and obtaining approval from AUSA Life. Changes in
the Annuitant's Beneficiary may then be made only with the consent of the
designated irrevocable Annuitant's Beneficiary.
If the Annuitant dies prior to the Annuity Date, the following will apply
unless the Contract Owner has made other provisions.
(a) If there is more than one Annuitant's Beneficiary, each will share in
the Death Benefits equally;
(b) If one or two or more Annuitant's Beneficiaries have already died, that
share of the Death Benefit will be paid equally to the survivor(s);
(c) If no Annuitant's Beneficiary is living, the proceeds will be paid to
the Contract Owner;
(d) Unless otherwise provided, if an Annuitant's Beneficiary dies at the
same time as the Annuitant, the proceeds will be paid as though the
Annuitant's Beneficiary had died first. Unless otherwise provided, if
an Annuitant's Beneficiary dies within 15 days after the Annuitant's
death and before AUSA Life receives due proof of the Annuitant's death,
proceeds will be paid as though the Annuitant's Beneficiary had died
first.
If an Annuitant's Beneficiary who is receiving Annuity Payments dies, any
remaining payments certain will be paid to that Annuitant's Beneficiary's
named beneficiary(ies) when due. If no Annuitant's Beneficiary survives the
Annuitant, the right to any amount payable will pass to the Contract Owner. If
the Contract Owner is the Annuitant, this right will pass to his or her
estate. If a Life Annuity with Period Certain option was elected, and if the
Annuitant dies on or after the Annuity Date, any unpaid payments certain will
be paid to the Annuitant's Beneficiary or your designated Payee.
DEATH OF CONTRACT OWNER
DEATH OF CONTRACT OWNER BEFORE ANNUITY DATE. With two exceptions, federal tax
law requires that when either the Contract Owner or the Joint Owner (if any)
dies before the Annuity Date, the entire value of the Contract must be
distributed within five years of the date of death. First exception: If the
entire interest is to be distributed to the Owner's Designated Beneficiary, he
or she may elect to have it paid as an annuity over his or her life or over a
period certain not to exceed his or her life expectancy as long as the
payments begin within one year of the date of death. Second exception: If the
Owner's Designated Beneficiary is the spouse of the Contract Owner (or Joint
Owner), the spouse may elect to continue the Contract in his or her name as
Contract Owner indefinitely and to continue deferring tax on the accrued and
future income under the Contract. ("Owner's Designated Beneficiary" means the
natural person named by the Owner as a beneficiary and who becomes Owner of
the Contract upon the Contract Owner's death.) If the Contract Owner and the
Annuitant are the same person, then upon that person's death the Annuitant's
Beneficiary is entitled to the Death Benefit. In this regard, see "Death of
Annuitant Before Annuity Date," page 25.
DEATH OF CONTRACT OWNER ON OR AFTER ANNUITY DATE. Federal tax law requires
that when either the Contract Owner or the Joint Owner (if any) dies on or
after the Annuity Date, the remaining portions of the value of the Contract
must be distributed at least as rapidly as under the method of distribution
being used on the date of death.
NON-NATURAL PERSON AS CONTRACT OWNER. Where the Contract Owner is not a
natural person, the death of the "primary Annuitant" is treated as the death
of the Contract Owner for purposes of federal tax law. (The Code defines a
primary Annuitant as the individual who is of primary importance in affecting
the timing or the amount of payout under the Contract.) In addition, where the
Contract Owner is not a natural person, a change in the identity of the
primary Annuitant is also treated as the death of the Contract Owner for
purposes of federal tax law.
DEFERMENT OF PAYMENT
Payment of any cash withdrawal or lump sum Death Benefit due from the Separate
Account will occur within seven days from the date the election becomes
effective except that AUSA Life may be permitted to defer such payment if:
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(1) the New York Stock Exchange is closed for other than usual weekends or
holidays, or trading on the New York Stock Exchange is otherwise restricted;
or (2) an emergency exists as defined by the SEC, or the SEC requires that
trading be restricted; or (3) the SEC permits a delay for the protection of
Contract Owners.
FEDERAL TAX CONSIDERATIONS
INTRODUCTION
The ultimate effect of federal income taxes on the amounts paid for the
Contract, on the investment return on assets held under a Contract, on Annuity
Payments, and on the economic benefits to the Contract Owner, Annuitant or
Annuitant's Beneficiary, depends on the terms of the Contract, AUSA Life's tax
status and upon the tax status of the individuals concerned. The following
discussion is general in nature and is not intended as tax advice. You should
consult a tax advisor regarding the tax consequences of purchasing a Contract.
No attempt is made to consider any applicable state or other tax laws.
Moreover, the discussion is based upon AUSA Life's understanding of the
federal income tax laws as they are currently interpreted. No representation
is made regarding the likelihood of continuation of the federal income tax
laws, the Treasury regulations or the current interpretations by the Internal
Revenue Service. We reserve the right to make uniform changes in the Contract
to the extent necessary to continue to qualify the Contract as an annuity. For
a discussion of federal income taxes as they relate to the Funds, please see
the accompanying Prospectuses for the Funds.
TAXATION OF ANNUITIES IN GENERAL
GENERAL RULE OF TAX DEFERRAL
Section 72 of the Code governs taxation of annuities. In general, a Contract
Owner is not taxed on increases in value under a Contract until some form of
withdrawal or distribution is made under it. However, under certain
circumstances, the increase in value may be subject to current federal income
tax. (See "Annuity Contracts Owned by Non-Natural Persons," page 24, and
"Diversification Standards," page 25.)
TAXATION OF FULL OR PARTIAL WITHDRAWALS
Section 72 provides that the proceeds of a full or partial withdrawal from a
Contract prior to the Annuity Date will be treated as taxable income to the
extent the amounts held under the Contract exceed the "investment in the
Contract," as that term is defined in the Code. The "investment in the
Contract" can generally be described as the cost of the Contract, and
generally constitutes all Purchase Payments paid for the Contract less any
amounts received under the Contract that are excluded from the individual's
gross income. The taxable portion is taxed at ordinary income tax rates. For
purposes of this rule, a pledge or assignment of a Contract is treated as a
payment received on account of a partial withdrawal of a Contract.
Upon receipt of a full or partial withdrawal or an Annuity Payment under the
Contract, you will be taxed if the value of the Contract exceeds the
investment in the Contract. Ordinarily, the taxable portion of such payments
will be taxed at ordinary income tax rates. Partial withdrawals are generally
taken out of earnings first and then investment in the Contract.
TAXATION OF ANNUITY PAYMENTS
For Fixed Annuity Payments, in general, the taxable portion of each payment is
determined by using a formula known as the "exclusion ratio," which
establishes the ratio that the investment in the Contract bears to the total
expected amount of Annuity Payments for the term of the Contract. That ratio
is then applied to each payment to determine the non-taxable portion of the
payment. The remaining portion of each payment is taxed at ordinary income tax
rates. For Variable Annuity Payments, in general, the taxable portion is
determined by a formula that establishes a specific dollar amount of each
payment that is not taxed. The dollar amount is determined by dividing the
investment in the Contract by the total number of expected periodic payments.
The remaining portion of each payment is taxed at ordinary income tax rates.
Once the excludible portion of Annuity Payments to date equals the investment
in the Contract, the balance of the Annuity Payments will be fully taxable.
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Generally, the entire amount distributed from a Qualified Contract is taxable
to the Contract Owner. In the case of Qualified Contracts with after tax
contributions, the Contract Owner is entitled to exclude the portion of each
withdrawal or annuity payment constituting a return of after tax
contributions. Once all of your after tax contributions have been returned to
you on a non-taxable basis, subsequent withdrawals or annuity payments are
fully taxable as ordinary income. Since AUSA Life has no knowledge of the
amount of after tax contributions you have made, you will need to make this
computation in the preparation of your federal income tax return.
TAX WITHHOLDING
Withholding of federal income taxes on all distributions is required unless
the recipient elects not to have any amounts withheld and properly notifies
AUSA Life of that election. In certain situations, taxes will be withheld on
distributions to non-resident aliens at a flat 30% rate unless an exemption
from withholding applies under an applicable tax treaty.
PENALTY TAXES
With respect to amounts withdrawn or distributed before the taxpayer reaches
age 59 1/2, a penalty tax is imposed equal to 10% of the taxable portion of
amounts withdrawn or distributed. However, the penalty tax will not apply to
withdrawals (i) made on or after the death of the Contract Owner or, where the
Contract Owner is not an individual, the death of the Annuitant, who is
defined as the individual the events in whose life are of primary importance
in affecting the timing and payment under the Contracts; (ii) attributable to
the taxpayer's becoming disabled within the meaning of Code Section 72(m)(7);
(iii) that are part of a series of substantially equal periodic payments made
at least annually for the life (or life expectancy) of the taxpayer, or joint
lives (or joint life expectancies) of the taxpayer and his or her beneficiary;
(iv) from a qualified plan (note, however, other penalties may apply); (v)
under a qualified funding asset (as defined in Code Section 130(d)); (vi)
under an immediate annuity contract as defined in Section 72(u)(4); (vii)
allocable to the investment in the Contract prior to August 14, 1982; or
(viii) that are purchased by an employer on termination of certain types of
qualified plans and that are held by the employer until the employee separates
from service. Other tax penalties may apply to certain distributions as well
as to certain contributions and other transactions under Qualified Contracts.
If the penalty tax does not apply to a withdrawal as a result of the
application of item (iii) above, and the series of payments are subsequently
modified (other than by reason of death or disability), the tax for the year
in which the modification occurs will be increased by an amount (as determined
under Treasury Regulations) equal to the penalty tax that would have been
imposed but for item (iii) above, plus interest for the deferral period. The
foregoing rule applies if the modification takes place (a) before the close of
the period that is five years from the date of the first payment and after the
taxpayer attains age 59 1/2, or (b) before the taxpayer reaches age 59 1/2.
The tax penalty may also not apply to distributions from Qualified Contracts
issued under Section 408(b) or 408A of the Code used to pay qualified higher
education expenses or the acquisition costs (up to $10,000) involved in the
purchase of a principal residence by a first-time homebuyer.
ANNUITY CONTRACTS OWNED BY NON-NATURAL PERSONS
Where the Contract is held by a non-natural person (for example, a
corporation), the Contract is generally not treated as an annuity contract for
federal income tax purposes, and the income on that Contract (generally the
increase in the net Accumulated Value less the payments) is includible in
taxable income each year. The rule does not apply where the non-natural person
is only a nominal owner such as a trust or other entity acting as an agent for
a natural person. The rule also does not apply where the Contract is acquired
by the estate of a decedent, where the Contract is a qualified funding asset
for structured settlements, where the Contract is purchased by an employer on
behalf of an employee upon termination of a qualified plan, and in the case of
an immediate annuity, as defined under Section 72(u)(4) of the Code.
MULTIPLE-CONTRACTS RULE
All non-qualified annuity contracts issued by the same company (or affiliate)
to the same Contract Owner during any calendar year are to be aggregated and
treated as one contract for purposes of determining the amount includible in
the taxpayer's gross income. Thus, any amount received under any Contract
prior to the Contract's Annuity Date, such
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as a partial withdrawal, will be taxable (and possibly subject to the 10%
federal penalty tax) to the extent of the combined income in all such
contracts. The Treasury Department has specific authority to issue regulations
that prevent the avoidance of Code Section 72(e) through the serial purchase
of annuity contracts or otherwise. In addition, there may be other situations
in which the Treasury Department may conclude that it would be appropriate to
aggregate two or more Contracts purchased by the same Contract Owner. The
aggregation rules do not apply to immediate annuities as defined under Section
72(u)(4) of the Code. Accordingly, a Contract Owner should consult a tax
adviser before purchasing more than one Contract or other annuity contracts.
TRANSFERS OF ANNUITY CONTRACTS
Any transfer of a Non-Qualified Contract prior to the Annuity Date for less
than full and adequate consideration will generally trigger income tax (and
possibly the 10% federal penalty tax) on the gain in the Contract to the
Contract Owner at the time of such transfer. The investment in the Contract of
the transferee will be increased by any amount included in the Contract
Owner's income. This provision, however, does not apply to those transfers
between spouses or former spouses incident to a divorce which are governed by
Code Section 1041(a).
ASSIGNMENTS OF ANNUITY CONTRACTS
A transfer of ownership of a Contract, a collateral assignment or the
designation of an Annuitant or other beneficiary who is not also the Contract
Owner may result in tax consequences to the Contract Owner, Annuitant or
beneficiary that are not discussed herein. A Contract Owner contemplating such
a transfer or assignment of a Contract should contact a tax adviser with
respect to the potential tax effects of such a transaction.
AUSA LIFE'S TAX STATUS
AUSA Life is taxed as a life insurance company under Part I of Subchapter L of
the Code. Since the Separate Account is not a separate entity from AUSA Life
and its operations form a part of AUSA Life, the Separate Account will not be
taxed separately as a "regulated investment company" under Subchapter M of the
Code. Investment income and realized capital gains on the assets of the
Separate Account are reinvested and taken into account in determining the
Accumulated Value. Under existing federal income tax law, the Separate
Account's investment income, including realized net capital gains, is not
taxed to AUSA Life. AUSA Life reserves the right to make a deduction for taxes
should they be imposed with respect to such items in the future.
DIVERSIFICATION STANDARDS
To comply with certain diversification regulations (the "Regulations") under
Code Section 817(h), after a start up period, each Subaccount of the Separate
Account will be required to diversify its investments. The Regulations
generally require that on the last day of each quarter of a calendar year, no
more than 55% of the value of each Subaccount is represented by any one
investment, no more than 70% is represented by any two investments, no more
than 80% is represented by any three investments, and no more than 90% is
represented by any four investments. A "look-through" rule applies that
suggests that each Subaccount of the Separate Account will be tested for
compliance with the percentage limitations by looking through to the assets of
the Portfolios in which each such division invests. All securities of the same
issuer are treated as a single investment. Each government agency or
instrumentality will be treated as a separate issuer for purposes of those
limitations.
In connection with the issuance of temporary diversification regulations in
1986, the Treasury Department announced that such regulations did not provide
guidance concerning the extent to which Contract Owners may direct their
investments to particular divisions of a separate account. It is possible that
regulations or revenue rulings may be issued in this area at some time in the
future. It is not clear, at this time, what these regulations or rulings would
provide. It is possible that when the regulations or ruling are issued, the
Contract may need to be modified in order to remain in compliance. For these
reasons, AUSA Life reserves the right to modify the Contract, as necessary, to
prevent the Contract Owner from being considered the owner of assets of the
Separate Account.
We intend to comply with the Regulations to assure that the Contract continues
to be treated as annuity contracts for federal income tax purposes.
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403(B) CONTRACTS
Contracts will be offered in connection with retirement plans adopted by
public school systems and certain tax-exempt organizations (Code Section
501(c)(3) organizations) for their employees under Section 403(b) of the Code;
except, as discussed below and subject to any conditions in an employer's
plan, a Contract used in connection with a Section 403(b) Plan offers the same
benefits and is subject to the same charges described in this Prospectus.
Under 403(b) Contracts, the Contract Owner and the Annuitant must be the same
person. The Code imposes a maximum limit on annual Purchase Payments which may
be excluded from your gross income. Such limit must be calculated in
accordance with Sections 403(b), 415 and 402(g) of the Code. In addition,
Purchase Payments will be excluded from your gross income only if the 403(b)
Plan meets certain Code non-discrimination requirements.
Under your 403(b) Contract, you may borrow against your Contract's Surrender
Value after the first Contract Year. No additional loans will be extended
until prior loan balances are paid in full. The loan amount must be at least
$1,000 and your Contract must have a minimum vested Accumulated Value of
$2,000. The loan amount may not exceed the lesser of (a) or (b), where (a) is
50% of the Contract's vested Accumulated Value on the date on which the loan
is made, or $10,000, and (b) is $50,000 reduced by the excess, if any, of the
highest outstanding balance of loans during the one-year period ending on the
day before the current loan is made, over the outstanding balance of loans on
the date of the current loan. If you are married, your spouse must consent in
writing to a loan request. This consent must be given within the 90-day period
before the loan is to be made.
The loan interest rate is variable, is determined monthly, and is based on the
Moody's Corporate Bond Yield Averages-Monthly Average Corporates (the
"Average"), which is published by Moody's Investors Service, Inc. We will
notify you of the initial loan interest rate at the time the loan is made. The
initial interest rate may be increased or reduced by us during the life of the
loan based on changes of the Average. If a change in the Average would cause
the initial loan interest rate (or a subsequent rate that has been previously
increased or reduced by us) to be reduced by 0.50% per annum or more, we must
reduce the loan interest rate. If a change in the Average would cause the
initial loan interest rate (or a subsequent rate that has been previously
increased or reduced by us) to be increased by 0.50% per annum, we may
increase the loan interest rate at our discretion. In no event will the loan
interest rate be greater than the maximum allowed by the insurance regulations
of the State of New York.
On the first Business Day of each calendar month, AUSA Life will determine a
loan interest rate. The loan interest rate for the calendar month in which the
loan is effective will apply for one year from the loan effective date.
Annually on the anniversary of the loan effective date, the rate will be
adjusted to equal the loan interest rate determined for the month in which the
loan anniversary occurs.
Principal and interest on loans must be repaid in substantially level
payments, not less frequently than quarterly, over a five year term except for
certain loans for the purchase of a principal residence. If the loan interest
rate is adjusted, future payments will be adjusted so that the outstanding
loan balance is amortized in equal quarterly installments over the remaining
term. The remainder of each repayment will be credited to the individual
account.
If a loan payment is not made when due, interest will continue to accrue. The
defaulted payment plus accrued interest will be deducted from any future
distributions under the Contract and paid to us. Any loan payment which is not
made when due, plus interest, will be treated as a distribution, as permitted
by law. The loan payment may be taxable to the borrower, and may be subject to
the early withdrawal tax penalty. When a loan is made, unless you instruct us
to the contrary, the number of Accumulation Units equal to the loan amount
will be withdrawn from the individual account and placed in the Collateral
Fixed Account. Accumulation Units taken from the individual account to provide
a loan do not participate in the investment experience of the related
Portfolios. Unless instructed to the contrary by you, the loan amount will be
withdrawn on a pro rata basis from the Portfolios to which Accumulated Value
has been allocated. Until the loan is repaid in full, that portion of the
Collateral Fixed Account shall be credited with interest at a rate of 2% less
than the loan interest rate applicable to the loan. However, the interest rate
credited to the Collateral Fixed Account will never be less than the
guaranteed rate of 3%.
A bill in the amount of the quarterly principal and interest will be mailed
directly to you in advance of the payment due date. The initial quarterly
repayment will be due three months from the loan date. The loan date will be
the date that AUSA Life receives the loan request form in good order. Payment
is due within 30 calendar days after the due date. Subsequent quarterly
installments are based on the first due date.
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When repayment of principal is made, Accumulation Units will be reallocated on
a current value basis among the same investment Portfolios and in the same
proportion as when the loan was initially made, unless you specify otherwise.
If a repayment in excess of a billed amount is received, the excess will be
applied towards the principal portion of the outstanding loan. Payments
received which are less than the billed amount will not be accepted and will
be returned to you.
If a partial surrender is taken from your individual account due to nonpayment
of a billed quarterly installment, the date of the surrender will be the first
Business Day following the 30 calendar day period in which the repayment was
due.
Prepayment of the entire loan is allowed. At the time of prepayment, AUSA Life
will bill you for any accrued interest. AUSA Life will consider the loan paid
when the loan balance and accrued interest are paid.
If the individual account is surrendered or if the Contract Owner dies with an
outstanding loan balance, the outstanding loan balance and accrued interest
will be deducted from the Surrender Value or the Death Benefit, respectively.
If an Annuity Payment Option is elected while there is an outstanding loan
balance, the outstanding loan balance and accrued interest will be deducted
from the Accumulated Value.
AUSA Life may require that any outstanding loan be paid if the individual
account value falls below an amount equal to 25% of total loans outstanding.
The Code requires the aggregation of all loans made to an individual employee
under a single employer-sponsored 403(b) Plan. However, since AUSA Life has no
information concerning the outstanding loans that you may have with other
companies, it will only use the information available under Contracts issued
by AUSA Life.
The Code imposes restrictions on full or partial surrenders from 403(b)
individual accounts attributable to Purchase Payments under a salary reduction
agreement and to any earnings on the entire 403(b) individual account credited
on and after January 1, 1989. Surrenders of these amounts are allowed only if
the Contract Owner (a) has died, (b) has become disabled, as defined in the
Code, (c) has attained age 59 1/2, or (d) has separated from service.
Surrenders are also allowed if the Contract Owner can show "hardship," as
defined by the Internal Revenue Service, but the surrender is limited to the
lesser of Purchase Payments made on or after January 1, 1989 or the amount
necessary to relieve the hardship. Even if a surrender is permitted under
these provisions, a 10% federal tax penalty may be assessed on the withdrawn
amount if it does not otherwise meet the exceptions to the penalty tax
provisions. (See "Taxation of Annuities in General," page 23.)
Under the Code, you may request a full or partial surrender of an amount equal
to the individual account cash value as of December 31, 1988 (the
"grandfathered" amount), subject to the terms of the 403(b) Plan. Although the
Code surrender restrictions do not apply to this amount, a 10% federal penalty
tax may be assessed on the withdrawn amount if it does not otherwise meet the
exceptions to the penalty tax provisions (See "Taxation of Annuities in
General," page 23.)
AUSA Life believes that the Code surrender restrictions do not apply to tax-
free transfers pursuant to Revenue Ruling 90-24. AUSA Life further believes
that the surrender restrictions will not apply to any "grandfathered" amount
transferred pursuant to Revenue Ruling 90-24 into another 403(b) Contract.
GENERAL INFORMATION
ADDITIONS, DELETIONS, OR SUBSTITUTIONS OF INVESTMENTS
AUSA Life retains the right, subject to any applicable law, to make certain
changes. AUSA Life reserves the right to eliminate the shares of any of the
Portfolios and to substitute shares of another Portfolio of the Funds, or of
another registered, open-end management investment company, if the shares of
the Portfolios are no longer available for investment, or, if in AUSA Life's
judgment, investment in any Portfolio would be inappropriate in view of the
purposes of the Separate Account. To the extent required by the 1940 Act,
substitutions of shares attributable to a Contract Owner's interest in a
Portfolio will not be made until SEC approval has been obtained and the
Contract Owner has been notified of the change.
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New Portfolios may be established at the discretion of AUSA Life. Any new
Portfolio will be made available to existing Contract Owners on a basis to be
determined by AUSA Life. AUSA Life may also eliminate one or more Portfolios
if marketing, tax, investment or other conditions so warrant.
In the event of any such substitution or change, AUSA Life may, by appropriate
endorsement, make such changes in the Contracts as may be necessary or
appropriate to reflect such substitution or change. Furthermore, if deemed to
be in the best interests of persons having voting rights under the Contract,
the Separate Account may be operated as a management company under the 1940
Act or any other form permitted by law, may be deregistered under the 1940 Act
in the event such registration is no longer required, or may be combined with
one or more other separate accounts.
VOTING RIGHTS
The Funds do not hold regular meetings of shareholders. The Directors/Trustees
of each Fund may call special meetings of shareholders as may be required by
the 1940 Act or other applicable law. To the extent required by law, the
Portfolio shares held in the Separate Account will be voted by AUSA Life at
shareholder meetings of each Fund in accordance with instructions received
from persons having voting interests in the corresponding Portfolio. Fund
shares as to which no timely instructions are received or shares held by AUSA
Life as to which Contract Owners have no beneficial interest will be voted in
proportion to the voting instructions that are received with respect to all
Contracts participating in that Portfolio. Voting instructions to abstain on
any item to be voted upon will be applied on a pro rata basis to reduce the
votes eligible to be cast.
The number of votes that are available to a Contract Owner will be calculated
separately for each Portfolio. That number will be determined by applying his
or her percentage interest, if any, in a particular Portfolio to the total
number of votes attributable to the Portfolio.
Prior to the Annuity Date, a Contract Owner holds a voting interest in each
Portfolio to which the Accumulated Value is allocated. The number of votes
which are available to a Contract Owner will be determined by dividing the
Accumulated Value attributable to a Portfolio by the net asset value per share
of the applicable Portfolio. After the Annuity Date, the person receiving
Annuity Payments has the voting interest. The number of votes after the
Annuity Date will be determined by dividing the reserve for such Contract
allocated to the Portfolio by the net asset value per share of the
corresponding Portfolio. After the Annuity Date, the votes attributable to a
Contract decrease as the reserves allocated to the Portfolio decrease. In
determining the number of votes, fractional shares will be recognized.
The number of votes of the Portfolio that are available will be determined as
of the date coincident with the date established by that Portfolio for
determining shareholders eligible to vote at the meeting of the corresponding
Fund. Voting instructions will be solicited by written communication prior to
such meeting in accordance with procedures established by such Fund.
YEAR 2000 MATTERS
In October, 1996, AUSA Life adopted and currently has in place a Year 2000
Assessment and Planning Project (the "Plan") to review and analyze existing
hardware and software systems, as well as voice and data communications
systems, to determine if they are Year 2000 compatible. The Plan provides for
a management process that ensures that when a particular system, or software
application, is determined to be "non-compliant" the proper steps are in place
to either remedy the "non-compliance" or cease using the particular system or
software. The Plan also provides that the Chief Information Officer report to
the Board of Directors as to the status of the efforts under the Plan on a
regular and routine basis. AUSA Life has engaged the services of a third-party
provider that is specialized in Year 2000 issues to work on the project.
The Plan has four specific objectives: (1) to develop an inventory of all
applications; (2) to evaluate all applications in the inventory to determine
the most prudent manner to move them to Year 2000 compliance, if required; (3)
to estimate budgets, resources and schedules for the migration of the
"affected" applications to Year 2000 compliance; and (4) to define testing and
deployment requirements to successfully manage validation and re-deployment of
any changed code. It is anticipated that all compliance issues will be
resolved by December 1998.
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As of the date of this Prospectus, AUSA Life has identified and made available
what it believes are the appropriate resources of hardware, people, and
dollars, including the engagement of outside third parties, to ensure that the
Plan will be completed.
The Year 2000 computer problem, and its resolution, is complex and
multifaceted, and the success of a response plan cannot be conclusively known
until the Year 2000 is reached (or an earlier date to the extent that the
systems or equipment addresses Year 2000 data prior to the Year 2000). Even
with appropriate and diligent pursuit of a well conceived response plan,
including testing procedures, there is no certainty that any company will
achieve complete success. Further, notwithstanding its efforts or results,
AUSA Life's ability to function unaffected to and through the Year 2000 may be
adversely affected by actions (or failures to act) of third parties beyond its
knowledge or control.
AUDITORS
Ernst & Young LLP serves as independent auditors for the Separate Account and
AUSA Life and will audit their financial statements annually.
LEGAL MATTERS
Jorden Burt Boros Cicchetti Berenson & Johnson LLP of Washington, D. C. has
provided legal advice relating to the federal securities laws applicable to
the issue and sale of the Contracts. All matters of New York law pertaining to
the validity of the Contract and AUSA Life's right to issue such Contracts
have been passed upon by Gregory E. Miller-Breetz, Esquire, on behalf of AUSA
Life.
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TABLE OF CONTENTS FOR THE AUSA MARQUEE VARIABLE ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C>
THE CONTRACT.............................................................. 3
Computation of Variable Annuity Income Payments......................... 3
Exchanges............................................................... 3
Exceptions to Charges and to Transaction or Balance Requirements........ 4
GENERAL MATTERS........................................................... 4
Non-Participating....................................................... 4
Misstatement of Age or Sex.............................................. 4
Assignment.............................................................. 4
Annuity Data............................................................ 4
Annual Statement........................................................ 4
Incontestability........................................................ 5
Ownership............................................................... 5
PERFORMANCE INFORMATION................................................... 5
Money Market Subaccount Yields.......................................... 5
30-Day Yield for Non-Money Market Subaccounts........................... 5
Standardized Average Annual Total Return for Subaccounts................ 6
ADDITIONAL PERFORMANCE MEASURES........................................... 7
Non-Standardized Cumulative Total Return and Non-Standardized Average
Annual Total Return.................................................... 7
Non-Standardized Total Return Year-to-Date.............................. 8
Non-Standardized One Year Return........................................ 8
Non-Standardized Hypothetical Cumulative Return and Non-Standardized
Hypothetical Average Annual Total Return............................... 9
Individualized Computer Generated Illustrations......................... 14
PERFORMANCE COMPARISONS................................................... 14
SAFEKEEPING OF ACCOUNT ASSETS............................................. 16
AUSA LIFE................................................................. 16
STATE REGULATION OF AUSA LIFE............................................. 16
RECORDS AND REPORTS....................................................... 17
DISTRIBUTION OF THE CONTRACTS............................................. 17
LEGAL PROCEEDINGS......................................................... 17
OTHER INFORMATION......................................................... 17
FINANCIAL STATEMENTS...................................................... 17
Audited Financial Statements............................................ 17
</TABLE>
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AUSA LIFE INSURANCE COMPANY, INC.
SEPARATE ACCOUNT C
STATEMENT OF ADDITIONAL INFORMATION
FOR THE
AUSA MARQUEE VARIABLE ANNUITY
OFFERED BY
AUSA LIFE INSURANCE COMPANY, INC.
(A NEW YORK STOCK COMPANY)
ADMINISTRATIVE OFFICES
4333 EDGEWOOD ROAD, N.E.
CEDAR RAPIDS, IOWA 52499
This Statement of Additional Information expands upon subjects discussed in
the current Prospectus for the AUSA Marquee variable annuity contracts (the
"Contracts" and each a "Contract," respectively) offered by AUSA Life
Insurance Company, Inc. ("AUSA Life"). You may obtain a copy of the Prospectus
dated October 1, 1998, by calling 1-800-866-6007 or by writing to our
Administrative Offices, at 4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499.
Terms used in the current Prospectus for the Contract are incorporated in this
Statement of Additional Information.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE
READ ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE CONTRACT.
October 1, 1998
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
THE CONTRACT.............................................................. 3
Computation of Variable Annuity Income Payments......................... 3
Exchanges............................................................... 3
Exceptions to Charges and to Transaction or Balance Requirements........ 4
GENERAL MATTERS........................................................... 4
Non-Participating....................................................... 4
Misstatement of Age or Sex.............................................. 4
Assignment.............................................................. 4
Annuity Data............................................................ 4
Annual Statement........................................................ 4
Incontestability........................................................ 5
Ownership............................................................... 5
PERFORMANCE INFORMATION................................................... 5
Money Market Subaccount Yields.......................................... 5
30-Day Yield for Non-Money Market Subaccounts........................... 5
Standardized Average Annual Total Return for Subaccounts................ 6
ADDITIONAL PERFORMANCE MEASURES........................................... 7
Non-Standardized Cumulative Total Return and Non-Standardized Average
Annual Total Return ................................................... 7
Non-Standardized Total Return Year-to-Date.............................. 8
Non-Standardized One Year Return........................................ 8
Non-Standardized Hypothetical Cumulative Return and Non-Standardized
Hypothetical Average Annual Total Return............................... 9
Individualized Computer Generated Illustrations......................... 14
PERFORMANCE COMPARISONS................................................... 14
SAFEKEEPING OF ACCOUNT ASSETS............................................. 16
AUSA LIFE................................................................. 16
STATE REGULATION OF AUSA LIFE............................................. 16
RECORDS AND REPORTS....................................................... 17
DISTRIBUTION OF THE CONTRACTS............................................. 17
LEGAL PROCEEDINGS......................................................... 17
OTHER INFORMATION......................................................... 17
FINANCIAL STATEMENTS...................................................... 17
Audited Financial Statements............................................ 17
</TABLE>
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THE CONTRACT
In order to supplement the description in the Prospectus, the following
provides additional information about the Contract which may be of interest to
Contract Owners.
COMPUTATION OF VARIABLE ANNUITY INCOME PAYMENTS
The amounts shown in the Annuity Tables contained in your Contract represent
the guaranteed minimum for each Annuity Payment under a Fixed Payment Option.
Variable annuity income payments are computed as follows. First, the
Accumulated Value (or the portion of the Accumulated Value used to provide
variable payments) is applied under the Annuity Tables contained in your
Contract corresponding to the Annuity Payment Option elected by the Contract
Owner and based on an assumed interest rate of 4%. This will produce a dollar
amount which is the first monthly payment. AUSA Life may, at the time annuity
income payments are computed, offer more favorable rates in lieu of the
guaranteed rates specified in the Annuity Tables.
The amount of each Annuity Payment after the first is determined by means of
Annuity Units. The number of Annuity Units is determined by dividing the first
Annuity Payment by the Annuity Unit Value for the selected Subaccount ten
Business Days prior to the Annuity Date. The number of Annuity Units for the
Subaccount then remains fixed, unless an Exchange of Annuity Units (as set
forth below) is made. After the first Annuity Payment, the dollar amount of
each subsequent Annuity Payment is equal to the number of Annuity Units
multiplied by the Annuity Unit Value for the Subaccount ten Business Days
before the due date of the Annuity Payment.
The Annuity Unit Value for each Subaccount was initially established at $10.00
on the date money was first deposited in that Subaccount. The Annuity Unit
Value for any subsequent Business Day is equal to (a) times (b) times (c),
where
(a)=the Annuity Unit Value for the immediately preceding Business Day;
(b)=the Net Investment Factor for the day;
(c)=the investment result adjustment factor (.99989255 per day), which
recognizes an assumed interest rate of 4% per year used in determining
the Annuity Payment amounts.
The Net Investment Factor is a factor applied to a Subaccount that reflects
daily changes in the value of the Subaccount due to:
(a)=any increase or decrease in the value of the Subaccount due to
investment results;
(b)=a daily charge for the mortality and expense risks assumed by AUSA Life
corresponding to an annual rate of 1.25%;
(c)=a daily charge for the cost of administering the Contract corresponding
to an annual charge of .15% of the value of the Subaccount plus the
Annual Contract Fee.
The Annuity Tables contained in the Contract are based on the 1983 Table "A"
Mortality Table projected for mortality improvement to the year 2000 using
Projection Scale G and an interest rate of 4% a year.
EXCHANGES
After the Annuity Date you may, by making a written request, exchange the
current value of an existing Subaccount to Annuity Units of any other
Subaccount(s) then available. The written request for an Exchange must be
received by us, however, at least 10 Business Days prior to the first payment
date on which the Exchange is to take effect. An Exchange shall result in the
same dollar amount as that of the Annuity Payment on the date of Exchange (the
"Exchange Date"). Each year you may make an unlimited number of free Exchanges
between Subaccounts. We reserve the right to charge a $15 fee in the future
for Exchanges in excess of twelve per Contract Year.
Exchanges will be made using the Annuity Unit Value for the Subaccounts on the
date the written request for Exchange is received. On the Exchange Date, AUSA
Life will establish a value for the current Subaccounts by multiplying the
Annuity Unit Value by the number of Annuity Units in the existing Subaccounts
and compute the number of Annuity Units for the new Subaccounts by dividing
the Annuity Unit Value of the new Subaccounts into the value previously
calculated for the existing Subaccounts.
3
<PAGE>
EXCEPTIONS TO CHARGES AND TO TRANSACTION OR BALANCE REQUIREMENTS
AUSA Life may reduce any applicable sales loads and reduce administrative
charges or other deductions from Purchase Payments in certain situations where
AUSA Life expects to realize significant economies of scale or other economic
benefits with respect to the sales of Contracts. This is possible because
sales costs do not increase in proportion to the dollar amount of the
Contracts sold. For example, the per-dollar transaction cost for a sale of a
Contract equal to $5,000 is generally much higher than the per-dollar cost for
a sale of a Contract equal to $1,000,000. As a result, any applicable sales
charge declines as a percentage of the dollar amount of Contracts sold as the
dollar amount increases.
AUSA Life may also reduce any applicable sales loads and reduce administrative
charges and fees on sales to directors, officers and bona fide full-time
employees (and their spouses and minor children) of AUSA Life, its ultimate
parent company, and certain of their affiliates and certain sales
representatives for the Contract. AUSA Life may also grant waivers or
modifications of certain minimum or maximum purchase and transaction amounts
or balance requirements in these circumstances.
Notwithstanding the above, any variations in the sales loads, administrative
charges or other deductions from Purchase Payments or in the minimum or
maximum transaction or balance requirements shall reflect differences in costs
or services and shall not be unfairly discriminatory against any person.
GENERAL MATTERS
NON-PARTICIPATING
The Contracts are non-participating. No dividends are payable and the
Contracts will not share in the profits or surplus earnings of AUSA Life.
MISSTATEMENT OF AGE OR SEX
AUSA Life may require proof of age and sex before making Annuity Payments. If
the Annuitant's stated age, sex or both in the Contract are incorrect, AUSA
Life will change the annuity benefits payable to those benefits which the
Purchase Payments would have purchased for the correct age and sex. In the
case of correction of the stated age and/or sex after payments have commenced,
AUSA Life will: (1) in the case of underpayment, pay the full amount due with
the next payment; and (2) in the case of overpayment, deduct the amount due
from one or more future payments.
ASSIGNMENT
Any Non-Qualified Contract may be assigned by you prior to the Annuity Date
and during the Annuitant's lifetime. AUSA Life is not responsible for the
validity of any assignment. No assignment will be recognized until AUSA Life
receives the appropriate AUSA Life form notifying AUSA Life of such
assignment. The interest of any beneficiary which the assignor has the right
to change shall be subordinate to the interest of an assignee. Any amount paid
to the assignee shall be paid in one sum notwithstanding any settlement
agreement in effect at the time assignment was executed. AUSA Life shall not
be liable as to any payment or other settlement made by AUSA Life before
receipt of the appropriate AUSA Life form.
ANNUITY DATA
AUSA Life will not be liable for obligations which depend on receiving
information from a Payee until such information is received in a form
satisfactory to AUSA Life.
ANNUAL STATEMENT
Once each Contract Year, AUSA Life will send you an annual statement of the
current Accumulated Value allocated to each Subaccount and any Purchase
Payments, charges, Exchanges or withdrawals during the year. This report will
also give you any other information required by law or regulation. You may ask
for an annual statement like this at any time. We will also send you quarterly
statements. However, we reserve the right to discontinue quarterly statements
at any time.
4
<PAGE>
INCONTESTABILITY
This Contract is incontestable from the Contract Date, subject to the
"Misstatement of Age or Sex" provision.
OWNERSHIP
The Contract Owner on the Contract Date is the Annuitant, unless otherwise
specified in the application. The Contract Owner may specify a new Contract
Owner by sending us the appropriate AUSA Life form at any time thereafter. The
term Contract Owner also includes any person named as a Joint Owner. A Joint
Owner shares ownership in all respects with the Contract Owner. During the
Annuitant's lifetime, all rights and privileges under this Contract may be
exercised solely by the Contract Owner. Upon the death of the Contract Owner,
ownership is retained by the surviving Joint Owner or passes to the Owner's
Designated Beneficiary, if one has been designated by the Contract Owner. If
no Owner's Designated Beneficiary has been selected or if no Owner's
Designated Beneficiary is living, then the Owner's Designated Beneficiary is
the Contract Owner's estate. From time to time AUSA Life may require proof
that the Contract Owner is still living.
PERFORMANCE INFORMATION
Performance information for the Subaccounts including the yield and effective
yield of the Fidelity Money Market Subaccount, the yield of the remaining
Subaccounts, and the total return of all Subaccounts, may appear in reports or
promotional literature to current or prospective Contract Owners.
Where applicable in calculating performance information, the Annual Contract
Fee is reflected as a percentage equal to the estimated total amount of fees
collected during a calendar year divided by the estimated total average net
assets of the Portfolios during the same calendar year. The fee is assumed to
remain the same in each year of the applicable period. (With respect to
partial year periods, if any, the Annual Contract Fee is pro-rated to reflect
only the applicable portion of the partial year period.) Where applicable, the
following subaccount inception dates are used in the calculation of
performance figures: 5/1/97 for the Fidelity Money Market Portfolio; 5/1/97
for the Fidelity Equity-Income Portfolio; 5/1/97 for the Fidelity Growth
Portfolio; 5/1/97 for the Fidelity Asset Manager Portfolio; 5/1/97 for the
Dreyfus Growth and Income Portfolio; 5/1/97 for the Dreyfus Quality Bond
Portfolio; 5/1/97 for the T. Rowe Price Equity Income Portfolio; 5/1/97 for
the T. Rowe Price New America Growth Portfolio; 5/1/97 for the T. Rowe Price
International Stock Portfolio; 5/1/97 for the OCC Accumulation Trust Managed
Portfolio; 5/1/97 for the OCC Accumulation Trust Small Cap Portfolio; and
5/1/97 for the OCC Accumulation Trust Government Income Portfolio.
MONEY MARKET SUBACCOUNT YIELDS
Current yield for the Fidelity Money Market Subaccount will be based on the
change in the value of a hypothetical investment (exclusive of capital
changes) over a particular 7-day period, less a pro-rata share of Subaccount
expenses accrued over that period (the "base period"), and stated as a
percentage of the investment at the start of the base period (the "base period
return"). The base period return is then annualized by multiplying by /365/7/,
with the resulting yield figure carried to at least the nearest hundredth of
one percent.
Calculation of "effective yield" begins with the same "base period return"
used in the calculation of yield, which is then annualized to reflect weekly
compounding pursuant to the following formula:
Effective Yield = [((Base Period Return)+1)/365/7/]-1
30-DAY YIELD FOR NON-MONEY MARKET SUBACCOUNTS
Quotations of yield for the remaining Subaccounts will be based on all
investment income per Unit earned during a particular 30-day period, less
expenses accrued during the period ("net investment income"), and will be
computed by dividing net investment income by the value of a Unit on the last
day of the period, according to the following formula:
YIELD = 2[(a-b+1)/6/-1]
cd
Where:
[a] equals the net investment income earned during the period by the
Portfolio attributable to shares owned by a Subaccount;
[b] equals the expenses accrued for the period (net of reimbursement);
[c] equals the average daily number of Units outstanding during the period;
and
[d] equals the maximum offering price per Accumulation Unit on the last day
of the period.
5
<PAGE>
Yield on a Subaccount is earned from the increase in net asset value of shares
of the Portfolio in which the Subaccount invests and from dividends declared
and paid by the Portfolio, which are automatically reinvested in shares of the
Portfolio.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FOR SUBACCOUNTS
When advertising performance of the Subaccounts, AUSA Life will show the
"Standardized Average Annual Total Return," calculated as prescribed by the
rules of the SEC, for each Subaccount. The Standardized Average Annual Total
Return is the effective annual compounded rate of return that would have
produced the cash redemption value over the stated period had the performance
remained constant throughout. The calculation assumes a single $1,000 payment
made at the beginning of the period and full redemption at the end of the
period. It reflects the deduction of all applicable sales loads (including the
contingent deferred sales load), the Annual Contract Fee and all other
Portfolio, Separate Account and Contract level charges except Premium Taxes,
if any.
Quotations of average annual total return for any Subaccount will be expressed
in terms of the average annual compounded rate of return of a hypothetical
investment in a Contract over a period of one, five and ten years (or, if
less, up to the life of the Subaccount), calculated pursuant to the formula:
P(1+T)/n/=ERV
Where:
(1) [P]equals a hypothetical initial Purchase Payment of $1,000;
(2) [T]equals an average annual total return;
(3) [n]equals the number of years; and
(4) [ERV] equals the ending redeemable value of a hypothetical $1,000 Purchase
Payment made at the beginning of the period (or fractional portion
thereof).
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
FOR PERIOD ENDING DECEMBER 31, 1997
<TABLE>
<CAPTION>
SINCE
SUBACCOUNT
SUBACCOUNT 1 YEAR INCEPTION
- ---------- ------ ----------
<S> <C> <C>
Fidelity Money Market Portfolio............................... N/A -4.74
Fidelity Equity-Income Portfolio.............................. N/A 12.03
Fidelity Growth Portfolio..................................... N/A 10.63
Fidelity Asset Manager Portfolio.............................. N/A 7.59
Dreyfus Growth and Income Portfolio........................... N/A 7.88
Dreyfus Quality Bond Portfolio................................ N/A -0.14
T. Rowe Price Equity Income Portfolio......................... N/A 12.75
T. Rowe Price New America Growth Portfolio.................... N/A 16.03
T. Rowe Price International Stock Portfolio................... N/A -5.03
OCC Accumulation Trust Managed Portfolio...................... N/A 6.93
OCC Accumulation Trust Small Cap Portfolio.................... N/A 13.50
OCC Accumulation Trust Government Income Portfolio............ N/A -1.49
</TABLE>
6
<PAGE>
ADDITIONAL PERFORMANCE MEASURES
NON-STANDARDIZED CUMULATIVE TOTAL RETURN AND NON-STANDARDIZED AVERAGE ANNUAL
TOTAL RETURN
AUSA Life may show Non-Standardized Cumulative Total Return (i.e., the
percentage change in the value of an Accumulation Unit) for one or more
Subaccounts with respect to one or more periods. AUSA Life may also show Non-
Standardized Average Annual Total Return (i.e., the average annual change in
Accumulation Unit Value) with respect to one or more periods. For one year,
the Non-Standardized Cumulative Total Return and the Non-Standardized Average
Annual Total Return are effective annual rates of return and are equal. For
periods greater than one year, the Non-Standardized Average Annual Total
Return is the effective annual compounded rate of return for the periods
stated. Because the value of an Accumulation Unit reflects the Separate
Account and Portfolio expenses (see Fee Table in the Prospectus), the Non-
Standardized Cumulative Total Return and Non-Standardized Average Annual Total
Return also reflect these expenses. However, these percentages do not reflect
the Annual Contract Fee, any sales loads or Premium Taxes (if any), which, if
included, would reduce the percentages reported by AUSA Life.
NON-STANDARDIZED CUMULATIVE TOTAL RETURN
FOR PERIOD ENDING DECEMBER 31, 1997
<TABLE>
<CAPTION>
SINCE
----------
SUBACCOUNT
SUBACCOUNT 1 YEAR* INCEPTION
---------- ------- ----------
<S> <C> <C>
Fidelity Money Market Portfolio.............................. N/A 2.72%
Fidelity Equity-Income Portfolio............................. N/A 21.17%
Fidelity Growth Portfolio.................................... N/A 19.64%
Fidelity Asset Manager Portfolio............................. N/A 15.63%
Dreyfus Growth and Income Portfolio.......................... N/A 15.46%
Dreyfus Quality Bond Portfolio............................... N/A 7.07%
T. Rowe Price Equity Income Portfolio........................ N/A 20.84%
T. Rowe Price New America Growth Portfolio................... N/A 24.35%
T. Rowe Price International Stock Portfolio.................. N/A 1.57%
OCC Accumulation Trust Managed Portfolio..................... N/A 15.37%
OCC Accumulation Trust Small Cap Portfolio................... N/A 22.24%
OCC Accumulation Trust Government Income Portfolio........... N/A 5.33%
</TABLE>
*Returns shown are for the period from each Subaccount's inception date. As of
12/31/97, the Subaccounts had not been in operation for an entire year.
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
FOR PERIOD ENDING DECEMBER 31, 1997
<TABLE>
<CAPTION>
SINCE
----------
SUBACCOUNT
SUBACCOUNT 1 YEAR* INCEPTION
---------- ------- ----------
<S> <C> <C>
Fidelity Money Market Portfolio.............................. N/A 2.72%
Fidelity Equity-Income Portfolio............................. N/A 21.17%
Fidelity Growth Portfolio.................................... N/A 19.64%
Fidelity Asset Manager Portfolio............................. N/A 15.63%
Dreyfus Growth and Income Portfolio.......................... N/A 15.46%
Dreyfus Quality Bond Portfolio............................... N/A 7.07%
T. Rowe Price Equity Income Portfolio........................ N/A 20.84%
T. Rowe Price New America Growth Portfolio................... N/A 24.35%
T. Rowe Price International Stock Portfolio.................. N/A 1.57%
OCC Accumulation Trust Managed Portfolio..................... N/A 15.37%
OCC Accumulation Trust Small Cap Portfolio................... N/A 22.24%
OCC Accumulation Trust Government Income Portfolio........... N/A 5.33%
</TABLE>
*Returns shown are for the period from each Subaccount's inception date. As of
12/31/97, the Subaccounts had not been in operation for an entire year.
7
<PAGE>
NON-STANDARDIZED TOTAL RETURN YEAR-TO-DATE
AUSA Life may show Non-Standardized Total Return Year-to-Date as of a
particular date, or simply Total Return YTD, for one or more subaccounts with
respect to one or more non-standardized base periods commencing at the
beginning of a calendar year. Total Return YTD figures reflect the percentage
change in actual Accumulation Unit Values during the relevant period. These
percentages reflect a deduction for the Separate Account and Portfolio
expenses, but do not include the Annual Contract Fee, any sales loads or
Premium Taxes (if any), which, if included, would reduce the percentages
reported by AUSA Life.
NON-STANDARDIZED TOTAL RETURN YEAR-TO-DATE
<TABLE>
<CAPTION>
TOTAL RETURN YTD
SUBACCOUNT AS OF 12/31/97*
---------- ----------------
<S> <C>
Fidelity Money Market Portfolio................................ 2.72%
Fidelity Equity-Income Portfolio............................... 21.17%
Fidelity Growth Portfolio...................................... 19.64%
Fidelity Asset Manager Portfolio............................... 15.63%
Dreyfus Growth and Income Portfolio............................ 15.46%
Dreyfus Quality Bond Portfolio................................. 7.07%
T. Rowe Price Equity Income Portfolio.......................... 20.84%
T. Rowe Price New America Growth Portfolio..................... 24.35%
T. Rowe Price International Stock Portfolio.................... 1.57%
OCC Accumulation Trust Managed Portfolio....................... 15.37%
OCC Accumulation Trust Small Cap Portfolio..................... 22.24%
OCC Accumulation Trust Government Income Portfolio............. 5.33%
</TABLE>
*Returns shown are for the period from each Subaccount's inception date. As of
12/31/97, the Subaccounts had not been in operation for an entire year.
NON-STANDARDIZED ONE YEAR RETURN
AUSA Life may show Non-Standardized One Year Return, for one or more
Subaccounts with respect to one or more non-standardized base periods
commencing at the beginning of a calendar year (or date of Portfolio
inception, if during the relevant year) and ending at the end of such calendar
year. One Year Return figures reflect the historical performance of the
Portfolios as if the Contract were in existence before its inception date
(which it was not). After the Contract's inception date, the figures reflect
the percentage change in actual Accumulation Unit Values during the relevant
period. These percentages reflect a deduction for the Separate Account and
Portfolio expenses, but do not include the Annual Contract Fee, any sales
loads or Premium Taxes (if any), which, if included, would reduce the
percentages reported by AUSA Life.
NON-STANDARDIZED ONE YEAR RETURN
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Fidelity Money Market
Portfolio.................... 4.02% 3.94% 4.42% 2.79% 1.78% 2.45% 4.60%
Fidelity Equity-Income
Portfolio.................... 26.33% 12.68% 33.22% 5.57% 16.61% 15.25% 29.60%
Fidelity Growth Portfolio..... 21.76% 13.10% 33.49% -1.42% 17.70% 7.79% 43.47%
Fidelity Asset Manager
Portfolio.................... 18.97% 13.00% 15.33% -7.40% 19.53% 10.15% 20.84%
Dreyfus Growth and Income
Portfolio.................... 14.60% 19.06% 59.65% N/A N/A N/A N/A
Dreyfus Quality Bond
Portfolio.................... 7.27% 1.68% 18.75% -5.93% 13.72% 10.52% 12.52%
T. Rowe Price Equity Income
Portfolio.................... 27.06% 21.05% 32.89% N/A N/A N/A N/A
T. Rowe Price New America
Growth Portfolio............. 19.43% 17.06% 48.99% N/A N/A N/A N/A
T. Rowe Price International
Stock Portfolio.............. 1.66% 13.09% 9.64% N/A N/A N/A N/A
OCC Accumulation Trust Managed
Portfolio.................... 20.59% 21.05% 43.53% N/A N/A N/A N/A
OCC Accumulation Trust Small
Cap Portfolio................ 20.54% 17.06% 13.63% N/A N/A N/A N/A
OCC Accumulation Trust U.S.
Gov't Income Portfolio....... 5.59% 1.59% 10.07% N/A N/A N/A N/A
</TABLE>
8
<PAGE>
NON-STANDARDIZED HYPOTHETICAL CUMULATIVE RETURN AND NON-STANDARDIZED
HYPOTHETICAL AVERAGE ANNUAL TOTAL RETURN
AUSA Life may show Non-Standardized Hypothetical Cumulative Return and Non-
Standardized Hypothetical Average Annual Total Return, calculated on the basis
of the historical performance of the Portfolios (calculated beginning from the
end of the year of inception for each Portfolio) and may assume the Contract
was in existence prior to its inception date (which it was not). After the
Contract's inception date, the calculations will reflect actual Accumulation
Unit Values. These returns are based on specified premium patterns which
produce the resulting Accumulated Values. They reflect a deduction for the
Separate Account expenses and Portfolio expenses. However, they do not include
the Annual Contract Fee, any sales loads or Premium Taxes (if any), which, if
included, would reduce the percentages reported.
The Non-Standardized Hypothetical Cumulative Return for a Subaccount is the
effective annual rate of return that would have produced the ending
Accumulated Value of the stated one-year period.
The Non-Standardized Hypothetical Average Annual Total Return for a Subaccount
is the effective annual compounded rate of return that would have produced the
ending Accumulated Value over the stated period had the performance remained
constant throughout.
When applicable, the following Portfolios inception dates are used in the
calculation of non-standardized hypothetical performance figures: April 1,
1982 for the Fidelity Money Market Portfolio; October 9, 1986 for the Fidelity
Equity-Income Portfolio; October 9, 1986 for the Fidelity Growth Portfolio;
September 6, 1989 for the Fidelity Asset Manager Portfolio; May 2, 1994 for
the Dreyfus Growth and Income Portfolio; August 31, 1990 for the Dreyfus
Quality Bond Portfolio; March 31, 1994 for the T. Rowe Price Income Portfolio;
March 31, 1994 for the T. Rowe Price New America Growth Portfolio; March 31,
1994 for the T. Rowe Price International Stock Portfolio; July 31, 1988 for
the OCC Accumulation Trust Managed Portfolio; July 31, 1988 for the OCC
Accumulation Trust Small Cap Portfolio; and November 18, 1994 for the OCC
Accumulation Trust Government Income Portfolio.
HYPOTHETICAL CUMULATIVE RETURNS FOR PERIODS ENDING 12/31/97
(BASED ON SINGLE INITIAL PURCHASE)
<TABLE>
<CAPTION>
TOTAL
SINCE
FUND
1 INCEPTION
YEAR 3 YEAR 5 YEAR YEAR-END
----- ------ ------ ---------
<S> <C> <C> <C> <C>
Fidelity Money Market Portfolio............... 4.02% 12.89% 18.14% 128.28%
Fidelity Equity-Income Portfolio.............. 26.33% 89.63% 133.76% 297.17%
Fidelity Growth Portfolio..................... 21.76% 83.83% 113.41% 338.02%
Fidelity Asset Manager Portfolio.............. 18.97% 55.05% 71.72% 135.20%
Dreyfus Growth and Income Portfolio........... 14.60% 117.82% N/A 115.25%
Dreyfus Quality Bond Portfolio................ 7.27% 29.52% 38.49% 75.38%
TRP Equity Income Portfolio................... 27.06% 99.06% N/A 111.20%
TRP New America Growth Portfolio.............. 19.43% N/A N/A 110.75%
TRP International Stock Portfolio............. 1.66% 26.05% N/A 27.02%
OCC Accumulation Trust Managed Portfolio...... 20.59% 109.34% 130.82% 409.79%
OCC Accumulation Trust Small Cap Portfolio.... 20.54% 60.33% 84.49% 243.80%
OCC Accumulation Trust Government Income
Portfolio.................................... 5.59% 15.08% N/A 19.54%
</TABLE>
HYPOTHETICAL AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING 12/31/97
(BASED ON SINGLE INITIAL PURCHASE)
<TABLE>
<CAPTION>
SINCE
FUND
INCEPTION
1 YEAR 3 YEAR 5 YEAR YEAR-END
------ ------ ------ ---------
<S> <C> <C> <C> <C>
Fidelity Money Market Portfolio................. 4.02% 4.13% 3.39% 5.38%
Fidelity Equity-Income Portfolio................ 26.33% 23.78% 18.51% 13.07%
Fidelity Growth Portfolio....................... 21.76% 22.50% 16.37% 14.06%
Fidelity Asset Manager Portfolio................ 18.97% 15.74% 11.42% 10.84%
Dreyfus Growth and Income Portfolio............. 14.60% 29.63% N/A 23.26%
Dreyfus Quality Bond Portfolio.................. 7.27% 9.00% 6.73% 7.16%
TRP Equity Income Portfolio..................... 27.06% 25.79% N/A 22.04%
TRP New America Growth Portfolio................ 19.43% 28.20% N/A 21.47%
TRP International Stock Portfolio............... 1.66% 8.02% N/A 6.58%
OCC Accumulation Trust Managed Portfolio........ 20.59% 27.96% 18.21% 18.88%
OCC Accumulation Trust Small Cap Portfolio...... 20.54% 17.04% 13.03% 14.01%
OCC Accumulation Trust Government Income
Portfolio...................................... 5.59% N/A N/A 5.89%
</TABLE>
9
<PAGE>
Note: On September 16, 1994, an investment company then called Quest for Value
Accumulation Trust (the "Old Trust") was effectively divided into two
investment funds, the Old Trust and the Quest For Value Accumulation Trust
(now known as the OCC Accumulation Trust) that is included in the Contract
(the "New Trust"), at which time the New Trust commenced operations. The total
net assets for each of the OCC Accumulation Trust Small Cap and OCC
Accumulation Trust Managed Portfolios immediately after the transaction were
$139,812,573 and $682,601,380, respectively, with respect to the Old Trust
and, with respect to the New Trust were $8,129,274 and $51,345,102, for the
OCC Accumulation Trust Small Cap and OCC Accumulation Trust Managed Growth
Portfolios, respectively. For the period prior to September 16, 1994, the
performance figures above for each of the OCC Accumulation Trust Small Cap and
OCC Accumulation Trust Managed Portfolios reflect the performance of the
corresponding Portfolios of the Old Trust.
Note: Advertisements and other sales literature for the Portfolios may quote
total returns which are calculated on non-standardized base periods. These
total returns also represent the historic change in the value of an investment
in the Portfolios based on monthly reinvestment of dividends over a specific
period of time.
HYPOTHETICAL ILLUSTRATIONS
<TABLE>
<CAPTION>
FIDELITY EQUITY INCOME PORTFOLIO
- --------------------------------------------------------------------------------------------------
$2,000 PURCHASE PAYMENT MADE DECEMBER
31, 1986 AND YEARLY DECEMBER 31ST $50,000 SINGLE PURCHASE PAYMENT MADE
THEREAFTER DECEMBER 31, 1986
-------------------------------------- --------------------------------------
VALUES PRIOR TO VALUES PRIOR TO
CURRENT YEAR'S NON- CURRENT YEAR'S NON-
PURCHASE PAYMENT STANDARDIZED PURCHASE PAYMENT STANDARDIZED
---------------------- --------------- ---------------------- ---------------
ONE AVERAGE ONE AVERAGE
YEAR ANNUAL YEAR ANNUAL CUMULATIVE
CUMULATIVE ACCUMULATED TOTAL TOTAL CUMULATIVE ACCUMULATED TOTAL TOTAL FUND TOTAL
DATE PAYMENT VALUE RETURN RETURN PAYMENT VALUE RETURN RETURN RETURN
- -------- ---------- ----------- ------- ------- ---------- ----------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/86 $ 2,000 N/A N/A N/A $50,000 N/A N/A N/A 0.00
12/31/87 $ 4,000 $ 1,950 -2.51% -2.51% $50,000 $ 48,743 -2.51% -2.51% -2.51
12/31/88 $ 6,000 $ 4,779 20.99% 12.46% $50,000 $ 58,975 20.99% 8.60% 17.95
12/31/89 $ 8,000 $ 7,843 15.70% 14.00% $50,000 $ 68,233 15.70% 10.92% 36.47
12/31/90 $10,000 $ 8,221 -16.48% 1.09% $50,000 $ 56,991 -16.48% 3.33% 13.98
12/31/91 $12,000 $13,247 29.60% 9.52% $50,000 $ 73,860 29.60% 8.12% 47.72
12/31/92 $14,000 $17,572 15.25% 11.01% $50,000 $ 85,126 15.25% 9.27% 70.25
12/31/93 $16,000 $22,828 16.63% 12.25% $50,000 $ 99,286 16.63% 10.30% 98.57
12/31/94 $18,000 $26,211 5.57% 10.90% $50,000 $104,817 5.57% 9.69% 109.63
12/31/95 $20,000 $37,583 33.22% 14.48% $50,000 $139,637 33.22% 12.09% 179.27
12/31/96 $22,000 $44,602 12.68% 14.20% $50,000 $157,345 12.68% 12.15% 214.69
12/31/97 $24,000 $58,872 26.33% 15.78% $50,000 $198,769 26.33% 13.37% 297.54
<CAPTION>
FIDELITY GROWTH PORTFOLIO
- --------------------------------------------------------------------------------------------------
$2,000 PURCHASE PAYMENT MADE DECEMBER
31, 1986 AND YEARLY DECEMBER 31ST $50,000 SINGLE PURCHASE PAYMENT MADE
THEREAFTER DECEMBER 31, 1986
-------------------------------------- --------------------------------------
VALUES PRIOR TO VALUES PRIOR TO
CURRENT YEAR'S NON- CURRENT YEAR'S NON-
PURCHASE PAYMENT STANDARDIZED PURCHASE PAYMENT STANDARDIZED
---------------------- --------------- ---------------------- ---------------
ONE AVERAGE ONE AVERAGE
YEAR ANNUAL YEAR ANNUAL CUMULATIVE
CUMULATIVE ACCUMULATED TOTAL TOTAL CUMULATIVE ACCUMULATED TOTAL TOTAL FUND TOTAL
DATE PAYMENT VALUE RETURN RETURN PAYMENT VALUE RETURN RETURN RETURN
- -------- ---------- ----------- ------- ------- ---------- ----------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/86 $ 2,000 N/A N/A N/A $50,000 N/A N/A N/A 0.00
12/31/87 $ 4,000 $ 2,044 2.21% 2.21% $50,000 $ 51,104 2.21% 2.21% 2.21
12/31/88 $ 6,000 $ 4,609 13.96% 9.83% $50,000 $ 58,240 13.96% 7.93% 16.48
12/31/89 $ 8,000 $ 8,570 29.67% 18.92% $50,000 $ 75,519 29.67% 14.73% 51.04
12/31/90 $10,000 $ 9,199 -12.97% 5.67% $50,000 $ 65,727 -12.97% 7.08% 31.45
12/31/91 $12,000 $16,068 43.47% 16.25% $50,000 $ 94,300 43.47% 13.53% 88.60
12/31/92 $14,000 $19,475 7.79% 14.02% $50,000 $101,646 7.79% 12.55% 103.29
12/31/93 $16,000 $25,276 17.70% 14.82% $50,000 $119,636 17.70% 13.27% 139.27
12/31/94 $18,000 $26,889 -1.42% 11.46% $50,000 $117,937 -1.42% 11.32% 135.87
12/31/95 $20,000 $38,563 33.49% 14.98% $50,000 $157,433 33.49% 13.59% 214.87
12/31/96 $22,000 $45,876 13.10% 14.69% $50,000 $178,051 13.10% 13.54% 256.10
12/31/97 $24,000 $58,295 21.76% 15.63% $50,000 $216,803 21.76% 14.27% 333.61
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
FIDELITY ASSET MANAGER PORTFOLIO
- ------------------------------------------------------------------------------------------------
$2,000 PURCHASE PAYMENT MADE
DECEMBER 31, 1989 AND YEARLY $50,000 SINGLE PURCHASE PAYMENT
DECEMBER 31ST THEREAFTER MADE DECEMBER 31, 1989
------------------------------------- -------------------------------------
VALUES PRIOR TO VALUES PRIOR TO
CURRENT YEAR'S NON- CURRENT YEAR'S NON-
PURCHASE PAYMENT STANDARDIZED PURCHASE PAYMENT STANDARDIZED
---------------------- -------------- ---------------------- --------------
ONE AVERAGE ONE AVERAGE
YEAR ANNUAL YEAR ANNUAL CUMULATIVE
CUMULATIVE ACCUMULATED TOTAL TOTAL CUMULATIVE ACCUMULATED TOTAL TOTAL FUND TOTAL
DATE PAYMENT VALUE RETURN RETURN PAYMENT VALUE RETURN RETURN RETURN
---- ---------- ----------- ------ ------- ---------- ----------- ------ ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/89 $ 2,000 N/A N/A N/A $50,000 N/A N/A N/A N/A
12/31/90 $ 4,000 $ 2,105 5.23% 5.23% $50,000 $ 52,613 5.23% 5.23% 5.23%
12/31/91 $ 6,000 $ 4,960 20.84% 15.23% $50,000 $ 63,580 20.84% 12.76% 27.16%
12/31/92 $ 8,000 $ 7,666 10.15% 12.76% $50,000 $ 70,031 10.15% 11.89% 40.06%
12/31/93 $10,000 $11,554 19.53% 15.26% $50,000 $ 83,709 19.53% 13.75% 67.42%
12/31/94 $12,000 $12,551 -7.40% 7.67% $50,000 $ 77,511 -7.40% 9.16% 55.02%
12/31/95 $14,000 $16,782 15.33% 9.67% $50,000 $ 89,396 15.33% 10.17% 78.79%
12/31/96 $16,000 $21,223 13.00% 10.42% $50,000 $101,016 13.00% 10.57% 102.03%
12/31/97 $18,000 $27,629 18.97% 12.06% $50,000 $120,182 18.97% 11.59% 140.36%
<CAPTION>
FIDELITY MONEY MARKET PORTFOLIO
- ------------------------------------------------------------------------------------------------
$2,000 PURCHASE PAYMENT MADE
DECEMBER 31, 1983 AND YEARLY $50,000 SINGLE PURCHASE PAYMENT
DECEMBER 31ST THEREAFTER MADE DECEMBER 31, 1983
------------------------------------- -------------------------------------
VALUES PRIOR TO VALUES PRIOR TO
CURRENT YEAR'S NON- CURRENT YEAR'S NON-
PURCHASE PAYMENT STANDARDIZED PURCHASE PAYMENT STANDARDIZED
---------------------- -------------- ---------------------- --------------
ONE AVERAGE ONE AVERAGE
YEAR ANNUAL YEAR ANNUAL CUMULATIVE
CUMULATIVE ACCUMULATED TOTAL TOTAL CUMULATIVE ACCUMULATED TOTAL TOTAL FUND TOTAL
DATE PAYMENT VALUE RETURN RETURN PAYMENT VALUE RETURN RETURN RETURN
---- ---------- ----------- ------ ------- ---------- ----------- ------ ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/83 $ 2,000 N/A N/A N/A $50,000 N/A N/A N/A N/A
12/31/84 $ 4,000 $ 2,178 8.88% 8.88% $50,000 $ 54,442 8.88% 8.88% 8.88%
12/31/85 $ 6,000 $ 4,453 6.60% 7.37% $50,000 $ 58,033 6.60% 7.73% 16.07%
12/31/86 $ 8,000 $ 6,789 5.21% 6.31% $50,000 $ 61,055 5.21% 6.88% 22.11%
12/31/87 $10,000 $ 9,224 4.95% 5.78% $50,000 $ 64,077 4.95% 6.40% 28.15%
12/31/88 $12,000 $11,885 5.89% 5.81% $50,000 $ 67,849 5.89% 6.30% 35.70%
12/31/89 $14,000 $14,939 7.59% 6.29% $50,000 $ 73,000 7.59% 6.51% 46.00%
12/31/90 $16,000 $18,045 6.53% 6.35% $50,000 $ 77,765 6.53% 6.51% 55.53%
12/31/91 $18,000 $20,968 4.60% 5.98% $50,000 $ 81,346 4.60% 6.27% 62.69%
12/31/92 $20,000 $23,530 2.45% 5.32% $50,000 $ 83,335 2.45% 5.84% 66.67%
12/31/93 $22,000 $25,985 1.79% 4.71% $50,000 $ 84,822 1.78% 5.43% 69.64%
12/31/94 $24,000 $28,766 2.79% 4.41% $50,000 $ 87,189 2.79% 5.19% 74.38%
12/31/95 $26,000 $32,125 4.42% 4.41% $50,000 $ 91,039 4.42% 5.12% 82.08%
12/31/96 $28,000 $35,469 3.94% 4.35% $50,000 $ 94,625 3.94% 5.03% 89.25%
12/31/97 $30,000 $38,000 4.02% 4.31% $50,000 $ 98,432 4.02% 4.96% 96.86%
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
DREYFUS QUALITY BOND PORTFOLIO
- ------------------------------------------------------------------------------------------------
$2,000 PURCHASE PAYMENT MADE
DECEMBER 31, 1989 AND YEARLY $50,000 SINGLE PURCHASE PAYMENT
DECEMBER 31ST THEREAFTER MADE DECEMBER 31, 1989
------------------------------------- -------------------------------------
VALUES PRIOR TO VALUES PRIOR TO
CURRENT YEAR'S NON- CURRENT YEAR'S NON-
PURCHASE PAYMENT STANDARDIZED PURCHASE PAYMENT STANDARDIZED
---------------------- -------------- ---------------------- --------------
ONE AVERAGE ONE AVERAGE
YEAR ANNUAL YEAR ANNUAL CUMULATIVE
CUMULATIVE ACCUMULATED TOTAL TOTAL CUMULATIVE ACCUMULATED TOTAL TOTAL FUND TOTAL
DATE PAYMENT VALUE RETURN RETURN PAYMENT VALUE RETURN RETURN RETURN
---- ---------- ----------- ------ ------- ---------- ----------- ------ ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/89 $ 2,000 N/A N/A N/A $50,000 N/A N/A N/A N/A
12/31/90 $ 4,000 $ 2,019 0.97% 0.97% $50,000 $ 50,483 0.97% 0.97% 0.97%
12/31/91 $ 6,000 $ 4,523 12.52% 8.47% $50,000 $ 56,805 12.52% 6.59% 13.61%
12/31/92 $ 8,000 $ 7,209 10.52% 9.46% $50,000 $ 62,781 10.52% 7.88% 25.56%
12/31/93 $10,000 $10,472 13.72% 11.07% $50,000 $ 71,392 13.72% 9.31% 42.78%
12/31/94 $12,000 $11,733 -5.93% 5.38% $50,000 $ 67,161 -5.93% 6.08% 34.32%
12/31/95 $14,000 $16,308 18.75% 8.83% $50,000 $ 79,755 18.75% 8.09% 59.51%
12/31/96 $16,000 $18,615 1.68% 7.13% $50,000 $ 81,000 1.68% 7.15% 62.18%
12/31/97 $18,000 $22,113 7.27% 7.16% $50,000 $ 86,987 7.27% 7.17% 73.97%
<CAPTION>
DREYFUS GROWTH AND INCOME PORTFOLIO
- ------------------------------------------------------------------------------------------------
$2,000 PURCHASE PAYMENT MADE
DECEMBER 31, 1994 AND YEARLY $50,000 SINGLE PURCHASE PAYMENT
DECEMBER 31ST THEREAFTER MADE DECEMBER 31, 1994
------------------------------------- -------------------------------------
VALUES PRIOR TO VALUES PRIOR TO
CURRENT YEAR'S NON- CURRENT YEAR'S NON-
PURCHASE PAYMENT STANDARDIZED PURCHASE PAYMENT STANDARDIZED
---------------------- -------------- ---------------------- --------------
ONE AVERAGE ONE AVERAGE
YEAR ANNUAL YEAR ANNUAL CUMULATIVE
CUMULATIVE ACCUMULATED TOTAL TOTAL CUMULATIVE ACCUMULATED TOTAL TOTAL FUND TOTAL
DATE PAYMENT VALUE RETURN RETURN PAYMENT VALUE RETURN RETURN RETURN
---- ---------- ----------- ------ ------- ---------- ----------- ------ ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/94 $ 2,000 N/A N/A N/A $50,000 N/A N/A N/A N/A
12/31/95 $ 4,000 $ 3,193 59.65% 59.65% $50,000 $ 79,825 59.65% 59.65% 59.65%
12/31/96 $ 6,000 $ 6,183 19.06% 32.80% $50,000 $ 95,039 19.06% 37.87% 90.08%
12/31/97 $ 8,000 $ 9,377 14.60% 24.05% $50,000 $108,910 14.60% 29.63% 117.82%
<CAPTION>
T. ROWE PRICE EQUITY INCOME PORTFOLIO
- ------------------------------------------------------------------------------------------------
$2,000 PURCHASE PAYMENT MADE DECEMBER
31,
1994 AND YEARLY DECEMBER 31ST $50,000 SINGLE PURCHASE
THEREAFTER PAYMENT MADE DECEMBER 31, 1994
------------------------------------- -------------------------------------
VALUES PRIOR TO VALUES PRIOR TO
CURRENT YEAR'S NON- CURRENT YEAR'S NON-
PURCHASE PAYMENT STANDARDIZED PURCHASE PAYMENT STANDARDIZED
---------------------- -------------- ---------------------- --------------
ONE AVERAGE ONE AVERAGE
YEAR ANNUAL YEAR ANNUAL CUMULATIVE
CUMULATIVE ACCUMULATED TOTAL TOTAL CUMULATIVE ACCUMULATED TOTAL TOTAL FUND TOTAL
DATE PAYMENT VALUE RETURN RETURN PAYMENT VALUE RETURN RETURN RETURN
- ---- ---------- ----------- ------ ------- ---------- ----------- ------ ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/94 $ 2,000 N/A N/A N/A $50,000 N/A N/A N/A N/A
12/31/95 $ 4,000 $ 2,658 32.89% 32.89% $50,000 $ 66,446 32.89% 32.89% 32.89%
12/31/96 $ 6,000 $ 5,491 17.88% 23.07% $50,000 $ 78,330 17.88% 25.16% 56.66%
12/31/97 $ 8,000 $ 9,518 27.06% 24.92% $50,000 $ 99,529 27.06% 25.79% 99.06%
<CAPTION>
T. ROWE PRICE INTERNATIONAL PORTFOLIO
- ------------------------------------------------------------------------------------------------
$2,000 PURCHASE PAYMENT MADE DECEMBER
31,
1994 AND YEARLY DECEMBER 31ST $50,000 SINGLE PURCHASE
THEREAFTER PAYMENT MADE DECEMBER 31, 1994
------------------------------------- -------------------------------------
VALUES PRIOR TO VALUES PRIOR TO
CURRENT YEAR'S NON- CURRENT YEAR'S NON-
PURCHASE PAYMENT STANDARDIZED PURCHASE PAYMENT STANDARDIZED
---------------------- -------------- ---------------------- --------------
ONE AVERAGE ONE AVERAGE
YEAR ANNUAL YEAR ANNUAL CUMULATIVE
CUMULATIVE ACCUMULATED TOTAL TOTAL CUMULATIVE ACCUMULATED TOTAL TOTAL FUND TOTAL
DATE PAYMENT VALUE RETURN RETURN PAYMENT VALUE RETURN RETURN RETURN
- ---- ---------- ----------- ------ ------- ---------- ----------- ------ ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/94 $ 2,000 N/A N/A N/A $50,000 N/A N/A N/A N/A
12/31/95 $ 4,000 $ 2,193 9.64% 9.64% $50,000 $ 54,818 9.64% 9.64% 9.64%
12/31/96 $ 6,000 $ 4,742 13.09% 11.89% $50,000 $ 61,995 13.09% 11.35% 23.99%
12/31/97 $ 8,000 $ 6,853 1.66% 6.80% $50,000 $ 63,023 1.66% 8.02% 26.05%
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
T. ROWE PRICE NEW AMERICAN GROWTH FUND PORTFOLIO
- ------------------------------------------------------------------------------------------------
$2,000 PURCHASE PAYMENT MADE
DECEMBER 31, 1994 AND YEARLY DECEMBER $50,000 SINGLE PURCHASE PAYMENT MADE
31ST THEREAFTER DECEMBER 31, 1994
------------------------------------- ------------------------------------
VALUES PRIOR TO VALUES PRIOR TO
CURRENT YEAR'S NON- CURRENT YEAR'S NON-
PURCHASE PAYMENT STANDARDIZED PURCHASE PAYMENT STANDARDIZED
---------------------- -------------- ---------------------- --------------
ONE AVERAGE ONE AVERAGE
YEAR ANNUAL YEAR ANNUAL CUMULATIVE
CUMULATIVE ACCUMULATED TOTAL TOTAL CUMULATIVE ACCUMULATED TOTAL TOTAL FUND TOTAL
DATE PAYMENT VALUE RETURN RETURN PAYMENT VALUE RETURN RETURN RETURN
- -------- ---------- ----------- ------ ------- ---------- ----------- ------ ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/94 $2,000 N/A N/A N/A $50,000 N/A N/A N/A N/A
12/31/95 $4,000 $2,980 48.99% 48.99% $50,000 $ 74,495 48.99% 48.99% 48.99%
12/31/96 $6,000 $5,954 19.13% 29.63% $50,000 $ 89,227 19.13% 33.62% 76.42%
12/31/97 $8,000 $9,431 19.43% 24.39% $50,000 $105,351 19.43% 28.20% 110.70%
</TABLE>
<TABLE>
<CAPTION>
OCC ACCUMULATION TRUST MANAGED PORTFOLIO
- --------------------------------------------------------------------------------------------------
$2,000 PURCHASE PAYMENT MADE
DECEMBER 31, 1988 AND YEARLY DECEMBER $50,000 SINGLE PURCHASE PAYMENT MADE
31ST THEREAFTER DECEMBER 31, 1988
------------------------------------- ------------------------------------
VALUES PRIOR TO VALUES PRIOR TO
CURRENT YEAR'S NON- CURRENT YEAR'S NON-
PURCHASE PAYMENT STANDARDIZED PURCHASE PAYMENT STANDARDIZED
---------------------- --------------- ---------------------- ---------------
ONE AVERAGE ONE AVERAGE
YEAR ANNUAL YEAR ANNUAL CUMULATIVE
CUMULATIVE ACCUMULATED TOTAL TOTAL CUMULATIVE ACCUMULATED TOTAL TOTAL FUND TOTAL
DATE PAYMENT VALUE RETURN RETURN PAYMENT VALUE RETURN RETURN RETURN
- -------- ---------- ----------- ------ ------- ---------- ----------- ------ ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/88 $ 2,000 N/A N/A N/A $50,000 N/A N/A N/A 0.00
12/31/89 $ 4,000 $ 2,504 25.19% 25.19% $50,000 $62,595 25.19% 25.19% 25.19
12/31/90 $ 6,000 $ 3,229 -28.32% -13.46% $50,000 $44,868 -28.32% -5.27% -10.26
12/31/91 $ 8,000 $ 7,809 49.36% 13.77% $50,000 $67,015 49.36% 10.26% 34.03
12/31/92 $10,000 $ 7,861 -19.86% -0.70% $50,000 $53,706 -19.86% 1.80% 7.41
12/31/93 $12,000 $ 9,046 -8.26% -3.32% $50,000 $49,270 -8.26% -0.29% -1.46
12/31/94 $14,000 $10,124 -8.35% -4.84% $50,000 $45,156 -8.35% -1.68% -9.69
12/31/95 $16,000 $17,402 43.53% -0.25% $50,000 $64,814 43.53% 3.78% 29.63
12/31/96 $18,000 $23,487 21.05% 8.49% $50,000 $78,459 21.05% 5.79% 56.92
12/31/97 $20,000 $30,736 20.59% 10.56% $50,000 $94,618 20.59% 7.34% 89.24
</TABLE>
<TABLE>
<CAPTION>
OCC ACCUMULATION TRUST
US GOVERNMENT INCOME PORTFOLIO
- ------------------------------------------------------------------------------------------------
$2,000 PURCHASE PAYMENT MADE
DECEMBER 31, 1994 AND YEARLY $50,000 SINGLE PURCHASE PAYMENT
DECEMBER 31ST THEREAFTER MADE DECEMBER 31, 1994
------------------------------------- -------------------------------------
VALUES PRIOR TO VALUES PRIOR TO
CURRENT YEAR'S NON- CURRENT YEAR'S NON-
PURCHASE PAYMENT STANDARDIZED PURCHASE PAYMENT STANDARDIZED
---------------------- -------------- ---------------------- --------------
ONE AVERAGE ONE AVERAGE
YEAR ANNUAL YEAR ANNUAL CUMULATIVE
CUMULATIVE ACCUMULATED TOTAL TOTAL CUMULATIVE ACCUMULATED TOTAL TOTAL FUND TOTAL
DATE PAYMENT VALUE RETURN RETURN PAYMENT VALUE RETURN RETURN RETURN
- -------- ---------- ----------- ------ ------- ---------- ----------- ------ ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/94 $2,000 N/A N/A N/A $50,000 N/A N/A N/A N/A
12/31/95 $4,000 $2,201 10.07% 10.07% $50,000 $55,035 10.07% 10.07% 10.07
12/31/96 $6,000 $4,294 2.21% 4.83% $50,000 $56,250 2.21% 6.07% 11.82
12/31/97 $8,000 $6,619 5.59% 4.99% $50,000 $59,036 5.59% 5.69% 18.07
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
OCC ACCUMULATION TRUST SMALL CAP PORTFOLIO
- --------------------------------------------------------------------------------------------------
$2,000 PURCHASE PAYMENT MADE
DECEMBER 31, 1988 AND YEARLY $50,000 SINGLE PURCHASE PAYMENT
DECEMBER 31ST THEREAFTER MADE DECEMBER 31, 1988
-------------------------------------- --------------------------------------
VALUES PRIOR TO VALUES PRIOR TO
CURRENT YEAR'S NON- CURRENT YEAR'S NON-
PURCHASE PAYMENT STANDARDIZED PURCHASE PAYMENT STANDARDIZED
---------------------- --------------- ---------------------- ---------------
ONE AVERAGE ONE AVERAGE
YEAR ANNUAL YEAR ANNUAL CUMULATIVE
CUMULATIVE ACCUMULATED TOTAL TOTAL CUMULATIVE ACCUMULATED TOTAL TOTAL FUND TOTAL
DATE PAYMENT VALUE RETURN RETURN PAYMENT VALUE RETURN RETURN RETURN
- -------- ---------- ----------- ------ ------- ---------- ----------- ------ ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/88 $ 2,000 N/A N/A N/A $50,000 N/A N/A N/A 0.00
12/31/89 $ 4,000 $ 2,290 14.52% 14.52% $50,000 $57,259 14.52% 14.52% 14.52
12/31/90 $ 6,000 $ 3,225 -24.82% -13.52% $50,000 $43,047 -24.82% -7.21% -13.90
12/31/91 $ 8,000 $ 8,457 61.85% 18.17% $50,000 $69,670 61.85% 11.69% 39.35
12/31/92 $10,000 $ 8,457 -19.13% 2.24% $50,000 $56,345 -19.13% 3.03% 12.69
12/31/93 $12,000 $10,143 -3.01% 0.47% $50,000 $54,650 -3.01% 1.79% 9.30
12/31/94 $14,000 $ 9,917 -18.33% -5.42% $50,000 $44,634 -18.33% -1.87% -10.74
12/31/95 $16,000 $13,541 13.63% -0.42% $50,000 $50,715 13.63% 0.20% 1.43
12/31/96 $18,000 $18,192 17.06% 2.85% $50,000 $59,365 17.06% 2.17% 18.73
12/31/97 $20,000 $24,339 20.54% 5.98% $50,000 $71,560 20.54% 4.06% 43.12
</TABLE>
INDIVIDUALIZED COMPUTER GENERATED ILLUSTRATIONS
AUSA Life may from time to time use computer-based software available through
Morningstar, CDA/Wiesnberger and/or other firms to provide registered
representatives and existing and/or potential owners of Contracts with
individualized hypothetical performance illustrations for some or all of the
Portfolios. Such illustrations may include, without limitation, graphs, bar
charts and other types of formats presenting the following information: (i)
the historical results of a hypothetical investment in a single Portfolio;
(ii) the historical fluctuation of the value of a single Portfolio (actual and
hypothetical); (iii) the historical results of a hypothetical investment in
more than one Portfolio; (iv) the historical performance of two or more market
indices in relation to one another and/or one or more Portfolios; (v) the
historical performance of two or more market indices in comparison to a single
Portfolio or a group of Portfolios; (vi) a market risk/reward scatter chart
showing the historical risk/reward relationship of one or more mutual funds or
Portfolios to one or more indices and a broad category of similar anonymous
variable annuity subaccounts; and (vii) Portfolio data sheets showing various
information about one or more Portfolios (such as information concerning total
return for various periods, fees and expenses, standard deviation, alpha and
beta, investment objective, inception date and net assets).
PERFORMANCE COMPARISONS
Performance information for any Subaccount reflects only the performance of a
hypothetical Contract under which Accumulation Value is allocated to a
Subaccount during a particular time period on which the calculations are
based. Performance information should be considered in light of the investment
objectives and policies, characteristics and quality of the Portfolio in which
the Subaccount invests, and the market conditions during the given period, and
should not be considered as a representation of what may be achieved in the
future.
Reports and marketing materials may, from time to time, include information
concerning the rating of AUSA Life Insurance Company, Inc. as determined by
one or more of the ratings services listed below, or other recognized rating
services. Reports and promotional literature may also contain other
information including (i) the ranking of any Subaccount derived from rankings
of variable annuity separate accounts or other investment products tracked by
Lipper Analytical Services or by other rating services, companies,
publications, or other person who rank separate accounts or other investment
products on overall performance or other criteria, and (ii) the effect of tax-
deferred compounding on a Subaccount's investment returns, or returns in
general, which may be illustrated by graphs, charts, or otherwise, and which
may include a comparison, at various points in time, of the return from an
investment in a Contract (or returns in general) on a tax-deferred basis
(assuming one or more tax rates) with the return on a taxable basis.
14
<PAGE>
Each Subaccount's performance depends on, among other things, the performance
of the underlying Portfolio which, in turn, depends upon such variables as:
. quality of underlying investments;
. average maturity of underlying investments;
. type of instruments in which the Portfolio is invested;
. changes in interest rates and market value of underlying investments;
. changes in Portfolio expenses; and
. the relative amount of the Portfolio's cash flow.
From time to time, we may advertise the performance of the Subaccounts and the
underlying Portfolios as compared to similar funds or portfolios using certain
indexes, reporting services and financial publications, and we may advertise
rankings or ratings issued by certain services and/or other institutions.
These may include, but are not limited to, the following:
. Dow Jones Industrial Average ("DJIA"), an unmanaged index representing
share prices of major industrial corporations, public utilities, and
transportation companies. Produced by the Dow Jones & Company, it is
cited as a principal indicator of market conditions.
. Standard & Poor's Daily Stock Price Index of 500 Common Stocks, a
composite index of common stocks in industrial, transportation, and
financial and public utility companies, which can be used to compare to
the total returns of funds whose portfolios are invested primarily in
common stocks. In addition, the Standard & Poor's index assumes
reinvestments of all dividends paid by stocks listed on its index. Taxes
due on any of these distributions are not included, nor are brokerage or
other fees calculated into the Standard & Poor's figures.
. Lipper Analytical Services, Inc., a reporting service that ranks funds in
various fund categories by making comparative calculations using total
return. Total return assumes the reinvestment of all income dividends and
capital gains distributions, if any. From time to time, we may quote the
Portfolios' Lipper rankings in various fund categories in advertising and
sales literature.
. Bank Rate Monitor National Index, Miami Beach, Florida, a financial
reporting service which publishes weekly average rates of 50 leading bank
and thrift institution money market deposit accounts. The rates published
in the index are an average of the personal account rates offered on the
Wednesday prior to the date of publication by ten of the largest banks
and thrifts in each of the five largest Standard Metropolitan Statistical
Areas. Account minimums range upward from $2,500 in each institution, and
compounding methods vary. If more than one rate is offered, the lowest
rate is used. Rates are subject to change at any time specified by the
institution.
. Shearson Lehman Government/Corporate (Total) Index, an index comprised of
approximately 5,000 issues which include: non-convertible bonds publicly
issued by the U.S. government or its agencies; corporate bonds guaranteed
by the U.S. government and quasi-federal corporations; and publicly
issued, fixed-rate, non-convertible domestic bonds of companies in
industry, public utilities and finance. The average maturity of these
bonds approximates nine years. Tracked by Shearson Lehman, Inc., the
index calculates total returns for one month, three month, twelve month,
and ten year periods and year-to-date.
. Shearson Lehman Government/Corporate (Long-Term) Index, an index composed
of the same types of issues as defined above. However, the average
maturity of the bonds included in this index approximates 22 years.
. Shearson Lehman Government Index, an unmanaged index comprised of all
publicly issued, non-convertible domestic debt of the U.S. government, or
any agency thereof, or any quasi-federal corporation and of corporate
debt guaranteed by the U.S. government. Only notes and bonds with a
minimum outstanding principal of $1 million and a minimum maturity of one
year are included.
. Morningstar, Inc., an independent rating service that publishes the bi-
weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.
. Money, a monthly magazine that regularly ranks money market funds in
various categories based on the latest available seven-day compound
(effective) yield. From time to time, the Fund will quote its Money
ranking in advertising and sales literature.
. Standard & Poor's Utility Index, an unmanaged index of common stocks from
forty different utilities. This index indicates daily changes in the
price of the stocks. The index also provides figures for changes in price
from the beginning of the year to date, and for a twelve month period.
15
<PAGE>
. Dow Jones Utility Index, an unmanaged index comprised of fifteen utility
stocks that tracks changes in price daily and over a six month period.
The index also provides the highs and lows for each of the past five
years.
. The Consumer Price Index, a measure for determining inflation.
Investors may use such indexes (or reporting services) in addition to the
Funds' Prospectuses to obtain a more complete view of each Portfolio's
performance before investing. Of course, when comparing each Portfolio's
performance to any index, conditions such as composition of the index and
prevailing market conditions should be considered in assessing the
significance of such companies. Unmanaged indexes may assume the reinvestment
of dividends but generally do not reflect deductions for administrative and
management costs and expenses.
When comparing funds using reporting services, or total return and yield, or
effective yield, investors should take into consideration any relevant
differences in funds such as permitted portfolio compositions and methods used
to value portfolio securities and compute offering price.
SAFEKEEPING OF ACCOUNT ASSETS
Title to assets of the Separate Account is held by AUSA Life. The assets are
kept physically segregated and held separate and apart from AUSA Life's
General Account assets. The General Account contains all of the assets of AUSA
Life. Records are maintained of all purchases and redemptions of eligible
Portfolio shares held by each of the Subaccounts and the General Account.
AUSA LIFE
On October 1, 1998, First Providian Life and Health Insurance Company ("First
Providian") merged with and into AUSA Life. First Providian was a stock life
insurance company incorporated under the laws of the State of New York on
March 23, 1970. Upon the merger, First Providian's existence ceased and AUSA
Life became the surviving company under the name AUSA Life Insurance Company,
Inc. As a result of the merger, the Separate Account became a separate account
of AUSA Life. All of the Contracts issued by First Providian before the merger
were, at the time of the merger, assumed by AUSA Life. The merger did not
affect any provisions of, or rights or obligations under, those Contracts. In
approving the merger on May 26, 1998, and May 29, 1998, respectively, the
boards of directors of AUSA Life and First Providian determined that the
merger of two financially strong stock life insurance companies would result
in an overall enhanced capital position and reduced expenses, which, together,
would be in the long-term interests of the Contract Owners. On May 26, 1998,
100% of the stockholders of AUSA Life voted to approve the merger, and on May
29, 1998, 100% of the stockholders of First Providian voted to approve the
merger. In addition, the New York Insurance Department has approved the
merger.
AUSA Life is a member of the Insurance Marketplace Standards Association
("IMSA") and, as such, may include the IMSA logo and information about IMSA
membership in its advertisements. Companies that belong to IMSA subscribe to a
set of ethical standards covering the various aspects of sales and services
for individually-sold life insurance and annuity products.
AUSA Life is a wholly-owned indirect subsidiary of AEGON USA, Inc., which in
turn is wholly owned by AEGON U.S. Holding Corporation, a wholly owned
subsidiary of AEGON International n.v. AEGON International n.v. is a wholly
owned subsidiary of AEGON n.v. Vereniging AEGON (a Netherlands membership
association) has a 53.63% interest in AEGON n.v.
STATE REGULATION OF AUSA LIFE
AUSA Life is subject to the laws of New York governing insurance companies and
to regulation by the New York Department of Insurance. An annual statement in
a prescribed form is filed with the Department of Insurance each year covering
the operation of AUSA Life for the preceding year and its financial condition
as of the end of such year. Regulation by the Department of Insurance includes
periodic examination to determine AUSA Life's contract liabilities and
reserves so that the Department may determine if the items are correct. AUSA
Life's books and accounts are
16
<PAGE>
subject to review by the Department of Insurance at all times. In addition,
AUSA Life is subject to regulation under the insurance laws of other
jurisdictions in which it may operate.
RECORDS AND REPORTS
All records and accounts relating to the Separate Account will be maintained
by AUSA Life. As presently required by the Investment Company Act of 1940 and
regulations promulgated thereunder, AUSA Life will mail to all Contract Owners
at their last known address of record, at least semi-annually, reports
containing such information as may be required under that Act or by any other
applicable law or regulation. Contract Owners will also receive confirmation
of each financial transaction and any other reports required by law or
regulation.
DISTRIBUTION OF THE CONTRACTS
AFSG Securities Corporation ("AFSG"), formerly Providian Securities
Corporation, the principal underwriter of the Contract, is ultimately a
wholly-owned subsidiary of AEGON n.v. 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. Commissions and expense
allowance payments not to exceed, in the aggregate, 6.75% of Purchase Payments
may be paid to entities which sell the Contract. Additional payments may be
made for other services not directly related to the sale of the Contract.
The Contract is offered to the public through brokers licensed under the
federal securities laws and New York State insurance laws that have entered
into agreements with AFSG. The offering of the Contract is continuous and AFSG
does not anticipate discontinuing the offering of the Contract. However, AFSG
does reserve the right to discontinue the offering of the Contract.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account is a party or to
which the assets of the Separate Account are subject. AUSA Life is not
involved in any litigation that is of material importance in relation to its
total assets or that relates to the Separate Account.
OTHER INFORMATION
A Registration Statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933 as amended, with respect to the
Contract discussed in this Statement of Additional Information. Not all of the
information set forth in the Registration Statement, amendments and exhibits
thereto has been included in this Statement of Additional Information.
Statements contained in this Statement of Additional Information concerning
the content of the Contract and other legal instruments are intended to be
summaries. For a complete statement of the terms of these documents, reference
should be made to the instruments filed with the Securities and Exchange
Commission.
FINANCIAL STATEMENTS
The audited financial statements of the Separate Account for the year ended
December 31, 1997, including the Report of Independent Auditors thereon, are
included in this Statement of Additional Information. The Subaccounts
described in the Contract Prospectus had not commenced operations as of the
year ended December 31, 1996, and consequently had no assets or liabilities.
Accordingly, no financial statements are included for the Separate Account for
the year ended December 31, 1996.
The audited supplemental statutory-basis financial statements of AUSA Life for
the years ended December 31, 1997, 1996, and 1995, including the Reports of
Independent Auditors' thereon, are included in this Statement of Additional
Information. They should be distinguished from the financial statements of the
Separate Account and should be considered only as bearing on the ability of
AUSA Life to meet its obligations under the Contracts. They should not be
considered as bearing on the investment performance of the assets held in the
Separate Account.
17
<PAGE>
SUPPLEMENTAL FINANCIAL STATEMENTS--STATUTORY BASIS
AUSA LIFE INSURANCE COMPANY, INC.
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
SUPPLEMENTAL FINANCIAL STATEMENTS--STATUTORY BASIS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors............................................. 1
Audited Supplemental Financial Statements
Supplemental Balance Sheets--Statutory Basis............................. 2
Supplemental Statements of Operations--Statutory Basis................... 3
Supplemental Statements of Changes in Capital and Surplus--Statutory
Basis................................................................... 4
Supplemental Statements of Cash Flows--Statutory Basis................... 5
Notes to Supplemental Financial Statements--Statutory Basis.............. 6
</TABLE>
F-i
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
AUSA Life Insurance Company, Inc.
We have audited the accompanying supplemental statutory-basis balance sheets
of AUSA Life Insurance Company, Inc. (reflecting the consolidation of AUSA
Life Insurance Company, Inc. and First Providian Life and Health Insurance
Company as described in Note 1) as of December 31, 1997 and 1996 and the
related supplemental statutory-basis statements of operations, changes in
capital and surplus, and cash flows for each of the three years in the period
ended December 31, 1997. The supplemental financial statements give
retroactive effect to the merger of AUSA Life Insurance Company, Inc. and
First Providian Life and Health Insurance Company on October 1, 1998, which
has been accounted for using the pooling of interests method as described in
the notes to the supplemental financial statements. These supplemental
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these supplemental financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As described in Note 1 to the supplemental 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 supplemental
financial statements of these variances are not reasonably determinable but
are presumed to be material.
In our opinion, because of the effects of the matters described in the
preceding paragraph, the supplemental 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, 1997 and 1996, or the results of its operations or its cash flows
for each of the three years in the period ended December 31, 1997.
Also, in our opinion, the supplemental financial statements referred to above
present fairly, in all material respects, the financial position of AUSA Life
Insurance Company, Inc. at December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, after giving retroactive effect to the merger of First
Providian Life and Health Insurance Company, as described in the notes to the
supplemental financial statements, in conformity with accounting practices
prescribed or permitted by the Department of Insurance of the State of New
York.
Ernst & Young LLP
Des Moines, Iowa
October 1, 1998
F-1
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
SUPPLEMENTAL BALANCE SHEETS--STATUTORY BASIS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
----------- ----------
<S> <C> <C>
ADMITTED ASSETS
Cash and invested assets:
Cash and short-term investments..................... $ 68,131 $ 28,114
Bonds............................................... 3,988,635 3,698,483
Stocks:
Preferred......................................... 1,792 1,945
Common, at market (cost: $118 in 1997 and $13 in
1996)............................................ 144 18
Mortgage loans on real estate....................... 495,009 618,633
Real estate acquired in satisfaction of debt, at
cost less accumulated depreciation ($1,816 in 1997
and $1,087 in 1996)................................ 45,695 58,100
Policy loans........................................ 3,046 2,916
Other invested assets............................... 22,414 3,454
----------- ----------
Total cash and invested assets.................. 4,624,866 4,411,663
Short-term note receivable from affiliate............. 9,594 361
Premiums deferred and uncollected..................... 6,316 6,450
Accrued investment income............................. 69,989 65,806
Federal income taxes recoverable...................... -- 221
Other assets.......................................... 7,609 5,231
Separate account assets............................... 5,630,093 4,862,449
----------- ----------
Total admitted assets........................... $10,348,467 $9,352,181
=========== ==========
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate reserves for policies and contracts:
Life.............................................. $ 103,370 $ 50,870
Annuity........................................... 911,075 845,093
Accident and health............................... 16,547 17,904
Policy and contract claim reserves:
Life.............................................. 5,456 4,835
Accident and health............................... 11,125 12,818
Other policyholders' funds.......................... 3,181,719 3,088,311
Remittances and items not allocated................. 35,267 16,289
Asset valuation reserve............................. 67,324 46,878
Interest maintenance reserve........................ 25,882 14,316
Payable to affiliates............................... 2,247 8,109
Short-term note payable to affiliate................ -- 600
Deferred income..................................... 13,421 18,023
Payable under assumption reinsurance agreement...... 56,952 67,217
Other liabilities................................... 8,400 12,719
Federal income taxes due or accrued................. 1,010 --
Separate account liabilities........................ 5,608,364 4,829,292
----------- ----------
Total liabilities............................... 10,048,159 9,033,274
Commitments and contingencies
Capital and surplus:
Common stock, $125 par value, 20 shares authorized,
issued and outstanding............................. 2,500 2,500
Paid-in surplus..................................... 319,180 319,180
Special surplus fund................................ 1,607 1,473
Unassigned surplus (deficit)........................ (22,979) (4,246)
----------- ----------
Total capital and surplus....................... 300,308 318,907
----------- ----------
Total liabilities and capital and surplus....... $10,348,467 $9,352,181
=========== ==========
</TABLE>
See accompanying notes.
F-2
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
SUPPLEMENTAL STATEMENTS OF OPERATIONS--STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net
of reinsurance:
Life.................................. $ 71,899 $ 21,120 $ 21,273
Annuity............................... 1,199,470 1,092,033 1,161,710
Accident and health................... 39,999 52,831 59,270
Net investment income................... 341,540 339,460 333,722
Amortization of interest maintenance
reserve................................ 3,392 2,326 2,348
Commissions and expense allowances on
reinsurance ceded...................... 374 438 418
Other income............................ 17,240 10,739 8,786
---------- ---------- ----------
1,673,914 1,518,947 1,587,527
Benefits and expenses:
Benefits paid or provided for:
Life and accident and health
benefits............................. 39,045 50,647 51,972
Surrender benefits.................... 1,175,051 864,643 835,335
Other benefits........................ 14,316 11,699 9,402
Increase (decrease) in aggregate
reserves for policies and contracts:
Life................................ 52,500 2,492 2,902
Annuity............................. 65,982 53,136 114,330
Accident and health................. (1,357) (1,063) 702
Other............................... 580 609 609
Increase in liability for premium and
other deposit type funds............. 92,280 93,893 229,485
---------- ---------- ----------
1,438,397 1,076,056 1,244,737
Insurance expenses:
Commissions........................... 79,099 87,938 95,944
General insurance expenses............ 92,613 83,885 73,727
Taxes, licenses and fees.............. 3,717 3,335 2,527
Net transfers to separate accounts.... 42,490 255,672 154,080
Other expenses........................ 181 145 58
---------- ---------- ----------
218,100 430,975 326,336
---------- ---------- ----------
1,656,497 1,507,031 1,571,073
---------- ---------- ----------
Gain from operations before federal income
taxes and net realized capital gains
(losses) on investments.................. 17,417 11,916 16,454
Federal income tax expense................ 5,247 5,719 10,147
---------- ---------- ----------
Gain from operations before net realized
capital gains (losses) on investments.... 12,170 6,197 6,307
Net realized capital gains (losses) on
investments (net of related federal
income taxes and amounts transferred to
interest maintenance reserve)............ 831 (12,107) (3,377)
---------- ---------- ----------
Net income (loss)......................... $ 13,001 $ (5,910) $ 2,930
========== ========== ==========
</TABLE>
See accompanying notes.
F-3
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
SUPPLEMENTAL 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 FUND (DEFICIT) SURPLUS
------ -------- ------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995...... $2,500 $278,180 $1,285 $ 12,195 $294,160
Capital contribution.......... -- 41,000 -- -- 41,000
Net income for 1995........... -- -- -- 2,930 2,930
Net unrealized capital
losses....................... -- -- -- (447) (447)
Change in non-admitted
assets....................... -- -- 72 (985) (913)
Change in reserves due to
change in valuation basis.... -- -- -- 132 132
Surplus effect of
reinsurance.................. -- -- -- (70) (70)
Change in liability for
reinsurance in unauthorized
companies.................... -- -- -- (51) (51)
Change in asset valuation
reserve...................... -- -- -- (10,608) (10,608)
Seed money contributed to
separate account, net of
redemptions.................. -- -- -- (1,000) (1,000)
Change in surplus in separate
account...................... 3,121 3,121
------ -------- ------ -------- --------
Balance at December 31, 1995.... 2,500 319,180 1,357 5,217 328,254
Net loss for 1996............. -- -- -- (5,910) (5,910)
Net unrealized capital
losses....................... -- -- -- (460) (460)
Change in non-admitted
assets....................... -- -- 116 437 553
Change in liability for
reinsurance in unauthorized
companies.................... -- -- -- (42) (42)
Change in asset valuation
reserve...................... -- -- -- (6,217) (6,217)
Seed money contributed to
separate account, net of
redemptions.................. -- -- -- (12,500) (12,500)
Change in surplus in separate
account...................... -- -- -- 14,783 14,783
Prior year federal income tax
adjustment................... -- -- -- 446 446
------ -------- ------ -------- --------
Balance at December 31, 1996.... 2,500 319,180 1,473 (4,246) 318,907
Net income for 1997........... -- -- -- 13,001 13,001
Net unrealized capital
losses....................... -- -- -- (2,710) (2,710)
Change in non-admitted
assets....................... -- -- 134 (8,617) (8,483)
Change in liability for
reinsurance in unauthorized
companies.................... -- -- -- 29 29
Change in asset valuation
reserve...................... -- -- -- (20,446) (20,446)
Seed money withdrawn from
separate account, net of
redemptions.................. -- -- -- 11,700 11,700
Change in surplus in separate
account...................... -- -- -- (11,749) (11,749)
Prior year federal income tax
adjustment................... -- -- -- 59 59
------ -------- ------ -------- --------
Balance at December 31, 1997.... $2,500 $319,180 $1,607 $(22,979) $300,308
====== ======== ====== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
SUPPLEMENTAL STATEMENTS OF CASH FLOWS--STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Premiums and other considerations, net
of reinsurance....................... $ 1,340,757 $ 1,177,613 $ 1,251,733
Net investment income................. 340,150 345,153 332,660
Life and accident and health claims... (40,151) (52,590) (50,718)
Surrender benefits and other fund
withdrawals.......................... (1,175,051) (864,643) (835,335)
Other benefits to policyholders....... (14,290) (11,697) (9,387)
Commissions, other expenses and other
taxes................................ (184,457) (193,405) (188,487)
Net transfer to separate account...... (43,309) (257,467) (154,087)
Federal income taxes paid............. (4,704) (4,490) (10,583)
Other, net............................ (3,744) (14,431) 7,360
----------- ----------- -----------
Net cash provided by operating
activities....................... 215,201 124,043 343,156
INVESTING ACTIVITIES
Proceeds from investments sold,
matured or repaid:
Bonds and preferred stocks.......... 968,184 777,107 645,889
Common stocks....................... -- 5,288 2,957
Mortgage loans on real estate....... 179,810 165,460 138,243
Real estate......................... 25,104 -- 4,953
Policy loans........................ 16 4 --
----------- ----------- -----------
1,173,114 947,859 792,042
Cost of investments acquired:
Bonds and preferred stocks.......... (1,260,122) (1,101,918) (1,127,375)
Common stocks....................... (103) (589) (5,174)
Mortgage loans on real estate....... (60,722) (42,118) (54,140)
Real estate......................... -- (521) --
Policy loans........................ (146) (153) (150)
Other............................... (17,805) (2,695) (995)
----------- ----------- -----------
(1,338,898) (1,147,994) (1,187,834)
----------- ----------- -----------
Net cash used in investing
activities....................... (165,784) (200,135) (395,792)
FINANCING ACTIVITIES
Issuance (payment) of intercompany
notes, net........................... (9,400) (19,200) 14,600
Capital contribution.................. -- -- 41,000
----------- ----------- -----------
Net cash provided by (used in)
financing activities................. (9,400) (19,200) 55,600
----------- ----------- -----------
Increase (decrease) in cash and short-
term investments..................... 40,017 (95,292) 2,964
Cash and short-term investments at
beginning of year...................... 28,114 123,406 120,442
----------- ----------- -----------
Cash and short-term investments at end
of year................................ $ 68,131 $ 28,114 $ 123,406
=========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO SUPPLEMENTAL FINANCIAL STATEMENTS--STATUTORY BASIS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
AUSA Life Insurance Company, Inc. ("the Company") is a stock life insurance
company and is a wholly-owned subsidiary of First AUSA Life Insurance Company
("First AUSA") which, in turn, is a wholly-owned subsidiary of AEGON USA
("AEGON"). AEGON is a wholly-owned subsidiary of AEGON N.V., a holding company
organized under the laws of The Netherlands. On December 31, 1993, the Company
entered into an assumption reinsurance agreement with Mutual of New York
("MONY") to transfer certain group pension business of MONY to the Company.
In July 1996, the Company completed a merger with International Life Investors
Insurance Company ("ILI"), a wholly-owned subsidiary of Life Investors
Insurance Company of America, another wholly-owned subsidiary of First AUSA,
whereby ILI was merged directly into the Company. The Company received assets
of $688,233 and liabilities of $635,189. The difference between assets and
liabilities was transferred directly to capital and surplus. In accordance
with National Association of Insurance Commissioners ("NAIC") statutory
accounting principles, all prior period financial statements presented have
been restated as if the merger took place at the beginning of such periods.
Historical book values carried over from the separate companies to the
combined entity.
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. For
the purposes of this presentation, these supplemental financial statements
give retroactive effect as if the merger had occurred on January 1, 1995 in
conformity with the practices of the NAIC and accounting practices prescribed
or permitted by the Department of Insurance of the State of New York. This
merger was accounted for under the pooling of interests method of accounting
and, accordingly, the historical book values carried over from the separate
companies to the combined entity. The financial information is not necessarily
indicative of the results that would have been recorded had the merger
actually occurred on January 1, 1995, nor is it indicative of future results.
These financial statements do not extend through to the date of the merger;
however, they will become the historical financial statements of the Company
after financial statements covering the date of the merger have been issued.
Summarized financial information for the Company and FPLH prior to the merger
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
The Company.......................... $1,585,260 $1,454,207 $1,535,596
FPLH................................. 88,654 64,740 51,931
---------- ---------- ----------
Combined............................... $1,673,914 $1,518,947 $1,587,527
========== ========== ==========
Net income (loss):
The Company.......................... $ 3,503 $ (13,714) $ (5,049)
FPLH................................. 9,498 7,804 7,979
---------- ---------- ----------
Combined............................... $ 13,001 $ (5,910) $ 2,930
========== ========== ==========
</TABLE>
F-6
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO SUPPLEMENTAL FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
----------- ----------
<S> <C> <C>
Assets:
The Company...................................... $ 9,951,625 $9,028,321
FPLH............................................. 396,842 323,860
----------- ----------
Combined........................................... $10,348,467 $9,352,181
=========== ==========
Liabilities:
The Company...................................... $ 9,745,504 $8,794,341
FPLH............................................. 302,655 238,933
----------- ----------
Combined........................................... $10,048,159 $9,033,274
=========== ==========
Capital and surplus:
The Company...................................... $ 206,121 $ 233,980
FPLH............................................. 94,187 84,927
----------- ----------
Combined........................................... $ 300,308 $ 318,907
=========== ==========
</TABLE>
Nature of Business
The Company primarily sells group fixed and variable annuities and group life
coverages. The Company is licensed in 49 states and the District of Columbia
and is actively in the process of becoming licensed in all 50 states. Sales of
the Company's products are primarily through brokers.
Basis of Presentation
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
Significant estimates and assumptions are utilized in the calculation of
aggregate policy reserves, policy and contract reserves, guarantee fund
assessment accruals and valuation allowances on investments. It is reasonably
possible that actual experience could differ from the estimates and
assumptions utilized which could have a material impact on the financial
statements.
The accompanying financial statements have been prepared on the basis of
accounting practices prescribed or permitted by the Department of Insurance of
the State of New York, which practices differ in some respects from generally
accepted accounting principles. The more significant of these differences are
as follows: (a) bonds are generally reported at amortized cost rather than
segregating the portfolio into held-to-maturity (reported at amortized cost),
available-for-sale (reported at fair value), and trading (reported at fair
value) classifications; (b) acquisition costs of acquiring new business are
charged to current operations as incurred rather than deferred and amortized
over the life of the policies; (c) policy reserves on traditional life
products are based on statutory mortality rates and interest which may differ
from reserves based on reasonable assumptions of expected mortality, interest,
and withdrawals which include a provision for possible unfavorable deviation
from such assumptions; (d) policy reserves on certain investment products use
discounting methodologies utilizing statutory interest rates rather than full
account values; (e) reinsurance amounts are netted against the corresponding
asset or liability rather than shown as gross amounts on the balance sheet;
(f) deferred income taxes are not provided for the difference between the
financial statement and income tax bases of assets and liabilities; (g) net
realized gains or losses attributed to changes in the level of interest rates
in the market are deferred and amortized over the remaining life of the bond
or mortgage loan, rather than recognized as gains or losses in the statement
of operations when the sale is completed; (h) declines in the estimated
realizable value of investments are provided for through the establishment of
a formula-determined statutory investment reserve (reported as a liability),
changes to which are charged directly to surplus, rather than through
recognition in the statement of operations for declines in value, when such
declines are judged to be other than temporary; (i) certain assets designated
as "non-admitted assets" have been charged to surplus rather than being
F-7
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO SUPPLEMENTAL FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
reported as assets; (j) revenues for universal life and investment products
consist of premiums received rather than policy charges for the cost of
insurance, policy administration charges, amortization of policy initiation
fees and surrender charges assessed; (k) pension expense is recorded as
amounts are paid; (l) adjustments to federal income taxes of prior years are
charged or credited directly to unassigned surplus, rather than reported as a
component of expense in the statement of operations; and (m) gains or losses
on dispositions of business are charged or credited directly to unassigned
surplus rather than being reported in the statement of operations. The effects
of these variances have not been determined by the Company.
The National Association of Insurance Commissioners (NAIC) currently is in the
process of recodifying statutory accounting practices, the result of which is
expected to constitute the only source of "prescribed" statutory accounting
practices. Accordingly, that project, which is not expected to be completed
before 1999, will likely change, to some extent, prescribed statutory
accounting practices and may result in changes to the accounting practices
that the Company uses to prepare its statutory-basis financial statements.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid investments with remaining maturity of one year or less when purchased
to be cash equivalents.
Investments
Investments in bonds (except those to which the Securities Valuation Office of
the NAIC has ascribed a value), mortgage loans on real estate and short-term
investments are reported at cost adjusted for amortization of premiums and
accrual of discounts. Amortized costs for bonds and mortgage loans on real
estate that were acquired through the reinsurance agreement, described
earlier, were initially recorded at market value, consistent with the
aforementioned agreement and as prescribed by the Department of Insurance of
the State of New York. Amortization is computed using methods which result in
a level yield over the expected life of the security. The Company reviews its
prepayment assumptions on mortgage and other asset backed securities at
regular intervals and adjusts amortization rates retrospectively when such
assumptions are changed due to experience and/or expected future patterns.
Investments in preferred stocks in good standing are reported at cost.
Investments in preferred stocks not in good standing are reported at the lower
of cost or market. Common stocks, which may include shares of mutual funds
(money market and other), are carried at market. Real estate is reported at
cost less allowances for depreciation. Depreciation is computed principally by
the straight-line method. Policy loans are reported at unpaid principal. Other
invested assets consist principally of investments in various joint ventures
and are recorded at equity in underlying net assets. Other "admitted assets"
are valued, principally at cost, as required or permitted by New York
Insurance Laws.
Realized capital gains and losses are determined on the basis of specific
identification and are recorded net of related federal income taxes. The Asset
Valuation Reserve (AVR) is established by the Company to provide for
anticipated losses in the event of default by issuers of certain invested
assets. These amounts are determined using a formula prescribed by the NAIC
and are reported as a liability. The formula for the AVR provides for a
corresponding adjustment for realized gains and losses. Under a formula
prescribed by the NAIC, the Company defers, in the Interest Maintenance
Reserve (IMR), the portion of realized gains and losses on sales of fixed
income investments, principally bonds and mortgage loans, attributable to
changes in the general level of interest rates and amortizes those deferrals
over the remaining period to maturity of the security.
Interest income is recognized on an accrual basis. The Company does not accrue
income on bonds in default, mortgage loans on real estate in default and/or
foreclosure or which are delinquent more than twelve months, or real estate
where rent is in arrears for more than three months. Further, income is not
accrued when collection is uncertain. At December 31, 1997, 1996 and 1995, the
Company excluded investment income due and accrued of $473, $469 and $216,
respectively, with respect to such practices.
F-8
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO SUPPLEMENTAL FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
The Company uses interest rate swaps as part of its overall interest rate risk
management strategy for certain life insurance and annuity products. The
Company entered into an interest rate swap contract to modify the interest
rate characteristics of the underlying liabilities. The net interest effect of
such swap transactions is reported as an adjustment of interest income from
the hedged items as incurred.
Deferred income for unrealized gains and losses on the securities valued at
market at the time of the assumption reinsurance agreement (described in Note
4) are returned to MONY at the time of realization pursuant to the agreement.
Aggregate Policy Reserves
Life, annuity and accident and health benefit reserves are developed by
actuarial methods and are determined based on published tables using
statutorily specified interest rates and valuation methods that will provide,
in the aggregate, reserves that are greater than or equal to the minimum
required by law.
The aggregate policy reserves for life insurance policies are based
principally upon the 1941, 1958 and 1980 Commissioners' Standard Ordinary
Mortality Tables. The reserves are calculated using interest rates ranging
from 2.50 to 6.50 percent and are computed principally on the Net Level
Premium Valuation and the Commissioners' Reserve Valuation Methods. 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 8.25 percent and mortality rates, where appropriate, from a
variety of tables.
Accident and health policy reserves are equal to the greater of the gross
unearned premiums or any required midterminal reserves plus net unearned
premiums and the present value of amounts not yet due on both reported and
unreported claims.
Policy and Contract Claim Reserves
Claim reserves represent the estimated accrued liability for claims reported
to the Company and claims incurred but not yet reported through the statement
date. These reserves are estimated using either individual case-basis
valuations or statistical analysis techniques. These estimates are subject to
the effects of trends in claim severity and frequency. The estimates are
continually reviewed and adjusted as necessary as experience develops or new
information becomes available.
Separate Accounts
Assets held in trust for purchases of separate account contracts and the
Company's corresponding obligation to the contract owners are shown separately
in the balance sheets. Income and gains and losses with respect to these
assets accrue to the benefit of the policyholders and, accordingly, the
operations of the separate accounts are not included in the accompanying
financial statements.
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
F-9
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO SUPPLEMENTAL FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
cases where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount
rate and estimates of future cash flows. In that regard, the derived fair
value estimates cannot be substantiated by comparisons to independent markets
and, in many cases, could not be realized in immediate settlement of the
instrument. SFAS No. 107 and No. 119 exclude certain financial instruments and
all nonfinancial instruments from their disclosure requirements and allow
companies to forego the disclosures when those estimates can only be made at
excessive cost. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Company.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and short-term investments: The carrying amounts reported in the
statutory-basis balance sheet for these instruments approximate their fair
values.
Investment securities: Fair values for fixed maturity securities (including
redeemable preferred stocks) are based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair values
are estimated using values obtained from independent pricing services or,
in the case of private placements, are estimated by discounting expected
future cash flows using a current market rate applicable to the yield,
credit quality, and maturity of the investments. The fair values for equity
securities are based on quoted market prices.
Mortgage loans and policy loans: The fair values for mortgage loans are
estimated utilizing discounted cash flow analyses, using interest rates
reflective of current market conditions and the risk characteristics of the
loans. The fair value of policy loans is assumed to equal its carrying
value.
Investment contracts: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash
flow calculations, based on interest rates currently being offered for
similar contracts with maturities consistent with those remaining for the
contracts being valued.
Interest rate swap: Estimated fair value of the interest rate swaps are
based upon the pricing differential for similar swap agreements.
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure
to changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
The following sets forth a comparison of the fair values and carrying values
of the Company's financial instruments subject to the provisions of Statement
of Financial Accounting Standards No. 107 and No. 119:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1997 1996
--------------------- ----------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
ADMITTED ASSETS
Bonds.................... $3,988,635 $4,083,280 $3,698,483 $ 3,736,999
Preferred stocks......... 1,792 1,892 1,945 1,940
Common stock............. 144 144 18 18
Mortgage loans on real
estate.................. 495,009 504,947 618,633 619,479
Interest rate swap....... -- 391 -- --
Policy loans............. 3,046 3,046 2,916 2,916
Cash and short-term
investments............. 68,131 68,131 28,114 28,114
Separate account assets.. 5,630,093 5,640,386 4,862,449 4,862,099
LIABILITIES
Investment contract
liabilities............. 4,091,938 4,011,465 3,932,668 3,804,240
Separate account
annuities............... 5,594,880 5,577,854 4,814,853 4,784,574
</TABLE>
F-10
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO SUPPLEMENTAL FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS
The carrying value and estimated market value of investments in debt securities
were as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Bonds:
United States Government
and agencies........... $ 102,628 $ 943 $ 255 $ 103,316
State, municipal and
other government....... 60,427 1,413 1,761 60,079
Public utilities........ 251,071 4,943 892 255,122
Industrial and
miscellaneous.......... 2,301,979 66,409 5,867 2,362,521
Foreign corporate*...... 22,363 474 557 22,280
Mortgage-backed
securities and asset-
backed................. 1,250,167 32,779 2,984 1,279,962
---------- -------- ------- ----------
3,988,635 106,961 12,316 4,083,280
Preferred stocks.......... 1,792 100 -- 1,892
---------- -------- ------- ----------
$3,990,427 $107,061 $12,316 $4,085,172
========== ======== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
Bonds:
United States Government
and agencies........... $ 152,410 $ 1,236 $ 1,112 $ 152,534
State, municipal and
other government....... 30,121 925 36 31,010
Public utilities........ 229,732 2,086 2,977 228,841
Industrial and
miscellaneous.......... 2,156,463 38,067 15,854 2,178,676
Foreign corporate*...... 5,556 -- -- 5,556
Mortgage-backed
securities and asset-
backed................. 1,124,201 22,579 6,398 1,140,382
---------- ------- ------- ----------
3,698,483 64,893 26,377 3,736,999
Preferred stocks.......... 1,945 5 10 1,940
---------- ------- ------- ----------
$3,700,428 $64,898 $26,387 $3,738,939
========== ======= ======= ==========
</TABLE>
- -------
*Substantially all are U. S. dollar denominated.
The carrying value and estimated market value of bonds at December 31, 1997, 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>
ESTIMATED
CARRYING FAIR
VALUE VALUE
---------- ----------
<S> <C> <C>
Due in one year or less............................ $ 138,325 $ 138,396
Due after one year through five years.............. 1,388,726 1,415,687
Due after five years through ten years............. 964,444 988,714
Due after ten years................................ 246,973 260,521
---------- ----------
2,738,468 2,803,318
Mortgage-backed and asset-backed securities........ 1,250,167 1,279,962
---------- ----------
$3,988,635 $4,083,280
========== ==========
</TABLE>
F-11
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO SUPPLEMENTAL FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
A detail of net investment income is presented below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Interest on bonds and notes.................. $285,730 $267,510 $246,462
Mortgage loans............................... 57,659 83,511 98,653
Real estate.................................. 13,976 7,225 2,400
Dividends on equity investments.............. 223 220 269
Interest on policy loans..................... 168 154 152
Derivative instruments....................... 100 -- --
Other investment gain (loss)................. 1,543 (5,482) (3,765)
-------- -------- --------
Gross investment income...................... 359,399 353,138 344,171
Investment expenses.......................... 17,859 13,678 10,449
-------- -------- --------
Net investment income........................ $341,540 $339,460 $333,722
======== ======== ========
</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,
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Proceeds................................... $968,184 $777,107 $645,889
======== ======== ========
Gross realized gains....................... $ 19,165 $ 9,697 $ 9,668
Gross realized losses...................... (11,997) (12,291) (16,405)
-------- -------- --------
Net realized gains (losses)................ $ 7,168 $ (2,594) $ (6,737)
======== ======== ========
</TABLE>
At December 31, 1997, investments with an aggregate carrying value of $3,970
were on deposit with regulatory authorities or were restrictively held in bank
custodial accounts for the benefit of such regulatory authorities as required
by statute.
Realized investment gains (losses) and changes in unrealized gains (losses) for
investments are summarized below:
<TABLE>
<CAPTION>
REALIZED
----------------------------
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Debt securities............................ $ 7,168 $ (2,594) $ (6,737)
Common stock............................... -- 244 --
Preferred stock............................ (7) (44) --
Short-term investments..................... (6) (115) (26)
Mortgage loans on real estate.............. 287 (12,415) (3,650)
Real estate................................ 4,059 -- (628)
Other invested assets...................... 5,035 6,872 11,109
-------- -------- --------
16,536 (8,052) 68
Tax effect................................. (747) 87 343
Transfer to interest maintenance reserve... (14,958) (4,142) (3,788)
-------- -------- --------
Total realized gains (losses).............. $ 831 $(12,107) $ (3,377)
======== ======== ========
<CAPTION>
CHANGE IN UNREALIZED
----------------------------
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Debt securities............................ $ 56,129 $(87,888) $266,783
Equity securities.......................... 21 (190) 74
-------- -------- --------
Change in unrealized appreciation.......... $ 56,150 $(88,078) $266,857
======== ======== ========
</TABLE>
F-12
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO SUPPLEMENTAL FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Gross unrealized gains and gross unrealized losses on equity securities at
December 31, 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Unrealized gains........................................ $ 38 $ 16 $206
Unrealized losses....................................... (12) (11) (11)
---- ---- ----
Net unrealized gains.................................... $ 26 $ 5 $195
==== ==== ====
</TABLE>
During 1997, the Company issued mortgage loans with interest rates ranging
from 8.10% to 8.72%. The maximum percentage of any one loan to the value of
the underlying real estate at origination was 85%. No mortgage loans were non-
income producing for the previous twelve months and, accordingly, no accrued
interest related to these mortgage loans was excluded from investment income.
During 1997, the Company refinanced the mortgage loans of one property with an
aggregate carrying value of $24,888 to reduce the interest rates, as a result
of the current interest rate environment. The Company requires all mortgage
loans to carry fire insurance equal to the value of the underlying property.
During 1997, 1996 and 1995, there were $4,427, $28,929 and $14,264,
respectively, in foreclosed mortgage loans that were transferred to real
estate. At December 31, 1997 and 1996, the Company held a mortgage loan loss
reserve in the asset valuation reserve of $20,191 and $8,368, respectively.
The mortgage loan portfolio is diversified by geographic region and specific
collateral property type as follows:
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION
-----------------------
DECEMBER 31,
--------------
1997 1996
------ ------
<S> <C> <C>
Pacific................. 20% 2%
South Atlantic.......... 20 37
Mid-Atlantic............ 16 5
E. North Central........ 16 21
Mountain................ 15 15
New England............. 7 10
W. North Central........ 2 5
W. South Central........ 2 5
E. South Central........ 2 --
</TABLE>
<TABLE>
<CAPTION>
PROPERTY TYPE DISTRIBUTION
--------------------------
DECEMBER 31,
--------------
1997 1996
------ ------
<S> <C> <C>
Office.................. 30% 42%
Apartment............... 23 10
Retail.................. 19 30
Other................... 15 17
Industrial.............. 13 1
</TABLE>
At December 31, 1997, the Company had the following investments, excluding U.
S. Government guaranteed or insured issues, which individually represented
more than ten percent of capital and surplus and the asset valuation reserve:
<TABLE>
<CAPTION>
CARRYING
DESCRIPTION OF SECURITY VALUE
----------------------- --------
<S> <C>
Bonds:
Chase Manhattan Corp........................................... $37,953
</TABLE>
The Company utilizes an interest rate swap agreement as part of its efforts to
hedge and manage fluctuations in the market value of its investment portfolio
attributable to changes in general interest rate levels and to manage duration
mismatch of assets and liabilities. The contract or notional amounts of those
instruments reflect the extent of involvement in the various types of
financial instruments.
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
F-13
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO SUPPLEMENTAL FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
has delivered funds or securities under terms of the contract) that would
result in an accounting loss and replacement cost risk (i.e., the cost to
replace the contract at current market rates should the counterparty default
prior to settlement date). Credit loss exposure resulting from nonperformance
by a counterparty for commitments to extend credit is represented by the
contractual amounts of the instruments.
At December 31, 1997 and 1996, 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
------------
1997 1996
------- ----
<S> <C> <C>
Derivative securities:
Interest rate swaps:
Receive fixed--pay floating.............................. $50,800 $--
</TABLE>
4. REINSURANCE
The Company reinsures portions of risk on certain insurance policies which
exceed its established limits, thereby providing a greater diversification of
risk and minimizing exposure on larger risks. The Company remains contingently
liable with respect to any insurance ceded, and this would become an actual
liability in the event that the assuming insurance company became unable to
meet its obligation under the reinsurance treaty.
Premiums earned reflect the following reinsurance assumed and ceded amounts
for the year ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Direct premiums....................... $1,309,731 $1,185,163 $1,244,902
Reinsurance assumed................... 6,905 9,962 37,423
Reinsurance ceded..................... (5,268) (29,141) (40,072)
---------- ---------- ----------
Net premiums earned................... $1,311,368 $1,165,984 $1,242,253
========== ========== ==========
</TABLE>
The Company received reinsurance recoveries in the amounts of $1,992, $1,758
and $1,417 during 1997, 1996 and 1995, respectively.
The aggregate reserves for policies and contracts were reduced for reserve
credits for reinsurance ceded at December 31, 1997 and 1996 of $153,092 and
$157,421, respectively.
On December 31, 1993, the Company and MONY entered into an assumption
reinsurance agreement whereby all of the general account liabilities were
novated to the Company from MONY as state approvals were received.
In accordance with the agreement, MONY will receive payments relating to the
performance of the assets and liabilities that exist at the date of closing
for a period of nine years. These payments will be reduced for certain
administrative expenses as defined in the agreement. The Company will
recognize operating gains and losses on renewal premiums received after
December 31, 1993 of the business in-force at December 31, 1993, and on all
new business written after that date. At the end of nine years, the Company
will purchase from MONY the remaining transferred business inforce based upon
a formula described in the agreement. At December 31, 1997 and 1996, the
Company owed MONY $56,952 and $67,217, 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.
F-14
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO SUPPLEMENTAL FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
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.
On October 1, 1995, the Company entered into a reinsurance agreement with a
non-affiliate. As a result, the Company received $4,242 of assets, including
$38 of cash, and $4,312 of liabilities. The difference between the assets and
the liabilities of $70 was charged directly to unassigned surplus.
5. INCOME TAXES
The Company files a separate federal income tax return.
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to gain from operations before federal
income taxes 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, dividends received deduction, carryforward
(utilization) of operating loss, and IMR amortization.
Federal income tax expense (benefit) differs from the amount computed by
applying the statutory federal income tax rate to realized gains (losses) due
to the agreement between MONY and the Company, as discussed in Note 4 to the
financial statements. In accordance with this agreement, these gains and
losses are included in the net payments MONY will receive relating to the
performance of the assets that existed at the date of closing. Accordingly,
income taxes relating to gains and losses on such assets are not provided for
on the income tax return filed by the Company.
Prior to 1984, as provided for under the Life Insurance Company Tax Act of
1959, a portion of statutory income was not subject to current taxation but
was accumulated for income tax purposes in a memorandum account referred to as
the policyholders' surplus account. No federal income taxes have been provided
for in the financial statements on income deferred in the policyholders'
surplus account ($2,428 at December 31, 1997). 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 $850.
At December 31, 1997, the Company had net operating loss carryforwards of
approximately $19,155 which expire through 2011.
An examination by the Internal Revenue Service is underway for years 1993-
1995.
F-15
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO SUPPLEMENTAL 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,
-------------------------------------
1997 1996
------------------ ------------------
PERCENT PERCENT
OF OF
AMOUNT TOTAL AMOUNT TOTAL
---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Subject to discretionary
withdrawal with market value
adjustment....................... $ 910,528 9% $ 834,176 9%
Subject to discretionary
withdrawal at book value less
surrender charge................. 1,045,807 11 1,619,210 18
Subject to discretionary
withdrawal at market value....... 2,950,639 30 2,361,359 27
Subject to discretionary
withdrawal at book value (minimal
or no charges or adjustments).... 2,616,308 27 1,951,742 22
Not subject to discretionary
withdrawal provision............. 2,317,823 23 2,139,682 24
---------- --- ---------- ---
9,841,105 100% 8,906,169 100%
=== ===
Less reinsurance ceded............ 152,726 157,039
---------- ----------
Total policy reserves on
annuities and deposit fund
liabilities.................. $9,688,379 $8,749,130
========== ==========
</TABLE>
F-16
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO SUPPLEMENTAL FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Separate and variable account assets held by the Company represent contracts
where the benefit is determined by the performance of the investments held in
the separate account. Information regarding the separate accounts of the
Company as of and for the years ended December 31, 1997, 1996 and 1995 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, 1997.................. $ 147,638 $ 648,056 $ 795,694
========== ========== ==========
Reserves for separate accounts with
assets as of December 31, 1997 at:
Fair value........................ $2,204,931 $2,767,245 $4,972,176
Amortized cost.................... 622,703 -- 622,703
---------- ---------- ----------
Total........................... $2,827,634 $2,767,245 $5,594,879
========== ========== ==========
Premiums, deposits and other
considerations for the year ended
December 31, 1996.................. $ -- $ 747,506 $ 747,506
========== ========== ==========
Reserves for separate accounts with
assets as of December 31, 1996 at:
Fair value........................ $2,022,843 $2,178,445 $4,201,288
Amortized cost.................... 613,565 -- 613,565
---------- ---------- ----------
Total........................... $2,636,408 $2,178,445 $4,814,853
========== ========== ==========
Premiums, deposits and other
considerations for the year ended
December 31, 1995.................. $ -- $ 553,110 $ 553,110
========== ========== ==========
Reserves for separate accounts with
assets as of December 31, 1995 at:
Fair value........................ $2,147,500 $1,557,952 $3,705,452
Amortized cost.................... 599,254 -- 599,254
---------- ---------- ----------
Total........................... $2,746,754 $1,557,952 $4,304,706
========== ========== ==========
</TABLE>
F-17
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO SUPPLEMENTAL FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
There may be certain restrictions placed upon the amount of funds that can be
withdrawn without penalty. The amount of separate account liabilities on these
products, by withdrawal characteristics, are summarized as follows:
<TABLE>
<CAPTION>
NON-
GUARANTEED GUARANTEED
SEPARATE SEPARATE
ACCOUNT ACCOUNT TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
DECEMBER 31, 1997
Subject to discretionary withdrawal
with market value adjustment........ $ 358,061 $ -- $ 358,061
Subject to discretionary withdrawal
at book value less surrender
charge.............................. 264,642 -- 264,642
Subject to discretionary withdrawal
at market value..................... 180,802 2,767,245 2,948,047
Not subject to discretionary
withdrawal.......................... 2,024,129 -- 2,024,129
---------- ---------- ----------
$2,827,634 $2,767,245 $5,594,879
========== ========== ==========
DECEMBER 31, 1996
Subject to discretionary withdrawal
with market value adjustment........ $ 269,991 $ -- $ 269,991
Subject to discretionary withdrawal
at book value less surrender
charge.............................. 279,399 -- 279,399
Subject to discretionary withdrawal
at market value..................... 181,158 2,178,445 2,359,603
Not subject to discretionary
withdrawal.......................... 1,905,860 -- 1,905,860
---------- ---------- ----------
$2,636,408 $2,178,445 $4,814,853
========== ========== ==========
</TABLE>
A reconciliation of the amounts transferred to and from the separate accounts
is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Transfers as reported in the summary of
operations of the separate accounts
statement:
Transfers to separate accounts............. $795,663 $747,677 $553,110
Transfers from separate accounts........... 767,049 505,592 406,978
-------- -------- --------
Net transfers to (from) separate accounts.... 28,614 242,085 146,132
Reconciling adjustments--HUB level fees not
paid to AUSA general account................ 13,756 13,520 7,904
Fees paid to external fund manager......... 120 67 44
-------- -------- --------
Net adjustments.............................. 13,876 13,587 7,948
-------- -------- --------
Transfers as reported in the summary of
operations of the life, accident and health
annual statement............................ $ 42,490 $255,672 $154,080
======== ======== ========
</TABLE>
F-18
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO SUPPLEMENTAL FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
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, 1997 and 1996, 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, 1997
Ordinary direct first year business............. $ 460 $ 336 $ 124
Ordinary direct renewal business................ 6,138 1,081 5,057
Group life direct business...................... 1,267 433 834
Credit life..................................... 41 -- 41
Reinsurance ceded............................... (14) -- (14)
------ ------ ------
7,892 1,850 6,042
Accident and health:
Direct........................................ 325 -- 325
Reinsurance ceded............................. (51) -- (51)
------ ------ ------
Total accident and health................... 274 -- 274
------ ------ ------
$8,166 $1,850 $6,316
====== ====== ======
DECEMBER 31, 1996
Ordinary direct first year business............. $ 409 $ 226 $ 183
Ordinary direct renewal business................ 6,277 1,037 5,240
Group life direct business...................... 1,414 499 915
Credit life..................................... 5 -- 5
Reinsurance ceded............................... (163) -- (163)
------ ------ ------
7,942 1,762 6,180
Accident and health:
Direct........................................ 270 -- 270
Reinsurance ceded............................. -- -- --
------ ------ ------
Total accident and health................... 270 -- 270
------ ------ ------
$8,212 $1,762 $6,450
====== ====== ======
</TABLE>
At December 31, 1997 and 1996, the Company had insurance in force aggregating
$597,855 and $615,025, 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 $1,476 and $1,520 to cover these deficiencies at December
31, 1997 and 1996, respectively.
7. DIVIDEND RESTRICTIONS
Generally, an insurance company's ability to pay dividends is limited to the
amount that their net assets, as determined in accordance with statutory
accounting practices, exceed minimum statutory capital requirements. However,
payment of such amounts as dividends may be subject to approval by regulatory
authorities. The Company is not entitled to pay out any dividends in 1998
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
F-19
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO SUPPLEMENTAL FINANCIAL STATEMENTS--STATUTORY BASIS--(CONTINUED)
(DOLLARS IN THOUSANDS)
pension expense is allocated among the participating companies based on the
FASB 87 expense as a percent of salaries. The benefits are based on years of
service and the employee's compensation during the highest five consecutive
years of employment. The Company was allocated $0, $13 and $14 of pension
expense for the years ended December 31, 1997, 1996 and 1995, respectively.
The plan is subject to the reporting and disclosure requirements of the
Employee Retirement Income Security Act of 1974.
The Company's employees also participate in a contributory defined
contribution plan sponsored by AEGON which is qualified under Section 401(k)
of the Internal Revenue Service Code. Employees of the Company who customarily
work at least 1,000 hours during each calendar year and meet the other
eligibility requirements, are participants of the plan. Participants may elect
to contribute up to fifteen percent of their salary to the plan. The Company
will match an amount up to three percent of the participant's salary.
Participants may direct all of their contributions and plan balances to be
invested in a variety of investment options. The plan is subject to the
reporting and disclosure requirements of the Employee Retirement Income
Security Act of 1974. The Company was allocated $12, $21 and $8 of expense for
the years ended December 31, 1997, 1996 and 1995, respectively.
AEGON sponsors supplemental retirement plans to provide the Company's senior
management with benefits in excess of normal pension benefits. The plans are
noncontributory and benefits are based on years of service and the employee's
compensation level. The plans are unfunded and nonqualified under the Internal
Revenue Service Code. In addition, AEGON has established incentive deferred
compensation plans for certain key employees of the Company. AEGON also
sponsors an employee stock option plan for individuals employed at least three
years and a stock purchase plan for its producers, with the participating
affiliated companies establishing their own eligibility criteria, producer
contribution limits and company matching formula. These plans have been
accrued or funded as deemed appropriate by management of AEGON and the
Company.
In addition to pension benefits, the Company participates in plans sponsored
by AEGON that provide postretirement medical, dental and life insurance
benefits to employees meeting certain eligibility requirements. Portions of
the medical and dental plans are contributory. The expenses of the
postretirement plans calculated on the pay-as-you-go basis are charged to
affiliates in accordance with an intercompany cost sharing arrangement. The
Company expensed $2 for each of the years ended December 31, 1996 and 1995. No
expense related to these plans was recorded for 1997.
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 1997,
1996 and 1995, the Company paid $7,330, $5,739 and $6,761, 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 5.60% at December 31, 1997. During 1997, 1996 and
1995, the Company paid net interest of $142, $29 and $289, respectively, to
affiliates.
10. COMMITMENTS AND CONTINGENCIES
The Company is a party to legal proceedings incidental to its business.
Although such litigation sometimes includes substantial demands for
compensatory and punitive damages, in addition to contract liability, it is
management's opinion, after consultation with counsel and a review of
available facts, that damages arising from such demands will not be material
to the Company's financial position.
F-20
<PAGE>
AUSA LIFE INSURANCE COMPANY, INC.
NOTES TO SUPPLEMENTAL FINANCIAL STATEMENTS--STATUTORY BASIS--(CONCLUDED)
(DOLLARS IN THOUSANDS)
The Company is subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against insurance
companies for the benefit of policyholders and claimants in the event of
insolvency of other insurance companies. In accordance with the purchase
agreement, assessments related to periods prior to the purchase of the Company
will be paid by Dreyfus. Assessments attributable to business reinsured from
MONY for premiums received prior to the date of the transaction will be paid
by MONY. The Company will be responsible for assessments, if any, attributable
to premium income after the date of purchase. Assessments are charged to
operations when received by the Company except where right of offset against
other taxes paid is allowed by law; amounts available for future offsets are
recorded as an asset on the Company's balance sheet. Potential future
obligations for unknown insolvencies are not determinable by the Company. The
future obligation has been based on the most recent information available from
the National Organization of Life and Health Insurance Guaranty Association.
The guaranty fund expense was $586, $246 and $(204) for the years ended
December 31, 1997, 1996 and 1995, respectively.
11. YEAR 2000 (UNAUDITED)
AEGON has adopted and has in place a Year 2000 Assessment and Planning Project
(the "Project") to review and analyze its information technology and systems
to determine if they are Year 2000 compatible. The Company has begun to
convert or modify, where necessary, critical data processing systems. It is
contemplated that the plan will be substantially completed by early 1999. The
Company does not expect this project to have a significant effect on
operations. However, to mitigate the effect of outside influences upon the
success of the project, the Company has undertaken communications with its
significant customers, suppliers and other third parties to determine their
Year 2000 compatibility and readiness. Management believes that the issues
associated with the Year 2000 will be resolved with no material financial
impact on the Company.
Since the Year 2000 computer problem, and its resolution, is complex and
multifaceted, the success of a response plan cannot be conclusively known
until the Year 2000 is reached (or an earlier date to the extent that systems
or equipment addresses Year 2000 date data prior to the Year 2000). Even with
appropriate and diligent pursuit of a well-conceived project, including
testing procedures, there is no certainty that any company will achieve
complete success. Notwithstanding the efforts or results of the Company, its
ability to function unaffected to and through the Year 2000 may be adversely
affected by actions (or failure to act) of third parties beyond its knowledge
or control.
F-21
<PAGE>
Financial Statements
First Providian Life and Health Insurance Company
Separate Account C - Marquee
For the Period Since Inception through December 31, 1997
with Report of Independent Auditors
<PAGE>
First Providian Life and Health Insurance Company
Separate Account C - Marquee
Financial Statements
For the Period Since Inception through December 31, 1997
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors........................................... 1
Audited Financial Statements
Statement of Assets and Liabilities...................................... 2
Statement of Operations.................................................. 4
Statement of Changes in Net Assets....................................... 5
Notes to Financial Statements............................................ 6
</TABLE>
<PAGE>
Report of Independent Auditors
Contract Owners
First Providian Life and Health Insurance Company Separate Account C - Marquee
We have audited the accompanying statement of assets and liabilities of First
Providian Life and Health Insurance Company Separate Account C - Marquee
(comprising the Fidelity VIP Equity-Income, Fidelity VIP Growth, Dreyfus Growth
and Income, Dreyfus Quality Bond, T. Rowe Price Equity Income, T. Rowe Price New
America Growth, T. Rowe Price International Stock, OCC Accumulation Trust
Managed, OCC Accumulation Trust Small Cap and OCC Accumulation Trust U.S.
Government Income Subaccounts) as of December 31, 1997, and the related
statements of operations and changes in net assets for the period then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1997, by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
subaccounts constituting the First Providian Life and Health Insurance Company
Separate Account C - Marquee at December 31, 1997, and the results of their
operations and changes in their net assets for the period then ended in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Louisville, Kentucky
April 24, 1998
1
<PAGE>
First Providian Life and Health Insurance Company
Separate Account C - Marquee
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
DECEMBER 31
1997
-----------
<S> <C>
ASSETS
Investments:
Fidelity VIP Equity-Income Portfolio (cost: $6,726) $ 7,037
Fidelity VIP Growth Portfolio (cost: $2,573) 2,633
Dreyfus Growth and Income Portfolio (cost: $7,163) 7,029
Dreyfus Quality Bond Portfolio (cost: $1,580) 1,585
T. Rowe Price Equity Income Portfolio (cost: $6,975) 7,147
T. Rowe Price New America Growth Portfolio (cost: $2,068) 2,136
T. Rowe Price International Stock Portfolio (cost: $14,733) 14,696
OCC Accumulation Trust Managed Portfolio (cost: $6,675) 6,863
OCC Accumulation Trust Small Cap Portfolio (cost: $2,595) 2,601
OCC Accumulation Trust U.S. Government Income Portfolio (cost: $1,571) 1,576
---------
TOTAL INVESTMENTS AND TOTAL ASSETS 53,303
LIABILITIES -
---------
NET ASSETS $ 53,303
=========
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
1997
---------------------
<S> <C>
NET ASSETS ATTRIBUTABLE TO VARIABLE ANNUITY CONTRACT OWNERS
Fidelity VIP Equity-Income Subaccount $ 7,037
Fidelity VIP Growth Subaccount 2,633
Dreyfus Growth and Income Subaccount 7,029
Dreyfus Quality Bond Subaccount 1,585
T. Rowe Price Equity Income Subaccount 7,147
T. Rowe Price New America Growth Subaccount 2,136
T. Rowe Price International Stock Subaccount 14,696
OCC Accumulation Trust Managed Subaccount 6,863
OCC Accumulation Trust Small Cap Subaccount 2,601
OCC Accumulation Trust U.S. Government Income Subaccount 1,576
----------------
NET ASSETS ATTRIBUTABLE TO VARIABLE ANNUITY CONTRACT OWNERS $ 53,303
================
</TABLE>
See accompanying notes.
3
<PAGE>
First Providian Life and Health Insurance Company
Separate Account C - Marquee
Statement of Operations
For the Period Since Inception through December 31, 1997
<TABLE>
<CAPTION>
DREYFUS DREYFUS T. ROWE T. ROWE PRICE
FIDELITY VIP FIDELITY VIP GROWTH AND QUALITY PRICE EQUITY NEW AMERICA
EQUITY-INCOME GROWTH INCOME BOND INCOME GROWTH
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends $ - $ - $ 446 $ 22 $ 234 $ 5
Expenses:
Mortality and expense risk and
administrative charges 14 5 13 3 13 4
---------------------------------------------------------------------------------------
Net investment income (expense) (14) (5) 433 19 221 1
Realized and unrealized gain
(loss) on investments:
Net realized gain (loss) from
investment transactions:
Proceeds from sales 14 5 14 3 14 4
Cost of investments sold 13 5 14 3 14 5
---------------------------------------------------------------------------------------
1 - - - - (1)
Net unrealized appreciation
(depreciation) on investments:
At end of year 311 60 (134) 5 172 68
---------------------------------------------------------------------------------------
Net gain (loss) on investments 312 60 (134) 5 172 67
---------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations $ 298 $ 55 $ 299 $ 24 $ 393 $ 68
=======================================================================================
<CAPTION>
OCC OCC ACCUMULATION
T. ROWE PRICE ACCUMULATION ACCUMULATION TRUST U.S.
INTERNATIONAL TRUST TRUST SMALL GOVERNMENT
STOCK MANAGED CAP INCOME TOTAL
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:
Dividends $ 328 $ - $ - $ 13 $ 1,048
Expenses:
Mortality and expense risk and
administrative charges 28 13 5 3 101
----------------------------------------------------------------------------------
Net investment income (expense) 300 (13) (5) 10 947
Realized and unrealized gain
(loss) on investments:
Net realized gain (loss) from
investment transactions:
Proceeds from sales 28 13 5 3 103
Cost of investments sold 28 13 5 3 103
----------------------------------------------------------------------------------
- - - - -
Net unrealized appreciation
(depreciation) on investments:
At end of year (37) 188 6 5 644
----------------------------------------------------------------------------------
Net gain (loss) on investments (37) 188 6 5 644
----------------------------------------------------------------------------------
Net increase in net assets
resulting from operations $ 263 $ 175 $ 1 $ 15 $ 1,591
==================================================================================
</TABLE>
See accompanying notes.
4
<PAGE>
First Providian Life and Health Insurance Company
Separate Account C - Marquee
Statement of Changes in Net Assets
For the Period Since Inception through December 31, 1997
<TABLE>
<CAPTION>
DREYFUS DREYFUS T. ROWE T. ROWE PRICE
FIDELITY VIP FIDELITY VIP GROWTH AND QUALITY PRICE EQUITY NEW AMERICA
EQUITY-INCOME GROWTH INCOME BOND INCOME GROWTH
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
resulting from operations:
Net investment income (expense) (14) (5) 433 19 221 1
Net realized gain (loss) on
investments 1 - - - - (1)
Net unrealized appreciation
(depriciation) on investments 311 60 (134) 5 172 68
--------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 298 55 299 24 393 68
Changes from variable annuity
contract transactions:
Transfers of net premiums 6,739 2,578 6,730 1,561 6,754 2,068
--------------------------------------------------------------------------------------
Net increase in net assets derived
from variable annuity contract
transactions 6,739 2,578 6,730 1,561 6,754 2,068
--------------------------------------------------------------------------------------
Net increase in net assets 7,037 2,633 7,029 1,585 7,147 2,136
--------------------------------------------------------------------------------------
Balances at December 31, 1997 $ 7,037 $ 2,633 $ 7,029 $ 1,585 $ 7,147 $ 2,136
======================================================================================
<CAPTION>
OCC
OCC OCC ACCUMLATION
T. ROWE PRICE ACCUMULATION ACCUMULATION TRUST U.S.
INTERNATIONAL TRUST TRUST SMALL GOVERNMENT
STOCK MANAGED CAP INCOME TOTAL
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
resulting from operations:
Net investment income (expense) 300 (13) (5) 10 947
Net realized gain (loss) on
investments - - - - -
Net unrealized appreciation
(depriciation) on investments (37) 188 6 5 644
-------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 263 175 1 15 1,591
Changes from variable annuity
contract transactions:
Transfers of net premiums 14,433 6,688 2,600 1,561 51,712
------------------------------------------------------------------------------------
Net increase in net assets derived
from variable annuity contract
transactions 14,433 6,688 2,600 1,561 51,712
------------------------------------------------------------------------------------
Net increase in net assets 14,696 6,863 2,601 1,576 53,303
------------------------------------------------------------------------------------
Balances at December 31, 1997 $ 14,696 $ 6,863 $ 2,601 $ 1,576 $ 53,303
====================================================================================
</TABLE>
See accompanying notes.
5
<PAGE>
First Providian Life and Health Insurance Company
Separate Account C - Marquee
Notes to Financial Statements
December 31, 1997
1. ACCOUNTING POLICIES
ORGANIZATION OF THE ACCOUNT
First Providian Life and Health Insurance Company Separate Account C - Marquee
(the "Separate Account") is a separate account of First Providian Life and
Health Insurance Company ("FPLH"), and is registered as a unit investment trust
under the Investment Company Act of 1940, as amended. The Separate Account was
established for the purpose of funding variable annuity contracts issued by
FPLH. The Separate Account had no activity until the first contract application
was processed in November 1997.
Prior to June 10, 1997, FPLH was an indirect, wholly owned subsidiary of
Providian Corporation ("Providian"). On June 10, 1997, Providian's insurance
operations, including the operations of FPLH, were merged with an indirect,
wholly owned subsidiary of AEGON N.V., an international insurance organization
headquartered in The Hague, The Netherlands. Providian was the surviving
corporation in the merger. Effective October 15, 1997, Providian's name was
changed to Commonwealth General Corporation ("CGC"). Effective December 31,
1997, ownership of CGC was transferred to AEGON USA, Inc., an indirect, wholly
owned subsidiary of AEGON N.V.
FPLH expects to merge with AUSA Life Insurance Company, an affiliate, in 1998.
Upon approval and completion of the merger, AUSA Life Insurance Company will be
the surviving company.
The Separate Account has twelve subaccounts, ten of which had activity in 1997.
The subaccounts invest exclusively in shares of the corresponding portfolios of
Variable Insurance Products Fund and Variable Insurance Products Fund II (both
advised by Fidelity Management & Research Company), Dreyfus Variable Investment
Fund (advised by Dreyfus Corporation), T. Rowe Price Equity Series, Inc.
(advised by T. Rowe Price Associates, Inc.), T. Rowe Price International Series,
Inc. (advised by Rowe Price-Fleming International, Inc.), and OCC Accumulation
Trust (advised by OCC Accumulation Trust) (each, a "Fund" and collectively, the
"Funds"). Each Fund is an open-end management investment company.
6
<PAGE>
First Providian Life and Health Insurance Company
Separate Account C - Marquee
Notes to Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
The portfolios available in each Fund as of December 31, 1997 are as follows:
VARIABLE INSURANCE PRODUCTS FUND I AND VARIABLE INSURANCE PRODUCTS FUND II
Fidelity VIP Money Market Portfolio
Fidelity VIP Equity-Income Portfolio
Fidelity VIP Growth Portfolio
Fidelity VIP II Asset Manager Portfolio
DREYFUS VARIABLE INVESTMENT FUND
Dreyfus Growth and Income Portfolio
Dreyfus Quality Bond Portfolio
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
OCC ACCUMULATION TRUST
OCC Accumulation Trust Managed Portfolio
OCC Accumulation Trust Small Cap Portfolio
OCC Accumulation Trust U.S. Government Income Portfolio
Each portfolio has different investment objectives and policies as outlined in
the prospectus of the Separate Account. There is no assurance that a portfolio
will achieve its stated investment objective.
No sales load is deducted from premium contributions and up to 10% of the
accumulated value can be withdrawn once per year without a surrender charge.
Additional withdrawals are subject to surrender charges of up to 7% during the
first six contract years and the total surrender charges assessed will not
exceed 8.5% of the premium contributions under the contract. No surrender
charges are assessed on the death of the annuitant or after the sixth contract
year.
7
<PAGE>
First Providian Life and Health Insurance Company
Separate Account C - Marquee
Notes to Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
The contract owner may allocate the initial premium to one or more of the
subaccounts of the Separate Account and it is invested immediately in the
portfolios upon receipt. The contract owner may cancel the contract during the
right to cancel period (initially ten days or, for replacement, 20 days) and a
five day grace period but bears full investment risk for any amounts allocated
to the portfolios during that time.
INVESTMENTS
The Separate Account purchases shares of the portfolios at net asset value in
connection with premium payments allocated to the subaccounts in accordance with
contract owners' directions and redeems shares of the portfolios to process
transfers and to meet policy contract obligations. Gains and losses resulting
from the redemption of shares are computed on the basis of average cost.
Investment transactions are recorded on the trade dates.
All dividends and capital gains earned on the portfolios are reinvested in the
portfolios and are reflected in the unit values of the subaccounts of the
Separate Account.
Investments in the portfolios are valued at market which is calculated daily on
each day the New York Stock Exchange is open for trading. Income and both
realized and unrealized gains or losses from assets of each subaccount will be
credited to or charged against that subaccount without regard to income, gains
or losses from any other subaccount of the Separate Account or arising out of
any other business FPLH may conduct.
The contract's accumulated value varies with the investment performance of the
corresponding portfolios. Investment results are not guaranteed by the Separate
Account or FPLH.
Although the assets in the Separate Account are the property of FPLH, the assets
in the Separate Account attributable to the contracts cannot be used to
discharge the liabilities arising out of any other business which FPLH may
conduct. The assets of the Separate Account are available to cover the general
liabilities of FPLH only to the extent that the Separate Account's assets exceed
its liabilities under the contracts.
8
<PAGE>
First Providian Life and Health Insurance Company
Separate Account C - Marquee
Notes to Financial Statements (continued)
2. INVESTMENTS
The following is a summary of shares and amounts outstanding for each of the
respective portfolios as of December 31, 1997:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
NET ASSET VALUE FAIR
PORTFOLIO SHARES VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fidelity VIP Equity-Income 289.827 $24.28 $ 7,037
Fidelity VIP Growth 70.970 37.10 2,633
Dreyfus Growth and Income 338.259 20.78 7,029
Dreyfus Quality Bond 135.124 11.73 1,585
T. Rowe Price Equity Income 384.454 18.59 7,147
T. Rowe Price New America Growth 100.047 21.35 2,136
T. Rowe Price International Stock 1,153.532 12.74 14,696
OCC Accumulation Trust Managed 161.940 42.38 6,863
OCC Accumulation Trust Small Cap 98.635 26.37 2,601
OCC Accumulation Trust U.S. Government
Income 149.952 10.51 1,576
-------------
$53,303
=============
</TABLE>
The aggregate cost of shares purchased during the period since inception through
December 31, 1997 for each of the respective portfolios is as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
AGGREGATE
COST OF SHARES
PORTFOLIO PURCHASED
- -----------------------------------------------------------------------------------------------
<S> <C>
Fidelity VIP Equity-Income $ 6,739
Fidelity VIP Growth 2,578
Dreyfus Growth and Income 7,177
Dreyfus Quality Bond 1,583
T. Rowe Price Equity Income 6,989
T. Rowe Price New America Growth 2,073
T. Rowe Price International Stock 14,761
OCC Accumulation Trust Managed 6,688
OCC Accumulation Trust Small Cap 2,600
OCC Accumulation Trust U.S. Government Income 1,574
---------------
$52,762
===============
</TABLE>
9
<PAGE>
First Providian Life and Health Insurance Company
Separate Account C - Marquee
Notes to Financial Statements (continued)
3. FEDERAL INCOME TAXES
Operations of the Separate Account are included in the federal income tax return
of FPLH, which is taxed as a life insurance company under the Internal Revenue
Code. The Separate Account will not be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code. Under current federal income
tax law, no federal income taxes are payable with respect to the Separate
Account.
4. ADVISORY AND SERVICE FEES
The Funds and their advisors furnish corporate management, administrative,
marketing and distribution services. Additionally, the Funds' advisors furnish
investment advisory services to the Funds' portfolios under the terms of
advisory contracts. The net asset value of the portfolios is net of the advisory
and service fees.
5. EXPENSES
An annual charge is deducted from the unit values of the subaccounts of the
Separate Account for FPLH's assumption of certain mortality and expense risks
incurred in connection with the contract. The charge is assessed daily based on
the net asset value of the Separate Account. For the period since inception
through December 31, 1997, the effective annual rate for this charge was 1.25%.
An administrative charge equal to .15% annually is deducted from the unit values
of the subaccounts of the Separate Account. This charge is assessed daily by
FPLH, along with an annual policy fee of $30 per contract. The annual policy fee
is deducted proportionately from the subaccounts' accumulated value. These
deductions represent reimbursement for the costs expected to be incurred over
the life of the contract for issuing and maintaining each contract and the
Separate Account.
<PAGE>
First Providian Life and Health Insurance Company
Separate Account C - Marquee
Notes to Financial Statements (continued)
6. CONTRACT OWNER TRANSACTIONS
Transactions with contract owners during the period since inception through
December 31, 1997 and end of period values for each of the respective
subaccounts were as follows:
<TABLE>
<CAPTION>
1997
---------------------
FIDELITY VIP EQUITY-INCOME
<S> <C>
Issuance of units 580.740
Redemption of units -
---------------------
Outstanding units at end of period 580.740
=====================
End of period:
Unit value $ 12.117415
=====================
Subaccount value $ 7,037
=====================
FIDELITY VIP GROWTH
Issuance of units 220.094
Redemption of units -
---------------------
Outstanding units at end of period 220.094
=====================
End of period:
Unit value $ 11.963939
=====================
Subaccount value $ 2,633
=====================
DREYFUS GROWTH AND INCOME
Issuance of units 608.751
Redemption of units -
---------------------
Outstanding units at end of period 608.751
=====================
End of period:
Unit value $ 11.546258
=====================
Subaccount value $ 7,029
=====================
</TABLE>
11
<PAGE>
First Providian Life and Health Insurance Company
Separate Account C - Marquee
Notes to Financial Statements (continued)
6. CONTRACT OWNER TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
1997
---------------------
DREYFUS QUALITY BOND
<S> <C>
Issuance of units 147.184
Redemption of units -
---------------------
Outstanding units at end of period 147.184
=====================
End of period:
Unit value $ 10.768802
=====================
Subaccount value $ 1,585
=====================
T. ROWE PRICE EQUITY INCOME
Issuance of units 591.446
Redemption of units -
---------------------
Outstanding units at end of period 591.446
=====================
End of period:
Unit value $ 12.084498
=====================
Subaccount value $ 7,147
=====================
T. ROWE PRICE NEW AMERICA GROWTH
Issuance of units 171.777
Redemption of units -
---------------------
Outstanding units at end of period 171.777
=====================
End of period:
Unit value $ 12.434974
=====================
Subaccount value $ 2,136
=====================
</TABLE>
12
<PAGE>
First Providian Life and Health Insurance Company
Separate Account C - Marquee
Notes to Financial Statements (continued)
6. CONTRACT OWNER TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
1997
---------------------
T. ROWE PRICE INTERNATIONAL STOCK
<S> <C>
Issuance of units 1,446.938
Redemption of units -
---------------------
Outstanding units at end of period 1,446.938
=====================
End of period:
Unit value $ 10.156554
=====================
Subaccount value $ 14,696
=====================
OCC ACCUMULATION TRUST MANAGED
Issuance of units 594.827
Redemption of units -
---------------------
Outstanding units at end of period 594.827
=====================
End of period:
Unit value $ 11.537140
=====================
Subaccount value $ 6,863
=====================
OCC ACCUMULATION TRUST SMALL CAP
Issuance of units 212.793
Redemption of units -
---------------------
Outstanding units at end of period 212.793
=====================
End of period:
Unit value $ 12.224404
=====================
Subaccount value $ 2,601
=====================
</TABLE>
13
<PAGE>
First Providian Life and Health Insurance Company
Separate Account C - Marquee
Notes to Financial Statements (continued)
6. CONTRACT OWNER TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
1997
---------------------
OCC ACCUMULATION TRUST U.S. GOVERNMENT INCOME
<S> <C>
Issuance of units 149.603
Redemption of units -
---------------------
Outstanding units at end of period 149.603
=====================
End of period:
Unit value $ 10.533052
=====================
Subaccount value $ 1,576
=====================
</TABLE>
14
<PAGE>
First Providian Life and Health Insurance Company
Separate Account C - Marquee
Notes to Financial Statements (continued)
7. Net Assets
Net assets at December 31, 1997 for each of the respective subaccounts are as
summarized in the following tables:
<TABLE>
<CAPTION>
DREYFUS
FIDELITY VIP FIDELITY VIP GROWTH AND DREYFUS QUALITY
EQUITY-INCOME GROWTH INCOME BOND
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Contract owner transactions $ 6,739 $ 2,578 $ 6,730 $ 1,561
Accumulated net investment
income (expense) (14) (5) 433 19
Accumulated net realized gain
on investments 1 - - -
Net unrealized appreciation
(depreciation) on investments 311 60 (134) 5
------------------------------------------------------------------
$ 7,037 $ 2,633 $ 7,029 $ 1,585
==================================================================
</TABLE>
<TABLE>
<CAPTION>
T. ROWE PRICE T. ROWE PRICE OCC
T. ROWE PRICE NEW AMERICA INTERNATIONAL ACCUMULATION
EQUITY INCOME GROWTH STOCK TRUST MANAGED
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Contract owner transactions $ 6,754 $ 2,068 $ 14,433 $ 6,688
Accumulated net investment
income (expense) 221 1 300 (13)
Accumulated net realized gain
(loss) on investments - (1) - -
Net unrealized appreciation
(depreciation) on investments 172 68 (37) 188
--------------------------------------------------------------------------
$ 7,147 $ 2,136 $ 14,696 $ 6,863
==========================================================================
</TABLE>
15
<PAGE>
First Providian Life and Health Insurance Company
Separate Account C - Marquee
Notes to Financial Statements (continued)
7. NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
OCC
OCC ACCUMULATION
ACCUMULATION TRUST U.S.
TRUST SMALL GOVERNMENT
CAP INCOME TOTAL
-----------------------------------------------
<S> <C> <C> <C>
Contract owner transactions $ 2,600 $ 1,561 $ 51,712
Accumulated net investment
income (expense) (5) 10 947
Accumulated net realized gain
on investments - - -
Net unrealized appreciation on
investments 6 5 644
-----------------------------------------------
$ 2,601 $ 1,576 $ 53,303
===============================================
</TABLE>
16
<PAGE>
First Providian Life and Health Insurance Company
Separate Account C - Marquee
Notes to Financial Statements (continued)
8. YEAR 2000 (UNAUDITED)
CGC's parent has adopted and has in place a Year 2000 Assessment and Planning
Project (the "Project") to review and analyze its information technology and
systems to determine if they are Year 2000 compatible. CGC and FPLH have begun
to convert or modify, where necessary, critical data processing systems. It is
contemplated that the Project will be substantially completed by early 1999.
CGC and FPLH do not expect this Project to have a significant effect on
operations. However, to mitigate the effect of outside influences upon the
success of the Project, CGC and FPLH have undertaken communications with their
significant customers, suppliers and other third parties to determine their Year
2000 compatibility and readiness. Management believes that the issues
associated with the Year 2000 will be resolved with no material financial impact
on CGC and FPLH.
Since the Year 2000 computer problem, and its resolution, is complex and
multifaceted, the success of a response plan cannot be conclusively known until
the Year 2000 is reached (or an earlier date to the extent that systems or
equipment addresses Year 2000 date data prior to the Year 2000). Even with
appropriate and diligent pursuit of a well-conceived project, including testing
procedures, there is no certainty that any company will achieve complete
success. Notwithstanding the efforts or results of CGC and FPLH, their ability
to function unaffected to and through the Year 2000 may be adversely affected by
actions (or failure to act) of third parties beyond their knowledge or control.
17
<PAGE>
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements.
Part A. None
Part B. Audited Financial Statements of AUSA Life Insurance Company,
Inc. Separate Account C - Marquee (formerly First Providian
Life and Health Insurance Company Separate Account C -
Marquee), for the Period Since Inception Through Year ended
December 31, 1997, with Report of Independent Auditors/1/
Supplemental Financial Statements - Statutory Basis of AUSA
Life Insurance Company, Inc. for the Years ended
December 31, 1997, 1996 and 1995, with Report of
Independent Auditors/1/
Part C. None
(b) Exhibits.
(1) Resolution of the Board of Directors of First Providian Life
and Health Insurance Company ("First Providian") authorizing
establishment of the Separate Account./2/
(2) Not Applicable.
(3) Distribution Agreement.
(a) Form of Selling Agreement./2/
(4) (a) Form of variable annuity contract./2/
(5) (a) Form of Application./2/
(6) (a) Articles of Incorporation of AUSA Life Insurance
Company, Inc./4/
(b) By-Laws of AUSA Life Insurance Company, Inc./4/
(7) Not Applicable.
(8) (a) Participation Agreement among Variable Insurance
Products Fund, Fidelity Distributor's Corporation and
First Providian life and Health Insurance Company
dated November 15, 1996./3/
(b) Participation Agreement among Variable Insurance
Products Fund II, Fidelity Distributor's Corporation
and First Providian dated November 15, 1996./3/
(c) Participation Agreement among T. Rowe Price
International Series, Inc.; T. Rowe Price Equity
Series, Inc.; T. Rowe Price Investment Services, Inc.
and First Providian dated November 15, 1996./3/
(d) Participation Agreement between Dreyfus Variable
Investment Fund and First Providian dated November 15,
1996./3/
(e) Participation Agreement by and among OCC Accumulation
Trust, First Providian and OCC Distributors dated
November 1, 1996./3/
(9) (a) Opinion and Consent of Counsel./1/
(b) Consent of Counsel./1/
(10) Consent of Independent Auditors./1/
(11) No Financial Statements are omitted from Item 23.
(12) Not Applicable.
(13) Performance Computation./2/
(14) (a) None
(b) Not Applicable
- -------------------------------------
/1/Filed herewith.
/2/Incorporated by reference from Pre-Effective Amendment No. 1 to the
Registration Statement of First Providian Life and Health Insurance Company,
File No. 33-94210 (as filed on July 18, 1996).
/3/Incorporated by reference from Post-Effective Amendment No. 1 to the
Registration Statement of First Providian Life and Health Insurance Company,
File No. 33-94210 (as filed on July 29, 1997).
/4/Incorporated by reference from Initial Registration Statement on Form N-4 of
AUSA Life Insurance Company, Inc. - AUSA Endeavor Variable Annuity Account,
File No. 33-83560 (as filed on September 1, 1994).
<PAGE>
Item 25. Directors and Officers of the Depositor
Name and Principal Business Address Positions and Offices with Depositor
- ----------------------------------- ------------------------------------
Tom A. Schlossberg Director and President
4 Manhattanville Road
Purchase, NY 10577
Larry G. Brown Director and Chairman of the Board
201 Highland Avenue
Largo, FL 33770
William L. Busler Director and Vice President
4333 Edgewood Road NE
Cedar Rapids, IA 52499
Patrick S. Baird Vice President and Chief Financial
4333 Edgewood Road NE Officer
Cedar Rapids, IA 52499
Craig D. Vermie Secretary
4333 Edgewood Road NE
Cedar Rapids, IA 52499
Colette Vargas Director and Chief Actuary
4 Manhattanville Road
Purchase, NY 10577
Brenda K. Clancy Treasurer
4333 Edgewood Road NE
Cedar Rapids, IA 52499
Jack R. Dykhouse Director
Brown Trail, Suite 302
Bedford, TX 76021
Steven E. Frushtick Director
500 Fifth Avenue
New York, NY 10110
Carl Thor Hanson Director
900 Birdseye Road
P.O. Box 112
Orient, NY 11957-0112
B. Larry Jenkins Director and Vice President
2 East Chase Street
Baltimore, MD 21202
Vera F. Mihaic Director and Vice President
666 Fifth Avenue
New York, NY 10103-0001
Peter P. Post Director
415 Madison Avenue
New York, NY 10017
Cor H. Verhagen Director
51 JFK Parkway
Short Hills, NJ 07078
E. Kirby Warren Director
725 Uris Hall
116th Street & Broadway
New York, NY 10027
<PAGE>
Item 26. Persons controlled by or Under Common Control with the Depositor or
Registrant.
The Depositor, AUSA Life Insurance Company, Inc. ("AUSA Life"), is
directly and indirectly wholly owned by AEGON USA, INC. which is indirectly
wholly owned by AEGON n.v. The Registrant is a segregated asset account of AUSA
Life.
The following chart indicates the persons controlled by or under
common control with AUSA Life:
<PAGE>
<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name Incorporation Securities Owned Business
- ---- ---------------- ---------------- --------
<S> <C> <C> <C>
AEGON N.V. Netherlands 53.63% of Vereniging Holding company
Corporation AEGON Netherlands
Membership Association
Groninger Financieringen B.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
AEGON Netherland N.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
AEGON Nevak Holding B.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
AEGON International N.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
Voting Trust Delaware Voting Trust
Trustees:
K.J. Storm
Donald J. Shepard
H.B. Van Wijk
Dennis Hersch
AEGON U.S. Holding Delaware 100% of Voting Trust Holding company
Corporation
Short Hills Management New Jersey 100% of AEGON U.S. Holding company
Company Holding Corporation
CORPA Reinsurance New York 100% of AEGON U.S. Holding company
Company Holding Corporation
AEGON Management Indiana 100% of AEGON U.S. Holding company
Company Holding Corporation
RCC North America Inc. Delaware 100% of AEGON U.S. Holding company
Company Holding Corporation
AEGON USA, Inc. Iowa 100% AEGON U.S. Holding company
Holding Corporation
AUSA Holding Company Maryland 100% AEGON USA, Inc. Holding company
Monumental General Insurance Maryland 100% AUSA Holding Co. Holding company
Group, Inc.
Trip Mate Insurance Agency, Inc. Kansas 100% Monumental General Sale/admin. of travel
Insurance Group, Inc. insurance
Monumental General Maryland 100% Monumental General Provides management srvcs.
Administrators, Inc. Insurance Group, Inc. to unaffiliated third party
administrator
Executive Management and Maryland 100% Monumental General Provides actuarial consulting
Consultant Services, Inc. Administrators, Inc. services
Monumental General Mass Maryland 100% Monumental General Marketing arm for sale of
Marketing, Inc. Insurance Group, Inc. mass marketed insurance
coverages
Diversified Investment Delaware 100% AUSA Holding Co. Registered investment advisor
Advisors, Inc.
Diversified Investors Securities Delaware 100% Diversified Investment Broker-Dealer
Corp. Advisors, Inc.
AEGON USA Securities, Inc. Iowa 100% AUSA Holding Co. Broker-Dealer
Supplemental Ins. Division, Inc. Tennessee 100% AUSA Holding Co. Insurance
Creditor Resources, Inc. Michigan 100% AUSA Holding Co. Credit insurance
CRC Creditor Resources Canada 100% Creditor Resources, Inc. Insurance agency
Canadian Dealer Network Inc.
AEGON USA Investment Iowa 100% AUSA Holding Co. Investment advisor
Management, Inc.
AEGON USA Realty Iowa 100% AUSA Holding Co. Provides real estate
Advisors, Inc. administrative and real
estate investment services
Quantra Corporation Delaware 100% AEGON USA Realty Real estate and financial
Advisors, Inc. software production and sales
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Quantra Software Corporation Delaware 100% Quantra Corporation Manufacture and sell
mortgage loan and security
management software
Landauer Realty Advisors, Inc. Iowa 100% AEGON USA Realty Real estate counseling
Advisors, Inc.
Landauer Associates, Inc. Delaware 100% AEGON USA Realty Real estate counseling
Advisors, Inc.
Realty Information Systems, Inc. Iowa 100% AEGON USA Realty Information Systems for
Advisors, Inc. real estate investment
management
AEGON USA Realty Iowa 100% AEGON USA Real estate management
Management, Inc Realty Advisors, Inc.
USP Real Estate Investment Trust Iowa 21.89% First AUSA Life Ins.Co. Real estate investment trust
13.11% PFL Life Ins. Co.
4.86% Bankers United Life
Assurance Co.
RCC Properties Limited Iowa AEGON USA Realty Advisors, Limited Partnership
Partnership Inc. is General Partner and 5%
owner
AUSA Financial Markets, Inc. Iowa 100% AUSA Holding Co. Marketing
Endeavor Investment Advisors California 49% AUSA Financial General Partnership
Markets, Inc.
Universal Benefits Corporation Iowa 100% AUSA Holding Co. Third party administrator
Investors Warranty of Iowa 100% AUSA Holding Co. Provider of automobile
America, Inc. extended maintenance
contracts
Massachusetts Fidelity Trust Co. Iowa 100% AUSA Holding Co. Trust company
Money Services, Inc. Delaware 100% AUSA Holding Co. Provides financial counseling
for employees and agents of
affiliated companies
Zahorik Company, Inc. California 100% AUSA Holding Co. Broker-Dealer
ZCI, Inc. Alabama 100% Zahorik Company, Inc. Insurance agency
AEGON Asset Management Delaware 100% AUSA Holding Co. Registered investment advisor
Services, Inc.
Intersecurities, Inc. Delaware 100% AUSA Holding Co. Broker-Dealer
Associated Mariner Financial Michigan 100% Intersecurities, Inc. Holding co./management
Group, Inc. services
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Mariner Financial Services, Inc. Michigan 100% Associated Mariner Broker/Dealer
Financial Group, Inc.
Mariner Planning Corporation Michigan 100% Mariner Financial Financial planning
Services, Inc.
Associated Mariner Agency, Inc. Michigan 100% Associated Mariner Insurance agency
Financial Group, Inc.
Associated Mariner Agency Hawaii 100% Associated Mariner Insurance agency
of Hawaii, Inc. Agency, Inc.
Associated Mariner Ins. Agency Massachusetts 100% Associated Mariner Insurance agency
of Massachusetts, Inc. Agency, Inc.
Associated Mariner Agency Ohio 100% Associated Mariner Insurance agency
Ohio, Inc. Agency, Inc.
Associated Mariner Agency Texas 100% Associated Mariner Insurance agency
Texas, Inc. Agency, Inc.
Associated Mariner Agency New Mexico 100% Associated Mariner Insurance agency
New Mexico, Inc. Agency, Inc.
Mariner Mortgage Michigan 100% Associated Mariner Mortgage origination
Financial Group, Inc.
Idex Investor Services, Inc. Florida 100% AUSA Holding Co. Shareholder services
Idex Management, Inc. Delaware 50% AUSA Holding Co. Investment advisor
50% Janus Capital Corp.
IDEX Series Fund Massachusetts Various Mutual fund
First AUSA Life Insurance Maryland 100% AEGON USA, Inc. Insurance holding company
Company
AUSA Life Insurance New York 100% First AUSA Life Insurance
Company, Inc. Insurance Company
Life Investors Insurance Iowa 100% First AUSA Life Ins. Co. Insurance
Company of America
Life Investors Alliance, LLC Delaware 100% LIICA Purchase, own, and hold the
equity interest of other entities
Bankers United Life Iowa 100% Life Investors Ins. Marketing
Assurance Company Company of America
Life Investors Agency Iowa 100% Life Investors Ins. Marketing
Group, Inc. Company of America
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PFL Life Insurance Company Iowa 100% First AUSA Life Ins. Co. Insurance
AEGON Financial Services Minnesota 100% PFL Life Insurance Co. Marketing
Group, Inc.
AEGON Assignment Corporation Kentucky 100% AEGON Financial Administrator of structured
of Kentucky Services Group, Inc. settlements
AEGON Assignment Corporation Illinois 100% AEGON Financial Administrator of structured
Services Group, Inc. settlements
Southwest Equity Life Ins. Co. Arizona 100% of Common Voting Stock Insurance
First AUSA Life Ins. Co.
Iowa Fidelity Life Insurance Co. Arizona 100% of Common Voting Stock Insurance
First AUSA Life Ins. Co.
Western Reserve Life Assurance Ohio 100% First AUSA Life Ins. Co. Insurance
Co. of Ohio
WRL Series Fund, Inc. Maryland Various Mutual fund
WRL Investment Services, Inc. Florida 100% Western Reserve Life Provides administration for
Assurance Co. of Ohio affiliated mutual fund
WRL Investment Florida 100% Western Reserve Life Registered investment advisor
Management, Inc. Assurance Co. of Ohio
ISI Insurance Agency, Inc. California 100% Western Reserve Life Insurance agency
Assurance Co. of Ohio
ISI Insurance Agency Ohio 100% ISI Insurance Agency, Inc. Insurance agency
of Ohio, Inc.
ISI Insurance Agency Texas 100% ISI Insurance Agency, Inc. Insurance agency
of Texas, Inc.
ISI Insurance Agency Massachusetts 100% ISI Insurance Agency, Inc. Insurance agency
of Massachusetts, Inc.
AEGON Equity Group, Inc. Florida 100% Western Reserve Life Insurance agency
Assurance Co. of Ohio
Monumental Life Insurance Co. Maryland 100% First AUSA Life Ins. Co. Insurance
AEGON Special Markets Maryland 100% Monumental Life Ins. Co. Marketing
Group, Inc.
Monumental General Casualty Co. Maryland 100% First AUSA Life Ins. Co. Insurance
United Financial Services, Inc. Maryland 100% First AUSA Life Ins. Co. General agency
Bankers Financial Life Ins. Co. Arizona 100% First AUSA Life Ins. Co. Insurance
The Whitestone Corporation Maryland 100% First AUSA Life Ins. Co. Insurance agency
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cadet Holding Corp. Iowa 100% First AUSA Life Holding company
Insurance Company
Commonwealth General Delaware 100% AEGON USA, Inc. Holding company
Corporation ("CGC")
Monumental Agency Group, Inc. Kentucky 100% CGC Provider of srvcs. to ins. cos.
Benefit Plans, Inc. Delaware 100% CGC TPA for Peoples Security Life
Insurance Company
Durco Agency, Inc. Virginia 100% Benefit Plans, Inc. General agent
Commonwealth General Kentucky 100% CGC Administrator of structured
Assignment Corporation settlements
AFSG Securities Corporation Pennsylvania 100% CGC Broker-Dealer
PB Investment Advisors, Inc. Delaware 100% CGC Registered investment advisor
Diversified Financial Products Inc. Delaware 100% CGC Provider of investment,
marketing and admin. services
to ins. cos.
AEGON USA Real Estate Delaware 100% Diversified Financial Real estate and mortgage
Services, Inc. Products Inc. holding company
Capital Real Estate Delaware 100% CGC Furniture and equipment
Development Corporation lessor
Capital General Development Delaware 100% CGC Holding company
Corporation
Commonwealth Life Kentucky 100% Capital General Insurance company
Insurance Company Development Corporation
Peoples Security Life North Carolina 100% Capital General Insurance company
Insurance Company Development Corporation
Ammest Realty Corporation Texas 100% Peoples Security Life Special purpose subsidiary
Insurance Company
JMH Operating Company, Inc. Mississippi 100% Peoples Security Life Real estate holdings
Insurance Company
Capital Security Life Ins. Co. North Carolina 100% Capital General Insurance company
Development Corporation
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Independent Automobile Florida 100% Capital Security Automobile Club
Association, Inc. Life Insurance Company
Independent Automobile Georgia 100% Capital Security Automobile Club
Club, Inc. Life Insurance Company
Capital 200 Block Corporation Delaware 100% CGC Real estate holdings
Capital Broadway Corporation Kentucky 100% CGC Real estate holdings
Southlife, Inc. Tennessee 100% CGC Investment subsidiary
Ampac Insurance Agency, Inc. Pennsylvania 100% CGC Provider of management
(EIN 23-1720755) support services
National Home Life Corporation Pennsylvania 100% Ampac Insurance Special-purpose subsidiary
Agency, Inc.
Compass Rose Development Pennsylvania 100% Ampac Insurance Special-purpose subsidiary
Corporation Agency, Inc.
Frazer Association Illinois 100% Ampac Insurance TPA license-holder
Consultants, Inc. Agency, Inc.
Valley Forge Associates, Inc. Pennsylvania 100% Ampac Insurance Furniture & equipment lessor
Agency, Inc.
Veterans Benefits Plans, Inc. Pennsylvania 100% Ampac Insurance Administrator of group
Agency, Inc. insurance programs
Veterans Insurance Services, Inc. Delaware 100% Ampac Insurance Special-purpose subsidiary
Agency, Inc.
Financial Planning Services, Inc. Dist. Columbia 100% Ampac Insurance Special-purpose subsidiary
Agency, Inc.
Providian Auto and Home Missouri 100% CGC Insurance company
Insurance Company
Academy Insurance Group, Inc. Delaware 100% CGC Holding company
Academy Life Insurance Co. Missouri 100% Academy Insurance Insurance company
Group, Inc.
Pension Life Insurance New Jersey 100% Academy Insurance Insurance company
Company of America Group, Inc.
Academy Services, Inc. Delaware 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Ammest Development Corp. Inc. Kansas 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Ammest Insurance Agency, Inc. California 100% Academy Insurance General agent
Group, Inc.
Ammest Massachusetts Massachusetts 100% Academy Insurance Special-purpose subsidiary
Insurance Agency, Inc. Group, Inc.
Ammest Realty, Inc. Pennsylvania 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Ampac, Inc. Texas 100% Academy Insurance Managing general agent
Group, Inc.
Ampac Insurance Agency, Inc. Pennsylvania 100% Academy Insurance Special-purpose subsidiary
(EIN 23-2364438) Group, Inc.
Data/Mark Services, Inc. Delaware 100% Academy Insurance Provider of mgmt. services
Group, Inc.
Force Financial Group, Inc. Delaware 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Force Financial Services, Inc. Massachusetts 100% Force Fin. Group, Inc. Special-purpose subsidiary
Military Associates, Inc. Pennsylvania 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
NCOA Motor Club, Inc. Georgia 100% Academy Insurance Automobile club
Group, Inc.
NCOA Management Company Texas 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Unicom Administrative Pennsylvania 100% Academy Insurance Provider of admin. services
Services, Inc. Group, Inc.
Unicom Administrative Germany 100% Unicom Administrative Provider of admin. services
Services, GmbH Services, Inc.
Providian Property and Casualty Kentucky 100% Providian Auto and Insurance company
Insurance Company Home Insurance Company
Providian Fire Insurance Co. Kentucky 100% Providian Property Insurance company
and Casualty Insurance Co.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Capital Liberty, L.P. Delaware 79.2% Commonwealth Life Holding Company
Insurance Company
19.8% Peoples Security Life
Insurance Company
1% CGC
Commonwealth General LLC Turks & 100% CGC Special-purpose subsidiary
Caicos Islands
Peoples Benefit Life Missouri 3.7% CGC Insurance Company
Insurance Company 15.3% Peoples Security Life
Insurance Company
20% Capital Liberty, L.P.
61% Commonwealth Life
Insurance Company
Veterans Life Insurance Co. Illinois 100% Peoples Benefit Life Insurance company
Insurance Company
Peoples Benefit Services, Inc. Pennsylvania 100% Veterans Life Ins. Co. Special-purpose subsidiary
</TABLE>
<PAGE>
Item 27. Number of Contract Owners
As of August 31, 1998, there were six Contract Owners of the AUSA
Marquee Variable Annuity.
Item 28. Indemnification.
The New York Code (Sections 721 et seq.) provides for permissive
indemnification in certain situations, mandatory indemnification in other
situations, and prohibits indemnification in certain situations. The Code also
specifies procedures for determining when indemnification payments can be made.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "1933 Act"), may be permitted to
directors, officers, and controlling persons of the Depositor pursuant to the
foregoing provisions, or otherwise, the Depositor has been advised that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the 1933 Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Depositor of expenses incurred or
paid by a director, officer, or controlling person in connection with the
securities being registered), the Depositor will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the 1933 Act and will be governed by the
final adjudication of such issue.
<PAGE>
Item 29. Principal Underwriters
(a) AFSG Securities Corporation ("AFSG"), which serves as the principal
underwriter for the variable annuity contracts funded by Separate Account C,
also serves as the principal underwriter for variable life insurance policies
funded by Separate Account I and variable annuity contracts funded by Separate
Account II and Separate Account V of Providian Life and Health Insurance
Company. In addition, AFSG serves as principal underwriter for variable annuity
contracts funded by PFL Life Variable Annuity Account A, PFL Endeavor VA
Separate Account, PFL Wright Variable Annuity Account and PFL Retirement Builder
Variable Annuity Account of PFL Life Insurance Company and AUSA Endeavor
Variable Annuity Account of AUSA Life Insurance Company, Inc.
(b) Directors and Officers of AFSG Securities Corporation/5/
Positions and Officers
Name with Underwriter
---- ----------------------
Larry N. Norman President
Lisa A. Wachendorf Vice President and Chief
Compliance Officer
Debra C. Cubero Vice President
Michael F. Lane Vice President
Anne M. Spaes Vice President
Sarah J. Strange Vice President
Frank A. Camp Secretary
Linda Gilmer Controller and Treasurer
Robert W. Warner Assistant Compliance Officer
Emily Bates Assistant Treasurer
William C. White Assistant Treasurer
Clifton W. Flenniken Assistant Treasurer
Colleen S. Lyons Assistant Secretary
John F. Reesor Assistant Secretary
Directors
---------
Larry N. Norman
Frank A. Camp
Sarah J. Strange
- --------------
/5/ The principal business address of each person listed is 4333 Edgewood Road,
N.E., Cedar Rapids, Iowa 52499-0001, or 400 West Market Street, Louisville,
Kentucky 40202.
<PAGE>
Item 30. Location of Accounts and Records
The books, accounts and other documents required by Section 31(a) under the
Investment Company Act and the rules promulgated thereunder will be maintained
in the physical possession of AUSA Life Insurance Company, Inc. at 666 Fifth
Avenue, New York, New York, 10103, or its administrative offices at 4333
Edgewood Road, N.E. Cedar Rapids, Iowa 52499.
Item 31. Management Services
All management contracts are discussed in Part A or Part B.
Item 32. Undertakings
(a) Registrant undertakes that it will file a post-effective amendment to
this registration statement as frequently as necessary to ensure that
the audited financial statements in the registration statement are
never more than 16 months old for so long as Premiums under the Policy
may be accepted.
(b) Registrant undertakes that it will include either (i) a postcard or
similar written communication affixed to or included in the Prospectus
that the applicant can remove to send for a Statement of Additional
Information or (ii) a space in the Policy application that an
applicant can check to request a Statement of Additional Information.
(c) Registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available
under this Form promptly upon written or oral request to AUSA Life
Insurance Company, Inc., at the address or phone number listed in the
Prospectus.
(d) AUSA Life Insurance Company, Inc. hereby represents that the fees and
charges deducted under the policies described in this registration
statement, in the aggregate, are reasonable in relation to the
services rendered, the expenses expected to be incurred, and the risks
assumed by AUSA Life Insurance Company, Inc.
Section 403(b) Representations
------------------------------
AUSA Life represents that it is relying on a no-action letter dated
November 28, 1998, to the American Council of Life Insurance (Ref. No.
IP-6-88), regarding Sections 22(e), 27(c)(i), and 27(d) of the
Investment Company Act of 1940, as amended, in connection with
redeemability restrictions on Section 403(b) Policies, and that
paragraphs numbered (1) through (4) of that letter will be complied
with.
<PAGE>
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the duties indicated.
Signatures Title Date
/s/ William Brown, Jr. Director September 28, 1998
- ------------------------
William Brown, Jr.
/s/ Larry G. Brown Director September 28, 1998
- ------------------------
Larry G. Brown
/s/ William L. Busler Director September 28, 1998
- ------------------------
William L. Busler
/s/ Jack R. Dykhouse Director September 28, 1998
- ------------------------
Jack R. Dykhouse
/s/ Steven E. Frushtick Director September 28, 1998
- ------------------------
Steven E. Frushtick
/s/ Carl T. Hanson Director September 28, 1998
- ------------------------
Carl T. Hanson
/s/ B. Larry Jenkins Director September 28, 1998
- ------------------------
B. Larry Jenkins
/s/ Colette Vargas Director September 28, 1998
- ------------------------
Colette Vargas
/s/ Vera F. Mihaic Director September 28, 1998
- ------------------------
Vera F. Mihaic
/s/ Peter P. Post Director September 28, 1998
- ------------------------
Peter P. Post
/s/ Tom A. Schlossberg Director (Principal September 28, 1998
- ------------------------
Tom A. Schlossberg Executive Officer)
/s/ Cor H. Verhagen Director September 28, 1998
- ------------------------
Cor H. Verhagen
/s/ E. Kirby Warren Director September 28, 1998
- ------------------------
E. Kirby Warren
/s/ Brenda K. Clancy Treasurer (Chief September 28, 1998
- ------------------------
Brenda K. Clancy Accounting Officer
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant hereby certifies that this Amendment to the Registration
Statement meets the requirements for effectiveness pursuant to paragraph (b) of
Rule 485 and has caused this Registration Statement to be signed on its behalf,
in the City of Purchase and State of New York, on this 28th day of September,
1998.
AUSA LIFE INSURANCE COMPANY, INC.
SEPARATE ACCOUNT C
Registrant
AUSA LIFE INSURANCE COMPANY, INC.
Depositor
/s/ Tom A. Schlossberg
-----------------------
Tom A. Schlossberg
President
<PAGE>
SEPARATE ACCOUNT C
AUSA MARQUEE VARIABLE ANNUITY
INDEX TO EXHIBITS
EXHIBIT 9(a) OPINION AND CONSENT OF COUNSEL
EXHIBIT 9(b) CONSENT OF COUNSEL
EXHIBIT 10 CONSENT OF INDEPENDENT AUDITORS
<PAGE>
EXHIBIT 9(a)
September 28, 1998
AUSA Life Insurance Company, Inc.
AEGON Financial Services Group, Inc.
400 West Market Street
Louisville, Kentucky 40202
RE: AUSA Life Insurance Company, Inc. Separate Account C-- Opinion and Consent
To Whom It May Concern:
This opinion and consent is furnished in connection with the filing of the
Initial Registration Statement on Form N-4 under the Securities Act of 1933, as
amended (the "1933 Act"), and Amendment No. 5 to the Registration Statement on
Form N-4 under the Investment Company Act of 1940, as amended (the "1940 Act"),
File No. 811-9062 (the "Registration Statement"), of AUSA Life Insurance
Company, Inc. Separate Account C (Marquee) ("Separate Account C"). Separate
Account C receives and invests premiums allocated to it under a group flexible
premium multi-funded annuity contract, the Marquee Variable Annuity (the
"Annuity Contract"). The Annuity Contract is offered in the manner described in
the prospectus contained in the Registration Statement (the "Prospectus").
In my capacity as legal adviser to AUSA Life Insurance Company, Inc. ("AUSA
Life"), I hereby confirm the establishment of Separate Account C as a separate
account for assets applicable to the Annuity Contract, pursuant to the
provisions of Section 4240 of the New York Insurance Statutes. First Providian
will be merged with and into AUSA Life on October 1, 1998. In addition, I have
made such examination of the law in addition to consultation with outside
counsel and have examined such corporate records and such other documents as I
consider appropriate as a basis for the opinion hereinafter expressed. On the
basis of such examination, it is my professional opinion that:
1. AUSA Life Insurance Company, Inc. is a corporation duly organized and
validly existing under the laws of the State of New York.
2. Effective as of October 1, 1998, Separate Account C will be an account
maintained by AUSA Life Insurance Company, Inc. pursuant to the laws of the
State of New York, under which income, capital gains, and capital losses
incurred on the assets of Separate Account C will be credited to or charged
against the assets of Separate Account C, without regard to the income,
capital gains or capital losses arising out of any other business which
AUSA Life Insurance Company, Inc. may conduct.
3. Assets allocated to Separate Account C will be owned by AUSA Life Insurance
Company, Inc. The assets in Separate Account C attributable to the Annuity
Contract generally will not be chargeable with liabilities arising out of
any other business which AUSA Life Insurance Company, Inc. may conduct.
Effective as of October 1, 1998, the assets of Separate Account C will be
available to cover the general
1
<PAGE>
liabilities of AUSA Life Insurance Company, Inc. only to the extent that
the assets of Separate Account C exceed the liabilities arising under the
Annuity Contracts.
4. The Annuity Contracts will have been duly authorized by AUSA Life Insurance
Company, Inc. and, when sold in jurisdictions authorizing such sales, in
accordance with the Registration Statement, will constitute validly issued
and binding obligations of AUSA Life Insurance Company, Inc. in accordance
with their terms.
5. Owners of the Annuity Contracts, as such, will not be subject to any
deductions, charges, or assessments imposed by AUSA Life Insurance Company,
Inc. other than those provided in the Annuity Contract.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to my name under the heading "Legal Matters" in
the Prospectus.
Very truly yours,
/s/ Gregory E. Miller-Breetz
- ----------------------------
Gregory E. Miller-Breetz
Attorney
2
<PAGE>
Exhibit 9(b)
September 28, 1998
AUSA Life Insurance Company, Inc.
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the Prospectus contained in the Initial Registration Statement on
Form N-4 under the Securities Act of 1933, as amended (the "1933 Act"), and
Amendment No. 5 to the Registration Statement on Form N-4 under the Investment
Company Act of 1940, as amended (the "1940 Act"). File No. 811-9062 (the
"Registration Statement"), filed on or around October 1, 1998 by AUSA Life
Insurance Company, Inc. and AUSA Life Insurance Company, Inc. Separate Account C
(funding the AUSA Marquee Variable Annuity) with the Securities and Exchange
Commission under the 1933 Act and the 1940 Act.
Very truly yours,
/s/ Jorden Burt Boros Cicchetti
Berenson & Johnson LLP
-------------------------------
JORDEN BURT BOROS CICCHETTI
BERENSON & JOHNSON LLP
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP]
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Financial
Statements" and "Auditors" and to the use of our report dated April 24, 1998,
with respect to the financial statements of First Providian Life and Health
Insurance Company Separate Account C--Marquee and to the use of our report dated
October 1, 1998 with respect to the supplemental statutory-basis financial
statements of AUSA Life Insurance Company, Inc. in the Registration Statement
(Form N-4) for AUSA Life Insurance Company, Inc. Separate Account C and related
Prospectus of the AUSA Marquee Variable Annuity for the registration of group
variable annuity contracts.
/s/ Ernst & Young LLP
Des Moines, Iowa
October 1, 1998