<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 29, 1998
REGISTRATION NO. 333-65145
& 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. 1 (X)
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 6 (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.
[X] On March 1, 1999, 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............................... Summary; 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............................. Expenses; Taxes; FEE TABLE
7. General Description of Variable Annuity
Contracts.............................. The Annuity Contract
8. Annuity Period......................... Annuity Payments
9. Death Benefit.......................... Death Benefit
10. Purchases and Contract Value........... Contract Application and
Purchase Payments; Accumulated
Value
11. Redemptions............................ Access to Your Money
12. Taxes.................................. Taxes
13. Legal Proceedings...................... Legal Matters
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>
THE AUSA MARQUEE
VARIABLE ANNUITY
Issued Through
AUSA Life Insurance Company, Inc.
Separate Account C
By
AUSA Life Insurance Company, Inc.
Prospectus
May 1, 1999
The AUSA Marquee Variable Annuity (the "Contract") provides a means of investing
on a tax-deferred basis in twelve investment company portfolios (the
"Portfolios"). The Contract is a group variable annuity contract and is
intended for retirement savings or other long-term investment purposes. You
bear all investment risk (including the possible loss of principal), and
investment results are not guaranteed. The Contract provides a Right to Cancel
period of at least 10 days during which the Contract may be cancelled.
Before investing you should carefully read this prospectus and the accompanying
prospectuses for the Portfolios. These prospectuses give you important
information about the Contract and the Portfolios, including the objectives,
risks, and strategies of the Portfolios. A Statement of Additional Information
for the Contract prospectus has been filed with the Securities and Exchange
Commission, is incorporated by reference, and is available free by calling our
Administrative Offices at 800-866-6007. The Table of Contents of the Statement
of Additional Information is included at the end of this prospectus.
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 PORTFOLIOS
Variable Insurance Products Fund
Advised by Fidelity Management & Research Company
Fidelity VIP Money Market
Fidelity VIP Equity-Income
Fidelity VIP Growth
Variable Insurance Products Fund II
Advised by Fidelity Management & Research Company
Fidelity VIP II Asset Manager
Dreyfus Variable Investment Fund
Advised by the Dreyfus Corporation
Dreyfus Growth and Income
Dreyfus Quality Bond
T. Rowe Price Equity Series, Inc.
Advised by T. Rowe Price Associates, Inc.
T. Rowe Price Equity Income
T. Rowe Price New America Growth
T. Rowe Price International Series, Inc.
Advised by Rowe Price-Fleming International, Inc.
T. Rowe Price International Stock
OCC Accumulation Trust
Advised by OpCap Advisors
OCC Accumulation Trust Managed
OCC Accumulation Trust Small Cap
OCC Accumulation Trust U.S.
Government Income
Neither the Securities and Exchange Commission nor any state securities
regulator has approved or disapproved these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is
a criminal offense.
<PAGE>
Contents [page numbers are place holders]
1 Cross Reference to Definitions 9 Expenses
2 Summary 10 Taxes
3 Fee Table 11 Access to Your Money
4 Example 12 Performance
5 The Annuity Contract 13 Death Benefit
6 Annuity Payments 14 Other Information
7 Purchase 15 Table of Contents of Statement of
Additional Information
8 Investment Options
16 Appendix (Condensed Financial
Information)
CROSS REFERENCE TO DEFINITIONS
We have generally defined the technical terms associated with the Contract where
they are used in the prospectus. The following list shows where certain of the
more technical and more frequently used terms are defined in the prospectus. In
the text you can easily locate the defined word because it will appear in bold
type or its definition will be covered in a space on the page set aside
specifically for discussion of the term.
[Note: Actual page numbers not yet available. Current references are to the
sections where the terms are defined.]
Accumulation Phase ["The Annuity Contract"]
Annuitant ["Death Benefit"]
Annuity Date ["Annuity Payments"]
Annuity Payment Options ["Annuity Payments"]
Beneficiary ["Death Benefit"]
Business Day ["Purchase"]
Contract ["Other Information"]
Contract Anniversary ["Purchase"]
Contract Date ["Purchase"]
Contract Owner ["Other Information"]
Contract Year ["Contract Year"]
Income Phase ["Annuity Payments"]
Initial Purchase Payment ["Purchase Payment"]
Joint Annuitant ["Death Benefit"]
Net Purchase Payment ["Purchase"]
Non-Qualified Contract ["Purchase"]
1
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Qualified Contract ["Purchase"]
Portfolios ["Investment Options"]
Purchase Payment ["Purchase Payment"]
Right to Cancel Period ["Other Information"]
Tax Deferral ["Taxes"]
2
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SUMMARY
The numbered sections in this Summary provide you with a concise discussion of
the major topics covered in this prospectus. Each section of the Summary is
discussed in greater detail in the main body of the prospectus at corresponding
numbered headings. Please read the full prospectus carefully.
1. THE ANNUITY CONTRACT
The AUSA Marquee Variable Annuity
AUSA Marquee is a flexible-premium variable annuity offered by AUSA Life
Insurance Company, Inc. ("AUSA Life"). The Contract provides a means of
investing on a tax-deferred basis in twelve investment company portfolios.
Who Should Invest
The Contract is intended for long-term investors who want tax-deferred
accumulations of funds, generally for retirement but also for other long-term
purposes.
The Contract provides benefits in two distinct phases: accumulation and income.
The Accumulation Phase
During the Accumulation Phase, you choose to allocate your investment in the
Contract among the twelve Portfolios available under the Contract. You can
contribute additional amounts to the Contract and you can take withdrawals from
the Contract during the Accumulation Phase. The value of your investment
depends on the investment performance of the Portfolios you choose. Your
earnings are generally not taxed during this phase unless you withdraw them.
The Income Phase
During the Income Phase, you can receive regular annuity payments on a fixed or
variable basis and for various periods of time depending on your need for income
and the choices available under the Contract. See ANNUITY PAYMENTS, page x, for
more information about Annuity Payment Options.
3
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2. ANNUITY PAYMENTS
During the Income Phase, you receive regular annuity payments under a wide range
of Annuity Payment Options. The Contract allows you to receive an income
guaranteed for as long as you live or until the second of two people dies. You
may also choose to receive a guaranteed number of payments over a number of
years. Most Annuity Payment Options are available on either a variable basis
(where the amount of the payment rises or falls depending on the investment
performance of the Portfolios you have chosen) or a fixed basis (where the
payment is guaranteed).
3. PURCHASE
You can buy the Contract with a minimum investment of $5,000 for Non-Qualified
Contracts and $2,000 (or $50 monthly by payroll deduction) for Qualified
Contracts. You can add $500 or more to Non-Qualified Contracts and $50 to
Qualified Contracts at any time during the Accumulation Phase. Your Contract
may not exceed $1,000,000 in total Purchase Payments without our prior approval.
4. INVESTMENT OPTIONS
You can allocate your Purchase Payments to one or more of the following
Portfolios described in the six Funds' prospectuses:
Variable Insurance Products Fund
Advised by Fidelity Management & Research Company
Fidelity VIP Money Market Portfolio
Fidelity VIP Equity-Income Portfolio
Fidelity VIP Growth Portfolio
Variable Insurance Products Fund II
Advised by Fidelity Management & Research Company
Fidelity VIP II Asset Manager Portfolio
Dreyfus Variable Investment Fund
Advised by the Dreyfus Corporation
Dreyfus Growth and Income Portfolio
Dreyfus Quality Bond Portfolio
4
<PAGE>
T. Rowe Price Equity Series, Inc.
Advised by T. Rowe Price Associates, Inc.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price International Series, Inc.
Advised by Rowe Price-Fleming International, Inc.
T. Rowe Price International Stock Portfolio
OCC Accumulation Trust
Advised by OpCap Advisors
OCC Accumulation Trust Managed Portfolio
OCC Accumulation Trust Small Cap Portfolio
OCC Accumulation Trust U.S. Government Income Portfolio
You can make or lose money in any of these Portfolios depending on their
investment performance.
5. EXPENSES
No sales load is deducted from Purchase Payments.
A declining Surrender Charge applies to certain withdrawals during the first six
Contract Years.
AUSA Life will deduct a daily charge corresponding to an annual charge of .15%
of the net asset value of the Separate Account as an Administrative Expense
Charge and a 1.25% charge for the mortality and expense risks it assumes. There
is also a $30 annual Contract Fee.
You will also pay certain expenses associated with the operation of the
Portfolios.
6. TAXES
In general, you are not taxed on earnings on your investment in the Contract
until you withdraw them or receive Annuity Payments. Earnings are taxed as
ordinary income. During the Accumulation Phase, for tax purposes withdrawals
are taken from earnings first, then from your investment in the Contract. For
Annuity Payments, payments come partially from earnings, partially from your
investment. You are taxed only on the investment portion of each Annuity
Payment. If you receive money from the Contract before age 59 1/2, you may
have to pay a 10% penalty tax on the earnings portion received.
7. ACCESS TO YOUR MONEY
You can take money out of your Contract at any time during the Accumulation
Phase. You may take up to 10% of the Accumulated Value free of Surrender
Charges once each
5
<PAGE>
year or pursuant to a series of Systematic Withdrawals. No Surrender Charge will
apply after the sixth Contract Year. Each withdrawal you make must be at least
$500.
You may have to pay income tax and a tax penalty on any money you take out.
8. PERFORMANCE
The investment performance of the Portfolios you choose directly affects the
value of your Contract. You bear all investment risk (including the possible
loss of principal), and investment results are not guaranteed.
From time to time, AUSA Life may advertise the investment performance of the
Portfolios. In doing so, it will use standardized methods prescribed by the
Securities and Exchange Commission, as well as certain non-standardized methods.
Past performance does not indicate or predict future performance.
9. DEATH BENEFIT
If the Annuitant dies during the Accumulation Phase, the Beneficiary will
receive the Death Benefit. The Death Benefit is the greater of the then-current
Accumulated Value of the Contract or the Adjusted Death Benefit. During the
first six Contract Years, the Adjusted Death Benefit is the sum of all Net
Purchase Payments minus any partial withdrawals. During each following six-year
period, the Adjusted Death Benefit is the Death Benefit on the last day of the
previous six-year period plus any Net Purchase Payments made during that six-
year period minus any partial withdrawals taken during that six-year period.
After the Annuitant reaches age 75, the Adjusted Death Benefit remains equal to
the Death Benefit on the last day of the six-year period before the Annuitant
reaches age 75 plus any Net Purchase Payments subsequently made minus any
partial withdrawals subsequently taken. The Beneficiary may elect to receive
these amounts as a lump sum or as Annuity Payments.
Federal tax law requires that if a 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.
10. OTHER INFORMATION
Right to Cancel Periods
There are two different Right to Cancel Periods. If the Contract is not a
replacement of an existing annuity contract or life insurance or endowment
policy, the Contract provides for a Right to Cancel Period of 10 days after the
Contract Owner receives the Contract plus 5 days for mailing. If the Contract
is a replacement of an existing annuity contract or life insurance or endowment
policy, a Right to Cancel Period exists for 60 days after the Contract Owner
receives the Contract plus 5 days for mailing.
6
<PAGE>
Reinstatements
If you ask AUSA Life to reinstate a Contract exchanged under Internal Revenue
Code Section 1035 or a Contract whose funds were transferred via a trustee-to-
trustee under the Internal Revenue Code, AUSA Life will require the Contract
Owner to replace the same total amount of money in the applicable Subaccounts as
was taken from them to effect the transfer.
AUSA Life Insurance Company, Inc.
AUSA Life Insurance Company, Inc. is a life insurance company incorporated under
New York law. It is principally engaged in offering life insurance and annuity
contracts. First Providian Life and Health Insurance Company ("First
Providian") merged into AUSA Life in October 1998.
AUSA Life Insurance Company, Inc. Separate Account C
First Providian established the Separate Account under New York law. As part of
First Providian's merger with AUSA Life, the Separate Account was also merged
into AUSA Life and survived the merger intact. The Separate Account is a unit
investment trust registered with the Securities and Exchange Commission. The
Separate Account has twelve Subaccounts dedicated to the Contract, each of which
invests solely in a corresponding Portfolio of the Funds.
Other topics
Additional information on the topics summarized above and on other topics not
summarized here can be found at OTHER INFORMATION, page x.
11. INQUIRIES AND CONTRACT AND POLICYHOLDER INFORMATION
For more information about the AUSA Marquee variable annuity, call or write:
AUSA Life Insurance Company, Inc.
Variable Annuity Department
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499
800-866-6007
If you have questions about your Contract, please telephone our Administrative
Offices at 800-866-6007 between the hours of 8 A.M. and 5 p.m. Eastern time.
Please have ready the Contract number and the Contract Owner's name when you
call. As Contract Owner, you will receive periodic statements confirming any
transactions that take place as well as quarterly statements and an annual
statement.
7
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FEE TABLE
The following table illustrates all expenses (except for Premium Taxes that may
be assessed) that you would incur as a Contract Owner. 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 EXPENSES.
<TABLE>
<S> <C>
Contractowner Transaction Expenses
Sales Load Imposed on Purchases............................. None
Contingent Deferred Sales Load (surrender charge)........... 7%*
Exchange Fees............................................... None
Annual Contract Maintenance 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>
*You may withdraw 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) once per Contract 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 the 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 be greater than 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%
</TABLE>
8
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<TABLE>
<S> <C> <C> <C>
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. Government Income*** 0.47% 0.46% 0.93%
</TABLE>
*A portion of the brokerage commissions that certain funds pay was used to
reduce fund 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 the Equity-Income
Portfolio, 0.67% for the Growth Portfolio, and 0.64% for the 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.
EXAMPLE
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) full surrender at the end of each period.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 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)
9
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that you do not surrender your Contract or that you annuitize your Contract at
the end of each period.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 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 Maintenance Fee is reflected in these examples as a
percentage of the 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. AUSA Life will deduct the Annual Contract Maintenance Fee on each
Contract Anniversary and upon surrender, on a pro rata basis, from each
Subaccount. AUSA Life may deduct Premium Taxes, if any, as it incurs them.
You should not consider these examples to be a representation of past or future
expenses or performance. Actual expenses may be higher than those shown,
subject to the guarantees in the Contract.
CONDENSED FINANCIAL INFORMATION
Please note that the Appendix contains a history of accumulation unit values in
a table labeled "Condensed Financial Information."
10
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1. THE ANNUITY CONTRACT
The AUSA Marquee variable annuity is a flexible-premium variable annuity offered
by AUSA Life Insurance Company, Inc. The Contract provides a means of investing
on a tax-deferred basis in twelve portfolios (the "Portfolios") offered by a
number of investment companies.
Who Should Invest
The Contract is intended for long-term investors who want 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 tax brackets who have
exhausted other avenues of tax deferral, such as pre-tax contributions to
employer-sponsored retirement or savings plans.
About the Contract
The AUSA Marquee variable annuity is a contract between you, the Contract Owner,
and AUSA Life, the issuer of the Contract.
The Contract provides benefits in two distinct phases: accumulation and income.
Accumulation Phase
The Accumulation Phase starts when you purchase your Contract and ends
immediately before the Annuity Date, when the Income Phase starts. During the
Accumulation Phase, you choose to allocate your investment in the Contract among
the twelve available Portfolios. The Contract is a variable annuity because
the value of your investment in the Portfolios can go up or down depending on
the investment performance of the Portfolios you choose. The Contract is a
flexible-premium annuity because you can make additional investments of at least
$500 until the Income Phase begins. During this phase, you are generally not
taxed on earnings from amounts invested unless you withdraw them.
Other benefits available during the Accumulation Phase include the ability to:
. Make exchanges among your Portfolio choices at no charge and without current
tax consequences (page x)
. Withdraw up to 10% of your money once a year or pursuant to a series of
systematic withdrawals with no surrender penalty charged by AUSA Life,
although you may incur income taxes and a 10% penalty tax (page x)
Income Phase
During the Income Phase, you receive regular annuity payments. The amount of
these payments is based in part on the amount of money accumulated under your
Contract (its Accumulated Value) and the Annuity Payment Option you select. The
Annuity Payment Options are explained at ANNUITY PAYMENTS, page x.
11
<PAGE>
At your election, payments can be either variable or fixed. If variable, the
payments rise or fall depending on the investment performance of the Portfolios
you choose. If fixed, the payment amounts are guaranteed.
Annuity payments are available in a wide variety of options, including payments
over a specified period or for life (for either a single life or joint lives),
with or without a guaranteed number of payments.
The Separate Account
When you purchase a Contract, your money is deposited into AUSA Life's Separate
Account C. The Separate Account contains a number of Subaccounts that invest
exclusively in shares of the corresponding Portfolios. The investment
performance of each Subaccount is linked directly to the investment performance
of one of the Portfolios. Assets in the Separate Account belong to AUSA Life
but are accounted for separately from AUSA Life's other assets and can be used
only to satisfy its obligations to Contract Owners.
12
<PAGE>
2. ANNUITY PAYMENTS
During the Income Phase, you receive regular annuity payments under a wide range
of Annuity Payment Options.
Starting the Income Phase
As Contract Owner, you exercise control over when the Income Phase begins by
specifying an Annuity Date on the Contract application when you purchase the
Contract. The Annuity Date is the date on which annuity payments begin and is
always the first day of the month you specify. You may also change the Annuity
Date at any time in writing, as long as the Annuitant or Joint Annuitant is
living and AUSA Life receives the request at least 30 days before the then-
scheduled Annuity Date. Any Annuity Date you request must be at least 30 days
from the day AUSA Life receives written notice of it. The latest possible
Annuity Date AUSA Life will accept without prior approval is the first day of
the month after the Annuitant's 85th birthday.
The Annuity Date for Qualified Contracts may also be controlled by endorsements,
the plan, or applicable law.
Annuity Payment Options
The income you take from the Contract during the Income Phase can take several
different forms, depending on your particular needs. Except for the Designated
Period Annuity Option listed below, the Annuity Payment Options listed below are
available on either a variable basis or a fixed basis.
If available on a variable basis, the Annuity Payment Options provide payments
that, after the initial payment, will go up or down depending on the investment
performance of the Portfolios you choose.
If available on a fixed basis, the Annuity Payment Options provide payments in
an amount that does not change. If you choose a fixed Annuity Payment Option,
AUSA Life will move your investment out of the Portfolios and into the general
account of AUSA Life.
. Life Annuity--Monthly Annuity Payments are paid for the life of an Annuitant,
ending with the last payment before the Annuitant dies.
. Joint and Last Survivor Annuity--Monthly Annuity Payments are paid for as
long as at least one of two named Annuitants is living, ending with the last
payment before the surviving Annuitant dies.
. Life Annuity With Period Certain--Monthly Annuity Payments are paid for as
long as the Annuitant lives, with payments guaranteed to be made for a period
of at least 10 years, 15 years, or 20 years, as elected. If the Annuitant
dies before the period certain ends, AUSA Life will make any remaining
payments to the Beneficiary.
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. Installment or Unit Refund Life Annuity--Available as either a fixed
(Installment Refund) or variable (Unit Refund) Annuity Payment 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. If the Annuitant dies before the period certain ends, AUSA Life will
make any remaining payments to the Beneficiary.
. Designated Period Annuity--Available only on a fixed basis. Monthly Annuity
Payments are paid for a specified period, which may be from 10 to 30 years.
Calculating Annuity Payments
Fixed Annuity Payments. Each fixed Annuity Payment is guaranteed to be at least
the amount shown in the Contract's Annuity Tables corresponding to the Annuity
Payment Option selected.
Variable Annuity Payments. To calculate variable Annuity Payments, AUSA Life
determines the amount of the first variable Annuity Payment. The first variable
Annuity Payment will equal the amount shown in the applicable Annuity Table in
the Contract. This amount depends on the Accumulated Value of your Contract on
the Annuity Date, the sex and age of the Annuitant (and Joint Annuitant where
there is one), the Annuity Payment Option selected, and any applicable Premium
Taxes. Subsequent variable Annuity Payments depend on the investment experience
of the Portfolios chosen. If the actual net investment experience of the
Portfolios chosen exactly equals the Assumed Interest Rate of 4%, then the
variable Annuity Payments will not change in amount. If the actual net
investment experience of the Portfolios chosen is greater than the Assumed
Interest Rate of 4%, then the variable Annuity Payments will increase. On the
other hand, they will decrease if the actual experience is lower. The Statement
of Additional Information contains a more detailed description of the method of
calculating variable Annuity Payments.
Impact of Annuitant's Age on Annuity Payments. For either fixed or variable
Annuity Payments involving life income, the actual ages of the Annuitant and
Joint Annuitant will affect the amount of each payment. Since payments based on
the lives of older Annuitants and Joint Annuitants are expected to be fewer in
number, the amount of each Annuity Payment will be greater.
Impact of Length of Payment Periods on Annuity Payments. The value of all
payments, both fixed and variable, will be greater for shorter guaranteed
periods than for longer guaranteed periods, and greater for single-life
annuities than for joint and survivor annuities, because they are expected to be
made for a shorter period.
A Few Things to Keep in Mind Regarding Annuity Payments
. If an Annuity Payment Option is not selected, AUSA Life will assume that you
chose the Life Annuity With Period Certain option (with 10 years of payments
guaranteed) on a variable basis.
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. The minimum payment is $100. If during the Accumulation Phase your
Accumulated Value falls below $2,000, AUSA Life reserves the right to pay
that amount to you in a lump sum.
. From time to time, AUSA Life may require proof that the Annuitant, Joint
Annuitant, or Contract Owner is living.
. If someone has assigned ownership of a Contract to you, or if a non-natural
person (e.g., a corporation) owns a Contract, you may not start the Income
Phase of the Contract without AUSA Life's consent.
. At the time AUSA Life calculates your fixed Annuity Payments, AUSA Life may
offer more favorable rates than those guaranteed in the Annuity Tables found
in the Contract.
. Once Annuity Payments begin, you may not select a different Annuity Payment
Option. Nor may you cancel an Annuity Payment Option after Annuity Payments
have begun.
. If you have selected a variable Annuity Payment Option, you may change the
Portfolios funding the variable Annuity Payments by written request.
. You may select an Annuity Payment Option and allocate a portion of the value
of your Contract to a fixed version of that Annuity Payment Option and a
portion to a variable version of that Annuity Payment Option (assuming the
Annuity Payment Option is available on both a fixed and variable basis). You
may not select more than one Annuity Payment Option.
. 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 most current address of record.
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3. PURCHASE
Contract Application and Issuance of Contracts
To invest in the AUSA Marquee variable annuity, you should send a completed
Contract application and your Initial Purchase Payment to the address indicated
on the Contract application. If you wish to make a personal delivery by hand or
courier to AUSA Life of your completed Contract application and Initial Purchase
Payment (rather than through the mail), do so at our Administrative Offices,
4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499. AUSA Life will issue a
Contract only if the Annuitant and Joint Annuitant are 75 years of age or less.
If the Contract application and any other required documents are received in
good order, AUSA Life will issue the Contract and will credit the Initial
Purchase Payment within two Business Days after receipt. A Business Day is any
day that the New York Stock Exchange is open for trading.
If AUSA Life cannot credit the Initial Purchase Payment because the Contract
application or other required documentation is incomplete, AUSA Life will
contact the applicant in writing, explain the reason for the delay, and refund
the Initial Purchase Payment within five Business Days unless the applicant
consents to AUSA Life's retaining the Initial Purchase Payment and crediting it
as soon as the necessary requirements are fulfilled.
In addition to Non-Qualified Contracts, AUSA Life also offers the AUSA Marquee
as a Qualified Contract. Note that Qualified Contracts contain certain other
restrictive provisions limiting the timing of payments to and distributions from
the Qualified Contract. (See QUALIFIED INDIVIDUAL RETIREMENT ANNUITIES, page
x.)
DEFINITION
Qualified Contract
When the term "Qualified Contract" is used in this prospectus we mean a Contract
that qualifies as an individual retirement annuity under either Section 403(b),
408(b), or 408A of the Internal Revenue Code.
Purchase Payments
A Purchase Payment is any amount you use to buy or add to the Contract. A
Purchase Payment may be reduced by any applicable Premium Tax or an initial
Annual Contract Maintenance Fee. In that case, the resulting amount is called a
Net Purchase Payment.
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A Few Things to Keep in Mind Regarding Purchase Payments
. The minimum Initial Purchase Payment for a Non-Qualified Contract is $5,000.
. The minimum Initial Purchase Payment for a Qualified Contract is $2,000.
. You may make additional Purchase Payments at any time during the Accumulation
Phase and while the Annuitant or Joint Annuitant, if applicable, is living.
Additional Purchase Payments must be at least $500 (or $50 if by monthly
payroll deduction) for Non-Qualified Contracts. Additional Purchase Payments
must be at least $50 for Qualified Contracts.
. Additional Purchase Payments received before the close of the New York Stock
Exchange (usually 4:00 p.m. Eastern time) are credited to the Contract's
Accumulated Value as of the close of business that same day.
. The minimum amount that you can allocate to any one Portfolio is $250 (except
where Purchase Payments are made by monthly payroll deduction).
. The total of all Purchase Payments may not exceed $1,000,000 without our
prior approval.
. Unless you indicate otherwise, your Initial Net Purchase Payment will be
invested immediately upon our receiving them. From that point forward, you
bear full investment risk for any amounts allocated to the Portfolios during
the Right to Cancel Period.
The date on which the Contract is issued is called the Contract Date. A
Contract Anniversary is any anniversary of the Contract Date. A Contract Year
is a period of twelve months starting with the Contract Date or any Contract
Anniversary.
DEFINITION
Premium Tax
A Premium Tax is a regulatory tax some states assess on the Purchase Payments
made into a Contract. If we should have to pay any Premium Tax, we will deduct
it from each Purchase Payment or from the Accumulated Value as we incur the tax.
Currently, New York does not impose a Premium Tax.
Purchasing by Wire
For wiring instructions, please contact our Administrative Office at 800-866-
6007.
Allocation of Purchase Payments
You specify on the Contract application what portion of your Purchase Payments
you want to be allocated among which Portfolios. You may allocate your Purchase
Payments
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to one or more Portfolios. All allocations you make must be in whole-number
percentages and must be at least $250 except where Purchase Payments are made by
monthly payroll deduction. Your initial Net Purchase Payment will be immediately
allocated among the Portfolios in the percentages you specified on your Contract
application without waiting for the Right to Cancel Period to pass.
Should your investment goals change, you may change the allocation percentages
for additional Net Purchase Payments by sending written notice to AUSA Life.
Requests for Exchanges received before the close of the New York Stock Exchange
(generally 4 p.m. Eastern time) are processed as of that day. Requests received
after the close of the New York Stock Exchange are processed the next Business
Day.
WHAT'S MY CONTRACT WORTH TODAY?
Accumulated Value
The Accumulated Value of your Contract is the value of all amounts accumulated
under the Contract during the Accumulation Phase (similar to the current market
value of a mutual fund account). When the Contract is opened, the Accumulated
Value is equal to your initial Net Purchase Payment. On any Business Day
thereafter, the Accumulated Value equals the Accumulated Value from the previous
Business Day,
plus--
. any additional Net Purchase Payments credited
. any increase in the Accumulated Value due to investment results of the
Portfolio(s) you selected
minus--
. any decrease in the Accumulated Value due to investment results of the
Portfolio(s) you selected
. the daily Mortality and Expense Risk Charge
. the daily Administrative Expense Charge
. the Annual Contract Maintenance Fee, if applicable
. any withdrawals
. any charges for Exchanges made after the first twelve in a Contract Year
. any Premium Taxes that occur during the Valuation Period.
The Valuation Period is any period between two successive Business Days
beginning at the close of business of the first Business Day and ending at the
close of business of the next Business Day.
You should expect the Accumulated Value of your Contract to change from
Valuation Period to Valuation Period, reflecting the investment experience of
the Portfolios you have selected as well as the daily deduction of charges.
An Accumulation Unit is a measure of your ownership interest in the Contract
during the Accumulation Phase. When you allocate your Net Purchase Payments to
a selected Portfolio, AUSA Life will credit a certain number of Accumulation
Units to your
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Contract. AUSA Life determines the number of Accumulation Units it credits by
dividing the dollar amount you have allocated to a Portfolio by the Accumulation
Unit Value for that Portfolio as of the end of the Valuation Period in which the
payment is received. Each Portfolio has its own Accumulation Unit Value (similar
to the share price (net asset value) of a mutual fund). The Accumulation Unit
Value varies each Valuation Period with the net rate of return of the Portfolio.
The net rate of return reflects the performance of the Portfolio for the
Valuation Period and is net of asset charges to the Portfolio. Per Portfolio,
the Accumulated Value equals the number of Accumulation Units multiplied by the
Accumulation Unit Value for that Portfolio.
All dividends and capital gains earned will be reinvested and reflected in the
Accumulation Unit Value. Only in this way can these earnings remain tax-
deferred.
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4. INVESTMENT OPTIONS
The AUSA Marquee variable annuity offers you a means of investing in twelve
portfolios offered by six different investment companies (each investment
company a "Fund"). A brief description of each Fund and Portfolio is given
below. For detailed information regarding the Funds and the Portfolios, you
should read the prospectuses for the Funds that accompany the Contract
prospectus.
Variable Insurance Products Fund
Advised by Fidelity Management & Research Company
The Fund is a diversified, open-end management investment company organized by
Fidelity Management & Research Company and registered with the Securities and
Exchange Commission ("SEC") under the Investment Company Act of 1940 (the "1940
Act"). The Fund consists of several investment portfolios, three of which are
available as part of the AUSA Marquee.
Fidelity VIP Money Market Portfolio 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. An investment in the Portfolio is not
insured or guaranteed by the FDIC or any other government agency. Although
the Portfolio seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Portfolio.
Fidelity VIP Equity-Income Portfolio 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 that exceeds the
composite yield on the securities comprising the Standard & Poor's
Composite Index of 500 Stocks.
Fidelity VIP Growth Portfolio 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.
Variable Insurance Products Fund II
Advised by Fidelity Management & Research Company
The Fund is a diversified, open-end management investment company organized by
Fidelity Management & Research Company and registered with the SEC under the
1940 Act. The Fund consists of several investment portfolios, one of which is
available as part of the AUSA Marquee.
Fidelity VIP II Asset Manager Portfolio seeks high total return with
reduced risk over the long term by allocating its assets among domestic and
foreign stocks, bonds, and short-term and money market instruments.
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Dreyfus Variable Investment Fund
Advised by the Dreyfus Corporation
The Fund is an open-end management investment company organized under the 1940
Act. The Fund consists of thirteen separate investment portfolios, two of which
are available under the AUSA Marquee.
Dreyfus Growth and Income Portfolio is non-diversified portfolio, whose
goal 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 is a diversified portfolio, whose goal is to
provide the maximum amount of current income to the extent consistent with
the preservation of capital and the maintenance of liquidity. The 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 Series, Inc.
Advised by T. Rowe Price Associates, Inc.
The Fund 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 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 Equity Income Portfolio 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 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,
the 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. The
Portfolio may also invest up to 25% of its assets in growth companies
outside the service sector.
T. Rowe Price International Series, Inc.
Advised by Rowe Price-Fleming International, Inc.
The Fund is a Maryland corporation organized in 1994 and is registered with the
SEC under the 1940 Act as a diversified, open-end management 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.
T. Rowe Price International Stock Portfolio seeks long-term growth of
capital through investments primarily in common stocks of established non-
U.S. companies.
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OCC Accumulation Trust
Advised by OpCap Advisors, a subsidiary of Oppenheimer Capital
The Fund 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
currently consists of seven series, three of which are available as part of the
AUSA Marquee. The Fund was formerly known as the Quest for Value Accumulation
Trust.
OCC Accumulation Trust Managed Portfolio 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 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 seeks a high level
of current income together with the protection of capital. The 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 its instrumentalities.
There is no assurance that a Portfolio will achieve its stated objective.
Additional information regarding 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.
Exchanges Among the Portfolios
Should your investment goals change, you may make unlimited exchanges of money
among the Portfolios at no cost, subject to the following conditions:
. You may make requests for exchanges in writing. AUSA Life will process
requests it receives before the close of the New York Stock Exchange
(generally 4:00 p.m. Eastern time) 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.
. The minimum amount you may exchange from a Portfolio is $250 (unless the
Accumulated Value in a Portfolio is less than $250).
. The $250 minimum balance requirement per Portfolio must be satisfied at all
times unless Purchase Payments are being made by monthly payroll deduction.
If you do not maintain the minimum balance requirement, AUSA Life will
transfer any remaining amount to your other Portfolios on a pro rata basis.
. AUSA Life does not currently charge a fee for exchanges among the Portfolios,
although it reserves the right to charge a $15 fee for Exchanges in excess of
12 per Contract Year.
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Dollar-Cost Averaging Option
If you have at least $5,000 of Accumulated Value in the Fidelity VIP Money
Market Portfolio, you can use the Dollar-Cost Averaging Option to move a
specified dollar amount each month from the Fidelity VIP Money Market Portfolio
to other Portfolios available under the Contract, subject to the following
conditions:
. The minimum amount you may exchange under this option is $250.
. The maximum amount you may exchange under this option is the Accumulated
Value in the Fidelity VIP Money Market Portfolio when elected, divided by 12.
. The transfer date will be the same calendar day each month as the Contract
Date.
. AUSA Life will allocate the dollar amount to the Portfolios in the
proportions you specify on the appropriate AUSA Life form or, if you specify
none, in accordance with your original investment allocation.
. If, on any transfer date, the Accumulated Value in the Fidelity VIP Money
Market Portfolio is equal to or less than the amount you have elected to have
transferred, AUSA Life will transfer the entire amount and the option will
end.
. You may change the transfer amount once each Contract Year.
. You may cancel this option by sending the appropriate AUSA Life form to our
Administrative Offices. We must receive the form at least seven days before
the next transfer date.
A CLOSER LOOK AT
Dollar-Cost Averaging
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 Accumulation Units are credited to a Portfolio
if the value per Accumulation Unit is low, while fewer Accumulation Units are
credited if the value per Accumulation Unit is high. Therefore, it is possible
to achieve a lower average cost per Accumulation Unit over the long term if the
Accumulation Unit Value declines over that period. 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.
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5. EXPENSES
There are charges and expenses associated with the Contract that reduce the
return on your investment in the policy.
Surrender Charge Schedule
No sales load is deducted from Purchase Payments, and during the Accumulation
Phase 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 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. AUSA Life does not assess a surrender charge upon
the death of the Annuitant or after the sixth Contract Year or upon your
starting the Income Phase.
Keep in mind that withdrawals may be taxable and, if made before age 59 1/2 may
be subject to a 10% penalty tax on earnings withdrawn. For tax purposes,
earnings are considered to come from earnings first.
Mortality and Expense Risk Charge
AUSA Life charges a fee as compensation for bearing certain mortality and
expense risks under the Contract. The annual charge is assessed daily based on
the net assets 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 not increase. If the charge is more
than sufficient to cover actual costs or assumed risks, any excess will be added
to the AUSA Life's surplus. If the charges collected under the Contract are not
enough to cover actual costs or assumed risks, then AUSA Life will bear the
loss.
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A CLOSER LOOK AT
The Mortality and Expense Risk Charge
AUSA Life assumes mortality risk in two ways. First, where Contract Owners
elect an Annuity Payment Option under which AUSA Life guarantees a number of
payments over a life or joint lives, AUSA Life assumes the risk of making
monthly annuity payments regardless of how long all Annuitants may live.
Second, AUSA Life assumes mortality risk in guaranteeing a minimum Death Benefit
in the event the Annuitant dies during the Accumulation Phase.
The expense risk that AUSA Life assumes is that the charge for administrative
expenses, which are guaranteed not to increase beyond the rates shown for the
life of the Contract, may not be great enough to cover the actual costs of
issuing and administering the Contract.
Administrative Expense Charge
AUSA Life assesses each Contract an annual Administrative Expense Charge to
cover the cost of issuing and administering each Contract and of maintaining the
Separate Account. The Administrative Expense Charge is assessed daily at a rate
equal to .15% annually of the net asset value of the Separate.
Annual Contract Maintenance Fee
AUSA Life charges an Annual Contract Maintenance Fee of $30. The fee is to
reimburse AUSA Life for the costs it expects over the life of the Contract for
maintaining each Contract and the Separate Account. The fee is deducted
proportionately from each of the Portfolios you have selected.
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
of 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 twelve per Contract Year.
Portfolio Expenses
The value of the assets in the Separate Account will reflect 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.
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6. TAXES
INTRODUCTION
The following discussion of annuity taxation is general in nature and is based
on AUSA Life's understanding of the treatment of annuity contracts under current
federal income tax law, particularly Section 72 of the Internal Revenue Code and
various Treasury Regulations and Internal Revenue Service interpretations
dealing with Section 72. The discussion does not touch upon state or local
taxes. It is not tax advice. You should consult with a qualified tax adviser
about your particular situation to ensure that your purchase of a Contract
results in the tax treatment you desire. Additional discussion of tax matters
is included in the Statement of Additional Information.
TAXATION OF ANNUITIES IN GENERAL
Tax Deferral
Special rules in the Internal Revenue Code for annuity taxation exist today. In
general, those rules provide that you are not currently taxed on increases in
value under a Contract until you take some form of withdrawal or distribution
from it. However, it is important to note that, under certain circumstances,
you might not get the advantage of tax deferral, meaning that the increase in
value would be subject to current federal income tax. (See "Annuity Contracts
Owned by Non-Natural Persons," page x, and "Diversification Standards," page x.)
A CLOSER LOOK AT
Tax Deferral
Tax deferral means no current tax on earnings in your Contract. The amount you
would have paid in income taxes can be left in the Contract and earn money for
you.
One tradeoff of tax deferral is that there are certain restrictions on your
ability to access your money, including penalty taxes for early withdrawals.
This is one reason why a variable annuity is intended as a long-term investment.
Another tradeoff is that, when funds are withdrawn, they are taxed at ordinary
income rates instead of capital gains rates, which apply to certain other sorts
of investments.
Taxation of Full and Partial Withdrawals
If you make a full or partial withdrawal (including a Systematic Withdrawal)
from a Non-Qualified Contract during the Accumulation Phase, you as Contract
Owner will be taxed at ordinary income rates on earnings you withdraw at that
time. For purposes of this rule, withdrawals are taken first from earnings on
the Contract and then from the money you invested in the Contract. This
"investment in the contract" can generally be described as the cost of the
Contract, and it generally includes all Purchase Payments minus any amounts you
have already received under the Contract that represented the return of invested
money. Also for purposes of this rule, a pledge or assignment of a Contract is
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treated as a partial withdrawal from a Contract. (If you are contemplating
using your Contract as collateral for a loan, you may be asked to pledge or
assign it.)
Taxation of Annuity Payments
When you take Annuity Payments in the Income Phase of a Non-Qualified Contract,
for tax purposes each payment is deemed to return to you a portion of your
investment in the Contract. Since with a Non-Qualified Contract you have
already paid taxes on those amounts (the Contract was funded with after-tax
dollars), you will not be taxed again on your investment only on your earnings.
For fixed Annuity Payments from a Non-Qualified Contract, in general, AUSA Life
calculates the taxable portion of each payment using a formula known as the
"exclusion ratio." This formula establishes the ratio that the investment in
the Contract bears to the total expected amount of Annuity Payments for the term
of the Contract. AUSA Life then applies that ratio to each payment to determine
the non-taxable portion of the payment. The remaining portion of each payment
is taxable at ordinary income tax rates.
For variable Annuity Payments from a Non-Qualified Contract, in general, AUSA
Life calculates the taxable portion of each payment using a formula that
establishes a specific dollar amount of each payment that is not taxed. To find
the dollar amount, AUSA Life divides the investment in the Contract by the total
number of expected periodic payments. The remaining portion of each payment is
taxable at ordinary income tax rates.
Once your investment in the Contract has been returned, the balance of the
Annuity Payments represent earnings only and therefore are fully taxable.
Taxation of Withdrawals and Distributions From Qualified Contracts
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, you may 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
Federal tax law requires that AUSA Life withhold federal income taxes on all
distributions unless the recipient elects not to have any amounts withheld and
properly notifies AUSA Life of that election. In certain situations, AUSA Life
will withhold taxes on distributions to non-resident aliens at a flat 30% rate
unless an exemption from withholding applies under an applicable tax treaty.
Penalty Taxes on Certain Early Withdrawals
The Internal Revenue Code provides for a penalty tax in connection with certain
withdrawals or distributions that are includible in income. The penalty amount
is 10% of
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the amount includible in income that is received under an annuity. However,
there are exceptions to the penalty tax. For instance, it does not apply to
withdrawals: (i) made after the taxpayer reaches age 59 1/2; (ii) made on or
after the death of the Contract Owner or, where the Contract Owner is not an
individual, on or after the death of the primary Annuitant (who is defined as
the individual the events in whose life are of primary importance in affecting
the timing and payment under the Contracts); (iii) attributable to the
disability of the taxpayer which occurred after the purchase of the Contract (as
defined in the Internal Revenue Code); (iv) 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; (v) from a Qualified Contract (note,
however, that other penalties may apply); (vi) under an immediate annuity
contract (as defined in the Internal Revenue Code); (vii) that can be traced to
an investment in the Contract prior to August 14, 1982; or (viii) under a
Contract that an employer purchases on termination of certain types of qualified
plans and that the employer holds until the employee separates from service.
If the penalty tax does not apply to a withdrawal as a result of the application
of item (iv) above, and the series of payments is subsequently modified (for
some reason other than 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
(iv) 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.
For Qualified Contracts, other tax penalties may apply to certain distributions
as well as to certain contributions and other transactions.
The penalty tax may not apply to distributions from Qualified Contracts issued
under Section 408(b) or 408A of the Internal Revenue Code that you use 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 a non-natural person (for example, a corporation) holds a Contract, that
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 considered taxable income each year.
This 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 estate of a decedent acquires a Contract,
where an employer purchases a Contract on behalf of an employee upon termination
of a qualified plan, or to an immediate annuity (as defined in the Internal
Revenue Code).
MULTIPLE-CONTRACTS RULE
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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 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 the multiple-contracts rules
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. Accordingly, a Contract Owner should consult a tax adviser
before purchasing more than one Contract or other annuity contracts. (The
aggregation rules do not apply to immediate annuities (as defined in the
Internal Revenue Code).)
TRANSFERS OF ANNUITY CONTRACTS
Any transfer of a Non-Qualified Contract during the Accumulation Phase 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 transferee's investment in the
Contract will be increased by any amount included in the Contract Owner's
income. This provision, however, does not apply to transfers between spouses or
former spouses incident to a divorce that are governed by Internal Revenue Code
Section 1041(a).
ASSIGNMENTS OF ANNUITY CONTRACTS
A transfer of ownership in 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 this prospectus does not discuss. A Contract Owner considering
such a transfer or assignment of a Contract should contact a tax adviser about
the potential tax effects of such a transaction.
DIVERSIFICATION STANDARDS
To comply with certain regulations under Internal Revenue Code Section 817(h),
after a start-up period, each Subaccount of the Separate Account will be
required to diversify its investments in accordance with certain diversification
standards. A "look-through" rule applies that suggests that each Subaccount of
the Separate Account will be tested for compliance with the diversification
standards by looking through to the assets of the Portfolios in which each
Subaccount invests.
In connection with the issuance of temporary diversification regulations in
1986, the Treasury Department announced that such regulations did not provide
guidance on the extent to which Contract Owners may direct their investments to
particular subaccounts 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 rulings are issued, the Contract may need
to be modified in order to remain in compliance. For these reasons,
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AUSA Life reserves the right to modify the Contract, as necessary, to maintain
the tax-deferred status of the Contract.
We intend to comply with the diversification regulations to assure that the
Contract continues to be treated as an annuity contract for federal income tax
purposes.
QUALIFIED INDIVIDUAL RETIREMENT ANNUITIES
Qualified Contracts contain special provisions and are subject to limitations on
contributions and the timing of when distributions can and must be made. Tax
penalties may apply to contributions greater than specified limits, loans,
reassignments, distributions that do not meet specified requirements, or in
other circumstances. Anyone desiring to purchase a Qualified Contract should
consult a personal tax adviser.
403(b) Contracts
AUSA Life will offer Contracts in connection with retirement plans adopted by
public school systems and certain tax-exempt organizations for the employees
under Section 403(b) of the Internal Revenue Code. More detailed on 403(b)
Contracts may be found in the Statement of Additional Information.
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7. ACCESS TO YOUR MONEY
The value of your Contract can be accessed during the Accumulation Phase --
. by making a full or partial withdrawal
. by electing an Annuity Payment Option
. by your Beneficiary in the form of a Death Benefit
Full and Partial Withdrawals. You may withdraw all or part of your money at any
time during the Accumulation Phase of your Contract. All partial withdrawals
must be for at least $500.
On the date AUSA Life receives your request for a full withdrawal, the amount
payable is the Surrender Value, which equals the Accumulated Value less any
applicable surrender charge and any applicable Premium Taxes incurred but not
yet deducted.
To make a withdrawal, send your written request on the appropriate AUSA Life
form to our Administrative Offices.
- --------------------------------------------------------------------------------
Because you assume the investment risk under the Contract, the total amount paid
upon a full withdrawal of the Contract may be more or less than the total
Purchase Payments made (taking prior withdrawals and Surrender Charges into
account).
- --------------------------------------------------------------------------------
Systematic Withdrawal Option. You may elect to have a specified dollar amount
provided to you from your Contract's Accumulated Value on a monthly, quarterly,
semiannual, or annual basis. The minimum amount for each Systematic Withdrawal
is $100.
You may elect this option by completing a Systematic Withdrawal Request Form.
AUSA Life must receive your Form at least 30 days before the date you want
systematic withdrawals to begin. AUSA Life will process each Systematic
Withdrawal on the date and at the frequency you specified in your Systematic
Withdrawal Program Application Form. The start date for systematic withdrawals
must be between the first and the twenty-eighth day of the month. You may
discontinue the Systematic Withdrawal Option at any time by notifying us in
writing at 30 days prior to your next scheduled withdrawal date.
Minimum Balance Requirements
The minimum required balance in any Portfolio is $250, except where Purchase
Payments are made by monthly payroll deduction. If an exchange or withdrawal
would reduce the balance in a Portfolio to less than $250, AUSA Life will
transfer the remaining balance to the other Portfolios under the Contract on a
pro rata basis. If the entire value of the Contract falls below $1,000, and if
you have not made a Purchase Payment within three years, AUSA Life may notify
you that the Accumulated Value of your Contract is below the minimum balance
requirement. In that case, you will be given 60 days to make
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an Additional Purchase Payment before your Contract is liquidated. AUSA Life
would then promptly pay proceeds to the Contract Owner. The proceeds would be
taxed as a withdrawal from the Contract. Full withdrawal will result in an
automatic termination of the Contract. We will not exercise this right to cancel
your Contract if it is a Qualified Contract.
Payment of Full or Partial Withdrawal Proceeds
AUSA Life will pay cash withdrawals within seven days after receipt of your
written request for withdrawal except in one of the following situations, in
which AUSA Life may delay the payment beyond seven days:
. the New York Stock Exchange is closed on a day that is not a weekend or a
holiday, or trading on the New York Stock Exchange is otherwise restricted
. an emergency exists as defined by the Securities and Exchange Commission (the
"SEC"), or the SEC requires that trading be restricted
. the SEC permits a delay for your protection as a Contract Owner
. the payment is derived from premiums paid by check, in which case AUSA Life
may delay payment until the check has cleared your bank
Taxation of Withdrawals
For important information on the tax consequences of withdrawals, see "Taxation
of Full and Partial Withdrawals," page x, and "Penalty Taxes on Certain Early
Withdrawals," page x.
Tax Withholding on Withdrawals
If you do not provide AUSA Life with a written request not to have federal
income taxes withheld when you request a full or partial withdrawal, federal tax
law requires AUSA Life to withhold federal income taxes from the taxable portion
of any withdrawal and send that amount to the federal government.
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8. PERFORMANCE
PERFORMANCE MEASURES
Performance for the Subaccounts of the Separate Account, including the yield and
effective yield of the Fidelity VIP 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.
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.
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 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.
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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.
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.
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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 that 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.
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9. DEATH BENEFIT
In General
If the Annuitant dies during the Accumulation Phase, the Beneficiary will
receive the Death Benefit. The Death Benefit is the greater of the then-current
Accumulated Value of the Contract or the Adjusted Death Benefit. During the
first six Contract Years, the Adjusted Death Benefit is the sum of all Net
Purchase Payments minus any partial withdrawals. During each following six-year
period, the Adjusted Death Benefit is the Death Benefit on the last day of the
previous six-year period plus any Net Purchase Payments made during that six-
year period minus any partial withdrawals taken during that six-year period.
After the Annuitant reaches age 75, the Adjusted Death Benefit remains equal to
the Death Benefit on the last day of the six-year period before the Annuitant
reaches age 75 plus any Net Purchase Payments subsequently made minus any
partial withdrawals subsequently taken. The Beneficiary may elect to receive
these amounts as a lump sum or as Annuity Payments.
Federal tax law requires that if a 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 the Annuitant During the Accumulation Phase
If the Annuitant dies during the Accumulation Phase, the Beneficiary will be
entitled to the Death Benefit. When it receives Due Proof of Death of the
Annuitant, AUSA Life will calculate the Death Benefit. The Beneficiary can
choose to receive the amount payable in a lump-sum cash benefit or under one of
the Annuity Payment Options. The Contract Owner can choose an Annuity Payment
Option for the Beneficiary before the Annuitant's death. However, if the
Contract Owner does not make such a choice and AUSA Life has not already paid a
cash benefit, the Beneficiary may choose a payment option after the Annuitant's
death.
Paid as a lump sum, 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.
Paid under one of the Annuity Payment Options, the Death Benefit will be based
on the greater of:
(1) the Accumulated Value on the Annuity Date elected by the Beneficiary
and approved by AUSA Life; or
(2) the Adjusted Death Benefit.
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The amount of the Adjusted Death Benefit is calculated as follows. During the
first six Contract Years, the Adjusted Death Benefit is the sum of all Net
Purchase Payments minus any partial withdrawals. During each following six-year
period, the Adjusted Death Benefit is the Death Benefit on the last day of the
previous six-year period plus any Net Purchase Payments made during that six-
year period minus any partial withdrawals taken during that six-year period.
After the Annuitant reaches age 75, the Adjusted Death Benefit remains equal to
the Death Benefit on the last day of the six-year period before the Annuitant
reaches age 75 plus any Net Purchase Payments subsequently made minus any
partial withdrawals subsequently taken.
DEFINITION
Due Proof of Death
When the term "Due Proof of Death" is used in this prospectus we mean any of the
following:
. a certified death certificate
. a certified decree of a court of competent jurisdiction as to the finding of
death
. a written statement by a medical doctor who attended the deceased
. any other proof satisfactory to AUSA Life
Death of the Annuitant During the Income Phase
The Death Benefit, if any, payable if the Annuitant dies during the Income Phase
depends on the Annuity Payment Option selected. Upon the Annuitant's death,
AUSA Life will pay the Death Benefit, if any, to the Beneficiary under the
Annuity Payment Option in effect. For instance, if the Life Annuity With Period
Certain option has been elected, and if the Annuitant dies during the Income
Phase, then any unpaid payments certain will be paid to the Beneficiary.
A Word About Joint Annuitants
The Contract permits you as Contract Owner to name a Joint Annuitant. This can
have different effects depending on whether the Contract is in the Accumulation
Phase or the Income Phase.
During the Accumulation Phase, the Death Benefit is payable only after the death
of both the Annuitant and the Joint Annuitant.
During the Income Phase, it will not matter that you have named a Joint
Annuitant unless you have chosen an Annuity Payment Option, such as the Joint
and Last Survivor Annuity option, that pays over the life of more than one
person. Therefore, if you have chosen an Annuity Payment Option that provides
income over the life of someone other than the person named as Joint Annuitant,
the Joint Annuitant's death during the Income Phase will have no effect on the
benefits due under the Contract.
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Designation of a Beneficiary
The Contract Owner may select one or more Beneficiaries and name them in the
Contract application. Thereafter, while the Annuitant or Joint Annuitant is
living, the Contract Owner may change the Beneficiary by written notice. The
change will take effect as of the date the Contract Owner signs the notice, but
it will not affect any payment made or any other action taken before AUSA Life
acknowledges the notice. The Contract Owner may also make the designation of
Beneficiary irrevocable by sending written notice to AUSA Life and obtaining
approval from AUSA Life. Changes in the Beneficiary may then be made only with
the consent of the designated irrevocable Beneficiary.
If the Annuitant dies during the Accumulation Period, the following will apply
unless the Contract Owner has made other provisions.
. If there is more than one Beneficiary, each will share in the Death Benefit
equally.
. If one or two or more Beneficiaries have already died, AUSA Life will pay
that share of the Death Benefit equally to the survivor(s).
. If no Beneficiary is living, AUSA Life will pay the proceeds to the Contract
Owner.
. If a Beneficiary dies at the same time as the Annuitant, AUSA Life will pay
the proceeds as though the Beneficiary had died first. If a Beneficiary dies
within 15 days after the Annuitant's death and before AUSA Life receives due
proof of the Annuitant's death, AUSA Life will pay proceeds as though the
Beneficiary had died first.
If a Beneficiary who is receiving Annuity Payments dies, AUSA Life will pay any
remaining Payments Certain to that Beneficiary's named Beneficiary(ies) when
due. If no Beneficiary survives the Annuitant, the right to any amount payable
will pass to the Contract Owner. If the Contract Owner is not living at this
time, this right will pass to his or her estate.
Death of the Contract Owner
Death of the Contract Owner During the Accumulation Phase. With two exceptions,
federal tax law requires that when either the Contract Owner or the Joint Owner
(if any) dies during the Accumulation Phase, AUSA Life must pay out the entire
value of the Contract within five years of the date of death. First exception:
If the entire value is to be distributed to the Owner's Designated Beneficiary,
he or she may elect to have it paid under an Annuity Payment Option over his or
her life or over a period certain no longer than his or her life expectancy as
long as the payments begin within one year of the Contract Owner's 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 whom the Contract Owner names as a
beneficiary and who becomes the Contract Owner upon the Contract Owner's death.)
If the Contract Owner and the Annuitant are the same person, then upon that
person's death the Beneficiary is entitled to the Death Benefit. In this
regard, see "Death of the Annuitant During the Accumulation Phase," page x.
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Death of the Contract Owner During the Income Phase. Federal tax law requires
that when either the Contract Owner or the Joint Owner (if any) dies during the
Income Phase, AUSA Life must pay the remaining portions of the value of the
Contract 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 (for example, is a corporation), the death of the "primary Annuitant" is
treated as the death of the Contract Owner for purposes of federal tax law.
(The Internal Revenue 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.
Payment of Lump-Sum Death Benefits
AUSA Life will pay lump-sum Death Benefits within seven days after the election
to take a lump sum becomes effective except in one of the following situations,
in which AUSA Life may delay the payment beyond seven days:
. the New York Stock Exchange is closed on a day that is not a weekend or a
holiday, or trading on the New York Stock Exchange is otherwise restricted
. an emergency exists as defined by the SEC, or the SEC requires that trading
be restricted
. the SEC permits a delay for your protection as a Contract Owner
. the payment is derived from premiums paid by check, in which case AUSA Life
may delay payment until the check has cleared your bank.
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10. OTHER INFORMATION
AUSA Life Insurance Company, Inc. ("AUSA Life," "We," "Us," "Our")
AUSA Life Insurance Company, Inc. is a stock life insurance company incorporated
under the laws of the state of New York on October 3, 1947, with offices at 666
Fifth Avenue, New York, New York 10103. It is principally engaged in offering
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 statutory assets of approximately $9.9
billion. It 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. AEGON N.V. of the Netherlands indirectly owns all of the stock of
AEGON USA, Inc. AEGON N.V., a holding company, conducts its business through
subsidiary companies engaged primarily in the insurance business.
The First Providian Merger. On October 1, 1998, First Providian Life & 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 Insurance Company, Inc. Separate Account C
The Separate Account was established by First Providian, a former affiliate of
AUSA Life, as a separate account under the laws of the state of New York on
November 2, 1987. 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 1940 Act. Such registration does not signify that the SEC supervises the
management or the investment practices or policies of the Separate Account.
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AUSA Life owns the assets of the Separate Account, 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). AUSA Life will always keep assets in the Separate Account
with a value at least equal to the total Accumulated Value under the Contracts.
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 AUSA Life's general account assets or any other
separate account AUSA Life maintains.
The Separate Account has twelve Subaccounts dedicated to the Contract, each of
which invests solely in a corresponding Portfolio of the Funds. Additional
Subaccounts may be established at AUSA Life's discretion. The Separate Account
meets the definition of a "separate account" under Rule O-1(e)(1) of the 1940
Act.
Group Contract
The Contract described here is a group contract, participation in which will be
evidenced by a certificate that AUSA Life will issue to the Contract Owner.
When the word "Contract" appears in this prospectus, it means the certificate
issued to a Contract Owner.
Contract Owner ("You," "Your")
The Contract Owner is the person or persons designated as the Contract Owner in
the Contract application to participate in the Contract. The term shall also
include any person named as Joint Owner. A Joint Owner shares ownership in all
respects with the Owner. The Owner has the right to assign ownership to a
person or party other than himself.
Payee
The Payee is the Contract Owner, Annuitant, Beneficiary, or any other person,
estate, or legal entity to whom benefits are to be paid.
Right to Cancel Periods
There are two different Right to Cancel Periods depending on whether the
Contract is a replacement or not.
Right to Cancel Period for Non-Replacement Contracts. If the Contract is not a
replacement of an existing annuity contract or life insurance or endowment
policy, the Contract provides for a Right to Cancel Period of 10 days after the
Contract Owner receives the Contract plus 5 days for mailing. The Contract
Owner may cancel the Contract during the Right to Period by returning it to our
Administrative Office, 4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499 or to
the agent from whom the Contract Owner purchased the Contract or by mailing it
to us at P.O. Box 3183, Cedar Rapids, Iowa 52046-3183. Upon cancellation, the
Contract is treated as void from the
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Contract Date and the Contract Owner will receive the Accumulated Value of the
Contract as of the day the Contract is received by AUSA Life plus any loads,
fees, and Premium Taxes that may have been subtracted to date.
Right to Cancel Period for Replacement Contracts. If the Contract is a
replacement of an existing annuity contract or life insurance or endowment
policy, a Right to Cancel Period exists for 60 days after the Contract Owner
receives the Contract plus 5 days for mailing. Upon cancellation of a
replacement Contract, the Contract is treated as void from the Contract Date and
the Contract Owner will receive the Accumulated Value of the Contract as of the
day the Contract is received by AUSA Life plus any loads, fees, and Premium
Taxes that may have been subtracted to date.
Reinstatements
AUSA Life occasionally receives requests to reinstate a Contract whose funds had
been transferred to another company via an exchange under Internal Revenue Code
Section 1035 or a trustee-to-trustee transfer under the Internal Revenue Code.
In this situation, AUSA Life will require the Contract Owner to replace the same
total amount of money in the applicable Subaccounts as was taken from them to
effect the transfer. The total dollar amount of funds reapplied to the Separate
Account will be used to purchase a number of Accumulation Units available for
each Subaccount based on the Accumulation Unit Values at the date of
Reinstatement (within two days of the date the funds were received by AUSA
Life). It should be noted that the number of Accumulation Units available on
the Reinstatement date may be more or less than the number surrendered for the
transfer. Contract Owners should consult a qualified tax adviser concerning the
tax consequences of any Internal Revenue Code Section 1035 exchanges or
reinstatements.
Voting Rights
The Funds do not hold regular meetings of shareholders. The directors/trustees
of the Funds may call special meetings of shareholders as the 1940 Act or other
applicable law may require. To the extent required by law, AUSA Life will vote
the Portfolio shares held in the Separate Account at shareholder meetings of the
Funds in accordance with instructions received from persons having voting
interests in the corresponding Portfolio. AUSA Life will vote Fund shares as to
which no timely instructions are received and those shares held by AUSA Life as
to which Contract Owners have no beneficial interest 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.
Prior to the Annuity Date, the 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 under any variable annuity option 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
42
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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 established by that Portfolio for determining shareholders eligible to
vote at the meeting of the Fund. Voting instructions will be solicited by
written communication prior to such meeting in accordance with procedures
established by the Fund.
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 the 1940 Act requires,
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.
AUSA Life may establish new Portfolios when marketing, tax, investment, or other
conditions so warrant. AUSA Life will make any new Portfolios available to
existing Contract Owners on a basis AUSA Life will determine. 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 whatever changes in the Contracts 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 Contracts,
AUSA Life may operate the Separate Account as a management company under the
1940 Act or any other form permitted by law, may deregister the Separate Account
under the 1940 Act in the event such registration is no longer required, or may
combine the Separate Account with one or more other separate accounts.
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
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move them to Year 2000 compliance, if required; (3) to estimate budgets,
resources and schedules for the migration of any "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 mission-critical systems are Year 2000 compliant as of
December 31, 1998, with validation testing to continue through June 1999.
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 assure 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 the appropriate and
diligent pursuit of a well conceived response plan, including testing
procedures, there is no certainty that AUSA Life 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.
Financial Statements
The audited supplemental statutory-basis financial statements of AUSA Life and
the financial statements of the Separate Account (as well as the Independent
Auditors' Reports on them) are contained in the Statement of Additional
Information.
Auditors
Ernst & Young LLP serves as independent auditors for AUSA Life and the Separate
Account and audits their financial statements annually.
Legal Matters
The law firm of Jorden Burt Boros Cicchetti Berenson & Johnson LLP, of
Washington, D.C., has provided legal advice concerning the issue and sale of the
Contract under the applicable federal securities laws. On behalf of AUSA Life,
Gregory E. Miller-Breetz, Esquire, has passed upon all matters of New York law
pertaining to the validity of the Contract and AUSA Life's right to issue the
Contract.
44
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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
CONFLICTS OF INTEREST WITH OTHER SEPARATE ACCOUNTS............................................................ 16
AUSA LIFE..................................................................................................... 16
TAXES......................................................................................................... 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>
45
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Appendix
CONDENSED FINANCIAL INFORMATION
(For the period January 1, 1997 through December 31, 1997)
<TABLE>
<CAPTION>
Fidelity VIP Fidelity VIP Fidelity VIP II Dreyfus
Money Equity- Asset Fidelity VIP Growth and Dreyfus
Market Income 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
</TABLE>
<TABLE>
<CAPTION>
OCC
OCC OCC Accumulation
TRP TRP Accumulation Accumulation Trust
TRP Equity International 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.
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<PAGE>
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 May
1, 1999, 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.
May 1, 1999
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
CONFLICTS OF INTEREST WITH OTHER SEPARATE ACCOUNTS........................ 16
AUSA LIFE................................................................. 16
TAXES..................................................................... 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>
2
<PAGE>
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.
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.
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.
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.
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 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.
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 performances
of the corresponding Portfolios of the Old Trust.
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
INCEPTION
1 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 $50,000 SINGLE PURCHASE
DECEMBER 31ST 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 $50,000 SINGLE PURCHASE
DECEMBER 31ST 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.
CONFLICTS OF INTEREST WITH OTHER SEPARATE ACCOUNTS
The Portfolios may be made available to registered separate accounts offering
variable annuity and variable life products of AUSA Life or other insurance
companies. Although AUSA Life believes it is unlikely, a material conflict could
arise between the interests of the Separate Account and one or more of the other
participating separate accounts. In the event a material conflict does exist,
the affected insurance companies agree to take any necessary steps, including
removing their separate accounts from the Fund if required by law, to resolve
the matter. See the Fund's prospectus for more information.
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.
TAXES
AUSA Life is taxed as a life insurance company under Part I of Subchapter L of
the Internal Revenue 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 Internal Revenue 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.
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, AUSA Life may make charges for
such taxes. AUSA Life does not expect to incur any federal income tax liability
attributable to investment income or capital gains retained as part of the
reserves under the Contracts. 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 corporate federal income taxes related to the Separate Account. Such
a charge may be made in future years for any federal income taxes AUSA Life
incurs. This might become necessary if AUSA Life ultimately determines that its
tax treatment is not what it currently believes it to be, if there are changes
in the federal income tax treatment of annuities at the corporate level, or if
there is a change in AUSA life's tax status. If 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.
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/5/
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/5/
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).
/5/Incorporated by reference from Initial Registration Statement of AUSA Life
Insurance Company Separate Account C, File No. 333-65145 (as filed on October
1, 1998).
<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 26.77% First AUSA Life Ins. Co. Insurance
Group, Inc. 73.23% Capital General Dev. Corp.
AEGON Special Markets Maryland 100% Monumental Life Ins. Co. Marketing
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
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
</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 99.0% Monumental Holding Company
Life Ins. Co.
1% CGC
Commonwealth General LLC Turks & 100% CGC Special-purpose subsidiary
Caicos Islands
Peoples Benefit Life Missouri 3.7% CGC Insurance Company
Insurance Company 20% Capital Liberty, L.P.
76.3% Monumental Life
Ins. Co.
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 November 30, 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
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 December 28, 1998
- ------------------------
William Brown, Jr.
/s/ Larry G. Brown Director December 28, 1998
- ------------------------
Larry G. Brown
/s/ William L. Busler Director December 28, 1998
- ------------------------
William L. Busler
/s/ Jack R. Dykhouse Director December 28, 1998
- ------------------------
Jack R. Dykhouse
/s/ Steven E. Frushtick Director December 28, 1998
- ------------------------
Steven E. Frushtick
/s/ Carl T. Hanson Director December 28, 1998
- ------------------------
Carl T. Hanson
/s/ B. Larry Jenkins Director December 28, 1998
- ------------------------
B. Larry Jenkins
/s/ Colette Vargas Director December 28, 1998
- ------------------------
Colette Vargas
/s/ Vera F. Mihaic Director December 28, 1998
- ------------------------
Vera F. Mihaic
/s/ Peter P. Post Director December 28, 1998
- ------------------------
Peter P. Post
/s/ Tom A. Schlossberg Director (Principal December 28, 1998
- ------------------------
Tom A. Schlossberg Executive Officer)
/s/ Cor H. Verhagen Director December 28, 1998
- ------------------------
Cor H. Verhagen
/s/ E. Kirby Warren Director December 28, 1998
- ------------------------
E. Kirby Warren
/s/ Brenda K. Clancy Treasurer (Chief December 28, 1998
- ------------------------
Brenda K. Clancy Accounting Officer
By: /s/ Gregory E. Miller-Breetz
----------------------------
Gregory E. Miller-Breetz
Attorney-In-Fact
<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 (a)(1)
of Rule 485 and has caused this Registration Statement to be signed on its
behalf, in the City of Louisville and Commonwealth of Kentucky, on this 28th day
of December, 1998.
AUSA LIFE INSURANCE COMPANY, INC.
SEPARATE ACCOUNT C
Registrant
AUSA LIFE INSURANCE COMPANY, INC.
Depositor
/s/ Tom A. Schlossberg
-----------------------
Tom A. Schlossberg
President
By: /s/ Gregory E. Miller-Breetz
----------------------------
Gregory E. Miller-Breetz
Attorney-In-Fact
<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)
December 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 Post-
Effective Amendment No. 1 to the Registration Statement on Form N-4 under the
Securities Act of 1933, as amended (the "1933 Act"), and Amendment No. 6 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. 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. Separate Account C is 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 are 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. 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)
December 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 Post-Effective Amendment No. 1 to the
Registration Statement on Form N-4 under the Securities Act of 1933, as amended
(the "1933 Act"), and Amendment No. 6 to the Registration Statement on Form N-4
under the Investment Company Act of 1940, as amended (the "1940 Act"). File No.
811-9062, 333-65145 (the "Registration Statement"), filed on or around December
28, 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" in the Prospectus and "Financial Statements" in the
Statement of Additional Information 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 (name changed to AUSA Life
Insurance Company, Inc. Separate Account C--Marquee on October 1, 1998) 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.
included in Post-Effective Amendment No. 1 to the Registration Statement (Form
N-4 No. 333-65145) for AUSA Life Insurance Company, Inc. Separate Account C and
related Prospectus of the AUSA Marquee Variable Annuity.
/s/ Ernst & Young LLP
Des Moines, Iowa
December 28, 1998
