<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1999
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. 5 (X)
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 10 (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
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.
[X] On May 1, 1999, pursuant to paragraph (b) of Rule 485.
60 days after filing pursuant to paragraph (a)(1) of Rule 485.
[ ] On May 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.
If appropriate, check the following box:
[X] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<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 Variable Investment Fund:
Growth and Income
Dreyfus Variable Investment Fund:
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.
ARC0016N8Y 599
<PAGE>
Contents
<TABLE>
<C> <S>
1 Cross Reference to Definitions
2 Summary
6 Fee Table
7 Example
8 The Annuity Contract
9 Annuity Payments
11 Purchase
14 Investment Options
</TABLE>
<TABLE>
<C> <S>
17 Expenses
19 Taxes
23 Access to Your Money
24 Performance
27 Death Benefit
30 Other Information
34 Table of Contents of Statement of Additional Information
A-1 Appendix (Condensed Financial Information)
</TABLE>
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.
<TABLE>
<S> <C>
Accumulation Phase....................................................... 8
Annuitant................................................................ 27, 28
Annuity Date............................................................. 9
Annuity Payment Options.................................................. 9
Beneficiary.............................................................. 27, 28
Business Day............................................................. 11
Contract................................................................. 8
Contract Anniversary..................................................... 12
Contract Date............................................................ 12
Contract Owner........................................................... 31
Contract Year............................................................ 12
Income Phase............................................................. 9
Initial Purchase Payment................................................. 11
Joint Annuitant.......................................................... 28
Net Purchase Payment..................................................... 12
Qualified Contract....................................................... 12, 22
Portfolios............................................................... 14
Purchase Payment......................................................... 12
Right to Cancel Period................................................... 31
Tax Deferral............................................................. 19
</TABLE>
1
<PAGE>
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 multi-funded 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 9, for more information about Annuity Payment Options.
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.
2
<PAGE>
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 Variable Investment Fund: Growth and Income Portfolio
Dreyfus Variable Investment Fund: Quality Bond Portfolio
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
0.15% of the net asset value of the Separate Account as an Administrative
Expense Charge and an annual charge of 1.25% 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.
3
<PAGE>
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 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.
Special rules may apply to a surviving spouse. If the Contract Owner is not a
natural person, the death of the primary Annuitant triggers the same
distribution requirement.
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.
4
<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 30.
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.
5
<PAGE>
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, page 17.
<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.................................................. 0.15%
-----
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
1998 (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*......... 0.20% 0.10% 0.30%
Fidelity VIP Equity-Income*........ 0.49% 0.08% 0.57%
Fidelity VIP Growth*............... 0.59% 0.07% 0.66%
Fidelity VIP II Asset Manager*..... 0.54% 0.09% 0.63%
DVIF: Growth and Income............ 0.75% 0.03% 0.78%
DVIF: Quality Bond................. 0.65% 0.08% 0.73%
T. Rowe Price Equity Income........ 0.85% 0.00% 0.85%
T. Rowe Price New America Growth... 0.85% 0.00% 0.85%
T. Rowe Price International Stock.. 1.05% 0.00% 1.05%
OCC Accumulation Trust Managed**... 0.78% 0.04% 0.82%
OCC Accumulation Trust Small
Cap**............................. 0.80% 0.08% 0.88%
OCC Accumulation Trust U.S.
Government Income**............... 0.40% 0.60% 1.00%
</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. Excluding
these reductions, the Total Portfolio Annual Expenses would have been 0.58%
for the Equity-Income Portfolio, 0.68% for the Growth Portfolio, and 0.64%
for the Asset Manager Portfolio.
6
<PAGE>
** 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: 0.60%, 0.60%, and 1.20% 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................. $80.69 $ 99.45 $120.86 $204.60
Fidelity VIP Equity-
Income................. $83.41 $107.73 $134.82 $233.26
Fidelity VIP Growth..... $84.31 $110.47 $139.43 $242.63
Fidelity VIP II Asset
Manager................ $84.01 $109.56 $137.90 $239.52
DVIF: Growth and
Income................. $85.52 $114.12 $145.55 $254.98
DVIF: Quality Bond...... $85.01 $112.61 $143.00 $249.86
T. Rowe Price Equity
Income................. $86.22 $116.25 $149.10 $262.12
T. Rowe Price New
America Growth......... $86.22 $116.25 $149.10 $262.12
T. Rowe Price
International Stock.... $88.22 $122.29 $159.17 $282.20
OCC Accumulation Trust
Managed................ $85.92 $115.34 $147.58 $259.07
OCC Accumulation Trust
Small Cap.............. $86.52 $117.16 $150.62 $265.16
OCC Accumulation Trust
U.S. Government
Income................. $87.72 $120.78 $156.66 $277.22
</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) 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................. $17.69 $54.78 $ 94.27 $204.60
Fidelity VIP Equity-
Income................. $20.41 $63.03 $108.20 $233.26
Fidelity VIP Growth..... $21.31 $65.77 $112.80 $242.63
Fidelity VIP II Asset
Manager................ $21.01 $64.86 $111.26 $239.52
DVIF: Growth and
Income................. $22.52 $69.41 $118.90 $254.98
DVIF: Quality Bond...... $22.01 $67.89 $116.36 $249.86
T. Rowe Price Equity
Income................. $23.22 $71.52 $122.44 $262.12
T. Rowe Price New
America Growth......... $23.22 $71.52 $122.44 $262.12
T. Rowe Price
International Stock.... $25.22 $77.54 $132.49 $282.20
OCC Accumulation Trust
Managed................ $22.92 $70.62 $120.92 $259.07
OCC Accumulation Trust
Small Cap.............. $23.52 $72.43 $123.95 $265.16
OCC Accumulation Trust
U.S. Government
Income................. $24.72 $76.04 $129.98 $277.22
</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 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.
7
<PAGE>
CONDENSED FINANCIAL INFORMATION
Please note that the Appendix contains a history of accumulation unit values
in a table labeled "Condensed Financial Information."
1. THE ANNUITY CONTRACT
The AUSA Marquee variable annuity is a flexible-premium multi-funded 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. (See Exchanges Among the Portfolios, page 16.)
. 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. (See Full and
Partial Withdrawals, page 23.)
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 9.
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.
8
<PAGE>
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.
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 Annuitant's Sex on Annuity Payments. For either fixed or variable
Annuity Payments involving life income, the sex of the Annuitant and Joint
Annuitant will affect the amount of each payment. Since payments based on the
lives of male Annuitants and Joint Annuitants are expected to be fewer in
number, the amount of each Annuity Payment will be greater than for female
Annuitants and Joint Annuitants.
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.
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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.
. The minimum payment is $100. If on the Annuity Date your Accumulated
Value is 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.
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
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payments to and distributions from the Qualified Contract. (See QUALIFIED
INDIVIDUAL RETIREMENT ANNUITIES, page 22.)
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. In that case,
the resulting amount is called a Net Purchase Payment.
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
(or $50 if by payroll deduction).
. 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
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 it. 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.
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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 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 Contract. AUSA Life determines the
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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.
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.
The general public may invest in the Portfolios only through certain insurance
contracts. The investment objectives and policies of the Portfolios may be
similar to those of certain publicly available funds or portfolios. However,
you should not expect that the investment results of any publicly available
funds or portfolios will be comparable to those of the Portfolios.
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.
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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.
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 Variable Investment Fund: Growth and Income Portfolio ("DVIF:
Growth 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 Variable Investment Fund: Quality Bond Portfolio ("DVIF: 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 fixed-income securities and in securities of the U.S. government
and its agencies and instrumentalities.
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 corporation is a series fund
and has the authority to issue other series in addition to the T. Rowe Price
Equity Income and the T. Rowe Price New America Growth Portfolios, each of
which represents a separate series 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 growth of capital through investments in the
common stocks of established companies. In pursuing its objective, the
Portfolio will normally invest in the common stocks of well-established
companies paying above-average dividends. T. Rowe Price seeks companies
that appear to be undervalued by various measures and may be temporarily
out of favor, but have good prospects for capital appreciation and dividend
growth.
T. Rowe Price New America Growth Portfolio seeks to provide 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 will invests in service companies that T. Rowe
Price believes are above-average performers in their fields. T. Rowe Price
focuses on service companies, which represent more than half of the U.S.
economy, because of their growth potential and because they may have
advantages over manufacturing companies. The Portfolio may also take
advantage of its ability to invest up to 25% of its assets in nonservice
growth companies as opportunities occur.
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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 T. Rowe Price
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. In pursuing its objective, the Portfolio will invest
substantially all of its assets outside the U.S. and will diversify broadly
among developed and emerging countries throughout the world. Stock
selection reflects a growth style.
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 must 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
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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.
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.
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
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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,
withdrawals are taken first from earnings on the Contract and then from the
money you invested in the Contract. See Taxation of Full and Partial
Withdrawals, page 23.
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 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.
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 charges 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 0.15% annually of the net asset value of the Separate Account.
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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.
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 21, and DIVERSIFICATION
STANDARDS, page 22.)
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.
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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 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.
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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 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
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
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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, 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.
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403(b) Contracts
AUSA Life will offer Contracts in connection with retirement plans adopted by
public school systems and certain tax-exempt organizations for their employees
under Section 403(b) of the Internal Revenue Code. More detailed information
on 403(b) Contracts may be found in the Statement of Additional Information.
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 least 30 days prior to your next scheduled withdrawal date.
We reserve the right to discontinue offering this option upon 30 days' notice,
and we also reserve the right to charge a fee for this option.
Note that the Systematic Withdrawal Option may trigger a surrender charge. See
Surrender Charge Schedule, page 17.
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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 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 20, and Penalty Taxes on
Certain Early Withdrawals, page 21.
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.
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.
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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.
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.
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Non-Standardized Adjusted Historical Cumulative Return and Non-Standardized
Adjusted Historical Average Annual Total Return
AUSA Life may show Non-Standardized Adjusted Historical Cumulative Return and
Non-Standardized Adjusted Historical 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 Adjusted Historical 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 Adjusted Historical Average Annual Total Return for a
Subaccount is the effective annual compounded rate of return that would have
produced the ending Accumulated Value over the stated period had the
performance remained constant throughout.
YIELD AND EFFECTIVE YIELD
AUSA Life may also show yield and effective yield figures for the Subaccount
investing in shares of the Fidelity VIP Money Market Portfolio. "Yield" refers
to the income generated by an investment in Fidelity VIP Money Market over a
seven-day period, which is then "annualized." That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly but, when annualized, the income
earned by an investment in Fidelity VIP Money Market is assumed to be
reinvested. Therefore, the effective yield will be slightly higher than the
yield because of the compounding effect of this assumed reinvestment. These
figures do not reflect the Annual Contract Fee, any sales loads or Premium
Taxes (if any) which, if included, would reduce the yields reported.
From time to time a Portfolio of a Fund may advertise its yield and total
return investment performance. For each Subaccount other than Fidelity VIP
Money Market for which AUSA Life advertises yield, AUSA Life shall furnish a
yield quotation referring to the Portfolio computed in the following manner:
the net investment income per Accumulation Unit earned during a recent one
month period 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.
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.
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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.
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.
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. 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 27.
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, 1998, AUSA Life had statutory-basis assets of approximately
$11.3 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.
AUSA Life is a charter member of the Insurance Marketplace Standards
Association ("IMSA"). IMSA is an independent, voluntary organization of life
insurance companies. It promotes high ethical standards in the sales,
advertising, and servicing of individual life insurance and annuity products.
Member companies must undergo a rigorous self- and independent assessment of
their practices to become a member of IMSA. The IMSA logo in our sales
literature shows our ongoing commitment to these standards.
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.
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
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<PAGE>
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 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
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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 Payment 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 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.
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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 Readiness Disclosure
In May 1996, AUSA Life adopted and presently has in place a Year 2000 Project
Plan (the "Plan") to review and analyze existing hardware and software
systems, as well as voice and data communications systems, to determine if
they are Year 2000 compliant. As of March 1, 1999, substantially all of AUSA
Life's mission-critical systems are Year 2000 compliant. The Year 2000 Project
Plan remains on track as AUSA Life continues with the validation of its
mission-critical and non-mission-critical systems, including revalidation
testing in 1999. In addition, AUSA Life has undertaken aggressive initiatives
to test all systems that interface with any third parties and other business
partners. All of these steps are aimed at allowing current operations to
remain unaffected by the year 2000 date change.
As of the date of this prospectus, AUSA Life has identified and made available
what it believes are the appropriate resources of hardware, people, and
dollars, including the engagement of outside third parties, to ensure that the
Plan will be completed.
The actions taken by management under the Plan are intended to significantly
reduce AUSA Life's risk of a material business interruption based on the Year
2000 issues. It should be noted that the Year 2000 computer problem, and its
resolution, is complex and multifaceted, and any company's success cannot be
conclusively known until the Year 2000 is reached. In spite of its efforts or
results, AUSA Life's ability to function unaffected to and through the Year
2000 may be adversely affected by actions, or failure to act, of third parties
beyond our knowledge or control.
This statement is a Year 2000 Readiness Disclosure pursuant to Section 3(9) of
the Year 2000 Information and Readiness Disclosure Act, 15 U.S.C. Section 1
(1998).
Financial Statements
The audited statutory-basis financial statements of AUSA Life and the audited
financial statements of certain subaccounts of the Separate Account which are
available for investment by AUSA Marquee Contract Owners (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 certain
subaccounts of the Separate Account which are available for investment by AUSA
Marquee Contract Owners 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.
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TABLE OF CONTENTS FOR THE AUSA MARQUEE VARIABLE ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
THE CONTRACT.............................................................. 1
Computation of Variable Annuity Income Payments......................... 1
Exchanges............................................................... 1
Exceptions to Charges and to Transactions or Balance Requirements....... 2
403(b) Contracts........................................................ 2
GENERAL MATTERS........................................................... 4
Non-Participating....................................................... 4
Misstatement of Age or Sex.............................................. 4
Assignment.............................................................. 4
Annuity Data............................................................ 4
Annual Statement........................................................ 4
Incontestability........................................................ 4
Ownership............................................................... 5
PERFORMANCE INFORMATION................................................... 5
Money Market Subaccount Yields.......................................... 5
30-Day Yield for Non-Money Market Subaccounts........................... 6
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........................................ 9
Non-Standardized Adjusted Historical Cumulative Return and Non-
Standardized Adjusted Historical Average Annual Total Return........... 10
Individualized Computer Generated Illustrations......................... 16
PERFORMANCE COMPARISONS................................................... 16
SAFEKEEPING OF ACCOUNT ASSETS............................................. 18
CONFLICTS OF INTEREST WITH OTHER SEPARATE ACCOUNTS........................ 18
AUSA LIFE................................................................. 19
TAXES..................................................................... 19
STATE REGULATION OF AUSA LIFE............................................. 19
RECORDS AND REPORTS....................................................... 20
DISTRIBUTION OF THE CONTRACTS............................................. 20
LEGAL PROCEEDINGS......................................................... 20
OTHER INFORMATION......................................................... 20
FINANCIAL STATEMENTS...................................................... 20
</TABLE>
34
<PAGE>
APPENDIX
CONDENSED FINANCIAL INFORMATION
(For the period January 1, 1997 through December 31, 1998)
<TABLE>
<CAPTION>
Fidelity VIP Fidelity VIP Fidelity VIP II DVIF:
Money Equity- Asset Fidelity VIP Growth and DVIF:
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
12/31/98............... 10.684 13.339 13.119 16.457 12.731 11.203
Number of units
outstanding as of
12/31/97............... 0 580.740 0 220.094 608.751 147.184
12/31/98............... 0 739.076 1,190.556 1,274.052 1,550.658 1,307.039
<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
12/31/98............... 12.998 11.604 14.532 12.188 10.967 11.235
Number of units
outstanding as of
12/31/97............... 591.446 1,446.938 171.777 594.827 212.793 149.603
12/31/98............... 4,553.519 3,144.595 1,494.815 3,529.382 2,752.708 1,130.714
</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.
A-1
<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 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
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE CONTRACT............................................................. 1
Computation of Variable Annuity Income Payments........................ 1
Exchanges.............................................................. 1
Exceptions to Charges and to Transactions or Balance Requirements...... 2
403(b) Contracts....................................................... 2
GENERAL MATTERS.......................................................... 4
Non-Participating...................................................... 4
Misstatement of Age or Sex............................................. 4
Assignment............................................................. 4
Annuity Data........................................................... 4
Annual Statement....................................................... 4
Incontestability....................................................... 4
Ownership.............................................................. 5
PERFORMANCE INFORMATION.................................................. 5
Money Market Subaccount Yields......................................... 5
30-Day Yield for Non-Money Market Subaccounts.......................... 6
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....................................... 9
Non-Standardized Adjusted Historical Cumulative Return and
Non-Standardized Adjusted Historical Average Annual Total Return. ... 10
Individualized Computer Generated Illustrations........................ 16
PERFORMANCE COMPARISONS.................................................. 16
SAFEKEEPING OF ACCOUNT ASSETS............................................ 18
CONFLICTS OF INTEREST WITH OTHER SEPARATE ACCOUNTS....................... 18
AUSA LIFE................................................................ 19
TAXES.................................................................... 19
STATE REGULATION OF AUSA LIFE............................................ 19
RECORDS AND REPORTS...................................................... 20
DISTRIBUTION OF THE CONTRACTS............................................ 20
LEGAL PROCEEDINGS........................................................ 20
OTHER INFORMATION........................................................ 20
FINANCIAL STATEMENTS..................................................... 20
</TABLE>
<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.
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.
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<PAGE>
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.
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.
2
<PAGE>
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
3
<PAGE>
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.
INCONTESTABILITY
This Contract is incontestable from the Contract Date, subject to the
"Misstatement of Age or Sex" provision.
4
<PAGE>
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 VIP 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 VIP Money Market Portfolio; 5/1/97 for the Fidelity VIP
Equity-Income Portfolio; 5/1/97 for the Fidelity VIP Growth Portfolio; 5/1/97
for the Fidelity VIP II 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 U.S. 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 VIP 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
5
<PAGE>
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.
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).
6
<PAGE>
The following table shows the Standardized Average Annual Total Return for the
Subaccounts for the period beginning at the inception of each Subaccount and
ending December 31, 1998.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
FOR PERIOD ENDING DECEMBER 31, 1998
<TABLE>
<CAPTION>
Since
Subaccount
Subaccount 1 Year Inception
- --------------------------------------------------------- ------- -----------
<S> <C> <C>
Fidelity VIP Money Market Portfolio...................... -1.60% 0.00%
Fidelity VIP Equity-Income Portfolio..................... 4.14% 14.06%
Fidelity VIP Growth Portfolio............................ 30.13% 29.02%
Fidelity VIP II Asset Manager Portfolio.................. 7.33% 13.32%
DVIF: Growth and Income Portfolio........................ 4.31% 11.62%
DVIF: Quality Bond Portfolio............................. -1.02% 3.25%
T. Rowe Price Equity Income Portfolio.................... 1.75% 12.95%
T. Rowe Price New America Growth Portfolio............... 10.55% 20.64%
T. Rowe Price International Stock Portfolio.............. 8.08% 5.57%
OCC Accumulation Trust Managed Portfolio................. -0.07% 8.25%
OCC Accumulation Trust Small Cap Portfolio............... -15.13% 1.84%
OCC Accumulation Trust U.S. Government Income Portfolio.. 0.90% 3.57%
</TABLE>
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.
7
<PAGE>
NON-STANDARDIZED CUMULATIVE TOTAL RETURN
FOR PERIOD ENDING DECEMBER 31, 1998
<TABLE>
<CAPTION>
Since
Subaccount
Subaccount 1 Year Inception
- --------------------------------------------------------- ------- -----------
<S> <C> <C>
Fidelity VIP Money Market Portfolio...................... 4.01% 6.84%
Fidelity VIP Equity-Income Portfolio..................... 10.08% 33.39%
Fidelity VIP Growth Portfolio............................ 37.56% 64.57%
Fidelity VIP II Asset Manager Portfolio.................. 13.46% 31.19%
DVIF: Growth and Income Portfolio........................ 10.26% 27.31%
DVIF: Quality Bond Portfolio............................. 4.63% 12.03%
T. Rowe Price Equity Income Portfolio.................... 7.56% 29.98%
T. Rowe Price New America Growth Portfolio............... 16.86% 45.32%
T. Rowe Price International Stock Portfolio.............. 14.25% 16.04%
OCC Accumulation Trust Managed Portfolio................. 5.64% 21.87%
OCC Accumulation Trust Small Cap Portfolio............... -10.29% 9.67%
OCC Accumulation Trust U.S. Government Income Portfolio.. 6.66% 12.34%
</TABLE>
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
FOR PERIOD ENDING DECEMBER 31, 1998
<TABLE>
<CAPTION>
Since
Subaccount
Subaccount 1 Year Inception
- --------------------------------------------------------- ------- -----------
<S> <C> <C>
Fidelity VIP Money Market Portfolio...................... 4.01% 4.04%
Fidelity VIP Equity-Income Portfolio..................... 10.08% 18.83%
Fidelity VIP Growth Portfolio............................ 37.56% 34.76%
Fidelity VIP II Asset Manager Portfolio.................. 13.46% 17.65%
DVIF: Growth and Income Portfolio........................ 10.26% 15.56%
DVIF: Quality Bond Portfolio............................. 4.63% 7.04%
T. Rowe Price Equity Income Portfolio.................... 7.56% 17.00%
T. Rowe Price New America Growth Portfolio............... 16.86% 25.08%
T. Rowe Price International Stock Portfolio.............. 14.25% 9.32%
OCC Accumulation Trust Managed Portfolio................. 5.64% 12.58%
OCC Accumulation Trust Small Cap Portfolio............... -10.29% 5.68%
OCC Accumulation Trust U.S. Government Income Portfolio.. 6.66% 7.22%
</TABLE>
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.
8
<PAGE>
NON-STANDARDIZED TOTAL RETURN YEAR-TO-DATE
<TABLE>
<CAPTION>
Total Return
YTD as of
Subaccount 12/31/98
- ---------- --------
<S> <C>
Fidelity VIP Money Market Portfolio 4.01%
Fidelity VIP Equity-Income Portfolio 10.08%
Fidelity VIP Growth Portfolio 37.56%
Fidelity VIP II Asset Manager Portfolio 13.46%
DVIF: Growth and Income Portfolio 10.26%
DVIF: Quality Bond Portfolio 4.63%
T. Rowe Price Equity Income Portfolio 7.56%
T. Rowe Price New America Growth Portfolio 16.86%
T. Rowe Price International Stock Portfolio 14.25%
OCC Accumulation Trust Managed Portfolio 5.64%
OCC Accumulation Trust Small Cap Portfolio -10.29%
OCC Accumulation Trust U.S. Government Income Portfolio 6.66%
</TABLE>
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>
1998 1997 1996 1995 1994 1993 1992
------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Fidelity VIP Money Market Portfolio......... 4.01% 4.02% 3.94% 4.42% 2.79% 1.78% 2.45%
Fidelity VIP Equity-income Portfolio........ 10.08% 26.33% 12.68% 33.22% 5.57% 16.63% 15.25%
Fidelity VIP Growth Portfolio............... 37.56% 21.76% 13.10% 33.49% -1.42% 17.70% 7.79%
Fidelity VIP II Asset Manager Portfolio..... 13.46% 18.97% 13.00% 15.33% -7.40% 19.53% 10.15%
DVIF: Growth and Income Portfolio........... 10.26% 14.60% 19.06% 59.65% N/A N/A N/A
DVIF: Quality Bond Portfolio................ 4.63% 7.27% 1.68% 18.75% -5.93% 13.72% 10.52%
T. Rowe Price Equity Income Portfolio....... 7.56% 27.06% 21.05% 32.89% N/A N/A N/A
T. Rowe Price New America
Growth Portfolio........................ 16.86% 19.43% 17.06% 48.99% N/A N/A N/A
T. Rowe Price Int'l Stock Portfolio......... 14.25% 1.66% 13.09% 9.64% N/A N/A N/A
OCC Accumulation Trust Managed Portfolio.... 5.64% 20.59% 21.05% 43.53% N/A N/A N/A
OCC Accumulation Trust Small Cap Portfolio.. -10.29% 20.54% 17.06% 13.63% N/A N/A N/A
OCC Accumulation Trust U.S. Gov't
Income Portfolio........................ 6.66% 5.59% 1.59% 10.07% N/A N/A N/A
</TABLE>
9
<PAGE>
NON-STANDARDIZED ADJUSTED HISTORICAL CUMULATIVE RETURN AND NON-STANDARDIZED
ADJUSTED HISTORICAL AVERAGE ANNUAL TOTAL RETURN
AUSA Life may show Non-Standardized Adjusted Historical Cumulative Return and
Non-Standardized Adjusted Historical 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 Adjusted Historical 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 Adjusted Historical 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 VIP Money Market Portfolio; October 9, 1986 for the Fidelity
VIP Equity-Income Portfolio; October 9, 1986 for the Fidelity VIP Growth
Portfolio; September 6, 1989 for the Fidelity VIP II 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.
ADJUSTED HISTORICAL CUMULATIVE RETURNS FOR PERIODS ENDING 12/31/98
(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 VIP Money Market Portfolio................. 4.01% 12.46% 20.73% 137.51%
Fidelity VIP Equity-Income Portfolio................ 10.08% 56.69% 120.60% 334.00%
Fidelity VIP Growth Portfolio....................... 37.56% 89.43% 149.31% 497.80%
Fidelity VIP II Asset Manager Portfolio............. 13.46% 52.53% 62.89% 166.93%
DVIF: Growth and Income Portfolio................... 10.26% 50.44% N/A 136.78%
DVIF: Quality Bond Portfolio........................ 4.63% 14.12% 27.51% 83.41%
TRP Equity Income Portfolio......................... 7.56% 61.11% N/A 127.02%
TRP New America Growth Portfolio.................... 16.86% 65.27% N/A 146.14%
TRP International Stock Portfolio................... 14.25% 31.35% N/A 45.09%
OCC Accumulation Trust Managed Portfolio............ 5.64% 54.21% 123.97% 437.92%
OCC Accumulation Trust Small Cap Portfolio.......... -10.29% 26.58% 40.39% 207.88%
OCC Accumulation Trust U.S. Gov't Income Portfolio.. 6.66% 14.41% N/A 27.53%
</TABLE>
10
<PAGE>
ADJUSTED HISTORICAL AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING 12/31/98
(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 VIP Money Market Portfolio................. 4.01% 3.99% 3.84% 5.30%
Fidelity VIP Equity-Income Portfolio................ 10.08% 16.15% 17.14% 12.82%
Fidelity VIP Growth Portfolio....................... 37.56% 23.73% 20.05% 15.83%
Fidelity VIP II Asset Manager Portfolio............. 13.46% 15.11% 10.25% 11.11%
DVIF: Growth and Income Portfolio................... 10.26% 14.58% N/A 20.30%
DVIF: Quality Bond Portfolio........................ 4.63% 4.50% 4.98% 7.55%
TRP Equity Income Portfolio......................... 7.56% 17.23% N/A 18.84%
TRP New America Growth Portfolio.................... 16.86% 18.23% N/A 20.88%
TRP International Stock Portfolio................... 14.25% 9.52% N/A 8.15%
OCC Accumulation Trust Managed Portfolio............ 5.64% 15.53% 17.50% 17.53%
OCC Accumulation Trust Small Cap Portfolio.......... -10.29% 8.18% 7.02% 11.40%
OCC Accumulation Trust U.S. Gov't Income Portfolio.. 6.66% 4.59% N/A 6.08%
</TABLE>
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
Fidelity VIP Equity Income Portfolio
<TABLE>
<CAPTION>
$2,000 Purchase Payment made December 31, 1986 $50,000 Single Purchase Payment Made
and Yearly December 31st Thereafter December 31, 1986
------------------------------------------------ -------------------------------------------------
Values prior to current Values prior to current
year's purchase payment Non-Standardized year's purchase payment Non-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 N/A
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%
12/31/98 $26,000 $67,007 10.08% 15.06% $50,000 $218,804 10.08% 13.09% 337.61%
</TABLE>
11
<PAGE>
Fidelity VIP Growth Portfolio
<TABLE>
<CAPTION>
$2,000 Purchase Payment made December 31, 1986 $50,000 Single Purchase Payment Made
and Yearly December 31st Thereafter December 31, 1986
--------------------------------------------------- --------------------------------------------------
Values prior to current Values prior to current
year's purchase payment Non-Standardized year's purchase payment Non-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 N/A
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%
12/31/98 $26,000 $82,940 37.56% 18.09% $50,000 $298,228 37.56% 16.05% 496.46%
</TABLE>
Fidelity VIP II Asset Manager Portfolio
<TABLE>
<CAPTION>
$2,000 Purchase Payment made December 31, 1989 $50,000 Single Purchase Payment Made
and Yearly December 31st Thereafter December 31, 1989
--------------------------------------------------- --------------------------------------------------
Values prior to current Values prior to current
year's purchase payment Non-Standardized year's purchase payment Non-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%
12/31/98 $20,000 $33,616 13.46% 12.30% $50,000 $136,353 13.46% 11.79% 172.71%
</TABLE>
12
<PAGE>
Fidelity VIP Money Market Portfolio
<TABLE>
<CAPTION>
$2,000 Purchase Payment made December 31, 1983 $50,000 Single Purchase Payment Made
and Yearly December 31st Thereafter December 31, 1983
--------------------------------------------------- -------------------------------------------------
Values prior to current Values prior to current
year's purchase payment Non-Standardized year's purchase payment Non-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%
12/31/98 $32,000 $42,621 4.01% 4.27% $50,000 $102,383 4.01% 4.89% 104.77%
</TABLE>
Dreyfus Quality Bond Portfolio
<TABLE>
<CAPTION>
$2,000 Purchase Payment made December 31, 1989 $50,000 Single Purchase Payment Made
and Yearly December 31st Thereafter December 31, 1989
--------------------------------------------------- -------------------------------------------------
Values prior to current Values prior to current
year's purchase payment Non-Standardized year's purchase payment Non-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%
12/31/98 $20,000 $25,231 4.63% 6.69% $50,000 $91,017 4.63% 6.88% 82.03%
</TABLE>
13
<PAGE>
Dreyfus Growth and Income Portfolio
<TABLE>
<CAPTION>
$2,000 Purchase Payment made December 31, 1994 $50,000 Single Purchase Payment Made
and Yearly December 31st Thereafter December 31, 1994
--------------------------------------------------- -------------------------------------------------
Values prior to current Values prior to current
year's purchase payment Non-Standardized year's purchase payment Non-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%
12/31/98 $10,000 $12,545 10.26% 18.83% $50,000 $120,088 10.26% 24.49% 140.18%
</TABLE>
T. Rowe Price Equity Income Portfolio
<TABLE>
<CAPTION>
$2,000 Purchase Payment made December 31, 1994 $50,000 Single Purchase Payment Made
and Yearly December 31st Thereafter December 31, 1994
--------------------------------------------------- -------------------------------------------------
Values prior to current Values prior to current
year's purchase payment Non-Standardized year's purchase payment Non-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%
12/31/98 $10,000 $12,389 7.56% 18.28% $50,000 $107,050 7.56% 20.96% 114.10%
</TABLE>
T. Rowe Price International Portfolio
<TABLE>
<CAPTION>
$2,000 Purchase Payment made December 31, 1994 $50,000 Single Purchase Payment Made
and Yearly December 31st Thereafter December 31, 1994
--------------------------------------------------- --------------------------------------------------
Values prior to current Values prior to current
year's purchase payment Non-Standardized year's purchase payment Non-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%
12/31/98 $10,000 $10,115 14.25% 9.61% $50,000 $72,005 14.25% 9.55% 44.01%
</TABLE>
14
<PAGE>
T. Rowe Price New America Growth Fund Portfolio
<TABLE>
<CAPTION>
$2,000 Purchase Payment made December 31, 1994 $50,000 Single Purchase Payment Made
and Yearly December 31st Thereafter December 31, 1994
--------------------------------------------------- -------------------------------------------------
Values prior to current Values prior to current
year's purchase payment Non-Standardized year's purchase payment Non-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%
12/31/98 $10,000 $13,359 16.86% 21.60% $50,000 $123,116 16.86% 25.27% 146.23%
</TABLE>
OCC Accumulation Trust Managed Portfolio
<TABLE>
<CAPTION>
$2,000 Purchase Payment made December 31, 1988 $50,000 Single Purchase Payment Made
and Yearly December 31st Thereafter December 31, 1988
--------------------------------------------------- -------------------------------------------------
Values prior to current Values prior to current
year's purchase payment Non-Standardized year's purchase payment Non-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 N/A
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%
12/31/98 $22,000 $34,581 5.64% 9.76% $50,000 $99,951 5.64% 7.17% 99.90%
</TABLE>
OCC Accumulation Trust US Government Income Portfolio
<TABLE>
<CAPTION>
$2,000 Purchase Payment made December 31, 1994 $50,000 Single Purchase Payment Made
and Yearly December 31st Thereafter December 31, 1994
---------------------------------------------------- --------------------------------------------------
Values prior to current Values prior to current
year's purchase payment Non-Standardized year's purchase payment Non-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%
12/31/98 $10,000 $9,193 6.66% 5.64% $50,000 $62,968 6.66% 5.93% 25.94%
</TABLE>
15
<PAGE>
OCC Accumulation Trust Small Cap Portfolio
<TABLE>
<CAPTION>
$2,000 Purchase Payment made December 31, 1988 $50,000 Single Purchase Payment Made
and Yearly December 31st Thereafter December 31, 1988
------------------------------------------------- -------------------------------------------------
Values prior to current Values prior to current
year's purchase payment Non-Standardized year's purchase payment Non-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 N/A
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%
12/31/98 $22,000 $23,629 -10.29% 3.01% $50,000 $64,197 -10.29% 2.53% 28.39%
</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
16
<PAGE>
Contract (or returns in general) on a tax-deferred basis (assuming one or more
tax rates) with the return on a taxable basis.
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.
17
<PAGE>
. 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.
. 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.
18
<PAGE>
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 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.
19
<PAGE>
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
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 certain subaccounts of the Separate Account
which are available for investment by AUSA Marquee Contract Owners as of
December 31, 1998, and for the year then ended and for the period May 1, 1997
(commencemnt of operations) through December 31, 1997, including the Report of
Independent Auditors thereon, are included in this Statement of Additional
Information.
The audited statutory-basis financial statements of AUSA Life for the years
ended December 31, 1998 and 1997, and for each of the three years in the period
ended December 31,1998, including the Reports of Independent Auditors' thereon,
are included in this Statement of Additional Information. They should be
distinguished from the financial statements of certain subaccounts of the
Separate Account which are availalbe for investment by AUSA Marquee Contract
Owners 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.
20
<PAGE>
FINANCIAL STATEMENTS
AUSA LIFE INSURANCE COMPANY, INC.
SEPARATE ACCOUNT C - MARQUEE
VARIABLE ANNUITY
YEAR ENDED DECEMBER 31, 1998
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE>
AUSA Life Insurance Company, Inc.
Separate Account C - Marquee Variable Annuity
Financial Statements
Year ended December 31, 1998
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. 1
Financial Statements
Balance Sheet............................................................... 2
Statement of Operations..................................................... 6
Statement of Changes in Contract Owners' Equity............................. 10
Notes to Financial Statements............................................... 14
</TABLE>
<PAGE>
Report of Independent Auditors
The Board of Directors and Contract Owners
of the Marquee Variable Annuity,
AUSA Life Insurance Company, Inc.
We have audited the accompanying balance sheet of certain subaccounts of AUSA
Life Insurance Company, Inc. Separate Account C (formerly First Providian Life
and Health Insurance Company Separate Account C), which are available for
investment by the Marquee Variable Annuity contract owners, as of December 31,
1998, and the related statement of operations for the year then ended and
changes in contract owners' equity for the year then ended and for the period
May 1, 1997 (commencement of operations) through December 31, 1997. These
financial statements are the responsibility of the Variable Account's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of mutual fund shares owned as of December 31, 1998, by
correspondence with the mutual funds' transfer agent. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of certain subaccounts of the AUSA
Life Insurance Company, Inc. Separate Account C, which are available for
investment by the Marquee Variable Annuity contract owners, at December 31, 1998
and the results of their operations for the year then ended and changes in their
contract owners' equity for the year then ended and for the period May 1, 1997
through December 31, 1997 in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Des Moines, Iowa
January 29, 1999
1
<PAGE>
AUSA Life Insurance Company, Inc.
Separate Account C - Marquee Variable Annuity
Balance Sheet
December 31, 1998
<TABLE>
<CAPTION>
TOTAL
-----------
<S> <C>
ASSETS
Cash $ 2
Investments in mutual funds, at current market value:
Variable Insurance Products Fund I and II:
Fidelity VIP Equity-Income Portfolio 9,858
Fidelity VIP Growth Portfolio 20,967
Fidelity VIP II Asset Manager Portfolio 15,619
Dreyfus Variable Investment Fund:
Growth and Income Portfolio 19,742
Quality Bond Portfolio 14,643
T. Rowe Price Equity Series, Inc.:
Equity Income Portfolio 59,185
New America Growth Portfolio 21,722
T. Rowe Price International Series, Inc.:
International Stock Portfolio 36,490
OCC Accumulation Trust:
Managed Portfolio 43,014
Small Cap Portfolio 30,189
U.S. Government Income Portfolio 12,702
-----------
Total investments in mutual funds 284,131
-----------
Total assets $ 284,133
===========
LIABILITIES AND CONTRACT OWNERS' EQUITY
Liabilities:
Contract terminations payable $ 2
-----------
Total liabilities 2
Contract owners' equity:
Deferred annuity contracts terminable by owners 284,131
-----------
Total liabilities and contract owners' equity $ 284,133
===========
</TABLE>
See accompanying notes.
2
<PAGE>
<TABLE>
<CAPTION>
FIDELITY VIP FIDELITY VIP FIDELITY VIP II GROWTH AND
EQUITY-INCOME GROWTH ASSET MANAGER INCOME QUALITY BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ - $ - $ - $ - $ -
9,858 - - - -
- 20,967 - - -
- - 15,619 - -
- - - 19,742 -
- - - - 14,643
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
- ----------------------------------------------------------------------------------------
9,858 20,967 15,619 19,742 14,643
$9,858 $20,967 $15,619 $19,742 $14,643
========================================================================================
$ - $ - $ - $ - $ -
- ----------------------------------------------------------------------------------------
- - _ - -
9,858 20,967 15,619 19,742 14,643
- ----------------------------------------------------------------------------------------
$9,858 $20,967 $15,619 $19,742 $14,643
========================================================================================
</TABLE>
3
<PAGE>
AUSA Life Insurance Company, Inc.
Separate Account C - Marquee Variable Annuity
Balance Sheet (continued)
<TABLE>
<CAPTION>
EQUITY
INCOME
SUBACCOUNT
---------------
<S> <C>
ASSETS
Cash $ 1
Investments in mutual funds, at current market value:
Variable Insurance Products Fund I and 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:
Growth and Income Portfolio -
Quality Bond Portfolio -
T. Rowe Price Equity Series, Inc.:
Equity Income Portfolio 59,185
New America Growth Portfolio -
T. Rowe Price International Series, Inc.:
International Stock Portfolio -
OCC Accumulation Trust:
Managed Portfolio -
Small Cap Portfolio -
U. S. Government Income Portfolio -
----------
Total investments in mutual funds 59,185
----------
Total assets $ 59,186
==========
LIABILITIES AND CONTRACT OWNERS' EQUITY
Liabilities:
Contract terminations payable $ -
----------
Total liabilities -
Contract owners' equity:
Deferred annuity contracts terminable by owners 59,186
----------
Total liabilities and contract owners' equity $ 59,186
==========
</TABLE>
See accompanying notes.
4
<PAGE>
<TABLE>
<CAPTION>
U. S.
NEW AMERICA INTERNATIONAL GOVERNMENT
GROWTH STOCK MANAGED SMALL CAP INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ - $ _ $ - $ - $ 1
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
- - - - -
21,722 - - - -
- 36,490 - - -
- - 43,014 - -
- - - 30,189 -
- - - - 12,702
- -------------------------------------------------------------------------------------------------
21,722 36,490 43,014 30,189 12,702
- -------------------------------------------------------------------------------------------------
$21,722 $36,490 $43,014 $30,189 $12,703
=================================================================================================
$ - $ - $ - $ 1 $ -
- -------------------------------------------------------------------------------------------------
- - - - 1 -
21,722 36,490 43,014 30,188 12,703
- -------------------------------------------------------------------------------------------------
$21,722 $36,490 $43,014 $30,189 $12,703
=================================================================================================
</TABLE>
5
<PAGE>
AUSA Life Insurance Company, Inc.
Separate Account C - Marquee Variable Annuity
Statement of Operations
Year ended December 31, 1998
<TABLE>
<CAPTION>
TOTAL
---------
<S> <C>
NET INVESTMENT INCOME (LOSS)
Income:
Dividends $ 7,755
Expenses:
Administration fee 60
Mortality and expense risk charge 3,159
--------
Net investment income (loss) 4,536
NET REALIZED AND UNREALIZED CAPITAL GAIN (LOSS) FROM INVESTMENTS
Net realized capital gain (loss) from sales of investments:
Proceeds from sales 3,229
Cost of investments sold 3,330
--------
Net realized capital gain (loss) from sales of investments (101)
Net change in unrealized appreciation/depreciation of investments:
Beginning of the period 644
End of the period 1,926
--------
Net change in unrealized appreciation/depreciation of investments 1,282
--------
Net realized and unrealized capital gain (loss) from investments 1,181
--------
Increase (decrease) from operations $ 5,717
=========
</TABLE>
See accompanying notes.
6
<PAGE>
<TABLE>
<CAPTION>
FIDELITY VIP FIDELITY VIP FIDELITY VIP II GROWTH AND
EQUITY-INCOME GROWTH ASSET MANAGER INCOME QUALITY BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 450 $ 366 $ 547 $ 314 $ 890
8 3 - 8 2
126 200 163 221 163
- --------------------------------------------------------------------------------------------------
316 163 384 85 725
135 208 164 228 164
131 195 167 241 167
- --------------------------------------------------------------------------------------------------
4 13 (3) (13) (3)
311 60 - (134) 5
725 4,022 666 451 (329)
- --------------------------------------------------------------------------------------------------
414 3,962 666 585 (334)
- --------------------------------------------------------------------------------------------------
418 3,975 663 572 (337)
- --------------------------------------------------------------------------------------------------
$ 734 $4,138 $1,047 $ 657 $ 388
==================================================================================================
</TABLE>
7
<PAGE>
AUSA Life Insurance Company, Inc.
Separate Account C - Marquee Variable Annuity
Statement of Operations (continued)
<TABLE>
<CAPTION>
EQUITY
INCOME
SUBACCOUNT
-----------------
<S> <C>
NET INVESTMENT INCOME (LOSS)
Income:
Dividends $ 2,979
Expenses:
Administration fee 8
Mortality and expense risk charge 662
-----------------
Net investment income (loss) 2,309
NET REALIZED AND UNREALIZED CAPITAL GAIN (LOSS) FROM INVESTMENTS
Net realized capital gain (loss) from sales of investments:
Proceeds from sales 669
Cost of investments sold 694
-----------------
Net realized capital gain (loss) from sales of investments (25)
Net change in unrealized appreciation/depreciation of investments:
Beginning of the period 172
End of the period (973)
-----------------
Net change in unrealized appreciation/depreciation of investments (1,145)
-----------------
Net realized and unrealized capital gain (loss) from investments (1,170)
-----------------
Increase (decrease) from operations $ 1,139
=================
</TABLE>
See accompanying notes.
8
<PAGE>
<TABLE>
<CAPTION>
U. S.
NEW AMERICA INTERNATIONAL GOVERNMENT
GROWTH STOCK MANAGED SMALL CAP INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 430 $ 570 $ 448 $ 102 $659
2 17 8 2 2
216 426 495 352 135
- -----------------------------------------------------------------------------------------------
212 127 (55) (252) 522
221 446 502 354 138
236 432 510 415 142
- -----------------------------------------------------------------------------------------------
(15) 14 (8) (61) (4)
68 (37) 188 6 5
250 2,314 (21) (5,327) 148
- -----------------------------------------------------------------------------------------------
182 2,351 (209) (5,333) 143
- -----------------------------------------------------------------------------------------------
167 2,365 (217) (5,394) 139
$ 379 $2,492 $(272) $(5,646) $661
===============================================================================================
</TABLE>
9
<PAGE>
AUSA Life Insurance Company, Inc.
Separate Account C - Marquee Variable Annuity
Statement of Changes in Contract Owners' Equity
Year ended December 31, 1998 and the period
May 1, 1997 (commencement of operations)
through December 31, 1997
<TABLE>
<CAPTION>
FIDELITY VIP
EQUITY-INCOME
TOTAL SUBACCOUNT
--------------------------- ------------------------
1998 1997 1998 1997
--------------------------- ------------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ 4,536 $ 947 $ 316 $ (14)
Net realized capital gain (loss) (101) - 4 1
Net change in unrealized appreciation/depreciation
of investments 1,282 644 414 311
--------------------------- ------------------------
Increase (decrease) from operations 5,717 1,591 734 298
Contract transactions:
Net contract purchase payments 224,975 - 2,084 -
Transfer payments from (to) other subaccounts or
general account 136 51,712 3 6,739
--------------------------- ------------------------
Increase from contract transactions 225,111 51,712 2,087 6,739
--------------------------- ------------------------
Net increase in contract owners' equity 230,828 53,303 2,821 7,037
Contract owners' equity:
Beginning of the period 53,303 - 7,037 -
--------------------------- ------------------------
End of the period $284,131 $53,303 $9,858 $7,037
=========================== ========================
</TABLE>
See accompanying notes.
10
<PAGE>
<TABLE>
<CAPTION>
FIDELITY FIDELITY VIP II GROWTH AND
VIP GROWTH ASSET MANAGER INCOME QUALITY BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------------------- ----------------------- -------------------------- ------------------------
1998 1997 1998 1998 1997 1998 1997
- ------------------------------------------------------- -------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 163 $ (5) $ 384 $ 85 $ 433 $ 725 $ 19
13 - (3) (13) - (3) -
3,962 60 666 585 (134) (334) 5
- --------------------------- ----------------------- -------------------------- ------------------------
4,138 55 1,047 657 299 388 24
14,192 - 14,566 12,053 - 12,666 -
4 2,578 6 3 6,730 3 1,561
14,196 2,578 14,572 12,056 6,730 12,669 1,561
- --------------------------- ----------------------- -------------------------- ------------------------
18,334 2,633 15,619 12,713 7,029 13,057 1,585
2,633 - - 7,029 - 1,585 -
$ 20,967 $2,633 $15,619 $19,742 $7,029 $14,642 $1,585
=========================== ======================= ========================== ========================
</TABLE>
11
<PAGE>
AUSA Life Insurance Company, Inc.
Separate Account C - Marquee Variable Annuity
Statement of Changes in Contract Owners' Equity (continued)
<TABLE>
<CAPTION>
NEW AMERICA
EQUITY INCOME GROWTH
SUBACCOUNT SUBACCOUNT
---------------------- ----------------------
1998 1997 1998 1997
---------------------- ----------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ 2,309 $ 221 $ 212 $ 1
Net realized capital gain (loss) (25) - (15) (1)
Net change in unrealized appreciation/depreciation
of investments (1,145) 172 182 68
---------------------- ----------------------
Increase (decrease) from operations 1,139 393 379 68
Contract transactions:
Net contract purchase payments 50,891 - 19,174 -
Transfer payments from (to) other subaccounts or
general account 9 6,754 33 2,068
---------------------- ----------------------
Increase from contract transactions 50,900 6,754 19,207 2,068
---------------------- ----------------------
Net increase in contract owners' equity 52,039 7,147 19,586 2,136
Contract owners' equity:
Beginning of the period 7,147 - 2,136 -
---------------------- ----------------------
End of the period $ 59,186 $7,147 $ 21,722 $2,136
====================== ======================
</TABLE>
See accompanying notes.
12
<PAGE>
<TABLE>
<CAPTION>
U. S.
OCC ACCUMULATION GOVERNMENT
INTERNATIONAL STOCK MANAGED TRUST SMALL CAP INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------------------- ---------------------------- ------------------------ ----------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ------------------------------------------------------------ ------------------------ ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 127 $ 300 $ (55) $ (13) $ (252) $ (5) $ 522 $ 10
14 - (8) - (61) - (4) -
2,351 (37) (209) 188 (5,333) 6 143 5
- --------------------------- ----------------------- ------------------------ ----------------------
2,492 263 (272) 175 (5,646) 1 661 15
19,238 - 36,427 - 33,220 - 10,464 -
64 14,433 (4) 6,688 13 2,600 2 1,561
- --------------------------- ----------------------- ------------------------ ----------------------
19,302 14,433 36,423 6,688 33,233 2,600 10,466 1,561
- --------------------------- ----------------------- ------------------------ ----------------------
21,794 14,696 36,151 6,863 27,587 2,601 11,127 1,576
14,696 - 6,863 - 2,601 - 1,576 -
- --------------------------- ----------------------- ------------------------ ----------------------
$36,490 $14,696 $43,014 $6,863 $30,188 $2,601 $ 12,703 $1,576
=========================== ======================= ======================== ======================
</TABLE>
13
<PAGE>
AUSA Life Insurance Company, Inc.
Separate Account C - Marquee Variable Annuity
Notes to Financial Statements
December 31, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
AUSA Life Insurance Company, Inc. Separate Account C (the "Mutual Fund
Account"), formerly First Providian Life and Health Insurance Company Separate
Account C, is a segregated investment account of AUSA Life Insurance Company,
Inc. ("AUSA"), an indirect wholly-owned subsidiary of AEGON N.V., a holding
company organized under the laws of The Netherlands.
The Mutual Fund Account is registered with the Securities and Exchange
Commission as a Unit Investment Trust pursuant to provisions of the Investment
Company Act of 1940. The Mutual Fund Account consists of forty-four investment
subaccounts, three of which are invested in specified portfolios of the Variable
Insurance Products Fund I and II, two of which are invested in specified
portfolios of the Dreyfus Variable Investment Fund, two of which are invested in
specified portfolios of the T. Rowe Price Equity Series, Inc., one of which is
invested in the International Stock Portfolio of the T. Rowe Price International
Series, Inc., and three of which are invested in specified portfolios of the OCC
Accumulation Trust (each a "Series Fund" and collectively the "Series Funds").
Activity in these eleven subaccounts is available to contract owners of the
Marquee Variable Annuity. Activity in the International Stock Portfolio of the
T. Rowe Price International Series, Inc. is also available to contract owners of
the Advisor's Edge Variable Annuity, also issued by AUSA. The remaining thirty-
three subaccounts (not included herein), are available to contract owners of the
Prism Variable Annuity, Dimensional Variable Annuity, PGA Retirement Annuity,
and the Advisor's Edge Variable Annuity, also issued by AUSA.
Prior to October 1, 1998, the Mutual Fund Account was a segregated investment
account of First Providian Life and Health Insurance Company ("FPLH"). On
October 1, 1998, FPLH merged with and into AUSA. Upon the merger, FPLH's
existence ceased and AUSA became the surviving company. As a result of the
merger, the Mutual Fund Account became a segregated investment account of AUSA.
All of the contracts issued by FPLH before the merger were, at the time of the
merger, assumed by AUSA.
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. 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.
14
<PAGE>
AUSA Life Insurance Company, Inc.
Separate Account C - Marquee Variable Annuity
Notes to Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The subaccounts commenced operations on May 1, 1997. The Fidelity VIP II Asset
Manager Subaccount had no activity for the period May 1, 1997 through December
31, 1997.
INVESTMENTS
Net purchase payments received by the Mutual Fund Account for the Marquee
Variable Annuity are invested in the portfolios of the Variable Insurance
Products Fund I and II, Dreyfus Variable Investment Fund, T. Rowe Price Equity
Series, Inc., T. Rowe Price International Series, Inc., and OCC Accumulation
Trust, as selected by the contract owner. Investments are stated at the closing
net asset values per share on December 31, 1998.
Prior to July 17, 1998, realized capital gains and losses from the sale of
shares in the Series Funds were determined on the basis of average cost.
Subsequent to this date, such gains or losses are determined on the first-in,
first-out basis. This change was implemented by establishing the average cost of
the portfolio as of July 17, 1998 as the opening cost for purposes of the first-
in, first-out basis. This change has no effect on "net realized and unrealized
capital gain (loss) from investments" and "increase (decrease) from operations"
as reported in the Statement of Operations.
Investment transactions are accounted for on the trade date (date the order to
buy or sell is executed) and dividend income is recorded on the ex-dividend
date. Unrealized gains or losses from investments in the Series Funds are
credited or charged to contract owners' equity.
DIVIDEND INCOME
Dividends received from the Series Funds investments are reinvested to purchase
additional mutual fund shares.
15
<PAGE>
AUSA Life Insurance Company, Inc.
Separate Account C - Marquee Variable Annuity
Notes to Financial Statements (continued)
2. INVESTMENTS
A summary of the mutual fund investments at December 31, 1998 follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES NET ASSET MARKET
HELD VALUE PER SHARE VALUE COST
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Variable Insurance Products Fund
I and II:
Fidelity VIP Equity-Income
Portfolio 387,808 $25.42 $ 9,858 $ 9,133
Fidelity VIP Growth Portfolio 467,294 44.87 20,967 16,945
Fidelity VIP II Asset Manager
Portfolio 860,052 18.16 15,619 14,953
Dreyfus Variable Investment Fund:
Growth and Income Portfolio 872,387 22.63 19,742 19,291
Quality Bond Portfolio 1,273,324 11.50 14,643 14,972
T. Rowe Price Equity Series, Inc.: 3,074,569 19.25 59,185 60,158
Equity Income Portfolio
New America Growth Portfolio 878,024 24.74 21,722 21,472
T. Rowe Price International
Series, Inc.:
International Stock Portfolio 2,513,084 14.52 36,490 34,176
OCC Accumulation Trust:
Managed Portfolio 983,405 43.74 43,014 43,035
Small Cap Portfolio 1,306,887 23.10 30,189 35,516
U. S. Government Income Portfolio 1,191,551 10.66 12,702 12,554
---------------------------
$284,131 $282,205
===========================
</TABLE>
16
<PAGE>
AUSA Life Insurance Company, Inc.
Separate Account C - Marquee Variable Annuity
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
The aggregate cost of purchases and proceeds from sales of investments were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997
-------------------------- -------------------------
PURCHASES SALES PURCHASES SALES
-------------------------- -------------------------
<S> <C> <C> <C> <C>
Variable Insurance Products Fund I and II:
Fidelity VIP Equity-Income Portfolio $ 2,538 $ 135 $ 6,739 $ 14
Fidelity VIP Growth Portfolio 14,567 208 2,578 5
Fidelity VIP II Asset Manager Portfolio 15,120 164 - -
Dreyfus Variable Investment Fund:
Growth and Income Portfolio 12,369 228 7,177 14
Quality Bond Portfolio 13,559 164 1,583 3
T. Rowe Price Equity Series, Inc.:
Equity Income Portfolio 53,877 669 6,989 14
New America Growth Portfolio 19,640 221 2,073 4
T. Rowe Price International Series, Inc.:
International Stock Portfolio 19,875 446 14,761 28
OCC Accumulation Trust:
Managed Portfolio 36,870 502 6,688 13
Small Cap Portfolio 33,336 354 2,600 5
U. S. Government Income Portfolio 11,125 138 1,574 3
-------------------------- -------------------------
$232,876 $3,229 $52,762 $103
========================== =========================
</TABLE>
3. CONTRACT OWNERS' EQUITY
A summary of deferred annuity contracts terminable by owners at December 31,
1998 follows:
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION TOTAL CONTRACT
SUBACCOUNT UNITS OWNED UNIT VALUE VALUE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fidelity VIP Equity-Income 739.076 $13.338817 $ 9,858
Fidelity VIP Growth 1,274.052 16.457277 20,967
Fidelity VIP II Asset Manager 1,190.556 13.118854 15,619
Growth and Income 1,550.658 12.731306 19,742
Quality Bond 1,307.039 11.202551 14,642
Equity Income 4,553.519 12.997761 59,186
New America Growth 1,494.815 14.531881 21,722
International Stock 3,144.595 11.603960 36,490
Managed 3,529.382 12.187488 43,014
Small Cap 2,752.708 10.966689 30,188
U. S. Government Income 1,130.714 11.234449 12,703
---------------------
$284,131
=====================
</TABLE>
17
<PAGE>
AUSA Life Insurance Company, Inc.
Separate Account C - Marquee Variable Annuity
Notes to Financial Statements (continued)
3. CONTRACT OWNERS' EQUITY (CONTINUED)
At December 31, 1998, contract owners' equity was comprised of:
<TABLE>
<CAPTION>
FIDELITY FIDELITY
VIP FIDELITY VIP II
EQUITY- VIP ASSET
INCOME GROWTH MANAGER
TOTAL SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Unit transactions, accumulated net
investment income and realized capital gains $282,205 $9,133 $16,945 $14,953
Adjustment for appreciation (depreciation)
to market value 1,926 725 4,022 666
------------------------------------------------------------------
Total contract owners' equity $284,131 $9,858 $20,967 $15,619
==================================================================
</TABLE>
<TABLE>
<CAPTION>
NEW
GROWTH QUALITY EQUITY AMERICA
AND INCOME BOND INCOME GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Unit transactions, accumulated net
investment income and realized capital gains $19,291 $14,971 $60,159 $21,472
Adjustment for appreciation (depreciation)
to market value 451 (329) (973) 250
------------------------------------------------------------------
Total contract owners' equity $19,742 $14,642 $59,186 $21,722
==================================================================
</TABLE>
<TABLE>
<CAPTION>
U.S.
INTERNATIONAL GOVERNMENT
STOCK MANAGED SMALL CAP INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Unit transactions, accumulated net
investment income and realized capital
gains $34,176 $43,035 $35,515 $12,555
Adjustment for appreciation
(depreciation) to market value 2,314 (21) (5,327) 148
--------------------------------------------------------------------------
Total contract owners' equity $36,490 $43,014 $30,188 $12,703
==========================================================================
</TABLE>
18
<PAGE>
AUSA Life Insurance Company, Inc.
Separate Account C - Marquee Variable Annuity
Notes to Financial Statements (continued)
3. CONTRACT OWNERS' EQUITY (CONTINUED)
A summary of changes in contract owners' account units follows:
<TABLE>
<CAPTION>
FIDELITY FIDELITY
VIP FIDELITY VIP II
EQUITY- VIP ASSET GROWTH
INCOME GROWTH MANAGER AND INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units outstanding at beginning of period - - - -
Units purchased 581 220 - 609
Units redeemed and transferred - - - -
-------------------------------------------------------------------
Units outstanding at December 31, 1997 581 220 - 609
Units purchased 159 1,054 1,191 943
Units redeemed and transferred (1) - - (1)
Units outstanding at December 31, 1998 739 1,274 1,191 1,551
===================================================================
</TABLE>
<TABLE>
<CAPTION>
NEW
QUALITY EQUITY AMERICA INTERNATIONAL
BOND INCOME GROWTH STOCK
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units outstanding at beginning of period - - - -
Units purchased 147 591 172 1,447
Units redeemed and transferred - - - -
--------------------------------------------------------------------
Units outstanding at December 31, 1997 147 591 172 1,447
Units purchased 1,160 3,964 1,323 1,700
Units redeemed and transferred - (1) - (2)
--------------------------------------------------------------------
Units outstanding at December 31, 1998 1,307 4,554 1,495 3,145
====================================================================
</TABLE>
<TABLE>
<CAPTION>
U.S.
GOVERNMENT
MANAGED SMALL CAP INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------------------------------------------------------
<S> <C> <C> <C>
Units outstanding at beginning of period - - -
Units purchased 595 213 150
Units redeemed and transferred - - -
---------------------------------------------------------
Units outstanding at December 31, 1997 595 213 150
Units purchased 2,935 2,540 981
Units redeemed and transferred (1) - -
Units outstanding at December 31, 1998 3,529 2,753 1,131
=========================================================
</TABLE>
19
<PAGE>
AUSA Life Insurance Company, Inc.
Separate Account C - Marquee Variable Annuity
Notes to Financial Statements (continued)
4. ADMINISTRATIVE, MORTALITY AND EXPENSE RISK CHARGE
An annual charge is deducted from the unit values of the subaccounts of the
Mutual Fund Account for AUSA's assumption of certain mortality and expense risks
incurred in connection with the contract. It is assessed daily based on the net
asset value of the Mutual Fund Account. The effective annual rate for this
charge is 1.25%.
An administrative charge of .15% annually is deducted from the unit values of
the subaccounts of the Mutual Fund Account. This charge is assessed daily by
AUSA. AUSA also deducts 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
Mutual Fund Account.
5. TAXES
Operations of the Mutual Fund Account form a part of AUSA, which is taxed as a
life insurance company under Subchapter L of the Internal Revenue Code of 1986,
as amended (the "Code"). The operations of the Mutual Fund Account are accounted
for separately from other operations of AUSA for purposes of federal income
taxation. The Mutual Fund Account is not separately taxable as a regulated
investment company under Subchapter M of the Code and is not otherwise taxable
as an entity separate from AUSA. Under existing federal income tax laws, the
income of the Mutual Fund Account, to the extent applied to increase reserves
under the variable annuity contracts, is not taxable to AUSA.
6. YEAR 2000 (UNAUDITED)
The term Year 2000 Issue generally refers to the improper processing of dates
and incorrect date calculations that might occur in computer software and
hardware and embedded systems as the Year 2000 is approached. The use of
computer programs that rely on two-digit date fields to perform computations and
decision-making functions may cause systems to malfunction when processing
information involving dates after 1999. For example, any computer software that
has date-sensitive coding might recognize a code of 00 as the year 1900 rather
than the year 2000.
AUSA has developed a Year 2000 Project Plan (the Plan) to address the Year 2000
issue as it affects AUSA's internal IT and non-IT systems, and to assess Year
2000 issues relating to third parties with whom AUSA has critical relationships.
20
<PAGE>
AUSA Life Insurance Company, Inc.
Separate Account C - Marquee Variable Annuity
Notes to Financial Statements (continued)
6. YEAR 2000 (UNAUDITED) (CONTINUED)
The Plan for addressing internal systems generally includes an assessment of
internal IT and non-IT systems and equipment affected by the Year 2000 issue;
definition of strategies to address affected systems and equipment; remediation
of identified systems and equipment; internal testing and certification that
each internal system is Year 2000 compliant; and a review of existing and
revised business resumption and contingency plans to address potential Year 2000
issues. AUSA has remediated and tested substantially all of its mission-critical
internal IT systems as of December 31, 1998. AUSA continues to remediate and
test certain non-critical internal IT systems, internal non-IT systems and will
continue with a revalidation testing program throughout 1999.
AUSA's Year 2000 issues are more complex because a number of its systems
interface with other systems not under AUSA's control. AUSA's most significant
interfaces and uses of third-party vendor systems are in the bank, financial
services and trust areas. AUSA utilizes various banks to handle numerous types
of financial and sales transactions. Several of these banks also provide trustee
and custodial services for AUSA's investment holdings and transactions. These
services are critical to a financial services company such as AUSA as its
business centers around cash receipts and disbursements to policyholders and the
investment of policyholder funds. AUSA has received written confirmation from
its vendor banks regarding their status on Year 2000. The banks indicate their
dedication to resolving any Year 2000 issues related to their systems and
services prior to December 31, 1999. AUSA anticipates that a considerable effort
will be necessary to ensure that its corrected or new systems can properly
interface with those business partners with whom it transmits and receives data
and other information (external systems). AUSA has undertaken specific testing
regimes with these third-party business partners and expects to continue working
with its business partners on any interfacing of systems. However, the timing of
external system compliance cannot currently be predicted with accuracy because
the implementation of Year 2000 readiness will vary from one company to another.
AUSA does have some exposure to date sensitive embedded technology such as
micro-controllers, but AUSA views this exposure as minimal. Unlike other
industries that may be equipment intensive, like manufacturing, AUSA is a life
insurance and financial services organization providing insurance, annuities and
pension products to its customers. As such, the primary equipment and electronic
devices in use are computers and telephone related equipment. This type of
hardware can have date sensitive embedded technology which could have Year 2000
problems. Because of this exposure, AUSA has reviewed its computer hardware and
telephone systems, with assistance from the applicable vendors, and has
upgraded, or replaced, or is in the process of replacing any equipment that will
not properly process date sensitive data in the Year 2000 or beyond. This
undertaking has been substantially completed for all operations.
21
<PAGE>
AUSA Life Insurance Company, Inc.
Separate Account C - Marquee Variable Annuity
Notes to Financial Statements (continued)
6. YEAR 2000 (UNAUDITED) (CONTINUED)
For AUSA, a reasonably likely worst case scenario might include one or more of
AUSA's significant policyholder systems being non-compliant. Such an event could
result in a material disruption of AUSA's operations. Specifically, a number of
AUSA's operations could experience an interruption in the ability to collect and
process premiums or deposits, process claim payments, accurately maintain
policyholder information, accurately maintain accounting records, and or perform
adequate customer service. Should the worst case scenario occur, it could,
dependent upon its duration, have a material impact on AUSA's business and
financial condition. Simple failures can be repaired and returned to production
within a matter of hours with no material impact. Unanticipated failures with a
longer service disruption period could have a more serious impact. For this
reason, AUSA is placing significant emphasis on risk management and Year 2000
business resumption contingency planning in 1999 by modifying its existing
business resumption and disaster recovery plans to address potential Year 2000
issues.
The actions taken by management under the Year 2000 Project Plans are intended
to significantly reduce AUSA's risk of a material business interruption based on
the Year 2000 issues. It should be noted that the Year 2000 computer problem,
and its resolution, is complex and multifaceted, and any company's success
cannot be conclusively known until the Year 2000 is reached. In spite of its
efforts or results, AUSA's ability to function unaffected to and through the
Year 2000 may be adversely affected by actions (or failure to act) of third
parties beyond our knowledge or control. It is anticipated that there may be
problems that will have to be resolved in the ordinary course of business on and
after the Year 2000. However, AUSA does not believe that the problems will have
a material adverse affect on AUSA's operations or financial condition.
22
<PAGE>
FINANCIAL STATEMENTS - STATUTORY BASIS
AUSA LIFE INSURANCE COMPANY, INC.
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE>
AUSA Life Insurance Company, Inc.
Financial Statements - Statutory Basis
Years ended December 31, 1998, 1997 and 1996
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors............................................ 1
Audited Financial Statements
Balance Sheets - Statutory Basis.......................................... 2
Statements of Operations - Statutory Basis................................ 4
Statements of Changes in Capital and Surplus - Statutory Basis............ 5
Statements of Cash Flows - Statutory Basis................................ 6
Notes to Financial Statements - Statutory Basis........................... 7
</TABLE>
<PAGE>
Report of Independent Auditors
The Board of Directors
AUSA Life Insurance Company, Inc.
We have audited the accompanying statutory-basis balance sheets of AUSA Life
Insurance Company, Inc. as of December 31, 1998 and 1997 and the related
statutory-basis statements of operations, changes in capital and surplus, and
cash flows for each of the three years in the period ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Department of Insurance of the State of New York, which
practices differ from generally accepted accounting principles. The variances
between such practices and generally accepted accounting principles also are
described in Note 1. The effects on the financial statements of these variances
are not reasonably determinable but are presumed to be material.
In our opinion, because of the effects of the matters described in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of AUSA Life Insurance Company, Inc. at December 31, 1998 and 1997, or the
results of its operations or its cash flows for each of the three years in the
period ended December 31, 1998.
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of AUSA Life Insurance
Company, Inc. at December 31, 1998 and 1997, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1998 in conformity with accounting practices prescribed or permitted by the
Department of Insurance of the State of New York.
/s/ Ernst & Young LLP
Des Moines, Iowa
February 19, 1999
1
<PAGE>
AUSA Life Insurance Company, Inc.
Balance Sheets - Statutory Basis
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
---------------------------------
<S> <C> <C>
ADMITTED ASSETS
Cash and invested assets:
Cash and short-term investments $ 61,065 $ 68,131
Bonds 4,151,780 3,988,635
Stocks:
Preferred 2,582 1,792
Common, at market (cost: $14 in 1998 and
$118 in 1997) 2 144
Mortgage loans on real estate 413,107 495,009
Real estate acquired in satisfaction of debt, at cost less accumulated
depreciation ($2,474 in 1998 and $1,816 in 1997) 33,986 45,695
Policy loans 3,181 3,046
Other invested assets 30,795 22,414
---------------------------------
Total cash and invested assets 4,696,498 4,624,866
Short-term note receivable from affiliate 10,400 8,800
Receivable from affiliates 14,731 794
Premiums deferred and uncollected 6,408 6,316
Accrued investment income 64,859 69,989
Federal income taxes recoverable 527 -
Other assets 12,567 7,609
Separate account assets 6,517,152 5,630,093
---------------------------------
Total admitted assets $ 11,323,142 $ 10,348,467
=================================
</TABLE>
See accompanying notes.
2
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
----------------------------------
<S> <C> <C>
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate reserves for policies and contracts:
Life $ 109,132 $ 103,370
Annuity 868,294 911,075
Accident and health 16,416 16,547
Policy and contract claim reserves:
Life 4,927 5,456
Accident and health 10,302 11,125
Other policyholders' funds 3,267,417 3,181,719
Remittances and items not allocated 58,724 35,267
Asset valuation reserve 84,077 67,324
Interest maintenance reserve 37,253 25,882
Payable to affiliates - 2,247
Deferred income 5,230 13,421
Payable under assumption reinsurance agreement 52,837 56,952
Other liabilities 7,422 8,400
Federal income taxes payable - 1,010
Separate account liabilities 6,497,865 5,608,364
----------------------------------
Total liabilities 11,019,896 10,048,159
Commitments and contingencies
Capital and surplus:
Common stock, $125 par value, 20,000 shares authorized, issued and
outstanding 2,500 2,500
Paid-in surplus 319,180 319,180
Special surplus funds 1,827 1,607
Unassigned surplus (deficit) (20,261) (22,979)
----------------------------------
Total capital and surplus 303,246 300,308
----------------------------------
Total liabilities and capital and surplus $ 11,323,142 $ 10,348,467
==================================
</TABLE>
See accompanying notes.
3
<PAGE>
AUSA Life Insurance Company, Inc.
Statements of Operations - Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
----------------------------------------------------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net of reinsurance:
Life $ 22,664 $ 71,899 $ 21,120
Annuity 1,132,120 1,199,470 1,092,033
Accident and health 32,869 39,999 52,831
Net investment income 345,660 341,540 339,460
Amortization of interest maintenance reserve 6,116 3,392 2,326
Commissions and expense allowances on reinsurance ceded 302 374 438
Other income - 17,240 10,739
----------------------------------------------------
1,539,731 1,673,914 1,518,947
Benefits and expenses:
Benefits paid or provided for:
Life and accident and health benefits 32,464 39,045 50,647
Surrender benefits 1,117,653 1,175,051 864,643
Other benefits 20,886 14,316 11,699
Increase (decrease) in aggregate reserves for policies
and contracts:
Life 5,762 52,500 2,492
Annuity (42,781) 65,982 53,136
Accident and health (131) (1,357) (1,063)
Other (67) 580 609
Increase in liability for premium and other deposit type
funds 85,461 92,280 93,893
----------------------------------------------------
1,219,247 1,438,397 1,076,056
Insurance expenses:
Commissions 69,009 79,099 87,938
General insurance expenses 95,169 92,613 83,885
Taxes, licenses and fees 1,466 3,717 3,335
Net transfers to separate accounts 130,910 42,490 255,672
Other expenses 978 181 145
----------------------------------------------------
297,532 218,100 430,975
----------------------------------------------------
1,516,779 1,656,497 1,507,031
----------------------------------------------------
Gain from operations before federal income tax expense and net
realized capital gains (losses) on investments 22,952 17,417 11,916
Federal income tax expense 4,021 5,247 5,719
----------------------------------------------------
Gain from operations before net realized capital gains (losses) on
investments 18,931 12,170 6,197
Net realized capital gains (losses) on investments (net of related
federal income taxes and amounts transferred to interest
maintenance reserve) 3,770 831 (12,107)
----------------------------------------------------
Net income (loss) $ 22,701 $ 13,001 $ (5,910)
====================================================
</TABLE>
See accompanying notes.
4
<PAGE>
AUSA Life Insurance Company, Inc.
Statements of Changes in Capital and
Surplus - Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
SPECIAL UNASSIGNED TOTAL
COMMON PAID-IN SURPLUS SURPLUS CAPITAL AND
STOCK SURPLUS FUNDS (DEFICIT) SURPLUS
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $2,500 $319,180 $1,357 $ 5,217 $328,254
Net loss - - - (5,910) (5,910)
Change in net unrealized capital gains (losses) - - - (460) (460)
Change in non-admitted assets - - - 437 437
Change in special surplus funds - - 116 - 116
Change in liability for reinsurance in
unauthorized companies - - - (42) (42)
Change in asset valuation reserve - - - (6,217) (6,217)
Seed money contributed to separate account, net
of redemptions - - - (12,500) (12,500)
Change in surplus in separate account - - - 14,783 14,783
Prior year federal income tax adjustment - - - 446 446
------------------------------------------------------------------
Balance at December 31, 1996 2,500 319,180 1,473 (4,246) 318,907
Net income - - - 13,001 13,001
Change in net unrealized capital gains (losses) - - - (2,710) (2,710)
Change in non-admitted assets - - - (8,617) (8,617)
Change in special surplus funds - - 134 - 134
Change in liability for reinsurance in
unauthorized companies - - - 29 29
Change in asset valuation reserve - - - (20,446) (20,446)
Seed money withdrawn from separate account, net
of redemptions - - - 11,700 11,700
Change in surplus in separate account - - - (11,749) (11,749)
Prior year federal income tax adjustment - - - 59 59
------------------------------------------------------------------
Balance at December 31, 1997 2,500 319,180 1,607 (22,979) 300,308
Net income - - - 22,701 22,701
Change in net unrealized capital gains (losses) - - - 4,439 4,439
Change in non-admitted assets - - - (511) (511)
Change in special surplus funds - - 220 - 220
Change in liability for reinsurance in
unauthorized companies - - - 18 18
Change in asset valuation reserve - - - (16,753) (16,753)
Seed money withdrawn from separate account, net
of redemptions - - - 1,818 1,818
Change in surplus in separate account - - - (994) (994)
Dividend to stockholder - - - (8,000) (8,000)
------------------------------------------------------------------
Balance at December 31, 1998 $2,500 $319,180 $1,827 $(20,261) $303,246
==================================================================
</TABLE>
See accompanying notes.
5
<PAGE>
AUSA Life Insurance Company, Inc.
Statements of Cash Flows - Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Premiums and other considerations, net of reinsurance $ 1,191,035 $ 1,340,757 $ 1,177,613
Net investment income 353,054 340,150 345,153
Life and accident and health claims (33,979) (40,151) (52,590)
Surrender benefits and other fund withdrawals (1,117,653) (1,175,051) (864,643)
Other benefits to policyholders (20,876) (14,290) (11,697)
Commissions, other expenses and other taxes (169,784) (184,457) (193,405)
Net transfers to separate account (130,976) (43,309) (257,467)
Federal income taxes paid (5,558) (4,704) (4,490)
Other, net (3,806) (3,744) (14,431)
-----------------------------------------------
Net cash provided by operating activities 61,457 215,201 124,043
INVESTING ACTIVITIES
Proceeds from investments sold, matured or repaid:
Bonds and preferred stocks 1,381,784 968,184 777,107
Common stocks 164 - 5,288
Mortgage loans on real estate 138,723 179,810 165,460
Real estate 22,067 25,104 -
Policy loans - 16 4
Other (21) - -
-----------------------------------------------
1,542,717 1,173,114 947,859
Cost of investments acquired:
Bonds and preferred stocks (1,554,838) (1,260,122) (1,101,918)
Common stocks - (103) (589)
Mortgage loans on real estate (51,862) (60,722) (42,118)
Real estate (561) - (521)
Policy loans (135) (146) (153)
Other 5,756 (17,805) (2,695)
-----------------------------------------------
(1,601,640) (1,338,898) (1,147,994)
-----------------------------------------------
Net cash used in investing activities (58,923) (165,784) (200,135)
FINANCING ACTIVITIES
Payment of intercompany notes, net (1,600) (9,400) (19,200)
Dividends to stockholders (8,000) - -
-----------------------------------------------
Net cash used in financing activities (9,600) (9,400) (19,200)
-----------------------------------------------
Increase (decrease) in cash and short-term investments (7,066) 40,017 (95,292)
Cash and short-term investments at beginning of year 68,131 28,114 123,406
-----------------------------------------------
Cash and short-term investments at end of year $ 61,065 $ 68,131 $ 28,114
===============================================
</TABLE>
See accompanying notes.
6
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis
(Dollars in thousands)
December 31, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
AUSA Life Insurance Company, Inc. ("the Company") is a stock life insurance
company and is 82 percent owned by First AUSA Life Insurance Company ("First
AUSA"), a wholly-owned subsidiary of AEGON USA, Inc. ("AEGON"), and 18 percent
owned by Veterans Life Insurance Company, an indirect wholly-owned subsidiary of
AEGON. AEGON is a wholly-owned subsidiary of AEGON N.V., a holding company
organized under the laws of The Netherlands. Effective September 24, 1993, First
AUSA purchased from The Dreyfus Corporation ("Dreyfus"), its entire interest in
Dreyfus Life Insurance Company and subsequently changed the name to AUSA Life
Insurance Company, Inc. On December 31, 1993, the Company entered into an
assumption reinsurance agreement with Mutual of New York ("MONY") to transfer
certain group pension business of MONY to the Company.
In July 1996, the Company completed a merger with International Life Investors
Insurance Company ("ILI"), a wholly-owned subsidiary of Life Investors Insurance
Company of America, another wholly-owned subsidiary of First AUSA, whereby ILI
was merged directly into the Company. The Company received assets of $688,233
and liabilities of $635,189. The difference between assets and liabilities was
transferred directly to capital and surplus. In accordance with National
Association of Insurance Commissioners ("NAIC") statutory accounting principles,
all prior period financial statements presented have been restated as if the
merger took place at the beginning of such periods. Historical book values
carried over from the separate companies to the combined entity.
On October 1, 1998, the Company completed a merger with First Providian Life and
Health Insurance Company ("FPLH"), an indirect wholly-owned subsidiary of
Commonwealth General Corporation which, in turn, is an indirect wholly-owned
subsidiary of AEGON, whereby FPLH was merged directly into the Company. The
accompanying financial statements give retroactive effect as if the merger had
occurred on January 1, 1996 in conformity with the practices of the NAIC and
accounting practices prescribed or permitted by the Department of Insurance of
the State of New York. This merger was accounted for under the pooling of
interests method of accounting and, accordingly, the historical book values
carried over from the separate companies to the Company.
7
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Summarized financial information for the Company and FPLH prior to the merger
are as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
SEPTEMBER 30 YEAR ENDED DECEMBER 31
-------------------------------------
1998 1997 1996
-----------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
The Company $ 1,155,265 $ 1,585,260 $ 1,454,207
FPLH 75,929 88,654 64,740
===========================================================
As restated $ 1,231,194 $ 1,673,914 $ 1,518,947
===========================================================
Net income (loss):
The Company $ 3,944 $ 3,503 $ (13,714)
FPLH 6,911 9,498 7,804
-----------------------------------------------------------
As restated $ 10,855 $ 13,001 $ (5,910)
===========================================================
SEPTEMBER 30 DECEMBER 31
1998 1997
------------------------------------------
(UNAUDITED)
Assets:
The Company $10,411,596 $ 9,951,625
FPLH 445,873 396,842
------------------------------------------
As restated $10,857,469 $ 10,348,467
==========================================
Liabilities:
The Company $10,208,203 $ 9,745,504
FPLH 352,184 302,655
------------------------------------------
As restated $10,560,387 $ 10,048,159
==========================================
Capital and surplus:
The Company $ 203,393 $ 206,121
FPLH 93,689 94,187
------------------------------------------
As restated $ 297,082 $ 300,308
==========================================
</TABLE>
NATURE OF BUSINESS
The Company primarily sells group fixed and variable annuities and group life
coverages. The Company is licensed in 49 states and the District of Columbia and
is actively in the process of becoming licensed in all 50 states. Sales of the
Company's products are primarily through brokers.
8
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BASIS OF PRESENTATION
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.
Significant estimates and assumptions are utilized in the calculation of
aggregate policy reserves, policy and contract reserves, guarantee fund
assessment accruals and valuation allowances on investments. It is reasonably
possible that actual experience could differ from the estimates and assumptions
utilized which could have a material impact on the financial statements.
The accompanying financial statements have been prepared on the basis of
accounting practices prescribed or permitted by the Department of Insurance of
the State of New York ("Insurance Department"), which practices differ in some
respects from generally accepted accounting principles. The more significant of
these differences are as follows: (a) bonds are generally reported at amortized
cost rather than segregating the portfolio into held-to-maturity (reported at
amortized cost), available-for-sale (reported at fair value), and trading
(reported at fair value) classifications; (b) acquisition costs of acquiring new
business are charged to current operations as incurred rather than deferred and
amortized over the life of the policies; (c) policy reserves on traditional life
products are based on statutory mortality rates and interest which may differ
from reserves based on reasonable assumptions of expected mortality, interest,
and withdrawals which include a provision for possible unfavorable deviation
from such assumptions; (d) policy reserves on certain investment products use
discounting methodologies utilizing statutory interest rates rather than full
account values; (e) reinsurance amounts are netted against the corresponding
asset or liability rather than shown as gross amounts on the balance sheet; (f)
deferred income taxes are not provided for the difference between the financial
statement and income tax bases of assets and liabilities; (g) net realized gains
or losses attributed to changes in the level of interest rates in the market are
deferred and amortized over the remaining life of the bond or mortgage loan,
rather than recognized as gains or losses in the statement of operations when
the sale is completed; (h) declines in the estimated realizable value of
investments are provided for through the establishment of a formula-determined
statutory investment reserve (reported as a liability), changes to which are
charged directly to surplus, rather than through recognition in the statement of
operations for declines in value, when such declines are judged to be other than
temporary; (i) certain assets designated as "non-admitted assets" have been
charged to surplus rather than being reported as assets; (j) revenues for
universal life and investment products consist of premiums received rather than
policy charges for the cost of insurance, policy administration charges,
amortization of policy initiation fees and surrender charges assessed; (k)
pension expense is recorded as amounts are paid; (l) stock options settled in
cash are recorded as an expense of the Company's indirect parent rather than
charged to current operations; (m) adjustments to federal income taxes of prior
years
9
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
are charged or credited directly to unassigned surplus, rather than reported as
a component of expense in the statement of operations; and (n) gains or losses
on dispositions of business are charged or credited directly to unassigned
surplus rather than being reported in the statement of operations. The effects
of these variances have not been determined by the Company.
In 1998, the National Association of Insurance Commissioners (NAIC) adopted
codified statutory accounting principles ("Codification"). Codification will
likely change, to some extent, prescribed statutory accounting practices and may
result in changes to the accounting practices that the Company uses to prepare
its statutory-basis financial statements. Codification will require adoption by
the various states before it becomes the prescribed statutory basis of
accounting for insurance companies domesticated within those states.
Accordingly, before Codification becomes effective for the Company, the State of
New York must adopt Codification as the prescribed basis of accounting on which
domestic insurers must report their statutory-basis results to the Insurance
Department. At this time, it is unclear whether the State of New York will adopt
Codification. However, based on current guidance, management believes that the
impact of Codification will not be material to the Company's statutory-basis
financial statements.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all highly
liquid investments with remaining maturity of one year or less when purchased to
be cash equivalents.
INVESTMENTS
Investments in bonds (except those to which the Securities Valuation Office of
the NAIC has ascribed a value), mortgage loans on real estate and short-term
investments are reported at cost adjusted for amortization of premiums and
accrual of discounts. Amortized costs for bonds and mortgage loans on real
estate that were acquired through the reinsurance agreement described earlier
were initially recorded at market value, consistent with the aforementioned
agreement and as prescribed by the Department of Insurance of the State of New
York. Amortization is computed using methods which result in a level yield over
the expected life of the security. The Company reviews its prepayment
assumptions on mortgage and other asset-backed securities at regular intervals
and adjusts amortization rates retrospectively when such assumptions are changed
due to experience and/or expected future patterns. Investments in preferred
stocks in good standing are reported at cost. Investments in preferred stocks
not in good standing are reported at the lower of cost or market. Common stocks
are carried at market. Real estate is reported at cost less allowances for
depreciation. Depreciation is computed principally by the straight-line method.
Policy loans are reported at unpaid
10
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
principal. Other invested assets consist principally of investments in various
joint ventures and are recorded at equity in underlying net assets. Other
"admitted assets" are valued, principally at cost, as required or permitted by
New York Insurance Laws.
Realized capital gains and losses are determined on the basis of specific
identification and are recorded net of related federal income taxes. The Asset
Valuation Reserve (AVR) is established by the Company to provide for anticipated
losses in the event of default by issuers of certain invested assets. These
amounts are determined using a formula prescribed by the NAIC and are reported
as a liability. The formula for the AVR provides for a corresponding adjustment
for realized gains and losses. Under a formula prescribed by the NAIC, the
Company defers, in the Interest Maintenance Reserve (IMR), the portion of
realized gains and losses on sales of fixed income investments, principally
bonds and mortgage loans, attributable to changes in the general level of
interest rates and amortizes those deferrals over the remaining period to
maturity of the security.
Interest income is recognized on an accrual basis. The Company does not accrue
income on bonds in default, mortgage loans on real estate in default and/or
foreclosure or which are delinquent more than twelve months, or real estate
where rent is in arrears for more than three months. Further, income is not
accrued when collection is uncertain. At December 31, 1998, 1997 and 1996, the
Company excluded investment income due and accrued of $216, $473 and $469,
respectively, with respect to such practices.
The Company uses interest rate swaps as part of its overall interest rate risk
management strategy for certain life insurance and annuity products. The net
interest effect of such swap transactions is reported as an adjustment of
interest income from the hedged items as incurred.
Deferred income for unrealized gains and losses on the securities valued at
market at the time of the assumption reinsurance agreement (described in Note 4)
are returned to MONY at the time of realization pursuant to the agreement.
AGGREGATE POLICY RESERVES
Life, annuity and accident and health benefit reserves are developed by
actuarial methods and are determined based on published tables using statutorily
specified interest rates and valuation methods that will provide, in the
aggregate, reserves that are greater than or equal to the minimum required by
law.
The aggregate policy reserves for life insurance policies are based principally
upon the 1941, 1958 and 1980 Commissioners' Standard Ordinary Mortality Tables.
The reserves are calculated using interest rates ranging from 2.50 to 6.50
percent and are computed principally on the Net Level Premium Valuation and the
Commissioners' Reserve Valuation Method. Reserves for universal life policies
are based on account balances adjusted for the Commissioners' Reserve Valuation
Method.
11
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deferred annuity reserves are calculated according to the Commissioners' Annuity
Reserve Valuation Method including excess interest reserves to cover situations
where the future interest guarantees plus the decrease in surrender charges are
in excess of the maximum valuation rates of interest. Reserves for immediate
annuities and supplementary contracts with life contingencies are equal to the
present value of future payments assuming interest rates ranging from 3.00 to
8.50 percent and mortality rates, where appropriate, from a variety of tables.
Accident and health policy reserves are equal to the greater of the gross
unearned premiums or any required midterminal reserves plus net unearned
premiums and the present value of amounts not yet due on both reported and
unreported claims.
POLICY AND CONTRACT CLAIM RESERVES
Claim reserves represent the estimated accrued liability for claims reported to
the Company and claims incurred but not yet reported through the statement date.
These reserves are estimated using either individual case-basis valuations or
statistical analysis techniques. These estimates are subject to the effects of
trends in claim severity and frequency. The estimates are continually reviewed
and adjusted as necessary as experience develops or new information becomes
available.
SEPARATE ACCOUNTS
Assets held in trust for purchases of separate account contracts and the
Company's corresponding obligation to the contract owners are shown separately
in the balance sheets. Income and gains and losses with respect to these assets
accrue to the benefit of the policyholders and, accordingly, the operations of
the separate accounts are not included in the accompanying financial statements.
Certain separate account assets and liabilities reported in the accompanying
financial statements contain contractual guarantees. Guaranteed separate
accounts represent funds invested by the Company for the benefit of individual
contract holders who are guaranteed certain returns as specified in the
contracts. Separate account asset performance different than guaranteed
requirements is either transferred to or received from the general account and
reported in the statements of operations. Guaranteed separate account assets and
liabilities are reported at estimated fair value except for certain government
and fixed-rate separate accounts, which are carried at amortized cost. The
assets and liabilities of the nonguaranteed separate accounts are carried at
estimated fair value.
12
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK OPTION PLAN
AEGON N.V. sponsors a stock option plan for eligible employees of the Company.
Under this plan, certain employees have indicated a preference to immediately
sell shares received as a result of their exercise of the stock options; in
these situations, AEGON N.V. has settled such options in cash rather than
issuing stock to these employees. These cash settlements are paid by the
Company, and AEGON N.V. subsequently reimburses the Company for such payments.
Under statutory accounting principles, the Company does not record any expense
related to this plan, as the expense is recognized by AEGON N.V. However, the
Company is allowed to record a deduction in the consolidated tax return filed by
the Company and certain affiliates.
2. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards (SFAS) No. 107, Disclosures about
Fair Value of Financial Instruments, requires disclosure of fair value
information about financial instruments, whether or not recognized in the
statutory-basis balance sheet, for which it is practicable to estimate that
value. SFAS No. 119, Disclosures About Derivative Financial Instruments and Fair
Value of Financial Instruments, requires additional disclosures about
derivatives. In cases where quoted market prices are not available, fair values
are based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparisons to independent
markets and, in many cases, could not be realized in immediate settlement of the
instrument. SFAS No. 107 and No. 119 exclude certain financial instruments and
all nonfinancial instruments from their disclosure requirements and allow
companies to forego the disclosures when those estimates can only be made at
excessive cost. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Company.
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and short-term investments: The carrying amounts reported in the
statutory-basis balance sheet for these instruments approximate their fair
values.
Investment securities: Fair values for fixed maturity securities (including
redeemable preferred stocks) are based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair values
are estimated using values obtained
13
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
from independent pricing services or, in the case of private placements, are
estimated by discounting expected future cash flows using a current market
rate applicable to the yield, credit quality, and maturity of the
investments. The fair values for equity securities are based on quoted market
prices.
Mortgage loans and policy loans: The fair values for mortgage loans are
estimated utilizing discounted cash flow analyses, using interest rates
reflective of current market conditions and the risk characteristics of the
loans. The fair value of policy loans is assumed to equal its carrying value.
Investment contracts: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash flow
calculations, based on interest rates currently being offered for similar
contracts with maturities consistent with those remaining for the contracts
being valued.
Interest rate swaps: Estimated fair value of interest rate swaps are based
upon the pricing differential for similar swap agreements.
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure to
changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
The following sets forth a comparison of the fair values and carrying values of
the Company's financial instruments subject to the provisions of SFAS No. 107
and No. 119:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
----------------------------- ------------------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
----------------------------- ------------------------------
<S> <C> <C> <C> <C>
ADMITTED ASSETS
Cash and short-term investments $ 61,065 $ 61,065 $ 68,131 $ 68,131
Bonds 4,151,780 4,246,901 3,988,635 4,083,280
Preferred stock 2,582 2,529 1,792 1,892
Common stock 2 2 144 144
Mortgage loans on real estate 413,107 429,716 495,009 504,947
Interest rate swap - - 391
Policy loans 3,181 3,181 3,046 3,046
Separate account assets 6,517,152 6,527,180 5,630,093 5,640,386
LIABILITIES
Investment contract liabilities 4,134,507 4,057,004 4,091,938 4,011,465
Separate account annuities 6,408,436 6,387,445 5,594,880 5,577,854
</TABLE>
14
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
3. INVESTMENTS
The carrying value and estimated fair value of investments in debt securities
were as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
---------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
Bonds:
United States Government and agencies $ 99,834 $ 1,776 $ 285 $ 101,325
State, municipal and other government 38,387 1,427 1,625 38,189
Public utilities 355,719 10,239 825 365,133
Industrial and miscellaneous 2,398,132 88,051 25,538 2,460,645
Mortgage-backed and asset-backed
securities 1,259,708 27,387 5,486 1,281,609
---------------------------------------------------------
4,151,780 128,880 33,759 4,246,901
Preferred stocks 2,582 - 53 2,529
---------------------------------------------------------
$ 4,154,362 $ 128,880 $33,812 $4,249,430
=========================================================
DECEMBER 31, 1997
Bonds:
United States Government and agencies $ 102,628 $ 943 $ 255 $ 103,316
State, municipal and other government 60,427 1,413 1,761 60,079
Public utilities 251,071 4,943 892 255,122
Industrial and miscellaneous 2,324,342 66,883 6,424 2,384,801
Mortgage-backed and asset-backed
securities 1,250,167 32,779 2,984 1,279,962
---------------------------------------------------------
3,988,635 106,961 12,316 4,083,280
Preferred stocks 1,792 100 - 1,892
---------------------------------------------------------
$ 3,990,427 $ 107,061 $ 12,316 $ 4,085,172
=========================================================
</TABLE>
The carrying value and estimated fair value of bonds at December 31, 1998, by
contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
15
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
3. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
CARRYING ESTIMATED FAIR
VALUE VALUE
-------------------------------
<S> <C> <C>
Due in one year or less $ 262,288 $ 263,578
Due after one year through five years 1,553,746 1,582,380
Due after five years through ten years 825,886 849,510
Due after ten years 250,152 269,824
-------------------------------
2,892,072 2,965,292
Mortgage-backed and asset-backed securities 1,259,708 1,281,609
-------------------------------
$ 4,151,780 $ 4,246,901
===============================
</TABLE>
A detail of net investment income is presented below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
------------------------------------------------
<S> <C> <C> <C>
Interest on bonds and notes $290,967 $285,730 $267,510
Mortgage loans 46,027 57,659 83,511
Real estate 12,741 13,976 7,225
Dividends on equity investments 254 223 220
Interest on policy loans 317 168 154
Derivative instruments (3,265) 100 -
Other investment gain (loss) 9,568 1,543 (5,482)
------------------------------------------------
Gross investment income 356,609 359,399 353,138
Investment expenses 10,949 17,859 13,678
------------------------------------------------
Net investment income $345,660 $341,540 $339,460
================================================
</TABLE>
Proceeds from sales and maturities of debt securities and related gross realized
gains and losses were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
-------------------------------------------------
<S> <C> <C> <C>
Proceeds $1,381,784 $968,184 $777,107
=================================================
Gross realized gains $ 19,871 $ 19,165 $ 9,697
Gross realized losses (5,974) (11,997) (12,291)
-------------------------------------------------
Net realized gains (losses) $ 13,897 $ 7,168 $ (2,594)
=================================================
</TABLE>
16
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
3. INVESTMENTS (CONTINUED)
At December 31, 1998, investments with an aggregate carrying value of $4,378
were on deposit with regulatory authorities or were restrictively held in bank
custodial accounts for the benefit of such regulatory authorities as required by
statute.
Realized investment gains (losses) and changes in unrealized gains (losses) for
investments are summarized below:
<TABLE>
<CAPTION>
REALIZED
------------------------------------------------
YEAR ENDED DECEMBER 31
1998 1997 1996
------------------------------------------------
<S> <C> <C> <C>
Debt securities $ 13,897 $ 7,168 $ (2,594)
Common stock 60 - 244
Preferred stock 170 (7) (44)
Short-term investments (41) (6) (115)
Mortgage loans on real estate 325 287 (12,415)
Real estate 3,967 4,059 -
Other invested assets 2,859 5,035 6,872
------------------------------------------------
21,237 16,536 (8,052)
Tax effect 20 (747) 87
Transfer to interest maintenance reserve (17,487) (14,958) (4,142)
------------------------------------------------
Total realized gains (losses) $ 3,770 $ 831 $ (12,107)
================================================
<CAPTION>
CHANGE IN UNREALIZED
-------------------------------------------------
YEAR ENDED DECEMBER 31
1998 1997 1996
-------------------------------------------------
<S> <C> <C> <C>
Debt securities $323 $56,129 $(87,888)
Equity securities (38) 21 (190)
-------------------------------------------------
Change in unrealized appreciation (depreciation) $285 $56,150 $(88,078)
=================================================
</TABLE>
Gross unrealized gains and gross unrealized losses on equity securities at
December 31, 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
-------------------------------------------------
<S> <C> <C> <C>
Unrealized gains $ - $ 38 $ 16
Unrealized losses (12) (12) (11)
-------------------------------------------------
Net unrealized gains (losses) $ (12) $ 26 $ 5
=================================================
</TABLE>
17
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
3. INVESTMENTS (CONTINUED)
During 1998, the Company issued mortgage loans with interest rates ranging from
6.55% to 8.49%. The maximum percentage of any one loan to the value of the
underlying real estate at origination was 79%. No mortgage loans were non-income
producing for the previous twelve months and, accordingly, no accrued interest
related to these mortgage loans was excluded from investment income. The Company
requires all mortgage loans to carry fire insurance equal to the value of the
underlying property.
During 1998, 1997 and 1996, there were $2,796, $4,427 and $28,929, respectively,
in foreclosed mortgage loans that were transferred to real estate. At December
31, 1998 and 1997, the Company held a mortgage loan loss reserve in the asset
valuation reserve of $34,083 and $20,191, respectively. The mortgage loan
portfolio is diversified by geographic region and specific collateral property
type as follows:
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION PROPERTY TYPE DISTRIBUTION
------------------------------------------------------ ---------------------------------------------
DECEMBER 31 DECEMBER 31
1998 1997 1998 1997
------------------ ------------------
<S> <C> <C> <C> <C> <C>
South Atlantic 22% 20% Office 37% 30%
Mid-Atlantic 20 16 Industrial 29 13
E. North Central 20 16 Retail 24 19
Pacific 9 20 Apartment 4 23
W. South Central 9 2 Agricultural 2 -
New England 8 7 Other 4 15
Mountain 7 15
E. South Central 3 2
W. North Central 2 2
</TABLE>
At December 31, 1998, the Company had no investments, excluding U. S. Government
guaranteed or insured issues, which individually represented more than ten
percent of capital and surplus and the asset valuation reserve.
The Company utilized an interest rate swap agreement as part of its efforts to
hedge and manage fluctuations in the market value of its investment portfolio
attributable to changes in general interest rate levels and to manage duration
mismatch of assets and liabilities. The contract or notional amounts of those
instruments reflect the extent of involvement in the various types of financial
instruments.
18
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
3. INVESTMENTS (CONTINUED)
The Company's exposure to credit risk is the risk of loss from a counterparty
failing to perform according to the terms of the contract. That exposure
includes settlement risk (i.e., the risk that the counterparty defaults after
the Company has delivered funds or securities under terms of the contract) that
would result in an accounting loss and replacement cost risk (i.e., the cost to
replace the contract at current market rates should the counterparty default
prior to settlement date). Credit loss exposure resulting from nonperformance by
a counterparty for commitments to extend credit is represented by the
contractual amounts of the instruments.
At December 31, 1998, the Company held no derivative instruments. At December
31, 1998 and 1997, the Company's outstanding financial instruments with on and
off-balance sheet risks, shown in notional amounts, are summarized as follows:
<TABLE>
<CAPTION>
NOTIONAL AMOUNT
----------------------------
1998 1997
----------- ------------
<S> <C> <C>
Derivative securities:
Interest rate swaps:
Receive fixed - pay floating $74,588 $50,800
</TABLE>
4. REINSURANCE
The Company reinsures portions of risk on certain insurance policies which
exceed its established limits, thereby providing a greater diversification of
risk and minimizing exposure on larger risks. The Company remains contingently
liable with respect to any insurance ceded, and this would become an actual
liability in the event that the assuming insurance company became unable to meet
its obligation under the reinsurance treaty.
Premiums earned reflect the following reinsurance assumed and ceded amounts for
the year ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------------------
<S> <C> <C> <C>
Direct premiums $1,183,777 $1,309,731 $1,185,163
Reinsurance assumed 6,415 6,905 9,962
Reinsurance ceded (2,539) (5,268) (29,141)
--------------------------------------------------
Net premiums earned $1,187,653 $1,311,368 $1,165,984
==================================================
</TABLE>
19
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
4. REINSURANCE (CONTINUED)
The Company received reinsurance recoveries in the amounts of $2,493, $1,992 and
$1,758 during 1998, 1997 and 1996, respectively.
The aggregate reserves for policies and contracts were reduced for reserve
credits for reinsurance ceded at December 31, 1998 and 1997 of $143,819 and
$153,092, respectively.
On December 31, 1993, the Company and MONY entered into an assumption
reinsurance agreement whereby all of the general account liabilities were
novated to the Company from MONY as state approvals were received.
In accordance with the agreement, MONY will receive payments relating to the
performance of the assets and liabilities that exist at the date of closing for
a period of nine years. These payments will be reduced for certain
administrative expenses as defined in the agreement. The Company will recognize
operating gains and losses on renewal premiums received after December 31, 1993
of the business in-force at December 31, 1993, and on all new business written
after that date. At the end of nine years from the date of closing, the Company
will purchase from MONY the remaining transferred business inforce based upon a
formula described in the agreement. At December 31, 1998 and 1997, the Company
owed MONY $52,837 and $56,952, respectively, which represents the amount earned
by MONY under the gain sharing calculation and certain fees for investment
management services for the respective years.
In connection with the transaction, MONY purchased $150,000 and $50,000 in
Series A and Series B notes, respectively, of AEGON. The proceeds were used to
enhance the surplus of the Company. Both the Series A and Series B notes bear a
market rate of interest and mature in nine years from the date of closing.
AEGON provides general and administrative services for the transferred business
under a related agreement with MONY. The agreement specifies prescribed rates
for expenses to administer the business up to certain levels. In addition, AEGON
also provides investment management services on the assets underlying the new
business written by the Company while MONY continues to provide investment
management services for assets supporting the remaining policy liabilities which
were transferred at December 31, 1993.
20
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
5. INCOME TAXES
For federal income tax purposes, the Company joins in a consolidated tax return
filing with certain affiliated companies. Under the terms of a tax-sharing
agreement between the Company and its affiliates, the Company computes federal
income tax expense as if it were filing a separate income tax return, except
that tax credits and net operating loss carryforwards are determined on the
basis of the consolidated group. Additionally, the alternative minimum tax is
computed for the consolidated group and the resulting tax, if any, is allocated
back to the separate companies on the basis of the separate companies'
alternative minimum taxable income.
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to gain from operations before federal income
tax expense and net realized capital gains (losses) on investments primarily due
to differences in the statutory and tax treatment of certain investments,
deferred policy acquisition costs, stock options exercised, dividends received
deduction, carryforward (utilization) of operating loss, IMR amortization, and
certain adjustments related to the agreement between MONY and the Company. These
adjustments caused the Company to calculate federal income tax expense using
alternative minimum tax requirements in 1998.
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to net realized capital gains (losses) on
investments due to the agreement between MONY and the Company, as discussed in
Note 4 to the financial statements. In accordance with this agreement, these
gains and losses are included in the net payments MONY will receive relating to
the performance of the assets that existed at the date of closing. Accordingly,
income taxes relating to gains and losses on such assets are not provided for on
the income tax return filed by the Company.
Prior to 1984, as provided for under the Life Insurance Company Tax Act of 1959,
a portion of statutory income was not subject to current taxation but was
accumulated for income tax purposes in a memorandum account referred to as the
policyholders' surplus account. No federal income taxes have been provided for
in the financial statements on income deferred in the policyholders' surplus
account ($2,427 at December 31, 1998). To the extent dividends are paid from the
amount accumulated in the policyholders' surplus account, net earnings would be
reduced by the amount of tax required to be paid. Should the entire amount in
the policyholders' surplus account become taxable, the tax thereon computed at
current rates would amount to approximately $849.
At December 31, 1998, the Company had net operating loss carryforwards of
approximately $8,514 which expire through 2011.
In 1998, the Company reached a final settlement with the Internal Revenue
Service for years 1993 through 1995 resulting in no tax due or refunded.
21
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
6. POLICY AND CONTRACT ATTRIBUTES
A portion of the Company's policy reserves and other policyholders' funds relate
to liabilities established on a variety of the Company's products that are not
subject to significant mortality or morbidity risk; however, there may be
certain restrictions placed upon the amount of funds that can be withdrawn
without penalty. The amount of reserves on these products, by withdrawal
characteristics, are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
-------------------------- --------------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal with
market value adjustment $ 912,692 9% $ 910,528 9%
Subject to discretionary withdrawal at book
value less surrender charge 1,013,495 10 1,045,807 11
Subject to discretionary withdrawal at market
value 3,678,649 34 2,950,639 30
Subject to discretionary withdrawal at book
value (minimal or no charges or adjustments) 2,666,670 25 2,616,308 27
Not subject to discretionary withdrawal
provision 2,416,602 22 2,317,823 23
----------- --------- ----------- ---------
10,688,108 100% 9,841,105 100%
========= =========
Less reinsurance ceded 143,475 152,726
----------- -----------
Total policy reserves on annuities and
deposit fund liabilities $10,544,633 $ 9,688,379
=========== ===========
</TABLE>
Separate and variable account assets held by the Company represent contracts
where the benefit is determined by the performance of the investments held in
the separate account. Information regarding the separate accounts of the Company
as of and for the years ended December 31, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
GUARANTEED NON-GUARANTEED
SEPARATE SEPARATE
ACCOUNT ACCOUNT TOTAL
===========================================
<S> <C> <C> <C>
Premiums, deposits and other considerations
for the year ended December 31, 1998 $ 84,150 $ 767,676 $ 851,826
===========================================
Reserves for separate accounts with
assets as of December 31, 1998 at:
Fair value $2,350,983 $ 3,461,715 $5,812,698
Amortized cost 595,738 - 595,738
-------------------------------------------
Total $2,946,721 $ 3,461,715 $6,408,436
===========================================
</TABLE>
22
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
6. POLICY AND CONTRACT ATTRIBUTES (CONTINUED)
<TABLE>
<CAPTION>
GUARANTEED NON-GUARANTEED
SEPARATE SEPARATE
ACCOUNT ACCOUNT TOTAL
===========================================
<S> <C> <C> <C>
Premiums, deposits and other considerations
for the year ended December 31, 1997 $ 147,638 $ 648,056 $ 795,694
===========================================
Reserves for separate accounts with
assets as of December 31, 1997 at:
Fair value $2,204,931 $ 2,767,245 $4,972,176
Amortized cost 622,703 - 622,703
-------------------------------------------
Total $2,827,634 $ 2,767,245 $5,594,879
===========================================
Premiums, deposits and other considerations
for the year ended December 31, 1996 $ - $ 747,506 $ 747,506
===========================================
Reserves for separate accounts with
assets as of December 31, 1996 at:
Fair value $2,022,843 $ 2,178,445 $4,201,288
Amortized cost 613,565 - 613,565
-------------------------------------------
Total $2,636,408 $ 2,178,445 $4,814,853
===========================================
</TABLE>
There may be certain restrictions placed upon the amount of funds that can be
withdrawn without penalty. The amount of separate account liabilities on these
products, by withdrawal characteristics, is summarized as follows:
<TABLE>
<CAPTION>
GUARANTEED NON-GUARANTEED
SEPARATE SEPARATE
ACCOUNT ACCOUNT TOTAL
===========================================
<S> <C> <C> <C>
DECEMBER 31, 1998
Subject to discretionary withdrawal with
market value adjustment $ 345,379 $ - $ 345,379
Subject to discretionary withdrawal at book
value less surrender charge 250,359 - 250,359
Subject to discretionary withdrawal at
market value 216,935 3,461,715 3,678,650
Not subject to discretionary withdrawal 2,134,048 - 2,134,048
-------------------------------------------
$2,946,721 $ 3,461,715 $6,408,436
===========================================
</TABLE>
23
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
6. POLICY AND CONTRACT ATTRIBUTES (CONTINUED)
<TABLE>
<CAPTION>
GUARANTEED NON-GUARANTEED
SEPARATE SEPARATE
ACCOUNT ACCOUNT TOTAL
--------------------------------------------------------
<S> <C> <C> <C>
DECEMBER 31, 1997
Subject to discretionary withdrawal with market
value adjustment $ 358,061 $ - $ 358,061
Subject to discretionary withdrawal at book
value less surrender charge 264,642 - 264,642
Subject to discretionary withdrawal at market
value 180,802 2,767,245 2,948,047
Not subject to discretionary withdrawal 2,024,129 - 2,024,129
--------------------------------------------------------
$ 2,827,634 $ 2,767,245 $ 5,594,879
========================================================
</TABLE>
A reconciliation of the amounts transferred to and from the separate accounts is
presented below:
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------------
<S> <C> <C> <C>
Transfers as reported in the summary of operations of
the separate accounts annual statement:
Transfers to separate accounts $851,826 $795,663 $747,677
Transfers from separate accounts 723,321 767,049 505,592
-----------------------------------------
Net transfers to separate accounts 128,505 28,614 242,085
Reconciling adjustments - HUB level fees not paid to AUSA
general account 1,317 13,756 13,520
Fees paid to external fund manager - 120 67
Assumption of liabilities via merger of FPLH 1,088 - -
-----------------------------------------
Net adjustments 2,405 13,876 13,587
=========================================
Transfers as reported in the summary of operations of the
life, accident and health annual statement $130,910 $ 42,490 $255,672
=========================================
</TABLE>
Reserves on the Company's traditional life products are computed using mean
reserving methodologies. These methodologies result in the establishment of
assets for the amount of the net valuation premiums that are anticipated to be
received between the policy's paid-through date to the policy's next anniversary
date. At December 31, 1998 and 1997, these assets (which are reported as
premiums deferred and uncollected) and the amounts of the related gross premiums
and loadings, are as follows:
24
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
6. POLICY AND CONTRACT ATTRIBUTES (CONTINUED)
<TABLE>
<CAPTION>
GROSS LOADING NET
--------------------------------------
<S> <C> <C> <C>
DECEMBER 31, 1998
Ordinary direct first year business $ 351 $ 339 $ 12
Ordinary direct renewal business 6,760 1,087 5,673
Group life direct business 851 482 369
Credit life 37 - 37
Reinsurance ceded (6) - (6)
--------------------------------------
7,993 1,908 6,085
Accident and health:
Direct 363 - 363
Reinsurance ceded (40) - (40)
--------------------------------------
Total accident and health 323 - 323
======================================
$ 8,316 $ 1,908 $ 6,408
======================================
DECEMBER 31, 1997
Ordinary direct first year business $ 460 $ 336 $ 124
Ordinary direct renewal business 6,138 1,081 5,057
Group life direct business 1,267 433 834
Credit life 41 - 41
Reinsurance ceded (14) - (14)
--------------------------------------
7,892 1,850 6,042
Accident and health:
Direct 325 - 325
Reinsurance ceded (51) - (51)
--------------------------------------
Total accident and health 274 - 274
======================================
$ 8,166 $ 1,850 $ 6,316
======================================
</TABLE>
At December 31, 1998 and 1997, the Company had insurance in force aggregating
$474,471 and $597,855, respectively, in which the gross premiums are less than
the net premiums required by the valuation standards established by the
Department of Insurance of the State of New York. The Company established policy
reserves of $1,348 and $1,476 to cover these deficiencies at December 31, 1998
and 1997, respectively.
7. DIVIDEND RESTRICTIONS
The Company is subject to certain limitations relative to statutory surplus,
imposed by the State of New York, on the payment of dividends to its parent
company.
The Company paid dividends to its parent of $8,000 in 1998. The Company is not
entitled to pay out any dividends in 1999 without prior approval.
25
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
8. RETIREMENT AND COMPENSATION PLANS
The Company's employees participate in a qualified benefit pension plan
sponsored by AEGON. The Company has no legal obligation for the plan. The
Company recognizes pension expense equal to its allocation from AEGON. The
pension expense is allocated among the participating companies based on the FASB
87 expense as a percent of salaries. The benefits are based on years of service
and the employee's compensation during the highest five consecutive years of
employment. The Company was allocated $4, $0 and $13 of pension expense for the
years ended December 31, 1998, 1997 and 1996, respectively. The plan is subject
to the reporting and disclosure requirements of the Employee Retirement Income
Security Act of 1974.
The Company's employees also participate in a contributory defined contribution
plan sponsored by AEGON which is qualified under Section 401(k) of the Internal
Revenue Service Code. Employees of the Company who customarily work at least
1,000 hours during each calendar year and meet the other eligibility
requirements are participants of the plan. Participants may elect to contribute
up to fifteen percent of their salary to the plan. The Company will match an
amount up to three percent of the participant's salary. Participants may direct
all of their contributions and plan balances to be invested in a variety of
investment options. The plan is subject to the reporting and disclosure
requirements of the Employee Retirement Income Security Act of 1974. The Company
was allocated $9, $12 and $21 of expense for the years ended December 31, 1998,
1997 and 1996, respectively.
AEGON sponsors supplemental retirement plans to provide the Company's senior
management with benefits in excess of normal pension benefits. The plans are
noncontributory and benefits are based on years of service and the employee's
compensation level. The plans are unfunded and nonqualified under the Internal
Revenue Service Code. In addition, AEGON has established incentive deferred
compensation plans for certain key employees of the Company. AEGON also sponsors
an employee stock option plan for individuals employed at least three years and
a stock purchase plan for its producers, with the participating affiliated
companies establishing their own eligibility criteria, producer contribution
limits and company matching formula. These plans have been accrued or funded as
deemed appropriate by management of AEGON and the Company.
In addition to pension benefits, the Company participates in plans sponsored by
AEGON that provide postretirement medical, dental and life insurance benefits to
employees meeting certain eligibility requirements. Portions of the medical and
dental plans are contributory. The expenses of the postretirement plans
calculated on the pay-as-you-go basis are charged to affiliates in accordance
with an intercompany cost sharing arrangement. The Company expensed $4, $2 and
$2 for the years ended December 31, 1998, 1997 and 1996, respectively.
26
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
9. RELATED PARTY TRANSACTIONS
In accordance with an agreement between AEGON and the Company, AEGON will ensure
the maintenance of certain minimum tangible net worth, operating leverage and
liquidity levels of the Company, as defined in the agreement, through the
contribution of additional capital by the Company's parent as needed.
The Company shares certain officers, employees and general expenses with
affiliated companies.
The Company receives data processing, investment advisory and management,
marketing and administration services from certain affiliates. During 1998, 1997
and 1996, the Company paid $5,650, $7,330 and $5,739, respectively, for these
services, which approximates their costs to the affiliates.
Payable to affiliates and intercompany borrowings bear interest at the thirty-
day commercial paper rate of 4.95% at December 31, 1998. During 1998, 1997 and
1996, the Company paid net interest of $232, $142 and $29, respectively, to
affiliates.
10. COMMITMENTS AND CONTINGENCIES
The Company has issued Trust GIC contracts to plan sponsors totaling $153,146 at
December 31, 1998, pursuant to terms under which the plan sponsor retains
ownership of the assets related to these contracts. The Company guarantees
benefit responsiveness in the event that plan benefit requests and other
contractual commitments exceed plan cash flows. The plan sponsor agrees to
reimburse the Company for such benefit payments with interest, either at a fixed
or floating rate, from future plan and asset cash flows. In return for this
guarantee, the Company receives a premium which varies based on such elements as
benefit responsive exposure and contract size. The Company underwrites the plans
for the possibility of having to make benefit payments and also must agree to
the investment guidelines to ensure appropriate credit quality and cash flow
matching. The assets and liabilities relating to such contracts are not
recognized in the Company's statutory-basis financial statements.
The Company is a party to legal proceedings incidental to its business. Although
such litigation sometimes includes substantial demands for compensatory and
punitive damages, in addition to contract liability, it is management's opinion,
after consultation with counsel and a review of available facts, that damages
arising from such demands will not be material to the Company's financial
position.
27
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company is subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against insurance companies
for the benefit of policyholders and claimants in the event of insolvency of
other insurance companies. In accordance with the purchase agreement,
assessments related to periods prior to the purchase of the Company will be paid
by Dreyfus and assessments attributable to business reinsured from MONY for
premiums received prior to the date of the transaction will be paid by MONY (see
Note 1). The Company will be responsible for assessments, if any, attributable
to premium income after the date of purchase. Assessments are charged to
operations when received by the Company except where right of offset against
other taxes paid is allowed by law; amounts available for future offsets are
recorded as an asset on the Company's balance sheet. Potential future
obligations for unknown insolvencies are not determinable by the Company. The
future obligation has been based on the most recent information available from
the National Organization of Life and Health Insurance Guaranty Associations.
The guaranty fund expense was $126, $586 and $246 for the years ended December
31, 1998, 1997 and 1996, respectively.
11. YEAR 2000 (UNAUDITED)
The term Year 2000 issue generally refers to the improper processing of dates
and incorrect date calculations that might occur in computer software and
hardware and embedded systems as the Year 2000 is approached. The use of
computer programs that rely on two-digit date fields to perform computations and
decision-making functions may cause systems to malfunction when processing
information involving dates after 1999. For example, any computer software that
has date-sensitive coding might recognize a code of 00 as the year 1900 rather
than the year 2000.
The Company has developed a Year 2000 Project Plan (the Plan) to address the
Year 2000 issue as it affects the Company's internal Information Technology
("IT") and non-IT systems, and to assess Year 2000 issues relating to third
parties with whom the Company has critical relationships.
The Plan for addressing internal systems generally includes an assessment of
internal IT and non-IT systems and equipment affected by the Year 2000 issue;
definition of strategies to address affected systems and equipment; remediation
of identified systems and equipment; internal testing and certification that
each internal system is Year 2000 compliant; and a review of existing and
revised business resumption and contingency plans to address potential Year 2000
issues. The Company has remediated and tested substantially all of its mission-
critical internal IT systems as of December 31, 1998. The Company continues to
remediate and test certain non-critical internal IT systems, internal non-IT
systems and will continue with a revalidation testing program throughout 1999.
28
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
11. YEAR 2000 (UNAUDITED) (CONTINUED)
The Company's Year 2000 issues are more complex because a number of its systems
interface with other systems not under the Company's control. The Company's most
significant interfaces and uses of third-party vendor systems are in the bank,
financial services and trust areas. The Company utilizes various banks to handle
numerous types of financial and sales transactions. Several of these banks also
provide trustee and custodial services for the Company's investment holdings and
transactions. These services are critical to a financial services company such
as the Company as its business centers around cash receipts and disbursements to
policyholders and the investment of policyholder funds. The Company has received
written confirmation from its vendor banks regarding their status on Year 2000.
The banks indicate their dedication to resolving any Year 2000 issues related to
their systems and services prior to December 31, 1999. The Company anticipates
that a considerable effort will be necessary to ensure that its corrected or new
systems can properly interface with those business partners with whom it
transmits and receives data and other information (external systems). The
Company has undertaken specific testing regimes with these third-party business
partners and expects to continue working with its business partners on any
interfacing of systems. However, the timing of external system compliance cannot
currently be predicted with accuracy because the implementation of Year 2000
readiness will vary from one company to another.
The Company does have some exposure to date-sensitive embedded technology such
as micro-controllers, but the Company views this exposure as minimal. Unlike
other industries that may be equipment intensive, like manufacturing, the
Company is a life insurance and financial services organization providing
insurance, annuities and pension products to its customers. As such, the primary
equipment and electronic devices in use are computers and telephone related
equipment. This type of hardware can have date-sensitive embedded technology
which could have Year 2000 problems. Because of this exposure, the Company has
reviewed its computer hardware and telephone systems, with assistance from the
applicable vendors, and has upgraded, or replaced, or is in the process of
replacing any equipment that will not properly process date-sensitive data in
the Year 2000 or beyond.
For the Company, a reasonably likely worst case scenario might include one or
more of the Company's significant policyholder systems being non-compliant. Such
an event could result in a material disruption of the Company's operations.
Specifically, a number of the Company's operations could experience an
interruption in the ability to collect and process premiums or deposits, process
claim payments, accurately maintain policyholder information, accurately
maintain accounting records, and/or perform adequate customer service. Should
the worst case scenario occur, it could, dependent upon its duration, have a
material impact on the Company's business and financial condition. Simple
failures can
29
<PAGE>
AUSA Life Insurance Company, Inc.
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
11. YEAR 2000 (UNAUDITED) (CONTINUED)
be repaired and returned to production within a matter of hours with no material
impact. Unanticipated failures with a longer service disruption period could
have a more serious impact. For this reason, the Company is placing significant
emphasis on risk management and Year 2000 business resumption contingency
planning in 1999 by modifying its existing business resumption and disaster
recovery plans to address potential Year 2000 issues.
The actions taken by management under the Year 2000 Project Plans are intended
to significantly reduce the Company's risk of a material business interruption
based on the Year 2000 issues. It should be noted that the Year 2000 computer
problem, and its resolution, is complex and multifaceted, and any company's
success cannot be conclusively known until the Year 2000 is reached. In spite of
its efforts or results, the Company's ability to function unaffected to and
through the Year 2000 may be adversely affected by actions (or failure to act)
of third parties beyond our knowledge or control. It is anticipated that there
may be problems that will have to be resolved in the ordinary course of business
on and after the Year 2000. However, the Company does not believe that the
problems will have a material adverse affect on the Company's operations or
financial condition.
30
<PAGE>
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements.
Part A. None
Part B. Financial Statements of the subaccounts of the subaccounts
of AUSA Life Insurance Company, Inc. Separate Account C,
which are available for investment by AUSA Marquee Variable
Annuity Contract Owners as of December 31, 1998 and for the
year then ended and for the period May 1, 1997,
(commencement of operations) through December 31, 1999.
Statutory-basis financial statements of AUSA Life Insurance
Company, Inc. as of December 31, 1998 and 1997 and for each
of the three years in the period ended December 31, 1998
with Report of Independent Auditors.
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
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
Eric B. Goodman
400 West Market Street Director and Vice President
Louisville, KY 40202
<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.
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.
</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 March 31, 1999, 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
Clifton W. Flenniken Assistant Treasurer
Thomas E. Pierpan Assistant Vice President and
Assistant Secretary
Priscilla I. Hechler Assistant Vice President and
Assistant Secretary
Darin Smith Assistant Vice President and
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, or 570 Carillon Parkway, St. Petersburg, Florida 33716.
<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
William Brown, Jr. Director April 30, 1999
- ------------------------
William Brown, Jr.
Larry G. Brown Director April 30, 1999
- ------------------------
Larry G. Brown
William L. Busler Director April 30, 1999
- ------------------------
William L. Busler
Jack R. Dykhouse Director April 30, 1999
- ------------------------
Jack R. Dykhouse
Steven E. Frushtick Director April 30, 1999
- ------------------------
Steven E. Frushtick
Carl T. Hanson Director April 30, 1999
- ------------------------
Carl T. Hanson
Colette Vargas Director April 30, 1999
- ------------------------
Colette Vargas
Vera F. Mihaic Director April 30, 1999
- ------------------------
Vera F. Mihaic
Peter P. Post Director April 30, 1999
- ------------------------
Peter P. Post
Tom A. Schlossberg Director (Principal April 30, 1999
- ------------------------
Tom A. Schlossberg Executive Officer)
Cor H. Verhagen Director April 30, 1999
- ------------------------
Cor H. Verhagen
E. Kirby Warren Director April 30, 1999
- ------------------------
E. Kirby Warren
Brenda K. Clancy Treasurer (Chief April 30, 1999
- ------------------------
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 (b)
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 30th day
of April, 1999.
AUSA LIFE INSURANCE COMPANY, INC.
SEPARATE ACCOUNT C
Registrant
AUSA LIFE INSURANCE COMPANY, INC.
Depositor
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)
April 30, 1999
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. 5 to the Registration Statement on Form N-4 under the
Securities Act of 1933, as amended (the "1933 Act"), and Amendment No. 10 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 (AUSA 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)
April 30, 1999
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. 5 to the
Registration Statement on Form N-4 under the Securities Act of 1933, as amended
(the "1933 Act"), and Amendment No. 10 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 April 30,
1999 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>
Exhibit 10
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Statements" in the Prospectus and Statement of Additional Information and
"Auditors" in the Prospectus and to the use of our reports (1) dated January 29,
1999 with respect to the financial statements of certain subaccounts of AUSA
Life Insurance Company Inc. Separate Account C, which are available for
investment by the Marquee Variable Annuity contract owners, and (2) dated
February 19, 1999 with respect to the statutory-basis financial statements of
AUSA Life Insurance Company, Inc. included in Post-Effective Amendment No. 5 to
the Registration Statement (Form N-4 No. 333-65145) and related Prospectus of
The AUSA Marquee Variable Annuity.
/s/ Ernst & Young LLP
Des Moines, Iowa
April 27, 1999
