<PAGE>
THE ADVISOR'S EDGE
VARIABLE ANNUITY
Issued Through
AUSA Life Insurance Company, Inc.
Separate Account C
By
AUSA Life Insurance Company, Inc.
Prospectus May 1, 1999
Revised July 27, 1999
The Advisor's Edge Variable Annuity (the "Contract") provides a means of
investing on a tax-deferred basis in 28 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.
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.
THE PORTFOLIOS
DFA Investment Dimensions Group, Inc.
Advised by Dimensional Fund Advisors Inc.
DFA Small Value
DFA Large Value
DFA International Value
DFA International Small
DFA Short-Term Fixed
DFA Global Bond
Endeavor Series Trust
Advised by Endeavor Management Co.
Dreyfus Small Cap Value
Endeavor Enhanced Index
T. Rowe Price International
The Federated Insurance Series
Advised by Federated Advisers
Federated American Leaders
Federated High Income Bond
Federated Prime Money
Federated U.S. Government Securities
Federated Utility
The Montgomery Funds III
Advised by Montgomery Asset Management, LLC
Montgomery Growth
Montgomery Emerging Markets
SteinRoe Variable Investment Trust
Advised by Stein Roe & Farnham Incorporated
Stein Roe Special Venture
Strong Variable Insurance Funds, Inc.
Advised by Strong Capital Management, Inc.
Strong International Stock
Strong Schafer Value
Wanger Advisors Trust
Advised by Wanger Asset Management, L.P.
Wanger U.S. Small Cap Advisor
Wanger International Small Cap Advisor
Warburg Pincus Trust
Advised by Warburg Pincus Asset Management, Inc.
Warburg Pincus International Equity
Warburg Pincus Small Company Growth
WRL Series Fund, Inc.
Advised by WRL Investment Management, Inc.
WRL Alger Aggressive Growth
WRL J.P. Morgan Real Estate Securities
WRL Janus Global
WRL Janus Growth
WRL LKCM Strategic Total Return
<PAGE>
Contents
<TABLE>
<C> <S>
1 Cross Reference to Definitions
2 Summary
6 Fee Table
8 Example
9 The Annuity Contract
10 Annuity Payments
12 Purchase
15 Investment Options
21 Expenses
</TABLE>
<TABLE>
<C> <S>
22 Taxes
26 Access to Your Money
28 Performance
30 Death Benefit
33 Other Information
38 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....................................................... 9
Annuitant................................................................ 30, 31
Annuity Date............................................................. 10
Annuity Payment Options.................................................. 10
Beneficiary.............................................................. 30, 31
Business Day............................................................. 12
Contract................................................................. 34
Contract Anniversary..................................................... 13
Contract Date............................................................ 13
Contract Owner........................................................... 34
Contract Year............................................................ 13
Income Phase............................................................. 9
Initial Purchase Payment................................................. 12
Joint Annuitant.......................................................... 31
Net Purchase Payment..................................................... 13
Qualified Contract....................................................... 13
Portfolios............................................................... 15
Purchase Payment......................................................... 13
Right to Cancel Period................................................... 34
Tax Deferral............................................................. 23
</TABLE>
1
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SUMMARY
The numbered sections in this Summary provide you with a concise discussion of
the major topics covered in this prospectus. Each section of the Summary is
discussed in greater detail in the main body of the prospectus at
corresponding numbered headings. Please read the full prospectus carefully.
1. THE ANNUITY CONTRACT
The Advisor's Edge Variable Annuity
Advisor's Edge 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 twenty-eight 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 twenty-eight 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 10, 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.
4. INVESTMENT OPTIONS
You can allocate your Purchase Payments to one or more of the following
Portfolios described in the nine Funds' prospectuses:
DFA Investment Dimensions Group, Inc.
Advised by Dimensional Fund Advisors Inc.
VA Small Value Portfolio ("DFA Small Value Portfolio")
VA Large Value Portfolio ("DFA Large Value Portfolio")
VA International Value Portfolio ("DFA International Value Portfolio")
VA International Small Portfolio ("DFA International Small Portfolio")
VA Short-Term Fixed Portfolio ("DFA Short-Term Fixed Portfolio")
VA Global Bond Portfolio ("DFA Global Bond Portfolio")
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Endeavor Series Trust
Advised by Endeavor Management Co.
Dreyfus Small Cap Value Portfolio
Endeavor Enhanced Index Portfolio
T. Rowe Price International Stock Portfolio
The Federated Insurance Series
Advised by Federated Advisers
Federated American Leaders Fund II ("Federated American Leaders
Portfolio")
Federated Fund for U.S. Government Securities II ("Federated U.S.
Government Securities Portfolio")
Federated High Income Bond Fund II ("Federated High Income Bond
Portfolio")
Federated Prime Money Fund II ("Federated Prime Money Portfolio")
Federated Utility Fund II ("Federated Utility Portfolio")
The Montgomery Funds III
Advised by Montgomery Asset Management, LLC
Montgomery Variable Series: Growth Fund ("Montgomery Growth Portfolio")
Montgomery Variable Series: Emerging Markets Fund ("Montgomery Emerging
Markets Portfolio")
SteinRoe Variable Investment Trust
Advised by Stein Roe & Fanham Incorporated
Stein Roe Special Venture Fund, Variable Series ("Stein Roe Special
Venture Portfolio")
Strong Variable Insurance Funds, Inc.
Advised by Strong Capital Management, Inc.
Strong International Stock Fund II ("Strong International Stock
Portfolio")
Strong Schafer Value Fund II ("Strong Schafer Value Portfolio")
Wanger Advisors Trust
Advised by Wanger Asset Management, L.P.
Wanger U.S. Small Cap Advisor Portfolio
Wanger International Small Cap Advisor Portfolio
Warburg Pincus Trust
Advised by Warburg Pincus Asset Management, Inc.
Warburg Pincus International Equity Portfolio
Warburg Pincus Small Company Growth Portfolio
WRL Series Fund, Inc.
Advised by WRL Investment Management, Inc.
Aggressive Growth Portfolio ("WRL Alger Aggressive Growth Portfolio")
Real Estate Securities Portfolio ("WRL J.P. Morgan Real Estate Securities
Portfolio")
Global Portfolio ("WRL Janus Global Portfolio")
Growth Portfolio ("WRL Janus Growth Portfolio")
Strategic Total Return Portfolio ("WRL LKCM Strategic Total Return")
You can make or lose money in any of these Portfolios depending on their
investment performance.
3
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5. EXPENSES
No sales load is deducted from Purchase Payments.
No surrender charge applies to withdrawals.
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 0.50% for the mortality and expense
risks it assumes. There is also a $30 annual Contract Fee.
You will also pay certain expenses associated with the operation of the
Portfolios.
6. TAXES
In general, you are not taxed on earnings on your investment in the Contract
until you withdraw them or receive Annuity Payments. Earnings are taxed as
ordinary income. During the Accumulation Phase, for tax purposes withdrawals
are taken from earnings first, then from your investment in the Contract. For
Annuity Payments, payments come partially from earnings, partially from your
investment. You are taxed only on the investment portion of each Annuity
Payment. If you receive money from the Contract before age 59 1/2, you may
have to pay a 10% penalty tax on the earnings portion received.
7. ACCESS TO YOUR MONEY
You can take money out of your Contract at any time during the Accumulation
Phase. 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
4
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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.
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 twenty-eight 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 33.
11. INQUIRIES AND CONTRACT AND POLICYHOLDER INFORMATION
For more information about the Advisor's Edge 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
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FEE TABLE
The following table illustrates all expenses (except for Premium Taxes that
may be assessed) that you would incur as a Contract Owner. The purpose of this
table is to assist you in understanding the various costs and expenses that
you would bear directly or indirectly as a purchaser of the Contract. The fee
table reflects all expenses for both the Separate Account and the Funds. For a
complete discussion of Contract costs and expenses, see EXPENSES, page 21.
<TABLE>
<S> <C>
Contractowner Transaction Expenses
Sales Load Imposed on Purchases......................................... None
Contingent Deferred Sales Load (surrender charge)....................... None
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....................................... 0.50%
Administrative Charge................................................... 0.15%
-----
Total Annual Separate Account Expenses.................................. 0.65%
</TABLE>
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
Advisory Other Rule 12b-1 Total Portfolio
Expenses Expenses Fees Annual Expenses
---------- -------- ---------- ---------------
<S> <C> <C> <C> <C>
DFA Small Value Portfolio...... 0.50% 0.20% -- 0.70%
DFA Large Value Portfolio...... 0.25% 0.21% -- 0.46%
DFA International Value
Portfolio..................... 0.40% 0.28% -- 0.68%
DFA International Small
Portfolio..................... 0.50% 0.40% -- 0.90%
DFA Short-Term Fixed
Portfolio..................... 0.25% 0.16% -- 0.41%
DFA Global Bond Portfolio...... 0.25% 0.32% -- 0.57%
Dreyfus Small Cap Value
Portfolio/1................/.. 0.80% 0.06% 0.08% 0.94%
Endeavor Enhanced Index
Portfolio/2................/.. 0.75% 0.35% -- 1.10%
Federated American Leaders
Portfolio/3................/.. 0.74% 0.14% -- 0.88%
Federated Utility
Portfolio/3................/.. 0.68% 0.25% -- 0.93%
Federated Prime Money
Portfolio/3................/.. 0.49% 0.31% -- 0.80%
Federated U.S. Government
Securities Portfolio/3...../.. 0.52% 0.33% -- 0.85%
Federated High Income Bond
Portfolio..................... 0.60% 0.18% -- 0.78%
Montgomery Growth
Portfolio/4................/.. 1.00% 0.25% -- 1.25%
Montgomery Emerging Markets
Portfolio..................... 1.25% 0.50% -- 1.75%
Stein Roe Special Venture
Portfolio..................... 0.65% 0.10% -- 0.75%
Strong International Stock
Portfolio..................... 1.00% 0.62% -- 1.62%
Strong Schafer Value
Portfolio/5................/.. 1.00% 0.20% -- 1.20%
T. Rowe Price International
Stock Portfolio/6........../.. 0.90% 0.08% -- 0.98%
Wanger U.S. Small Cap Advisor
Portfolio..................... 0.96% 0.06% -- 1.02%
Wanger International Small Cap
Advisor Portfolio............. 1.27% 0.28% -- 1.55%
Warburg Pincus International
Equity Portfolio.............. 1.00% 0.33% -- 1.33%
Warburg Pincus Small Company
Growth Portfolio.............. 0.90% 0.24% -- 1.14%
WRL Alger Aggressive Growth
Portfolio/7................/.. 0.80% 0.11% -- 0.91%
WRL Janus Growth
Portfolio/7................/.. 0.78% 0.05% -- 0.83%
WRL Janus Global
Portfolio/7................/.. 0.80% 0.15% -- 0.95%
WRL LKCM Strategic Total Return
Portfolio/7................/.. 0.80% 0.06% -- 0.86%
WRL J.P. Morgan Real Estate
Securities/7.............../.. 0.80% 0.20% -- 1.00%
</TABLE>
6
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/1 /Endeavor Management Co. has agreed, until terminated by Endeavor
Management Co., to assume expenses of the Dreyfus Small Cap Portfolio that
exceed 1.30%. The Board of Trustees of Endeavor Series Trust has authorized
an arrangement whereby, subject to best price and execution, executing
brokers will share commissions with the Trust's affiliated broker. Under
supervision of the Trustees, the affiliated broker will use the "recaptured
commission" to promote marketing of the Trust's shares. The staff of the
Securities and Exchange Commission believes that, through the use of these
recaptured commissions, the Trust is indirectly paying for distribution
expenses and that such amounts must be shown as 12b-1 fees in the above
table. The use of recaptured commission to promote the sale of the Trust's
shares involves no additional costs to the Trust or any Contract Owner.
Endeavor Series Trust, on the basis of advice of counsel, does not believe
that recaptured brokerage commissions should be treated as 12b-1 fees. For
more information on the Trust's Brokerage Enhancement Plan, see the Trust's
prospectus accompanying this prospectus.
/2 /Endeavor Management Co. has agreed, until terminated by Endeavor
Management Co., to assume expenses of the Endeavor Enhanced Index Portfolio
that exceed 1.30%.
/3 /The expense figures shown reflect actual expenses for fiscal year 1998
including voluntary waivers of a portion of the management fees and/or
assumption of expenses. The maximum Management and Advisory Expenses and
Total Portfolio Annual Expenses absent the voluntary waivers would have
been as follows: 0.75% and 0.89%, respectively, for the Federated American
Leaders Portfolio; 0.75% and 1.00%, respectively, for the Federated Utility
Portfolio; 0.50% and 0.81%, respectively, for the Federated Prime Money
Portfolio; 0.60% and 0.93%, respectively, for the Federated U.S. Government
Securities Portfolio.
/4 /The figures above are based on actual expenses for fiscal year 1998 (as a
percentage of each Portfolio's average net assets after deferment of fees
and/or expense reimbursement). The expense figures shown reflect voluntary
deferment of a portion of the management fees and/or assumption of
expenses. Absent the voluntary deferment, the maximum Management and
Advisory Expenses, Other Expenses, and Total Portfolio Annual Expenses
would have been as follows: 1.00%, 0.40%, and 1.40%, respectively, for the
Montgomery Growth Portfolio.
/5 /The expense figures shown reflect actual expenses for fiscal year 1998 (as
a percentage of the Portfolio's average net assets after fee waiver and/or
expense reimbursement). The expense figures shown reflect voluntary waivers
of a portion of the management fees and/or assumption of expenses. In the
absence of these voluntary waivers, the Management and Advisory Expenses,
Other Expenses, and Total Portfolio Annual Expenses are estimated to be as
follows: 1.00%, 1.00%, and 2.00%, respectively.
/6 /Endeavor Management Co. has agreed, until terminated by Endeavor
Management Co., to assume expenses of the T. Rowe Price International Stock
Portfolio that exceed 1.53%. Total Portfolio Annual Expenses before credits
allowed by the custodian for the year ended December 31, 1998, amounted to
1.10%.
/7 /WRL Investment Management, Inc. has voluntarily undertaken, until at least
April 30, 2000, to pay expenses on behalf of the Portfolios to the extent
normal operating expenses (including investment advisory fees but excluding
interest, taxes, brokerage fees, commissions and extraordinary charges)
exceed, as a percentage of each Portfolio's average daily net assets,
1.00%. The WRL Janus Growth Portfolio's management and advisory expenses
reflect 0.80% of the average daily net assets for the period prior to May
1, 1998, and 0.775% of the first $3 billion for the period May 1, 1998 to
December 31, 1998. In 1998, WRL Investment Management, Inc. reimbursed WRL
J.P. Morgan Real Estate Securities Portfolio in the amount of $28,275.
Without such reimbursement, the total annual expenses during 1998 for this
portfolio would have been 3.34%.
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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. As noted in the Fee
Table, the Contract imposes no surrender or withdrawal charges of any kind.
Your expenses are identical whether you continue the Contract or withdraw the
entire value of your Contract at the end of the applicable period as a lump
sum or under one of the Contract's Annuity Payment Options.
<TABLE>
<CAPTION>
3 10
1 Year Years 5 Years Years
------ ------ ------- -------
<S> <C> <C> <C> <C>
DFA Small Value Portfolio....................... $13.99 $43.50 $ 75.14 $164.70
DFA Large Value Portfolio....................... $11.56 $36.02 $ 62.37 $137.52
DFA International Value Portfolio............... $13.79 $42.88 $ 74.08 $162.46
DFA International Small Portfolio............... $16.02 $49.69 $ 85.67 $186.83
DFA Short-Term Fixed Portfolio.................. $11.06 $34.46 $ 59.69 $131.77
DFA Global Bond Portfolio....................... $12.68 $39.46 $ 68.24 $150.06
Dreyfus Small Cap Value Portfolio............... $16.42 $50.92 $ 87.76 $191.21
Endeavor Enhanced Index Portfolio............... $18.03 $55.84 $ 96.09 $208.50
Federated American Leaders Portfolio............ $15.81 $49.07 $ 84.62 $184.64
Federated Utility Portfolio..................... $16.32 $50.61 $ 87.24 $190.11
Federated Prime Money Portfolio................. $15.01 $46.60 $ 80.42 $175.83
Federated U.S. Government Securities Portfolio.. $15.51 $48.14 $ 83.05 $181.35
Federated High Income Bond Portfolio............ $14.80 $45.98 $ 79.37 $173.61
Montgomery Growth Portfolio..................... $19.54 $60.43 $103.83 $224.45
Montgomery Emerging Markets Portfolio........... $24.56 $75.57 $129.22 $275.81
Stein Roe Special Venture Portfolio............. $14.50 $45.05 $ 77.78 $170.28
Strong International Stock Portfolio............ $23.26 $71.66 $122.68 $262.72
Strong Schafer Value Portfolio.................. $19.04 $58.90 $101.26 $219.17
T. Rowe Price International Stock Portfolio..... $16.82 $52.15 $ 89.85 $195.56
Wanger U.S. Small Cap Advisor Portfolio......... $17.23 $53.38 $ 91.93 $199.89
Wanger International Small Cap Advisor
Portfolio...................................... $22.56 $69.54 $119.14 $255.60
Warburg Pincus International Equity Portfolio... $20.35 $62.86 $107.94 $232.86
Warburg Pincus Small Company Growth Portfolio... $18.44 $57.06 $ 98.16 $212.78
WRL Alger Aggressive Growth Portfolio........... $16.12 $49.99 $ 86.19 $187.93
WRL Janus Global Portfolio...................... $16.52 $51.23 $ 88.28 $192.30
WRL Janus Growth Portfolio...................... $15.31 $47.52 $ 82.00 $179.14
WRL LKCM Strategic Total Return Portfolio....... $15.61 $48.45 $ 83.57 $182.45
WRL J.P. Morgan Real Estate Securities
Portfolio...................................... $17.02 $52.77 $ 90.89 $197.73
</TABLE>
The Annual Contract Maintenance Fee is reflected in this example 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 this example to be a representation of past or future
expenses or performance. Actual expenses may be higher than those shown,
subject to the guarantees in the Contract.
CONDENSED FINANCIAL INFORMATION
Please note that the Appendix contains a history of accumulation unit values
in a table labeled "Condensed Financial Information."
8
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1. THE ANNUITY CONTRACT
The Advisor's Edge 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 twenty-eight
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 Advisor's Edge 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 twenty-eight 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 20.)
. Withdraw all or part of your money 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 26.)
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 10.
At your election, payments can be either variable or fixed. If variable, the
payments rise or fall depending on the investment performance of the
Portfolios you choose. If fixed, the payment amounts are guaranteed.
Annuity payments are available in a wide variety of options, including
payments over a specified period or for life (for either a single life or
joint lives), with or without a guaranteed number of payments.
The Separate Account
When you purchase a Contract, your money is deposited into AUSA Life's
Separate Account C. The Separate Account contains a number of Subaccounts that
invest exclusively in shares of the corresponding Portfolios. The investment
performance of each Subaccount is linked directly to the investment
performance of one of the Portfolios. Assets in the Separate Account belong to
AUSA Life but are accounted for separately from AUSA Life's other assets and
can be used only to satisfy its obligations to Contract Owners.
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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.
. 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.
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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 Advisor's Edge 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 Advisor's
Edge as a Qualified Contract. Note that Qualified Contracts contain certain
other restrictive provisions limiting the timing of payments to and
distributions from the Qualified Contract. (See QUALIFIED INDIVIDUAL
RETIREMENT ANNUITIES, page 26.)
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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
(or $50 if by monthly payroll deduction) for Non-Qualified Contracts.
Additional Purchase Payments must be at least $50 for Qualified
Contracts.
. Additional Purchase Payments received before the close of the New York
Stock Exchange (usually 4:00 p.m. Eastern time) are credited to the
Contract's Accumulated Value as of the close of business that same day.
. The minimum amount that you can allocate to any one Portfolio is $250
(except where Purchase Payments are made by monthly payroll deduction).
. The total of all Purchase Payments may not exceed $1,000,000 without our
prior approval.
. Unless you indicate otherwise, your Initial Net Purchase Payment will be
invested immediately upon our receiving 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.
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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 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 Advisor's Edge variable annuity offers you a means of investing in twenty-
eight portfolios offered by nine 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.
DFA Investment Dimensions Group Inc.
Advised by Dimensional Fund Advisors, Inc.
The Fund is an open-end management investment company organized under Maryland
law in 1981, and is registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940 (the "1940 Act"). The Fund
consists of 34 series of shares, six of which are available as part of the
Advisor's Edge.
DFA Small Value Portfolio seeks to achieve long-term capital appreciation
by investing in common stocks of U.S. companies that are value stocks,
primarily because they have a high book value in relation to their market
value (a "book to market ratio"), and whose market capitalizations are
smaller than that of the company having the median market capitalization of
companies whose shares are listed on the New York Stock Exchange. A
company's shares will be considered to have a high book to market ratio if
the ratio equals or exceeds the ratios of any of the 30% of companies with
the highest positive book to market ratios whose shares are listed on the
New York Stock Exchange.
DFA Large Value Portfolio seeks to achieve longer term capital appreciation
by investing in common stocks of U.S. companies that are value stocks,
primarily because they have a high book value in relation to their market
value (a "book to market ratio"), and whose market capitalizations are
smaller than that of the company having the median market capitalization of
companies whose shares are listed on the New York Stock Exchange.
DFA International Value Portfolio seeks to achieve long-term capital
appreciation by investing in value stocks of large non-U.S. companies.
Securities are considered value stocks primarily because a company's shares
at the time of purchase have a book to market ratio that equals or exceeds
the ratios of any of the 30% of companies in that county with the highest
positive book to market ratios.
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DFA International Small Portfolio seeks to achieve long-term capital
appreciation. This Portfolio provides investors with access to securities
portfolios consisting of small Japanese, United Kingdom, Continental, and
Pacific Rim companies. The Portfolio seeks to achieve its investment
objective by investing its assets in a broad and diverse group of
marketable stocks of (1) Japanese small companies that are traded in the
Japanese securities markets; (2) United Kingdom small companies that are
traded principally on the International Stock Exchange of the United
Kingdom and the Republic of Ireland; (3) small companies organized under
the laws of certain European countries; and (4) small companies located in
Australia, New Zealand, and Asian countries whose shares are traded
principally on the securities markets located in those countries. As of
March 1, 1999, Malaysian securities constitute approximately 3.62% of the
net assets value of the DFA International Small Portfolio. As of September
10, 1998, the DFA International Small Portfolio discontinued further
investment in such securities as a consequence of certain restrictions
imposed by the Malaysian government on the repatriation of assets of
foreign investors such as the Portfolio. The Portfolio presently values
such securities at current market prices, discounting the U.S. dollar-
ringgit currency exchange rate. Pending further clarification from
Malaysian regulatory authorities regarding the controls discussed above,
the Portfolio treats its investments in Malaysian Securities as illiquid.
Please refer to the applicable Fund prospectus for details.
DFA Short-Term Fixed Portfolio seeks to achieve a stable real value (i.e.,
a return in excess of the rate of inflation) of invested capital with a
minimum of risk by investing in U.S. government obligations, U.S.
government agency obligations, dollar denominated obligations of foreign
issuers issued in the U.S., bank obligations, including U.S. subsidiaries
and branches of foreign banks, corporate obligations, commercial paper,
repurchase agreements, and obligations of supranational organizations.
Generally, this Portfolio will acquire obligations that mature within one
year from the date of settlement, but substantial investments may be made
in obligations maturing within two years from the date of settlement when
greater returns are available.
DFA Global Bond Portfolio seeks to provide a market rate of return for a
global fixed income portfolio with low relative volatility of returns. This
Portfolio will invest primarily in obligations issued or guaranteed by the
U.S. and foreign governments and their agencies and instrumentalities,
obligations of other foreign issuers rated AA or better and supranational
organizations, such as the World Bank, the European Investment Bank,
European Economic Community, and European Coal and Steel Community, and
corporate debt obligations.
Endeavor Series Trust
Advised by Endeavor Management Co.
Endeavor Series Trust is a diversified, open-end management investment company
that offers a selection of managed investment portfolios. Each portfolio
constitutes a separate mutual fund with its own investment objectives and
policies. The Fund is organized as a Massachusetts business trust and is
registered with the SEC under the 1940 Act. The Fund currently issues shares
of thirteen portfolios, three of which are available as part of the Advisor's
Edge.
Dreyfus Small Cap Value Portfolio seeks capital growth by investing in
companies with a median capitalization of approximately $750 million, with
at least 75% of the Portfolio's investments in companies with
capitalizations between $150 million and $1.5 billion. The Dreyfus
Corporation serves as the subadviser to the Portfolio.
Endeavor Enhanced Index Portfolio's investment objective is to earn a total
return modestly in excess of the total return performance of the S&P 500
Composite Stock Price Index (including the reinvestment of dividends) ("S&P
500 Index") while maintaining a volatility of return similar to the S&P 500
Index. J.P. Morgan Investment Management, Inc. serves as the subadviser to
the Endeavor Enhanced Index Portfolio.
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T. Rowe Price International Stock Portfolio's investment objective is to
provide long-term growth of capital through investments primarily in the
common stocks of established non-U.S. companies. Rowe Price-Fleming
International, Inc. serves as the subadviser to the Portfolio.
The Federated Insurance Series
Advised by Federated Advisors
The Federated Insurance Series is an open-end management investment company
organized as a Massachusetts business trust and registered under the 1940 Act.
The Fund consists of eight investment portfolios, five of which are available
as part of the Advisor's Edge.
Federated American Leaders Portfolio's primary investment objective is to
achieve long-term growth of capital. The Portfolio's secondary objective is
to provide income. The Portfolio pursues its investment objectives by
investing, under normal circumstances, at least 65% of its total assets in
common stock of "blue-chip" companies. This Portfolio was formerly known as
the Federated Equity Growth & Income Portfolio.
Federated Utility Portfolio seeks to achieve high current income and
moderate capital appreciation. The Portfolio endeavors to achieve its
objective by investing primarily in a professionally managed and
diversified portfolio of equity and debt securities of utility companies.
Federated Prime Money Portfolio seeks to provide current income consistent
with stability of principal and liquidity. The Portfolio pursues its
investment objective by investing exclusively in a portfolio of money
market instruments maturing in 397 days or less.
Federated U.S. Government Securities Portfolio seeks to provide current
income. Under normal circumstances, the Portfolio pursues its investment
objective by investing at least 65% of the value of its total assets in
securities issued or guaranteed as to payment of principal and interest by
the U.S. government, its agencies, or instrumentalities. This Portfolio was
formerly known as the Federated U.S. Government Bond Portfolio.
Federated High Income Bond Portfolio's investment objective is to seek high
current income by investing primarily in a diversified portfolio of
professionally managed fixed income securities. The fixed income securities
in which the Portfolio intends to invest are lower-rated corporate debt
obligations, which are commonly referred to as "junk bonds." Some of these
fixed income securities may involve equity features. Capital growth will be
considered, but only when consistent with the investment objective of high
current income. This Portfolio was formerly known as the Federated
Corporate Bond Portfolio.
The Montgomery Funds III
Advised by Montgomery Asset Management, LLC
The Montgomery Funds III is an open-end management investment company
organized as a Delaware business trust and registered under the 1940 Act. The
Fund consists of three professionally managed investment portfolios, two of
which are available as part of the Advisor's Edge. Montgomery Asset
Management, LLC ("MAM") was organized as a Delaware limited liability company
in 1997 and serves as the Fund's investment advisor. On July 31, 1997,
Montgomery Management, L.P., formed in 1990, completed the sale of
substantially all of its assets to MAM.
Montgomery Growth Portfolio's investment objective is capital appreciation,
which, under normal conditions, it seeks by investing at least 65% of its
total assets in the equity securities of U.S. companies and by targeting
companies having total market capitalizations of $1 billion or more.
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Montgomery Emerging Markets Portfolio, under normal conditions, invests at
least 65% of its total assets in stock of companies based in the world's
developing economies. The Portfolio typically maintains investments in at
least six of these countries at all times, with no more than 25% of its
assets in any single one of them.
SteinRoe Variable Investment Trust
Advised by Stein Roe & Farnham Incorporated
The SteinRoe Variable Investment Trust is an open-end, diversified management
investment company organized as a Massachusetts business trust and registered
under the 1940 Act. The Fund currently consists of five investment portfolios,
one of which is available as part of the Advisor's Edge.
Stein Roe Special Venture Portfolio, under normal market conditions,
invests at least 65% of its assets in common stocks of companies with small
market capitalizations. The Portfolio invests in new issuers during periods
when new issues are being brought to market. The Portfolio also invests in
midcap companies. The Portfolio invests in companies that compete within
large and growing markets and that appear to have the ability to grow their
market share. To find companies with these characteristics, the portfolio
managers seek out companies that are - or, in the portfolio managers'
judgment, have the potential to be - a market share leader within their
respective industry. They also look for companies with strong management
teams that participate in the ownership of the companies.
Strong Variable Insurance Funds, Inc.
Advised by Strong Capital Management, Inc.
Strong Variable Insurance Funds, Inc. is an open-end management investment
company organized under Wisconsin law and registered under the 1940 Act. The
two series issued by the Fund are available as part of the Advisor's Edge.
Strong International Stock Portfolio's investment objective is to achieve
capital growth. This Portfolio seeks to achieve its investment objective by
investing primarily in the equity securities of issuers located outside the
United States. This Portfolio will invest at least 65% of its total assets
in foreign equity securities, including common stocks, preferred stocks,
and securities that are convertible into common or preferred stocks, such
as warrants and convertible bonds, that are issued by companies whose
principal headquarters are located outside the United States. Under normal
market conditions, this Portfolio expects to invest at least 90% of its net
assets in foreign equity securities. This Portfolio will normally invest in
securities of issuers located in at least three different countries.
Strong Schafer Value Portfolio's primary objective is long-term capital
appreciation. The Portfolio seeks to achieve its objective by investing in
stocks that offer attractive growth potential but that, for a variety of
reasons, are either undervalued or have gone unnoticed by the market. The
Portfolio is managed with a long-term perspective, and stocks are typically
held for two or more years, giving the Portfolio the ability to take full
advantage of a company's growth potential. The manager looks for stocks on
an above-average growth trend but whose price is selling at a discount to
the S&P 500. Schafer Capital Management serves as the subadviser to the
Strong Schafer Value Portfolio.
Wanger Advisors Trust
Advised by Wanger Asset Management, L.P.
Wanger Advisors Trust, an open-end management investment company, was
organized as a Massachusetts business trust in 1994 and is registered under
the 1940 Act. The Fund has made two of its series available as part of the
Advisor's Edge. Wanger Asset Management, L.P. is a limited partnership managed
by its general partner, Wanger Asset Management, Ltd.
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Wanger U.S. Small Cap Advisor Portfolio seeks long-term growth of capital.
The Portfolio pursues its investment objective by investing primarily in
stocks of small and medium-sized U.S. companies. The Portfolio may also
invest in debt securities, including lower-rated debt securities, that may
be regarded as having speculative characteristics and are commonly referred
to as "junk bonds."
Wanger International Small Cap Advisor Portfolio seeks long-term growth of
capital. The Portfolio pursues its investment objective by investing
primarily in stocks of small and medium-sized foreign companies. The
Portfolio may also invest in debt securities, including lower-rated debt
securities, that may be regarded as having speculative characteristics and
are commonly referred to as "junk bonds."
Warburg Pincus Trust
Advised by Warburg Pincus Asset Management, Inc.
Warburg Pincus Trust, an open-end management investment company, was organized
as a Massachusetts business trust in 1995 and is registered under the 1940
Act. The Fund currently offers four investment portfolios, two of which are
available as part of the Advisor's Edge.
Warburg Pincus International Equity Portfolio's investment objective is to
achieve long-term capital appreciation. This Portfolio seeks to achieve its
investment objective by investing primarily in equity securities of
companies, wherever organized, that in the judgment of the Portfolio's
adviser have their principal business activities and interests outside of
the United States. This Portfolio will ordinarily invest substantially all
its assets - but no less than 65% of its total assets - in common stocks,
warrants, and securities convertible into or exchangeable for common
stocks. Generally, this Portfolio will hold no less than 65% of its total
assets in a least three countries other than the United States. Investment
may be made in equity securities of companies of any size, whether traded
on or off a national securities exchange.
Warburg Pincus Small Company Growth Portfolio's investment objective is to
achieve capital growth. This Portfolio seeks to achieve its investment
objective by investing in a portfolio of equity securities of small-sized
domestic companies. This Portfolio will ordinarily invest at least 65% of
its total assets in common stocks or warrants of small companies that
present attractive opportunities for capital growth. The Portfolio
considers a "small" company to be one that has a market capitalization,
measured at the time the Portfolio purchases a security of that company,
within the range of capitalizations of companies represented in the Russell
2000 Index. (As of December 31, 1998, the Russell 2000 Index included
companies with market capitalizations between $4.4 million and $3.2
billion.) It is anticipated that this Portfolio will invest primarily in
companies whose securities are traded on domestic stock exchanges or in the
over-the-counter market. This Portfolio's investments will be made on the
basis of equity characteristics and securities ratings generally will not
be a factor in the selection process.
WRL Series Fund, Inc.
Advised by WRL Investment Management, Inc.
WRL Series Fund, Inc. is a diversified, open-end management investment company
that offers a selection of managed investment portfolios. Each portfolio
constitutes a separate mutual fund with its own investment objectives and
policies. The Fund is registered under the 1940 Act. The Fund currently issues
twenty-three portfolios, five of which are available as part of the Advisor's
Edge.
WRL Alger Aggressive Growth Portfolio's investment objective is to achieve
long-term capital appreciation. The Portfolio invests primarily in equity
securities, such as common stock or preferred stock, or convertible
securities. Fred Alger Management, Inc. serves as subadvisor to the WRL
Alger Aggressive Growth Portfolio.
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WRL Janus Global Portfolio seeks long-term growth of capital in a manner
consistent with preservation of capital. The Portfolio invests primarily in
common stocks of foreign and domestic issuers and depositary receipts,
including American Depositary Receipts, Global Depositary Receipts, and
European Depositary Receipts. Janus Capital Corporation serves as
subadvisor to the WRL Janus Global Portfolio.
WRL Janus Growth Portfolio's investment objective is to seek growth of
capital. The Portfolio invests primarily in common stocks and to a lesser
extent in futures. Janus Capital Corporation serves as subadvisor to the
WRL Janus Growth Portfolio.
WRL LKCM Strategic Total Return Portfolio's investment objective is to
provide current income, long-term growth of income, and capital
appreciation. The Portfolio seeks to achieve its investment objective by
investing primarily in common stock, corporate bonds, convertible preferred
stocks, corporate convertible bonds, and U.S. Treasury Notes. Luther King
Capital Management Corporation serves as subadvisor to the Portfolio.
WRL J.P. Morgan Real Estate Securities Portfolio seeks long-term total
return from investments primarily in equity securities of real estate
companies. Total return will consist of realized and unrealized capital
gains and losses plus income. The Portfolio seeks to achieve its objective
by investing principally in equity securities of real estate companies,
which include common stocks and convertible securities. J.P. Morgan
Investment Management, Inc. serves as subadvisor to the Portfolio.
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 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 Federated Prime Money
Portfolio, you can use the Dollar-Cost Averaging Option to move a specified
dollar amount each month from the
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Federated Prime Money 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 Federated Prime Money 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 Federated Prime
Money 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.
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 0.50% 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.
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A CLOSER LOOK AT
The Mortality and Expense Risk Charge
AUSA Life assumes mortality risk in two ways. First, where Contract Owners
elect an Annuity Payment Option under which AUSA Life guarantees a number of
payments over a life or joint lives, AUSA Life assumes the risk of making
monthly annuity payments regardless of how long all Annuitants may live.
Second, AUSA Life assumes mortality risk in guaranteeing a minimum Death
Benefit in the event the Annuitant dies during the Accumulation Phase.
The expense risk that AUSA Life assumes is that the 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.
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.
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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 25, and DIVERSIFICATION
STANDARDS, page 25.)
A CLOSER LOOK AT
Tax Deferral
Tax deferral means no current tax on earnings in your Contract. The amount
you would have paid in income taxes can be left in the Contract and earn
money for you.
One tradeoff of tax deferral is that there are certain restrictions on your
ability to access your money, including penalty taxes for early withdrawals.
This is one reason why a variable annuity is intended as a long-term
investment.
Another tradeoff is that, when funds are withdrawn, they are taxed at
ordinary income rates instead of capital gains rates, which apply to certain
other sorts of investments.
Taxation of Full and Partial Withdrawals
If you make a full or partial withdrawal (including a Systematic Withdrawal)
from a Non-Qualified Contract during the Accumulation Phase, you as Contract
Owner will be taxed at ordinary income rates on earnings you withdraw at that
time. For purposes of this rule, withdrawals are taken first from earnings on
the Contract and then from the money you invested in the Contract. This
"investment in the contract" can generally be described as the cost of the
Contract, and it generally includes all Purchase Payments minus any amounts
you have already received under the Contract that represented the return of
invested money. Also for purposes of this rule, a pledge or assignment of a
Contract is 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
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payment that is not taxed. To find the dollar amount, AUSA Life divides the
investment in the Contract by the total number of expected periodic payments.
The remaining portion of each payment is taxable at ordinary income tax rates.
Once your investment in the Contract has been returned, the balance of the
Annuity Payments represent earnings only and therefore are fully taxable.
Taxation of Withdrawals and Distributions From Qualified Contracts
Generally, the entire amount distributed from a Qualified Contract is taxable
to the Contract Owner. In the case of Qualified Contracts with after-tax
contributions, you may exclude the portion of each withdrawal or Annuity
Payment constituting a return of after-tax contributions. Once all of your
after-tax contributions have been returned to you on a non-taxable basis,
subsequent withdrawals or annuity payments are fully taxable as ordinary
income. Since AUSA Life has no knowledge of the amount of after-tax
contributions you have made, you will need to make this computation in the
preparation of your federal income tax return.
Tax Withholding
Federal tax law requires that AUSA Life withhold federal income taxes on all
distributions unless the recipient elects not to have any amounts withheld and
properly notifies AUSA Life of that election. In certain situations, AUSA Life
will withhold taxes on distributions to non-resident aliens at a flat 30% rate
unless an exemption from withholding applies under an applicable tax treaty.
Penalty Taxes on Certain Early Withdrawals
The Internal Revenue Code provides for a penalty tax in connection with
certain withdrawals or distributions that are includible in income. The
penalty amount is 10% of 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.
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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 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
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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.
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).
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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.
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 23, and Penalty Taxes on
Certain Early Withdrawals, page 24.
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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 Federated Prime Money Subaccount, the yield of the
other Subaccounts, and the total return of all Subaccounts may appear in
reports and promotional literature to current or prospective Contract Owners.
Please refer to the discussion below and to the Statement of Additional
Information for a more detailed description of the method used to calculate a
Portfolio's yield and total return, and a list of the indexes and other
benchmarks used in evaluating a Portfolio's performance.
Standardized Average Annual Total Return
When advertising performance of the Subaccounts, AUSA Life will show the
Standardized Average Annual Total Return for a Subaccount which, as prescribed
by the rules of the SEC, is the effective annual compounded rate of return
that would have produced the cash redemption value over the stated period had
the performance remained constant throughout. The Standardized Average Annual
Total Return assumes a single $1,000 payment made at the beginning of the
period and full redemption at the end of the period. It reflects the deduction
of all applicable sales loads (including the contingent deferred sales load),
the Annual Contract Fee and all other Portfolio, Separate Account and Contract
level charges except Premium Taxes, if any.
ADDITIONAL PERFORMANCE MEASURES
Non-Standardized Cumulative Total Return and Non-Standardized Average Annual
Total Return
AUSA Life may show Non-Standardized Cumulative Total Return (i.e., the
percentage change in the value of an Accumulation Unit) for one or more
Subaccounts with respect to one or more periods. AUSA Life may also show Non-
Standardized Average Annual Total Return (i.e., the average annual change in
Accumulation Unit Values) with respect to one or more periods. For one year,
the Non-Standardized Cumulative Total Return and the Non-Standardized Average
Annual Total Return are effective annual rates of return and are equal. For
periods greater than one year, the Non-Standardized Average Annual Total
Return is the effective annual compounded rate of return for the periods
stated. Because the value of an Accumulation Unit reflects the Separate
Account and Portfolio expenses (see "Fee Table"), the Non-Standardized
Cumulative Total Return and Non-Standardized Average Annual Total Return also
reflect these expenses. These returns do not reflect the Annual Contract Fee,
any sales loads or Premium Taxes (if any), which, if included, would reduce
the percentages reported.
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
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a deduction for the Separate Account and Portfolio expenses, but do not
include the Annual Contract Fee, any sales loads or Premium Taxes (if any),
which, if included, would reduce the percentages reported by AUSA Life.
Non-Standardized One Year Return
AUSA Life may show Non-Standardized One Year Return for one or more
Subaccounts with respect to one or more non-standardized base periods
commencing at the beginning of a calendar year (or date of Portfolio
inception, if during the relevant year) and ending at the end of such calendar
year. One Year Return figures reflect the historical performance of the
Portfolios as if the Contract were in existence before its inception date
(which it was not). After the Contract's inception date, the figures reflect
the percentage change in actual Accumulation Unit Values during the relevant
period. These returns reflect a deduction for the Separate Account and
Portfolio expenses, but do not include the Annual Contract Fee, any sales
loads or Premium Taxes (if any), which, if included, would reduce the
percentage reported by AUSA Life.
Non-Standardized 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 Federated Prime Money Portfolio. "Yield" refers to
the income generated by an investment in Federated Prime Money 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 Federated Prime Money 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 Federated Prime
Money 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.
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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.
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.
30
<PAGE>
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.
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.
31
<PAGE>
Designation of a Beneficiary
The Contract Owner may select one or more Beneficiaries and name them in the
Contract application. Thereafter, while the Annuitant or Joint Annuitant is
living, the Contract Owner may change the Beneficiary by written notice. The
change will take effect as of the date the Contract Owner signs the notice,
but it will not affect any payment made or any other action taken before AUSA
Life acknowledges the notice. The Contract Owner may also make the designation
of Beneficiary irrevocable by sending written notice to AUSA Life and
obtaining approval from AUSA Life. Changes in the Beneficiary may then be made
only with the consent of the designated irrevocable Beneficiary.
If the Annuitant dies during the Accumulation Period, the following will apply
unless the Contract Owner has made other provisions:
. If there is more than one Beneficiary, each will share in the Death Benefit
equally.
. If one or two or more Beneficiaries have already died, AUSA Life will pay
that share of the Death Benefit equally to the survivor(s).
. If no Beneficiary is living, AUSA Life will pay the proceeds to the
Contract Owner.
. If a Beneficiary dies at the same time as the Annuitant, AUSA Life will pay
the proceeds as though the Beneficiary had died first. If a Beneficiary
dies within 15 days after the Annuitant's death and before AUSA Life
receives due proof of the Annuitant's death, AUSA Life will pay proceeds as
though the Beneficiary had died first.
If a Beneficiary who is receiving Annuity Payments dies, AUSA Life will pay
any remaining Payments Certain to that Beneficiary's named Beneficiary(ies)
when due. If no Beneficiary survives the Annuitant, the right to any amount
payable will pass to the Contract Owner. If the Contract Owner is not living
at this time, this right will pass to his or her estate.
Death of the Contract Owner
Death of the Contract Owner During the Accumulation Phase. With two
exceptions, federal tax law requires that when either the Contract Owner or
the Joint Owner (if any) dies during the Accumulation Phase, AUSA Life must
pay out the entire value of the Contract within five years of the date of
death. First exception: If the entire value is to be distributed to the
Owner's Designated Beneficiary, he or she may elect to have it paid under an
Annuity Payment Option over his or her life or over a period certain no longer
than his or her life expectancy as long as the payments begin within one year
of the Contract Owner's death. Second exception: If the Owner's Designated
Beneficiary is the spouse of the Contract Owner (or Joint Owner), the spouse
may elect to continue the Contract in his or her name as Contract Owner
indefinitely and to continue deferring tax on the accrued and future income
under the Contract. ("Owner's Designated Beneficiary" means the natural person
whom the Contract Owner names as a beneficiary and who becomes the Contract
Owner upon the Contract Owner's death.) If the Contract Owner and the
Annuitant are the same person, then upon that person's death the Beneficiary
is entitled to the Death Benefit. In this regard, see Death of the Annuitant
During the Accumulation Phase, page 30.
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
32
<PAGE>
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.
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 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
33
<PAGE>
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 4, 1994. On October 1, 1998, First Providian, together with the
Separate Account, was merged into AUSA Life. The Separate Account survived the
merger intact.
The Separate Account is a unit investment trust registered with the SEC under
the 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 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 twenty-eight 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.
34
<PAGE>
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 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
35
<PAGE>
Contract decrease as the reserves allocated to the Portfolio decrease. In
determining the number of votes, fractional shares will be recognized.
The number of votes of the Portfolio that are available will be determined as
of the date established by that Portfolio for determining shareholders
eligible to vote at the meeting of the Fund. Voting instructions will be
solicited by written communication prior to such meeting in accordance with
procedures established by the Fund.
Additions, deletions, or substitutions of investments
AUSA Life retains the right, subject to any applicable law, to make certain
changes. AUSA Life reserves the right to eliminate the shares of any of the
Portfolios and to substitute shares of another Portfolio of the Funds or of
another registered open-end management investment company, if the shares of
the Portfolios are no longer available for investment or if, in AUSA Life's
judgment, investment in any Portfolio would be inappropriate in view of the
purposes of the Separate Account. To the extent the 1940 Act requires,
substitutions of shares attributable to a Contract Owner's interest in a
Portfolio will not be made until SEC approval has been obtained and the
Contract Owner has been notified of the change.
AUSA Life may establish new Portfolios when marketing, tax, investment, or
other conditions so warrant. AUSA Life will make any new Portfolios available
to existing Contract Owners on a basis AUSA Life will determine. AUSA Life may
also eliminate one or more Portfolios if marketing, tax, investment, or other
conditions so warrant.
In the event of any such substitution or change, AUSA Life may, by appropriate
endorsement, make whatever changes in the Contracts may be necessary or
appropriate to reflect such substitution or change. Furthermore, if deemed to
be in the best interests of persons having voting rights under the Contracts,
AUSA Life may operate the Separate Account as a management company under the
1940 Act or any other form permitted by law, may deregister the Separate
Account under the 1940 Act in the event such registration is no longer
required, or may combine the Separate Account with one or more other separate
accounts.
Year 2000 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 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.
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<PAGE>
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 Advisor's Edge 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
Advisor's Edge 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.
37
<PAGE>
TABLE OF CONTENTS FOR THE ADVISOR'S EDGE 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........................................................ 5
Incontestability........................................................ 5
Ownership............................................................... 5
PERFORMANCE INFORMATION................................................... 5
Money Market Subaccount Yields.......................................... 6
30-Day Yield for Non-Money Market Subaccounts........................... 6
Standardized Average Annual Total Return for Subaccounts................ 6
ADDITIONAL PERFORMANCE MEASURES........................................... 8
Non-Standardized Cumulative Total Return and Non-Standardized Average
Annual Total Return.................................................... 8
Non-Standardized Total Return Year-to-Date.............................. 9
Non-Standardized One Year Return........................................ 10
Non-Standardized Adjusted Historical Cumulative Return and Non-
Standardized Adjusted Historical Average Annual Total Return........... 11
Individualized Computer Generated Illustrations......................... 22
PERFORMANCE COMPARISONS................................................... 22
SAFEKEEPING OF ACCOUNT ASSETS............................................. 24
CONFLICTS OF INTEREST WITH OTHER SEPARATE ACCOUNTS........................ 24
AUSA LIFE................................................................. 25
TAXES..................................................................... 25
STATE REGULATION OF AUSA LIFE............................................. 26
RECORDS AND REPORTS....................................................... 26
DISTRIBUTION OF THE CONTRACTS............................................. 26
LEGAL PROCEEDINGS......................................................... 26
OTHER INFORMATION......................................................... 26
FINANCIAL STATEMENTS...................................................... 27
</TABLE>
38
<PAGE>
APPENDIX
CONDENSED FINANCIAL INFORMATION
(For the period January 1, 1997 through December 31, 1998)
<TABLE>
<CAPTION>
DFA DFA DFA
DFA Small DFA Large International International DFA Short- Global Dreyfus Small
Value Value Value Small Term Fixed Bond Cap Value
------------ ------------- ------------- -------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Accumulation unit value as of:
Start Date*........... 9.992 9.948 10.000 9.949 10.000 9.990 10.000
12/31/97.............. 12.645 12.242 9.995 7.661 10.426 10.640 N/A
12/31/98.............. 11.733 13.471 11.096 8.006 10.926 11.443 90.24
Number of units Outstanding as of
12/31/97.............. 7,359 12,353 12,955 11,690 30,884 7,312 N/A
12/31/98.............. 4,742 7,122 7,565 7,212 2,584 32,339 2,299
<CAPTION>
Endeavor Federated Federated
Enhanced TRP American Federated High Federated U.S. Gov't Federated
Index International Leaders Income Bond Prime Money Securities Utility
------------ ------------- ------------- -------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Accumulation unit value as of:
Start Date*........... 9.991 10.000 9.987 10.020 10.001 10.030 10.008
12/31/97.............. N/A N/A 12.30 11.156 10.404 10.751 12.476
12/31/98.............. 13.057 10.541 14.379 11.383 10.831 11.500 14.124
Number of units outstanding as of
12/31/97.............. N/A N/A 6,261 45,383 291 22,835 6,250
12/31/98.............. 2,043 2,246 21,099 35,115 10,251 21,492 10,988
<CAPTION>
Montgomery Stein Roe Wanger Wanger Int'l
Montgomery Emerging Special Strong Int'l Strong U.S. Small Small Cap
Growth Markets Venture Stock Schafer Value Cap Advisor Advisor
------------ ------------- ------------- -------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Accumulation unit value as of:
Start Date*........... 10.039 9.941 9.030 9.892 10.834 10.031 10.045
12/31/97.............. 12.389 8.827 11.571 8.384 N/A 13.396 9.569
12/31/98.............. 12.669 5.478 9.507 7.931 10.220 14.465 11.060
Number of units outstanding as of
12/31/97.............. 3,049 6,210 2,782 3,581 N/A 4,703 2,280
12/31/98.............. 7,015 11,154 276 343 0 8,428 14,103
<CAPTION>
WRL J.P.
Warburg Warburg WRL Alger Morgan Real WRL LKCM
Pincus Int'l Pincus Small Aggressive Estate WRL Janus WRL Janus Strategic
Equity Co. Growth Growth Securities Global Growth Total Return
------------ ------------- ------------- -------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Accumulation unit value as of:
Start Date*........... 9.880 9.919 N/A N/A N/A N/A N/A
12/31/97.............. 9.601 13.183 N/A N/A N/A N/A N/A
12/31/98.............. 10.049 12.724 N/A N/A N/A N/A N/A
Number of units outstanding as of
12/31/97.............. 1,294 1,348 N/A N/A N/A N/A N/A
12/31/98.............. 906 125 N/A N/A N/A N/A N/A
</TABLE>
* Date of commencement of operations for the Subaccounts was as follows:
1/23/97 for DFA Small Value, DFA Large Value, DFA International Value, DFA
International Small, and DFA Global Bond; 1/22/97 for Federated Prime Money;
2/21/97 for DFA Short-Term Fixed; 2/26/97 for Montgomery Emerging Markets;
3/7/97 for Federated U.S. Government Securities; 4/1/97 for Strong
International Stock, Warburg Pincus International Equity, and Warburg Pincus
Small Company Growth; 5/1/97 for Federated American Leaders, Federated
Utility, Federated High Income Bond, Montgomery Growth, Stein Roe Special
Venture, Wanger U.S. Small Cap Advisor, and Wanger International Small Cap
Advisor; 10/14/97 for T. Rowe Price International Stock and Dreyfus Small
Cap Value; 10/15/97 for Endeavor Enhanced Index; and 3/27/98 for Strong
Schafer Value. As of December 31, 1998, the following Subaccounts had not
commenced operations: WRL Alger Aggressive Growth; WRL J.P. Morgan Real
Estate Securities; WRL Janus Global; WRL Janus Growth; and WRL LKCM
Strategic Total Return. 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
ADVISOR'S EDGE 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 Advisor's Edge variable annuity contract (the
"Contract") offered by AUSA Life Insurance Company, Inc. ("the Company" or "AUSA
Life"). You may obtain a copy of the Prospectus dated May 1, 1999, as revised
on July 27, 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, Revised July 27, 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............................................................. 5
Incontestability............................................................. 5
Ownership.................................................................... 5
PERFORMANCE INFORMATION........................................................ 5
Money Market Subaccount Yields............................................... 6
30-Day Yield for Non-Money Market Subaccounts................................ 6
Standardized Average Annual Total Return for Subaccounts..................... 6
ADDITIONAL PERFORMANCE MEASURES................................................ 8
Non-Standardized Cumulative Total Return and Non-Standardized Average
Annual Total Return........................................................ 8
Non-Standardized Total Return Year-to-Date................................... 9
Non-Standardized One Year Return............................................. 10
Non-Standardized Adjusted Historical Cumulative Return and Non-Standardized
Adjusted Historical Average Annual Total Return............................ 11
Individualized Computer Generated Illustrations.............................. 22
PERFORMANCE COMPARISONS........................................................ 22
SAFEKEEPING OF ACCOUNT ASSETS.................................................. 24
CONFLICTS OF INTEREST WITH OTHER SEPARATE ACCOUNTS............................. 24
AUSA LIFE...................................................................... 25
TAXES.......................................................................... 25
STATE REGULATION OF AUSA LIFE.................................................. 26
RECORDS AND REPORTS............................................................ 26
DISTRIBUTION OF THE CONTRACTS.................................................. 26
LEGAL PROCEEDINGS.............................................................. 26
OTHER INFORMATION.............................................................. 26
FINANCIAL STATEMENTS........................................................... 27
</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 assessed at an annual rate of 1.25% for the
mortality and expense risks assumed by AUSA Life;
(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 impose reduced sales loads, 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 impose reduced sales loads and reduced 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 the 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, 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, is based on the
Moody's Corporate Bond Yield Averages-Monthly Average Corporates (the
"Average"), which is published by Moody's Investors Services, 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.
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<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. A $40
processing fees is charged for each loan. 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 instructed to the
contrary by the Annuitant, 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 or the guarantees of the General Account Guaranteed Options. The
loan amount will be withdrawn on a pro rata basis first from the Portfolios to
which Accumulated Value has been allocated, and if that amount is insufficient,
collateral will then be transferred from the General Account Guaranteed Options
except the Guaranteed Equity Option. As with any withdrawal, Market Value
Adjustments or other deductions applicable to amounts allocated to General
Account Guaranteed Options may be applied and no amounts may be withdrawn from
the Guaranteed Equity Option. 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 will never been less than the General Account Guaranteed Option's
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/or General Account
Guaranteed Options and in the same proportion as when the loan was initially
made, unless the Annuitant specifies 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 the Contracts issued
by AUSA Life.
3
<PAGE>
The Code imposes restrictions on full or partial surrenders from 403(b)
individual accounts attributable to Purchase Payments under a salary reduction
agreement and to any earnings on the entire 403(b) individual account credited
on and after January 1, 1989. Surrenders of these amounts are allowed only if
the Contract Owner (a) has died, (b) has become disabled, as defined in the
Code, (c) has attained age 59 1/2, or (d) has separated from service.
Surrenders are 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.
4
<PAGE>
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.
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 Federated Prime Money 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.)
Until October 1995, the DFA Large Value Portfolio (formerly DFA Global Value
Portfolio) invested its assets in both U.S. and international securities.
Depending on the period presented, total return and performance information
presented for the DFA Large Value Portfolio may reflect the performance of the
Portfolio when it invested in the stocks of both U.S. and international
companies. Total return and performance information for the DFA Large Value
Portfolio which includes the period prior to October 1995 should not be
considered indicative of the Portfolio's future performance.
Where applicable, the following Subaccount inception dates are used in the
calculation of performance figures: 1/23/97 for DFA Global Bond Portfolio;
1/23/97 for DFA International Small Portfolio; 1/23/97 for DFA International
Value Portfolio; 1/23/97 for DFA Large Value Portfolio; 2/21/97 for DFA Short-
Term Fixed Portfolio; 1/23/97 for DFA Small Value Portfolio; 1/22/97 for
Federated Prime Money Portfolio; 5/1/97 for Federated American Leaders
Portfolio; 5/1/97 for Federated Utility Portfolio; 3/7/97 for Federated U.S.
Government Securities Portfolio; 5/1/97 for Federated High Income Bond
Portfolio; 5/1/97 for Montgomery Growth Portfolio; 2/26/97 for Montgomery
Emerging Markets Portfolio; 5/1/97 for Wanger U.S. Small Cap Advisor Portfolio;
5/1/97 for Wanger International Small Cap Advisor Portfolio; 10/14/97 for
Dreyfus Small Cap Value Portfolio; 10/15/97 for Endeavor Enhanced Index
Portfolio; 10/14/97 for T. Rowe Price International Portfolio; 5/1/97 for Stein
Roe Special Venture Portfolio; 4/1/97 for Strong International Stock Portfolio;
3/27/98 for Strong Schafer Value Portfolio; 4/1/97 for Warburg Pincus
International Equity Portfolio; and 4/1/97 for Warburg Pincus Small Company
Growth Portfolio. The WRL Alger Aggressive Growth, WRL J.P. Morgan Real Estate
Securities, WRL Janus Global, WRL Janus Growth, and WRL LKCM Strategic Total
Return Subaccounts had not commenced operations as of 12/31/98.
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<PAGE>
Where applicable, the following Fund inception dates are used in the calculation
of performance figures: 1/12/95 for DFA Global Bond Portfolio; 9/29/95 for DFA
International Small Portfolio; 9/29/95 for DFA International Value Portfolio;
1/12/95 for DFA Large Value Portfolio; 9/29/95 for DFA Short-Term Fixed
Portfolio; 9/29/95 for DFA Small Value Portfolio; 11/21/94 for Federated Prime
Money Portfolio; 2/13/94 for Federated American Leaders Portfolio; 2/10/94 for
Federated Utility Portfolio; 3/29/94 for Federated U.S. Government Securities
Portfolio; 2/2/94 for Federated High Income Bond Portfolio; 2/12/96 for
Montgomery Growth Portfolio; 2/5/96 for Montgomery Emerging Markets Portfolio;
5/3/95 for Wanger U.S. Small Cap Advisor Portfolio; 5/3/95 for Wanger
International Small Cap Advisor Portfolio; 10/31/95 for Strong International
Stock Portfolio; 6/30/95 for Warburg Pincus International Equity Portfolio;
6/30/95 for Warburg Pincus Small Company Growth Portfolio; 10/31/97 for Strong
Schafer Value Portfolio; 4/8/91 for T. Rowe Price International Stock Portfolio;
5/4/93 for Dreyfus Small Cap Value Portfolio; 5/1/97 for Endeavor Enhanced Index
Portfolio; 3/1/94 for WRL Alger Aggressive Growth Portfolio; 5/1/98 for WRL J.P.
Morgan Real Estate Securities Portfolio; 12/31/92 for WRL Janus Global
Portfolio; 10/2/86 for WRL Janus Growth Portfolio; and 3/1/93 for WRL LKCM
Strategic Total Return Portfolio.
FEDERATED PRIME MONEY PORTFOLIO SUBACCOUNT YIELDS
Current yield for the Federated Prime Money Subaccount will be based on the
change in the value of a hypothetical investment (exclusive of capital changes)
over a particular 7-day period, less a pro-rata share of Subaccount expenses
accrued over that period (the "base period"), and stated as a percentage of the
investment at the start of the base period (the "base period return"). The base
period return is then annualized by multiplying by /365/7/, with the resulting
yield figure carried to at least the nearest hundredth of one percent.
Calculation of "effective yield" begins with the same "base period return" used
in the calculation of yield, which is then annualized to reflect weekly
compounding pursuant to the following formula:
Effective Yield = [((Base Period Return)+1)/365/7/]-1
30-DAY YIELD FOR NON-MONEY MARKET SUBACCOUNTS
Quotations of yield for the remaining Subaccounts will be based on all
investment income per Unit earned during a particular 30-day period, less
expenses accrued during the period ("net investment income"), and will be
computed by dividing net investment income by the value of a Unit on the last
day of the period, according to the following formula:
YIELD = 2[(a-b + 1)/6/-1]
---
cd
Where:
[a] equals the net investment income earned during the period by the
Portfolio attributable to shares owned by a Subaccount;
[b] equals the expenses accrued for the period (net of reimbursement);
[c] equals the average daily number of Units outstanding during the period;
and
[d] equals the maximum offering price per Accumulation Unit on the last day
of the period.
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
6
<PAGE>
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).
The following table show the Standardized Average Annual Total Return for the
Subaccounts for the period beginning at the inception of each Subaccount and
ending on December 31, 1998.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
FOR PERIOD ENDING DECEMBER 31, 1998
<TABLE>
<CAPTION>
Since
Subaccount
Subaccount One Year Inception
- ---------- -------- ----------
<S> <C> <C>
DFA Small Value................. -7.24% 8.63%
DFA Large Value................. 10.01% 16.92%
DFA International Value......... 10.99% 5.49%
DFA International Small......... 7.04% -10.64%
DFA Short-Term Fixed............ 4.77% 4.86%
DFA Global Bond................. 7.52% 7.24%
Federated Prime Money........... 4.11% 4.17%
Federated American Leaders...... 16.84% 24.39%
Federated US Gov't Securities... 6.94% 7.78%
Federated Utility............... 13.19% 22.91%
Federated High Income Bond...... 2.01% 7.92%
Wanger Int'l Small Cap.......... 15.55% 5.91%
Wanger US Small Cap............. 7.96% 24.51%
Montgomery Emerg Mkt............ -37.96% -27.65%
Montgomery Growth............... 2.24% 14.94%
Stein Roe Special Venture....... -17.86% -2.60%
Strong Int'l Stock.............. -5.42% -11.88%
Warburg Pincus Int'l Equity..... 4.64% 0.95%
Warburg Pincus Small Co Growth.. -3.51% 15.26%
Dreyfus Small Cap Value......... -2.83% -7.97%
Endeavor Enhanced Index......... 30.51% 24.70%
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
Strong Schafer Value............ N/A -5.68%
T. Rowe Price Int'l............. 14.67% 4.42%
WRL Alger Agg Growth............ N/A N/A
WRL JP Morgan Real Est.......... N/A N/A
WRL Janus Global................ N/A N/A
WRL Janus Growth................ N/A N/A
WRL LKCM Strategic Tot Rtn...... N/A N/A
</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.
NON-STANDARDIZED CUMULATIVE TOTAL RETURN
FOR PERIOD ENDING DECEMBER 31, 1998
<TABLE>
<CAPTION>
Since
Subaccount
Subaccount One Year Inception
- ---------- -------- ----------
<S> <C> <C>
DFA Small Value................. -7.21% 17.43%
DFA Large Value................. 10.04% 35.42%
DFA International Value......... 11.01% 10.96%
DFA International Small......... 7.07% -19.53%
DFA Short-Term Fixed............ 4.80% 9.27%
DFA Global Bond................. 7.54% 14.54%
Federated Prime Money........... 4.13% 8.30%
Federated American Leaders...... 16.86% 43.97%
Federated US Gov't Securities... 6.96% 14.66%
Federated Utility............... 13.21% 41.12%
Federated High Income Bond...... 2.03% 13.61%
Wanger Int'l Small Cap.......... 15.58% 10.10%
Wanger US Small Cap............. 7.98% 44.20%
Montgomery Emerg Mkt............ -37.93% -44.89%
Montgomery Growth............... 2.26% 26.20%
Stein Roe Special Venture....... -17.84% -4.26%
Strong Int'l Stock.............. -5.39% -19.82%
Warburg Pincus Int'l Equity..... 4.67% 1.72%
Warburg Pincus Small Co Growth.. -3.48% 28.28%
Dreyfus Small Cap Value......... -2.81% -9.56%
Endeavor Enhanced Index......... 30.54% 30.68%
</TABLE>
8
<PAGE>
<TABLE>
<S> <C> <C>
Strong Schafer Value............ N/A -5.66%
T. Rowe Price Int'l............. 14.69% 5.42%
WRL Alger Agg Growth............ N/A N/A
WRL JP Morgan Real Est.......... N/A N/A
WRL Janus Global................ N/A N/A
WRL Janus Growth................ N/A N/A
WRL LKCM Strategic Tot Rtn...... N/A N/A
</TABLE>
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
FOR PERIOD ENDING DECEMBER 31, 1998
<TABLE>
<CAPTION>
Since
Subaccount
Subaccount One Year Inception
- ---------- -------- ----------
<S> <C> <C>
DFA Small Value................. -7.21% 8.65%
DFA Large Value................. 10.04% 16.94%
DFA International Value......... 11.01% 5.52%
DFA International Small......... 7.07% -10.61%
DFA Short-Term Fixed............ 4.80% 4.89%
DFA Global Bond................. 7.54% 7.26%
Federated Prime Money........... 4.13% 4.20%
Federated American Leaders...... 16.86% 24.41%
Federated US Gov't Securities... 6.96% 7.81%
Federated Utility............... 13.21% 22.93%
Federated High Income Bond...... 2.03% 7.95%
Wanger Int'l Small Cap.......... 15.58% 5.94%
Wanger US Small Cap............. 7.98% 24.53%
Montgomery Emerg Mkt............ -37.93% -27.62%
Montgomery Growth............... 2.26% 14.97%
Stein Roe Special Venture....... -17.84% -2.57%
Strong Int'l Stock.............. -5.39% -11.86%
Warburg Pincus Int'l Equity..... 4.67% 0.98%
Warburg Pincus Small Co Growth.. -3.48% 15.28%
Dreyfus Small Cap Value......... -2.81% -7.94%
Endeavor Enhanced Index......... 30.54% 24.73%
Strong Schafer Value............ N/A -5.66%
T. Rowe Price Int'l............. 14.69% 4.44%
WRL Alger Agg Growth............ N/A N/A
WRL JP Morgan Real Est.......... N/A N/A
WRL Janus Global................ N/A N/A
WRL Janus Growth................ N/A N/A
WRL LKCM Strategic Tot Rtn...... N/A N/A
</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.
9
<PAGE>
NON-STANDARDIZED TOTAL RETURN YEAR-TO-DATE
<TABLE>
<CAPTION>
Total Return
YTD as of
Subaccount 12/31/98
- ---------- ------------
<S> <C>
DFA Small Value -7.21%
DFA Large Value 10.04%
DFA International Value 11.01%
DFA International Small 7.07%
DFA Short-Term Fixed 4.80%
DFA Global Bond 7.54%
Federated Prime Money 4.13%
Federated American Leaders 16.86%
Federated US Gov't Securities 6.96%
Federated Utility 13.21%
Federated High Income Bond 2.03%
Wanger Int'l Small Cap 15.58%
Wanger US Small Cap 7.98%
Montgomery Emerg Mkt -37.93%
Montgomery Growth 2.26%
Stein Roe Special Venture -17.84%
Strong Int'l Stock -5.39%
Warburg Pincus Int'l Equity 4.67%
Warburg Pincus Small Co Growth -3.48%
Dreyfus Small Cap Value -2.81%
Endeavor Enhanced Index 30.54%
Strong Schafer Value N/A
T. Rowe Price Int'l 14.69%
WRL Alger Agg Growth N/A
WRL JP Morgan Real Est N/A
WRL Janus Global N/A
WRL Janus Growth N/A
WRL LKCM Strategic Tot Rtn N/A
</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.
10
<PAGE>
NON-STANDARDIZED ONE YEAR RETURN
<TABLE>
<CAPTION>
1998 1997 1996 1995
------- ------- ------ ------
<S> <C> <C> <C> <C>
DFA Small Value................. -7.21% 29.60% 21.26% N/A
DFA Large Value................. 10.04% 28.39% 17.72% N/A
DFA International Value......... 11.01% -2.86% 6.41% N/A
DFA International Small......... 7.07% -25.56% -0.39% N/A
DFA Short-Term Fixed............ 4.80% 5.00% 4.51% N/A
DFA Global Bond................. 7.54% 7.09% 8.27% N/A
Federated Prime Money........... 4.13% 4.26% 4.08% 4.46%
Federated American Leaders...... 16.86% 31.48% 20.78% 34.02%
Federated US Gov't Securities... 6.96% 7.88% 3.52% 7.53%
Federated Utility............... 13.21% 25.81% 10.84% 23.88%
Federated High Income Bond...... 2.03% 13.09% 13.57% 17.95%
Wanger Int'l Small Cap.......... 15.58% -2.10% 31.15% N/A
Wanger US Small Cap............. 7.98% 28.57% 45.63% N/A
Montgomery Emerg Mkt............ -37.93% -1.22% N/A N/A
Montgomery Growth............... 2.26% 27.74% N/A N/A
Stein Roe Special Venture....... -17.84% N/A N/A N/A
Strong Int'l Stock.............. -5.39% -14.08% 9.67% N/A
Warburg Pincus Int'l Equity..... 4.67% -2.89% 9.32% N/A
Warburg Pincus Small Co Growth.. -3.48% 14.89% 13.18% N/A
Dreyfus Small Cap Value......... -2.81% 24.76% 24.83% 13.32%
Endeavor Enhanced Index......... 30.54% N/A N/A N/A
Strong Schafer Value............ 1.50% N/A N/A N/A
T. Rowe Price Int'l............. 14.69% 1.95% 14.49% 9.66%
WRL Alger Agg Growth............ 47.75% 23.12% 9.73% 37.15%
WRL JP Morgan Real Est.......... N/A N/A N/A N/A
WRL Janus Global................ 29.19% 17.99% 26.92% 22.28%
WRL Janus Growth................ 63.45% 16.79% 17.21% 46.20%
WRL LKCM Strategic Tot Rtn...... 8.93% 21.08% 14.26% 23.86%
</TABLE>
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.
11
<PAGE>
ADJUSTED HISTORICAL CUMULATIVE RETURNS FOR PERIODS ENDING 12/31/98
(BASED ON SINGLE INITIAL PURCHASE)
<TABLE>
<CAPTION>
Total
Since Fund
1 Year 3 Year Inception Year-End
------- ------- -------------------
<S> <C> <C> <C>
DFA Small Value................. -7.21% 45.82% 43.30%
DFA Large Value................. 10.04% 66.31% 99.91%
DFA International Value......... 11.01% 14.74% 20.91%
DFA International Small......... 7.07% -20.61% -20.03%
DFA Short-Term Fixed............ 4.80% 15.01% 16.32%
DFA Global Bond................. 7.54% 24.69% 40.71%
Federated Prime Money........... 4.13% 13.00% 18.48%
Federated American Leaders...... 16.86% 85.58% 145.56%
Federated US Gov't Securities... 6.96% 19.45% 31.03%
Federated Utility............... 13.21% 57.87% 87.94%
Federated High Income Bond...... 2.03% 31.05% 48.18%
Wanger Int'l Small Cap.......... 15.58% 48.39% 102.27%
Wanger US Small Cap............. 7.98% 102.19% 134.14%
Montgomery Emerg Mkt............ -37.93% N/A -35.57%
Montgomery Growth............... 2.26% N/A 65.38%
Strong Int'l Stock.............. -5.39% -10.85% -8.64%
Warburg Pincus Int'l Equity..... 4.67% 11.12% 18.87%
Warburg Pincus Small Co Growth.. -3.48% 25.50% 56.51%
Dreyfus Small Cap Value......... -2.81% 51.36% 86.32%
Endeavor Enhanced Index......... 30.54% N/A 59.75%
Strong Schafer Value............ 1.50% N/A 2.20%
T. Rowe Price Int'l............. 14.69% 33.88% 62.39%
WRL Alger Agg Growth............ 47.75% 99.62% 168.85%
WRL JP Morgan Real Est.......... N/A N/A -15.26%
WRL Janus Global................ 29.19% 93.47% 221.18%
WRL Janus Growth................ 63.45% 123.74% 846.88%
WRL LKCM Strategic Tot Rtn...... 8.93% 50.70% 108.22%
</TABLE>
ADJUSTED HISTORICAL AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING 12/31/98
(BASED ON SINGLE INITIAL PURCHASE)
<TABLE>
<CAPTION>
Total
Since Fund
1 Year 3 Year Inception Year-End
------- ------- -------------------
<S> <C> <C> <C>
DFA Small Value................. -7.21% 13.40% 11.68%
DFA Large Value................. 10.04% 18.48% 19.06%
DFA International Value......... 11.01% 4.69% 6.00%
DFA International Small......... 7.07% -7.41% -6.63%
DFA Short-Term Fixed............ 4.80% 4.77% 4.75%
DFA Global Bond................. 7.54% 7.63% 8.98%
Federated Prime Money........... 4.13% 4.16% 4.20%
Federated American Leaders...... 16.86% 22.89% 20.17%
Federated US Gov't Securities... 6.96% 6.10% 5.84%
Federated Utility............... 13.21% 16.44% 13.77%
Federated High Income Bond...... 2.03% 9.43% 8.47%
</TABLE>
12
<PAGE>
<TABLE>
<S> <C> <C> <C>
Wanger Int'l Small Cap.......... 15.58% 14.06% 21.19%
Wanger US Small Cap............. 7.98% 26.45% 26.12%
Montgomery Emerg Mkt............ -37.93% N/A -14.01%
Montgomery Growth............... 2.26% N/A 18.99%
Strong Int'l Stock.............. -5.39% -3.76% -2.78%
Warburg Pincus Int'l Equity..... 4.67% 3.58% 5.05%
Warburg Pincus Small Co Growth.. -3.48% 7.87% 13.63%
Dreyfus Small Cap Value......... -2.81% 14.82% 11.61%
Endeavor Enhanced Index......... 30.54% N/A 32.41%
Strong Schafer Value............ 1.50% N/A 1.79%
T. Rowe Price Int'l............. 14.69% 10.21% 6.47%
WRL Alger Agg Growth............ 47.75% 25.91% 22.68%
WRL JP Morgan Real Est.......... N/A N/A -21.95%
WRL Janus Global................ 29.19% 24.61% 21.16%
WRL Janus Growth................ 63.45% 30.79% 20.13%
WRL LKCM Strategic Tot Rtn...... 8.93% 14.65% 13.39%
</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
DFA Small Value
<TABLE>
<CAPTION>
$50,000 Single Purchase Payment Made
December 31, 1995
-------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
----------------------- ------------------
One Average
Year Annual Cumulative
Cumulative Accumulated Total Total Fund Total
Date Payment Value Return Return Return
- ------------ ---------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
12/31/1995 $50,000 $50,000 N/A N/A N/A
12/31/1996 $50,000 $60,630 21.26% 21.26% 21.26%
12/31/1997 $50,000 $78,578 29.60% 25.36% 57.16%
12/31/1998 $50,000 $72,910 -7.21% 13.40% 45.82%
<CAPTION>
$2,000 Purchase Payment Made December 31, 1995
and Yearly December 31st Thereafter
----------------------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
----------------------- ---------------------------------
One Average
Year Annual
Cumulative Accumulated Total Total
Date Payment Value Return Return
- ---------- ---------- ----------- -------------- -----------------
<S> <C> <C> <C> <C>
12/31/1995 $2,000 $2,000 N/A N/A
12/31/1996 $4,000 $4,425 21.26% 21.26%
12/31/1997 $6,000 $7,735 29.60% 26.57%
12/31/1998 $8,000 $9,177 -7.21% 9.23%
</TABLE>
DFA Large Value
<TABLE>
<CAPTION>
$50,000 Single Purchase Payment Made
December 31, 1995
-------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
----------------------- ------------------
One Average
Year Annual Cumulative
Cumulative Accumulated Total Total Fund Total
Date Payment Value Return Return Return
- ------------ ---------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
12/31/1995 $50,000 $50,000 N/A N/A N/A
12/31/1996 $50,000 $58,858 17.72% 17.72% 17.72%
12/31/1997 $50,000 $75,568 28.39% 22.94% 51.14%
12/31/1998 $50,000 $83,153 10.04% 18.48% 66.31%
<CAPTION>
$2,000 Purchase Payment Made December 31, 1995
and Yearly December 31st Thereafter
----------------------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
----------------------- ---------------------------------
One Average
Year Annual
Cumulative Accumulated Total Total
Date Payment Value Return Return
- ---------- ---------- ----------- -------------- -----------------
<S> <C> <C> <C> <C>
12/31/1995 $2,000 $ 2,000 N/A N/A
12/31/1996 $4,000 $ 4,354 17.72% 17.72%
12/31/1997 $6,000 $ 7,591 28.39% 24.51%
12/31/1998 $8,000 $10,352 10.04% 17.48%
</TABLE>
13
<PAGE>
DFA International Value
<TABLE>
<CAPTION>
$50,000 Single Purchase Payment Made
December 31, 1995
------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
----------------------- ------------------
One Average
Year Annual Cumulative
Cumulative Accumulated Total Total Fund Total
Date Payment Value Return Return Return
- ------------ ---------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
12/31/1995 $50,000 $50,000 N/A N/A N/A
12/31/1996 $50,000 $53,206 6.41% 6.41% 6.41%
12/31/1997 $50,000 $51,681 -2.86% 1.67% 3.36%
12/31/1998 $50,000 $57,372 11.01% 4.69% 14.74%
<CAPTION>
$2,000 Purchase Payment Made December 31, 1995
and Yearly December 31st Thereafter
-------------------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
------------------------- ----------------------------
One Average
Year Annual
Cumulative Accumulated Total Total
Date Payment Value Return Return
- ---------- ---------- ------------- --------- -----------------
<S> <C> <C> <C> <C>
12/31/1995 $2,000 $2,000 N/A N/A
12/31/1996 $4,000 $4,128 6.41% 6.41%
12/31/1997 $6,000 $6,010 -2.86% 0.17%
12/31/1998 $8,000 $8,672 11.01% 5.40%
</TABLE>
DFA International Small
<TABLE>
<CAPTION>
$50,000 Single Purchase Payment Made
December 31, 1995
-------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
----------------------- ------------------
One Average
Year Annual Cumulative
Cumulative Accumulated Total Total Fund Total
Date Payment Value Return Return Return
- ------------ ---------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
12/31/1995 $50,000 $50,000 N/A N/A N/A
12/31/1996 $50,000 $49,804 -0.39% -0.39% -0.39%
12/31/1997 $50,000 $37,073 -25.56% -13.89% -25.85%
12/31/1998 $50,000 $39,693 7.07% -7.41% -20.61%
<CAPTION>
$2,000 Purchase Payment Made December 31, 1995
and Yearly December 31st Thereafter
-------------------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
------------------------- ----------------------------
One Average
Year Annual
Cumulative Accumulated Total Total
Date Payment Value Return Return
- ---------- ---------- ------------- --------- -----------------
<S> <C> <C> <C> <C>
12/31/1995 $2,000 $2,000 N/A N/A
12/31/1996 $4,000 $3,992 -0.39% -0.39%
12/31/1997 $6,000 $4,972 -25.56% -18.25%
12/31/1998 $8,000 $7,323 7.07% -5.87%
</TABLE>
DFA Short-Term Fixed
<TABLE>
<CAPTION>
$50,000 Single Purchase Payment Made
December 31, 1995
-------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
----------------------- ------------------
One Average
Year Annual Cumulative
Cumulative Accumulated Total Total Fund Total
Date Payment Value Return Return Return
- ------------ ---------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
12/31/1995 $50,000 $50,000
12/31/1996 $50,000 $52,256 4.51% 4.51% 4.51%
12/31/1997 $50,000 $54,871 5.00% 4.76% 9.74%
12/31/1998 $50,000 $57,503 4.80% 4.77% 15.01%
<CAPTION>
$2,000 Purchase Payment Made December 31, 1995
and Yearly December 31st Thereafter
-------------------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
------------------------- ----------------------------
One Average
Year Annual
Cumulative Accumulated Total Total
Date Payment Value Return Return
- ---------- ---------- ------------- --------- -----------------
<S> <C> <C> <C> <C>
12/31/1995 $2,000 $2,000
12/31/1996 $4,000 $4,090 4.51% 4.51%
12/31/1997 $6,000 $6,295 5.00% 4.84%
12/31/1998 $8,000 $8,597 4.80% 4.82%
</TABLE>
14
<PAGE>
DFA Global Bond
<TABLE>
<CAPTION>
$50,000 Single Purchase Payment Made
December 31, 1995
-------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
----------------------- ------------------
One Average
Year Annual Cumulative
Cumulative Accumulated Total Total Fund Total
Date Payment Value Return Return Return
- ------------ ---------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
12/31/1995 $50,000 $50,000 N/A N/A N/A
12/31/1996 $50,000 $54,135 8.27% 8.27% 8.27%
12/31/1997 $50,000 $57,974 7.09% 7.68% 15.95%
12/31/1998 $50,000 $62,346 7.54% 7.63% 24.69%
<CAPTION>
$2,000 Purchase Payment Made December 31, 1995
and Yearly December 31st Thereafter
-------------------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
------------------------- ----------------------------
One Average
Year Annual
Cumulative Accumulated Total Total
Date Payment Value Return Return
- ---------- ---------- ------------- --------- -----------------
<S> <C> <C> <C> <C>
12/31/1995 $2,000 $2,000 N/A N/A
12/31/1996 $4,000 $4,165 8.27% 8.27%
12/31/1997 $6,000 $6,461 7.09% 7.49%
12/31/1998 $8,000 $8,948 7.54% 7.52%
</TABLE>
Dreyfus Small Cap Value
<TABLE>
<CAPTION>
$50,000 Single Purchase Payment Made
December 31, 1993
-------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
----------------------- ------------------
One Average
Year Annual Cumulative
Cumulative Accumulated Total Total Fund Total
Date Payment Value Return Return Return
- ------------ ---------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
12/31/1993 $50,000 $50,000 N/A N/A N/A
12/31/1994 $50,000 $48,787 -2.43% -2.43% -2.43%
12/31/1995 $50,000 $55,284 13.32% 5.15% 10.57%
12/31/1996 $50,000 $69,010 24.83% 11.34% 38.02%
12/31/1997 $50,000 $86,098 24.76% 14.55% 72.20%
12/31/1998 $50,000 $83,679 -2.81% 10.85% 67.36%
<CAPTION>
$2,000 Purchase Payment Made December 31, 1993
and Yearly December 31st Thereafter
-------------------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
------------------------- ----------------------------
One Average
Year Annual
Cumulative Accumulated Total Total
Date Payment Value Return Return
- ---------- ---------- ------------- --------- -----------------
<S> <C> <C> <C> <C>
12/31/1993 $ 2,000 $ 2,000 N/A N/A
12/31/1994 $ 4,000 $ 3,951 -2.43% -2.43%
12/31/1995 $ 6,000 $ 6,478 13.32% 7.76%
12/31/1996 $ 8,000 $10,086 24.83% 15.68%
12/31/1997 $10,000 $14,583 24.76% 18.97%
12/31/1998 $12,000 $16,174 -2.81% 11.86%
</TABLE>
Endeavor Enhanced Index
<TABLE>
<CAPTION>
$50,000 Single Purchase Payment Made
December 31, 1997
------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
----------------------- -----------------
One Average
Year Annual Cumulative
Cumulative Accumulated Total Total Fund Total
Date Payment Value Return Return Return
- ------------ ---------- ----------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
12/31/1997 $50,000 $50,000 N/A N/A N/A
12/31/1998 $50,000 $65,269 30.54% 30.54% 30.54%
<CAPTION>
$2,000 Purchase Payment Made December 31, 1997
and Yearly December 31st Thereafter
------------------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
------------------------- ---------------------------
One Average
Year Annual
Cumulative Accumulated Total Total
Date Payment Value Return Return
- ---------- ---------- ------------- -------- ----------------
<S> <C> <C> <C> <C>
12/31/1997 $2,000 $2,000 N/A N/A
12/31/1998 $4,000 $4,611 30.54% 30.54%
</TABLE>
15
<PAGE>
T. Rowe Price International
<TABLE>
<CAPTION>
$50,000 Single Purchase Payment Made
December 31, 1991
-------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
----------------------- ------------------
One Average
Year Annual Cumulative
Cumulative Accumulated Total Total Fund Total
Date Payment Value Return Return Return
- ------------ ---------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
12/31/1991 $50,000 $50,000 N/A N/A N/A
12/31/1992 $50,000 $47,882 -4.24% -4.24% -4.24%
12/31/1993 $50,000 $56,367 17.72% 6.18% 12.73%
12/31/1994 $50,000 $52,825 -6.29% 1.85% 5.65%
12/31/1995 $50,000 $57,925 9.66% 3.75% 15.85%
12/31/1996 $50,000 $66,320 14.49% 5.81% 32.64%
12/31/1997 $50,000 $67,614 1.95% 5.16% 35.23%
12/31/1998 $50,000 $77,550 14.69% 6.47% 55.10%
<CAPTION>
$2,000 Purchase Payment Made December 31, 1991
and Yearly December 31st Thereafter
-----------------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
------------------------- ----------------------------
One Average
Year Annual
Cumulative Accumulated Total Total
Date Payment Value Return Return
- ---------- ---------- ------------- --------- -----------------
<S> <C> <C> <C> <C>
12/31/1991 $ 2,000 $ 2,000 N/A N/A
12/31/1992 $ 4,000 $ 3,915 -4.24% -4.24%
12/31/1993 $ 6,000 $ 6,609 17.72% 9.83%
12/31/1994 $ 8,000 $ 8,194 -6.29% 1.60%
12/31/1995 $10,000 $10,985 9.66% 4.70%
12/31/1996 $12,000 $14,577 14.49% 7.74%
12/31/1997 $14,000 $16,861 1.95% 6.14%
12/31/1998 $16,000 $21,339 14.69% 8.09%
</TABLE>
Federated American Leaders Portfolio
<TABLE>
<CAPTION>
$50,000 Single Purchase Payment Made
December 31, 1994
-------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
----------------------- ------------------
One Average
Year Annual Cumulative
Cumulative Accumulated Total Total Fund Total
Date Payment Value Return Return Return
- ------------ ---------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
12/31/1994 $50,000 $ 50,000 N/A N/A N/A
12/31/1995 $50,000 $ 67,009 34.02% 34.02% 34.02%
12/31/1996 $50,000 $ 80,936 20.78% 27.23% 61.87%
12/31/1997 $50,000 $106,414 31.48% 28.63% 112.83%
12/31/1998 $50,000 $124,356 16.86% 25.58% 148.71%
<CAPTION>
$2,000 Purchase Payment Made December 31, 1994
and Yearly December 31st Thereafter
------------------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
------------------------- ----------------------------
One Average
Year Annual
Cumulative Accumulated Total Total
Date Payment Value Return Return
- ---------- ---------- ------------- --------- -----------------
<S> <C> <C> <C> <C>
12/31/1994 $ 2,000 $ 2,000 N/A N/A
12/31/1995 $ 4,000 $ 4,680 34.02% 34.02%
12/31/1996 $ 6,000 $ 7,653 20.78% 25.40%
12/31/1997 $ 8,000 $12,062 31.48% 28.18%
12/31/1998 $10,000 $16,096 16.86% 24.00%
</TABLE>
Federated High Income Bond Portfolio
<TABLE>
<CAPTION>
$50,000 Single Purchase Payment Made
December 31, 1994
-------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
----------------------- ------------------
One Average
Year Annual Cumulative
Cumulative Accumulated Total Total Fund Total
Date Payment Value Return Return Return
- ------------ ---------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
12/31/1994 $50,000 $50,000 N/A N/A N/A
12/31/1995 $50,000 $58,975 17.95% 17.95% 17.95%
12/31/1996 $50,000 $66,977 13.57% 15.74% 33.95%
12/31/1997 $50,000 $75,747 13.09% 14.85% 51.49%
12/31/1998 $50,000 $77,288 2.03% 11.50% 54.58%
<CAPTION>
$2,000 Purchase Payment Made December 31, 1994
and Yearly December 31st Thereafter
-------------------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
------------------------- ----------------------------
One Average
Year Annual
Cumulative Accumulated Total Total
Date Payment Value Return Return
- ---------- ---------- ------------- --------- -----------------
<S> <C> <C> <C> <C>
12/31/1994 $ 2,000 $ 2,000 N/A N/A
12/31/1995 $ 4,000 $ 4,359 17.95% 17.95%
12/31/1996 $ 6,000 $ 6,950 13.57% 15.08%
12/31/1997 $ 8,000 $ 9,861 13.09% 14.13%
12/31/1998 $10,000 $12,061 2.03% 9.38%
</TABLE>
16
<PAGE>
Federated Prime Money Portfolio
<TABLE>
<CAPTION>
$50,000 Single Purchase Payment Made
December 31, 1994
-------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
----------------------- ------------------
One Average
Year Annual Cumulative
Cumulative Accumulated Total Total Fund Total
Date Payment Value Return Return Return
- ------------ ---------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
12/31/1994 $50,000 $50,000 N/A N/A N/A
12/31/1995 $50,000 $52,232 4.46% 4.46% 4.46%
12/31/1996 $50,000 $54,361 4.08% 4.27% 8.72%
12/31/1997 $50,000 $56,679 4.26% 4.27% 13.36%
12/31/1998 $50,000 $59,022 4.13% 4.23% 18.04%
<CAPTION>
$2,000 Purchase Payment Made December 31, 1994
and Yearly December 31st Thereafter
-------------------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
------------------------- ----------------------------
One Average
Year Annual
Cumulative Accumulated Total Total
Date Payment Value Return Return
- ---------- ---------- ------------- --------- -----------------
<S> <C> <C> <C> <C>
12/31/1994 $ 2,000 $ 2,000 N/A N/A
12/31/1995 $ 4,000 $ 4,089 4.46% 4.46%
12/31/1996 $ 6,000 $ 6,256 4.08% 4.21%
12/31/1997 $ 8,000 $ 8,523 4.26% 4.24%
12/31/1998 $10,000 $10,875 4.13% 4.20%
</TABLE>
Federated U.S. Government Securities
<TABLE>
<CAPTION>
$50,000 Single Purchase Payment Made
December 31, 1994
-------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
----------------------- ------------------
One Average
Year Annual Cumulative
Cumulative Accumulated Total Total Fund Total
Date Payment Value Return Return Return
- ------------ ---------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
12/31/1994 $50,000 $50,000 N/A N/A N/A
12/31/1995 $50,000 $53,766 7.53% 7.53% 7.53%
12/31/1996 $50,000 $55,660 3.52% 5.51% 11.32%
12/31/1997 $50,000 $60,044 7.88% 6.29% 20.09%
12/31/1998 $50,000 $64,224 6.96% 6.46% 28.45%
<CAPTION>
$2,000 Purchase Payment Made December 31, 1994
and Yearly December 31st Thereafter
-------------------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
------------------------- ----------------------------
One Average
Year Annual
Cumulative Accumulated Total Total
Date Payment Value Return Return
- ---------- ---------- ------------- --------- -----------------
<S> <C> <C> <C> <C>
12/31/1994 $ 2,000 $ 2,000 N/A N/A
12/31/1995 $ 4,000 $ 4,151 7.53% 7.53%
12/31/1996 $ 6,000 $ 6,297 3.52% 4.87%
12/31/1997 $ 8,000 $ 8,793 7.88% 6.33%
12/31/1998 $10,000 $11,405 6.96% 6.58%
</TABLE>
Federated Utility Portfolio
<TABLE>
<CAPTION>
$50,000 Single Purchase Payment Made
December 31, 1994
-------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
----------------------- ------------------
One Average
Year Annual Cumulative
Cumulative Accumulated Total Total Fund Total
Date Payment Value Return Return Return
- ------------ ---------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
12/31/1994 $50,000 $50,000 N/A N/A N/A
12/31/1995 $50,000 $61,942 23.88% 23.88% 23.88%
12/31/1996 $50,000 $68,654 10.84% 17.18% 37.31%
12/31/1997 $50,000 $86,377 25.81% 19.99% 72.75%
12/31/1998 $50,000 $97,789 13.21% 18.26% 95.58%
<CAPTION>
$2,000 Purchase Payment Made December 31, 1994
and Yearly December 31st Thereafter
-------------------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
------------------------- ----------------------------
One Average
Year Annual
Cumulative Accumulated Total Total
Date Payment Value Return Return
- ---------- ---------- ------------- --------- -----------------
<S> <C> <C> <C> <C>
12/31/1994 $ 2,000 $ 2,000 N/A N/A
12/31/1995 $ 4,000 $ 4,478 23.88% 23.88%
12/31/1996 $ 6,000 $ 6,963 10.84% 15.27%
12/31/1997 $ 8,000 $10,760 25.81% 20.16%
12/31/1998 $10,000 $14,182 13.21% 17.55%
</TABLE>
17
<PAGE>
Montgomery Growth
<TABLE>
<CAPTION>
$50,000 Single Purchase Payment Made
December 31, 1996
-------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
----------------------- ------------------
One Average
Year Annual Cumulative
Cumulative Accumulated Total Total Fund Total
Date Payment Value Return Return Return
- ------------ ---------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
12/31/1996 $50,000 $50,000 N/A N/A N/A
12/31/1997 $50,000 $63,869 27.74% 27.74% 27.74%
12/31/1998 $50,000 $65,314 2.26% 14.29% 30.63%
<CAPTION>
$2,000 Purchase Payment Made December 31, 1996
and Yearly December 31st Thereafter
-------------------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
------------------------- ----------------------------
One Average
Year Annual
Cumulative Accumulated Total Total
Date Payment Value Return Return
- ---------- ---------- ------------- --------- -----------------
<S> <C> <C> <C> <C>
12/31/1996 $2,000 $2,000 N/A N/A
12/31/1997 $4,000 $4,555 27.74% 27.74%
12/31/1998 $6,000 $6,658 2.26% 10.59%
</TABLE>
Montgomery Emerging Markets
<TABLE>
<CAPTION>
$50,000 Single Purchase Payment Made
December 31, 1996
------------------------------------
Values prior to current
year's purchase payment Non-Standardized
----------------------- ----------------
One Average
Year Annual Cumulative
Cumulative Accumulated Total Total Fund Total
Date Payment Value Return Return Return
- ------------ ---------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
12/31/1996 $50,000 $50,000 N/A N/A N/A
12/31/1997 $50,000 $49,388 -1.22% -1.22% -1.22%
12/31/1998 $50,000 $30,653 -37.93% -21.70% -38.69%
</TABLE>
<TABLE>
<CAPTION>
$2,000 Purchase Payment Made December 31, 1996
and Yearly December 31st Thereafter
-------------------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
------------------------- ----------------------------
One Average
Year Annual
Cumulative Accumulated Total Total
Date Payment Value Return Return
- ---------- ---------- ------------- --------- -----------------
<S> <C> <C> <C> <C>
12/31/1996 $2,000 $2,000 N/A N/A
12/31/1997 $4,000 $3,976 -1.22% -1.22%
12/31/1998 $6,000 $4,467 -37.93% -28.19%
</TABLE>
Strong International Stock
<TABLE>
<CAPTION>
$50,000 Single Purchase Payment Made
December 31, 1995
-------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
----------------------- ------------------
One Average
Year Annual Cumulative
Cumulative Accumulated Total Total Fund Total
Date Payment Value Return Return Return
- ------------ ---------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
12/31/1995 $50,000 $50,000 N/A N/A N/A
12/31/1996 $50,000 $54,835 9.67% 9.67% 9.67%
12/31/1997 $50,000 $47,115 -14.08% -2.93% -5.77%
12/31/1998 $50,000 $44,574 -5.39% -3.76% -10.85%
<CAPTION>
$2,000 Purchase Payment Made December 31, 1995
and Yearly December 31st Thereafter
-------------------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
------------------------- ----------------------------
One Average
Year Annual
Cumulative Accumulated Total Total
Date Payment Value Return Return
- ---------- ---------- ------------- --------- -----------------
<C> <C> <C> <C> <C>
12/31/1995 $2,000 $2,000 N/A N/A
12/31/1996 $4,000 $4,193 9.67% 9.67%
12/31/1997 $6,000 $5,603 -14.08% -6.77%
12/31/1998 $8,000 $7,301 -5.39% -6.07%
</TABLE>
Strong Schafer Value
<TABLE>
<CAPTION>
$50,000 Single Purchase Payment Made
December 31, 1997
------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
----------------------- -----------------
One Average
Year Annual Cumulative
Cumulative Accumulated Total Total Fund Total
Date Payment Value Return Return Return
- ------------ ---------- ----------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
12/31/1997 $50,000 $50,000 N/A N/A N/A
12/31/1998 $50,000 $50,751 1.50% 1.50% 1.50%
<CAPTION>
$2,000 Purchase Payment Made December 31, 1997
and Yearly December 31st Thereafter
------------------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
------------------------- ---------------------------
One Average
Year Annual
Cumulative Accumulated Total Total
Date Payment Value Return Return
- ---------- ---------- ------------- -------- ----------------
<S> <C> <C> <C> <C>
12/31/1997 $2,000 $2,000 N/A N/A
12/31/1998 $4,000 $4,030 1.50% 1.50%
</TABLE>
18
<PAGE>
Wanger U.S. Small Cap Advisor
<TABLE>
<CAPTION>
$50,000 Single Purchase Payment Made
December 31, 1995
-------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
----------------------- ------------------
One Average
Year Annual Cumulative
Cumulative Accumulated Total Total Fund Total
Date Payment Value Return Return Return
- ------------ ---------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
12/31/1995 $50,000 $ 50,000 N/A N/A N/A
12/31/1996 $50,000 $ 72,815 45.63% 45.63% 45.63%
12/31/1997 $50,000 $ 93,621 28.57% 36.84% 87.24%
12/31/1998 $50,000 $101,093 7.98% 26.45% 102.19%
<CAPTION>
$2,000 Purchase Payment Made December 31, 1995
and Yearly December 31st Thereafter
-------------------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
------------------------- ----------------------------
One Average
Year Annual
Cumulative Accumulated Total Total
Date Payment Value Return Return
- ---------- ---------- ------------- --------- -----------------
<S> <C> <C> <C> <C>
12/31/1995 $2,000 $ 2,000 N/A N/A
12/31/1996 $4,000 $ 4,913 45.63% 45.63%
12/31/1997 $6,000 $ 8,316 28.57% 34.61%
12/31/1998 $8,000 $10,980 7.98% 21.57%
</TABLE>
Wanger International Small Cap Advisor
<TABLE>
<CAPTION>
$50,000 Single Purchase Payment Made
December 31, 1995
-------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
----------------------- ------------------
One Average
Year Annual Cumulative
Cumulative Accumulated Total Total Fund Total
Date Payment Value Return Return Return
- ------------ ---------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
12/31/1995 $50,000 $50,000 N/A N/A N/A
12/31/1996 $50,000 $65,573 31.15% 31.15% 31.15%
12/31/1997 $50,000 $64,197 -2.10% 13.31% 28.39%
12/31/1998 $50,000 $74,195 15.58% 14.06% 48.39%
<CAPTION>
$2,000 Purchase Payment Made December 31, 1995
and Yearly December 31st Thereafter
-------------------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
------------------------- ----------------------------
One Average
Year Annual
Cumulative Accumulated Total Total
Date Payment Value Return Return
- ---------- ---------- ------------- --------- -----------------
<C> <C> <C> <C> <C>
12/31/1995 $2,000 $2,000 N/A N/A
12/31/1996 $4,000 $4,623 31.15% 31.15%
12/31/1997 $6,000 $6,526 -2.10% 8.52%
12/31/1998 $8,000 $9,542 15.58% 11.88%
</TABLE>
Warburg Pincus International Equity
<TABLE>
<CAPTION>
$50,000 Single Purchase Payment Made
December 31, 1995
-------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
----------------------- ------------------
One Average
Year Annual Cumulative
Cumulative Accumulated Total Total Fund Total
Date Payment Value Return Return Return
- ------------ ---------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
12/31/1995 $50,000 $50,000 N/A N/A N/A
12/31/1996 $50,000 $54,661 9.32% 9.32% 9.32%
12/31/1997 $50,000 $53,081 -2.89% 3.04% 6.16%
12/31/1998 $50,000 $55,558 4.67% 3.58% 11.12%
<CAPTION>
$2,000 Purchase Payment Made December 31, 1995
and Yearly December 31st Thereafter
-------------------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
------------------------- ----------------------------
One Average
Year Annual
Cumulative Accumulated Total Total
Date Payment Value Return Return
- ---------- ---------- ------------- --------- -----------------
<S> <C> <C> <C> <C>
12/31/1995 $2,000 $2,000 N/A N/A
12/31/1996 $4,000 $4,186 9.32% 9.32%
12/31/1997 $6,000 $6,065 -2.89% 1.09%
12/31/1998 $8,000 $8,348 4.67% 2.85%
</TABLE>
19
<PAGE>
Warburg Pincus Small Company Growth
<TABLE>
<CAPTION>
$50,000 Single Purchase Payment Made
December 31, 1995
-------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
----------------------- ------------------
One Average
Year Annual Cumulative
Cumulative Accumulated Total Total Fund Total
Date Payment Value Return Return Return
- ------------ ---------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
12/31/1995 $50,000 $50,000 N/A N/A N/A
12/31/1996 $50,000 $56,588 13.18% 13.18% 13.18%
12/31/1997 $50,000 $65,015 14.89% 14.03% 30.03%
12/31/1998 $50,000 $62,752 -3.48% 7.87% 25.50%
<CAPTION>
$2,000 Purchase Payment Made December 31, 1995
and Yearly December 31st Thereafter
-------------------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
------------------------- ----------------------------
One Average
Year Annual
Cumulative Accumulated Total Total
Date Payment Value Return Return
- ---------- ---------- ------------- --------- -----------------
<S> <C> <C> <C> <C>
12/31/1995 $2,000 $2,000 N/A N/A
12/31/1996 $4,000 $4,264 13.18% 13.18%
12/31/1997 $6,000 $6,898 14.89% 14.29%
12/31/1998 $8,000 $8,658 -3.48% 5.30%
</TABLE>
WRL Alger Aggressive Growth
<TABLE>
<CAPTION>
$50,000 Single Purchase Payment Made
December 31, 1994
-------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
----------------------- ------------------
One Average
Year Annual Cumulative
Cumulative Accumulated Total Total Fund Total
Date Payment Value Return Return Return
- ------------ ---------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
12/31/1994 $50,000 $ 50,000 N/A N/A N/A
12/31/1995 $50,000 $ 68,574 37.15% 37.15% 37.15%
12/31/1996 $50,000 $ 75,249 9.73% 22.68% 50.50%
12/31/1997 $50,000 $ 92,647 23.12% 22.83% 85.29%
12/31/1998 $50,000 $136,885 47.75% 28.63% 173.77%
<CAPTION>
$2,000 Purchase Payment Made December 31, 1994
and Yearly December 31st Thereafter
-------------------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
------------------------- ----------------------------
One Average
Year Annual
Cumulative Accumulated Total Total
Date Payment Value Return Return
- ---------- ---------- ------------- --------- -----------------
<S> <C> <C> <C> <C>
12/31/1994 $ 2,000 $ 2,000 N/A N/A
12/31/1995 $ 4,000 $ 4,743 37.15% 37.15%
12/31/1996 $ 6,000 $ 7,205 9.73% 18.89%
12/31/1997 $ 8,000 $10,870 23.12% 20.87%
12/31/1998 $10,000 $18,061 47.75% 29.93%
</TABLE>
WRL J.P. Morgan Real Estate Securities
<TABLE>
<CAPTION>
$50,000 Single Purchase Payment Made
December 31, 1998
-----------------------------------------
Values prior to current
year's purchase payment Non-Standardized
----------------------- ----------------
One Average
Year Annual Cumulative
Cumulative Accumulated Total Total Fund Total
Date Payment Value Return Return Return
- ------------ ---------- ----------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
12/31/1998 $50,000 $50,000 N/A N/A N/A
<CAPTION>
$2,000 Purchase Payment Made December 31, 1998
and Yearly December 31st Thereafter
-----------------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
------------------------- --------------------------
One Average
Year Annual
Cumulative Accumulated Total Total
Date Payment Value Return Return
- ---------- ---------- ------------- -------- ----------------
<S> <C> <C> <C> <C>
12/31/1998 $2,000 $2,000 N/A N/A
</TABLE>
20
<PAGE>
WRL Janus Global
<TABLE>
<CAPTION>
$50,000 Single Purchase Payment Made
December 31, 1992
-------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
----------------------- ------------------
One Average
Year Annual Cumulative
Cumulative Accumulated Total Total Fund Total
Date Payment Value Return Return Return
- ------------ ---------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
12/31/1992 $50,000 $ 50,000 N/A N/A N/A
12/31/1993 $50,000 $ 67,100 34.20% 34.20% 34.20%
12/31/1994 $50,000 $ 66,835 -0.40% 15.62% 33.67%
12/31/1995 $50,000 $ 81,724 22.28% 17.79% 63.45%
12/31/1996 $50,000 $103,726 26.92% 20.01% 107.45%
12/31/1997 $50,000 $122,389 17.99% 19.61% 144.78%
12/31/1998 $50,000 $158,110 29.19% 21.15% 216.22%
<CAPTION>
$2,000 Purchase Payment Made December 31, 1992
and Yearly December 31st Thereafter
-------------------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
------------------------- ----------------------------
One Average
Year Annual
Cumulative Accumulated Total Total
Date Payment Value Return Return
- ---------- ---------- ------------- --------- -----------------
<S> <C> <C> <C> <C>
12/31/1992 $ 2,000 $ 2,000 N/A N/A
12/31/1993 $ 4,000 $ 4,684 34.20% 34.20%
12/31/1994 $ 6,000 $ 6,665 -0.40% 10.71%
12/31/1995 $ 8,000 $10,150 22.28% 16.12%
12/31/1996 $10,000 $14,883 26.92% 20.00%
12/31/1997 $12,000 $19,561 17.99% 19.40%
12/31/1998 $14,000 $27,270 29.19% 21.75%
</TABLE>
WRL Janus Growth
<TABLE>
<CAPTION>
$50,000 Single Purchase Payment Made
December 31, 1986
-------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
----------------------- ------------------
One Average
Year Annual Cumulative
Cumulative Accumulated Total Total Fund Total
Date Payment Value Return Return Return
- ------------ ---------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
12/31/1986 $50,000 $ 50,000 N/A N/A N/A
12/31/1987 $50,000 $ 55,090 10.18% 10.18% 10.18%
12/31/1988 $50,000 $ 64,931 17.86% 13.96% 29.86%
12/31/1989 $50,000 $ 94,873 46.11% 23.80% 89.75%
12/31/1990 $50,000 $ 94,050 -0.87% 17.11% 88.10%
12/31/1991 $50,000 $149,350 58.80% 24.46% 198.70%
12/31/1992 $50,000 $151,857 1.68% 20.34% 203.71%
12/31/1993 $50,000 $156,890 3.31% 17.75% 213.78%
12/31/1994 $50,000 $142,916 -8.91% 14.03% 185.83%
12/31/1995 $50,000 $208,939 46.20% 17.22% 317.88%
12/31/1996 $50,000 $244,887 17.21% 17.22% 389.77%
12/31/1997 $50,000 $286,009 16.79% 17.18% 472.02%
12/31/1998 $50,000 $467,470 63.45% 20.48% 834.94%
<CAPTION>
$2,000 Purchase Payment Made December 31, 1986
and Yearly December 31st Thereafter
-------------------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
------------------------- ----------------------------
One Average
Year Annual
Cumulative Accumulated Total Total
Date Payment Value Return Return
- ---------- ---------- ------------- --------- -----------------
<S> <C> <C> <C> <C>
12/31/1986 $ 2,000 $ 2,000 N/A N/A
12/31/1987 $ 4,000 $ 4,204 10.18% 10.18%
12/31/1988 $ 6,000 $ 6,954 17.86% 15.14%
12/31/1989 $ 8,000 $ 12,161 46.11% 28.77%
12/31/1990 $10,000 $ 14,056 -0.87% 17.10%
12/31/1991 $12,000 $ 24,321 58.80% 28.08%
12/31/1992 $14,000 $ 26,729 1.68% 21.10%
12/31/1993 $16,000 $ 29,615 3.31% 17.06%
12/31/1994 $18,000 $ 28,977 -8.91% 11.54%
12/31/1995 $20,000 $ 44,364 46.20% 16.81%
12/31/1996 $22,000 $ 53,996 17.21% 16.87%
12/31/1997 $24,000 $ 65,063 16.79% 16.86%
12/31/1998 $26,000 $108,344 63.45% 21.59%
</TABLE>
21
<PAGE>
WRL LKCM Strategic Total Return
<TABLE>
<CAPTION>
$50,000 Single Purchase Payment Made
December 31, 1993
-------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
----------------------- ------------------
One Average
Year Annual Cumulative
Cumulative Accumulated Total Total Fund Total
Date Payment Value Return Return Return
- ------------ ---------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
12/31/1993 $50,000 $50,000 N/A N/A N/A
12/31/1994 $50,000 $49,411 -1.18% -1.18% -1.18%
12/31/1995 $50,000 $61,203 23.86% 10.64% 22.41%
12/31/1996 $50,000 $69,930 14.26% 11.83% 39.86%
12/31/1997 $50,000 $84,668 21.08% 14.07% 69.34%
12/31/1998 $50,000 $92,231 8.93% 13.03% 84.46%
<CAPTION>
$2,000 Purchase Payment Made December 31, 1993
and Yearly December 31st Thereafter
-------------------------------------------------------
Values prior to current
year's purchase payment Non-Standardized
------------------------- ----------------------------
One Average
Year Annual
Cumulative Accumulated Total Total
Date Payment Value Return Return
- ---------- ---------- ------------- --------- -----------------
<S> <C> <C> <C> <C>
12/31/1993 $ 2,000 $ 2,000 N/A N/A
12/31/1994 $ 4,000 $ 3,976 -1.18% -1.18%
12/31/1995 $ 6,000 $ 6,925 23.86% 14.70%
12/31/1996 $ 8,000 $ 9,913 14.26% 14.49%
12/31/1997 $10,000 $14,002 21.08% 16.90%
12/31/1998 $12,000 $17,253 8.93% 14.42%
</TABLE>
Individualized Computer Generated Illustrations
AUSA Life may from time to time use computer-based software available through
Morningstar, CDA/Wiesnberger and/or other firms to provide registered
representatives and existing and/or potential owners of Contracts with
individualized hypothetical performance illustrations for some or all of the
Portfolios. Such illustrations may include, without limitation, graphs, bar
charts and other types of formats presenting the following information: (i) the
historical results of a hypothetical investment in a single Portfolio; (ii) the
historical fluctuation of the value of a single Portfolio (actual and
hypothetical); (iii) the historical results of a hypothetical investment in more
than one Portfolio; (iv) the historical performance of two or more market
indices in relation to one another and/or one or more Portfolios; (v) the
historical performance of two or more market indices in comparison to a single
Portfolio or a group of Portfolios; (vi) a market risk/reward scatter chart
showing the historical risk/reward relationship of one or more mutual funds or
Portfolios to one or more indices and a broad category of similar anonymous
variable annuity subaccounts; and (vii) Portfolio data sheets showing various
information about one or more Portfolios (such as information concerning total
return for various periods, fees and expenses, standard deviation, alpha and
beta, investment objective, inception date and net assets).
PERFORMANCE COMPARISONS
Performance information for any Subaccount reflects only the performance of a
hypothetical Contract under which Accumulation Value is allocated to a
Subaccount during a particular time period on which the calculations are based.
Performance information should be considered in light of the investment
objectives and policies, characteristics and quality of the Portfolio in which
the Subaccount invests, and the market conditions during the given period, and
should not be considered as a representation of what may be achieved in the
future.
Reports and marketing materials may, from time to time, include information
concerning the rating of AUSA Life Insurance Company, Inc. as determined by one
or more of the ratings services listed below, or other recognized rating
services. Reports and promotional literature may also contain other information
including (i) the ranking of any Subaccount derived from rankings of variable
annuity separate accounts or other investment products tracked by Lipper
Analytical Services or by other rating services, companies, publications, or
other person who rank separate accounts or other investment products on overall
performance or other criteria, and (ii) the effect of tax-deferred compounding
on a Subaccount's investment returns, or returns in general, which may be
illustrated by graphs, charts, or otherwise, and which may include a comparison,
at various points in time, of the return from an investment in a Contract (or
returns in general) on a tax-deferred basis (assuming one or more tax rates)
with the return on a taxable basis.
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Each Subaccount's performance depends on, among other things, the performance of
the underlying Portfolio which, in turn, depends upon such variables as:
. quality of underlying investments;
. average maturity of underlying investments;
. type of instruments in which the Portfolio is invested;
. changes in interest rates and market value of underlying investments;
. changes in Portfolio expenses; and
. the relative amount of the Portfolio's cash flow.
From time to time, we may advertise the performance of the Subaccounts and the
underlying Portfolios as compared to similar funds or portfolios using certain
indexes, reporting services and financial publications, and we may advertise
rankings or ratings issued by certain services and/or other institutions. These
may include, but are not limited to, the following:
. Dow Jones Industrial Average ("DJIA"), an unmanaged index representing share
prices of major industrial corporations, public utilities, and transportation
companies. Produced by the Dow Jones & Company, it is cited as a principal
indicator of market conditions.
. Standard & Poor's Daily Stock Price Index of 500 Common Stocks, a composite
index of common stocks in industrial, transportation, and financial and
public utility companies, which can be used to compare to the total returns
of funds whose portfolios are invested primarily in common stocks. In
addition, the Standard & Poor's index assumes reinvestments of all dividends
paid by stocks listed on its index. Taxes due on any of these distributions
are not included, nor are brokerage or other fees calculated into the
Standard & Poor's figures.
. Lipper Analytical Services, Inc., a reporting service that ranks funds in
various fund categories by making comparative calculations using total
return. Total return assumes the reinvestment of all income dividends and
capital gains distributions, if any. From time to time, we may quote the
Portfolios' Lipper rankings in various fund categories in advertising and
sales literature.
. Bank Rate Monitor National Index, Miami Beach, Florida, a financial reporting
service which publishes weekly average rates of 50 leading bank and thrift
institution money market deposit accounts. The rates published in the index
are an average of the personal account rates offered on the Wednesday prior
to the date of publication by ten of the largest banks and thrifts in each of
the five largest Standard Metropolitan Statistical Areas. Account minimums
range upward from $2,500 in each institution, and compounding methods vary.
If more than one rate is offered, the lowest rate is used. Rates are subject
to change at any time specified by the institution.
. Shearson Lehman Government/Corporate (Total) Index, an index comprised of
approximately 5,000 issues which include: non-convertible bonds publicly
issued by the U.S. government or its agencies; corporate bonds guaranteed by
the U.S. government and quasi-federal corporations; and publicly issued,
fixed-rate, non-convertible domestic bonds of companies in industry, public
utilities and finance. The average maturity of these bonds approximates nine
years. Tracked by Shearson Lehman, Inc., the index calculates total returns
for one month, three month, twelve month, and ten year periods and year-to-
date.
. Shearson Lehman Government/Corporate (Long-Term) Index, an index composed of
the same types of issues as defined above. However, the average maturity of
the bonds included in this index approximates 22 years.
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. 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.
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<PAGE>
AUSA LIFE
On October 1, 1998, First Providian Life & Health Insurance Company ("First
Providian") merged with and into the Company. 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 the Company
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 the
Company. All of the Contracts issued by First Providian before the merger were,
at the time of the merger, assumed by the Company. 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 the Company 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 the Company 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.
The Company is a direct subsidiary of First AUSA Life Insurance Company and
Veterans Life Insurance Company, which, respectively, have 82.33% and 17.67%
interests in the Company. Veterans Life Insurance Company is a wholly owned
subsidiary of Peoples Benefit Life Insurance Company ("Peoples Benefit"), which
in turn is a direct subsidiary of Monumental Life Insurance Company, Capital
Liberty, L.P., and Commonwealth General Corporation, which, respectively, have
76.3%, 20%, and 3.7% interests in Peoples Benefit. Monumental Life Insurance
Company is a direct subsidiary of Capital General Development Corporation and
First AUSA Life Insurance Company, which, respectively, have 73.23% and 26.77%
interests in Monumental Life Insurance Company. Monumental Life Insurance
Company and Commonwealth General Corporation have, respectively, 99% and 1%
interests in Capital Liberty, L.P. Commonwealth General Corporation is a wholly
owned subsidiary of AEGON USA, Inc. Capital General Development Corporation is
a wholly owned subsidiary of Commonwealth General Corporation. First AUSA Life
Insurance Company is a wholly owned subsidiary of AEGON USA, Inc.
The Company 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.
25
<PAGE>
STATE REGULATION OF AUSA LIFE
AUSA Life is subject to the laws of New York governing insurance companies and
to regulation by the New York Department of Insurance. An annual statement in a
prescribed form is filed with the Department of Insurance each year covering the
operation of AUSA Life for the preceding year and its financial condition as of
the end of such year. Regulation by the Department of Insurance includes
periodic examination to determine AUSA Life's contract liabilities and reserves
so that the Department may determine if the items are correct. AUSA Life's
books and accounts are 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.
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.
26
<PAGE>
FINANCIAL STATEMENTS
The audited financial statements of certain subaccounts of the Separate Account
which are available for investment by Advisor's Edge Contract Owners for the
year ended December 31, 1998, including the Report of Independent Auditors
thereon, are included in this Statement of Additional Information.
The audited statutory-basis financial statements of AUSA Life as of 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 the subaccounts of the Separate Account which are
available for investment by Advisor's Edge 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.
27
