ANNUITY INVESTORS[SERVICEMARK] VARIABLE ACCOUNT B
OF
ANUITY INVESTORS[SERVICEMARK] LIFE INSURANCE COMPANY
FOR
THE COMMODORE
NAVIGATOR[SERVICEMARK]
DECEMBER 31, 1997
ANNUAL REPORT TO CONTRACT OWNERS
<PAGE>
ANNUAL REPORT TO CONTRACT HOLDERS
DECEMBER 31, 1997 - VARIABLE ACCOUNT B
Table Of Contents Page
Letter From The President 9
Annuity Investors Variable Account B -
Financial Statements Year Ended December 31, 1997
With Reports Of Independent Auditors
-------------------------------------------------
Report Of Independent Auditors 13
Audited Financial Statements
Statement Of Assets And Liabilities 15
Statement Of Operations 17
Statements Of Changes In Net Assets 18
Notes To Financial Statements 20
The Dreyfus Corporation 27
Dreyfus VIF Small Cap Portfolio 27
Letter To Shareholders 28
Statement Of Investments 33
Statement Of Assets And Liabilities 36
Statement Of Operations 37
Statement Of Changes In Net Assets 38
Financial Highlights 39
Notes To Financial Statements 40
Report Of Ernst & Young Llp, Independent Auditors 43
Important Tax Information 44
Dreyfus VIF Capital Appreciation Portfolio 45
Letter To Shareholders 46
Statement Of Investments 49
Statement Of Assets And Liabilities 52
Statement Of Operations 53
Statement Of Changes In Net Assets 54
Financial Highlights 55
Notes To Financial Statements 56
Report Of Ernst & Young Llp, Independent Auditors 58
Important Tax Information 59
<PAGE>
ANNUAL REPORT TO CONTRACT HOLDERS - CONT.
DECEMBER 31, 1997 - VARIABLE ACCOUNT B
Table Of Contents Page
Dreyfus VIF Growth And Income Portfolio 61
Letter To Shareholders 62
Statement Of Investments 66
Statement Of Assets And Liabilities 69
Statement Of Operations 70
Statement Of Changes In Net Assets 71
Financial Highlights 72
Notes To Financial Statements 73
Report Of Ernst & Young Llp, Independent Auditors 76
Dreyfus VIF Domestic Money Market Portfolio 77
Letter To Shareholders 78
Statement Of Investments 80
Statement Of Assets And Liabilities 83
Statement Of Changes In Net Assets 84
Financial Highlights 85
Notes To Financial Statements 86
Report Of Ernst & Young Llp, Independent Auditors 88
The Dreyfus Socially Responsible Growth Fund, Inc. 89
Letter To Shareholders 90
Statement Of Investments 94
Statement Of Assets And Liabilities 96
Statement Of Operations 97
Statement Of Changes In Net Assets 98
Financial Highlights 99
Notes To Financial Statements 100
Report Of Ernst & Young Llp, Independent Auditors 102
Important Tax Information 103
Dreyfus Stock Index 105
Letter To Shareholders 106
Statement Of Investments 109
Statement Of Assets And Liabilities 114
Statement Of Operations 115
Statement Of Changes In Net Assets 116
Financial Highlights 117
Notes To Financial Statements 118
Report Of Independent Accountants 120
Important Tax Information 120
<PAGE>
ANNUAL REPORT TO CONTRACT HOLDERS - CONT.
DECEMBER 31, 1997 - VARIABLE ACCOUNT B
Table Of Contents Page
Janus Capital Corporation 121
- -------------------------
Janus Aspen Growth Portfolio 122
Market Review 122
Updated Portfolio Strategy 122
Stock Highlights 122
The Outlook 122
Portfolio Performance 122
Schedule Of Investments 123
Summary Of Investments By Country 125
Forward Currency Contracts 125
Janus Aspen Aggressive Growth Portfolio 126
Market Review 126
Portfolio Strategy 126
Stock Highlights 126
The Outlook 126
Performance 127
Schedule Of Investments 127
Summary Of Investment By Country 129
Forward Currency Contracts 129
Janus Aspen International Growth Portfolio 130
Market Review 130
Portfolio Review 130
The Coming Months 130
Performance 131
Schedule Of Investments 131
Summary Of Investment By Country 135
Forward Currency Contracts 135
Janus Aspen Worldwide Growth Portfolio 136
1997 In Review 136
Portfolio Review 136
Looking Ahead 136
Performance 137
Schedule Of Investments 137
Summary Of Investment By Country 141
Forward Currency Contracts 141
<PAGE>
ANNUAL REPORT TO CONTRACT HOLDERS - CONT.
DECEMBER 31, 1997 - VARIABLE ACCOUNT B
Table Of Contents Page
Janus Aspen Balanced Portfolio 142
The Year In Review 142
Stock Highlights 142
Current Outlook 142
Portfolio Performance 143
Schedule Of Investments 143
Summary Of Investments By Country 145
Forward Currency Contracts 145
Notes To Schedules Of Investment 146
Statement Of Assets And Liabilities 147
Janus Aspen Growth Portfolio 147
Janus Aspen Aggressive Growth Portfolio 148
Janus Aspen International Growth Portfolio 148
Janus Aspen Worldwide Growth Portfolio 148
Janus Aspen Balanced Portfolio 148
Statement Of Operations 147
Janus Aspen Growth Portfolio 147
Janus Aspen Aggressive Growth Portfolio 148
Janus Aspen International Growth Portfolio 148
Janus Aspen Worldwide Growth Portfolio 148
Janus Aspen Balanced Portfolio 148
Statement Of Changes In Net Assets 149
Janus Aspen Growth Portfolio 149
Janus Aspen Aggressive Growth Portfolio 150
Janus Aspen International Growth Portfolio 150
Janus Aspen Worldwide Growth Portfolio 150
Janus Aspen Balanced Portfolio 150
Financial Highlights - Institutional Shares 151
Janus Aspen Growth Portfolio 151
Janus Aspen Aggressive Growth Portfolio 152
Janus Aspen International Growth Portfolio 152
Janus Aspen Worldwide Growth Portfolio 152
Janus Aspen Balanced Portfolio 151
Financial Highlights - Retirement Shares 153
Janus Aspen Growth Portfolio 153
Janus Aspen Aggressive Growth Portfolio 153
Janus Aspen International Growth Portfolio 153
Janus Aspen Worldwide Growth Portfolio 153
Janus Aspen Balanced Portfolio 153
Notes To Financial Statements 154
<PAGE>
ANNUAL REPORT TO CONTRACT HOLDERS - CONT.
DECEMBER 31, 1997 - VARIABLE ACCOUNT B
Table Of Contents Page
Invesco Variable Investment Funds
- ---------------------------------
Economic Overview 160
Invesco Variable Investment Funds
VIF - High Yield Fund 160
VIF - Industrial Income Fund 161
VIF - Total Return Fund 162
Statement Of Investment Securities
VIF - High Yield Portfolio 172
VIF - Industrial Income Portfolio 176
VIF - Total Return Portfolio 184
Statement Of Assets And Liabilities
VIF - High Yield Portfolio 193
VIF - Industrial Income Portfolio 193
VIF - Total Return Portfolio 194
Statement Of Operations
VIF - High Yield Portfolio 196
VIF - Industrial Income Portfolio 196
VIF - Total Return Portfolio 197
Statement Of Changes In Net Assets
VIF - High Yield Portfolio 199
VIF - Industrial Income Portfolio 199
VIF - Total Return Portfolio 200
Notes To Financial Statements 202
Financial Highlights 207
Report Of Independent Accountants 216
Morgan Stanley Universal Funds Inc. 219
- -----------------------------------
Overview And Statements Of Net Assets By Portfolio
Emerging Markets Equity Portfolio 221
Mid - Cap Value Portfolio 228
U.s. Real Estate Portfolio 233
Value Portfolio 239
Fixed Income Portfolio 245
Statement Of Operations And Changes In Net Assets 250
Financial Highlights 255
Notes To Financial Statements 260
Report Of Independent Accountants 264
Federal Tax Information 265
Directors And Officers 266
<PAGE>
ANNUAL REPORT TO CONTRACT HOLDERS - CONT.
DECEMBER 31, 1997 - VARIABLE ACCOUNT B
Table Of Contents Page
PBHG Insurance Series Fund, Inc. 267
- --------------------------------
PBHG Technology & Communications Portfolio
Letter To Shareholders 268
Schedule Of Investments 271
Statement Of Assets And Liabilities 273
Statement Of Operations 274
Statement Of Changes In Net Assets 275
Financial Highlights 276
Notes To Financial Statements 277
Report Of Independent Accountants 279
PBHG Growth II Portfolio 281
Letter To Shareholders 282
The Pilgrim Baxter Discipline 283
Aggregate Total Return 284
Statement Of Net Assets 285
Statement Of Operations 287
Statement Of Changes In Net Assets 288
Financial Highlights 289
Notes To Financial Statements 290
Report Of Independent Accountants 292
PBHG Large Cap Growth Portfolio 293
Letter To Shareholders 294
Aggregate Total Return 296
Statement Of Net Assets 297
Statement Of Operations 299
Statement Of Changes In Net Assets 300
Financial Highlights 301
Notes To Financial Statements 302
Report Of Independent Auditors 304
Strong Funds
Strong Opportunity Fund II, Inc. 307
Investment Review 308
Financial Information 309
Schedule Of Investments In Securities 310
Statement Of Assets And Liabilities 312
Statement Of Operations 313
Statement Of Changes In Net Assets 314
Notes To Financial Statements 315
Financial Highlights 317
Report Of Independent Auditors 318
<PAGE>
ANNUAL REPORT TO CONTRACT HOLDERS - CONT.
DECEMBER 31, 1997 - VARIABLE ACCOUNT B
Table Of Contents Page
Strong VIF Growth Fund II 319
Investment Review 320
Financial Information 321
Schedule Of Investments In Securities 322
Statement Of Assets And Liabilities 324
Statement Of Operations 325
Statement Of Changes In Net Assets 326
Notes To Financial Statements 327
Financial Highlights 329
Report Of Independent Auditors 330
<PAGE>
REPORT FROM THE PRESIDENT
-------------------------
Dear Contract Owner:
It gives me great pleasure to present the performance of the sub-accounts of
Annuity Investors Variable Account B from its inception on July 15, 1997 to
December 31, 1997 . The account features twenty-four portfolios, managed by
Janus, Dreyfus, INVESCO, Morgan Stanley, Pilgrim Baxter and Strong.
As of December 31, 1997, the inception date to year end performance results for
all portfolios, as measured by the percentage change in unit values for the
period, net of all mortality, expense and contract maintenance charges, were as
follows:
July 15, 1997 to
INTERNATIONAL PORTFOLIOS: December 31, 1997*
------------------
Morgan Stanley Universal Fund Inc. -
Emerging Markets Equity Portfolio (20.88%)
Janus Aspen Series International Growth Portfolio ( 2.64%)
Janus Aspen Series Worldwide Growth Portfolio ( 0.64%)
AGGRESSIVE GROWTH PORTFOLIOS:
Janus Aspen Series Aggressive Growth Portfolio 7.24%
PBHG Insurance Series Fund, Inc. -
PBHG Technology & Communications Portfolio ( 9.43%)
GROWTH PORTFOLIOS:
Dreyfus VIF Small Cap Portfolio 3.62%
PBHG Insurance Series Fund, Inc. -
PBHG Growth II Portfolio ( 4.89%)
Strong VIF Growth Fund II 7.07%
Strong Opportunity Fund II, Inc. 7.27%
Morgan Stanley Universal Fund Inc. -
Mid - Cap Value Portfolio 11.13%
Dreyfus VIF Capital Appreciation Portfolio 1.04%
Janus Aspen Series Growth Portfolio 2.40%
PBHG Insurance Series Fund, Inc. -
PBHG Large Cap Growth Portfolio 1.51%
The Dreyfus Socially Responsible Growth Fund, Inc. 3.21%
Morgan Stanley Universal Fund Inc. -
Value Portfolio 2.04%
Dreyfus Stock Index Fund 4.80%
REAL ESTATE PORTFOLIO:
Morgan Stanley Universal Fund Inc. -
U.S. Real Estate Portfolio 11.01%
GROWTH AND INCOME PORTFOLIO:
Dreyfus VIF Growth and Income Portfolio 1.97%
INCOME PORTFOLIOS:
INVESCO VIF Industrial Income Fund 6.59%
INVESCO VIF Total Return Fund 5.03%
INVESCO VIF High Yield Fund 6.87%
Morgan Stanley Universal Fund Inc. -
Fixed Income Portfolio 4.12%
BALANCED PORTFOLIOS:
Janus Aspen Series Balanced Portfolio 6.05%
MONEY MARKET PORTFOLIO:
Dreyfus VIF Domestic Money Market Fund 1.65%
* Figures shown here are from inception date of July 15, 1997 through December
31, 1997.
<PAGE>
In the second half of 1997, the stock market, as measured by the Standard &
Poor's 500 Index, showed a 9.64 % increase and the NASDAQ Composite Index
increased by 8.90 %.The bond market, as measured by Lehman Brothers Aggregate
Index, increased by 6.36 % over the same period.
Based on the level of professional investment expertise present in each
management company and their dedication to in-depth fundamental research,
Annuity Investors selected Dreyfus, Janus, Merrill Lynch, Morgan Stanley,
Pilgrim Baxter and Strong for inclusion in its Variable Account B. This broad
range of investment options allows you the flexibility to implement your own
personal investment strategy and to change your mix of investments as your
objectives change over time.
It gives me great pleasure to present this performance and we look forward to
continuing to serve you in the future.
Sincerely,
Robert A. Adams
President
<PAGE>
ANNUITY INVESTORS
VARIABLE ACCOUNT B
Financial Statements
Year ended December 31, 1997
With Report of Independent Auditors
<PAGE>
ANNUITY INVESTORS VARIABLE ACCOUNT B
Financial Statements
Year ended December 31, 1997
Contents
Report of Independent Auditors............................................1
Audited Financial Statements
Statements of Assets and Liabilities......................................3
Statements of Operations..................................................5
Statements of Changes in Net Assets.......................................6
Notes to Financial Statements.............................................8
<PAGE>
ERNST & YOUNG LLP 1300 Chiquita Center Phone 513 621 6454
250 East Fifth Street
Cincinnati, Ohio 45202
Report of Independent Auditors
Contractholders of Annuity Investors Variable Account B
and
Board of Directors of Annuity Investors Life Insurance Company
We have audited the accompanying statement of assets and liabilities of the
Annuity Investors Variable Account B (comprised of the Dreyfus Variable
Investment Fund Capital Appreciation Portfolio, Dreyfus Variable Investment Fund
Growth and Income Portfolio, Dreyfus Variable Investment Fund Money Market
Portfolio, Dreyfus Variable Investment Fund Small Cap Portfolio, Dreyfus
Socially Responsible Growth Fund, Inc., Dreyfus Stock Index Fund, Strong Funds
Growth Fund II, Strong Funds Opportunity Fund II, Invesco Funds Group, Inc. High
Yield Fund, Invesco Funds Group, Inc. Industrial Income Fund, Invesco Funds
Group, Inc. Total Return Fund, Janus Aspen Series Aggressive Growth Portfolio,
Janus Aspen Series Balanced Portfolio, Janus Aspen Series Growth Portoflio,
Janus Aspen Series International Growth Portfolio, Janus Aspen Series Worldwide
Growth Portfolio, Morgan Stanley Universal Funds, Inc. Emerging Markets Equity
Portfolio, Morgan Stanley Universal Funds, Inc. Fixed Income Fund Portfolio,
Morgan Stanley Universal Funds, Inc. Mid-Cap Value Portfolio, Morgan Stanley
Universal Funds, Inc. U.S. Real Estate Portfolio, Morgan Stanley Universal
Funds, Inc. Value Portfolio, PBHG Insurance Series Fund, Inc. Growth II
Portfolio, PBHG Insurance Series Fund, Inc. Large Cap Growth Portfolio and PBHG
Insurance Series Fund, Inc. Technology & Communications Portfolio Sub-Accounts)
as of December 31, 1997, and the related statements of operations and changes in
net assets for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1997, by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
sub-accounts constituting the Annuity Investors Variable Account B as of
December 31, 1997, and the results of their operations and changes in
1
<PAGE>
their net assets for the year then ended in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Cincinnati, Ohio
February 3, 1998
<PAGE>
ANNUITY INVESTORS VARIABLE ACCOUNT B
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<CAPTION>
Assets: Shares Cost
------ ----
<S> <C> <C> <C>
Investments in portfolio shares,
at net asset value (Note 2):
Dreyfus Variable Investment Fund:
Capital Appreciation Portfolio............ 6,644.554 $ 183,954 185,383
Growth and Income Portfolio............... 15,815.802 347,532 328,652
Money Market Portfolio.................... 0.000 0 0
Small Cap Portfolio....................... 7,500.528 453,312 428,580
Dreyfus Funds:
Socially Responsible Growth
Fund, Inc............................ 10,884.047 277,443 271,775
Stock Index Fund.......................... 28,288.994 730,922 728,442
Strong Funds:
Growth Fund II............................ 1,846.921 23,670 22,994
Opportunity Fund II....................... 3,171.842 68,178 68,829
Invesco Funds Group, Inc.:
High-Yield Fund........................... 8,800.823 116,406 109,658
Industrial Income Fund.................... 20,811.599 368,589 354,630
Total Return Fund......................... 9,727.123 154,346 153,786
Janus Aspen Series:
Aggressive Growth Portfolio............... 1,476.866 28,664 30,350
Balanced Portfolio........................ 18,526.048 319,353 323,650
Growth Portfolio.......................... 18,140.239 335,162 335,232
International Growth Portfolio............ 6,607.011 122,664 122,097
Worldwide Growth Portfolio................ 24,071.098 563,724 563,023
Morgan Stanley Universal Funds, Inc.:
Emerging Markets Equity Portfolio......... 7,586.839 85,562 71,544
Fixed Income Portfolio.................... 4.654 51 48
Mid-Cap Value Portfolio................... 13,912.363 192,769 185,313
U.S. Real Estate.......................... 7,005.241 76,971 79,930
Value Portfolio........................... 8,614.032 105,785 101,473
PBHG Insurance Series Fund, Inc.:
Growth II Portfolio....................... 5,481.888 59,564 58,930
Large Cap Growth Portfolio................ 9,802.870 114,392 115,870
Technology & Communications
Portfolio............................ 18,248.082 204,269 189,962
-----------
Total cost..................................... $ 4,933,282
- ---------------------------------------------------------------------------------------------------
Total assets.................................................................... 4,830,151
Liabilities:
Amounts due to Annuity Investors Life
Insurance Company (Note 4)................................................ 0
- ---------------------------------------------------------------------------------------------------
Net assets.................................................................. $ 4,830,151
===================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
ANNUITY INVESTORS VARIABLE ACCOUNT B
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
Net assets attributable to variable annuity contract
holders (Note 2): Units Unit Value
----- ----------
<S> <C> <C> <C>
Dreyfus Variable Investment Fund:
Capital Appreciation Portfolio - Basic contract............ 18,347.666 $10.103905 $ 185,383
Capital Appreciation Portfolio - Enhanced contract......... 0.000 10.117776 0
Growth and Income Portfolio - Basic contract............... 32,231.762 10.196538 328,652
Growth and Income Portfolio - Enhanced contract............ 0.000 10.210527 0
Money Market Portfolio - Basic contract.................... 0.000 1.016499 0
Money Market Portfolio - Enhanced contract................. 0.000 1.017876 0
Small Cap Portfolio - Basic contract....................... 41,359.506 10.362314 428,580
Small Cap Portfolio - Enhanced contract.................... 0.000 10.376538 0
Dreyfus Funds:
Socially Responsible Growth Fund, Inc. - Basic
contract................................................ 26,332.500 10.320883 271,775
Socially Responsible Growth Fund, Inc. - Enhanced
contract................................................ 0.000 10.335055 0
Stock Index Fund - Basic contract.......................... 69,510.645 10.479569 728,442
Stock Index Fund - Enhanced contract....................... 0.000 10.493943 0
Strong Funds:
Growth Fund II - Basic contract............................ 2,147.556 10.707133 22,994
Growth Fund II - Enhanced contract......................... 0.000 10.721828 0
Opportunity Fund II - Basic contract....................... 6,416.208 10.727356 68,829
Opportunity Fund II - Enhanced contract.................... 0.000 10.742083 0
Invesco Funds Group, Inc.:
High-Yield Fund - Basic contract........................... 10,260.821 10.687084 109,658
High-Yield Fund - Enhanced contract........................ 0.000 10.701757 0
Industrial Income Fund - Basic contract.................... 33,269.953 10.659157 354,630
Industrial Income Fund - Enhanced contract................. 0.000 10.673778 0
Total Return Fund - Basic contract......................... 14,641.934 10.503108 153,786
Total Return Fund - Enhanced contract...................... 0.000 10.517508 0
Janus Aspen Series:
Aggressive Growth Portfolio - Basic contract............... 2,830.076 10.723950 30,350
Aggressive Growth Portfolio - Enhanced contract............ 0.000 10.738659 0
Balanced Portfolio - Basic contract........................ 30,519.754 10.604609 323,650
Balanced Portfolio - Enhanced contract..................... 0.000 10.619159 0
Growth Portfolio - Basic contract.......................... 32,737.591 10.239960 335,232
Growth Portfolio - Enhanced contract....................... 0.000 10.254006 0
International Growth Portfolio - Basic contract............ 12,541.039 9.735841 122,097
International Growth Portfolio - Enhanced contract......... 0.000 9.749214 0
Worldwide Growth Portfolio - Basic contract................ 56,665.753 9.935860 563,023
Worldwide Growth Portfolio - Enhanced contract............. 0.000 9.949496 0
Morgan Stanley Universal Funds, Inc.:
Emerging Markets Equity Portfolio - Basic contract......... 9,042.956 7.911559 71,544
Emerging Markets Equity Portfolio - Enhanced
contract................................................ 0.000 7.922446 0
Fixed Income Portfolio - Basic contract.................... 4.653 10.412276 48
Fixed Income Portfolio - Enhanced contract................ 0.000 10.426565 0
Mid-Cap Value Portfolio - Basic contract................... 16,674.966 11.113227 185,313
Mid-Cap Value Portfolio - Enhanced contract................ 0.000 11.128478 0
U.S. Real Estate Portfolio - Basic contract................ 7,200.060 11.101269 79,930
U.S. Real Estate Portfolio - Enhanced contract............. 0.000 11.116503 0
Value Portfolio - Basic contract........................... 9,944.401 10.204064 101,473
Value Portfolio - Enhanced contract........................ 0.000 10.218060 0
PBHG Insurance Series Fund, Inc.:
Growth II Portfolio - Basic contract....................... 6,195.935 9.511124 58,930
Growth II Portfolio - Enhanced contract.................... 0.000 9.524184 0
Large Cap Growth Portfolio - Basic contract................ 11,415.131 10.150555 115,870
Large Cap Growth Portfolio - Enhanced contract............. 0.000 10.164489 0
Technology & Communications Portfolio - Basic
contract............................................... 20,974.008 9.057045 189,962
Technology & Communications Portfolio - Enhanced
contract............................................... 0.000 9.069487 0
- ----------------------------------------------------------------------------------------------------------------------------
Net assets attributable to variable annuity contract holders..... 4,830,151
- ----------------------------------------------------------------------------------------------------------------------------
Net assets....................................................... $ 4,830,151
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
ANNUITY INVESTORS VARIABLE ACCOUNT B
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
================================================================================
<TABLE>
<CAPTION>
Dreyfus Variable Investment Fund Dreyfus Funds Strong Funds
-------------------------------- ------------- ------------
Growth Socially Oppor-
Capital and Money Small Responsible Stock Growth tunity
Appreciation Income Market Cap Growth Index Fund Fund
Portfolio Portfolio Portfolio Portfolio Fund, Inc. Fund II II
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends from investments
in portfolio shares..................... $ 1,218 $ 20,139 $ 0 $ 22,341 $ 8,121 $ 13,466 $ 900 $ 70
Expenses:
Mortality and expense risk
fees (Note 4)........................... 416 759 0 903 608 1,155 43 154
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss)......... 802 19,380 0 21,438 7,513 12,311 857 (84)
Net realized gain (loss) and unrealized
appreciation (depreciation) on investments:
Net realized gain (loss) on sale of
investments in portfolio shares........ 2 0 0 21 77 (13) (2) 2
Net change in unrealized appreciation
(depreciation) of investments in
portfolio shares...................... 1,429 (18,880) 0 (24,732) (5,668) (2,480) (676) 651
- ------------------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments
in portfolio shares................ 1,431 (18,880) 0 (24,711) (5,591) (2,493) (678) 653
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations........ $ 2,233 $ 500 $ 0 $(3,273) $ 1,922 $ 9,818 $ 179 $ 569
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
Invesco Funds Group, Inc. Janus Aspen Series
------------------------- ------------------------------------------
Inter- World-
High Industrial Total Aggressive national wide
Yield Income Return Growth Balanced Growth Growth Growth
Fund Fund Fund Portfolio Portfolio Portfolio Portfolio Portfolio
---- ---- ---- --------- --------- --------- -------------------
====================================================================================================================================
Investment income:
Dividends from investments in
portfolio shares...........................$ 10,266 $ 23,148 $ 3,585 $ 0 $ 2,572 $ 867 $ 132 $1,111
Expenses:
Mortality and expense risk fees (Note 4)........ 353 927 353 88 646 578 335 1,100
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss).............. 9,913 22,221 3,232 (88) 1,926 289 (203) 11
Net realized gain (loss) and unrealized
appreciation (depreciation) on investments:
Net realized gain (loss) on sale of
investments in portfolio shares........... 4 0 58 0 383 0 (5) 0
Net change in unrealized appreciation
(depreciation) of investments in
portfolio shares......................... (6,748) (13,959) (561) 1,686 4,297 69 (566) (701)
- -----------------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments in
portfolio shares....................... 6,744) (13,959) (503) 1,686 4,680 69 (571) (701)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations............$ 3,169 $ 8,262 $ 2,729 $ 1,598 6,606 $ 358 $(774) $(690)
====================================================================================================================================
<PAGE>
ANNUITY INVESTORS VARIABLE ACCOUNT B (continued)
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
================================================================================
Morgan Stanley Universal Funds, Inc. PBHG Insurance Series Fund, Inc.
----------------------------------------- --------------------------------
Technology
Emerging U.S. and
Markets Fixed Mid-Cap Real Large Communi-
Equity Income Value Estate Value Growth II Cap cations
Port- Port- Port- Port Port- Port- Port- Port-
folio folio folio folio folio folio folio folio
===================================================================================================================================
Investment income:
Dividends from investments in portfolio
shares................................... $ 2,377 $ 3 $ 8,589 $ 2,523 $ 2,517 $ 0 $ 0 $ 0
Expenses:
Mortality and expense risk fees
(Note 4)................................. 250 0 298 285 342 210 334 590
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss)........... 2,127 3 8,291 2,238 2,175 (210) (334) (590)
Net realized gain (loss) and unrealized
appreciation (depreciation) on investments:
Net realized gain (loss) on sale of
investments in portfolio shares.......... (13) 0 1 103 2 2 (28) (420)
Net change in unrealized appreciation
(depreciation) of investments in
portfolio shares....................... (14,018) (2) (7,457) 2,959 (4,311) (634) 1,478 (14,306)
- -----------------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments in
portfolio shares................... (14,031) (2) (7,456) 3,062 (4,309) (632) 1,450 (14,726)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations....... $ (11,904) $ 1 $ 835 $ 5,300 $(2,134) $ (842) $ 1,116 $(15,316)
===================================================================================================================================
</TABLE>
Total
================================================================================
Investment income:
Dividends from investments in portfolio
shares................................. $ 123,945
Expenses:
Mortality and expense risk fees
(Note 4)............................... 10,727
- -------------------------------------------------------------------------------
Net investment income (loss)......... 113,218
Net realized gain (loss) and unrealized
appreciation (depreciation) on investments:
Net realized gain (loss) on sale of
investments in portfolio shares........ 174
Net change in unrealized appreciation
(depreciation) of investments in
portfolio shares...................... (103,130)
- -------------------------------------------------------------------------------
Net gain (loss) on investments in
portfolio shares.................. (102,956)
- -------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations....... $ 10,262
The accompanying notes are an integral part of these financial statements.
<PAGE>
ANNUITY INVESTORS VARIABLE ACCOUNT B
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Dreyfus Variable Investment Fund Dreyfus Funds
----------------------------------------------- ------------------------
Capital Growth Socially
Appre- and Money Small Responsible Stock
ciation Income Market Cap Growth Index
Portfolio Portfolio Portfolio Portfolio Fund, Inc. Fund
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Changes from operations:
Net investment income (loss)................... $ 802 $ 19,380 $ 0 $ 21,438 $ 7,513 $ 12,311
Net realized gain (loss) on sale of investments
in portfolio shares....................... 2 0 0 21 77 (13)
Net change in unrealized appreciation (depreciation)
of investments in portfolio shares......... 1,429 (18,880) 0 (24,732) (5,668) (2,480)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from
operations.............................. 2,233 500 0 (3,273) 1,922 9,818
Changes from principal transactions:
Contract purchase payments..................... 155,719 321,133 0 396,553 271,584 714,481
Contract redemptions........................... (846) (1,340) 0 0 0 (484)
Net transfers (to) from fixed account......... 28,277 8,359 0 35,300 (1,731) 4,627
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from principal
transactions............................. 183,150 328,152 0 431,853 269,853 718,624
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets............ 185,383 328,652 0 428,580 271,775 728,442
Net assets, beginning of period...................... 0 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period............................ $ 185,383 $ 328,652 $ 0 $ 428,580 $ 271,775 $ 728,442
====================================================================================================================================
Invesco Funds Group, Inc. Janus Aspen Series
------------------------- ------------------
High Industrial Total Aggressive
Yield Income Return Growth Balanced Growth
Fund Fund Fund Portfolio Portfolio Portfolio
====================================================================================================================================
Changes from operations:
Net investment income (loss)....................... $ 9,913 $ 22,221 $ 3,232 $ (88) 1,926 $ 289
Net realized gain (loss) on sale of investments
in portfolio shares............................. 4 0 58 0 383 0
Net change in unrealized appreciation (depreciation)
of investments in portfolio shares.............. (6,748) (13,959) (561) 1,686 4,297 69
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from
operations.................................. 3,169 8,262 2,729 1,598 6,606 358
Changes from principal transactions:
Contract purchase payments......................... 91,597 332,968 137,113 28,889 305,338 323,635
Contract redemptions............................... (846) (2,541) (2,260) 0 (564) (846)
Net transfers (to) from fixed account.............. 15,738 15,941 16,204 (137) 12,270 12,085
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from principal
transactions................................ 106,489 346,368 151,057 28,752 317,044 334,874
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets ............... 109,658 354,630 153,786 30,350 323,650 335,232
Net assets, beginning of period.......................... 0 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period................................ $109,658 $354,630 $ 153,786 $ 30,350 $ 323,650 $335,232
====================================================================================================================================
<PAGE>
ANNUITY INVESTORS VARIABLE ACCOUNT B
STATEMENTS OF CHANGES IN NET ASSETS (continued)
YEAR ENDED DECEMBER 31, 1997
Morgan Stanley Universal Funds, Inc.
------------------------------------
Emerging
Markets Fixed Mid-Cap U.S.
Equity Income Value Real Estate Value
Portfolio Portfolio Portfolio Portfolio Portfolio
==============================================================================================================================
Changes from operations:
Net investment income (loss)......................... $ 2,127 $ 3 $ 8,291 $ 2,238 $ 2,175
Net realized gain (loss) on sale of investments (13) 0 1 103 2
in portfolio shares...............................
Net change in unrealized appreciation (depreciation)
of investments in portfolio shares................ (14,018) (2) (7,457) 2,959 (4,311)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from (11,904) 1 835 5,300 (2,134)
operations...................................
Changes from principal transactions:
Contract purchase payments........................... 53,465 48 170,534 70,145 98,978
Contract redemptions................................. 0 0 0 0 0
Net transfers (to) from fixed account................ 29,983 (1) 13,944 4,485 4,629
- ------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from principal
transactions................................. 83,448 47 184,478 74,630 103,607
- ------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets................. 71,544 48 185,313 79,930 101,473
Net assets, beginning of period........................... 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period.................................$ 71,544 $ 48 $ 185,313 $ 79,930 $ 101,473
==============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ANNUITY INVESTORS VARIABLE ACCOUNT B (continued)
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Strong Funds
---------------------------
Growth Opportunity
Fund Fund
II II
==========================================================================================
<S> <C> <C>
Changes from operations:
Net investment income (loss)................... 857 (84)
Net realized gain (loss) on sale of investments
in portfolio shares....................... (2) 2
Net change in unrealized appreciation (depreciation)
of investments in portfolio shares......... (676) 651
- --------------------------------------------------------------------------------------
Net increase (decrease) in net assets from
operations.............................. 179 569
Changes from principal transactions:
Contract purchase payments..................... 22,776 68,117
Contract redemptions........................... 0 0
Net transfers (to) from fixed account......... 39 143
- --------------------------------------------------------------------------------------
Net increase in net assets from principal
transactions............................. 22,815 68,260
- --------------------------------------------------------------------------------------
Net increase in net assets............ 22,994 68,829
Net assets, beginning of period...................... 0 0
- --------------------------------------------------------------------------------------
Net assets, end of period............................ $ 22,994 $ 68,829
========================================================================================
International Worldwide
Growth Growth
Portfolio Portfolio
=========================================================================================
Changes from operations:
Net investment income (loss)....................... $ (203) $ 11
Net realized gain (loss) on sale of investments
in portfolio shares............................. (5) 0
Net change in unrealized appreciation (depreciation)
of investments in portfolio shares.............. (566) (701)
- -----------------------------------------------------------------------------------------
Net increase (decrease) in net assets from
operations.................................. (774) (690)
Changes from principal transactions:
Contract purchase payments......................... 119,873 530,453
Contract redemptions............................... 0 (1,919)
Net transfers (to) from fixed account.............. 2,998 35,179
- -----------------------------------------------------------------------------------------
Net increase in net assets from principal
transactions................................ 122,871 563,713
- -----------------------------------------------------------------------------------------
Net increase in net assets ............... 122,097 563,023
Net assets, beginning of period.......................... 0 0
- -----------------------------------------------------------------------------------------
Net assets, end of period................................ $122,097 $563,023
=========================================================================================
<PAGE>
ANNUITY INVESTORS VARIABLE ACCOUNT B (continued)
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1997
PBHG Insurance Series Fund, Inc.
-------------------------------------------------
Technology
Large Cap and
Growth II Growth Communications
Portfolio Portfolio Portfolio Total
=================================================================================================================
Changes from operations:
Net investment income (loss)......................... $ (210) $ (334) $ (590) $ 113,218
Net realized gain (loss) on sale of investments 2 (28) (420) 174
in portfolio shares...............................
Net change in unrealized appreciation (depreciation)
of investments in portfolio shares................ (634) 1,478 (14,306) (103,130)
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from (842) 1,116 (15,316) 10,262
operations...................................
Changes from principal transactions:
Contract purchase payments........................... 41,695 110,081 196,258 4,561,433
Contract redemptions................................. 0 (1,297) 0 (12,943)
Net transfers (to) from fixed account................ 18,077 5,970 9,020 271,399
- ------------------------------------------------------------------------------------------------------------------
Net increase in net assets from principal
transactions................................. 59,772 114,754 205,278 4,819,889
- ------------------------------------------------------------------------------------------------------------------
Net increase in net assets................. 58,930 115,870 189,962 4,830,151
Net assets, beginning of period........................... 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period................................. $ 58,930 $115,870 $189,962 $4,830,151
==================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ANNUITY INVESTORS VARIABLE ACCOUNT B
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEAR ENDED DECEMBER 31, 1997
BASIC CONTRACTS
<TABLE>
<CAPTION>
=========================================================================================================================
Dreyfus Variable Investment Fund Dreyfus Funds
------------------------------------------------------- ----------------------------
Growth Socially
Capital and Money Small Responsible Stock
Appreciation Income Market Cap Growth Index
Portfolio Portfolio Portfolio Portfolio Fund, Inc. Fund
<S> <C> <C> <C> <C> <C> <C> <C>
Units outstanding, December 31, 0.000 0.000 0.000 0.000 0.000 0.000
Units purchased 18,431.382 32,365.225 0.000 41,359.506 26,523.695 69,726.369
Units redeemed (83.716) (133.463) 0.000 0.000 (191.195) (215.724)
------------ ------------- ------------- -------------- -------------- -------------
Units outstanding December 31, 1997 18,347.666 32,231.762 0.000 41,359.506 26,332.500 69,510.645
============ ============= ============= ============== ============== =============
================================================================================================================================
================================================================================================================================
Invesco Funds Group, Inc. Janus Aspen Series
---------------------------------------- --------------------------------------------
High Industrial Total Aggressive
Yield Income Return Growth Balanced Growth
Fund Fund Fund Portfolio Portfolio Portfolio
=========================================================================================================================
Units outstanding, December 31, 1996 0.000 0.000 0.000 0.000 0.000 0.000
Units purchased 10,339.969 33,509.762 14,857.849 2,843.016 30,746.037 32,820.195
Units redeemed (79.148) (239.809) (215.915) (12.940) (226.283) (82.604)
------------ ------------- ------------- -------------- -------------- -------------
Units outstanding December 31, 1997 10,260.821 33,269.953 14,641.934 2,830.076 30,519.754 32,737.591
============ ============= ============= ============== ============== =============
===================================================================================================================================
PBHG Insurance
Morgan Stanley Universal Funds, Inc Series Fund, Inc.
---------------------------------------------------------------------- -----------------
Emerging
Markets Fixed Mid-Cap U.S.
Equity Income Value Real Estate Value Growth II
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
Units outstanding, December 31, 1996 0.000 0.000 0.000 0.000 0.000 0.000
Units purchased 9,042.956 4.653 16,674.966 7,201.754 9,944.401 6,195.935
Units redeemed 0.000 0.000 0.000 (1.694) 0.000 0.000
------------ ------------- ------------- -------------- -------------- -------------
Units outstanding December 31, 1997 9,042.956 4.653 16,674.966 7,200.060 9,944.401 6,195.935
============ ============= ============= ============== ============== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ANNUITY INVESTORS VARIABLE ACCOUNT B
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEAR ENDED DECEMBER 31, 1997
BASIC CONTRACTS
Strong Funds
-------------------------------
Growth Opportunity
Fund Fund
II II
Units outstanding, December 31, 0.000 0.000
1996
Units purchased 2,156.405 6,416.208
Units redeemed (8.849) 0.000
-------------- ---------------
Units outstanding December 31, 1997 2,147.556 6,416.208
============== ===============
-------------------------------
International Worldwide
Growth Growth
Portfolio Portfolio
Units outstanding, December 31, 0.000 0.000
1996
Units purchased 12,542.402 56,862.257
Units redeemed (1.363) (196.504)
-------------- ---------------
Units outstanding December 31, 1997 12,541.039 56,665.753
============== ===============
PBHG Insurance
Series Fund, Inc.
-------------------------------
Technology
Large Cap and
Growth Communications
Portfolio Portfolio
==========================================================================
Units outstanding, December 31, 1996 0.000 0.000
Units purchased 11,550.778 21,141.232
Units redeemed (135.647) (167.224)
------------- ---------------
Units outstanding December 31, 1997 11,415.131 20,974.008
============== ===============
============================================================================
The accompanying notes are an integral part of these financial statements.
<PAGE>
ANNUITY INVESTORS VARIABLE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
(1) GENERAL
-------
Annuity Investors Variable Account B (the "Account") is registered
under the Investment Company Act of 1940, as amended, as a unit
investment trust. The Account was established on December 19, 1996 and
commenced operations on July 15, 1997 as a segregated investment
account for individual and group variable annuity contracts which are
registered under the Securities Act of 1933. The operations of the
Account are included in the operations of Annuity Investors Life
Insurance Company (the "Company") pursuant to the provisions of the
Ohio Insurance Code. The Company is an indirect wholly-owned subsidiary
of American Annuity Group, Inc., ("AAG"), a publicly traded insurance
holding company listed on the New York Stock Exchange. The Company is
licensed in 47 states.
Comparative financial statements are not presented as the Account did
not have any financial activity in 1996.
At December 31, 1997, the following investment options were available:
The Dreyfus Variable Investment Fund:
o Capital Appreciation Portfolio
o Growth and Income Portfolio
o Money Market Portfolio
o Small-Cap Portfolio
Dreyfus Funds:
o Socially Responsible Growth Fund, Inc.
o Stock Index Fund
Strong Funds:
o Growth Fund II
o Opportunity Fund II
Invesco Funds:
o High-Yield Fund
o Industrial Income Fund
o Total Return Fund
Janus Aspen Series:
o Aggressive Growth Portfolio
o Balanced Portfolio
o Growth Portfolio
o International Growth Portfolio
o Worldwide Growth Portfolio
Morgan Stanley Universal Funds, Inc.:
o Emerging Markets Equity Portfolio
o Fixed Income Portfolio
o Mid-Cap Value Portfolio
o U.S. Real Estate Portfolio
o Value Portfolio
PBHG Insurance Series Fund, Inc.:
o Growth II Portfolio
o Large Cap Growth Portfolio
o Technology & Communications Portfolio
8
ANNUITY INVESTORS VARIABLE ACCOUNT B
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Basis of Presentation
---------------------
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amount reported in the
financial statements and accompanying notes. Changes in circumstances
could cause actual results to differ materially from those estimates.
Investments
-----------
Investments are valued using the net asset value of the respective
portfolios at the end of each business day of the New York Stock
Exchange, with the exception of business holidays. Investment
transactions are accounted for on the trade date (the date the order to
buy or sell is executed). The cost of investments sold is determined on
a first-in, first-out basis. The Account does not hold any investments
which are restricted as to resale.
Net investment income (loss), net realized gain (loss) and unrealized
appreciation (depreciation) on investments are allocated to the
contracts on each valuation date based on each contract's pro rata
share of the assets of the Account as of the beginning of the valuation
date.
Federal Income Taxes
--------------------
No provision for federal income taxes has been made in the accompanying
financial statements because the operations of the Account are included
in the total operations of the Company, which is treated as a life
insurance company for federal income tax purposes under Subchapter L of
the Internal Revenue Code. Net investment income (loss) and realized
gains (losses) will be retained in the Account and will not be taxable
until received by the contract owner or beneficiary in the form of
annuity payments or other distributions.
Net Assets Attributable to Variable Annuity Contract Holders
------------------------------------------------------------
The variable annuity contract reserves are comprised of net contract
purchase payments less redemptions and benefits. These reserves are
adjusted daily for the net investment income (loss), net realized gain
(loss) and unrealized appreciation (depreciation) on investments.
9
ANNUITY INVESTORS VARIABLE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<PAGE>
December 31, 1997
(3) PURCHASES AND SALES OF INVESTMENTS IN PORTFOLIO SHARES
------------------------------------------------------
The aggregate cost of purchases and proceeds from sales of investments
in all portfolio shares for the year ended December 31, 1997 are as
follows:
1997
---------------------------
Proceeds
Cost of from
Purchases Sales
--------- ---------
Dreyfus Variable Investment Fund:
Capital Appreciation Portfolio $ 184,066 $ 114
Growth and Income Portfolio 347,539 7
Money Market Portfolio 0 0
Small Cap Portfolio 453,533 242
Dreyfus Funds:
Socially Responsible Growth Fund, Inc. 281,102 3,736
Stock Index Fund 732,154 1,219
Strong Funds:
Growth Fund II 23,723 52
Opportunity Fund II 68,218 41
Invesco Funds:
High-Yield Fund 116,516 114
Industrial Income Fund 368,589 0
Total Return Fund 155,706 1,416
Janus Aspen Series:
Aggressive Growth Portfolio 28,673 9
Balanced Portfolio 325,724 6,754
Growth Portfolio 335,162 0
International Growth Portfolio 122,980 311
Worldwide Growth Portfolio 563,789 65
Morgan Stanley Universal Funds, Inc.:
Emerging Markets Equity Portfolio 85,649 75
Fixed Income Portfolio 51 0
Mid-Cap Value Portfolio 192,812 44
U.S. Real Estate Portfolio 78,457 1,590
Value Portfolio 105,900 118
PBHG Insurance Series Fund, Inc.:
Growth II Portfolio 59,698 135
Large Cap Growth Portfolio 116,890 2,470
Technology & Communications Portfolio 208,284 3,595
---------- --------
Total $4,955,215 $22,107
========== =======
10
ANNUITY INVESTORS VARIABLE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997
<PAGE>
(4) DEDUCTIONS AND EXPENSES
-----------------------
Although periodic annuitization payments to contract owners vary
according to the investment performance of the sub-accounts, such
payments are not affected by mortality or expense experience because
the Company assumes the mortality risk and expense risk under the
contracts.
The mortality risk assumed by the Company results from the life annuity
payment option in the contracts, in which the Company agrees to make
annuity payments regardless of how long a particular annuitant or other
payee lives. The annuity payments are determined in accordance with
annuity purchase rate provisions established at the time the contracts
are issued. Based on the actuarial determination of expected mortality,
the Company is required to fund any deficiency in the annuity payment
reserves from its general account assets.
The expense risk assumed by the Company is the risk that the deductions
for sales and administrative expenses may prove insufficient to cover
the actual sales and administrative expenses. Under the Basic Contract,
the Company deducts a fee from the Account each day for assuming the
mortality and expense risks. This fee is equal on an annual basis to
1.40% of the daily value of the total investments of the Account. These
fees aggregated $10,727 for the year ended December 31, 1997.
In connection with certain contracts in which the Company incurs
reduced sales and servicing expenses, such as contracts offered to
active employees of the Company or any of its subsidiaries and/or
affiliates, the Company may offer an Enhanced Contract. Under the
Enhanced Contract, the Company deducts a fee from the Account each day
for assuming the mortality and expense risks. This fee is equal on an
annual basis to 1.10% of the daily value of the total investments of
the Account. There were no Enhanced Contracts as of December 31, 1997.
Pursuant to an administrative agreement between AAG and the Company,
AAG subsidiaries provide sales and administrative services to the
Company and the Account. The Company may deduct a percentage of
purchase payments surrendered to cover sales expenses. The percentage
decreases to 0% from a maximum of 7.0% based upon the number of years
the purchase payment has been held.
In addition, the Company may deduct units from contracts annually and
upon full surrender to cover an administrative fee of $30. These
expenses totaled $0 for the year ended December 31, 1997.
(5) OTHER TRANSACTIONS WITH AFFILIATES
----------------------------------
AAG Securities, Inc., an affiliate of the Company, is the principal
underwriter and performs all variable annuity sales functions on behalf
of the Company.
11
ANNUITY INVESTORS VARIABLE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997
<PAGE>
(6) NET ASSETS
----------
Net assets consisted of the following at December 31, 1997:
Proceeds from the sales of units since organization,
less cost of units redeemed $4,819,889
Undistributed net investment income 113,218
Undistributed net realized gains on sale of investments 174
Net unrealized depreciation of investments (103,130)
-----------
Net assets $4,830,151
===========
12
The Financial Statements of the following investment companies (each, a
"Registrant") are made a part hereof and incorporated herein:
Registrant 1940 Act Number
- ---------- ---------------
Janus Aspen Series 811-07736
- --Janus Aspen Series International Growth Portfolio
- --Janus Aspen Series Worldwide Growth Portfolio
- --Janus Aspen Series Aggressive Growth Portfolio
- --Janus Aspen Series Growth Portfolio
Dreyfus Variable Investment Fund 811-05125
- --Small Cap Portfolio
- --Capital Appreciation Portfolio
- --Growth and Income Portfolio
- --Domestic Money Market Fund
The Dreyfus Socially Responsible Growth Fund, Inc. 811-07044
Dreyfus Stock Index Fund 811-05719
INVESCO Variable Investment Fund, Inc. 811-8038
- --Total Return Fund
- --Industrial Income Fund
- --High Yield Fund
Morgan Stanley Universal Fund, Inc. 811-07607
- --Emerging Markets Equity Portfolio
- --Mid-Cap Value Portfolio
- --U.S. Real Estate Portfolio
- --Fixed Income Portfolio
- --Value Portfolio
PBHG Insurance Series Fund, Inc. 811-08009
- --PBHG Technology & Communications Portfolio
- --PBHG Growth II Portfolio
- --Large Cap Growth Portfolio
Strong Opportunity Fund II, Inc. 811-6552
Strong VIF Growth Fund II 811-6553
<PAGE>
ANNUITY INVESTORS[REGISTERED] VARIABLE ACCOUNT B
Annuity Investors Life Insurance Company UNDERWRITTEN AND
P. O. Box 5423 DISTRIBUTED BY:
Cincinnati, Ohio 45201-5423
AAG Securities, Inc.
Member NASD
250 East Fifth Street
Cincinnati, Ohio 45202
INDEPENDENT AUDITORS
Ernst & Young LLP
DIRECTORS ROBERT ALLEN ADAMS President of Annuity Investors Life Insurance
Company[REGISTERED] and President of Great American[REGISTERED] Life Insurance
Company
STEPHEN CRAIG LINDNER
President of American Annuity Group[SERVICEMARK]
WILLIAM JACK MANEY II
Senior Vice President, Treasurer and Chief Financial Officer of American Annuity
Group
JAMES MICHAEL MORTENSEN
Executive Vice President of Annuity Investors Life Insurance Company and
Executive Vice President of Great American Life Insurance Company
MARK FRANCIS MUETHING
Senior Vice President, General Counsel and Secretary of American Annuity Group
JEFFREY SCOTT TATE
Senior Vice President of American Annuity Group
OFFICERS
Robert Allen Adams President
James Michael Mortensen Executive Vice President & Secretary
Thomas Kevin Liguzinski Senior Vice President
Mark Francis Muething Senior Vice President, General Counsel & Secretary
Michael Joseph O'connor Senior Vice President & Chief Actuary
Charles Kent Mcmanus Senior Vice President
Robert Eugene Allen Vice President & Treasurer
Arthur Ronald Greene III Vice President
Betty Marie Kasprowicz Vice President & Assistant Secretary
David H. Shipley Vice President
Lynn E. Laswell Assistant Vice President & Assistant Treasurer
William Jack Maney II Assistant Treasurer
Thomas E. Mischell Assistant Treasurer
<PAGE>
DREYFUS VIF SMALL CAP PORTFOLIO
DREYFUS VIF CAPITAL APPRECIATION PORTFOLIO
DREYFUS VIF GROWTH AND INCOME PORTFOLIO
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
DREYFUS STOCK INDEX FUND
DREYFUS VIF DOMESTIC MONEY MARKET FUND
JANUS ASPEN SERIES INTERNATIONAL GROWTH PORTFOLIO
JANUS ASPEN SERIES WORLDWIDE GROWTH PORTFOLIO
JANUS ASPEN SERIES AGGRESSIVE GROWTH PORTFOLIO
JANUS ASPEN SERIES GROWTH PORTFOLIO
JANUS ASPEN SERIES BALANCED PORTFOLIO
INVESCO VIF TOTAL RETURN FUND
INVESCO VIF INDUSTRIAL INCOME FUND
INVESCO VIF HIGH YIELD FUND
MORGAN STANLEY UNIVERSAL FUND INC. - EMERGING MARKETS EQUITY PORTFOLIO
MORGAN STANLEY UNIVERSAL FUND INC. - MID - CAP VALUE PORTFOLIO
MORGAN STANLEY UNIVERSAL FUND INC. - U.S. REAL ESTATE PORTFOLIO
MORGAN STANLEY UNIVERSAL FUND INC. - FIXED INCOME PORTFOLIO
MORGAN STANLEY UNIVERSAL FUND INC. - VALUE PORTFOLIO
PBHG INSURANCE SERIES FUND, INC. - PBHG TECHNOLOGY & COMMUNICATIONS PORTFOLIO
PBHG INSURANCE SERIES FUND, INC. - PBHG GROWTH II PORTFOLIO
PBHG INSURANCE SERIES FUND, INC. - LARGE CAP GROWTH PORTFOLIO
STRONG OPPORTUNITY FUND II, INC.
STRONG VIF GROWTH FUND II
<PAGE>
Annuity Investors Life Insurance Company(Registered Trademark)
P. O. Box 5423
Cincinnati, Ohio 45201-5423
1-800-789-6771
Annuity Investors(Registered Trademark)
Variable Account B
of
ANNUITY INVESTORS[SERVICEMARK] LIFE INSURANCE COMPANY
for
December 31, 1997
Annual Report to Contract Owners
This report is for the information of the contract owners and participants of
the Annuity Investors Life Insurance Company and the Annuity Investors Variable
Account B. It is authorized for distribution to other persons only when preceded
or accompanied by a current prospectus which contains complete information,
including charges and expenses.
