As filed with the Securities and Exchange Commission on November 17, 1998
File No. 333-19725
File No. 811-08017
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ( )
Pre-effective Amendment No. ( )
Post-effective Amendment No. 3 ( X )
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 ( )
Pre-effective Amendment No. ( )
Post-effective Amendment No. 7 ( X )
(Check appropriate box or boxes)
-----------------------------
ANNUITY INVESTORS(REGISTERED) VARIABLE ACCOUNT B
(Exact Name of Registrant)
ANNUITY INVESTORS LIFE INSURANCE COMPANY(REGISTERED)
(Name of Depositor)
P.O. Box 5423
Cincinnati, Ohio 45201-5423
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code:
(800) 789-6771
Mark F. Muething, Esq.
Senior Vice President, Secretary and General Counsel
Annuity Investors Life Insurance Company
P.O. Box 5423
Cincinnati, Ohio 45201-5423
(Name and Address of Agent for Service)
Copy to:
John P. Gruber, Esq.
Annuity Investors Life Insurance Company
P. O. Box 5423
Cincinnati, Ohio 45201-5323
It is proposed that this filing will become effective:
/------/ Immediately upon filing pursuant to Rule 485(b)
/------/ On pursuant to Rule 485(b)
/------/ 60 days after filing pursuant to Rule 485(a)(1)
/--X---/ On February 4, 1999 pursuant to Rule 485(a)(1)
/------/ 75 days after filing pursuant to Rule 485 (a)(2)
/------/ On pursuant to Rule 485(a)(2)
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CROSS REFERENCE SHEET
Pursuant to Rule 495(a)
(Commodore Navigator(SERVICEMARK))
Showing Location in Part A (Prospectus),
Part B (Statement of Additional Information) and Part C (Other Information)
of Registration Statement Information Required by Form N-4
PART A
<S> <C> <C>
Item of Form N-4 Prospectus Caption
1. Cover Page.................................... Cover Page
2. Definitions................................... Definitions
3. Synopsis...................................... Overview
4. Condensed Financial Information
(a) Accumulation Unit Values............... Condensed Financial Information
(b) Performance Data....................... Performance Information
(c) Financial Statements................... Financial Statements
5. General Description of Registrant, Depositor
and Portfolio
Companies
(a) Depositor.............................. Annuity Investors Life Insurance
Company(REGISTERED)
(b) Registrant............................. The Separate Account
(c) Portfolio Companies.................... The Portfolios
(d) Portfolio Prospectuses................. The Portfolios
(e) Voting Rights.......................... Voting Rights
6. Deductions and Expenses
(a) General................................ Charges and Deductions
(b) Sales Load %........................... Contingent Deferred Sales Charge
(c) Special Purchase Plan.................. Contingent Deferred Sales Charge
(d) Commissions............................ AAG Securities, Inc.
(e) Portfolio Expenses..................... Fee Table
(f) Operating Expenses..................... Fee Table
<PAGE>
7. Contracts
(a) Persons with Rights.................... Persons with Rights Under a Contract;
Voting Rights
(b)(i) Allocation of Premium Payments......... Purchase Payments
(ii) Transfers............................. Transfers
(iii) Exchanges............................. Additions, Deletions or Substitutions
(c) Changes................................ Not Applicable
(d) Inquiries.............................. How Do I Contact the Company
8. Annuity Period................................ Benefit Payment Period
9. Death Benefit................................. Death Benefit
10. Purchases and Contract Values
(a) Purchases.............................. Purchase Payments; Investment
Options--Allocations
(b) Valuation.............................. Account Value; Definitions
(c) Daily Calculation...................... Account Value; Accumulation Units;
Definitions
(d) Underwriter............................ AAG Securities, Inc.
11. Redemptions
(a) By Owner............................... Surrenders
By Annuitant........................... Not Applicable
(b) Texas ORP.............................. Texas Optional Retirement Program
(c) Check Delay............................ Surrenders
(d) Free Look.............................. Right to Cancel
12. Taxes......................................... Federal Tax Matters
13. Legal Proceedings............................. Legal Proceedings
14. Table of Contents for the Statement of
Additional Statement of Additional Information
Information...................................
<PAGE>
PART B
Statement of Additional
Item of Form N-4 Information Caption
15. Cover Page.................................... Cover Page
16. Table of Contents............................. Table of Contents
17. General Information and History............... General Information and History
18. Services
(a) Fees and Expenses of Registrant........ (Prospectus) Summary of Expenses
(b) Management Contracts................... Not Applicable
(c) Custodian.............................. Not Applicable
Independent Auditors................... Experts
(d) Assets of Registrant................... Not Applicable
(e) Affiliated Person...................... Not Applicable
(f) Principal Underwriter.................. Not Applicable
19. Purchase of Securities Being Offered.......... (Prospectus) AAG Securities, Inc.
Offering Sales Load........................... (Prospectus) Contingent Deferred Sales
Charge
20. Underwriters.................................. AAG Securities, Inc.
21. Calculation of Performance Data
(a) Money Market Funded Sub-Accounts....... Money Market Sub-Account Standardized
Yield
Calculation
(b) Other Sub-Accounts..................... Not Applicable
22. Annuity Payments.............................. (Prospectus) Fixed Dollar Benefit;
Variable Dollar Benefit; (SAI) Benefit
Units--Transfer Formulas
23. Financial Statements.......................... Financial Statements
<PAGE>
PART C
Item of Form N-4 Part C Caption
24. Financial Statements and Exhibits............. Financial Statements and Exhibits
(a) Financial Statements................... Financial Statements
(b) Exhibits............................... Exhibits
25. Directors and Officers of the Depositor....... Directors and Officers of Annuity
Investors Life
Insurance Company(REGISTERED)
26. Persons Controlled By or Under Common Control Persons Controlled By Or Under Common
With the Control With the Depositor or Registrant
Registrant....................................
27. Number of Owners.............................. Number of Owners
28. Indemnification............................... Indemnification
29. Principal Underwriters........................ Principal Underwriter
30. Location of Accounts and
Records....................................... Location of Accounts and Records
31. Management Services........................... Management Services
32. Undertakings.................................. Undertakings
Signature Page................................ Signature Page
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ANNUITY INVESTORS LIFE INSURANCE COMPANY(REGISTERED)
ANNUITY INVESTORS(REGISTERED) VARIABLE ACCOUNT B
PROSPECTUS for
The Commodore Navigator(SERVICEMARK)
Individual and Group Flexible Premium Deferred Annuities
May 1, 1999
The Commodore Navigator(SERVICEMARK) individual and group flexible premium
deferred annuity contracts (the "Contracts") are issued by Annuity Investors
Life Insurance Company(REGISTERED) (the "Company"). The Contracts offer both
variable and fixed investment options. Contracts qualify for tax-deferred
treatment during the Accumulation Period. Contracts are available for
tax-qualified and non-tax-qualified annuity purchases.
The variable investment options under the Contracts are Sub-Accounts of Annuity
Investor(REGISTERED) Variable Account B (the "Separate Account"). The Contracts
currently offer 25 Sub-Accounts. Each Sub-Account is invested in shares of a
registered investment company or a portfolio thereof (each, a "Portfolio"). The
Portfolios are listed below.
Janus Aspen Series (5 Portfolios)
-Aggressive Growth Portfolio
-Worldwide Growth Portfolio
-Balanced Portfolio
-Growth Portfolio
-International Growth Portfolio
Dreyfus Variable Investment Fund (4 Portfolios)
-Capital Appreciation Portfolio
-Money Market Portfolio
-Growth and Income Portfolio
-Small Cap Portfolio
The Dreyfus Socially Responsible Growth Fund, Inc.
Dreyfus Stock Index Fund
Strong Opportunity Fund II, Inc.
Strong Variable Insurance Funds, Inc. (1 Portfolio)
-Strong Growth Fund II
INVESCO Variable Investment Funds, Inc. (3 Portfolios)
-Industrial Income Portfolio
-Total Return Portfolio
-High Yield Portfolio
Morgan Stanley Universal Funds, Inc. (5 Portfolios)
-Mid-Cap Value Portfolio
-Value Portfolio
-Fixed Income Portfolio
-U.S. Real Estate Portfolio
-Emerging Markets Equity Portfolio
PBHG Insurance Series Fund, Inc. (3 Portfolios)
-PBHG Growth II Portfolio
-PBHG Large Cap Growth Portfolio
-PBHG Technology & Communications Portfolio
The Timothy Plan Variable Series
This prospectus includes information you should know before investing in The
Commodore Navigator. This prospectus is not complete without the current
prospectuses for the Portfolios. Please keep this prospectus and the Portfolio
prospectuses for future reference.
A statement of additional information ("SAI"), dated May 1, 1999, contains more
information about the Separate Account and the Contracts. The SAI has been filed
with the Securities and Exchange Commission and is part of this prospectus. For
a free copy, complete and return the form on page ____ of this prospectus, or
call the Company at 1-800-789-6771. You may also access the SAI (as well as all
other documents filed with the Securities and Exchange Commission with respect
to the Contracts, the Separate Account or the Company) at the Securities and
Exchange Commission's Web site: http://www.sec.gov. The table of contents for
the SAI is printed on page _____ of this prospectus.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
- - --------------------------------------------------------------------------------
These securities may be sold by a bank or credit union, but are not financial
institution products.
* The Contracts are Not FDIC or NCUSIF Insured
* The Contracts are Obligations of the Company and Not of the Bank or Credit
Union
* The Bank or Credit Union Does Not Guarantee the Company's Obligations Under
the Contracts
* The Contracts Involve Investment Risk and May Lose Value
- - --------------------------------------------------------------------------------
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TABLE OF CONTENTS
Page
<S> <C>
DEFINITIONS 4
OVERVIEW 5
What is the Separate Account? 5
What Are the Contracts? 5
How Do I Purchase or Cancel a Contract? 5
Will Any Penalties or Charges Apply If I Surrender a Contract? 5
What Other Charges and Deductions Apply to the Contract? 5
How Do I Contact the Company? 5
FEE TABLE 6
Owner Transaction Expenses 6
Separate Account Annual Expenses 6
Portfolio Annual Expenses for Year Ended 12/31/98 6
Examples 7
CONDENSED FINANCIAL INFORMATION 8
Financial Statements 9
Performance Information 9
Yield Data 9
Total Return Data 9
Other Performance Measures 9
THE PORTFOLIOS 10
Janus Aspen Series 10
Aggressive Growth Portfolio 10
Worldwide Growth Portfolio 10
Balanced Portfolio 10
Growth Portfolio 10
International Growth Portfolio 10
Dreyfus Portfolios 11
Dreyfus Variable Investment Fund-Capital Appreciation Portfolio 11
Dreyfus Variable Investment Fund-Money Market Portfolio 11
Dreyfus Variable Investment Fund-Growth and Income Portfolio 11
Dreyfus Variable Investment Fund-Small Cap Portfolio 11
The Dreyfus Socially Responsible Growth Fund, Inc. 11
Dreyfus Stock Index Fund 11
Strong Portfolios 12
Strong Opportunity Fund II, Inc. 12
Strong Variable Insurance Funds, Inc.-Strong Growth Fund II 12
INVESCO Variable Investment Funds, Inc. 12
Industrial Income Portfolio 12
Total Return Portfolio 12
High Yield Portfolio 12
Morgan Stanley Universal Funds, Inc. 13
Mid Cap Value Portfolio 13
Value Portfolio 13
Fixed Income Portfolio 13
U.S. Real Estate Portfolio 13
Emerging Markets Equity Portfolio 13
PBHG Insurance Series Fund, Inc. 14
PBHG Growth II Portfolio 14
PBHG Large Cap Growth Portfolio 14
PBHG Technology & Communications Portfolio 14
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The Timothy Plan Variable Series 14
Additions, Deletions, or Substitutions 15
Voting Rights 15
ANNUITY INVESTORS LIFE INSURANCE COMPANY(REGISTERED) 16
THE SEPARATE ACCOUNT 16
AAG SECURITIES, INC. 16
CHARGES AND DEDUCTIONS 17
Charges and Deductions By the Company 17
Contingent Deferred Sales Charge ("CDSC") 17
Contract Maintenance Fee 18
Transfer Fee 18
Administration Charge 18
Mortality and Expense Risk Charge 19
Premium Taxes 19
Discretionary Waivers of Charges 19
Expenses of the Portfolios 19
THE CONTRACTS 20
Right to Cancel 20
Persons With Material Rights Under a Contract 20
ACCUMULATION PERIOD 21
Account Statements 21
Account Value 21
Purchase Payments 22
Investment Options--Allocations 22
Transfers 23
Surrenders 25
Contract Loans 26
Termination 26
BENEFIT PAYMENT PERIOD 27
Annuity Benefit 27
Death Benefit 27
Settlement Options 27
Form of Settlement Option 28
Calculation of Fixed Dollar Benefit Payments 28
Calculation of Variable Dollar Benefit Payments 28
FEDERAL TAX MATTERS 29
Tax-Deferred Annuities 29
Tax Qualified Plans 30
Individual Retirement Annuities 30
Roth IRAs 30
Tax-Sheltered Annuities 30
Texas Optional Reti8rement Program 30
Pension and Profit Sharing Plans 30
Governmental Deferred Compensation Plans 30
Nonqualified Deferred Compensation Plans 30
Summary of Income Tax Rules 31
THE REGISTRATION STATEMENT 32
OTHER INFORMATION 32
Year 2000 32
Legal Proceedings 32
STATEMENT OF ADDITIONAL INFORMATION 33
</TABLE>
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DEFINITIONS
- - --------------------------------------------------------------------------------
The capitalized terms defined on this page will have the meanings given to them
when used in this prospectus. Other terms which may have a specific meaning
under the Contracts, but which are not defined on this page, will be explained
as they are used in this prospectus.
Account Value: The value of a Contract during the Accumulation Period. It
is equal to the
sum of the value of the owner's interest in the Sub-Accounts and the owner's
interest in thefixed account options.
Accumulation Period: This is the period during which purchase payments are
invested according to the investment options elected and accumulated on a
tax-deferred basis. The Accumulation Period ends when a Contract is annuitized
or surrendered in full, or on the Death Benefit Valuation Date.
Accumulation Unit: The unit of measure used to calculate the value of a
owner's interest in the Sub-Account(s) during the Accumulation Period.
Accumulation Unit Value: The value of an Accumulation Unit at the end of a
Valuation Period. The initial Accumulation Unit Value for each Sub-Account other
than the money market Sub-Account was set at $10. The initial Accumulation Unit
Value for the money market Sub-Account was set at $1. Thereafter, the
Accumulation Unit Value for a Sub-Account at the end of each Valuation Period is
the Accumulation Unit Value at the end of the previous Valuation Period
multiplied by the Net Investment Factor for that Sub-Account for the current
Valuation Period.
A Net Investment Factor of 1 produces no change in the Accumulation Unit Value
for that Valuation Period. A Net Investment Factor of more than 1 or less than 1
produces an increase or a decrease, respectively, in the Accumulation Unit Value
for that Valuation Period.
Benefit Payment Period: The period during which either annuity benefit or death
benefit payments are paid under a settlement option. The Benefit Payment Period
begins on the first day of the first payment interval in which a benefit payment
will be paid.
Benefit Unit: The unit of measure used to determine the dollar value of variable
dollar benefit payments after the first variable dollar benefit payment.
Benefit Unit Value: The value of a Benefit Unit at the end of a Valuation
Period. The initial Benefit Unit Value for a Sub-Account will be set equal to
the Accumulation Unit Value for that Sub-Account at the end of the first
Valuation Period in which a variable dollar benefit is established. The Benefit
Unit Value for a Sub-Account at the end of each Valuation Period after the first
is the Benefit Unit Value at the end of the previous Valuation Period multiplied
by the Net Investment Factor for that Sub-Account for the current Valuation
Period, and multiplied by a daily investment factor (0.99991781) for each day in
the Valuation Period. The daily investment factor reduces the previous Benefit
Unit Value by the daily amount of the assumed interest rate (3% per year,
compounded annually) which is already incorporated in the stream of variable
dollar benefit payments.
Death Benefit Valuation Date: The date the death benefit is valued. It is the
date that the Company receives both proof of the death of the owner and
instructions as to how the death benefit will be paid. If instructions are not
received within one year of the date of death, the Death Benefit Valuation Date
will be one year after the date of death. The Death Benefit Valuation Date may
never be later than five years after the date of death.
Net Asset Value: The price computed by or for each Portfolio, no less frequently
than each Valuation Period, at which the Portfolio's shares or units are
redeemed in accordance with the rules of the Securities and Exchange Commission.
Net Investment Factor: The Net Investment Factor for any Sub-Account for any
Valuation Period is determined by dividing NAV2 by NAV1 and subtracting a factor
representing the mortality and expense risk charge and the administration charge
deducted from the Sub-Account during that Valuation Period, where:
NAV1 is equal to the Net Asset Value for the Portfolio for the preceding
Valuation Period; and
NAV2 is equal to the Net Asset Value for the Portfolio for the current Valuation
Period plus the per share amount of any dividend or net capital gain
distributions made by the Portfolio during the current Valuation Period, and
plus or minus a per share charge or credit if the Company adjusts its tax
reserves due to investment operations of the Sub-Account or changes in tax
reserves due to investment operations of the Sub-Account or changes in tax law.
Valuation Period: The period starting at the close of regular trading on
the New York Stock Exchange on any Valuation Date and ending at the close of
trading on the next succeeding Valuation Date. "Valuation Date" means each day
on which the New York Stock Exchange is open for business.
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<PAGE>
OVERVIEW
What is the Separate Account?
The Separate Account is a unit investment trust registered with the Securities
and Exchange Commission under the Investment Company Act of 1940. The Separate
Account is divided into Sub-Accounts, each of which is invested in one of the
Portfolios listed on page 1 of this prospectus. If you choose a variable
investment option, you are investing in the Sub-Accounts, not directly in the
Portfolios.
What Are the Contracts?
The Contracts are deferred annuities, which are insurance products. The
Contracts are available in both tax-qualified and non-tax-qualified forms, both
of which qualify for tax-deferred investment. See the Federal Tax Matters
section beginning on page ____ of this prospectus for more information about tax
qualifications and taxation of annuities in general. During the Accumulation
Period, the amounts you contribute can be allocated among any of the 25 variable
investment options and five fixed account options. The variable investment
options are the Sub-Accounts of the Separate Account, each of which is invested
in a Portfolio. The owner bears the risk of any investment gain or loss on
amounts allocated to the Sub-Accounts. The fixed account options earn a fixed
rate of interest declared by the Company, which will be no less than 3% per
year. Amounts allocated to the fixed account options are guaranteed by the
Company.
During the Benefit Payment Period, payments can be allocated between variable
dollar benefit and fixed dollar benefit options. If a variable dollar benefit is
selected, Benefit Units can be allocated to any of the same Sub-Accounts which
are available during the Accumulation Period.
How Do I Purchase or Cancel a Contract?
The requirements to purchase a Contract are explained in The Contracts section
beginning on page ____ of this prospectus. You may purchase a Contract only
through a licensed securities representative. You may cancel a Contract within
twenty days after you receive it (the right to cancel may be longer in some
States). In many States, you will bear the risk of investment gain or loss on
any amounts allocated to the Sub-Accounts prior to cancellation. The right to
cancel may not apply to group Contracts. The right to cancel is described in the
Right to Cancel section on page ___ of this prospectus.
Will Any Penalties or Charges Apply If I Surrender a Contract?
A Contingent Deferred Sales Charge ("CDSC") may be imposed on amounts
surrendered. The maximum CDSC is 7% for each purchase payment. The CDSC
percentage decreases by 1% annually to 0% after seven years from the date of
receipt of each purchase payment. Surrender procedures and the CDSC are
described in the Surrenders section beginning on page ____ of this prospectus.
Depending on your age and other circumstances of a surrender, there may also be
a penalty tax on surrender. Tax consequences of a surrender are described in the
Federal Tax Matters section on page ____ of this prospectus. The right to
surrender may be restricted under certain tax-qualified plans.
What Other Charges and Deductions Apply to the Contract?
Other than the CDSC, the fees and charges that the Company may charge are:
o a transfer fee for certain transfers between investment options;
o an annual contract maintenance fee, which is assessed only against invest-
ments in the
Sub-Accounts;
o a mortality and expense risk charge, which is an expense of the Separate
Account and charged against all assets in the Sub-Accounts;
o an administration charge, which is an expense of the Separate Account
and charged against all assets in the Sub-Accounts; and
o premium taxes in some States.
These charges and deductions are described in the Charges and Deductions section
beginning on page _____ of this prospectus and in the Fee Table on page ____ of
this prospectus.
In addition to charges and deductions under the Contracts, the Portfolios incur
expenses which are passed through to owners. Portfolio expenses for the fiscal
year ending December 31, 1998 are included in the Fee Table on page ____ of this
prospectus and are described in the prospectuses and statements of additional
information for the Portfolios.
How Do I Contact the Company?
Any questions or inquiries should be directed to the Company's Administrative
Office, P.O. Box 5423, Cincinnati, Ohio 45201-5423, (800) 789-6771. Please
include the Contract number and the owner's name.
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FEE TABLE
- - -------------------------------------------------------------------------------------------------------------------
<S> <C>
Owner Transaction Expenses
Maximum Contingent Deferred Sales Charge (applies to purchase payments only) 7%
Transfer Fee (applies to transfers in excess of 12 in any contract year) $25
Annual Contract Maintenance Fee (not assessed against fixed account options) $30
Separate Account Annual Expenses
(Annual expenses shown are a percentage of Separate Account net assets and are the same for each Sub-Account.)
Mortality and Expense Risk Charge 1.25%
Administration Charge 0.15%
</TABLE>
Portfolio Annual Expenses for Year Ended 12/31/981
(Fees and expenses shown are after any applicable fee waivers or reductions or
expense reimbursements. Actualfees and expenses are disclosed in note 1 at the
back of this prospectus.)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Sub-Account Management Fees Other Total
Expenses Expenses
----------------------------------------------------------------------------- ----------------- -------------- ----------------
Janus A.S.-Aggressive Growth Portfolio
Janus A.S.-Worldwide Growth Portfolio
Janus A.S.-Balanced Portfolio
Janus A.S.-Growth Portfolio
Janus A.S.-International Growth Portfolio
Dreyfus V.I.F.-Capital Appreciation Portfolio
Dreyfus V.I.F.-Money Market Portfolio
Dreyfus V.I.F.-Growth and Income Portfolio
Dreyfus V.I.F.-Small Cap Portfolio
The Dreyfus Socially Responsible Growth Fund, Inc.
Dreyfus Stock Index Fund
Strong Opportunity Fund II, Inc.
Strong Variable Insurance Funds, Inc.-Strong Growth Fund II
INVESCO VIF -Industrial Income Portfolio
INVESCO VIF-Total Return Portfolio
INVESCO VIF-High Yield Portfolio
Morgan Stanley Universal Funds, Inc.-Mid-Cap Value Portfolio
Morgan Stanley Universal Funds, Inc.-Value Portfolio
Morgan Stanley Universal Funds, Inc.-Fixed Income Portfolio
Morgan Stanley Universal Funds, Inc.-U.S. Real Estate Portfolio
Morgan Stanley Universal Funds, Inc.-Emerging Markets Equity Portfolio
PBHG Insurance Series Fund, Inc.-PBHG Growth II Portfolio
PBHG Insurance Series Fund, Inc.-PBHG Large Cap Growth Portfolio
PBHG Insurance Series Fund, Inc.-PBHG Tech. & Comm. Portfolio
The Timothy Plan Variable Series
</TABLE>
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<CAPTION>
<S>
Examples Example #1--Assuming Surrender
If the owner surrenders his or her Contract at
the end of the applicable time period, the
following expenses would be charged on a $1,000
investment:
<C> <C> <C> <C> <C>
Sub-Account 1 Year 3 Years 5 Years 10 Years
- - --------------------------------------------------------------------------------- ------------ ----------- ------------ ------------
Janus A.S.-Aggressive Growth Portfolio
Janus A.S.-Worldwide Growth Portfolio
Janus A.S.-Balanced Portfolio
Janus A.S.-Growth Portfolio
Janus A.S.-International Growth Portfolio
Dreyfus V.I.F.-Capital Appreciation Portfolio
Dreyfus V.I.F.-Money Market Portfolio
Dreyfus V.I.F.-Growth and Income Portfolio
Dreyfus V.I.F.-Small Cap Portfolio
The Dreyfus Socially Responsible Growth Fund, Inc.
Dreyfus Stock Index Fund
Strong Opportunity Fund II, Inc.
Strong Variable Insurance Funds, Inc.-Strong Growth Fund II
INVESCO VIF-Industrial Income Portfolio
INVESCO VIF-Total Return Portfolio
INVESCO VIF-High Yield Portfolio
Morgan Stanley Universal Funds, Inc.-Mid-Cap Value Portfolio
Morgan Stanley Universal Funds, Inc.-Value Portfolio
Morgan Stanley Universal Funds, Inc.-Fixed Income Portfolio
Morgan Stanley Universal Funds, Inc.-U.S. Real Estate Portfolio
Morgan Stanley Universal Funds, Inc.-Emerging Markets Equity Portfolio
PBHG Insurance Series Fund, Inc.-PBHG Growth II Portfolio
PBHG Insurance Series Fund, Inc.-PBHG Large Cap Growth Portfolio
PBHG Insurance Series Fund, Inc.-PBHG Tech. & Comm. Portfolio
The Timothy Plan Variable Series
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<CAPTION>
Examples Example #2--Assuming No Surrender
If the owner does not surrender his or her
Contract, or if it is annuitized, the following
expenses would be charged on a $1,000 investment
at the end of the applicable time period:
----------------------------------------------------------------------------------------------------------------------------------
<S>
<C> <C> <C> <C>
Sub-Account 1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------------- ------------ ----------- -------------
Janus A.S.-Aggressive Growth Portfolio
Janus A.S.-Worldwide Growth Portfolio
Janus A.S.-Balanced Portfolio
Janus A.S.-Growth Portfolio
Janus A.S.-International Growth Portfolio
Dreyfus V.I.F.-Capital Appreciation Portfolio
Dreyfus V.I.F.-Money Market Portfolio
Dreyfus V.I.F.-Growth and Income Portfolio
Dreyfus V.I.F.-Small Cap Portfolio
The Dreyfus Socially Responsible Growth Fund, Inc.
Dreyfus Stock Index Fund
Strong Opportunity Fund II, Inc.
Strong Variable Insurance Funds, Inc.-Strong Growth Fund II
INVESCO VIF-Industrial Income Portfolio
INVESCO VIF-Total Return Portfolio
INVESCO VIF-High Yield Portfolio
Morgan Stanley Universal Funds, Inc.-Mid-Cap Value Portfolio
Morgan Stanley Universal Funds, Inc.-Value Portfolio
Morgan Stanley Universal Funds, Inc.-Fixed Income Portfolio
Morgan Stanley Universal Funds, Inc.-U.S. Real Estate Portfolio
Morgan Stanley Universal Funds, Inc.-Emerging Markets Equity Portfolio
PBHG Insurance Series Fund, Inc.-PBHG Growth II Portfolio
PBHG Insurance Series Fund, Inc.-PBHG Large Cap Growth Portfolio
PBHG Insurance Series Fund, Inc.-PBHG Tech. & Comm. Portfolio
The Timothy Plan Variable Series
</TABLE>
The examples are not indicative of past or future expenses or annual rates of
return of any Portfolio. Actual expenses and annual rates of return may be more
or less than those assumed in the examples. The examples assume the reinvestment
of all dividends and distributions, no transfers among Sub-Accounts or between
the fixed account options and the Sub-Accounts and a 5% annual rate of return.
The contract maintenance fee is reflected in the examples as a charge of ___ per
year based on the ratio of actual contract maintenance fees collected for the
year ended 12/31/98 to total net assets as of 12/31/98. The examples do not
include charges for premium taxes.
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CONDENSED FINANCIAL INFORMATION
- - --------------------------------------------------------------------------------
(See notes 2 and 3 at the back of this prospectus.)
<TABLE>
<CAPTION>
Sub-Account Standard Contracts Enhanced Contracts2
12/31/97 12/31/98 12/31/97 12/31/98
<S> <C> <C> <C> <C> <C>
Janus Aggressive Growth Portfolio
Aspen Accumulation Unit Value 10.723950 10.738659
Series Accumulation Units Outstanding 2,830.076 0.000
----------------------------------------------- ------------------ ------------- ------------- --------------
Worldwide Growth Portfolio
Accumulation Unit Value 9.935860 9.949496
Accumulation Units Outstanding 56,665.753 0.00
----------------------------------------------- ------------------ ------------- ------------- --------------
Balanced Portfolio
Accumulation Unit Value 10.604609 10.619159
Accumulation Units Outstanding 30,519.754 0.00
----------------------------------------------- ------------------ ------------- ------------- --------------
Growth Portfolio
Accumulation Unit Value 10.239960 10.254006
Accumulation Units Outstanding 32,737.51 0.000
----------------------------------------------- ------------------ ------------- ------------- --------------
International Growth Portfolio
Accumulation Unit Value 9.735841 9.749214
Accumulation Units Outstanding 12,541.039 0.000
----------------------------------------------- ------------------ ------------- ------------- --------------
Dreyfus Capital Appreciation Portfolio
Variable Accumulation Unit Value 10.103905 10.117776
Investment Accumulation Units Outstanding 18,347.666 0.00
Fund
----------------------------------------------- ------------------ ------------- ------------- --------------
Money Market Portfolio
Accumulation Unit Value 1.016499 1.017876
Accumulation Units Outstanding 0.000 0.000
----------------------------------------------- ------------------ ------------- ------------- --------------
Growth and Income Portfolio
Accumulation Unit Value 10.196538 10.210527
Accumulation Units Outstanding 32,231.76 0.00
---------------------------------------------- ----------------- ------------- ------------- -------------
Small Cap Portfolio
Accumulation Unit Value 10.362314 10.376538
Accumulation Units Outstanding 41,359.506 0.000
- - -------------------------------------------------------- ------------------ ------------- ------------- --------------
The Dreyfus Socially Responsible Growth Fund, Inc.
Accumulation Unit Value 10.320883 10.335055
Accumulation Units Outstanding 26,332.500 0.000
- - --------------------------------------------------------- ------------------ ------------- ------------- --------------
Dreyfus Stock Index Fund
Accumulation Unit Value 10.479569 10.493943
Accumulation Units Outstanding 69,510.645 0.000
- - --------------------------------------------------------- ------------------ ------------- ------------- --------------
Strong Opportunity Fund II, Inc.
Accumulation Unit Value 10.727356 10.742083
Accumulation Units Outstanding 6,416.208 0.000
- - --------------------------------------------------------- ------------------ ------------- ------------- --------------
Strong Variable Insurance Funds, Inc.-Strong Growth Fund II
Accumulation Unit Value 10.707133 10.721828
Accumulation Units Outstanding 2,147.556 0.000
- - --------------------------------------------------------- ----------------- ------------- ------------- ---------------
INVESCO Industrial Income Portfolio
Variable Accumulation Unit Value 10.659157 10.673778
Investment Accumulation Units Outstanding 33,269.953 0.000
Funds,
Inc. ----------------------------------------------- ----------------- ------------- ------------- ---------------
Total Return Portfolio
Accumulation Unit Value 10.503108 10.517508
Accumulation Units Outstanding 14,641.93 0.000
----------------------------------------------- -------------------- ------------- ------------- ---------------
High Yield Portfolio
Accumulation Unit Value 10.687084 10.701757
Accumulation Units Outstanding 10,260.821 0.000
- - --------------------------------------------------------- ----------------- ------------- ------------- ---------------
Morgan Mid-Cap Value Portfolio
Stanley Accumulation Unit Value 11.113227 11.128478
Universal Accumulation Units Outstanding 16,674.966 0.000
Funds,
Inc. ----------------------------------------------- ----------------- ------------- ------------- ---------------
Value Portfolio
Accumulation Unit Value 10.204064 10.218060
Accumulation Units Outstanding 9,944.401 0.000
------------------------------------------------- ----------------- ------------- ------------- ---------------
Fixed Income Portfolio
Accumulation Unit Value 10.412276 10.426565
Accumulation Units Outstanding 4.653 0.000
------------------------------------------------- ----------------- ------------- ------------- ---------------
U.S. Real Estate Portfolio
Accumulation Unit Value 11.101269 11.116503
Accumulation Units Outstanding 7,200.060 0.000
------------------------------------------------- ----------------- ------------- ------------- ---------------
Emerging Markets Equity Portfolio
Accumulation Unit Value 7.911559 7.922446
Accumulation Units Outstanding 9,042.956 0.000
------------------------------------------------- ----------------- ------------- ------------- ---------------
PBHG PBHG Growth II Portfolio
Insurance Accumulation Unit Value 9.511124 9.524184
Series Accumulation Units Outstanding 6,195.935 0.000
Fund, ------------------------------------------------- ----------------- ------------- ------------- ---------------
Inc. PBHG Large Cap Growth Portfolio
Accumulation Unit Value 10.150555 10.164489
Accumulation Units Outstanding 11,415.131 0.000
------------------------------------------------- ----------------- ------------- ------------- ---------------
PBHG Technology & Communications Portfolio
Accumulation Unit Value 9.057045 9.069487
Accumulation Units Outstanding 20,974.008 0.000
- - --------------------------------------------------------- ----------------- ------------- ------------- ---------------
The Timothy Plan Variable Series3
Accumulation Unit Value N/A N/A
Accumulation Units Outstanding N/A N/A
</TABLE>
-8-
<PAGE>
The table on the preceding page gives Accumulation Unit information for each
Sub-Account from inception to December 31, 1998. This information should be read
in conjunction with the Separate Account financial statements, including the
notes to those statements. The beginning Accumulation Unit Value for each
Sub-Account other than the Dreyfus Money Market Portfolio Sub-Account was
10.00000 as of July 15, 1997 (the Separate Account commencement date), or as of
May 1, 1998 for the Timothy Plan Variable Series. The beginning Accumulation
Unit Value for the Dreyfus Money Market Portfolio Sub-Account was 1.000000 as of
July 15, 1997.
Financial Statements
The financial statements and reports of independent public accountants for the
Company and for the Separate Account are included in the statement of additional
information.
Performance Information
From time to time, the Company may advertise yields and/or total returns for the
Sub-Accounts. These figures are based on historical information and are not
intended to indicate future performance. Performance data and a more detailed
description of the methods used to determine yield and total return are included
in the statement of additional information.
Yield Data
The "yield" of the money market Sub-Account refers to the annualized income
generated by an investment in that Sub-Account over a specified seven-day
period. The "effective yield" of the money market Sub-Account is the same as the
"yield" except that it assumes reinvestment of the income earned in that
Sub-Account. The effective yield will be slightly higher than the yield because
of the compounding effect of this assumed reinvestment. The Company does not
advertise yields for any Sub-Account other than the money market Sub-Account.
Total Return Data
The "average annual total return" of a Sub-Account refers to hypothetical return
assuming a purchase payment has been held in the Sub-Account for various periods
of time. When a Sub-Account has been in operation for one, five and ten years,
the average annual total return will be presented for these periods, although
other periods may be presented as well. Average annual total return is the
average of the hypothetical annual return for each year in the period presented.
"Cumulative total return" is either hypothetical or actual return data, either
standardized or non-standardized, that reflects the performance of a Sub-Account
from the beginning of the period presented to the end of the period presented,
without determining the performance for each year within that period.
Hypothetical cumulative total return data may be presented based on the
performance of a Sub-Account prior to the time the Separate Account commenced
operations.
"Standardized" total return quotations reflect the deduction of all charges that
apply to all Contracts of that type, except for premium taxes. The contingent
deferred sales charge ("CDSC") reflected in standardized total return is the
percentage CDSC which would apply at the end of the period presented assuming
the purchase payment was received on the first day of the period presented.
"Non-standardized" total return quotations do not reflect the deduction of CDSCs
and contract maintenance fees.
Total return data that does not reflect the CDSC and other charges will be
higher than the total return realized by an investor who incurs the charges.
Other Performance Measures
The Company may include in reports and promotional literature the rankings of
the Separate Account or the Contracts, or rankings of the Sub-Accounts derived
from rankings of the Separate Account or the Contracts, as published by Lipper
Analytical Services, Inc., VARDS, IBC/Donoghue's Money Fund Report, Financial
Planning Magazine, Money Magazine, Bank Rate Monitor, Standard & Poor's Indices,
Dow Jones Industrial Average, Morningstar or any other service, company, or
person who ranks separate accounts or other investment products on overall
performance or other criteria.
The Company may:
o compare the performance of a Sub-Account with applicable indices and/or
industry averages;
o present performance information which reflects the effects of tax-deferred
compounding on Sub-Account investment returns;
o compare investment return on a tax-deferred basis with currently taxable
investment return;
o illustrate investment returns by graphs, charts, or otherwise.
-9-
<PAGE>
THE PORTFOLIOS
- - --------------------------------------------------------------------------------
The Separate Account is currently divided into 25 Sub-Accounts. Each Sub-Account
is invested in a Portfolio. Each Portfolio has its own investment objectives and
policies. The current Portfolio prospectuses which accompany this prospectus
contain additional information concerning the investment objectives and policies
of each Portfolio, the investment advisory services and administrative services
of each Portfolio and the charges of each Portfolio. There is no assurance that
the Portfolios will achieve their stated objectives. You should read the
Portfolio prospectuses carefully before making any decision concerning the
allocation of purchase payments to, or transfers among, the Sub-Accounts.
All dividends and capital gains distributed by the Portfolios are reinvested by
the Separate Account and reflected in Accumulation Unit Values. Portfolio
dividends and net capital gains are not distributed to owners.
The Securities and Exchange Commission does not supervise the management or the
investment practices and/or policies of any of the Portfolios.
The Portfolios are available only through insurance company separate accounts
and certain qualified retirement plans. Though a Portfolio may have a name
and/or investment objectives which are similar to those of a publicly available
mutual fund, and/or may be managed by the same investment advisor that manages a
publicly available mutual fund, the performance of the Portfolio is entirely
independent of the performance of any publicly available mutual fund. Neither
the Company nor the Portfolios make any representations or assurances that the
investment performance of any Portfolio will be the same or similar to the
investment performance of any publicly available mutual fund.
<TABLE>
<S> <C>
Janus Aspen Series
Advisor: Aggressive Growth Portfolio
Janus Capital Corporation A nondiversified portfolio that seeks long-term growth of capital by investing primarily in
common stocks with an emphasis on securities issued by medium-sized companies.
Advisor: Worldwide Growth Portfolio
Janus Capital Corporation A diversified portfolio that seeks long-term growth of capital by investing primarily in common
stocks of foreign and domestic issuers. International investing may present special risks,
including currency fluctuations and social and political developments. For further discussion
of the risks associated with international investing, please see the attached Janus Aspen Series
prospectus.
Advisor: Balanced Portfolio
Janus Capital Corporation A diversified portfolio that seeks long-term growth of capital balanced by current income. The
Portfolio normally invests 40-60% of its assets in securities selected primarily for their
growth potential and 40-60% of its assets in securities selected primarily for their income
potential.
Advisor: Growth Portfolio
Janus Capital Corporation A diversified portfolio that seeks long-term growth of capital by investing primarily in common
stocks, with an emphasis on companies with larger market capitalizations.
Advisor: International Growth Portfolio
Janus Capital Corporation A diversified portfolio that seeks long-term growth of capital by investing primarily in common
stocks of foreign issuers. International investing may present special risks, including
currency fluctuations and social and political developments. For further discussion of the
risks associated with international investing, please see the attached Janus Aspen Series
prospectus.
-10-
<PAGE>
Dreyfus Portfolios
Advisor: Dreyfus Variable Investment Fund-Capital Appreciation Portfolio
The Dreyfus Corporation The Capital Appreciation Portfolio's primary investment objective is to provide long-term
capital growth consistent with the preservation of capital. Current income is a secondary
Sub-Advisor: goal. It seeks to achieve its goals by investing principally in common stocks of domestic
Fayez Sarofim & Co. and foreign issuers, common stocks with warrants attached and debt securities of foreign
governments.
Advisor: Dreyfus Variable Investment Fund-Money Market Portfolio
The Dreyfus Corporation The Money Market Portfolio's goal is to provide as high a level of current income as is
consistent with the preservation of capital and the maintenance of liquidity. This
Portfolio invests in short-term money market instruments. An investment in the Money
Market Portfolio is neither insured nor guaranteed by the U.S. Government. There can be no
assurance that the Money Market Portfolio will be able to maintain a stable net asset
value of $1.00 per share.
Advisor: Dreyfus Variable Investment Fund-Growth and Income Portfolio
The Dreyfus Corporation The Growth and Income Portfolio's goal is to provide long-term capital growth, current
income and growth of income, consistent with reasonable investment risk. This Portfolio
invests primarily in equity securities, debt securities and money market instruments of
domestic and foreign issuers.
Advisor: Dreyfus Variable Investment Fund-Small Cap Portfolio
The Dreyfus Corporation The Small Cap Portfolio's goal is to maximize capital appreciation. This Portfolio invests
primarily in common stocks of domestic and foreign issuers. This Portfolio will be
particularly alert to companies that The Dreyfus Corporation considers to be emerging
smaller-sized companies which are believed to be characterized by new or innovative
products, services or processes which should enhance prospects for growth in future
earnings.
Advisor: The Dreyfus Socially Responsible Growth Fund, Inc.
The Dreyfus Corporation The Dreyfus Socially Responsible Growth Fund, Inc.'s primary goal is to provide capital
growth. It seeks to achieve this goal by investing principally in common stocks, or
Sub-Advisor: securities convertible into common stock, of companies which, in the opinion of the
NCM Capital Management GroupPortfolio's management, not only meet traditional investment standards, but also show
Inc. evidence that they conduct their business in a manner that contributes to the enhancement
of the quality of life in America. Current income is a secondary goal.
Advisor: Dreyfus Stock Index Fund
The Dreyfus Corporation The Dreyfus Stock Index Fund's investment objective is to provide investment results that
correspond to the price and yield performance of publicly traded common stocks in the
Index Manager: aggregate, as represented by the Standard & Poor's 500 Composite Stock Price Index. The
Mellon Equity Associates(an Stock Index Fund is neither sponsored by nor affiliated with Standard & Poor's Corporation.
affiliate of Dreyfus)
-11-
<PAGE>
Strong Portfolios
Advisor: Strong Opportunity Fund II, Inc.
Strong Capital Management, The investment objective of the Strong Opportunity Fund II is to seek capital growth. It
Inc. currently emphasizes medium-sized companies that the Portfolio's adviser believes are
under-researched and attractively valued.
Advisor: Strong Variable Insurance Funds, Inc.-Strong Growth Fund II
Strong Capital Management, The investment objective of the Strong Growth Fund II is to seek capital growth. It
Inc. invests primarily in equity securities that the Portfolio's adviser believes have
above-average growth prospects.
INVESCO Variable Investment
Inc.
Advisor: Industrial Income Portfolio
INVESCO Funds Group, Inc. The investment objective of the Industrial Income Portfolio is to seek the best possible
current income while following sound investment practices. Capital growth potential is an
additional, but secondary, consideration in the selection of portfolio securities.
Advisor: Total Return Portfolio
INVESCO Funds Group, Inc. The investment objective of the Total Return Portfolio is to seek a high total return on
investment through capital appreciation and current income. The Total Return Portfolio
seeks to accomplish its objective by investing in a combination of equity securities
(consisting of common stocks and, to a lesser degree, securities convertible into common
stock) and fixed income securities.
Advisor: High Yield Portfolio
INVESCO Funds Group, Inc. The investment objective of the High Yield Portfolio is to seek a high level of current
income by investing substantially all of its assets in lower rated bonds and other debt
securities and in preferred stock. The Portfolio pursues its investment objective through
investment in a variety of long-term, intermediate-term, and short-term bonds. Potential
capital appreciation is a factor in the selection of investments, but is secondary to the
Portfolio's primary objective. For further discussion of the risks associated with
investment in lower rated bonds, please see the attached INVESCO Variable Investment
Funds, Inc. prospectus.
-12-
<PAGE>
Morgan Stanley Universal Funds, Inc.
Advisor: Mid Cap Value Portfolio
Miller Anderson & The Mid Cap Value Portfolio seeks above-average total return
Sherrerd, LLP (an over a market cycle of three to five years by investing in
indirect wholly owned common stocks and other equity securities of issuers with
subsidiary of Morgan equity capitalizations in the range of the companies
Stanley Dean Witter & Co.) represented in the S&P MidCap 400 Index. Such range is currently $500
million to $6 billion but the range fluctuates over time with changes
in the equity market.
Advisor: Value Portfolio
Miller Anderson & The investment objective of the Value Portfolio is to seek
Sherrerd, LLP (an above-average total return over a market cycle of three to
indirect wholly owned five years by investing primarily in a diversified portfolio
subsidiary of Morgan of common stocks and other equity securities deemed by the
Stanley Dean Witter & Co.) adviser to be undervalued based on various measures such as
price/earnings and price/book ratios.
Advisor: Fixed Income Portfolio
Miller Anderson & The investment objective of the Fixed Income Portfolio is to
Sherrerd, LLP (an seek above-average total return over a market cycle of three
indirect wholly owned to five years by investing primarily in a diversified
subsidiary of Morgan portfolio of securities issued by the U.S. Government and its
Stanley Dean Witter & Co.) Agencies, Corporate Bonds, Mortgage-Backed Securities, Foreign
Bonds, and other Fixed Income Securities and Derivatives.
Advisor: U.S. Real Estate Portfolio
Morgan Stanley Asset The investment objective of the U.S. Real Estate Portfolio is
Management Inc. (a wholly above-average current income and long-term capital
owned subsidiary of appreciation by investing primarily in equity securities of
Morgan Stanley Dean U.S. and non-U.S. companies principally engaged in the U.S.
Witter & Co.) real estate industry, including Real Estate Investment Trusts
(REITs).
Advisor: Emerging Markets Equity Portfolio
Morgan Stanley Asset The investment objective of the Emerging Markets Equity
Management Inc. (a wholly Portfolio is long-term capital appreciation by investing
owned subsidiary of primarily in equity securities of emerging market country
Morgan Stanley Dean issuers with a focus on those in which the adviser believes
Witter & Co.) the economies are developing strongly and in which the markets
are becoming more sophisticated.
-13-
<PAGE>
PBHG Insurance Series Fund, Inc.
Advisor: PBHG Growth II Portfolio
Pilgrim Baxter & Associates,The investment objective of the PBHG Insurance Series Growth II Portfolio
Ltd. is to seek capital appreciation. The Portfolio invests primarily in
common stocks and convertible securities of small and medium sized growth
companies (market capitalization or annual revenues up to $4 billion)
that, in the adviser's opinion, are considered to have an outlook for
strong earnings growth and potential for significant capital appreciation.
Advisor: PBHG Large Cap Growth Portfolio
Pilgrim Baxter & Associates,The investment objective of the PBHG Insurance Series Large Cap Growth
Ltd. Portfolio is to seek long-term growth of capital. The Portfolio invests
primarily in common stocks of large capitalization companies (market
capitalization in excess of $1 billion) that, in the adviser's opinion,
are considered to have an outlook for strong growth in earnings and
potential for capital appreciation.
Advisor: PBHG Technology & Communications Portfolio
Pilgrim Baxter & Associates,The investment objective of the PBHG Insurance Series Technology &
Ltd. Communications Portfolio is to seek long-term growth of capital. Current
income is incidental to the Portfolio's objective. The Portfolio invests
primarily in common stocks of companies which rely extensively on
technology or communications in their product development or operations,
or which are expected to benefit from technological advances and
improvements, and that may be experiencing exceptional growth in sales
and earnings driven by technology or communications-related products and
services.
The Timothy Plan Variable Series
Advisor: The Timothy Plan Variable Series
Timothy Partners, Ltd. The primary investment objective of The Timothy Plan Variable Series is
to seek long-term capital growth, with a secondary objective of current
income. The Portfolio shall seek to achieve its objectives while abiding
by ethical standards established for investments by the Portfolio. The
securities in which the Portfolio shall be precluded from investing, by
virtue of the Portfolio's ethical standards, are referred to as excluded
securities.
</TABLE>
-14-
<PAGE>
Additions, Deletions, or Substitutions
The Company may add or delete Sub-Accounts at any time, or may substitute one
Portfolio for another, at any time. The Company does not guarantee that any of
the Sub-Accounts or any of the Portfolios will always be available for
allocation of purchase payments or transfers. In the event of any substitution
or change, the Company may make such changes in the Contract as may be necessary
or appropriate to reflect such substitution or change.
Additions, deletions or substitutions of Sub-Accounts or Portfolios may be due
to an investment decision by the Company, or due to an event not within the
Company's control, such as liquidation of a Portfolio or an irreconcilable
conflict of interest between the Separate Account and another insurance company
which offers a Portfolio. The Portfolio prospectuses describe the possibility of
material conflict of interest in greater detail.
If the Company eliminates a Sub-Account or substitutes the shares of another
investment company for the shares of any Portfolio, the Company will first
obtain approval of the Securities and Exchange Commission to the extent required
by the Investment Company Act of 1940, as amended ("1940 Act"), or other
applicable law. The Company will also notify owners before it eliminates a
Sub-Account or substitutes a Portfolio.
New Sub-Accounts may be established when, in the sole discretion of the Company,
marketing, tax, investment or other conditions so warrant. Any new Sub-Accounts
will be made available to existing owners on a basis to be determined by the
Company.
If deemed to be in the best interests of persons having voting rights under the
Contracts, the Separate Account may be operated as a management company under
the 1940 Act or any other form permitted by law, may be de-registered under the
1940 Act in the event such registration is no longer required, or may be
combined with one or more separate accounts.
Voting Rights
To the extent required by law, all Portfolio shares held in the Separate Account
will be voted by the Company at regular and special shareholder meetings of the
respective Portfolios in accordance with instructions received from persons
having voting interests in the corresponding Sub-Account. During the
Accumulation Period, the Company will vote Portfolio shares according to
instructions of owners, unless the Company is permitted to vote shares in its
own right.
The number of votes which an owner may vote will be calculated separately for
each Sub-Account. The number will be determined by applying the owner's
percentage interest, if any, in a particular Sub-Account to the total number of
votes attributable to that Sub-Account.
The owner's percentage interest and the total number of votes will be determined
as of the record date established by that Portfolio for voting purposes. Voting
instructions will be solicited by written communication in accordance with
procedures established by the respective Portfolios.
The Company will vote or abstain from voting shares for which it receives no
timely instructions and shares held by the Company as to which owners have no
beneficial interest (including shares held by the Company as reserves for
benefit payments*) in proportion to the voting instructions which are received
with respect to all Contracts participating in the Sub-Account.
Each person or entity having a voting interest in a Sub-Account will receive
proxy material, reports and other material relating to the appropriate
Portfolio. The Portfolios are not required to hold annual or other regular
meetings of shareholders.
*Neither the owner nor payee has any interest in the Separate Account during the
Benefit Payment Period. Benefit Units are merely a measure of the amount of the
payment the Company is obligated to pay on each payment date.
-15-
<PAGE>
ANNUITY INVESTORS LIFE INSURANCE COMPANY(REGISTERED)
- - --------------------------------------------------------------------------------
Annuity Investors Life Insurance Company(REGISTERED) (the "Company") is a
stock life insurance company. It was incorporated under the laws of the State
of Ohio in 1981. The Company is principally engaged in the sale of variable
and fixed annuity policies. The home office of the Company is located at 250
East Fifth Street, Cincinnati, Ohio 45202.
The Company is a wholly owned subsidiary of Great American Life Insurance
Company(REGISTERED) which is a wholly owned subsidiary of American Annuity
Group(R), Inc., ("AAG") a publicly traded insurance holding company (NYSE: AAG).
AAG is in turn indirectly controlled by American Financial Group, Inc., a
publicly traded holding company (NYSE:
AFG).
The Company may from time to time publish in advertisements, sales literature
and reports to owners the ratings and other information assigned to it by one or
more independent rating organizations such as A.M. Best Company, Standard &
Poor's, and Duff & Phelps. The purpose of the ratings is to reflect the
financial strength and/or claims-paying ability of the Company. Each year A.M.
Best Company reviews the financial status of thousands of insurers, culminating
in the assignment of Best's Ratings. These ratings reflect A.M. Best Company's
opinion of the relative financial strength and operating performance of an
insurance company in comparison to the norms of the life/health insurance
industry. Ratings of the Company do not reflect the investment performance of
the Separate Account or the degree of risk associated with an investment in the
Separate Account.
THE SEPARATE ACCOUNT
- - --------------------------------------------------------------------------------
Annuity Investors(REGISTERED) Variable Account B was established by the Company
as an insurance company separate account under the laws of the State of Ohio on
December 19, 1996, pursuant to resolution of the Company's Board of Directors.
The Separate Account is registered with the Securities and Exchange Commission
under the 1940 Act as a unit investment trust. However, the Securities and
Exchange Commission does not supervise the management or the investment
practices or policies of the Separate Account.
The assets of the Separate Account are owned by the Company, but they are held
separately from the other assets of the Company. Under Ohio law, the assets of a
separate account are not chargeable with liabilities incurred in any other
business operation of the Company. Income, gains and losses incurred on the
assets in the Separate Account, whether realized or not, are credited to or
charged against the Separate Account, without regard to other income, gains or
losses of the Company. Therefore, the investment performance of the Separate
Account is entirely independent of the investment performance of the Company's
general account assets or any other separate account maintained by the Company.
The assets of the Separate Account will be held for the exclusive benefit of
owners of, and the persons entitled to payment under, the Contracts offered by
this prospectus and under all other contracts which provide for accumulated
values or variable dollar payments which reflect investment results of the
Separate Account.
AAG SECURITIES, INC.
- - --------------------------------------------------------------------------------
AAG Securities, Inc. ("AAGS"), an affiliate of the Company, is the principal
underwriter and distributor of the Contracts. AAG Securities is a wholly
owned subsidiary of AAG. AAGS isregistered with the Securities and Exchange
Commission as a broker-dealer and is a member ofthe National Association of
Securities Dealers, Inc. ("NASD"). Its principal offices arelocated at 250
East Fifth Street, Cincinnati, Ohio 45202. The Company pays AAGS for acting
as underwriter according to the terms of a distribution agreement.
AAGS sells Contracts through its registered representatives. In addition, AAGS
may enter into sales agreements with other broker-dealers to solicit
applications for the Contracts through its registered representatives. These
broker-dealers are registered with the Securities and Exchange Commission and
are members of the NASD. All registered representatives who sell the Contracts
are appointed by the Company as insurance agents and are authorized under
applicable state insurance regulations to sell variable annuities.
The Company or AAGS may pay commissions to registered representatives of AAGS
and other broker-dealers of up to 8.5% of purchase payments made under the
Contracts. These commissions are reduced by one-half for Contracts issued to
owners over age 75. When permitted by state law and in exchange for lower
initial commissions, AAGS and/or the Company may pay trail commissions to
registered representatives of AAGS and to other broker-dealers. Trail
commissions are not expected to exceed 1% of the Account Value of a Contract on
an annual basis. To the extent permitted under current law, the Company and/or
AAGS may pay production, persistency and managerial bonuses as well as other
promotional incentives, in cash or other compensation, to registered
representatives of AAGS and/or other broker-dealers.
-16-
<PAGE>
CHARGES AND DEDUCTIONS
- - --------------------------------------------------------------------------------
Charges and Deductions By the Company
There are two types of charges and deductions by the Company. There are charges
assessed to the Contract which are reflected in the Account Value of the
Contract, but not in Accumulation Unit Values (or Benefit Unit Values). These
charges are the contingent deferred sales charge, the annual contract
maintenance fee, premium taxes where applicable and transfer fees. There are
also charges assessed against the Separate Account. These charges are reflected
in the Accumulation Unit Values (and Benefit Unit Values) of the Sub-Accounts.
These charges are the mortality and expense risk charge and the administration
charge.
The Company will never charge more to a Contract than the fees and charges
described below, even if its actual expenses exceed the total fees and charges
collected. If the fees and charges collected by the Company exceed the actual
expenses it incurs, the excess will be profit to the Company and will not be
returned to owners.
Notwithstanding the above, the Company reserves the right to increase the amount
of the transfer fee in the future, and/or to charge fees for the automatic
transfer programs described in the Transfers section beginning on page ___ of
this prospectus, and/or for the systematic withdrawal program described in the
Surrenders section on page ____ of this prospectus, if in the Company's
discretion, it determines such charges are necessary to offset the costs of
administering transfers or systematic withdrawals.
Contingent Deferred Sales Charge ("CDSC")
Purpose of Charge Offset expenses incurred by the Company in the sale of
the Contracts, including commissions paid and costs
of sales literature.
Amount of Charge Up to 7% of each purchase payment depending on number of
years elapsed since receipt of the purchase payment.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
=================================== ====== ====== ====== ====== ======= ====== ====== ======
Number of full years elapsed
between date of receipt of 0 1 2 3 4 5 6 7 or
purchase payment and date request more
for surrender received
=================================== ====== ====== ====== ====== ======= ====== ====== ======
CDSC as a percentage of purchase
payment surrendered 7% 6% 5% 4% 3% 2% 1% 0%
=================================== ====== ====== ====== ====== ======= ====== ====== ======
</TABLE>
When Assessed On partial or full surrenders of purchase payments
during Accumulation Period.
Assessed Against What Purchase payments only, not earnings. See the n
Surrenders sectio of this prospectus for information on
order of withdrawal of earnings and purchase payments.
Waivers o Free withdrawal privilege. See the Surrenders
section for information.
o In the Company's discretion where the Company
incurs reduced sales and servicing expenses.
o Upon separation from service if Contract issued
with employer plan endorsement or deferred
compensation endorsement.
o If Contract is issued with a tax sheltered annuity
endorsement (and without an employer plan
endorsement): (i) upon separation from service if
owner has attained age 55 and Contract has been in
force for at least seven years; or (ii) after
Contract has been in force fifteen years or more.
o Long term care waiver rider. See the Surrenders
section for information.
o If the Social Security Administration determines
after the Contract is issued that the owner is
"disabled" as that term is defined in the Social
Security Act of 1935, as amended.
o Successor Owner endorsement. See the Account
Value section for information.
o Where required to satisfy state law.
-17-
<PAGE>
Contract Maintenance Fee
Purpose of Charge Offset expenses incurred in issuing the
Contracts and in maintaining the Contracts and the
Separate Account.
Amount of Charge $30.00 per year.
When Assessed During the Accumulation Period the charge is
deducted on each anniversary of the effective date of
the Contract, and at time of full surrender. During the
Benefit Payment Period a portion of the charge is
deducted from each variable dollar benefit payment.
Assessed Against What Amounts invested in the Sub-Accounts.
During the Accumulation Period, the charge is deducted
pro-rata from the Sub-Accounts in which the Contract
has an interest on the date of the charge. During the
Benefit Payment Period, a pro-rata portion of the
annual charge is deducted from each benefit payment
from the variable account. The charge is not assessed
against the fixed account options.
Waivers o During Accumulation Period if the Account Value is
at least $40,000 on the date of the charge (individual
contracts only).
o During Benefit Payment Period if the amount applied
to avariable dollar benefit is at least $40,000 (l
individua contracts only).
o In the Company's discretion where the Company d
incurs reduce sales and servicing expenses.
o During Benefit Payment Period where required to y
satisf state law.
Transfer Fee
Purpose of Charge Offset cost incurred in administering the Contracts.
Amount of Charge $25 for each transfer in excess of 12 in any contract
year. The Company reserves the right to change the
amount of this charge at any time.
When Assessed During Accumulation Period.
Assessed Against What Deducted from amount transferred.
Waivers Currently, the transfer fee does not apply to transfers
associated with the dollar cost averaging, interest
sweep and portfolio rebalancing programs. Transfers
associated with these programs do not count toward the
12 free transfers permitted in a contract year. The
Company reserves the right to eliminate this waiver at
any time.
Administration Charge
Purpose of Charge Offset expenses incurred in administering the
Contracts and the Separate Account.
Amount of Charge Daily charge equal to .000411% of the daily
Net Asset Value for each Sub-Account, which corresponds
to an annual effective rate of 0.15%.
When Assessed During the Accumulation Period and during the
Benefit Payment Period if a variable dollar benefit is
elected.
Assessed Against What Amounts invested in the Sub-Accounts. Not assessed
against the fixed account options.
Waivers May be waived or reduced in the Company's discretion
where the Company incurs reduced sales and servicing
expenses.
-18-
<PAGE>
Mortality and Expense Risk Charge
Purpose of Charge Compensation for bearing certain mortality
and expense risks under the Contract. Mortality risks
arise from the Company's obligation to pay benefit
payments during the Benefit Payment Period and to pay
the death benefit. The expense risk assumed by the
Company is the risk that the Company's actual expenses
in administering the Contracts and the Separate Account
will exceed the amount recovered through the contract
maintenance fees, transfer fees and administration
Amountof Charge charges. Daily charge equal to .003403% of the daily
Net Asset Value for each Sub-Account, which corresponds
to an effective annual rate of 1.25%. The Company
estimates that the mortality risk component of this
charge is 0.75% and the expense risk component is
0.50%. Contracts with the 1.25% mortality and expense
risk charge are referred to as "Standard Contracts."
When Assessed During the Accumulation Period, and during the
Benefit Payment Period if a variable dollar benefit is
elected.
Assessed Against What Amounts invested in the Sub-Accounts.
Not assessed against the fixed account options.
Waivers When the Company expects to incur reduced
sales and servicing expenses, it may issue a
Contract with a reduced mortality and expense risk
charge. These Contracts are referred to as "Enhanced
Contracts." The mortality and expense risk charge
under an Enhanced Contract is a daily charge of
0.002590% of the daily Net Asset Value for each
Sub-Account, which corresponds to an effective
annual rate of 0.95%. The Company estimates that for
Enhanced Contracts, the mortality risk component of
this charge is 0.75% and the expense risk component
is 0.20%.
Premium Taxes
Certain state and local governments impose premium taxes. These taxes currently
range up to 5.0% depending upon the jurisdiction. The Company will deduct any
applicable premium taxes from the Account Value either upon death, surrender,
annuitization, or at the time purchase payments are made, but no earlier than
when the Company incurs a tax liability under state law.
Discretionary Waivers of Charges
The Company will look at the following factors to determine if it will waive a
charge, in part or in full, due to reduced sales and servicing expenses: (1) the
size and type of the group to which sales are to be made; (2) the total amount
of purchase payments to be received; and (3) any prior or existing relationship
with the Company. The Company would expect to incur reduced sales and servicing
expenses in connection with Contracts offered to employees of the Company, its
subsidiaries and/or affiliates. There may be other circumstances, of which the
Company is not presently aware, which could result in reduced sales and
servicing expenses. In no event will the Company waive a charge where such
waiver would be unfairly discriminatory to any person.
Expenses of the Portfolios
In addition to charges and deductions by the Company, there are Portfolio
management fees and administration expenses which are described in the
prospectus and statement of additional information for each Portfolio. The
actual Portfolio fees and expenses for the prior calendar year are included in
the Fee Table on page ___ of this prospectus. Portfolio expenses, like Separate
Account expenses, are reflected in Accumulation Unit Values (or Benefit Unit
Values).
-19-
<PAGE>
THE CONTRACTS
- - --------------------------------------------------------------------------------
Each Contract is an agreement between the Company and the owner. Values,
benefits and charges are calculated separately for each Contract. In the case of
a group Contract, the agreement is between the group owner and the Company. An
individual participant under a group Contract will receive a certificate of
participation, which is evidence of the participant's interest in the group
Contract. A certificate of participation is not a contract. Values, benefits and
charges are calculated separately for each certificate issued under a Contract.
The description of Contract provisions in this prospectus applies to the
interests of certificate owners, except where otherwise noted.
Because the Company is subject to the insurance laws and regulations of all the
jurisdictions where it is licensed to operate, the availability of certain
Contract rights and provisions in a given State may depend on that State's
approval of the Contracts. Where required by state law or regulation, the
Contracts will be modified accordingly.
Right to Cancel
The owner of an individual Contract may cancel it before midnight of the
twentieth day following the date the owner receives the Contract. For a valid
cancellation, the Contract must be returned to the Company, and written notice
of cancellation must be given to the Company, or to the agent who sold the
Contract, by that deadline. If mailed, the return of the Contract or the notice
is effective on the date it is postmarked, with the proper address and with
postage paid. If the owner cancels the Contract, the Contract will be void and
the Company will refund the purchase payment(s) paid for it plus or minus any
investment gains or losses under the Contract as of the end of the Valuation
Period during which the returned Contract is received by the Company. When
required by state or federal law, the Company will return the purchase payments
without any investment gain or loss, during all or part of the right to cancel
period. When required by state law, the right to cancel period may be longer
than 20 days. When required by state law, the right to cancel may apply to group
Contracts.
Persons With Rights Under a Contract
Owner: The owner is the person with authority to exercise rights and receive
benefits under the Contract (e.g., make allocations among investment options,
elect settlement option, designate annuitant, beneficiary and payee). An owner
must ordinarily be a natural person, or a trust or other legal entity holding a
contract for the benefit of a natural person. In the case of a group Contract,
the participant will have the rights of an owner unless restricted by the terms
of an employer plan. Ownership of a non-tax-qualified Contract may be
transferred, but transfer may have adverse tax consequences. Ownership of a
tax-qualified Contract may not be transferred.
Joint Owners:
There may be jointowners of a non-tax-qualified Contract. Joint owners may each
exercise transfer rights and make purchase payment allocations independently.
All other rights must be exercised by joint action. A surviving joint owner who
is not the spouse of a deceased owner may not become a successor owner, but will
be deemed to be the beneficiary of the death benefit which becomes payable on
the death of the first owner to die, regardless of any beneficiary designation.
Successor Owner:
The surviving spouse of a deceased owner may become a successor owner if the
surviving spouse was either the joint owner or sole surviving beneficiary under
the Contract. In order for a spouse to become a successor owner, the owner must
make an election prior to the owner's death, or the surviving spouse must make
an election within one year of the owner's death.
Annuitant:
The annuitant is the person whose life is the measuring life for life contingent
annuity benefit payments. The annuitant is the same person as the owner under a
tax-qualified contract. The owner may designate an annuitant under a
non-tax-qualified Contract.
Beneficiary:
The person entitled to receive the death benefit. The owner may designate the
beneficiary, except that a surviving joint owner will be deemed to be the
beneficiary regardless of any designation. If no beneficiary is designated, and
there is no surviving joint owner, the owner's estate will be the beneficiary.
The beneficiary will be the measuring life for life contingent death benefit
payments.
Payee:
Under a tax-qualified Contract, the owner-annuitant is the payee of annuity
benefits. Under a non-tax-qualified Contract, the owner may designate the payee
of annuity benefits. Irrevocable naming of a payee other than the owner can have
adverse tax consequences. During the Benefit Payment Period, the beneficiary is
the payee.
Assignee:
Under a tax-qualified Contract, assignment is not permitted. The owner of a
non-tax-qualified Contract may assign any of his/her rights or benefits under a
Contract. Assignment of rights or benefits may have adverse tax consequences.
-20-
<PAGE>
ACCUMULATION PERIOD
- - --------------------------------------------------------------------------------
Each Contract allows for an Accumulation Period during which purchase payments
are invested according to the owner's instructions. During the Accumulation
Period, the owner can control the allocation of investments through telephone
transfers or through the following investment programs offered by the Company:
dollar cost averaging, portfolio rebalancing and interest sweep. These programs
and telephone transfer procedures are described in the Transfers section
beginning on page ____ of this prospectus. The owner can access the Account
Value during the Accumulation Period through surrenders, systematic withdrawal,
or contract loans if available. These withdrawal features are described more
fully in the Surrenders and Contract Loans sections on pages ___ and ___ of this
prospectus.
Account Statements
During the Accumulation Period, the Company will provide a report at least once
each contract year of the Contract's Account Value, and any other information
required by law. The Company will confirm receipt of any purchase payments made
after the initial purchase payment in quarterly statements of account activity.
Account Value
The value of a Contract during the Accumulation Period is referred to as the
"Account Value." The Account Value at any given time is the sum of (1) amounts
invested in the fixed investment options plus the fixed rate(s) of interest
earned on those amounts as of that time; and (2) the value of the owner's
interest in the Sub-Accounts as of that time. The value of the owner's interest
in the Sub-Accounts at any time is equal to the sum of the number of
Accumulation Units for each Sub-Account attributable to that Contract multiplied
by the Accumulation Unit Value for the applicable Sub-Account at the end of the
preceding Valuation Period. The Account Value at any time is net of any charges,
deductions, surrenders, and/or outstanding loans incurred prior to or as of the
end of that Valuation Period.
Accumulation Units
Amounts allocated or transferred to a Sub-Account are converted into
Accumulation Units. The number of Accumulation Units credited is determined by
dividing the dollar amount directed to the Sub-Account by the Accumulation Unit
Value for that Sub-Account as of the end of the Valuation Period in which the
amount allocated is received by the Company, or as of the end of the Valuation
Period in which the transfer is made.
Accumulation Units will be canceled as of the end of the Valuation Period during
which one of the following events giving rise to cancellation occurs:
o transfer from a Sub-Account
o full or partial surrender from the Sub-Accounts
o payment of a death benefit
o application of the amounts in the Sub-Accounts to a settlement option
o deduction of the contract maintenance fee
o deduction of any transfer fee
Successor Owner Endorsement
If the Contract is modified by the Successor Owner endorsement, and the
surviving spouse of a deceased owner becomes a successor owner of the
Contract, the Account Value will be stepped-up to equal the death benefit
which otherwise would have been payable, as of what would have been the Death
Benefit Valuation Date. In addition, contingent deferred sales charges will
be waived on the entire stepped-up Account Value as of that date, but will
apply to any purchase payments applied to the Contract after that date.
For purposes of determining what would have been the Death Benefit Valuation
Date, the election to become successor owner will be deemed to be
instructions as to the form of death benefit. The election to become
successor owner must be made within one year of the date of the owner's
death.
The Successor Owner endorsement may not be available in all States.
-21-
<PAGE>
Purchase Payments
Purchase payments may be made at any time during the Accumulation Period.
The current restrictions on purchase payment amounts are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Tax-Qualified Non-Tax-Qualified
- - ----------------------------------------------------------- ----------------------------------- -------------------------------
- - ----------------------------------------------------------- ----------------------------------- -------------------------------
Minimum single purchase payment $2,000 $5,000
- - ----------------------------------------------------------- ----------------------------------- -------------------------------
- - ----------------------------------------------------------- ----------------------------------- -------------------------------
Minimum monthly under periodic payment program $50 $100
- - ----------------------------------------------------------- ----------------------------------- -------------------------------
- - ----------------------------------------------------------- ----------------------------------- -------------------------------
Minimum additional payments $50 $50
- - ----------------------------------------------------------- ----------------------------------- -------------------------------
- - ----------------------------------------------------------- ----------------------------------- -------------------------------
Maximum purchase payment $500,000 or Company approval $500,000 or Company approval
</TABLE>
The Company reserves the right to increase or decrease the minimum allowable
single purchase payment or minimum purchase payment under a periodic payment
program, or the minimum allowable additional purchase payment, at its discretion
and at any time, where permitted by law.
Each purchase payment will be applied by the Company to the credit of the
owner's account. If the application form is in good order, the Company will
apply the initial purchase payment to an account for the owner within two
business days of receipt of the purchase payment. If the application form is not
in good order, the Company will attempt to get the application form in good
order within five business days. If the application form is not in good order at
the end of this period, the Company will inform the applicant of the reason for
the delay and that the purchase payment will be returned immediately unless he
or she specifically consents to the Company keeping the purchase payment until
the application form is in good order. Once the application form is in good
order, the purchase payment will be applied to the owner's account within two
business days.
Each additional purchase payment is credited to a Contract as of the Valuation
Date during which we receive such purchase payment, and if allocated to a
Sub-Account, will be applied at the Accumulation Unit Value for the end of the
Valuation Period in which that Valuation Date occurs.
Investment Options--Allocations
Purchase payments can be allocated in whole percentages to any of the available
Sub-Accounts or fixed account options. See The Portfolios section beginning
on page ___ of this prospectus for a listing and description of the currently
available Sub-Accounts. The currently available fixed account options are as
follows:
Fixed Accumulation Account Option
One Year Guaranteed Interest Rate Option
Three Year Guaranteed Interest Rate Option
Five Year Guaranteed Interest Rate Option
Seven Year Guaranteed Interest Rate Option
The current restrictions on allocations are as follows:
<TABLE>
<CAPTION>
Tax-Qualified and Non-Tax-Qualified
- - -------------------------------------------------------------- ------------------------------------------------------------
<S> <C>
Minimum allocation to any Sub-Account $10
- - -------------------------------------------------------------- ------------------------------------------------------------
- - -------------------------------------------------------------- ------------------------------------------------------------
Minimum allocation to fixed accumulation account $10
- - -------------------------------------------------------------- ------------------------------------------------------------
- - -------------------------------------------------------------- ------------------------------------------------------------
Minimum allocation to fixed account guarantee option $2,000
No amounts may be allocated to a guarantee period option
which would extend beyond the owner's 85th birthday or 5
years after the effective date of the Contract, if later.
- - -------------------------------------------------------------- ------------------------------------------------------------
- - -------------------------------------------------------------- ------------------------------------------------------------
Allocation during right to cancel period The Company may require that purchase payment(s) be
allocated to the money market Sub-Account or to the fixed
accumulation account option during the right to cancel
period.
</TABLE>
-22-
<PAGE>
Interests in the fixed account options are not securities and are not registered
with the Securities and Exchange Commission. Amounts allocated to the fixed
account options will receive a stated rate of interest of at least 3% per year.
Interest credited to the fixed account options is guaranteed by the Company.
Interests in the Sub-Accounts are securities registered with the Securities and
Exchange Commission. The owner bears the risk of investment gain or loss on
amounts allocated to the Sub-Accounts.
Principal Guarantee Program
An owner may elect to have the Company allocate a portion of a purchase payment
to the seven-year guaranteed interest rate option such that, at the end of the
seven-year guarantee period, that account will grow to an amount equal to the
total purchase payment (so long as there are no surrenders or loans from the
Contract). The Company determines the portion of the purchase payment which must
be allocated to the seven-year guarantee option such that, based on the interest
rate then in effect, that account will grow to equal the full amount of the
purchase payment after seven years. The remainder of the purchase payment will
be allocated according to the owner's instructions. The minimum purchase payment
eligible for the principal guarantee program is $5,000.
Renewal of Fixed Account Guarantee Options
At the end of a guarantee period, and for 30 days preceding the end of such
guarantee period, the owner may elect to allocate the amount maturing to any of
the available investment options under the Contract. If the owner does not make
a reallocation election, the amount maturing will be allocated to the guarantee
period option with the same number of years as the period expiring, or the next
shortest period as may be required to comply with the restriction on allocation
to guarantee period options as described in the Investment Options-Allocations
section on page _____ of this prospectus. If a guarantee period is unavailable
due to this restriction, the amount maturing will be allocated to the fixed
accumulation account option.
Transfers
During the Accumulation Period, an owner may transfer amounts between
Sub-Accounts, between fixed account options, and/or between Sub-Accounts and
fixed account options.
The current restrictions on transfers are as follows:
<TABLE>
<CAPTION>
Tax-Qualified and Non-Tax-Qualified
- - -------------------------------------------------------------- -------------------------------------------------------------
<S> <C>
- - -------------------------------------------------------------- -------------------------------------------------------------
Minimum transfer from any Sub-Account $500 or balance of Sub-Account if less
- - -------------------------------------------------------------- -------------------------------------------------------------
- - -------------------------------------------------------------- -------------------------------------------------------------
Minimum transfer from fixed account option $500 or balance of fixed account option if less
- - -------------------------------------------------------------- -------------------------------------------------------------
- - -------------------------------------------------------------- -------------------------------------------------------------
Minimum transfer to fixed account guarantee option $2,000
No amounts may be transferred to a guarantee period option
which would extend beyond the owner's 85th birthday or 5
years after the effective date of the Contract, if later.
- - -------------------------------------------------------------- -------------------------------------------------------------
- - -------------------------------------------------------------- -------------------------------------------------------------
Maximum transfer from fixed account option other than fixed During any contract year, 20% of the fixed account option's
account guarantee option which is maturing value as of the most recent contract anniversary.
- - -------------------------------------------------------------- -------------------------------------------------------------
- - -------------------------------------------------------------- -------------------------------------------------------------
Transfers from fixed account options o May not be made prior to first contract
anniversary.
o Amounts transferred from fixed account options to
Sub-Accounts may not be transferred back to fixed
account options for a period of 6 months from the date
of the original transfer.
A transfer is effective on the Valuation Date during which the Company receives the request for transfer, and will be
processed at the Accumulation Unit Value for the end of the Valuation Period in which that Valuation Date occurs.
</TABLE>
-23-
<PAGE>
Automatic Transfer Programs
During the Accumulation Period, the Company offers the automatic transfer
services described below. To enroll in one of these programs, you will need to
complete the appropriate authorization form, which you can obtain from the
Company by calling 1-800-789-6771.
Currently, the transfer fee does not apply to dollar cost averaging, portfolio
rebalancing, or interest sweep transfers, and transfers under these programs
will not count toward the twelve transfers permitted under the Contract without
a transfer fee charge. However, the Company reserves the right to impose a fee
in such amount as the Company may then determine to be reasonable for
participation in automatic transfer programs.
<TABLE>
<S> <C> <C> <C>
Service Description Minimum Account Requirements Limitations/Notes
- - ---------------------------------- -------------------------------- ------------------------------- -----------------------------
- - ---------------------------------- -------------------------------- ------------------------------- -----------------------------
Dollar Cost Averaging Automatic transfers from the Source of funds must be at Dollar cost averaging transfers
There are risks involved in money market Sub-Account to least $10,000. may not be made to any of the
switching between investments any other Sub-Account(s), or fixed account options. The
available under the Contract. from the fixed accumulation Minimum transfer per month is dollar cost averaging transfers
Dollar cost averaging requires account option to any $500. When balance of source will take place on the last
regular investment changes Sub-Account(s), on a monthly of funds falls below $500, Valuation Date of each calendar
regardless of fluctuating price or quarterly basis. entire balance will be month or quarter as requested
levels and does not guarantee allocated according to dollar by the owner.
profits or prevent losses in a cost averaging instructions.
declining market. You should
consider your financial ability
to continue dollar cost
averaging transfers through
periods of changing price levels.
- - ---------------------------------- -------------------------------- ------------------------------- --------------------------------
- - ---------------------------------- -------------------------------- ------------------------------- --------------------------------
Portfolio Rebalancing Automatically transfer amounts Minimum Account Value of Transfers will take place on
between the Sub-Accounts and $10,000. the last Valuation Date of each
the fixed accumulation account calendar quarter. Portfolio
option to maintain the rebalancing will not be
percentage allocations available if the dollar cost
selected by the owner. averaging program or an
interest sweep from the fixed
accumulation account option is
being utilized.
- - ---------------------------------- -------------------------------- ----------------------------------------------------------------
- - ---------------------------------- -------------------------------- ----------------------------------------------------------------
Interest Sweep Automatic transfers of the Balance of each fixed account Interest sweep transfers will
income from any fixed account option selected must be at take place on the last
option(s) to any least $5,000. Maximum transfer Valuation Date of each calendar
Sub-Account(s). from each fixed account option quarter.
selected is 20% of such fixed
account option's value per
year. Amounts transferred
under the interest sweep
program will reduce the 20%
maximum transfer amount
otherwise allowed.
</TABLE>
-24-
<PAGE>
Telephone Transfers
An owner may place a request for all or part of the Account Value to be
transferred by telephone. All transfers must be in accordance with the terms of
the Contract. Transfer instructions are currently accepted on each Valuation
Date between 9:30 a.m. and 4:00 p.m. Eastern Time at (800) 789-6771. Once
instructions have been accepted, they may not be rescinded; however, new
telephone instructions may be given the following day.
The Company will not be liable for complying with telephone instructions which
the Company reasonably believes to be genuine, or for any loss, damage, cost or
expense in acting on such telephone instructions. The owner or person with the
right to control payments will bear the risk of such loss. The Company will
employ reasonable procedures to determine that telephone instructions are
genuine. If the Company does not employ such procedures, the Company may be
liable for losses due to unauthorized or fraudulent instructions. These
procedures may include, among others, tape recording telephone instructions.
Termination of Transfer Programs
The owner may terminate any of the automatic transfer programs at any time, but
must give the Company at least 30 days notice to change any automatic transfer
instructions that are already in place. Termination and change instructions will
be accepted by telephone at (800) 789-6771. The Company may terminate, suspend
or modify any aspect of the transfer programs described above without prior
notice to owners, as permitted by applicable law. The Company may also impose an
annual fee or increase the current annual fee, as applicable, for any of the
foregoing services in such amount(s) as the Company may then determine to be
reasonable for participation in the service.
Surrenders
An owner may surrender a Contract either in full or in part during the
Accumulation Period. A contingent deferred sales charge ("CDSC") may apply on
surrender. The restrictions and charges on surrenders are as follows:
<TABLE>
<S> <C> <C>
Tax-Qualified Non-Tax-Qualified
- - ---------------------------------------------------------------- ------------------------------------ ----------------------------
- - ---------------------------------------------------------------- -----------------------------------------------------------------
Minimum amount of partial surrender $500
- - ---------------------------------------------------------------- -----------------------------------------------------------------
- - ---------------------------------------------------------------- -----------------------------------------------------------------
Minimum remaining Account Value after partial surrender $500
- - ---------------------------------------------------------------- -----------------------------------------------------------------
- - ---------------------------------------------------------------- --------------------------------- -------------------------------
Amount available for surrender (valued as of end of Valuation Account Value less applicable Account Value less applicable
Period in which request for surrender is received by the CDSC, subject to tax law or CDSC, subject to employer
Company) employer plan restrictions on plan restrictions on
withdrawals withdrawals
- - ---------------------------------------------------------------- --------------------------------- -------------------------------
- - ---------------------------------------------------------------- -----------------------------------------------------------------
Tax penalty for early withdrawal Up to 10% of Account Value before age 59 1/2
- - ---------------------------------------------------------------- -----------------------------------------------------------------
- - ---------------------------------------------------------------- -----------------------------------------------------------------
Contract maintenance fee on full surrender $30 (no CDSC applies)
- - ---------------------------------------------------------------- -----------------------------------------------------------------
- - ---------------------------------------------------------------- -----------------------------------------------------------------
Contingent deferred sales charge ("CDSC") Up to 7% of purchase payments
- - ---------------------------------------------------------------- -----------------------------------------------------------------
- - ---------------------------------------------------------------- -----------------------------------------------------------------
Order of withdrawal for purposes of CDSC (order may be First from accumulated earnings (no CDSC applies) and then from
different for tax purposes) purchase payments on "first-in, first-out" basis (CDSC may
apply)
</TABLE>
A full surrender will terminate the Contract. Partial surrenders are withdrawn
proportionally from all Sub-Accounts and fixed account options in which the
Contract is invested on the date the Company receives the surrender request. A
surrender is effective on the Valuation Date during which the Company receives
the request for surrender, and will be processed at the Accumulation Unit Value
for the end of the Valuation Period in which that Valuation Date occurs. Payment
of a surrendered amount may be delayed if the amount surrendered was paid to the
Company by a check that has not yet cleared. Surrenders from a fixed account
option may be delayed for up to six months after receipt of a surrender request
as allowed by state law. Surrenders from the Sub-Accounts may be delayed during
any period the New York Stock Exchange is closed or trading is restricted, or
when the Securities and Exchange Commission either 1) determines there is an
emergency which prevents valuation or disposal of securities held in the
Separate Account or 2) permits a delay in payment for the protection of security
holders.
-25-
<PAGE>
Free Withdrawal Privilege
The Company will waive the CDSC on full or partial surrenders during the first
contract year, on an amount equal to not more than 10% of all purchase payments
received. During the second and succeeding contract years, the Company will
waive the CDSC on an amount equal to not more than the greater of: (a)
accumulated earnings (Account Value in excess of purchase payments); or (b) 10%
of the Account Value as of the last contract anniversary. If the free withdrawal
privilege is not exercised during a contract year, it does not carry over to the
next contract year. The free withdrawal privilege may not be available under
some group Contracts.
Long Term Care Waiver Rider
If a Contract is modified by the Long Term Care Waiver Rider, surrenders may
be made free of any CDSC if the owner has been confined in a qualifying
licensed hospital or long-term care facility for at least 90 days beginning
on or after the first contract anniversary. This rider may not be available
in all States.
Systematic Withdrawal
During the Accumulation Period, an owner may elect to automatically withdraw
money from the Contract. The Account Value must be at least $10,000 in order
to make a systematic withdrawal election. The minimum monthly amount that
can be withdrawn is $100. Systematic withdrawals will be subject to the
contingent deferred sales charge to the extent the amount withdrawn exceeds
the free withdrawal privilege. The owner may begin or discontinue systematic
withdrawals at any time by request to the Company, but at least 30 days
notice must be given to change any systematic withdrawal instructions that
are currently in place. The Company reserves the right to discontinue
offering systematic withdrawals at any time. Currently, the Company does not
charge a fee for systematic withdrawal services. However, the Company
reserves the right to impose an annual fee in such amount as the Company may
then determine to be reasonable for participation in the systematic
withdrawal program.
Before electing a systematic withdrawal program, you should consult with a
financial advisor. Systematic withdrawal is similar to annuitization, but
will result in different taxation of payments and potentially different
amount of total payments over the life of the Contract than if annuitization
were elected.
Contract Loans
The Company may make loans to owners of tax-sheltered annuity Contracts. Any
such loans will be secured with an interest in the Contract, and the
collateral for the loan will be moved to the fixed accumulation account
option and earn a fixed rate of interest applicable to loan collateral. Loan
amounts and repayment requirements are subject to provisions of the Internal
Revenue Code, and default on a loan will result in a taxable event. You
should consult a tax adviser prior to exercising loan privileges. Loan
provisions are described in the loan endorsement to the Contract.
A loan, whether or not repaid, will have a permanent effect on the Account
Value of a Contract because the collateral cannot be allocated to the
Sub-Accounts or fixed account guarantee periods. The longer the loan is
outstanding, the greater the effect is likely to be. The effect could be
favorable or unfavorable. If the investment results are greater than the
rate being credited on collateral while the loan is outstanding, the Account
Value will not increase as rapidly as it would if no loan were outstanding.
If investment results are below that rate, the Account Value will be higher
than it would have been if no loan had been outstanding.
Termination
The Company reserves the right to terminate any Contract at any time during
the Accumulation Period if the Account Value is less than $500. In that
case, the Contract will be involuntarily surrendered and the Company will pay
the owner the amount which would be due the owner on a full surrender. A
group Contract may be terminated on 60 days advance notice, in which case
participants will be entitled to continue their interests on a deferred,
paid-up basis, subject to the Companyss involuntary surrender right as
described above.
-26-
<PAGE>
BENEFIT PAYMENT PERIOD
Annuity Benefit
An owner may designate the date that annuity payments will begin, and may
change the date up to 30 days before annuity payments are scheduled to
begin. Unless the Company agrees otherwise, the first day of a Benefit
Payment Period in which annuity payments are paid cannot be later than the
contract anniversary following the 85th birthday of the eldest owner, or five
years after the effective date of the Contract, whichever is later.
The amount applied to a settlement option will be the Account Value as of the
end of the Valuation Period immediately preceding the first day of the
Benefit Payment Period. The owner may select any form of settlement option
which is currently available. The standard forms of settlement options are
described in the Settlement Option section beginning on page ___ of this
prospectus.
If the owner does not make an election as to form of settlement option, the
Company will apply the Account Value to a fixed dollar benefit for the life
of the annuitant with 120 monthly payments assured.
Death Benefit
A death benefit will be paid under a Contract if the owner dies during the
Accumulation Period. If a surviving spouse becomes a successor owner of the
Contract, the death benefit will be paid on the death of the successor owner
if he or she dies during the Accumulation Period.
The death benefit will be an amount equal to the largest of the following
three amounts:
o The Account Value on the Death Benefit Valuation Date.
o The total purchase payment(s), with interest at three percent (3%) per
year through the Death Benefit Valuation Date or the owner's 80th birthday
if earlier, compounded annually, less any partial surrenders and any
contingent deferred sales charges that applied to those amounts.
o The largest Account Value on any contract anniversary after the fourth
contract anniversary and prior to the Death Benefit Valuation Date or the
owner's 80th birthday if earlier, less any partial surrenders and any
contingent deferred sales charges that applied to those amounts.
Any applicable premium tax or other taxes not previously deducted, and any
outstanding loans, will be deducted from the death benefit amount described
above.
An owner may elect the form of payment of the death benefit at any time
before his or her death. The form of payment may be a lump sum, or any
available form of settlement option. The standard forms of settlement
options are described in the Settlement Option section beginning on page ___
of this prospectus. If the owner does not make an election as to the form of
death benefit, the beneficiary may make an election within one year after the
owner's death. If no election as to form of settlement option is made, the
Company will apply the death benefit to a fixed dollar benefit for a period
certain of 48 months. The first day of the Benefit Payment Period in which a
death benefit is paid may not be more than one year after the owner's death;
the day a death benefit is paid in a lump sum may not be more than five years
after the owner's date of death.
Settlement Options
When a Contract is annuitized, or when a death benefit is applied to a
settlement option, the Account Value or the death benefit, as the case may
be, is surrendered to the Company in exchange for a promise to pay a stream
of benefit payments for the duration of the settlement option selected.
Benefit payments may be calculated and paid: (1) as a variable dollar
benefit; (2) as a fixed dollar benefit; or (3) as a combination of both. The
stream of payments, whether variable dollar or fixed dollar, is an obligation
of the Company's general account. However, only the amount of fixed dollar
benefit payments is guaranteed by the Company. The owner (or payee) bears
the risk that any variable dollar benefit payment may be less than the
initial variable dollar benefit payment, or that it may decline to zero, if
Benefit Unit Values for that payment decrease sufficiently. Transfers
between a variable dollar benefit and a fixed dollar benefit are not
permitted, but transfers of Benefit Units between Sub-Accounts are permitted
once each 12 months after a variable dollar benefit has been paid for at
least 12 months. The formulas for transferring Benefit Units among
Sub-Accounts during the Benefit Payment Period are set forth in the statement
of additional information.
-27-
<PAGE>
Form of Settlement Option
The Company will make periodic payments in any form of settlement option
which is acceptable to it at the time of an election. The standard forms of
settlement options are described below. Payments under any settlement option
may be in monthly, quarterly, semi-annual or annual payment intervals. If
the amount of any regular payment under the form of settlement option elected
would be less than $50, an alternative form of settlement option will have to
be elected. The Company, in its discretion, may require benefit payments to
be made by direct deposit or wire transfer to the account of a designated
payee.
The Company may modify minimum amounts, payment intervals and other terms and
conditions at any time without prior notice to owners. If the Company
changes the minimum amounts, the Company may change any current or future
payment amounts and/or payment intervals to conform with the change. More
than one settlement option may be elected if the requirements for each
settlement option elected are satisfied. Once payment begins under a
settlement option, the settlement option may not be changed or commuted.
Income for a Fixed Period: The Company will make periodic payments at the
end of each payment interval for a fixed period of 5 to 30 years. (Periods of
1-4 years are available for death benefit settlement options only.)
Life Annuity with Payments for at Least a Fixed Period: The Company will
make periodic payments at the beginning of each payment interval for a fixed
period, or until the death of the person on whose life benefit payments are
based if he or she lives longer than the fixed period.
Joint and One-Half Survivor Annuity: The Company will make periodic payments
at the beginning of each payment interval until the death of the primary
person on whose life benefit payments are based; thereafter, the Company will
make one-half of the periodic payment until the death of the secondary person
on whose life benefit payments are based.
Life Annuity: The Company will make periodic payments at the beginning of
each payment interval until the death of the person on whose life benefit
payments are based.
Calculation of Fixed Dollar Benefit Payments
Fixed dollar benefit payments are determined by multiplying the amount
applied to the fixed dollar benefit (expressed in thousands of dollars and
after deduction of any fees and charges, loans, or applicable premium taxes)
by the amount of the payment per $1,000 of value which the Company is
currently paying for settlement options of that type. Fixed dollar benefit
payments will remain level for the duration of the Benefit Payment Period.
The Company guarantees minimum fixed dollar benefit payment factors based on
1983 annuity mortality tables for individuals or groups, as applicable, with
interest at 3% per year, compounded annually. For group contracts,
individual tax-qualified Contracts and individual non-tax-qualified IRC
Section 457 Contracts, the Company uses tables for blended lives (60%
female/40% male). For individual non-tax-qualified Contracts except IRC
Section 457, the Company uses tables for male and female lives. The minimum
monthly payments per $1,000 of value for the Company's standard settlement
options are set forth in tables in the Contracts. The Company will provide
upon request minimum monthly payments for ages or fixed periods not shown in
the settlement option tables.
Calculation of Variable Dollar Benefit Payments
The first variable dollar benefit payment is calculated as if it were a fixed
dollar benefit payment, using the Company's minimum guaranteed settlement
option factors and the amount applied to a variable dollar benefit. The
amount paid to the payee will be reduced by a pro rata portion of the
contract maintenance fee.
Subsequent variable dollar benefit payments are based on the number of
Benefit Units and Benefit Unit Values for that Sub-Account. The number of
Benefit Units for each Sub-Account selected by the owner (or payee) is
determined by allocating the amount of the first variable dollar benefit
payment (before deduction of the pro rata portion of the contract maintenance
fee) proportionately among the Sub-Account(s) selected. The dollar amount
allocated to each Sub-Account is divided by the Benefit Unit Value for that
Sub-Account as of the first day of the Benefit Payment Period. The result is
the number of the Benefit Units for that Sub-Account. The number of Benefit
Units for each Sub-Account remains fixed during the Benefit Payment Period,
except as a result of any transfers among Sub-Accounts.
The dollar amount of the second and any subsequent variable dollar benefit
payment will reflect the investment performance of the Sub-Account(s)
selected and may vary from payment to payment. The payment from a Sub-Account
is found by multiplying the number of Benefit Units for the Sub-Account by
the Benefit Unit Value for that Sub-Account as of the end of the fifth
Valuation Period preceding the due date of the payment. The total amount of
the second and any subsequent variable dollar benefit payment will be equal
to the sum of the payments from each Sub-Account less a pro rata portion of
the contract maintenance fee.
-28-
<PAGE>
- - ------------------------------------------------------------------------------
FEDERAL TAX MATTERS
- - ------------------------------------------------------------------------------
This section provides a general description of federal income tax
considerations relating to the Contracts. The purchase of a Contract may have
federal estate and gift tax consequences in addition to income tax
consequences. Estate and gift taxation is not discussed in this prospectus
or in the statement of additional information. State taxation will vary
depending on the State in which you reside, and is not discussed in this
prospectus or in the statement of additional information.
The tax information provided in the prospectus and statement of additional
information should not be used as tax advice. Federal income tax laws are
subject to interpretation by the IRS and may be changed by future
legislation. You should consult a competent tax advisor to discuss how
current tax laws affect your particular situation.
Tax Deferral On Annuities
Internal Revenue Code ("IRC") Section 72 governs taxation of annuities in
general. The income earned during the Accumulation Period of a Contract is
generally not includable in income until it is withdrawn. In other words, a
Contract is a tax-deferred investment. The Contracts must meet certain
requirements in order to qualify for tax-deferred treatment under IRC Section
72. These requirements are discussed in the statement of additional
information. In addition, tax deferral is generally not available for a
Contract when the owner is not a natural person unless the Contract is part
of a tax-qualified plan. For a nonqualified deferred compensation plan, this
rule means that the employer as owner of the Contract will generally be taxed
currently on any increase in the Account Value, although the plan may provide
a tax deferral to the participating employee.
-29-
<PAGE>
Tax-Qualified Plans
Annuities may also qualify for tax-deferred treatment under other IRC
provisions governing tax-qualified retirement plans. These provisions
include IRC Sections 401 (pension and profit sharing plans), 403(b)
(tax-sheltered annuities), 408 and 408A (individual retirement annuities),
and 457(g) (governmental deferred compensation). Contributions to a
tax-qualified Contract are typically made with pre-tax dollars, while
contributions to a non-tax-qualified Contract are typically made from
after-tax dollars, though there are exceptions in either case. Tax-qualified
Contracts may also be subject to restrictions on withdrawals which do not
apply to non-tax-qualified Contracts. These restrictions may be imposed by
the IRC or by an employer plan. Following is a brief description of the
types of tax-qualified retirement plans for which the Contracts are available.
Individual Retirement Annuities
IRC Sections 219 and 408 permit individuals or their employers to contribute
to an individual retirement program known as an "Individual Retirement
Annuity" or "IRA". Under applicable limitations, certain amounts may be
contributed to an IRA that are deductible from an individual's gross income.
Employers also may establish a Simplified Employee Pension (SEP) Plan or
Savings Incentive Match Plan for Employees (SIMPLE) to provide IRA
contributions on behalf of their employees.
Roth IRAs
IRC Section 408A permits certain individualsto contribute to a Roth IRA.
Contributions are not deductible.Tax-free distributions may be made after five
years once the owner attains age 59 1/2, becomes disabled, or dies,or for
qualified first-time homebuyer expenses.
Tax-Sheltered Annuities
IRC 403(b) of the Code permits the purchase of "tax-sheltered annuities" by
public schools and certain charitable, religious, educational and scientific
organizations described in IRC Section 501(c)(3). These qualifying employers
may make contributions to the Contracts for the benefit of their employees.
Subject to certain limits, such contributions are not includable in the gross
income of the employee until the employee receives distributions under the
Contract. Amounts attributable to contributions made under a salary
reduction agreement cannot be distributed until the employee attains age 59
1/2, separates from service, becomes disabled, incurs a hardship, or dies.
Texas Optional Retirement Program
The Texas Optional Retirement Program ("ORP") provides for the purchase of
tax-sheltered annuities with fixed employer and employee contributions. Under
Section 830.105 of the Texas Government Code, amounts cannot be distributed
from a Contract issued under the ORP until the employee terminates employment
from all Texas public institutions of higher education, retires, attains age
70 1/2, or dies. Section 830.205 of the Texas Government Code provides that
employer-provided ORP benefits vest after one year of participation.
Accordingly, no distribution can be made without written certification from
the employer of the ORP participant's vesting status and, if the participant
is living and under age 70 1/2, the participat's retirement or other
termination from employment.
Pension and Profit Sharing Plans
IRC Section 401 permits employers to establish various types of retirement
plans for employees, and permits self-employed individuals to establish
retirement plans for themselves and their employees. These retirement plans
may permit the purchase of annuity contracts to accumulate retirement savings
under the plans. Purchasers of a Contract for use with such plans should
seek competent advice regarding the suitability of the proposed plan
documents and the Contract for their specific needs.
Governmental Deferred Compensation Plans
State and local government employers may purchase annuity contracts to fund
deferred compensation plans for the benefit of their employees under IRC
Section 457(g).
Nonqualified Deferred Compensation Plans
Governmental and other tax-exempt employers may invest in annuity contracts
in connection with nonqualified deferred compensation plans established for
the benefit of their employees under IRC Section 457 (other than 457(g)).
Other employers may invest in annuity contracts in connection with
nonqualified deferred compensation plans established for the benefit of their
employees. In most cases, these plans are designed so that contributions
made for the benefit of the employees generally will not be includable in the
employees' gross income until distributed from the plan. In these
situations, the Contract is usually owned by the employer and is subject to
the claims of its general creditors.
-30-
<PAGE>
Summary of Income Tax Rules
The following chart summarizes the basic income tax rules governing
tax-qualified and non-tax-qualified Contracts:
<TABLE>
- - ----------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
Tax-Qualified Plans Basic Non-Tax-Qualified Contracts
Nonqualified Deferred Compensation
Plans
- - ----------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------
Plan Types o IRC Section 401 (Pension and o IRC Section 72 only
Profit Sharing)
o IRC Section 403 (Tax-Sheltered
Annuities)
o IRC Section 408 (IRA, SIMPLE IRA)
o IRC Section 408A (Roth IRA)
o IRC Section 457
o Nonqualified Deferred
Compensation
- - ----------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------
Who May Purchase Natural person or Anyone. Non-natural person may
Contract employer/employer plan. purchase but will generally lose
Nonqualified deferred compensation tax-deferred status.
plans will generally lose
tax-deferred status.
- - ----------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------
Taxation of If there is an after-tax Account Value in excess of
Surrenders "investment in the contract," a investment in the contract is
pro-rata portion of amount taxable. Generally, the
surrendered is taxable based on "investment in the contract" will
ratio of "investment in the equal the sum of all purchase
contract" to Account Value. payments. Surrenders are deemed
Usually, 100% of distributions to come from earnings first, and
from a qualified plan will be purchase payments last.
taxed because there was no
after-tax contribution and For a Contract purchased as part
therefore no "investment in the of an IRC Section 1035 exchange
contract." Qualified which includes contributions made
distributions from Section 408A before August 14, 1982 ("pre-TEFRA
RothIRA may be completely tax-free. contributions") partial
withdrawals are not taxable until
Surrenders prior to age 59 1/2 may the pre-TEFRA contributions have
be subject to 10% or greater tax been returned.
penalty depending on the type of
qualified plan. The taxable portion of any
surrenders prior to age 59 1/2 may
Surrenders from tax-qualified be subject to a 10% tax penalty.
Contracts may be restricted by the
Internal Revenue Code or by the
terms of a retirement plan.
- - ----------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------
Taxation of Benefit May vary depending on type of settlement option selected, but
Payments (annuity generally, for fixed dollar benefit payments, a pro-rata portion of
benefit payments or each payment equal to [100% - (investment in contract/total expected
death benefit payments)] is subject to income tax. For variable dollar benefit
payments) payments, a specific dollar amount of each payment is taxable, as
predetermined by a pro-rata formula, rather than subjecting a
percentage of each payment to taxation. Once the investment in the
contract has been recovered, the full amount of each benefit payment
is taxable. Qualified distributions from a Section 408A Roth IRA may be
completely tax-free.
- - ----------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------
Taxation of Lump Sum Taxed to recipient generally in same manner as full surrender. Tax
Death Benefit Payment penalties do not apply to death benefit distributions.
- - ----------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------
Assignment of Assignment and transfer of Generally, deferred earnings
Contract/Transfer of ownership generally not permitted. become taxable to transferor at
Ownership time of transfer and transferee
receives an investment in the
contract equal to the Account
Value at that time. Gift tax
consequences not discussed herein.
- - ----------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------- ------------------------------------
Withholding Eligible rollover distributions Generally, payee may elect to have
from Section 401 and 403(b) taxes withheld or not.
Contracts subject to 20% mandatory
withholding on taxable portion
unless direct rollover. Section
457 plan benefits and nonqualified
deferred compensation plan
benefits subject to wage
withholding. For all other
payments, payee may elect to have
taxes withheld or not.
- - ----------------------------------------------------------------------------------------------
</TABLE>
-31-
<PAGE>
THE REGISTRATION STATEMENT
- - ------------------------------------------------------------------------------
The Company filed a Registration Statement with the Securities and Exchange
Commission under the Securities Act of 1933 relating to the Contracts offered
by this prospectus. This prospectus was filed as an annual amendment to the
Registration Statement, but it does not constitute the complete Registration
Statement. The Registration Statement contains further information relating
to the Company and the Contracts. Statements in this prospectus discussing
the content of the Contracts and other legal instruments are summaries. The
actual documents are filed as exhibits to the Registration Statement. For a
complete statement of the terms of the Contracts or any other legal document,
refer to the appropriate exhibit to the Registration Statement. The
Registration Statement and the exhibits thereto may be inspected and copied
at the office of the Securities and Exchange Commission, located at 450 Fifth
Street, N.W., Washington, D.C., and may also be accessed at the Securities
and Exchange Commission's Web site http:\\www.sec.gov. The registration
number for the Registration Statement is 333-19725.
OTHER INFORMATION
- - ------------------------------------------------------------------------------
Year 2000
The Company is developing plans to modify or replace software used in
administering variable contracts so that its computer systems will function
properly with respect to dates in the year 2000 and beyond. Should software
modifications and new software installations not be completed on a timely
basis, there could be disruptions in the ability of the Company to administer
the Contracts.
The Portfolios' preparations for the year 2000 are described in the Portfolio
prospectuses.
Legal Proceedings
The Company is involved in various kinds of routine litigation which, in
management's judgment, are not of material importance to the Company's assets
or the Separate Account. There are no pending legal proceedings against the
Separate Account or AAG Securities, Inc.
-32-
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
- - ------------------------------------------------------------------------------
A statement of additional information is available which contains more
details concerning the subjects discussed in this prospectus. The following
is the table of contents for the statement of additional information:
<TABLE>
<S> <C>
Page
ANNUITY INVESTORS LIFE INSURANCE COMPANY(REGISTERED) 3
General Information and History 3
State Regulation 3
SERVICES 3
Safekeeping of Separate Account Assets 3
Records and Reports 3
Experts 3
DISTRIBUTION OF THE CONTRACTS 3
CALCULATION OF PERFORMANCE INFORMATION 4
Money Market Sub-Account Standardized Yield Calculation 4
Average Annual Total Return Calculation 5
Cumulative Total Return Calculation 5
Standardized Average Annual Total Return Data 6
Non-Standardized Average Annual Total Return Data 7
Other Performance Measures 8
BENEFIT UNITS TRANSFER FORMULAS 9
FEDERAL TAX MATTERS 10
Taxation of Separate Account Income 10
Tax Deferred Status of Non-Qualified Contracts 10
FINANCIAL STATEMENTS 11
</TABLE>
Copies of the statement of additional information dated May 1, 1999 are
available without charge. To request a copy, please clip this coupon on the
dotted line below, enter your name and address in the spaces provided below,
and mail to: Annuity Investors Life Insurance Company(REGISTERED), P.O. Box
5423, Cincinnati, Ohio 45201-5423.
- - --------------------------------------------------------------------------------
Name:
________________________________________________________________________________
Address:
________________________________________________________________________________
City:
________________________________________________________________________________
State:
________________________________________________________________________________
Zip:
________________________________________________________________________________
-33-
<PAGE>
1 Data for each Portfolio are for its fiscal year ended December 31, 1998.
Actual expenses in future years may be higher or lower. Portfolios may have
agreements with their advisors to cap or waive fees, and/or to reduce or waive
expenses to reimburse expenses. The specific terms of such waivers, reductions
or reimbursements are discussed in the Portfolio prospectuses. Fees and expenses
shown below are actual fees and expenses before any applicable fee waivers or
reductions or expense reimbursements.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Sub-Account Management Fees Other Expenses Total
Expenses
------------------------------------------------------------------------ -------------------- ----------------- ----------------
Janus A.S.-Aggressive Growth Portfolio
Janus A.S.-Worldwide Growth Portfolio
Janus A.S.-Balanced Portfolio
Janus A.S.-Growth Portfolio
Janus A.S.-International Growth Portfolio
Dreyfus V.I.F.-Capital Appreciation Portfolio
Dreyfus V.I.F.-Money Market Portfolio
Dreyfus V.I.F.-Growth and Income Portfolio
Dreyfus V.I.F.-Small Cap Portfolio
The Dreyfus Socially Responsible Growth Fund, Inc.
Dreyfus Stock Index Fund
Strong Opportunity Fund II, Inc.
Strong Variable Insurance Funds, Inc.-Strong Growth Fund II
INVESCO VIF-Industrial Income Portfolio
INVESCO VIF-Total Return Portfolio
INVESCO VIF-High Yield Portfolio
Morgan Stanley Universal Funds, Inc.-Mid-Cap Value Portfolio
Morgan Stanley Universal Funds, Inc.-Value Portfolio
Morgan Stanley Universal Funds, Inc.-Fixed Income Portfolio
Morgan Stanley Universal Funds, Inc.-U.S. Real Estate Portfolio
Morgan Stanley Universal Funds, Inc.-Emerging Markets Equity Portfolio
PBHG Insurance Series Fund, Inc.-PBHG Growth II Portfolio
PBHG Insurance Series Fund, Inc.-PBHG Large Cap Growth Portfolio
PBHG Insurance Series Fund, Inc.-PBHG Tech. & Comm. Portfolio
The Timothy Plan Variable Series
2 Enhanced Contracts have a reduced mortality and expense risk charge. See the Charges and Deductions section beginning on page ___
of this prospectus for more information.
3 The beginning Accumulation Unit Value for the Timothy Plan Variable Series Sub-Account was set at 10.000000 as of May 1, 1998, the
effective date of The Timothy Plan Variable Series.
</TABLE>
-34-
<PAGE>
ANNUITY INVESTORS LIFE INSURANCE COMPANY(SERVICEMARK)
ANNUITY INVESTORS(SERVICEMARK) VARIABLE ACCOUNT B
STATEMENT OF ADDITIONAL INFORMATION for
The Commodore Navigator(SERVICEMARK)
Individual and Group Flexible Premium Deferred Annuities
The Commodore Independence(SERVICEMARK)
Individual Flexible Premium Deferred Annuities
The Commodore Advantage(SERVICEMARK)
Individual and Group Flexible Premium Deferred Annuities
May 1, 1999
This statement of additional information supplements the current prospectuses
for The Commodore Navigator(SERVICEMARK) Individual and Group Flexible Premium
Deferred Annuity Contracts, The Commodore Advantage(SERVICEMARK) Individual and
Group Flexible Premium Deferred Annuity Contracts, and The Commodore
Independence(SERVICEMARK) Individual Flexible Premium Deferred Annuity Contracts
(collectively, the "Contracts") offered by Annuity Investors Life Insurance
Company(SERVICEMARK). This statement of additional information is not a
prospectus and should be read only in conjunction with the prospectus for the
applicable Contract. Terms used in this statement of additional information have
the same meaning as in the prospectuses.
A copy of any of the prospectuses dated May 1, 1999, as supplemented from time
to time, may be obtained free of charge by writing to Annuity Investors Life
Insurance Company, Administrative Office, P.O. Box 5423, Cincinnati, Ohio
45201-5423. Terms used in the current prospectuses for the Contracts are
incorporated in this statement of additional information.
-1-
<PAGE>
TABLE OF CONTENTS
Page
ANNUITY INVESTORS LIFE INSURANCE COMPANY(REGISTERED)...........................3
General Information and History..............................................3
State Regulation.............................................................3
SERVICES.......................................................................3
Safekeeping of Separate Account Assets.......................................3
Records and Reports..........................................................3
Experts......................................................................3
DISTRIBUTION OF THE CONTRACTS..................................................3
CALCULATION OF PERFORMANCE INFORMATION.........................................4
Money Market Sub-Account Standardized Yield Calculation......................4
Average Annual Total Return Calculation......................................5
Cumulative Total Return Calculation..........................................5
Standardized Average Annual Total Return Data................................6
Non-Standardized Average Annual Total Return Data............................7
Other Performance Measures...................................................8
BENEFIT UNITS-TRANSFER FORMULAS................................................9
FEDERAL TAX MATTERS...........................................................10
Taxation of Separate Account Income.........................................10
Tax Deferred Status of Non-Qualified Contracts..............................10
FINANCIAL STATEMENTS..........................................................11
-2-
<PAGE>
ANNUITY INVESTORS LIFE INSURANCE COMPANY(REGISTERED)
- - --------------------------------------------------------------------------------
General Information and History
Annuity Investors Life Insurance Company(REGISTERED) (the "Company"), formerly
known as Carillon Life Insurance Company, is a stock life insurance company
incorporated under the laws of the State of Ohio in 1981. The name change
occurred in the state of domicile on April 12, 1995. The Company is principally
engaged in the sale of fixed and variable annuity policies.
The Company was acquired in November, 1994, by American Annuity
Group(REGISTERED), Inc. ("AAG") a Delaware corporation that is a publicly traded
insurance holding company. Great American(REGISTERED) Insurance Company
("GAIC"), an Ohio corporation, owns more than 80% of the common stock of AAG.
GAIC is a multi-line insurance carrier and a wholly owned subsidiary of Great
American(REGISTERED) Holding Company ("GAHC"), an Ohio corporation. GAHC is a
wholly owned subsidiary of American Financial Corporation ("AFC"), an Ohio
corporation. AFC is a wholly owned subsidiary of American Financial Group, Inc.
("AFG"), an Ohio corporation that owns 1% of the common stock of AAG. AFG is a
publicly traded holding company which is engaged, through its subsidiaries, in
financial businesses that include annuities, insurance and portfolio investing,
and non-financial businesses.
State Regulation
The Company is subject to the insurance laws and regulations of all the
jurisdictions where it is licensed to operate. The availability of certain
Contract rights and provisions depends on state approval and/or filing and
review processes in each such jurisdiction. Where required by law or regulation,
the Contracts will be modified accordingly.
SERVICES
- - --------------------------------------------------------------------------------
Safekeeping of Separate Account Assets
Title to assets of the Separate
Account is held by the Company. The Separate Account assets are segregated from
the Company's general account assets. Records are maintained of all purchases
and redemptions of Portfolio shares held by each of the Sub-Accounts. Title to
assets invested in the fixed account options is held by the Company together
with the Company's general account assets.
Records and Reports
All records and accounts relating to the fixed account options and the Separate
Account will be maintained by the Company. As presently required by the
provisions of the Investment Company Act of 1940, as amended ("1940 Act"), and
rules and regulations promulgated thereunder which pertain to the Separate
Account, reports containing such information as may be required under the 1940
Act or by other applicable law or regulation will be sent to each owner of an
individual Contract and to each group Contract owner semi-annually at the
owner's last known address.
Experts
The financial statements of the Separate Account as of December 31, 1998 and the
year then ended and the statutory-basis financial statements of the Company as
of December 31, 1998 and 1997, and for the years then ended, appearing in this
statement of additional information have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon also appearing
elsewhere herein, and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
DISTRIBUTION OF THE CONTRACTS
- - --------------------------------------------------------------------------------
The offering of the Contracts is expected to be continuous. Although the Company
does not anticipate discontinuing the offering of the Contracts, the Company
reserves the right to discontinue offering any one or more of the Contracts.
The approximate commissions received and retained by AAG Securities, Inc. ("AAG
Securities") for sale of the Contracts for each of the last three fiscal years
are as follows:
<TABLE>
<S> <C> <C> <C>
- - --------------------------- ------------------------- ------------------------- --------------------------
Year Ended 12/31/98 12/31/97 12/31/96
- - --------------------------- ------------------------- ------------------------- --------------------------
Navigator (7/15 to 12/31) N/A
Received $296,000 N/A
Retained $18,000 N/A
- - --------------------------- ------------------------- ------------------------- --------------------------
Advantage (7/22 to 12/31) N/A N/A
Received N/A N/A
Retained N/A N/A
- - --------------------------- ------------------------- ------------------------- --------------------------
Independence (7/22 to 12/31) N/A N/A
Received N/A N/A
Retained N/A N/A
- - --------------------------- ------------------------- ------------------------- --------------------------
N/A = Contract not available and no commissions paid.
</TABLE>
-3-
<PAGE>
CALCULATION OF PERFORMANCE INFORMATION
- - -------------------------------------------------------------------------------
Money Market Sub-Account Standardized Yield Calculation
In accordance with rules and regulations adopted by the Securities and Exchange
Commission, the Company computes the money market Sub-Account's current
annualized yield for a seven-day period in a manner which does not take into
consideration any realized or unrealized gains or losses on shares of the money
market Portfolio or on its portfolio securities. This current annualized yield
is calculated according to the following formula:
YIELD = (BASE PERIOD RETURN/7)*365
Where:
BASE PERIOD RETURN = The percentage (or net) change in the Accumulation
Unit Value for the money market Sub-Account ("AUV")
over a 7 day period determined as follows:
AUV at end of 7 day period - AUV at beginning of 7 day
period
-------------------------------------------------------
AUV at beginning of 7 day period
Because the Net Asset Value of the money market Portfolio rarely deviates from
1.000000 per unit, the change in the Accumulation Unit Value for the money
market Sub-Account (the numerator of the above fraction) is ordinarily
attributable exclusively to dividends paid and reinvested over the 7 day period
less mortality and expense risk and administration charges deducted from the
Sub-Account over the 7 day period. Because of the deductions for mortality and
expense risk and administration charges, the yield for the money market
Sub-Account of the Separate Account will be lower than the yield for the money
market Portfolio or any comparable substitute funding vehicle.
The Securities and Exchange Commission also permits the Company to disclose the
effective yield of the money market Sub-Account for the same seven-day period,
which is yield determined on a compounded basis. The effective yield is
calculated according to the following formula:
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1) 365/7] - 1
The yields and effective yields for the money market Sub-Account for the
seven-day period ended December 31, 1998 are as follows:
Money Market Sub-Account Yield Effective Yield
Standard Navigator Contracts % %
Enhanced Navigator Contracts % %
Advantage Contracts % %
Independence Contracts % %
The yield on amounts held in the money market Sub-Account normally will
fluctuate on a daily basis. Therefore, the disclosed yield for any given past
period is not an indication or representation of future yields. The money market
Sub-Account's actual yield is affected by changes in interest rates on money
market securities, average portfolio maturity of the money market Portfolio or
substitute funding vehicle, the types and quality of portfolio securities held
by the money market Portfolio or substitute funding vehicle, and operating
expenses. IN ADDITION, THE YIELD FIGURES DO NOT REFLECT THE EFFECT OF ANY
CONTINGENT DEFERRED SALES CHARGE OR CONTRACT MAINTENANCE FEES THAT MAY BE
APPLICABLE ON SURRENDER UNDER ANY CONTRACT.
-4-
<PAGE>
Average Annual Total Return Calculation
The Company may from time to time also disclose average annual total
returns for one or more of the Sub-Accounts for various periods of time. Average
annual total return quotations are computed by finding the average annual
compounded rates of return over one-, five- and ten-year periods that would
equal the initial amount invested to the ending redeemable value, according to
the following formula:
P(1 + T)n = ERV
Where
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = "ending redeemable value" of a hypothetical $1,000 payment made at the
beginning of the one-, five- or ten-year period at the end of the one-,
five- or ten-year period (or fractional portion thereof)
Average annual total return may be presented in either standardized or
nonstandardized form. All average annual total return data is hypothetical. The
ERV for standardized data reflects the deduction of all recurring fees, such as
contract maintenance fees, contingent deferred sales charges, mortality and
expense risk charges, and administration charges, which are charged to all
Contracts of that type. The ERV for nonstandardized data reflects the deduction
of mortality and expense risk charges and the administration charges, but not
contract maintenance fees or contingent deferred sales charges.
Cumulative Total Return Calculation
The Company may from time to time disclose other non-standardized total return
in conjunction with the standardized performance data described above.
Non-standardized data may reflect no contingent deferred sales charge and no
contract maintenance fee and may present performance data for a period of time
other than that required by the standardized format. The Company may from time
to time also disclose cumulative total return calculated using the following
formula assuming that the contingent deferred sales charge percentage is 0%:
CTR = (ERV/P) - 1
Where:
CTR = the cumulative total return net of Sub-Account recurring charges, other
than the contract maintenance fee, for the period
ERV = ending redeemable value of a hypothetical $1,000 payment at the
beginning of the one-, five- or ten-year period at the end of the one-, five- or
ten-year period (or fractional portion thereof)
P = a hypothetical initial payment of $1,000
Non-standardized performance data will be advertised only if the requisite
standardized performance data is also disclosed.
-5-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Standardized Average Annual Total Return Data
(Data reflects deduction of all recurring Navigator Navigator Advantage Independence
charges including contingent deferred sales Standard Enhanced Contracts Contracts
charges and contract maintenance fees) Contracts1/ Contracts2/
----------------------------------------------------------------------------------
1 Year Life of 1 Year Life of 1 Year Life of 1 Year Life of
All Periods Separate Separate Separate Separate
Ending 12/31/98 Account3/ Account3/ Account3/ Account3/
- - ------------------------------------------------------------------------------------------------------------------------------------
Janus A.S.-Aggressive Growth Portfolio
Janus A.S.-Worldwide Growth Portfolio
Janus A.S.-Balanced Portfolio
Janus A.S.-Growth Portfolio
Janus A.S.-International Growth Portfolio
Dreyfus V.I.F.-Capital Appreciation Portfolio
Dreyfus V.I.F.-Money Market Portfolio
Dreyfus V.I.F.-Growth and Income Portfolio
Dreyfus V.I.F.-Small Cap Portfolio
The Dreyfus Socially Responsible Growth Fund,Inc.
Dreyfus Stock Index Fund
Strong Opportunity Fund II, Inc.
Strong Variable Insurance Funds, Inc.-Strong
Growth Fund II
INVESCO VIF-Industrial Income Portfolio
INVESCO VIF-Total Return Portfolio
INVESCO VIF-High Yield Portfolio
Morgan Stanley Universal Funds, Inc.-Mid-Cap
Value Portfolio
Morgan Stanley Universal Funds, Inc.-Value
Portfolio
Morgan Stanley Universal Funds, Inc.-Fixed
Income Portfolio
Morgan Stanley Universal Funds, Inc.-U.S.
Real Estate Portfolio
Morgan Stanley Universal Funds, Inc.-Emerging
Markets Equity Portfolio
PBHG Insurance Series Fund, Inc.-PBHG Growth
II Portfolio
PBHG Insurance Series Fund, Inc.-PBHG Large
Cap Growth Portfolio
PBHG Insurance Series Fund, Inc.-PBHG Tech. &
Comm. Portfolio
The Timothy Plan Variable Series 4/ 4/ 4/ 4/
- - ------------------------------------------------------------------------------------------------------------------------------------
1/ Annual mortality and expense risk charge of 1.25% of daily net asset value.
2/ Annual mortality and expense risk charge of 0.95% of daily net asset value.
3/ From Separate Account commencement date (7/15/97) to 12/31/98 unless otherwise noted.
4/ From inception date of Portfolio (5/1/98) to 12/31/98.
-6-
<PAGE>
Non-Standardized Average Annual Total Return Data
(Data reflects deduction of all recurring charges Navigator Standard Contracts1/; Navigator
except contingent deferred sales charges and contract Advantage Contracts; Independence Enhanced Contracts2/
maintenance fees data is the same for Navigator Contracts
Standard Contracts, Advantage Contracts and
Independence Contracts)
--------------------------------------------------------------------------
1 Year Life of Separate 1 Year Life of Separate
All Periods Account3/ Account3/
Ending 12/31/98
- - --------------------------------------------------------- -------------------- -----------------------------------------------------
Janus A.S.-Aggressive Growth Portfolio
Janus A.S.-Worldwide Growth Portfolio
Janus A.S.-Balanced Portfolio
Janus A.S.-Growth Portfolio
Janus A.S.-International Growth Portfolio
Dreyfus V.I.F.-Capital Appreciation Portfolio
Dreyfus V.I.F.-Money Market Portfolio
Dreyfus V.I.F.-Growth and Income Portfolio
Dreyfus V.I.F.-Small Cap Portfolio
The Dreyfus Socially Responsible Growth Fund, Inc.
Dreyfus Stock Index Fund
Strong Opportunity Fund II, Inc.
Strong Variable Insurance Funds, Inc.-Strong
Growth Fund II
INVESCO VIF-Industrial Income Portfolio
INVESCO VIF-Total Return Portfolio
INVESCO VIF-High Yield Portfolio
Morgan Stanley Universal Funds, Inc.-Mid-Cap
Value Portfolio
Morgan Stanley Universal Funds, Inc.-Value
Portfolio
Morgan Stanley Universal Funds, Inc.-Fixed
Income
Portfolio
Morgan Stanley Universal Funds, Inc.-U.S. Real
Estate
Portfolio
Morgan Stanley Universal Funds, Inc.-Emerging
Markets
Equity Portfolio
PBHG Insurance Series Fund, Inc.-PBHG Growth
II Portfolio
PBHG Insurance Series Fund, Inc.-PBHG Large
Cap Growth Portfolio
PBHG Insurance Series Fund, Inc.-PBHG Tech.
& Comm. Portfolio
The Timothy Plan Variable Series 4/ 4/
- - ------------------------------------------------------------------------------------------------------------------------------------
1/ Annual mortality and expense risk charge of 1.25% of daily net asset value.
2/ Annual mortality and expense risk charge of 0.95% of daily net asset value.
3/ From Separate Account commencement date (7/15/97) to 12/31/98 unless otherwise noted.
4/ From inception date of Portfolio (5/1/98) to 12/31/98
</TABLE>
-7-
<PAGE>
Other Performance Measures
Any of the Contracts may be compared in advertising materials to
certificates of deposit ("CDs") or other investments issued by banks or other
depository institutions. Variable annuities differ from bank investments in
several respects. For example, variable annuities may offer higher potential
returns than CDs. However, unless you have elected to invest in only the fixed
account options, the Company does not guarantee your return. Also, none of your
investments under the Contract, whether allocated to the fixed account options
or to a Sub-Account, are FDIC-insured.
Advertising materials for any of the Contracts may, from time to time,
address retirement needs and investing for retirement, the usefulness of a
tax-qualified retirement plan, saving for college, or other investment goals.
Advertising materials for any of the Contracts may discuss, generally, the
advantages of investing in a variable annuity and the Contract's particular
features and their desirability and may compare Contract features with those of
other variable annuities and investment products of other issuers. Advertising
materials may also include a discussion of the balancing of risk and return in
connection with the selection of investment options under the Contracts and
investment alternatives generally, as well as a discussion of the risks and
attributes associated with the investment options under the Contracts. A
description of the tax advantages associated with the Contracts, including the
effects of tax-deferral under a variable annuity or retirement plan generally,
may be included as well. Advertising materials for any of the Contracts may
quote or reprint financial or business publications and periodicals, including
model portfolios or allocations, as they relate to current economic and
political conditions, management and composition of the underlying Portfolios,
investment philosophy, investment techniques, the desirability of owning the
Contract and other products and services offered by the Company or AAG
Securities, Inc. ("AAG Securities").
The Company or AAG Securities may provide information designed to help
individuals understand their investment goals and explore various financial
strategies. Such information may include: information about current economic,
market and political conditions; materials that describe general principles of
investing, such as asset allocation, diversification, risk tolerance and goal
setting; questionnaires designed to help create a personal financial profile;
worksheets used to project savings needs based on assumed rates of inflation and
hypothetical rates of return; and alternative investment strategies and plans.
Ibbotson Associates of Chicago, Illinois ("Ibbotson"), provides historical
returns of the capital markets in the United States, including common stocks,
small capitalization stocks, long-term corporate bonds, intermediate-term
government bonds, long-term government bonds, Treasury bills, the U.S. rate of
inflation (based on the Consumer Price Index), and combinations of various
capital markets. The performance of these capital markets is based on the
returns of different indices.
Advertising materials for any of the Contracts may use the performance of
these capital markets in order to demonstrate general risk-versus-reward
investment scenarios. Performance comparisons may also include the value of a
hypothetical investment in any of these capital markets. The risk associated
with the security types in any capital market may or may not correspond directly
to those of the Sub-Accounts and the Portfolios. Advertising materials may also
compare performance to that of other compilations or indices that may be
developed and made available in the future.
In addition, advertising materials may quote various measures of volatility
and benchmark correlations for the Sub-Accounts and the respective Portfolios
and compare these volatility measures and correlations with those of other
separate accounts and their underlying funds. Measures of volatility seek to
compare a Sub-Account's, or its underlying Portfolio's, historical share price
fluctuations or total returns to those of a benchmark. Measures of benchmark
correlation indicate how valid a comparative benchmark may be. All measures of
volatility and correlation are calculated using averages of historical data.
-8-
<PAGE>
BENEFIT UNITS--TRANSFER FORMULAS
- - --------------------------------------------------------------------------------
Transfers of a Contract owner's Benefit Units between Sub-Accounts during
the Benefit Payment Period are implemented according to the following formulas:
(1) The number of Benefit Units to be transferred from a given Sub-Account
is BU1(trans).
(2) The number of the Contract owner's Benefit Units remaining in such Sub-
Account (after the transfer)
= UNIT1 - BU1(trans).
(3) The number of Benefit Units transferred to the new Sub-Account is BU2
(trans). BU2(trans) = BU1(trans) * BUV1/BUV2.
(4) The number of the Contract ownerss Benefit Units in the new Sub-Account
(after the transfer):
= UNIT2 + BU2(trans).
(5) Subsequent variable dollar benefit payments will be based on the number of
the Contract ownerss Benefit Units in each Sub-Account (after the transfer)
as of the next variable dollar benefit paymentss due date.
Where:
BU1(trans) is the number of the Contract ownerss Benefit Units transferred
from a given Sub-Account.
BUV1 is the Benefit Unit Value of the Sub-Account from which the transfer
is being made as of the end of the Valuation Period in which the transfer
request was received.
BU2(trans) is the number of the Contract ownerss Benefit Units transferred
into the new Sub-Account.
BUV2 is the Benefit Unit Value of the Sub-Account to which the transfer is
being made as of the end of the Valuation Period in which the transfer request
was received.
UNIT1 is the number of the Contract ownerss Benefit Units in the
Sub-Account
from which the transfer is being made, before the transfer.
UNIT2 is the number of the Contract ownerss Benefit Units in the
Sub-Account to which the transfer is being made, before the transfer.
-9-
<PAGE>
FEDERAL TAX MATTERS
- - -------------------------------------------------------------------------------
The following discussion supplements the discussion of federal tax matters
in the prospectuses for the Contracts. This discussion is general and is not
intended as tax advice. Federal income tax laws or the interpretation of those
laws by the Internal Revenue Service may change at any time.
Taxation of Separate Account Income
The Company is taxed as a life insurance company under Part I of Subchapter
L of the Internal Revenue Code ("IRC"). Since the Separate Account is not an
entity separate from the Company, and its operations form a part of the Company,
it will not be taxed separately as a "regulated investment company" under
Subchapter M of the IRC. Investment income and realized capital gains are
automatically applied to increase reserves under the Contracts. Under existing
federal income tax law, the Company believes that it will not be taxed on the
Separate Account investment income and realized net capital gains to the extent
that such income and gains are applied to increase the reserves under the
Contracts.
Accordingly, the Company does not anticipate that it will incur any federal
income tax liability attributable to the Separate Account and, therefore, the
Company does not intend to make provisions for any such taxes. However, if
changes in the federal tax laws or interpretations thereof result in the Company
being taxed on income or gains attributable to the Separate Account, then the
Company may impose a charge against the Separate Account (with respect to some
or all Contracts) in order to set aside provisions to pay such taxes.
In certain circumstances, owners of individual variable annuity contracts
and participants under group variable annuity contracts may be considered the
owners, for federal income tax purposes, of the assets of the separate accounts
used to support their contracts. In those circumstances, income and gains from
the separate account assets would be included in the owner's gross income. The
Internal Revenue Service has stated in published rulings that a variable
contract owner will be considered the owner of separate account assets if the
owner possesses incidents of ownership in those assets, such as the ability to
exercise investment control over the assets.
The Treasury Department has also announced, in connection with the issuance
of regulations concerning diversification, that those regulations "do not
provide guidance concerning the circumstances in which investor control of the
investments of a segregated asset account may cause the investor (i.e., the
owner or participant), rather than the insurance company, to be treated as the
owner of the assets in the account." This announcement also stated that guidance
would be issued by way of regulations or rulings on the "extent to which
policyholders may direct their investments to particular sub-accounts without
being treated as owners of the underlying assets." As of the date of this
statement of additional information, no guidance has been issued.
The ownership rights under the Contracts are similar to, but different in
certain respects from, those described by the Internal Revenue Service in
rulings in which it was determined that contract owners were not owners of
separate account assets. For example, the owner of a Contract has more
flexibility in allocating purchase payments and Account Value than was
contemplated in the rulings. These differences could result in an owner or
participant being treated as the owner of a pro rata portion of the assets of
the Separate Account and/or Fixed Account. In addition, the Company does not
know what standards will be set forth, if any, in the regulations or rulings
which the Treasury Department has stated it expects to issue. The Company
therefore reserves the right to modify the Contracts as necessary to attempt to
prevent an owner or participant from being considered the owner of a pro rata
share of the assets of the Separate Account.
Tax Deferral On Nonqualified Contracts
Section 817(h) of the Code requires that with respect to nonqualified
Contracts, the investments of the Portfolios be "adequately diversified" in
accordance with Treasury regulations in order for the Contracts to qualify as
annuity contracts under federal tax law. The Separate Account, through the
Portfolios, intends to comply with the diversification requirements prescribed
by the Treasury in Reg. Sec. 1.817-5, which affect how the Portfolios' assets
may be invested. Failure of a Portfolio to meet the diversification requirement
would result in loss of tax deferred status to owners of nonqualified Contracts.
-10-
<PAGE>
FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
The audited financial statements of the Separate Account for the year ended
December 31, 1998 and the Company's audited statutory-basis financial statements
for the years ended December 31, 1998 and 1997 are included herein.
The financial statements of the Company included in this statement of
additional information should be considered only as bearing on the ability of
the Company 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.
-11-
<PAGE>
PART C
Other Information
Item 24. Financial Statements and Exhibits
(a) Financial Statements
All required financial statements are included in Parts A or B of this
Registration Statement.
(b) Exhibits
(1) Resolution of the Board of Directors of Annuity Investors Life
Insurance Company(REGISTERED) authorizing establishment of
Annuity Investors(REGISTERED) Variable Account B.1/
(2) Not Applicable.
(3) (a) Distribution Agreement between Annuity Investors Life
Insurance Company (REGISTERED) and AAG Securities, Inc.2/
(b) Form of Selling Agreement between Annuity Investors Life
Insurance Company(REGISTERED), AAG Securities, Inc. and
another Broker-Dealer.1/
(c) Revised form of Selling Agreement between Annuity Investors
Life Insurance Company(REGISTERED), AAG Securities, Inc. and
another Broker-Dealer (filed herewith).
(4) Individual and Group Contract Forms and Endorsements.
(a) Form of Qualified Individual Flexible Premium Deferred
Variable Annuity Contract.2/
(b) Form of Non-Qualified Individual Flexible Deferred Variable
Annuity Contract.2/
(c) Form of Loan Endorsement to Individual Contract.2/
(d) Form of Tax Sheltered Annuity Endorsement to Individual
Contract.2/
(e) Form of Qualified Pension, Profit Sharing and Annuity Plan
Endorsement to Individual Contract.2/
(f) Form of Employer Plan Endorsement to Individual Contract.2/
(g) Form of Individual Retirement Annuity Endorsement to
Individual Contract.2/
(h) Form of Texas Optional Retirement Program Endorsement to
Individual Contract.2/
(i) Form of Long-Term Care Waiver Rider to Individual Contract.2/
(j) Form of Simple IRA Endorsement to Individual Contract.2/
<PAGE>
(k) Form of Group Flexible Premium Deferred Variable Annuity
Contract.2/
(l) Form of Certificate of Participation under a Group Flexible
Premium
Deferred Variable Annuity Contract.2/
(m) Form of Loan Endorsement to Group Contract.2/
(n) Form of Loan Endorsement to Certificate of Participation
under a Group Contract. 2/
(o) Form of Tax Sheltered Annuity Endorsement to Group
Contract.2/
(p) Form of Tax Sheltered Annuity Endorsement to Certificate
of Participation under a Group Contract.2/
(q) Form of Qualified Pension, Profit Sharing and
Annuity Plan Endorsement to Group Contract.2/
(r) Form of Qualified Pension, Profit Sharing and Annuity Plan
Endorsement to Certificate of Participation under a Group
Contract.2/
(s) Form of Employer Plan Endorsement to Group Contract.2/
(t) Form of Employer Plan Endorsement to Certificate of
Participation under a Group Contract.2/
(u) Form of Deferred Compensation Endorsement to
Group Contract.2/
(v) Form of Deferred Compensation Endorsement to Certificate
of Participation under a Group Contract.2/
(w) Form of Texas Optional Retirement Program Endorsement to
Group
Contract.2/
(x) Form of Texas Optional Retirement Program Endorsement to
Certificate of Participation under a Group Contract.2/
(y) Form of Long-Term Care Waiver Rider to Group Contract.2/
(z) Form of Long-Term Care Waiver Rider to Certificate of
Participation
under a Group Contract.2/
(aa) Revised form of Individual Retirement Annuity Endorsement to
Individual Qualified Contract. 3/
(bb) Revised form of SIMPLE IRA Endorsement to Qualified
Individual Contract. 3/
(cc) Form of Roth IRA Endorsement to Qualified Individual
Contract. 3/
(dd) Revised form of Employer Plan Endorsement to Group Contract. 3/
<PAGE>
(ee) Revised form of Employer Plan Endorsement to Certificate of
Participation under a Group Contract. 3/
(ff) Revised form of Employer Plan Endorsement to Qualified
Individual Contract. 3/
(gg) Revised form of Tax Sheltered Annuity Endorsement to Group
Contract.3/
(hh) Revised form of Tax Sheltered Annuity Endorsement to
Certificate of Participation under a Group Contract. 3/
(ii) Revised form of Tax Sheltered Annuity Endorsement to Qualified
Individual Contract. 3/
(jj) Revised form of Qualified Pension, Profit Sharing and Annuity
Plan Endorsement to Group Contract. 3/
(kk) Revised form of Qualified Pension, Profit Sharing and Annuity
Plan Endorsement to Certificate of Participation under a Group
Contract. 3/
(ll) Revised form of Qualified Pension, Profit Sharing and Annuity
Plan Endorsement to Qualified Individual Contract. 3/
(mm) Form of Governmental Section 457 Plan Endorsement to Group
Contract. 3/
(nn) Form of Governmental Section 457 Plan Endorsement to
Certificate of Participation under a Group Contract. 3/
(oo) Form of Governmental Section 457 Plan Endorsement to Qualified
Individual Contract. 3/
(pp) Form of Successor Owner Endorsement to Group Contract (filed
herewith).
(qq) Form of Successor Owner Endorsement to Certificate of
Participation under a Group Contract (filed herewith).
(rr) Form of Successor Owner Endorsement to Qualified Individual
Contract and Non-Qualified Individual Contract (filed
herewith).
(5) (a) Form of Application for Individual Flexible Premium Deferred
Annuity Contract and Certificate of Participation under a
Group Contract.2/
(b) Form of Application for Group Flexible Premium Deferred
Annuity Contract.2/
(c) Revised form of Application for Individual Flexible Premium
Deferred Annuity Contract and Certificate of Participation
under a Group Contract. 4/
(d) Revised form of Application for Group Flexible Premium
Deferred Annuity Contract. 4/
(6) (a) Articles of Incorporation of Annuity Investors Life
Insurance Company(REGISTERED). 1/
(i) Amendment to Articles of Incorporation, adopted April
9, 1996, and approved by the Secretary of State, State of
Ohio, on July 11, 1996.2/
(ii) Amendment to Articles of Incorporation, adopted August
9, 1996, and approved by the Secretary of State, State of
Ohio, on December 3, 1996.2/
(b) Code of Regulations of Annuity Investors Life Insurance
Company. (REGISTERED) 1/
(7) Not Applicable.
(8) (a) Participation Agreement between Annuity Investors Life
Insurance Company(REGISTERED) and Dreyfus Variable
Investment Fund.2/
(i) Letter Agreement dated April 14, 1997 between
Annuity Investors Life Insurance Company (REGISTERED)
and Dreyfus Variable Investment Fund.2/
(b) Participation Agreement between Annuity Investors Life
Insurance Company(REGISTERED) and Dreyfus Life and Annuity
Index Fund, Inc. (d/b/a Dreyfus Stock Index Fund).2/
(i) Letter Agreement dated April 14, 1997 between
Annuity Investors Life Insurance Company(REGISTERED)
and Dreyfus Life and Annuity Index Fund, Inc. (d/b/a
Dreyfus Stock
Index Fund).2/
(c) Participation Agreement between Annuity Investors Life
Insurance Company(REGISTERED) and The Dreyfus Socially
Responsible Growth Fund, Inc.2/
(i) Letter Agreement dated April 14, 1997 between
Annuity Investors Life Insurance Company(REGISTERED)
and The Dreyfus Socially Responsible Growth Fund, Inc.2/
(d) Participation Agreement between Annuity Investors Life
Insurance Company(REGISTERED) and Janus Aspen Series.2/
(e) Participation Agreement between Annuity Investors Life
Insurance Company(REGISTERED) and Strong Variable Insurance
Funds, Inc. and Strong Special Fund II, Inc.2/
(f) Participation Agreement between Annuity Investors Life
Insurance Company(REGISTERED) and INVESCO Variable
Investment Funds, Inc.2/
(g) Participation Agreement between Annuity Investors Life
Insurance Company(REGISTERED) and Morgan Stanley Universal
Funds, Inc.2/
(h) Participation Agreement between Annuity Investors Life Insurance
Company(REGISTERED)and PBHG Insurance Series Fund, Inc.2/
(i) Service Agreement between Annuity Investors Life Insurance
Company(REGISTERED) and American Annuity GroupSM, Inc.1/
(j) Agreement between AAG Securities, Inc. and AAG Insurance
Agency, Inc.1/
(k) Investment Service Agreement between Annuity Investors Life
Insurance Company(REGISTERED) and American Annuity GroupSM,
Inc. 1/
(l) Service Agreement between Annuity Investors Life Insurance
Company(REGISTERED) and Strong Capital Management, Inc.2/
(m) Service Agreement between Annuity Investors Life Insurance
Company(REGISTERED) and Pilgrim Baxter & Associates, Ltd.2/
(n) Service Agreement between Annuity Investors Life Insurance
Company(REGISTERED) and Morgan Stanley Asset Management,
Inc. 2/
(o) Amended and Restated Agreement between The Dreyfus Corporation
and Annuity Investors Life Insurance Company(REGISTERED).2/
(p) Service Agreement between Annuity Investors Life
Insurance Company(REGISTERED) and Janus Capital
Corporation.2/
(q) Service Agreement between INVESCO Funds Group, Inc. and
Annuity Investors Life Insurance Company.4/
(r) Participation Agreement between The Timothy Plan Variable
Series, Timothy Partners, Ltd. and Annuity Investors Life
Insurance Company4/
(s) Service Agreement between The Timothy Plan Variable Series
and Annuity Investors Life Insurance Company. 4/
(9) Opinion and Consent of Counsel. 1/
(10) Consent of Independent Auditors. 4/
(11) No financial statements are omitted from Item 23.
(12) Not Applicable.
(13) Schedule for Computation of Performance Quotations. 4/
(14) Financial Data Schedule. 4/
(15) Powers of Attorney. 5/
________________________
1/ Filed with Form N-4 on December 23, 1996.
2/ Filed with Pre-Effective Amendment No. 1 on June 3, 1997.
3/ Filed with Post-Effective Amendment No. 1 on February 27, 1998.
4/ Filed with Post-Effective Amendment No. 2 on April 29, 1998.
5/ Incorporated by reference to Pre-Effiective Amendment No. 1, filed on
behalf of Annuity Investors Variable Account B, SEC File No. 333-51955 on
on July 6, 1998.
<PAGE>
Item 25. Directors and Officers of the Depositor
Principal Positions and Offices
Name Business Address With the Company
Robert Allen Adams (1) President, Director
Stephen Craig Lindner (1) Director
William Jack Maney, II (1) Assistant Treasurer and
Director
James Michael Mortensen (1) Executive Vice
President,
Assistant Secretary and
Director
Mark Francis Muething (1) Senior Vice President,
Secretary, General
Counsel and Director
Jeffrey Scott Tate (1) Director
Thomas Kevin Liguzinski (1) Senior Vice President
Charles Kent McManus (1) Senior Vice President
Robert Eugene Allen (1) Vice President and
Treasurer
Arthur Ronald Greene, (1) Vice President
III
Betty Marie Kasprowicz (1) Vice President and
Assistant Secretary
Michael Joseph O'Connor (1) Senior Vice President
Lynn Edward Laswell (1) Vice President and
Controller
Vincent J. Graneri (1) Vice President and
Chief Actuary
David Shipley (1) Vice President
Thomsas E. Mischell (1) Assistant Treasurer
(1) P.O. Box 5423, Cincinnati, Ohio 45201-5423.
Item 26. Persons Controlled by or Under Common Control With the
Depositor or Registrant
The Depositor, Annuity Investors Life Insurance
Company(REGISTERED) is a wholly owned subsidiary of Great
American(REGISTERED Life Insurance Company, which is a wholly
owned subsidiary of American Annuity Group(SERVICEMARK), Inc.
The Registrant, Annuity Investors(REGISTERED Variable Account B,
is a segregated asset account of Annuity Investors Life Insurance
Company(REGISTERED.
The following chart shows the affiliations among Annuity
Investors Life Insurance Company(REGISTERED) and its parent,
subsidiary and affiliated entities.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
AMERICAN FINANCIAL GROUP, INC. % OF STOCK OWNED (1)
| STATE OF DATE OF BY IMMEDIATE
| DOMICILE INCORPORATION PARENT COMPANY NATURE OF BUSINESS
|
|_AFC Holding Company Ohio 12/09/94 100 Holding Company
|_AHH Holdings, Inc. Florida 12/27/95 49 Holding Company
| |_Columbia Financial Company Florida 10/26/93 100 Real Estate Holding Company
| |_American Heritage Holding Corporation Delaware 11/02/94 100 Home Builder
| | |_Heritage Homes Realty, Inc. Florida 07/20/93 100 Home Sales
| | |_Southeast Title, Inc. Florida 05/16/95 100 Title Company
| |_Heritage Home Finance Corporation Florida 02/10/94 100 Finance Company
|_American Financial Capital Trust I Delaware 09/14/96 100 Statutory Business Trust
|_American Financial Corporation Ohio 11/15/55 100 Holding Company
| |_AFC Acquisition Ohio 06/26/97 100 Transitory Holding Company
Corp.
| |_AFC Coal Properties, Inc. Ohio 12/18/96 100 Real Estate Holding Company
| |_American Barge & Towing Ohio 03/25/82 Inactive
Company 100
| | |_Spartan Transportation Ohio 7/19/1983 Mgmt-River Transportation
Corporation 100 Equipment
| |_American Financial Corporation Ohio 08/27/63 100 Inactive
| |_American Money Management Corporation Ohio 03/01/73 100 Investment Management
| |_American Money Management International, N.V Netherland 05/10/85 100 Securities Management
| | Antilles
| |_American Premier Underwriters, Inc. Pennsylvania 1846 100(2) Diversified
| | |_The Ann Arbor Railroad Company Michigan 09/21/1895 99 Inactive
| | |_The Associates of the Jersey Company New Jersey 11/10/1804 100 Inactive
| | |_Cal Coal, Inc. Illinois 05/30/79 100 Inactive
| | |_Canadian Lease Insurance Services, Ltd. Washington 02/28/91 100 Insurance Agency
| | |_The Indianapolis Union Railway Company Indiana 11/19/1872 100 Inactive
| | |_Leased Equipment Reinsurance Company, Ltd. Bermuda 09/18/89 100 Reinsurance Company
| | |_Lease Insurance Agency Services Corporation Washington 12/27/83 100 Insurance Agency
| | |_Lease Insurance Services, Ltd. Washington 05/14/90 100 Insurance Agency
| | |_Lehigh Valley Railroad Company Pennsylvania 04/21/1846 100 Inactive
| | |_The New York and Harlem Railroad Company New York 04/25/1831 97 Inactive
| | |_The Owasco River Railway, Inc. New York 06/02/1881 100 Inactive
| | |_PCC Real Estate, Inc. New York 12/15/86 100 Holding Company
| | | |_PCC Chicago Realty Corp. New York 12/23/86 100 Real Estate Developer
| | | |_PCC Gun Hill Realty Corp. New York 12/18/85 100 Real Estate Developer
| | | |_PCC Michigan Realty, Inc. Michigan 11/09/87 100 Real Estate Developer
| | | |_PCC Scarsdale Realty Corp. New York 06/01/86 100 Real Estate Developer
| | | | |_Scarsdale Depot Associates, L.P. Delaware 05/05/89 80 Real Estate Developer
| | |_Penn Central Energy Management Company Delaware 05/11/87 100 Energy Operations Manager
| | |_Pennsylvania Company Delaware 12/05/58 100 Holding Company
| | | |_Atlanta Casualty Company Illinois 06/13/72 100 (2) Property/Casualty Insurance
| | | | |_American Premier Insurance Company Indiana 11/30/89 100 Property/Casualty Insurance
| | | | |_Atlanta Specialty Insurance Company Ohio 02/06/74 100 Property/Casualty Insurance
| | | | |_Atlanta Casualty Group, Inc. Georgia 04/01/77 100 Insurance Agency
| | | | | |_Atlanta Casualty General Agency, Inc. Texas 03/15/61 100 Managing General Agency
| | | | | |_Atlanta Insurance Brokers, Inc. Georgia 02/06/71 100 Insurance Agency
| | | | | |_Treaty House, Ltd. (d/b/a Mr. Budget) Nevada 11/02/71 100 Insurance Premium Finance
<PAGE>
<S> <C> <C> <C> <C>
AMERICAN FINANCIAL GROUP, INC.
|_AFC Holding Company
|_American Financial Corporation % OF STOCK OWNED (1)
| |_American Premier Underwriters, Inc. STATE OF DATE OF BY IMMEDIATE
| | |_Pennsylvania Company DOMICILE INCORPORATION PARENT COMPANY NATURE OF BUSINESS
|
| | | | |_Penn Central U.K. Limited United 10/28/92 100 Insurance Holding Company
Kingdom
| | | | | |_Insurance (GB) Limited United 05/13/92 100 Property/Casualty Insurance
Kingdom
| | | |_Delbay Corporation Delaware 12/27/62 100 Inactive
| | | |_Great Southwest Corporation Delaware 10/25/78 100 Real Estate Developer
| | | | |_World Houston, Inc. Delaware 05/30/74 100 Real Estate Developer
| | | |_Hangar Acquisition Corp. Ohio 10/06/95 100 Aircraft Investment
| | | |_Infinity Insurance Company Indiana 07/09/55 100 Property/Casualty Insurance
| | | | |_Infinity Agency of Texas, Inc. Texas 07/15/92 100 Managing General Agency
| | | | |_The Infinity Group, Inc. Indiana 07/22/92 100 Services Provider
| | | | |_Infinity National Insurance Company Indiana 08/05/92 100 Property/Casualty Insurance
| | | | |_Infinity Select Insurance Company Indiana 06/11/91 100 Property/Casualty Insurance
| | | | |_Leader National Insurance Company Ohio 03/20/63 100 Property/Casualty Insurance
| | | | | |_Budget Insurance Premiums, Inc. Ohio 02/14/64 100 Premium Finance Company
| | | | | |_Leader National Agency, Inc. Ohio 04/05-63 100 Brokering Agent
| | | | | |_Leader National Agency of Texas, Inc. Texas 01/25/94 100 Managing General Agency
| | | | | |_Leader National Insurance Agency of Arizona Arizona 12/05/73 100 Brokering Agent
| | | | | |_Leader Preferred Insurance Company Ohio 11/07/94 100 Property/Casualty Insurance
| | | | | |_Leader Specialty Insurance Company Indiana 03/10/94 100 Property/Casualty Insurance
| | | | | |_TALON Group, Inc. Ohio 12/12/97 100 Services Provider
| | | |_PCC Technical Industries, Inc. California 03/07/55 100 Holding Company
| | | | |_ESC, Inc. California 11/02/62 100 Connector Accessories
| | | | |_Marathon Manufacturing Companies, Inc. Delaware 11/18/83 100 Holding Company
| | | | | |_Marathon Manufacturing Company Delaware 12/07/79 100 Inactive
| | | | |_PCC Maryland Realty Corp. Maryland 08/18/93 100 Real Estate Holding Company
| | | | |_Penn Camarillo Realty Corp. California 11/24/92 100 Real Estate Holding Company
| | | |_Penn Towers, Inc. Pennsylvania 08/01/58 100 Inactive
| | | |_Republic Indemnity Company of America California 12/05/72 100 Workers' Compensation
Insurance
| | | | |_Republic Indemnity Company of California California 10/13/82 100 Workers' Compensation
Insurance
| | | | |_Republic Indemnity Medical Management, Inc. California 03/25/96 100 Medical Bill Review
| | | | |_Timberglen Limited United 10/28/92 100 Investments
Kingdom
| | | |_Risico Management Corporation Delaware 01/10/89 100 Risk Management
| | | |_Windsor Insurance Company Indiana 11/05/87 100(2) Property/Casualty Insurance
| | | | |_American Deposit Insurance Company Oklahoma 12/28/66 100 Property/Casualty Insurance
| | | | | |_Granite Finance Co., Inc. Texas 11/09/65 100 Premium Financing
| | | | |_Coventry Insurance Company Ohio 09/05/89 100 Property/Casualty Insurance
| | | | |_El Aguila Compania de Seguros, S.A. de C.V. Mexico 11/24/94 100 (2) Property/Casualty Insurance
| | | | |_Moore Group Inc. Georgia 12/19/62 100 Insurance Holding
Company/Agency
| | | | | |_Casualty Underwriters, Inc. Georgia 10/01/54 51 Insurance Agency
| | | | | |_Dudley L. Moore Insurance, Inc. Louisiana 03/30/78 beneficial interest Insurance Agency
| | | | | |_Hallmark General Insurance Agency, Inc. Oklahoma 06/16/72 Beneficial interest Insurance Agency
| | | | | |_Windsor Group, Inc. Georgia 05/23/91 100 Insurance Holding Company
| | | | |_Regal Insurance Company Indiana 11/05/87 100 Property/Casualty Insurance
| | | | |_Texas Windsor Group, Inc. Texas 06/23/88 100 Insurance Agency
<PAGE>
AMERICAN FINANCIAL GROUP, INC.
| |_AFC Holding Company
| |_American Financial Corporation
| | |_American Premier Underwriters, Inc. % OF STOCK OWNED (1)
| STATE OF DATE OF BY IMMEDIATE
| DOMICILE INCORPORATION PARENT COMPANY NATURE OF BUSINESS
|_
| | |_Pennsylvania-Reading Seashore Lines New Jersey 06/14/01 66.67 Inactive
| | |_Pittsburgh and Cross Creek Railroad Company Pennsylvania 08/14/70 83 Inactive
| | |_Terminal Realty Penn Co. District of 09/23/68 100 Inactive
| | |_United Railroad Corp. Delaware 11/25/81 100 Inactive
| | | |_Detroit Manufacturers Railroad Company Michigan 01/30/02 82 Inactive
| | |_Waynesburg Southern Railroad Company Pennsylvania 09/01/66 100 Inactive
| |_Chiquita Brands International, Inc. New Jersey 03/30/99 40.41 (2) Production/Processing/
| | (and subsidiaries) Distribution of Food
Products
| |_Dixie Terminal Corporation Ohio 04/23/70 100 Commercial Leasing
| |_Fairmont Holdings, Inc. Ohio 12/15/83 100 Holding Company
| |_FWC Corporation Ohio 03/16/83 100 Financial Services
| |_Great American Holding Corporation Ohio 11/30/77 100 Holding Company
| | |_Great American Insurance Company Ohio 3/7/1872 100 Property/Casualty Insurance
| | | |_Agricultural Excess and Surplus Insurance Delaware 02/28/79 100 Excess & Surplus Lines
Company Insurance
| | | |_Agricultural Insurance Company Ohio 03/23/05 100 Property/Casualty Insurance
| | | |_American Alliance Insurance Company Arizona 09/11/45 100 Property/Casualty Insurance
| | | |_American Annuity Group, Inc. Delaware 05/15/87 81.13 (2) Holding Company
| | | | |_AAG Holding Company, Inc. Ohio 09/11/96 100 Holding Company
| | | | | |_American Annuity Group Capital Trust I Delaware 09/13/96 100 Financing Vehicle
| | | | | |_American Annuity Group Capital Trust II Delaware 03/11/97 100 Financing Vehicle
| | | | | |_American Annuity Group Capital Trust III Delaware 05/27/97 100 Financing Vehicle
| | | | | |_Great American Life Insurance Company Ohio 12/15/59 100 Life Insurance Company
| | | | | | |_Annuity Investors Life Insurance Company Ohio 11/31/81 100 Life Insurance Company
| | | | | | |_Assured Security Life Insurance Company, South Dakota 05/12/78 100 Life Insurance Company
Inc.
| | | | | | |_CHATBAR, Inc. Massachusetts 11/02/93 100 Hotel Operator
| | | | | | |_Driskill Holding, Inc. Texas 06/07/95 beneficial interest Hotel Management
| | | | | | |_First Benefit Insurance Company Arizona 01/03/95 100 Life Insurance Company
| | | | | | |_GALIC Brothers, Inc. Ohio 11/12/93 80 Real Estate Management
| | | | | | |_Great American Life Assurance Company Ohio 08/10/67 100 Life Insurance Company
| | | | | | |_Loyal American Life Insurance Company Alabama 05/18/55 100 Life Insurance Company
| | | | | | | |_ADL Financial Services, Inc. North 09/10/70 100 Marketing Services
Carolina
| | | | | |_Purity Financial Corporation Florida 12/21/91 100 Marketing Services
| | | | |_Prairie National Life Insurance Company South Dakota 02/11/76 100 Life Insurance Company
| | | | | |_American Memorial Life Insurance Company South Dakota 03/18/59 100 Life Insurance Company
| | | | | | |_Great Western Life Insurance Company Montana 05/01/80 100 Life Insurance Company
| | | | | | |_Rushmore National Life Insurance Company South Dakota 04/16/37 100 Life Insurance Company
| | |_AAG Insurance Agency, Inc. Kentucky 12/06/94 100 Life Insurance Agency
| | | |_AAG Insurance Agency of Massachusetts, Inc. Massachusetts 05/25/95 100 Insurance Agency
| | |_AAG Securities, Inc. Ohio 12/10/93 100 Broker-Dealer
| | |_American DataSource, Inc. Delaware 06/15/90 100 Pre-need Trust Services
| | |_American Memorial Marketing Services, Inc. Washington 06/19/80 100 Marketing Services
<PAGE>
AMERICAN FINANCIAL GROUP, INC.
| |_AFC Holding Company
| |_American Financial Corporation
| | |_Great American Holding Corporation % OF STOCK OWNED (1)
| | | |_Great American Insurance Company STATE OF DATE OF BY IMMEDIATE
| | | | |_American Annuity Group, Inc. DOMICILE INCORPORATION PARENT COMPANY NATURE OF BUSINESS
|_
| | | | |_CSW Management Services, Inc. Texas 06/27/85 100 Pre-need Trust Admin.
Services
| | | | |_GALIC Disbursing Company Ohio 05/31/94 100 Payroll Servicer
| | | | |_General Accident Life Assurance Company of Puerto Rico 07/01/64 99 Life Insurance Company
Puerto Rico, Inc.
| | | | |_Keyes-Graham Insurance Agency, Inc. Massachusetts 12/23/87 100 Insurance Agency
| | | | |_International Funeral Associates, Inc. Delaware 05/07/86 100 Coop. Buying Funeral Dirs.
| | | | |_Laurentian Credit Services Corporation Delaware 10/07/94 100 Inactive
| | | | |_Laurentian Marketing Services, Inc. Delaware 12/23/87 100 Marketing Services
| | | | |_Laurentian Securities Corporation Delaware 01/30/90 100 Inactive
| | | | |_Lifestyle Financial Investments, Inc. Ohio 12/29/93 100 Marketing Services
| | | | | |_Lifestyle Financial Investments Agency of Ohio 03/07/94 beneficial interest Life Insurance Agency
Ohio, Inc.
| | | | | |_Lifestyle Financial Investments of Indiana, Indiana 02/24/94 100 Life Insurance Agency
Inc.
| | | | | |_Lifestyle Financial Investments of Kentucky, Kentucky 10/03/94 100 Insurance Agency
Inc.
| | | | | |_Lifestyle Financial Investments of the Minnesota 06/10/85 100 Insurance Agency
Northwest, Inc.
| | | | | |_Lifestyle Financial Investments of the North 07/13/94 100 Insurance Agency
Southeast, Inc. Carolina
| | | | |_Loyal Marketing Services, Inc. Alabama 07/20/90 100 Marketing Services
| | | | |_New Energy Corporation Indiana 01/08/97 49 Holding Company
| | | | |_Purple Cross Insurance Agency, Inc. Delaware 11/07/89 100 Insurance Agency
| | | | |_Retirement Resource Group, Inc. Indiana 02/07/95 100 Insurance Agency
| | | | | |_RRG of Alabama, Inc. Alabama 09/22/95 100 Life Insurance Agency
| | | | | |_RRG of Ohio, Inc. Ohio 02/20/96 beneficial interest Insurance Agency
| | | | | |_AAG Insurance Agency of Texas, Inc. Texas 06/02/95 100 Life Insurance Agency
| | | | |_SPELCO (UK) Ltd. United 00/00/00 99 Inactive
Kingdom
| | | | |_SWTC, Inc. Delaware 00/00/00 100 Inactive
| | | | |_SWTC Hong Kong Ltd. Hong Kong 00/00/00 100 Inactive
| | | | |_Technomil Ltd. Delaware 00/00/00 100 Inactive
| | | |_American Custom Insurance Services, Inc. Ohio 07/27/83 100 Management Holding Company
| | | | |_American Custom Insurance Services California, California 05/18/92 100 Insurance Agency & Brokerage
Inc.
| | | | |_Eden Park Insurance Brokers, Inc. California 02/13/90 100 Wholesale Brokerage for
Surplus Lines
| | | | |_Professional Risk Brokers, Inc. Illinois 03/01/90 100 Insurance Agency
| | | | |_Professional Risk Brokers Insurance, Inc. Massachusetts 04/19/94 100 Surplus Lines Brokerage
| | | | |_Professional Risk Brokers of Connecticut, Inc. Connecticut 07/09/92 100 Insurance Agency & Brokerage
| | | | |_Professional Risk Brokers of Ohio, Inc. Ohio 12/17/86 100 Insurance Agency and
Brokerage
| | | |_American Custom Insurance Services Illinois, Inc. Illinois 07/08/92 100 Underwriting Office
| | | |_American Dynasty Surplus Lines Insurance Company Delaware 01/12/82 100 Excess & Surplus Lines
Insurance
| | | |_American Empire Surplus Lines Insurance Company Delaware 07/15/77 100 Excess & Surplus Lines
Insurance
| | | | |_American Empire Insurance Company Ohio 11/26/79 100 Property/Casualty Insurance
| | | | | |_American Signature Underwriters, Inc. Ohio 04/08/96 100 Insurance Agency
| | | | | |_Specialty Underwriters, Inc. Texas 05/19/76 100 Insurance Agency
| | | | |_Fidelity Excess and Surplus Insurance Company Ohio 06/30/87 100 Property/Casualty Insurance
<PAGE>
AMERICAN FINANCIAL GROUP, INC.
| |_AFC Holding Company
| |_American Financial Corporation
| | |_Great American Holding Corporation % OF STOCK OWNED (1)
| | | |_Great American Insurance Company STATE OF DATE OF BY IMMEDIATE
|_ DOMICILE INCORPORATION PARENT COMPANY NATURE OF BUSINESS
| | | |_American Financial Enterprises, Inc. Connecticut 1871 100 (2) Closed End Investment
Company
| | | |_American Insurance Agency, Inc. Kentucky 07/27/67 100 Insurance Agency
| | | |_American National Fire Insurance Company New York 08/22/47 100 Property/Casualty Insurance
| | | |_American Special Risk, Inc. Illinois 12/29/81 100 Insurance Broker/Managing
General Agency
| | | | |_American Special Risk I of Arizona, Inc. Arizona 02/06/90 100 Inactive
| | | |_American Spirit Insurance Company Indiana 04/05/88 100 Property/Casualty Insurance
| | | |_Brothers Property Corporation Ohio 09/08/87 80 Real Estate Investment
| | | | |_Brothers Barrington Corporation Oklahoma 03/18/94 100 Real Estate Holding
Corporation
| | | | |_Brothers Cincinnatian Corporation Ohio 01/25/94 100 Hotel Manager
| | | | |_Brothers Columbine Corporation Oklahoma 03/18/94 100 Real Estate Holding
Corporation
| | | | |_Brothers Landing Corporation Louisiana 02/24/94 100 Real Estate Holding
Corporation
| | | | |_Brothers Pennsylvanian Corporation Pennsylvania 12/23/94 100 Real Estate Holding
Corporation
| | | | |_Brothers Port Richey Corporation Florida 12/06/93 100 Apartment Manager
| | | | |_Brothers Property Management Corporation Ohio 09/25/87 100 Real Estate Management
| | | | |_Brothers Railyard Corporation Texas 12/14/93 100 Apartment Manager
| | | |_Consolidated Underwriters, Inc. Texas 10/14/80 100 Inactive
| | | |_Contemporary American Insurance Company Illinois 04/16/96 100 Property/Casualty Insurance
| | | |_Crop Managers Insurance Agency, Inc. Kansas 08/09/89 100 Insurance Agency
| | | |_Dempsey & Siders Agency, Inc. Ohio 05/09/56 100 Insurance Agency
| | | |_Eagle American Insurance Company Ohio 07/01/87 100 Property/Casualty Insurance
| | | |_Eden Park Insurance Company Indiana 01/08/90 100 Special Risk Surplus Lines
| | | |_FCIA Management Company, Inc. New York 09/17/91 79 Servicing Agent
| | | |_The Gains Group, Inc. Ohio 01/26/82 100 Marketing of Advertising
| | | |_Great American Lloyd's, Inc. Texas 08/02/83 100 Attorney-in-Fact - Texas
Lloyd's Company
| | | |_Great American Lloyd's Insurance Company Texas 10/09/79 beneficial interest Lloyd's Plan Insurer
| | | |_Great American Management Services, Inc. Ohio 12/05/74 100 Data Processing and
Equipment Leasing
| | | | |_American Payroll Services, Inc. Ohio 02/20/87 100 Payroll Services
| | | |_Great American Re Inc. Delaware 05/14/71 100 Reinsurance Intermediary
| | | |_Great American Risk Management, Inc. Ohio 04/21/80 100 Insurance Risk Management
| | | |_Great Texas County Mutual Insurance Company Texas 04/29/54 beneficial interest Property/Casualty Insurance
| | | |_Grizzly Golf Center, Inc. Ohio 11/08/93 100 Operate Golf Courses
| | | |_Homestead Snacks Inc. California 03/02/79 100 (2) Meat Snack Distribution
| | | | |_Giant Snacks, Inc. Delaware 07/06/89 100 Meat Snack Distribution
| | | |_Key Largo Group, Inc. Florida 07/28/81 100 Land Developer & Resort
Operator
| | | | |_Key Largo Group Utility Company Florida 11/26/84 100 Water & Sewer Utility
| | | |_Mid-Continent Casualty Company Oklahoma 02/26/47 100 Property/Casualty Insurance
| | | | |_Mid-Continent Insurance Company Oklahoma 08/13/92 100 Property/Casualty Insurance
| | | | |_Oklahoma Surety Company Oklahoma 08/05/68 100 Property/Casualty Insurance
| | | |_National Interstate Corporation Ohio 01/26/89 52.15 Holding Company
<PAGE>
AMERICAN FINANCIAL GROUP, INC.
| |_AFC Holding Company
| |_American Financial Corporation % OF STOCK OWNED (1)
| | |_Great American Holding Corporation STATE OF DATE OF BY IMMEDIATE
| | | |_Great American Insurance Company DOMICILE INCORPORATION PARENT COMPANY NATURE OF BUSINESS
|_
| | | | |_American Highways Insurance Agency California 05/05/94 100 Insurance Agency
| | | | |_Explorer Insurance Agency, Inc. Ohio 07/17/97 beneficial interest Insurance Agency
| | | | |_National Interstate Insurance Agency of Texas 06/07/89 beneficial interest Insurance Agency
Texas, Inc.
| | | | |_National Interstate Insurance Agency, Inc. Ohio 02/13/89 100 Insurance Agency
| | | | |_National Interstate Insurance Company Ohio 02/10/89 100 Property/Casualty Ins.
| | | | |_Safety, Claims & Litigation Services, Inc. Pennsylvania 06/23/95 100 Claims Third Party
Administrator
| | | |_OBGC Corporation Florida 11/23/77 80 Real Estate Development
| | | |_Pointe Apartments, Inc. Minnesota 06/24/93 100 Real Estate Holding
Corporation
| | | |_Seven Hills Insurance Agency, Inc. Ohio 12/22/97 100 Insurance Agency
| | | |_Seven Hills Insurance Company New York 06/30/32 100 Property/Casualty
Reinsurance
| | | |_Stonewall Insurance Company Alabama 02/1866 100 Property/Casualty Ins.
| | | |_Stone Mountain Professional Liability Georgia 08/07/95 100 Insurance Agency
Agency, Inc.
| | | |_Tamarack American, Inc. Delaware 06/10/86 100 Management Holding Company
| | | |_Transport Insurance Company Ohio 05/25/76 100 Property/Casualty Ins.
| | | | |_American Commonwealth Development Company Texas 07/23/63 100 Real Estate Development
| | | | | |_ACDC Holdings Corporation Texas 05/04/81 100 Real Estate Development
| | | | |_Instech Corporation Texas 09/02/75 100 Claim & Claim Adjustment
Services
| | | | |_TICO Insurance Company Ohio 06/03/80 100 Property/Casualty Ins.
| | | | |_Transport Managing General Agency, Inc. Texas 05/19/89 100 Managing General Agency
| | | | |_Transport Insurance Agency, Inc. Texas 08/21/89 beneficial interest Insurance Agency
| | | |_Transport Underwriters Association California 05/11/45 100 Holding Company/Agency
| | | |_Utility Insurance Services, Inc. Texas 04/06/95 100 (2) Texas Local Recording Agency
| | | |_Utility Management Services, Inc. Texas 09/07/65 100 Texas Managing General
Agency
|_One East Fourth, Inc. Ohio 02/03/64 100 Commercial Leasing
|_PCC 38 Corp. Illinois 12/23/96 100 Real Estate Holding Company
|_Pioneer Carpet Mills, Inc. Ohio 04/29/76 100 Carpet Manufacturing
|_TEJ Holdings, Inc. Ohio 12/04/84 100 Real Estate Holdings
|_Three East Fourth, Inc. Ohio 08/10/66 100 Commercial Leasing
</TABLE>
(1) Except Director's Qualifying Shares.
(2) Total percentage owned by parent shown and by other affiliated
company(ies).
(3) Convertible Preferred Stock.
<PAGE>
Item 27. Number of Contract Owners
As of March 31, 1998, there were 1,067 Individual Contract Owners, of which
988 were qualified and 79 were non-qualified. As of March 31, 1998, there
were 15 Participants (Certificate Owners) in 3 Group Contracts.
Item 28. Indemnification
(a) The Code of Regulations of Annuity Investors Life Insurance
Company(REGISTERED) provides in Article V as follows:
The Corporation shall, to the full extent permitted by the General
Corporation Law of Ohio, indemnify any person who is or was a director
or officer of the Corporation and whom it may indemnify pursuant
thereto. The Corporation may, within the sole discretion of the Board
of Directors, indemnify in whole or in part any other persons whom it
may indemnify pursuant thereto.
Insofar as indemnification for liability arising under the Securities Act of
1933 ("1933 Act") may be permitted to directors, officers and controlling
persons of the Depositor pursuant to the foregoing provisions, or otherwise,
the Depositor has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Depositor of expenses incurred or paid by the director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Depositor will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
(b) The directors and officers of Annuity Investors Life Insurance
Company(REGISTERED) are covered under a Directors and Officers Reimbursement
Policy. Under the Reimbursement Policy, directors and officers are
indemnified for loss arising from any covered claim by reason of any Wrongful
Act in their capacities as directors or officers, except to the extent the
Company has indemnified them. In general, the term "loss" means any amount
which the directors or officers are legally obligated to pay for a claim for
Wrongful Acts. In general, the term "Wrongful Acts" means any breach of
duty, neglect, error, misstatement, misleading statement, omission or act by
a director or officer while acting individually or collectively in their
capacity as such claimed against them solely by reason of their being
directors and officers. The limit of liability under the program is
$20,000,000 for the policy year ending September 1, 1999. The primary policy
under the program is with National Union Fire Insurance Company of
Pittsburgh, PA in the name of American Premier Underwriters, Inc.
<PAGE>
Item 29. Principal Underwriter
AAG Securities, Inc. is the underwriter and distributor of the Contracts as
defined in the Investment Company Act of 1940 ("1940 Act").
(a) AAG Securities, Inc. does not act as a principal underwriter, depositor,
sponsor or investment adviser for any investment company other than Annuity
Investors(REGISTERED) Variable Account A and Annuity Investors(REGISTERED)
Variable Account B.
(b) Directors and Officers of AAG Securities, Inc.
Name and Principal Position with
Business Address AAG Securities, Inc.
Thomas Kevin Liguzinski (1) Chief Executive Officer and
Director
Charles Kent McManus (1) Senior Vice President
Mark Francis Muething (1) Vice President, Secretary and
Director
William Jack Maney, II (1) Director
Jeffrey Scott Tate (1) Director
James Lee Henderson (1) President
Andrew Conrad Bambeck, III (1) Vice President
William Claire Bair, Jr. (1) Treasurer
Thomas E. Mischell (1) Assistant Treasurer
Fred J. Runk (1) Assistant Treasurer
(1) 250 East Fifth Street, Cincinnati, Ohio 45202
(c) Not applicable.
Item 30. Location of Accounts and Records
All accounts and records required to be maintained by Section 31(a) of the
1940 Act and the rules under it are maintained by Lynn E. Laswell, Vice
President and Controller of the Company, at the Administrative Office.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Registrant undertakes that it will file a post-effective amendment to
this registration statement as frequently as necessary to ensure that the
audited financial statements in the registration statement are never more
than 16 months old for so long as payments under the variable annuity
contracts may be accepted.
<PAGE>
(b) Registrant undertakes that it will include either (1) as part of any
application to purchase a Contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2)
a post card or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of
Additional Information.
(c) Registrant undertakes to deliver any Prospectus and Statement of
Additional Information and any financial statements required to be made
available under this Form promptly upon written or oral request to the
Company at the address or phone number listed in the Prospectus.
(d) The Company represents that the fees and charges deducted under the
Contract, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred and the risks assumed by the
Company.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act
of 1940, the Registrant certifies that it has caused this Post-Effective
Amendment No. 3 to its Registration Statement to be signed on its behalf by
the undersigned in the City of Cincinnati, State of Ohio on the 13th day of
November, 1998.
ANNUITY INVESTORS(REGISTERED) VARIABLE ACCOUNT B
(REGISTRANT)
By: /s/ Robert Allen Adams
----------------------
Robert Allen Adams
Chairman of the Board, President
and Director, Annuity Investors
Life Insurance Company(REGISTERED)
ANNUITY INVESTORS LIFE INSURANCE COMPANY(REGISTERED)
(DEPOSITOR)
By: /s/Robert Allen Adams
---------------------
Robert Allen Adams
Chairman of the Board, President
and Director
As required by the Securities Act of 1933, this Post-Effective Amendment
No. 3 has been signed by the following persons in the capacities and on the
dates indicated.
/s/ Robert Allen Adams Principal Executive November 13, 199
- - ------------------------ Officer, Director
Robert Allen Adams*
/s/ Robert Eugene Allen Principal Financial November 13, 1998
- - ------------------------ Officer
Robert Eugene Allen*
/s/ Lynn Edward Laswell Principal Accounting November 13, 1998
- - ------------------------ Officer
Lynn Edward Laswell*
<PAGE>
/s/ Stephen Craig Lindner Director November 13, 1998
- - -------------------------
Stephen Craig Lindner*
/s/ William Jack Maney, II Director November 13, 1998
- - --------------------------
William Jack Maney, II*
/s/ James Michael Mortensen Director November 13, 1998
- - ---------------------------
James Michael Mortensen*
/s/ Mark Francis Muething Director November 13, 1998
- - -------------------------
Mark Francis Muething*
/s/ Jeffrey Scott Tate Director November 13, 1998
- - ------------------------
Jeffrey Scott Tate*
Executed by Elisabeth Dahl on behalf of those indicated pursuant to Power of
Attorney.
ENDORSEMENT
The contract is changed by adding a new provision as follows:
SUCCESSOR OWNER STEP UP IN ACCOUNT VALUE
If your spouse becomes the Successor Owner of this Contract, the Account
Value of the Contract will be increased, as of the date that would have been
the Death Benefit Valuation Date, to equal the amount of the Death Benefit
which would have been payable if your spouse had not become the Successor
Owner of the Contract. If the Death Benefit which would have been payable is
equal to the Account Value as of the date that would have been the Death
Benefit Valuation Date, there will be no change in the Account Value of the
Contract.
For purposes of determining the date that would have been the Death Benefit
Valuation Date, the election to become Successor Owner will be deemed to be
instructions as to the form of death benefit. Therefore, the date that would
have been the Death Benefit Valuation Date will be the later of the date we
receive Due Proof of Death of the owner, or the date we receive a Successor
Owner election, but never later than one year after the date of death of the
owner.
If your spouse becomes the Successor Owner of this Contract, any Contingent
Deferred Sales Charge which would otherwise apply on surrender will be
waived, except that if any additional Purchase Payments are paid by the
Successor Owner, Contingent Deferred Sales Charges will apply as described in
this Contract.
If the Account Value is stepped-up under this provision, the Company will
deposit the amount of the increase into the Fixed Accumulation Account
Option. The Successor Owner may make one transfer of all or part of the
amount deposited from the Fixed Accumulation Account to any other Fixed
Account option(s) and/or Sub-Account(s), without such transfer being treated
as a transfer for any other purpose under this Contract.
This is part of your contract. It is not a separate contract. It changes
the policy only as and to the extent stated. In all cases of conflict with
the other terms of the contract, the provisions of this Endorsement shall
control.
Signed for us at our office as of the date of issue.
ENDORSEMENT
The certificate is changed by adding a new provision as follows:
SUCCESSOR OWNER STEP UP IN ACCOUNT VALUE
If your spouse becomes the Successor Owner of your participation interest
under the Contract, the Account Value of your participation interest will be
increased, as of the date that would have been the Death Benefit Valuation
Date, to equal the amount of the Death Benefit which would have been payable
if your spouse had not become the Successor Owner of your participation
interest. If the Death Benefit which would have been payable is equal to the
Account Value as of the date that would have been the Death Benefit Valuation
Date, there will be no change in the Account Value of your Certificate.
For purposes of determining the date that would have been the Death Benefit
Valuation Date, the election to become Successor Owner will be deemed to be
instructions as to the form of death benefit. Therefore, the date that would
have been the Death Benefit Valuation Date will be the later of the date we
receive Due Proof of Death of the Participant, or the date we receive a
Successor Owner election, but never later than one year after the date of
death of the Participant.
If your spouse becomes the Successor Owner of your participation interest,
any Contingent Deferred Sales Charge which would otherwise apply on surrender
will be waived, except that if any additional Purchase Payments are paid by
the Successor Owner, Contingent Deferred Sales Charges will apply as
described in this Certificate.
If the Account Value of your Certificate is stepped-up under this provision,
the Company will deposit the amount of the increase into the Fixed
Accumulation Account Option. The Successor Owner may make one transfer of
all or part of the amount deposited from the Fixed Accumulation Account to
any other Fixed Account option(s) and/or Sub-Account(s), without such
transfer being treated as a transfer for any other purpose under this
Certificate.
This is part of the certificate. It is not a legal contract. It changes the
certificate only as and to the extent stated.
Signed for us at our office as of the date of issue.
ENDORSEMENT
The contract is changed by adding a new provision as follows:
SUCCESSOR OWNER STEP UP IN ACCOUNT VALUE
If a Participant's spouse becomes the Successor Owner of the Participant's
participation interest under the Contract, the Account Value of the
Participant's participation interest will be increased, as of the date that
would have been the Death Benefit Valuation Date, to equal the amount of the
Death Benefit which would have been payable if the Participant's spouse had
not become the Successor Owner of the Participant's participation interest.
If the Death Benefit which would have been payable is equal to the Account
Value as of the date that would have been the Death Benefit Valuation Date,
there will be no change in the Account Value of the Certificate.
For purposes of determining the date that would have been the Death Benefit
Valuation Date, the election to become Successor Owner will be deemed to be
instructions as to the form of death benefit. Therefore, the date that would
have been the Death Benefit Valuation Date will be the later of the date we
receive Due Proof of Death of the Participant, or the date we receive a
Successor Owner election, but never later than one year after the date of
death of the Participant.
If the Participant's spouse becomes the Successor Owner of the Participant's
participation interest, any Contingent Deferred Sales Charge which would
otherwise apply on surrender will be waived, except that if any additional
Purchase Payments are paid by the Successor Owner, Contingent Deferred Sales
Charges will apply as described in this Contract.
If the Account Value of a Certificate is stepped-up under this provision, the
Company will deposit the amount of the increase into the Fixed Accumulation
Account Option. The Successor Owner may make one transfer of all or part of
the amount deposited from the Fixed Accumulation Account to any other Fixed
Account option(s) and/or Sub-Account(s), without such transfer being treated
as a transfer for any other purpose under this Contract.
This is part of the contract. It is not a separate contract. It changes the
policy only as and to the extent stated. In all cases of conflict with the
other terms of the contract, the provisions of this Endorsement shall control.
Signed for us at our office as of the date of issue.
<PAGE>
EXHIBIT INDEX
(1) Resolution of the Board of Directors of Annuity Investors Life
Insurance Company(REGISTERED) authorizing establishment of Annuity
Investors(REGISTERED) Variable Account B.1/
(2) Not Applicable.
(3) (a) Distribution Agreement between Annuity Investors Life
Insurance Company (REGISTERED) and AAG Securities, Inc.2/
(b) Form of Selling Agreement between Annuity Investors Life
Insurance Company(REGISTERED), AAG Securities, Inc. and
another Broker-Dealer.1/
(c) Revised form of Selling Agreement between Annuity Investors
Life Insurance Company(REGISTERED, AAG Securities, Inc.
and another Broker-Dealer (filed herewith).
(4) Individual and Group Contract Forms and Endorsements.
(a) Form of Qualified Individual Flexible Premium Deferred
Variable Annuity Contract.2/
(b) Form of Non-Qualified Individual Flexible Deferred Variable
Annuity Contract.2/
(c) Form of Loan Endorsement to Individual Contract.2/
(d) Form of Tax Sheltered Annuity Endorsement to Individual
Contract.2/
(e) Form of Qualified Pension, Profit Sharing and Annuity Plan
Endorsement to Individual Contract.2/
(f) Form of Employer Plan Endorsement to Individual Contract.2/
(g) Form of Individual Retirement Annuity Endorsement to
Individual Contract.2/
(h) Form of Texas Optional Retirement Program Endorsement to
Individual Contract.2/
(i) Form of Long-Term Care Waiver Rider to Individual Contract.2/
(j) Form of Simple IRA Endorsement to Individual Contract.2/
(k) Form of Group Flexible Premium Deferred Variable Annuity
Contract.2/
(l) Form of Certificate of Participation under a Group Flexible
Premium
<PAGE>
Deferred Variable Annuity Contract.2/
(m) Form of Loan Endorsement to Group Contract.2/
(n) Form of Loan Endorsement to Certificate of Participation under
a Group Contract. 2/
(o) Form of Tax Sheltered Annuity Endorsement to Group Contract.2/
(p) Form of Tax Sheltered Annuity Endorsement to Certificate
of Participation under a Group Contract.2/
(q) Form of Qualified Pension, Profit Sharing and
Annuity Plan Endorsement to Group Contract.2/
(r) Form of Qualified Pension, Profit Sharing and Annuity Plan
Endorsement to Certificate of Participation under a Group
Contract.2/
(s) Form of Employer Plan Endorsement to Group Contract.2/
(t) Form of Employer Plan Endorsement to Certificate of
Participation under a Group Contract.2/
(u) Form of Deferred Compensation Endorsement to
Group Contract.2/
(v) Form of Deferred Compensation Endorsement to Certificate
of Participation under a Group Contract.2/
(w) Form of Texas Optional Retirement Program Endorsement to Group
Contract.2/
(x) Form of Texas Optional Retirement Program Endorsement to
Certificate of Participation under a Group Contract.2/
(y) Form of Long-Term Care Waiver Rider to Group Contract.2/
(z) Form of Long-Term Care Waiver Rider to Certificate of
Participation
under a Group Contract.2/
(aa) Revised form of Individual Retirement Annuity Endorsement to
Individual Qualified Contract. 3/
(bb) Revised form of SIMPLE IRA Endorsement to Qualified Individual
Contract. 3/
(cc) Form of Roth IRA Endorsement to Qualified Individual Contract.
3/
<PAGE>
(dd) Revised form of Employer Plan Endorsement to Group Contract. 3/
(ee) Revised form of Employer Plan Endorsement to Certificate of
Participation under a Group Contract. 3/
(ff) Revised form of Employer Plan Endorsement to Qualified
Individual Contract. 3/
(gg) Revised form of Tax Sheltered Annuity Endorsement to Group
Contract.3/
(hh) Revised form of Tax Sheltered Annuity Endorsement to
Certificate of Participation under a Group Contract. 3/
(ii) Revised form of Tax Sheltered Annuity Endorsement to Qualified
Individual Contract. 3/
(jj) Revised form of Qualified Pension, Profit Sharing and Annuity
Plan Endorsement to Group Contract. 3/
(kk) Revised form of Qualified Pension, Profit Sharing and Annuity
Plan Endorsement to Certificate of Participation under a Group
Contract. 3/
(ll) Revised form of Qualified Pension, Profit Sharing and Annuity
Plan Endorsement to Qualified Individual Contract. 3/
(mm) Form of Governmental Section 457 Plan Endorsement to Group
Contract. 3/
(nn) Form of Governmental Section 457 Plan Endorsement to
Certificate of Participation under a Group Contract. 3/
(oo) Form of Governmental Section 457 Plan Endorsement to Qualified
Individual Contract. 3/
(pp) Form of Successor Owner Endorsement to Group Contract (filed
herewith).
(qq) Form of Successor Owner Endorsement to Certificate of
Participation under a Group Contract (filed herewith).
(rr) Form of Successor Owner Endorsement to Qualified Individual
Contract and Non-Qualified Individual Contract (filed
herewith).
(5) (a) Form of Application for Individual Flexible Premium Deferred
Annuity Contract and Certificate of Participation under a
Group Contract.2/
(b) Form of Application for Group Flexible Premium Deferred
Annuity Contract.2/
<PAGE>
(c) Revised form of Application for Individual Flexible Premium
Deferred Annuity Contract and Certificate of Participation
under a Group Contract. 4/
(d) Revised form of Application for Group Flexible Premium
Deferred Annuity Contract. 4/
(6) (a) Articles of Incorporation of Annuity Investors Life Insurance
Company(REGISTERED).1/
(i) Amendment to Articles of Incorporation, adopted April 9,
1996, and approved by the Secretary of State, State of Ohio,
on July 11, 1996.2/
(ii) Amendment to Articles of Incorporation, adopted August 9,
1996, and approved by the Secretary of State, State of Ohio,
on December 3, 1996.2/
(b) Code of Regulations of Annuity Investors Life Insurance
Company.(REGISTERED)1/
(7) Not Applicable.
(8) (a) Participation Agreement between Annuity Investors Life
Insurance Company(REGISTERED) and Dreyfus Variable Investment
Fund.2/
(i) Letter Agreement dated April 14, 1997 between
Annuity Investors Life Insurance Company (REGISTERED) and
Dreyfus Variable Investment Fund.2/
(b) Participation Agreement between Annuity Investors Life
Insurance Company(REGISTERED) and Dreyfus Life and Annuity
Index Fund, Inc. (d/b/a Dreyfus Stock Index Fund).2/
(i) Letter Agreement dated April 14, 1997 between
Annuity Investors Life Insurance Company(REGISTERED) and
Dreyfus
Life and Annuity Index Fund, Inc. (d/b/a Dreyfus Stock
Index Fund).2/
(c) Participation Agreement between Annuity Investors Life
Insurance Company(REGISTERED) and The Dreyfus Socially
Responsible Growth Fund, Inc.2/
(i) Letter Agreement dated April 14, 1997 between
Annuity Investors Life Insurance Company(REGISTERED) and
The Dreyfus Socially Responsible Growth Fund, Inc.2/
<PAGE>
(d) Participation Agreement between Annuity Investors Life
Insurance Company(REGISTERED) and Janus Aspen Series.2/
(e) Participation Agreement between Annuity Investors Life
Insurance Company(REGISTERED) and Strong Variable Insurance
Funds, Inc. and Strong Special Fund II, Inc.2/
(f) Participation Agreement between Annuity Investors Life
Insurance Company(REGISTERED) and INVESCO Variable Investment
Funds, Inc.2/
(g) Participation Agreement between Annuity Investors Life
Insurance Company(REGISTERED) and Morgan Stanley Universal
Funds, Inc.2/
(h) Participation Agreement between Annuity Investors Life
Insurance Company(REGISTERED) and PBHG Insurance Series Fund,
Inc.2/
(i) Service Agreement between Annuity Investors Life Insurance
Company(REGISTERED) and American Annuity GroupSM, Inc.1/
(j) Agreement between AAG Securities, Inc. and AAG Insurance
Agency, Inc.1/
(k) Investment Service Agreement between Annuity Investors Life
Insurance Company(REGISTERED) and American Annuity
Group(SERVICEMARK), Inc. 1/
(l) Service Agreement between Annuity Investors Life Insurance
Company(REGISTERED) and Strong Capital Management, Inc.2/
(m) Service Agreement between Annuity Investors Life Insurance
Company(REGISTERED) and Pilgrim Baxter & Associates, Ltd.2/
(n) Service Agreement between Annuity Investors Life Insurance
Company(REGISTERED) and Morgan Stanley Asset Management,Inc. 2/
(o) Amended and Restated Agreement between The Dreyfus Corporation
and Annuity Investors Life Insurance Company(REGISTERED).2/
(p) Service Agreement between Annuity Investors Life
Insurance Company(REGISTERED) and Janus Capital Corporation.2/
(q) Service Agreement between INVESCO Funds Group, Inc. and
Annuity Investors Life Insurance Company.4/
(r) Participation Agreement between The Timothy Plan Variable
Series, Timothy Partners, Ltd. and Annuity Investors Life
Insurance Company4/
<PAGE>
(s) Service Agreement between The Timothy Plan Variable Series and
Annuity Investors Life Insurance Company. 4/
(9) Opinion and Consent of Counsel1/.
(10) Consent of Independent Auditors. 4/
(11) No financial statements are omitted from Item 23.
(12) Not Applicable.
(13) Schedule for Computation of Performance Quotations. 4/
(14) Financial Data Schedule. 4/
(15) Powers of Attorney. 5/
SELLING AGREEMENT
AGREEMENT made this _____ day of _________________, 19__, by and
between ANNUITY INVESTORS LIFE INSURANCE COMPANY, an Ohio life insurance
company ("AILIC"), AAG SECURITIES, INC., an Ohio corporation ("AAGS") and
_____________________________________, a _________ corporation
("Broker/Dealer") and any and all insurance agency affiliates or subsidiaries
of Broker/Dealer ("Agencies"). Broker/Dealer and the Agencies are
hereinafter referred to as the "Producers." The Agencies are listed in
Appendix I to this Agreement, as may be amended from time to time.
WHEREAS, AILIC issues certain variable annuity and variable insurance
policies, and certificates thereunder in the case of group policies
("Contracts"), described in this Agreement, which are deemed securities under
the Securities Act of 1933, and
WHEREAS, AAGS is duly licensed as a broker-dealer with the National
Association of Securities Dealers, Inc. ("NASD") and the Securities and
Exchange Commission ("SEC"), and
WHEREAS, Broker/Dealer is duly licensed as a broker-dealer with the
NASD and SEC, and
WHEREAS, AILIC has appointed AAGS as the principal underwriter of the
Contracts, and
WHEREAS, AAGS proposes to have Broker/Dealer's registered
representatives ("Representatives") who are also duly licensed insurance
agents solicit sales of the Contracts, and
WHEREAS, AAGS delegates to Broker/Dealer and the Agencies, to the
extent legally permitted, training, supervisory and certain administrative
responsibilities and duties.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the parties agree as follows:
1. Appointment. AILIC and AAGS hereby appoint Broker/Dealer and the
Agencies under the securities and insurance laws to supervise Representatives
in connection with the distribution of the Contracts, solely in accordance
with the Contract and the then current Prospectus relating thereto, and to
provide certain services as described herein.
<PAGE>
2. Supervision of Representatives. Broker/Dealer shall have full
responsibility for the training and supervision of all Representatives
associated with Broker/Dealer who are engaged directly or indirectly in the
offer or sale of the Contracts and all such persons shall be subject to the
control of Broker/Dealer with respect to such persons' securities-related
activities in connection with the Contracts. Broker/Dealer will establish
rules, procedures and supervisory and inspection techniques necessary to
diligently supervise the activities of its Representatives. Included in
training will be federal and state statutes and regulations applicable to the
sale of Contracts, the Ethical Principles and related Codes of the Insurance
Marketplace Standards Association ("IMSA"), and any other topics about which
Representatives must have sufficient knowledge as required by their
individual agreements.
Producers will cause the Representatives to be trained in the sale of
the Contracts; Producers warrant that Representatives qualify under
applicable federal and state laws to engage in the sale of the Contracts; and
Producers will cause such Representatives to be registered representatives of
Broker/Dealer before such Representatives engage in the solicitation of
applications for the Contracts in jurisdictions where AILIC has authorized
such solicitation. Broker/Dealer has full responsibility in connection with
the training, supervision and control of the Representatives as contemplated
by Section 15(b)(4)(E) of the Securities Exchange Act of 1934 (the "1934
Act"). By submitting to AAGS or AILIC a registered representative for
appointment, Broker/Dealer shall be deemed to have certified Representatives'
qualifications including those set forth in Appendix II hereto. Upon
request, Broker/Dealer shall confirm the foregoing by delivering a letter in
the form of Appendix II hereto. Producers shall ensure that the Contracts
are offered, sold and serviced only through Representatives who comply with
all appropriate state insurance licensing requirements and solely in
accordance with the Contract and the then current Prospectus relating thereto.
3. Appointment of Agents. With respect to each Representative to be
appointed, Broker/Dealer shall submit to AAGS an Agent Data Form, a copy of a
current NASD status sheet, a copy of the appropriate state insurance license
and such additional documents as requested by AILIC or AAGS and shall await
approval from AILIC before a Representative shall be permitted to solicit
applications for the sale of Contracts.
4. Notice of Representative's Noncompliance. In the event a
Representative fails or refuses to submit to supervision by Broker/Dealer,
ceases to be a registered representative of Broker/Dealer, or fails to meet
the rules and standards imposed by Broker/Dealer on its Representatives,
Broker/Dealer shall certify such fact to AILIC and shall immediately notify
such Representative that he or she is no longer authorized to sell the
Contracts, and Broker/Dealer shall take whatever additional action may be
necessary to terminate the sales activities of such Representative relating
to the Contracts.
<PAGE>
5. Compliance with NASD Rules of Fair Practice and Federal and State
Security and Insurance Laws. Broker/Dealer shall and shall ensure that its
Representatives fully comply with the requirements of the 1934 Act and the
NASD and all other applicable federal or state laws applicable to the offer,
sale and service of the Contracts and will establish such rules and
procedures as may be necessary to cause diligent supervision of the
securities and insurance activities of Representatives. Broker/Dealer agrees
to fully comply with the Ethical Principles and related Codes of IMSA, and
further agrees to ensure that its Representatives fully comply with same.
Broker/Dealer agrees to maintain all transactions, books and records
concerning the activities of their Representatives as required by the SEC,
NASD or other regulatory agencies having jurisdiction, or under applicable
state insurance laws or regulations. Upon request by AILIC or AAGS,
Broker/Dealer shall furnish or make available for inspection, such
appropriate records as may be necessary to establish such diligent
supervision.
6. Prospectus, Sales Promotion Material and Advertising.
Broker/Dealer shall be provided with, and Broker/Dealer shall forward to
Representatives, prospectuses relating to the Contracts and such other
material as AILIC or AAGS determines to be necessary or desirable for use in
connection with sales of the Contracts. Broker/Dealer shall ensure that no
sales promotion materials or advertising related to AILIC, AAGS and/or the
Contracts shall be used by Representatives unless the specific item has first
been approved by AILIC or AAGS in writing. Producers and their
Representative shall discontinue the use of any item when notified by AILIC
or AAGS.
No Producer or any Representative shall in connection with the offer or
sale of Contracts use any advertising material, prospectus, proposal or
representation either in general or in relation to a Contract, AAGS or AILIC
unless furnished by AAGS or AILIC or until the consent of AAGS or AILIC is
first obtained. Neither Producers nor any Representative shall issue or
recirculate any illustration, circular, statement or memorandum of any sort,
misrepresenting the terms, benefits or advantages of any Contract, or make
any misleading statement as to benefits thereon or the financial position of
AILIC.
7. Applications. Producers shall cause all applications for
Contracts to be made on application forms supplied by AILIC and all payments
collected by Broker/Dealer or any Representative to be remitted promptly in
full, together with such application forms and any other documentation,
directly to AILIC at the address indicated on such application. Producers
shall review all such applications for completeness. Producers shall be
solely responsible for determining the suitability of Contracts for
purchasers. Checks or money orders for Purchase Payments shall be drawn to
the order of AILIC. All applications are subject to acceptance or rejection
by AILIC at its sole discretion. Producers agree to remit in full to AILIC
immediately upon receipt all Purchase Payments received on such applications,
forms and any other required documentation obtained in respect to the
Contracts.
<PAGE>
8. Compensation.
(a) Commissions. Commissions payable in connection with the
Contracts for which Broker/Dealer is the broker of record shall be payable in
accordance with the Schedule(s) attached hereto and made a part hereof and
shall be paid by or on behalf of AAGS to one or more of the Producers in
accordance with applicable insurance and securities laws. Payment of
commissions to the Producer(s) shall be full and sole compensation for all
services and expenses and for the fulfillment of duties under this
Agreement. These commissions will be paid as a percentage of Purchase
Payments received in cash and accepted by AILIC on applications obtained by
the Representatives of Broker/Dealer provided a Contract is issued, delivered
to and accepted by the applicant. Upon termination of this Agreement, all
compensation to Broker/Dealer hereunder shall cease; however, Producers shall
continue to be liable for any chargebacks (as defined in Subsections (A), (B)
and (C) below). Producers shall have no interest in any surrender charges,
deductions or other fees payable to AILIC or AAGS. The Producers shall pay
the person(s) entitled thereto as provided in any agreement between Producers
and the Representatives, and AILIC and AAGS shall have no responsibility or
liability therefor.
(A) If AAGS has paid any compensation in advance,
Producers hereby agree that they are indebted to AAGS if the Purchase
Payment on which the compensation is based is not paid within the time
provided by the Contract, or allowed by AILIC, or, if the Purchase
Payment is paid, if Producers would not have been entitled to the
compensation when the Purchase Payment is paid. AAGS, in its sole
discretion, will determine whether or not Producers would have been
entitled to the compensation when the Purchase Payment is paid.
(B) Upon demand by AAGS, the Producers hereby agree to
return to AAGS any compensation paid to them based on refunds or
adjustments of Contract values, in whole or in part, including in the
event of termination, modification or rescission of a Contract. AILIC
may in its sole discretion, and at any time, terminate, modify or
rescind the sale of any Contract or contract issued by it, and
Producers are indebted to AAGS for the amount of compensation deemed
necessary to refund until Producers repay such amount.
(C) Any compensation which would be due Producers under
this Agreement shall not become due if any Producer is indebted to AAGS
or AILIC. In the case of such indebtedness, any compensation will be
applied by AAGS to reduce the indebtedness, regardless of any claim or
lien by Producers or by someone other than AAGS. Upon termination of
this Agreement, the Producers shall immediately pay to AAGS any and all
amounts which are owed.
<PAGE>
The foregoing subsections A, B and C shall survive the termination of
this Agreement.
(b) Time of Payment. AAGS shall pay or cause to be paid any
compensation due Producers within fifteen (15) business days after the end of
the calendar month in which Purchase Payments upon which such compensation is
based are accepted by AILIC, and for which Contracts have been issued and
accepted by the applicant.
(c) Amendments of Schedules. AAGS may, upon at least ten (10)
business days prior written notice to Broker/Dealer, amend the attached
Schedule(s) made part hereof. Any such amendments shall be in writing and
shall apply to premiums received by AILIC after the effective date of such
written notice.
(d) Prohibition Against Rebates and Replacements. Except as
permitted by law, if any Producer or any Representative of Broker/Dealer
shall rebate or offer to rebate all or any part of a Purchase Payment or
commission on a Contract, or if any Producer or any Representative of
Broker/Dealer provides or offers to provide an applicant with other valuable
consideration or inducement in connection with a Contract, the same shall be
grounds for termination of this Agreement by AILIC or AAGS. If any Producer,
or any Representative of Broker/Dealer shall withhold any Purchase Payment on
a Contract, the same shall also be grounds for termination of this Agreement
by AILIC or AAGS. If any Producer, or any Representative of Broker/Dealer,
shall at any time induce or endeavor to induce any person paying Purchase
Payments on any Contract issued hereunder to discontinue Purchase Payments or
to relinquish any such Contract except under circumstances in which there are
reasonable grounds for believing the Contract is not suitable for such
person, any and all compensation due Producers shall cease and terminate.
(e) Indebtedness. Nothing in this Agreement shall be construed
as giving Broker/Dealer the right to incur an indebtedness on behalf of AILIC
or AAGS.
9. Investigations. Producers, AAGS and AILIC agree to cooperate
fully in any investigation or proceeding with respect to any Representative
or other agent or the Producers to the extent that such investigation or
proceeding is in connection with the Contracts. Without limiting the
foregoing:
(a) AILIC and AAGS will promptly notify Producers of any
substantive customer complaint or notice of any regulatory investigation or
proceeding or judicial proceeding received by it with respect to Producers or
any Representative or other agent of Producers with respect to AILIC or AAGS
which may affect the issuance of the Contracts marketed under this Agreement.
<PAGE>
(b) Producers will promptly notify AILIC and AAGS of any
substantive customer complaint or notice of any regulatory investigation or
proceeding or judicial proceeding received by Producers with respect to
Producers or to any Representative or other agent of Producers in connection
with the Contracts or any activity in connection therewith.
In the case of a substantive complaint in connection with the
Contracts, AILIC, AAGS, and Producers will cooperate in investigating such
complaint. In connection therewith, Producers shall provide AILIC and AAGS
with all information reasonably requested. AILIC and AAGS shall respond to
and defend any such complaint.
10. Independent Contractors. Producers in performing their duties
hereunder shall be acting as independent contractors and not as agents or
employees of AILIC or AAGS. In addition, nothing contained herein shall be
construed as a partnership among AILIC, AAGS and Producers.
11. Indemnification. Producers shall indemnify and hold harmless
AILIC and AAGS from any claims, damages, expenses (including reasonable
attorneys' fees and expenses), liabilities or causes of action, asserted or
brought by anyone, resulting from any negligent, fraudulent, or intentional
acts, omissions, or errors of Producers, their employees, registered
representatives, other representatives, or agents in the offering for sale,
solicitation, or servicing of the Contracts, and from any negligent,
fraudulent, or intentional acts, omissions, or errors of Producers, their
employees, registered representatives, other representatives, or agents in
violation of Federal or State laws or regulations and NASD rules of any
nature, applicable to the offering for sale, solicitation, or servicing of
the Contracts.
Broker/Dealer shall assume full responsibility for the activities of
all persons associated with it who are engaged directly or indirectly in the
sales and servicing operations of Broker/Dealer. Broker/Dealer shall
indemnify and hold harmless AILIC and AAGS from any claims, damages,
expenses, liabilities or causes of action, asserted or brought by anyone,
resulting from any private business transactions of any associated persons
which are the subject of this paragraph.
AILIC and AAGS shall indemnify and hold harmless Producers from any
claims, damages, expenses, liabilities or causes of action, asserted or
brought by anyone, resulting from any negligent, fraudulent, or intentional
acts, omissions, or errors of AILIC or AAGS or their employees in the
offering for sale, solicitation, or servicing of the Contracts and from any
negligent, fraudulent, or intentional acts, omissions, or errors of AILIC or
AAGS or their employees in violation of Federal or State laws or regulations
and NASD rules of any nature, applicable to the offering for sale,
solicitation, or servicing of the Contracts.
<PAGE>
12. Termination. AAGS may terminate this Agreement immediately and
without notice if the Broker/Dealer fails to maintain its registration as a
broker/dealer under the 1934 Act or a member of the NASD. AAGS may terminate
this Agreement immediately upon providing written notice to Broker/Dealer or
Agency if Broker/Dealer or Agency violates this Agreement or fails to perform
to AAGS's satisfaction under the terms and conditions of this Agreement or if
Broker/Dealer or Agency becomes insolvent or files a petition for bankruptcy,
reorganization or liquidation under applicable law. AAGS and Broker/Dealer
or Agency shall each have the right, upon thirty days written notice to the
other, to terminate this agreement for whatever reason deemed appropriate by
such party. Notwithstanding the termination of this Agreement, AAGS,
Broker/Dealer and Agency acknowledge that each of them shall be individually
and respectively liable, responsible and accountable for any and all actions
undertaken prior to the effective date of the termination of this Agreement.
In furtherance of the foregoing, the provisions of Sections 8, 9, 10, 11 and
15 hereof shall survive termination.
13. Fidelity Bond. Broker/Dealer shall secure and maintain a
fidelity bond in at least the amounts prescribed under Article III, Section
32 of the NASD Rules of Fair Practice. Broker/Dealer shall provide AAGS with
a copy of said bond within thirty days after executing this Agreement.
14. Confirmations. Upon or prior to completion of each transaction
for which the issuance of a confirmation is legally required, a confirmation
reflecting the fact of the transaction and those items under SEC Rule 10b-10
will be promptly forwarded by AILIC on AAGS's behalf. A copy of such
confirmation will be made available to Broker/Dealer.
<PAGE>
15. Scope of Authority for Processing Business. Broker/Dealer shall
be authorized to: (a) accept applications for Contracts, (b) receive for
forwarding to AILIC the Purchase Payments paid in connection with any such
applications, (c) deliver the Contracts issued to the applicants by AILIC,
and (d) collect Purchase Payments for forwarding to AILIC as specifically
directed by such applicants who have authorized Broker/Dealer to act on their
behalf.
Broker/Dealer is not authorized to: (a) alter any applications
or Contracts, (b) collect or in any manner receive premiums from applicants
in the form of checks, money orders or electronic funds transfers payable to
any person or entity other than AILIC, (c) waive any forfeiture, (d) make any
settlement of any claim or claims, or (e) perform any function other than as
expressly authorized in the preceding paragraph.
16. Miscellaneous. AAGS and AILIC reserve the right, without notice
to Producers, to suspend, withdraw, or modify the offering of the Contracts
or to change the conditions of their offering with respect to anyone.
Producers are not authorized to market any Contract until notified by AILIC
or AAGS of an effective registration statement therefor with the Securities
and Exchange Commission. AAGS will provide Broker/Dealer with a list, and
updates thereto which list the jurisdictions in which the Contracts may be
sold.
The right is reserved to AILIC and AAGS to contract separately with any
employee, representative or agent of Producers in connection with the
Contracts or otherwise, provided that the terms of any such contract do not
conflict with the provisions of this Agreement. Nothing contained herein
shall prevent or restrict (i) AILIC or AAGS from marketing said Contracts
through other broker/dealers, insurance agents and brokers, and through its
own organization, or (ii) Producers from acting as agent and/or broker for
other insurance companies, whether or not affiliated with a Producer, in any
jurisdiction with respect to any insurance or securities product, including
securities products similar or identical to those of AILIC or AAGS. Neither
Producers nor their Representatives shall have any right of exclusivity to
market and sell Contracts in any geographical area.
Any manuals, guides, books, tapes, programs and other materials, if
any, developed by AILIC or AAGS, which may be delivered to Broker/Dealer from
time to time will be owned solely by AILIC or AAGS, as the case may be;
however, during such time as this Agreement is in effect between the parties
hereto, if the Producers elect to do so, Representatives may use any such
manuals, guides, books, programs and other materials which may have been
delivered to the Producers but may use them solely in the Producers' business
hereunder, and upon such terms and conditions as AILIC or AAGS may establish
at the time of such delivery. Upon termination of this Agreement, such items
will be returned promptly to AAGS.
<PAGE>
Included on Appendix I is a list of jurisdictions in which
Broker/Dealer or Agency is duly authorized to sell the Contracts and receive
commissions thereon and Producers represent that this list is true and
complete.
All Field Bulletins issued by AILIC are hereby made a part of this
Agreement. In the event of a conflict between the terms of this Agreement
and the Field Bulletins, the terms of this Agreement shall control. All
changes or updates to Field Bulletins will be sent promptly to the
Broker/Dealer.
17. Notices, Etc. All notices, demands, billings, requests and other
written communications hereunder shall be deemed to have been properly given
to Producers when delivered by hand or sent by registered or certified United
States mail, postage prepaid and addressed to Producers at
. Any
communications to AILIC or AAGS shall be deemed properly given if delivered
by hand or sent by registered or certified United States mail, postage
prepaid and addressed to AILIC or AAGS, respectively, at 250 East Fifth
Street, 10th Floor, Cincinnati, Ohio 45202, Attention: Mark F. Muething,
Esq. The address for notice hereunder may be changed by giving written
notice of such change to the other parties in accordance with the provisions
of this Section 17.
18. Governing Law. This Agreement shall be interpreted in accordance
with the laws of the State of Ohio. The parties hereto agree that any state
or federal court located in Hamilton County, Ohio shall have sole and
exclusive jurisdiction and be the appropriate venue for any required judicial
interpretation and enforcement of this Agreement.
19. Binding Effect. If any provision of this Agreement shall be held
or made invalid by a court decision, statute, rule, or otherwise, the
remainder of this Agreement shall not be affected thereby.
20. No Assignment. This Agreement, and the rights and duties
hereunder, may not be assigned or delegated except as expressly provided for
herein. Commissions to be paid pursuant to this Agreement may not be
assigned without the consent of AAGS.
21. No Waiver. Any failure to enforce any right under this Agreement
or to object to any violations of its terms shall not operate as a waiver of
any rights.
This Agreement, as amended from time to time, constitutes the entire
agreement between the parties hereto and shall be effective as of the date it
is fully executed by all parties. However, AILIC and AAGS reserve the right
to modify the Schedule(s) as provided herein. AILIC and AAGS further reserve
the right to amend from time to time this Agreement, other than its
Schedule(s), by providing thirty (30) days written notice to the
Broker/Dealer. Broker/Dealer shall be deemed to have accepted all terms and
conditions set forth in such amendment if no objections are received in
writing by AILIC or AAGS within fifteen (15) days after notification is
mailed. This Agreement supersedes in its entirety any and all previous
agreements among the parties hereto with respect to the Contracts; provided,
however, any former agreements shall survive with respect to any Contracts
offered or sold during the term thereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officials thereunto duly authorized, as of the day
and year first above written.
ANNUITY INVESTORS LIFE
INSURANCE COMPANY AAG SECURITIES, INC.
BY: ---------------------------- BY: ------------------------------
Name: ---------------------------- Name:------------------------------
Title:---------------------------- Title:-----------------------------
BROKER/DEALER:
BY: ----------------------------
Name: ----------------------------
Title:----------------------------
<PAGE>
APPENDIX I
[LIST OF AGENCIES]
States
Name of Agency in which Licensed Taxpayer I.D. No.
By executing below, the foregoing entities agree to join in this
Agreement as an Agency and be bound by all terms of such Agreement, as it may
be amended from time to time.
Name of Agency Name of Agency
By: ---------------------------- By: ----------------------------
Its:---------------------------- Its:----------------------------
Name of Agency Name of Agency
By: ---------------------------- By: ----------------------------
Its:---------------------------- Its:----------------------------
<PAGE>
APPENDIX II
General Letter of Recommendation
BROKER/DEALER hereby certifies to AAGS and AILIC that all the following
requirements will be fulfilled in conjunction with the submission of
licensing/appointment papers for all applicants as agents of AILIC submitted
by BROKER/DEALER. BROKER/DEALER will, upon request, forward proof of
compliance with same to AAGS and AILIC in a timely manner.
1. We have made a thorough and diligent inquiry and investigation
relative to each applicant's identity, residence and business
reputation and declare that each applicant is personally known to
us, has been examined by us, is known to be of good moral
character, has a good business reputation, is reliable, is
financially responsible and is worthy of a license. Each
individual is trustworthy, competent and qualified to act as an
agent for AILIC to hold himself out in good faith to the general
public.
2. We have on file a U-4 form which was completed by each
applicant. We have fulfilled all the necessary investigative
requirements for the registration of each applicant as a
registered representative through our NASD member firm and each
applicant is presently registered as an NASD registered
representative.
The above information in our files indicates no fact or condition
which would disqualify the applicant from receiving a license and
all the findings of all investigative information is favorable.
3. We certify that all educational requirements have been met for
the specified state each applicant is requesting a license in,
and that all such persons have fulfilled the appropriate
examination, education and training requirements.
4. If the applicant is required to submit his picture, his
signature, and securities registration in the state in which he
is applying for a license, we certify that those items forwarded
to AILIC are those of the applicant and the securities
registration is a true copy of the original.
<PAGE>
5. We hereby warrant that the applicant is not applying for a
license with AILIC in order to place insurance chiefly and solely
on his life or property, or lives or property of his relatives,
or lives or property of his associates.
6. We will not permit any applicant to transact insurance as an
agent until duly licensed therefore. No applicants have been
given a contract or furnished supplies, nor have any applicants
been permitted to write, solicit business, or act as an agent in
any capacity, and they will not be so permitted until the
certificate of authority or license applied for is received.
