ANNUITY INVESTORS LIFE INSURANCE COMPANY(REGISTERED)
ANNUITY INVESTORS(REGISTERED) VARIABLE ACCOUNT B
PROSPECTUS FOR INDIVIDUAL AND GROUP FLEXIBLE PREMIUM DEFERRED ANNUITIES
MAY 1, 2000
as revised May 31, 2000
This prospectus describes individual and group flexible premium deferred annuity
contracts (the "Contracts"). Annuity Investors Life Insurance
Company(REGISTERED) (the "Company") is the issuer of the Contracts. The
Contracts are available for tax-qualified and non-tax-qualified annuity
purchases. All Contracts qualify for tax-deferred treatment during the
Accumulation Period. The tax treatment of annuities is discussed in the Federal
Tax Matters section of this prospectus.
The Contracts offer both variable and fixed investment options. The variable
investment options under the Contracts are Sub-Accounts of Annuity
Investors(REGISTERED) Variable Account B (the "Separate Account"). The Contracts
currently offer 29 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.
<TABLE>
<CAPTION>
<S> <C> <C>
Janus Aspen Series (6 Portfolios) Deutsche Asset Management VIT Funds (3 Portfolios)
-Aggressive Growth Portfolio -Deutsche VIT EAFE(REGISTERED) Equity Index Fund
-Worldwide Growth Portfolio -Deutsche VIT Equity 500 Index Fund
-Balanced Portfolio -Deutsche VIT Small Cap Index Fund
-Growth Portfolio
-International Growth Portfolio INVESCO Variable Investment Funds, Inc. (3 Portfolios)
-Capital Appreciation Portfolio -INVESCO VIF-Equity Income Fund
-INVESCO VIF-Total Return Fund
-INVESCO VIF-High Yield Fund
Dreyfus Variable Investment Fund (4 Portfolios) The Universal Institutional Funds, Inc. (5 Portfolios)
-Appreciation Portfolio Morgan Stanley UIF, Inc -Mid Cap Value Portfolio
-Money Market Portfolio Morgan Stanley UIF, Inc -Value Portfolio
-Growth and Income Portfolio Morgan Stanley UIF, Inc -Fixed Income Portfolio
-Small Cap Portfolio Morgan Stanley UIF, Inc -U.S. Real Estate Portfolio
The Dreyfus Socially Responsible Growth Fund, Inc. Morgan Stanley UIF, Inc -Emerging Markets Equity Portfolio
Dreyfus Stock Index Fund
PBHG Insurance Series Fund, Inc. (3 Portfolios)
Strong Opportunity Fund II, Inc. -PBHG Growth II Portfolio
Strong Variable Insurance Funds, Inc. (1 Portfolio) -PBHG Large Cap Growth Portfolio
-Strong Mid Cap Growth Fund II -PBHG Technology & Communications Portfolio
The Timothy Plan Small-Cap Variable Series
</TABLE>
This prospectus includes information you should know before investing in the
Contracts. 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, dated May 1, 2000, contains more
information about the Separate Account and the Contracts. The Company filed the
statement of additional information with the Securities and Exchange Commission.
It is part of this prospectus. For a free copy, complete and return the form on
the last page of this prospectus, or call the Company at 1-800-789-6771. You may
also access the statement of additional information (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
statement of additional information is printed on the last 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.
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THESE SECURITIES MAY BE SOLD BY A BANK OR CREDIT UNION, BUT ARE NOT FINANCIAL
INSTITUTION PRODUCTS.
o THE CONTRACTS ARE NOT FDIC OR NCUSIF INSURED
o THE CONTRACTS ARE OBLIGATIONS OF THE COMPANY AND NOT OF THE BANK OR CREDIT
UNION
o THE BANK OR CREDIT UNION DOES NOT GUARANTEE THE COMPANY'S OBLIGATIONS
UNDER THE CONTRACTS
o THE CONTRACTS INVOLVE INVESTMENT RISK AND MAY LOSE VALUE
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1
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TABLE OF CONTENTS
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PAGE
----
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 (AFTER EXPENSE REIMBURSEMENT) FOR YEAR ENDED
12/31/991....................................................................6
EXAMPLES.....................................................................8
CONDENSED FINANCIAL INFORMATION...............................................11
FINANCIAL STATEMENTS........................................................12
PERFORMANCE INFORMATION.....................................................13
Yield Data................................................................13
Total Return Data.........................................................13
Other Performance Measures................................................13
THE PORTFOLIOS................................................................14
JANUS ASPEN SERIES..........................................................14
DREYFUS PORTFOLIOS..........................................................15
STRONG PORTFOLIOS...........................................................16
DEUTSCHE ASSET MANAGEMENT VIT FUNDS.........................................16
INVESCO VARIABLE INVESTMENT FUNDS, INC......................................17
PBHG INSURANCE SERIES FUND, INC.............................................17
THE UNIVERSAL INSTITUTIONAL FUNDS, INC......................................18
THE TIMOTHY PLAN SMALL-CAP VARIABLE SERIES..................................18
ADDITIONS, DELETIONS, OR SUBSTITUTIONS......................................19
VOTING RIGHTS...............................................................19
ANNUITY INVESTORS LIFE INSURANCE COMPANY(REGISTERED)..........................20
THE SEPARATE ACCOUNT..........................................................20
AAG SECURITIES, INC...........................................................20
CHARGES AND DEDUCTIONS........................................................22
CHARGES AND DEDUCTIONS BY THE COMPANY.......................................22
Contract Maintenance Fee..................................................22
Transfer Fee..............................................................23
Administration Charge.....................................................23
Mortality and Expense Risk Charge.........................................24
Premium Taxes.............................................................24
Discretionary Waivers of Charges..........................................24
EXPENSES OF THE PORTFOLIOS..................................................24
THE CONTRACTS.................................................................25
RIGHT TO CANCEL.............................................................25
PERSONS WITH RIGHTS UNDER A CONTRACT........................................25
ACCUMULATION PERIOD...........................................................26
2
<PAGE>
ACCOUNT STATEMENTS..........................................................26
ACCOUNT VALUE...............................................................26
PURCHASE PAYMENTS...........................................................27
INVESTMENT OPTIONS--ALLOCATIONS.............................................27
TRANSFERS...................................................................28
SURRENDERS..................................................................30
CONTRACT LOANS..............................................................31
TERMINATION.................................................................31
BENEFIT PAYMENT PERIOD........................................................32
ANNUITY BENEFIT.............................................................32
DEATH BENEFIT...............................................................32
SETTLEMENT OPTIONS..........................................................32
Form of Settlement Option.................................................33
Calculation of Fixed Dollar Benefit Payments..............................33
Calculation of Variable Dollar Benefit Payments...........................34
FEDERAL TAX MATTERS...........................................................35
TAX DEFERRAL ON ANNUITIES...................................................35
TAX-QUALIFIED PLANS.........................................................36
Individual Retirement Annuities...........................................36
Roth IRAs.................................................................36
Tax-Sheltered Annuities...................................................36
Texas Optional Retirement Program.........................................36
Pension and Profit Sharing Plans..........................................36
Governmental Deferred Compensation Plans..................................36
NONQUALIFIED DEFERRED COMPENSATION PLANS....................................36
SUMMARY OF INCOME TAX RULES.................................................37
GLOSSARY OF FINANCIAL TERMS...................................................38
THE REGISTRATION STATEMENT....................................................39
OTHER INFORMATION.............................................................39
LEGAL PROCEEDINGS...........................................................39
STATEMENT OF ADDITIONAL INFORMATION...........................................40
3
<PAGE>
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 the fixed account options.
ACCUMULATION PERIOD: 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: A share of a Sub-Account that an owner purchases during
the Accumulation Period.
ACCUMULATION UNIT VALUE: The value of an Accumulation Unit at the end of a
Valuation Period. See the Glossary of Financial Terms on page 37 of this
prospectus for an explanation of how Accumulation Unit Values are calculated.
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: A share of a Sub-Account that is used to determine the amount of
each variable dollar benefit payment after the first variable dollar benefit
payment during the Benefit Payment Period.
BENEFIT UNIT VALUE: The value of a Benefit Unit at the end of a Valuation
Period. See the Glossary of Financial Terms on page 37 of this prospectus for an
explanation of how Benefit Unit Values are calculated.
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 factor that represents the percentage change in the
Accumulation Unit Values and Benefit Unit Values from one Valuation Period to
the next. See the Glossary of Financial Terms on page 37 of this prospectus for
an explanation of how the Net Investment Factor is calculated.
VALUATION DATE: A day on which Accumulation Unit Values and Benefit Unit
Values can be calculated. Each day the New York Stock Exchange is open for
business is a Valuation Date.
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.
4
<PAGE>
OVERVIEW
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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 individual and group deferred annuities, which are insurance
products. The Contracts are sold with either a standard or an enhanced fee
structure, as described in the Fee Table on page 6 of this prospectus. The
Contracts are available in both tax-qualified and non-tax-qualified forms, both
of which qualify for tax-deferred investment status. See the Federal Tax Matters
section beginning on page 34 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 29 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. The Company guarantees amounts invested in the fixed account options and
the earnings thereon so long as those amounts remain in the fixed account.
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 that
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 24 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 24 of this prospectus.
WILL ANY PENALTIES OR CHARGES APPLY IF I SURRENDER A CONTRACT?
There are no charges imposed on partial or full surrenders of the Contracts,
except that the annual contract maintenance fee will be deducted at the time of
a full surrender. Surrender procedures are described in the Surrenders section
beginning on page 29 of this prospectus. A penalty tax may be imposed at the
time of a surrender depending on your age and other circumstances of the
surrender. Tax consequences of a surrender are described in the Federal Tax
Matters section on page 34 of this prospectus. The right to surrender may be
restricted under certain tax-qualified plans.
WHAT OTHER CHARGES AND DEDUCTIONS APPLY TO THE CONTRACT?
The Company will charge the fees and charges listed below unless the Company
waives the fee or charge as discussed in the Charges and Deductions section
beginning on page 21 of this prospectus:
o a transfer fee for certain transfers between investment options;
o an annual contract maintenance fee, which is assessed only against
investments 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 (this charge may
never be waived);
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 (where taxes apply, they may never be
waived).
In addition to charges and deductions under the Contracts, the Portfolios incur
expenses that are passed through to owners. Portfolio expenses for the fiscal
year ending December 31, 1999 are included in the Fee Table on page 6 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.
5
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<TABLE>
<CAPTION>
FEE TABLE
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OWNER TRANSACTION EXPENSES
<S> <C> <C>
Sales load imposed on purchase payments or on surrenders NONE
Transfer Fee (applies to transfers in excess of 12 in any contract year) $25
Annual Contract Maintenance Fee (not assessed against fixed account options) $40
</TABLE>
<TABLE>
<CAPTION>
SEPARATE ACCOUNT ANNUAL EXPENSES
(As a percentage of the average value of the owner's interest in the
Sub-Accounts)
<S> <C> <C> <C> <C>
ENHANCED CONTRACTS
WITH ADMINISTRATION
STANDARD CONTRACTS ENHANCED CONTRACTS CHARGE WAIVED
Mortality and Expense Risk Charge 1.25% 0.95% 0.75% 0.95% 0.75%
Administration Charge 0.15% 0.15% 0.15% 0.00% 0.00%
----- ----- ----- ----- -----
Total Separate Account Annual Expenses 1.40% 1.10% 0.90% 0.95% 0.75%
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIO ANNUAL EXPENSES (AFTER EXPENSE REIMBURSEMENT) FOR YEAR ENDED 12/31/991
(As a percentage of Portfolio average net assets)
SUB-ACCOUNT MANAGEMENT OTHER TOTAL
FEES EXPENSES EXPENSES
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Janus A.S.-Aggressive Growth Portfolio2 0.65 0.02 0.67
Janus A.S.-Worldwide Growth Portfolio2 0.65 0.05 0.70
Janus A.S.-Balanced Portfolio2 0.65 0.02 0.67
Janus A.S.-Growth Portfolio2 0.65 0.02 0.67
Janus A.S.-International Growth Portfolio2 0.65 0.11 0.76
Janus A.S.-Capital Appreciation Portfolio2 0.65 0.04 0.69
Dreyfus V.I.F.-Appreciation Portfolio 0.75 0.03 0.78
Dreyfus V.I.F.-Money Market Portfolio 0.50 0.08 0.58
Dreyfus V.I.F.-Growth and Income Portfolio 0.75 0.04 0.79
Dreyfus V.I.F.-Small Cap Portfolio 0.75 0.03 0.78
The Dreyfus Socially Responsible Growth Fund, Inc. 0.75 0.04 0.79
Dreyfus Stock Index Fund 0.25 0.01 0.26
Strong Opportunity Fund II, Inc. 1.00 0.14 1.14
Strong Variable Insurance Funds, Inc.-Strong Mid Cap Growth Fund II 1.00 0.15 1.15
Deutsche VIT EAFE(REGISTERED)Equity Index Fund 0.26 0.39 0.65
Deutsche VIT Equity 500 Index Fund 0.14 0.16 0.30
Deutsche VIT Small Cap Index Fund 0.13 0.32 0.45
INVESCO VIF-Equity Income Fund 0.75 0.42 1.17
INVESCO VIF-Total Return Fund 0.75 0.42 1.17
INVESCO VIF-High Yield Fund 0.60 0.47 1.07
Morgan Stanley UIF, Inc.-Mid Cap Value Portfolio 0.43 0.62 1.05
Morgan Stanley UIF, Inc.-Value Portfolio 0.18 0.67 0.85
Morgan Stanley UIF, Inc.-Fixed Income Portfolio 0.14 0.56 0.70
Morgan Stanley UIF, Inc.-U.S. Real Estate Portfolio 0.00 1.10 1.10
Morgan Stanley UIF, Inc.-Emerging Markets Equity Portfolio 0.42 1.37 1.79
PBHG Insurance Series Fund, Inc.-PBHG Growth II Portfolio 0.85 0.35 1.20
PBHG Insurance Series Fund, Inc.-PBHG Large Cap Growth Portfolio 0.68 0.42 1.10
PBHG Insurance Series Fund, Inc.-PBHG Tech. & Comm. Portfolio 0.85 0.24 1.09
The Timothy Plan Small-Cap Variable Series 1.00 0.18 1.18
</TABLE>
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<PAGE>
The purpose of the Fee Table is to assist the owner in understanding the various
costs and expenses that an owner will bear directly or indirectly. The Fee Table
reflects expenses of the Separate Account as well as of the Portfolios. The
Separate Account expenses are discussed more fully in the Charges and Deductions
section beginning on page 21 of this prospectus. The Portfolio expenses are
discussed more fully in the Portfolio prospectuses. Premium taxes may also
apply.
-------------------------
1 Data for each Portfolio are for its fiscal year ended December 31, 1999.
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 or to reimburse expenses. The specific terms of such waivers,
reductions, reimbursements or fee changes are discussed in the Portfolio
prospectuses. Fee and expenses shown below are actual fees and expenses before
any applicable fee waivers or reductions or expense reimbursements.
2 Expenses are based upon expenses for the fiscal year ended December 31, 1999,
restated to reflect a reduction in the management fee for the Janus Aspen
Portfolios.
<TABLE>
<CAPTION>
SUB-ACCOUNT MANAGEMENT OTHER TOTAL
FEES EXPENSES EXPENSES
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Janus A.S.-Aggressive Growth Portfolio2 0.65 0.02 0.67
Janus A.S.-Worldwide Growth Portfolio2 0.65 0.05 0.70
Janus A.S.-Balanced Portfolio2 0.65 0.02 0.67
Janus A.S.-Growth Portfolio2 0.65 0.02 0.67
Janus A.S.-International Growth Portfolio2 0.65 0.11 0.76
Janus A.S.-Capital Appreciation Portfolio2 0.65 0.04 0.69
Dreyfus V.I.F.-Appreciation Portfolio 0.75 0.03 0.78
Dreyfus V.I.F.-Money Market Portfolio 0.50 0.08 0.58
Dreyfus V.I.F.-Growth and Income Portfolio 0.75 0.04 0.79
Dreyfus V.I.F.-Small Cap Portfolio 0.75 0.03 0.78
The Dreyfus Socially Responsible Growth Fund, Inc. 0.75 0.04 0.79
Dreyfus Stock Index Fund 0.25 0.01 0.26
Strong Opportunity Fund II, Inc. 1.00 0.14 1.14
Strong Variable Insurance Funds, Inc.-Strong Mid Cap Growth Fund II 1.00 0.17 1.17
Deutsche VIT EAFE(REGISTERED)Equity Index Fund 0.45 0.69 1.15
Deutsche VIT Equity 500 Index Fund 0.20 0.23 0.43
Deutsche VIT Small Cap Index Fund 0.35 0.83 1.18
INVESCO VIF-Equity Income Fund 0.75 0.44 1.19
INVESCO VIF-Total Return Fund 0.75 0.55 1.30
INVESCO VIF-High Yield Fund 0.60 0.48 1.08
Morgan Stanley UIF, Inc.-Mid Cap Value Portfolio 0.75 0.62 1.37
Morgan Stanley UIF, Inc.-Value Portfolio 0.55 0.67 1.22
Morgan Stanley UIF, Inc.-Fixed Income Portfolio 0.40 0.56 0.96
Morgan Stanley UIF, Inc.-U.S. Real Estate Portfolio 0.80 1.10 1.90
Morgan Stanley UIF, Inc.-Emerging Markets Equity Portfolio 1.25 1.37 2.62
PBHG Insurance Series Fund, Inc.-PBHG Growth II Portfolio 0.85 0.35 1.20
PBHG Insurance Series Fund, Inc.-PBHG Large Cap Growth Portfolio 0.75 0.42 1.17
PBHG Insurance Series Fund, Inc.-PBHG Tech. & Comm. Portfolio 0.85 0.24 1.09
The Timothy Plan Small-Cap Variable Series 1.00 1.60 2.60
</TABLE>
7
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<TABLE>
<CAPTION>
EXAMPLES EXAMPLE (1.40% TOTAL SEPARATE
STANDARD CONTRACTS ACCOUNT EXPENSES)
If the owner surrenders his or her Contract at the end of the applicable time
period, or if the owner does not surrender his or her Contract, or if it is
annuitized, the expenses shown would be charged on a $1,000 investment.
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SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Janus A.S.-Aggressive Growth Portfolio $21 $69 $125 $304
Janus A.S.-Worldwide Growth Portfolio $22 $70 $127 $307
Janus A.S.-Balanced Portfolio $21 $69 $125 $304
Janus A.S.-Growth Portfolio $21 $69 $125 $304
Janus A.S.-International Growth Portfolio $22 $72 $130 $315
Janus A.S.-Capital Appreciation Portfolio $22 $70 $126 $306
Dreyfus V.I.F.-Appreciation Portfolio $23 $73 $131 $318
Dreyfus V.I.F.-Money Market Portfolio $21 $67 $120 $292
Dreyfus V.I.F.-Growth and Income Portfolio $23 $73 $132 $319
Dreyfus V.I.F.-Small Cap Portfolio $23 $73 $131 $318
The Dreyfus Socially Responsible Growth Fund, Inc. $23 $73 $132 $319
Dreyfus Stock Index Fund $17 $56 $101 $248
Strong Opportunity Fund II, Inc. $26 $85 $152 $364
Strong Variable Insurance Funds, Inc.-Strong Mid Cap Growth Fund II $26 $85 $152 $365
Deutsche VIT EAFE(REGISTERED)Equity Index Fund $21 $69 $124 $301
Deutsche VIT Equity 500 Index Fund $18 $57 $104 $254
Deutsche VIT Small Cap Index Fund $19 $62 $112 $274
INVESCO VIF-Equity Income Fund $27 $86 $154 $370
INVESCO VIF-Total Return Fund $28 $90 $160 $384
INVESCO VIF-High Yield Fund $26 $83 $148 $356
Morgan Stanley UIF, Inc.-Mid Cap Value Portfolio $25 $82 $147 $353
Morgan Stanley UIF, Inc.-Value Portfolio $23 $75 $135 $327
Morgan Stanley UIF, Inc.-Fixed Income Portfolio $22 $70 $127 $307
Morgan Stanley UIF, Inc.-U.S. Real Estate Portfolio $26 $83 $149 $359
Morgan Stanley UIF, Inc.-Emerging Markets Equity Portfolio $33 $105 $187 $442
PBHG Insurance Series Fund, Inc.-PBHG Growth II Portfolio $27 $86 $155 $371
PBHG Insurance Series Fund, Inc.-PBHG Large Cap Growth Portfolio $26 $83 $149 $359
PBHG Insurance Series Fund, Inc.-PBHG Tech. & Comm. Portfolio $26 $83 $149 $358
The Timothy Plan Small-Cap Variable Series $27 $86 $154 $369
</TABLE>
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<TABLE>
<CAPTION>
ENHANCED CONTRACTS EXAMPLE (1.10% TOTAL SEPARATE ACCOUNT
EXPENSES)
If the owner surrenders his or her Contract at the end of the applicable time
period, or if the owner does not surrender his or her Contract, or if it is
annuitized, the expenses shown would be charged on a $1,000 investment.
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SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
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<S> <C> <C> <C> <C>
Janus A.S.-Aggressive Growth Portfolio $18 $60 $108 $264
Janus A.S.-Worldwide Growth Portfolio $19 $61 $110 $268
Janus A.S.-Balanced Portfolio $18 $60 $108 $264
Janus A.S.-Growth Portfolio $18 $60 $108 $264
Janus A.S.-International Growth Portfolio $19 $63 $113 $276
Janus A.S.- Capital Appreciation Portfolio $19 $60 $109 $266
Dreyfus V.I.F.-Appreciation Portfolio $20 $63 $114 $278
Dreyfus V.I.F.-Money Market Portfolio $17 $57 $103 $251
Dreyfus V.I.F.-Growth and Income Portfolio $20 $64 $115 $280
Dreyfus V.I.F.-Small Cap Portfolio $20 $63 $114 $278
The Dreyfus Socially Responsible Growth Fund, Inc. $20 $64 $115 $280
Dreyfus Stock Index Fund $14 $46 $84 $207
Strong Opportunity Fund II, Inc. $23 $75 $135 $326
Strong Variable Insurance Funds, Inc.-Strong Mid Cap Growth Fund II $23 $75 $135 $327
Deutsche VIT EAFE(REGISTERED)Equity Index Fund $18 $59 $107 $261
Deutsche VIT Equity 500 Index Fund $15 $48 $86 $212
Deutsche VIT Small Cap Index Fund $16 $53 $95 $233
INVESCO VIF-Equity Income Fund $24 $77 $138 $332
INVESCO VIF-Total Return Fund $25 $80 $144 $346
INVESCO VIF-High Yield Fund $23 $73 $131 $318
Morgan Stanley UIF, Inc.-Mid Cap Value Portfolio $22 $72 $130 $314
Morgan Stanley UIF, Inc.-Value Portfolio $20 $66 $118 $288
Morgan Stanley UIF, Inc.-Fixed Income Portfolio $19 $61 $110 $268
Morgan Stanley UIF, Inc.-U.S. Real Estate Portfolio $23 $74 $133 $321
Morgan Stanley UIF, Inc.-Emerging Markets Equity Portfolio $30 $96 $171 $407
PBHG Insurance Series Fund, Inc.-PBHG Growth II Portfolio $24 $77 $138 $334
PBHG Insurance Series Fund, Inc.-PBHG Large Cap Growth Portfolio $23 $74 $133 $321
PBHG Insurance Series Fund, Inc.-PBHG Tech. & Comm. Portfolio $23 $73 $132 $319
The Timothy Plan Small-Cap Variable Series $24 $76 $137 $331
</TABLE>
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<TABLE>
<CAPTION>
ENHANCED CONTRACTS EXAMPLE (0.90% TOTAL SEPARATE
ACCOUNT EXPENSES)
If the owner surrenders his or her Contract at the end of the applicable time
period, or if the owner does not surrender his or her Contract, or if it is
annuitized, the expenses shown would be charged on a $1,000 investment.
----------------------------------------------------------------------------------------------------------------------------------
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Janus A.S.-Aggressive Growth Portfolio $16 $53 $96 $236
Janus A.S.-Worldwide Growth Portfolio $17 $54 $98 $241
Janus A.S.-Balanced Portfolio $16 $53 $96 $236
Janus A.S.-Growth Portfolio $16 $53 $96 $236
Janus A.S.-International Growth Portfolio $17 $56 $102 $249
Janus A.S.- Capital Appreciation Portfolio $17 $54 $97 $239
Dreyfus V.I.F.-Appreciation Portfolio $17 $57 $103 $251
Dreyfus V.I.F.-Money Market Portfolio $15 $50 $91 $224
Dreyfus V.I.F.-Growth and Income Portfolio $18 $57 $103 $253
Dreyfus V.I.F.-Small Cap Portfolio $17 $57 $103 $251
The Dreyfus Socially Responsible Growth Fund, Inc. $18 $57 $103 $253
Dreyfus Stock Index Fund $12 $40 $72 $178
Strong Opportunity Fund II, Inc. $21 $69 $123 $300
Strong Variable Insurance Funds, Inc.-Strong Mid Cap Growth Fund II $21 $69 $124 $301
Deutsche VIT EAFE(REGISTERED)Equity Index Fund $16 $53 $95 $234
Deutsche VIT Equity 500 Index Fund $13 $41 $74 $184
Deutsche VIT Small Cap Index Fund $14 $46 $83 $206
INVESCO VIF-Equity Income Fund $22 $70 $126 $306
INVESCO VIF-Total Return Fund $23 $74 $132 $321
INVESCO VIF-High Yield Fund $21 $67 $120 $292
Morgan Stanley UIF, Inc.-Mid Cap Value Portfolio $20 $66 $118 $288
Morgan Stanley UIF, Inc.-Value Portfolio $18 $59 $107 $261
Morgan Stanley UIF, Inc.-Fixed Income Portfolio $17 $54 $98 $241
Morgan Stanley UIF, Inc.-U.S. Real Estate Portfolio $21 $67 $121 $294
Morgan Stanley UIF, Inc.-Emerging Markets Equity Portfolio $28 $89 $160 $382
PBHG Insurance Series Fund, Inc.-PBHG Growth II Portfolio $22 $70 $127 $308
PBHG Insurance Series Fund, Inc.-PBHG Large Cap Growth Portfolio $21 $67 $121 $294
PBHG Insurance Series Fund, Inc.-PBHG Tech. & Comm. Portfolio $21 $67 $121 $293
The Timothy Plan Small-Cap Variable Series $22 $70 $126 $305
</TABLE>
9A
<PAGE>
<TABLE>
<CAPTION>
ENHANCED CONTRACTS WITH ADMINISTRATION CHARGE WAIVED EXAMPLE (0.95% TOTAL SEPARATE ACCOUNT
ANNUAL EXPENSES)
If the owner surrenders his or her Contract at the end of the applicable time
period, or if the owner does not surrender his or her Contract, or if it is
annuitized, the expenses shown would be charged on a $1,000 investment.
-----------------------------------------------------------------------------------------------------------------------------------
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Janus A.S.-Aggressive Growth Portfolio $17 $55 $99 $243
Janus A.S.-Worldwide Growth Portfolio $17 $56 $101 $247
Janus A.S.-Balanced Portfolio $17 $55 $99 $243
Janus A.S.-Growth Portfolio $17 $55 $99 $243
Janus A.S.-International Growth Portfolio $18 $58 $104 $256
Janus A.S.-Capital Appreciation Portfolio $17 $55 $100 $246
Dreyfus V.I.F.-Appreciation Portfolio $18 $58 $106 $258
Dreyfus V.I.F.-Money Market Portfolio $16 $52 $94 $231
Dreyfus V.I.F.-Growth and Income Portfolio $18 $59 $106 $260
Dreyfus V.I.F.-Small Cap Portfolio $18 $58 $106 $258
The Dreyfus Socially Responsible Growth Fund, Inc. $18 $59 $106 $260
Dreyfus Stock Index Fund $13 $41 $75 $186
Strong Opportunity Fund II, Inc. $22 $70 $126 $306
Strong Variable Insurance Funds, Inc.-Strong Mid Cap Growth Fund II $22 $70 $127 $308
Deutsche VIT EAFE(REGISTERED)Equity Index Fund $17 $54 $98 $240
Deutsche VIT Equity 500 Index Fund $13 $43 $77 $191
Deutsche VIT Small Cap Index Fund $15 $48 $86 $213
INVESCO VIF-Equity Income Fund $22 $72 $129 $313
INVESCO VIF-Total Return Fund $23 $75 $135 $327
INVESCO VIF-High Yield Fund $21 $68 $123 $298
Morgan Stanley UIF, Inc.-Mid Cap Value Portfolio $21 $67 $121 $294
Morgan Stanley UIF, Inc.-Value Portfolio $19 $61 $110 $268
Morgan Stanley UIF, Inc.-Fixed Income Portfolio $17 $56 $101 $247
Morgan Stanley UIF, Inc.-U.S. Real Estate Portfolio $21 $69 $124 $301
Morgan Stanley UIF, Inc.-Emerging Markets Equity Portfolio $28 $91 $163 $388
PBHG Insurance Series Fund, Inc.-PBHG Growth II Portfolio $22 $72 $130 $314
PBHG Insurance Series Fund, Inc.-PBHG Large Cap Growth Portfolio $21 $69 $124 $301
PBHG Insurance Series Fund, Inc.-PBHG Tech. & Comm. Portfolio $21 $69 $123 $300
The Timothy Plan Small-Cap Variable Series $22 $71 $129 $312
</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 $0.05
per year based on the ratio of actual contract maintenance fees collected for
the year ended 12/31/99 to total net assets as of 12/31/99. The examples do not
include charges for premium taxes.
10
<PAGE>
<TABLE>
<CAPTION>
ENHANCED CONTRACTS WITH ADMINISTRATION CHARGE WAIVED EXAMPLE (0.75% TOTAL SEPARATE ACCOUNT
ANNUAL EXPENSES)
If the owner surrenders his or her Contract at the end of the applicable time
period, or if the owner does not surrender his or her Contract, or if it is
annuitized, the expenses shown would be charged on a $1,000 investment.
-----------------------------------------------------------------------------------------------------------------------------------
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Janus A.S.-Aggressive Growth Portfolio $15 $48 $87 $215
Janus A.S.-Worldwide Growth Portfolio $15 $49 $89 $220
Janus A.S.-Balanced Portfolio $15 $48 $87 $215
Janus A.S.-Growth Portfolio $15 $48 $87 $215
Janus A.S.-International Growth Portfolio $16 $51 $93 $228
Janus A.S.- Capital Appreciation Portfolio $15 $49 $89 $218
Dreyfus V.I.F.-Appreciation Portfolio $16 $52 $94 $231
Dreyfus V.I.F.-Money Market Portfolio $14 $45 $82 $203
Dreyfus V.I.F.-Growth and Income Portfolio $16 $52 $94 $232
Dreyfus V.I.F.-Small Cap Portfolio $16 $52 $94 $231
The Dreyfus Socially Responsible Growth Fund, Inc. $16 $52 $94 $232
Dreyfus Stock Index Fund $11 $35 $63 $157
Strong Opportunity Fund II, Inc. $20 $64 $115 $280
Strong Variable Insurance Funds, Inc.-Strong Mid Cap Growth Fund II $20 $64 $115 $281
Deutsche VIT EAFE(REGISTERED)Equity Index Fund $15 $48 $86 $213
Deutsche VIT Equity 500 Index Fund $11 $36 $65 $162
Deutsche VIT Small Cap Index Fund $13 $41 $74 $184
INVESCO VIF-Equity Income Fund $20 $65 $118 $286
INVESCO VIF-Total Return Fund $21 $69 $124 $301
INVESCO VIF-High Yield Fund $19 $62 $111 $272
Morgan Stanley UIF, Inc.-Mid Cap Value Portfolio $19 $61 $110 $268
Morgan Stanley UIF, Inc.-Value Portfolio $17 $54 $98 $241
Morgan Stanley UIF, Inc.-Fixed Income Portfolio $15 $49 $89 $220
Morgan Stanley UIF, Inc.-U.S. Real Estate Portfolio $19 $62 $113 $274
Morgan Stanley UIF, Inc.-Emerging Markets Equity Portfolio $26 $84 $151 $364
PBHG Insurance Series Fund, Inc.-PBHG Growth II Portfolio $20 $66 $118 $288
PBHG Insurance Series Fund, Inc.-PBHG Large Cap Growth Portfolio $19 $62 $113 $274
PBHG Insurance Series Fund, Inc.-PBHG Tech. & Comm. Portfolio $19 $62 $112 $273
The Timothy Plan Small-Cap Variable Series $20 $65 $117 $285
</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 $0.05
per year based on the ratio of actual contract maintenance fees collected for
the year ended 12/31/99 to total net assets as of 12/31/99. The examples do not
include charges for premium taxes.
10A
<PAGE>
<TABLE>
<CAPTION>
CONDENSED FINANCIAL INFORMATION
---------------------------------------------------------------------------------------------------------------------
STANDARD CONTRACTS
SUB-ACCOUNT 12/31/97 12/31/98 12/31/99
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Janus Aggressive Growth Portfolio
Aspen Accumulation Unit Value 10.723950 14.199318 31.565210
Series Accumulation Units Outstanding 2,830.076 53,896.345 329,807.902
---------------------------------------------------------------------------------------------------------
Worldwide Growth Portfolio
Accumulation Unit Value 9.935860 12.632936 20.488548
Accumulation Units Outstanding 56,665.753 402,131.168 1,026,072.851
---------------------------------------------------------------------------------------------------------
Balanced Portfolio
Accumulation Unit Value 10.604609 14.043929 17.556100
Accumulation Units Outstanding 30,519.754 373.285.807 1,571,579.505
---------------------------------------------------------------------------------------------------------
Growth Portfolio
Accumulation Unit Value 10.239960 13.699715 19.453513
Accumulation Units Outstanding 32,737.591 172,190.630 643,514.256
---------------------------------------------------------------------------------------------------------
International Growth Portfolio
Accumulation Unit Value 9.735841 11.256365 20.234788
Accumulation Units Outstanding 12,541.039 45,382.775 142,343.325
---------------------------------------------------------------------------------------------------------
Capital Appreciation Portfolio
Accumulation Unit Value N/A N/A 13.234548
Accumulation Units Outstanding N/A N/A 471,936.628
---------------------------------------------------------------------------------------------------------
Dreyfus Appreciation Portfolio
Variable Accumulation Unit Value 10.103905 12.975443 14.262203
Investment Accumulation Units Outstanding 18,347.666 170,523.015 517,772.082
Fund -----------------------------------------------------------------------------------------------------
Money Market Portfolio
Accumulation Unit Value 1.016499 1.050876 1.083700
Accumulation Units Outstanding 0.000 658,981.650 2,638,837.162
---------------------------------------------------------------------------------------------------------
Growth and Income Portfolio
Accumulation Unit Value 10.196538 11.243790 12.961023
Accumulation Units Outstanding 32,231.762 159,409.837 331,756.261
---------------------------------------------------------------------------------------------------------
Small Cap Portfolio
Accumulation Unit Value 10.362314 9.867472 11.984035
Accumulation Units Outstanding 41,359.506 171,968.905 275,503.637
---------------------------------------------------------------------------------------------------------
The Dreyfus Socially Responsible Growth Fund, Inc.
Accumulation Unit Value 10.320883 13.169143 16.894039
Accumulation Units Outstanding 26,332.500 140,614.024 408,482.196
---------------------------------------------------------------------------------------------------------
Dreyfus Stock Index Fund
Accumulation Unit Value 10.479569 13.250646 15.760394
Accumulation Units Outstanding 69,510.645 779,485.606 2,129,772.165
----------------------------------------------------------------------------------------------------------
Strong Opportunity Fund II, Inc.
Accumulation Unit Value 10.727356 12.012034 15.981484
Accumulation Units Outstanding 6,416.208 72,644.387 138,453.066
----------------------------------------------------------------------------------------------------------
Strong Variable Insurance Funds, Inc.-Strong Mid Cap Growth Fund II
Accumulation Unit Value 10.707133 13.587521 25.444156
Accumulation Units Outstanding 2,147.556 33,197.715 120,559.085
----------------------------------------------------------------------------------------------------------
Deutsche Deutsche VIT EAFE(REGISTERED) Equity Index Fund
Asset Accumulation Unit Value N/A N/A 11.958486
Management Accumulation Units Outstanding N/A N/A 6,821.832
VIT Funds ---------------------------------------------------------------------------------------------------------
Deutsche VIT Equity 500 Index Fund
Accumulation Unit Value N/A N/A 10.815237
Accumulation Units Outstanding N/A N/A 73,596.514
Outstanding
---------------------------------------------------------------------------------------------------------
Deutsche VIT Small Cap Index Fund
Accumulation Unit Value N/A N/A 11.606269
Accumulation Units Outstanding N/A N/A 15,259.149
Outstanding
---------------------------------------------------------------------------------------------------------
INVESCO INVESCO VIF-Equity Income Fund
Variable Accumulation Unit Value 10.659157 12.120155 13.726769
Investment Accumulation Units Outstanding 33,269.953 200,541.938 553,696.171
Funds, Inc
11
<PAGE>
---------------------------------------------------------------------------------------------------------
INVESCO VIF-Total Return Fund
Accumulation Unit Value 10.503108 11.348675 10.811807
Accumulation Units Outstanding 14,641.934 154,762.526 258,825.173
---------------------------------------------------------------------------------------------------------
INVESCO VIF-High Yield Fund
Accumulation Unit Value 10.687084 10.689459 11.510803
Accumulation Units Outstanding 10,260.821 70,047.913 221,636.210
</TABLE>
11A
<PAGE>
<TABLE>
<CAPTION>
CONDENSED FINANCIAL INFORMATION
-------------------------------------------------------------------------------------------------------------------------
STANDARD CONTRACTS
SUB-ACCOUNT 12/31/97 12/31/98 12/31/99
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Morgan Mid Cap Value Portfolio
Stanley Accumulation Unit Value 11.113227 12.705082 15.049488
UIF Funds, Accumulation Units Outstanding 16,674.966 111,076.120 183,388.647
Inc. -----------------------------------------------------------------------------------------------------------
Value Portfolio
Accumulation Unit Value 10.204064 9.848411 9.536137
Accumulation Units Outstanding 9,944.401 34,212.111 78,330.649
------------------------------------------------------------------------------------------------------------
Fixed Income Portfolio
Accumulation Unit Value 10.412276 11.079965 10.749115
Accumulation Units Outstanding 4.653 46,348.096 279,193.758
------------------------------------------------------------------------------------------------------------
U.S. Real Estate Portfolio
Accumulation Unit Value 11.101269 9.758808 9.482378
Accumulation Units Outstanding 7,200.060 43,786.457 86,941.426
------------------------------------------------------------------------------------------------------------
Emerging Markets Equity Portfolio
Accumulation Unit Value 7.911559 5.915866 11.416896
Accumulation Units Outstanding 9,042.956 30,255.642 56,080.554
------------------------------------------------------------------------------------------------------------
PBHG PBHG Growth II Portfolio
Insurance Accumulation Unit Value 9.511124 10.147606 19.835104
Series Accumulation Units Outstanding 6,195.935 24,618.770 67,359.578
Fund, -----------------------------------------------------------------------------------------------------------
Inc. PBHG Large Cap Growth Portfolio
Accumulation Unit Value 10.150555 13.076352 21.307087
Accumulation Units Outstanding 11,415.131 31,474.961 158,614.893
------------------------------------------------------------------------------------------------------------
PBHG Technology & Communications Portfolio
Accumulation Unit Value 9.057045 11.808346 38,941384
Accumulation Units Outstanding 20,974.008 65,820.143 433,441.908
------------------------------------------------------------------------------------------------------------
The Timothy Plan Small-Cap Variable Series
Accumulation Unit Value N/A 10.283942 12.097693
Accumulation Units Outstanding N/A 29,293.327 94,238.615
</TABLE>
The above table gives year-end Accumulation Unit information for each
Sub-Account from the end of the year of inception to December 31, 1999. 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 10.000000 as of July 15, 1997 (the Separate Account commencement
date), or as of May 1, 1998 (the effective date of the Sub-Account) for the
Timothy Plan Small-Cap Variable Series, or as of May 1, 1999 (the effective date
of the Sub-Account) for the Janus Aspen Series Capital Appreciation Portfolio
and the three Deutsche Asset Management Funds. The beginning Accumulation Unit
Value for the Dreyfus Money Market Portfolio Sub-Account was 1.000000 as of July
15, 1997. The Contracts were not available for sale until July 22, 1998. No
Enhanced Contracts or Enhanced Contracts with Administration Charge waived were
issued as of December 31, 1999.
FINANCIAL STATEMENTS
The financial statements and reports of independent auditors for the Company and
for the Separate Account are included in the statement of additional
information.
12
<PAGE>
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 Company may advertise two types of total return data: "average annual total
return" and "cumulative total return." Average annual total return is presented
in both standardized and non-standardized form. "Standardized" total returns
data reflects the deduction of all charges that apply to all Contracts of that
type, except for premium taxes. "Non-standardized" total return data does not
reflect the deduction of contract maintenance fees. Cumulative total return data
is currently presented only in non-standardized form.
Total return data that does not reflect all charges will be higher than the
total return realized by an investor who incurs the charges.
"Average annual total return" is either hypothetical or actual return data that
reflects performance of a Sub-Account for a one-year period or for an average of
consecutive one-year periods. If average annual total return data is
hypothetical, it reflects performance for a period of time before the Separate
Account commenced operations. When a Sub-Account has been in operation for one,
five and ten years, average annual total return will be presented for these
periods, although other periods may be presented as well.
"Cumulative total return" is either hypothetical or actual return data that
reflects the performance of a Sub-Account from the beginning of the period
presented to the end of the period presented. If cumulative total return data is
hypothetical, it reflects performance for a period of time before the Separate
Account commenced operations.
OTHER PERFORMANCE MEASURES
The Company may include in reports and promotional literature rankings of the
Sub-Accounts, the Separate Account or the Contracts, as published by any
service, company, or person who ranks separate accounts or other investment
products on overall performance or other criteria. Examples of companies that
publish such rankings are 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 and
Morningstar.
The Company may also:
o compare the performance of a Sub-Account with applicable indices and/or
industry averages;
o present performance information that 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.
13
<PAGE>
THE PORTFOLIOS
------------------------------------------------------------------------------
The Separate Account is currently divided into 29 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 in
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.
JANUS ASPEN SERIES
ADVISOR: AGGRESSIVE GROWTH PORTFOLIO
JANUS CAPITAL CORPORATION A non-diversified portfolio that seeks long-term
growth of capital by investing primarily in common
stocks selected for their growth potential, and
normally invests at least 50% of its equity assets
in medium-sized companies.
ADVISOR: WORLDWIDE GROWTH PORTFOLIO
JANUS CAPITAL CORPORATION A diversified portfolio that seeks long-term growth
of capital in a manner consistent with the
preservation of capital by investing primarily in
common stocks of companies of any size throughout
the world. International investing may present
special risks, including currency fluctuations and
social and political developments.
ADVISOR: BALANCED PORTFOLIO
JANUS CAPITAL CORPORATION A diversified portfolio that seeks long-term capital
growth, consistent with preservation of capital and
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. The Portfolio will normally
invest at least 25% of its assets in fixed-income
securities.
ADVISOR: GROWTH PORTFOLIO
JANUS CAPITAL CORPORATION A diversified portfolio that seeks long-term growth
of capital in a manner consistent with the
preservation of capital by investing primarily in
common stocks selected for their growth potential.
Although the Portfolio can invest in companies of
any size, it generally invests in larger, more
established companies.
ADVISOR: INTERNATIONAL GROWTH PORTFOLIO
JANUS CAPITAL CORPORATION A diversified portfolio that seeks long-term growth
of capital by investing at least 65% of its total
assets in securities from at least five different
countries, excluding the United States.
International investing may present special risks,
including currency fluctuations and social and
political developments.
14
<PAGE>
ADVISOR: CAPITAL APPRECIATION PORTFOLIO
JANUS CAPITAL CORPORATION A non-diversified portfolio that seeks long-term
growth of capital by investing primarily in common
stocks selected for their growth potential. The
Portfolio may invest in companies of any size, from
larger, well-established companies to smaller,
emerging growth companies.
DREYFUS PORTFOLIOS
<TABLE>
<CAPTION>
<S> <C> <C>
ADVISOR: DREYFUS VARIABLE INVESTMENT FUND- APPRECIATION PORTFOLIO
THE DREYFUS CORPORATION The Appreciation Portfolio seeks to provide long-term capital
growth consistent with the preservation of capital. Current
SUB-ADVISOR: income is a secondary goal. It seeks to achieve its goals by
FAYEZ SAROFIM & CO. investing in common stocks, focusing on"blue-chip" companies
with total market values of more than $5 billion at the time
purchase.
ADVISOR: DREYFUS VARIABLE INVESTMENT FUND-MONEY MARKET PORTFOLIO
THE DREYFUS CORPORATION The Money Market Portfolio seeks 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 a
diversified portfolio of high quality short-term debt securities.
AN INVESTMENT IN THE MONEY MARKET PORTFOLIO IS NEITHER INSURED NOR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENT AGENCY. ALTHOUGH THE PORTFOLIO SEEKS TO PRESERVE
THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO
LOSE MONEY BY INVESTING IN THE PORTFOLIO.
ADVISOR: DREYFUS VARIABLE INVESTMENT FUND-GROWTH AND INCOME PORTFOLIO
THE DREYFUS CORPORATION The Growth and Income Portfolio seeks long-term capital growth,
current income and growth of income, consistent with reasonable
investment risk. This Portfolio invests in stocks, bonds and money
market instruments of domestic and foreign issuers.
ADVISOR: DREYFUS VARIABLE INVESTMENT FUND-SMALL CAP PORTFOLIO
THE DREYFUS CORPORATION The Small Cap Portfolio seeks to maximize capital appreciation.
This Portfolio generally invests at least 65% of its assets in
common stocks of U.S. and foreign companies. This Portfolio focuses
on small-cap companies with total market values of less than $1.5
billion
ADVISOR: THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
THE DREYFUS CORPORATION The Dreyfus Socially Responsible Growth Fund, Inc. seeks to
provide capital growth with current income as a secondary
SUB-ADVISOR: goal. To pursue these goals, the Fund invests primarily in
NCM CAPITAL MANAGEMENT common stock of companies that, in the opinion of the Fund's
GROUP, INC. management, meet traditional investment standards, and
conduct their business in a manner that contributes to the
enhancement of the quality of life in America
ADVISOR: DREYFUS STOCK INDEX FUND
THE DREYFUS CORPORATION The Dreyfus Stock Index Fund seeks to match the total return of the
Standard & Poor's 500 Composite Stock Price Index. To pursue this
INDEX MANAGER: goal, the Fund generally invests in all 500 stocks in the S&P
MELLON EQUITY ASSOCIATES 500(REGISTERED)in proportion to their weighting in the index. The
(AN AFFILIATE OF DREYFUS) Fund is not sponsored, endorsed, sold or promoted by Standard &
Poor's, and Standard & Poor's makes no representation regarding the
advisability of investing in the Fund.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
STRONG PORTFOLIOS
<S> <C> <C>
ADVISOR: STRONG OPPORTUNITY FUND II, INC.
STRONG CAPITAL MANAGEMENT, The investment objective of the Strong Opportunity Fund II is
INC. to seek capital growth. It currently emphasizes medium-sized
companies that the advisor believes are under-researched and
attractively valued.
ADVISOR: STRONG VARIABLE INSURANCE FUNDS, INC.-STRONG MID CAP GROWTH FUND II
STRONG CAPITAL MANAGEMENT, The investment objective of the Strong Mid Cap Growth Fund II is
to seek capital growth. It invests primarily in equity securities that
the Portfolio's advisor believes have above-average growth propsects.
This Portfolio was formerly called the Strong Growth Fund II.
DEUTSCHE ASSET MANAGEMENT VIT FUNDS
ADVISOR: DEUTSCHE VIT EAFE(REGISTERED) EQUITY INDEX FUND
BANKERS TRUST COMPANY The EAFE(REGISTERED) Equity Index Fund seeks to replicate as
closely as possible (before deduction of expenses) the total return
of Morgan Stanley Capital International (MSCI) (the
"EAFE(REGISTERED) Index"), a widely accepted benchmark of stock
performance of major companies in Europe, Australia, and the Far
East. The Fund will invest primarily in internatinal companies that
compose the EAFE(REGISTERED)Index, using statistical methods to
replicate the EAFE(REGISTERED) Index in approximately the same
weightings. Securities purchased by the Fund will generally, but
not necessarily, be traded on a foreign securities exchange.
ADVISOR: DEUTSCHE VIT EQUITY 500 INDEX FUND
BANKERS TRUST COMPANY The Equity 500 Index Fund seeks to replicate as closely as possible
(before deduction of expenses) the total return of the Standard &
Poor's 500 Composite Stock Price Index (the "S&P 500(REGISTERED)"),
which emphasizes stocks of large U.S. Companies. The Portfolio will
invest primarily in the common stock of those companies included in
the S&P 500, selected on the basis of computer generated
statistical data, that are deemed representative of the industry
diversification of the entire S&P 500.
ADVISOR: DEUTSCHE VIT SMALL CAP INDEX FUND
BANKERS TRUST COMPANY The Small Cap Index Fund seeks to replicate as closely as possible
(before deduction of expenses) the total return of the Russell 2000
Small Stock Index (the "Russell 2000(REGISTERED)"), an index
consisting of 2,000 small-capitalization common stocks. The Fund
will invest primarily in companies included in the Russell 2000, on
the basis of statistical data, that are deemed representative of
the industry diversification of the entire Russell 2000.
16
<PAGE>
INVESCO VARIABLE INVESTMENT FUNDS, INC.
ADVISOR: INVESCO VIF -EQUITY INCOME FUND
INVESCO FUNDS GROUP, INC. The primary goal of the INVESCO VIF-Equity Income Fund is to seek
high current income. The Portfolio normally invests at least 65% of
its assets in dividend paying common and preferred stocks. This
Portfolio was formerly called the Industrial Income Portfolio.
ADVISOR: INVESCO VIF -TOTAL RETURN FUND
INVESCO FUNDS GROUP, INC. The investment objective of the INVESCO VIF-Total Return Fund is to
seek a high total return on investment through capital appreciation
and current income. The INVESCO VIF-Total Return Fund 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: INVESCO VIF -HIGH YIELD FUND
INVESCO FUNDS GROUP, INC. The investment objective of the INVESCO VIF-High Yield Fund is to
seek a high level of current income by investing substantially all
of its assets in lower rated debt securities and preferred stocks,
including securities issued by foreign companies. 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.
PBHG INSURANCE SERIES FUND, INC.
ADVISOR: PBHG GROWTH II PORTFOLIO
PILGRIM BAXTER & The investment objective of the PBHG Insurance Series Growth II
ASSOCIATES, LTD. Portfolio 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 between $500 million and $10 billion) that, in the
Advisor's opinion, have strong business momentum, earnings growth
and potential for significant capital appreciation.
ADVISOR: PBHG LARGE CAP GROWTH PORTFOLIO
PILGRIM BAXTER & The investment objective of the PBHG Insurance Series Large
ASSOCIATES, LTD. Cap Growth 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 Advisor's opinion, have strong business
momentum, growth in earnings and potential for capital
appreciation.
ADVISOR: PBHG TECHNOLOGY & COMMUNICATIONS PORTFOLIO
PILGRIM BAXTER & The investment objective of the PBHG Insurance Series
ASSOCIATES, LTD. Technology & Communications Portfolio is to seek long-term growth
of capital. Current income is incidental to the Portfolio's
objective. The Portfolio, a non-diversified fund, invests primarily
in common stocks of companies doing business in the Technology and
Communications sectors of the market. The Portfolio is
concentrated, which means it will invest 25% or more of its total
assets in one or more of the industries within these sectors.
17
<PAGE>
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
ADVISOR: MID CAP VALUE PORTFOLIO
MILLER ANDERSON & SHERRERD The investment objective of the Mid Cap Value Portfolio is to
LLP (AN INDIRECT WHOLLY return over a market cycle of three to five years by investing
OWNED SUBSIDIARY OF MORGAN primarily in common stocks of companies with capitalizations in
STANLEY DEAN WITTER the range of companies included in the S&P MidCap 400 Index (currently
& CO.) $500 million to $6 billion). The Portfolio purchases stocks that
typically do not pay dividends. The Advisor analyzes securities to
identify stocks that are undervalued, and measures the relative
attractiveness of the Portfolio's current holdings against potential
purchases.
ADVISOR: VALUE PORTFOLIO
MILLER ANDERSON & The investment objective of the Value Portfolio is to above-average
SHERRERD, LLP (AN INDIRECT total return over a market cycle fo three to five years by investing
WHOLLY OWNED SUBSIDIARY primarily in common stocks of companies with equity capitalizations
OF MORGAN STANLEY DEAN greater than $2.5 billion. The Portfolio foucses on stocks that are
WITTER & CO.) undervalued in comparison with the stock market as a whole, as
measured by the S&P 500 Index. The Portfolio may purchase stocks that
do not pay dividends, and it may invest, to a limited extent, in
foreign equity securities.
ADVISOR: FIXED INCOME PORTFOLIO
MILLER ANDERSON & The investment objective of the Fixed Income Portfolio is to seek
SHERRERD, LLP (AN INDIRECT above-average total return over a market cycle of three to five years
WHOLLY OWNED SUBSIDIARY by investing primarily in a diversified mix of dollar-denominated
OF MORGAN STANLEY DEAN investment grade fixed income securities, particularly U.S.
WITTER & CO. Government, corporate and mortgage securities. The Portfolio
ordinarily will maintain an average weighted maturity in excess of
five years. The Portfolio may invest opportunistically in
non-dollar-denominated securities and below investment grade
securities.
ADVISOR: U.S. REAL ESTATE PORTFOLIO
MORGAN STANLEY ASSET The investment objective of the U.S. Real Estate Portfolio is to seek
MANAGEMENT (A WHOLLY OWNED above-average current income and long-term capital appreciation by
SUBSIDIARY OF MORGAN investing primarily in equity securities of U.S. and non-U.S.
STANLEY DEAN WITTER & CO.) companies engaged in the U.S. 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 Portfolio
MANAGEMENT. (A WHOLLY is long-term capital appreciation by investing primarily in equity
OWNED SUBSIDIARY OF securities of issuers in emerging market countries. The Portfolio
MORGAN STANLEY DEAN seeks to maximize returns by investing in growth-oriented equity
WITTER & CO.) securities in emerging markets. The Portfolio's investment approach
combines top-down country allocation with bottom-up stock selection.
Investment selection criteria include attractive
growth-characteristics, reasonable valuations and management with a
strong shareholder value orientation.
THE TIMOTHY PLAN SMALL-CAP VARIABLE SERIES
ADVISOR: THE TIMOTHY PLAN SMALL-CAP VARIABLE SERIES
TIMOTHY PARTNERS, LTD. The primary investment objective of The Timothy Plan Small-Cap
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>
18
<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 that 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 it holds as to which owners have no beneficial
interest (including shares held by the Company as reserves for benefit
payments*). The Company will vote or abstain from voting such shares in
proportion to the voting instructions it receives from owners of 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.
19
<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(REGISTERED), 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 all other contracts that invest in 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 is registered with the Securities and Exchange
Commission as a broker-dealer and is a member of the National Association of
Securities Dealers, Inc. ("NASD"). Its principal offices are located 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 80. 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.
20
<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 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 27 of
this prospectus, and/or for the systematic withdrawal program described in the
Surrenders section on page 29 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.
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 $40.00 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 a variable dollar benefit is at least $40,000
(individual Contracts only).
o In the Company's discretion where the Company incurs
reduced sales and servicing expenses.
o During Benefit Payment Period where required to
satisfy state law.
21
<PAGE>
TRANSFER FEE
PURPOSE OF CHARGE Offset costs 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 0.000411% 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.
22
<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
charges.
AMOUNT OF CHARGE Daily charge equal to 0.003403% 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 either: (1) 0.002590% of
the daily Net Asset Value for each Sub-Account, which
corresponds to an effective annual rate of 0.95%; or
(2) 0.002047% of the daily Net Asset Value for each
Sub-Account, which corresponds to an effective annual
rate of 0.75%. The Company estimates that for Enhanced
Contracts, the mortality risk component of either
charge is 0.75% and the expense risk component is 0.20%
or 0.00%, respectively.
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 has 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 6 of this prospectus. Portfolio expenses, like Separate
Account expenses, are reflected in Accumulation Unit Values (or Benefit Unit
Values).
23
<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 joint owners 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. The beneficiary is the payee of the
death benefit.
ASSIGNEE: Under a tax-qualified Contract, assignment is not permitted. The
owner of a non-tax-qualified Contract may assign most of his/her rights or
benefits under a Contract. Assignment of rights or benefits may have adverse
tax consequences.
24
<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 27 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 29 and 30 of this
prospectus.
ACCOUNT STATEMENTS
During the Accumulation Period, the Company will provide at least once each
contract year a report 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.
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.
25
<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>
TAX-QUALIFIED NON-TAX-QUALIFIED
---------------------------------------------------------------------------------------------
<S> <C> <C>
MINIMUM INITIAL PURCHASE PAYMENT $20,000 $20,000
---------------------------------------------------------------------------------------------
MINIMUM ADDITIONAL PAYMENTS $50 $100
---------------------------------------------------------------------------------------------
MAXIMUM SINGLE PURCHASE PAYMENT $500,000 or Company $500,000 or Company
approval approval
</TABLE>
The Company reserves the right to increase or decrease the minimum allowable
single purchase payment 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 on which the Company receives the purchase payment. If the purchase payment
is allocated to a Sub-Account, it will be applied at the Accumulation Unit Value
calculated at 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. The fixed account options are not
available under group Contracts. See the Portfolios section beginning on page 14
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:
TAX-QUALIFIED AND NON-TAX-QUALIFIED
--------------------------------------------------------------------------------
MINIMUM ALLOCATION TO ANY SUB-ACCOUNT $10
--------------------------------------------------------------------------------
MINIMUM ALLOCATION TO FIXED ACCUMULATION $10
ACCOUNT Not available under group Contracts.
--------------------------------------------------------------------------------
MINIMUM ALLOCATION TO FIXED ACCOUNT
GUARANTEE OPTION $2,000
Not available under group Contracts.
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 No current restrictions, however,
the Company reserves the right to
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.
26
<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.
Amounts allocated to the fixed account options and interest credited to the
fixed account options are 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 of an individual Contract 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 that 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 26 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 among
Sub-Accounts, between fixed account options (where available), and/or between
Sub-Accounts and fixed account options (where available).
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 $2,000
OPTION Not available under group Contracts. 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 During any contract year, 20% of the fixed
OTHER THAN FIXED ACCOUNT GUARANTEE OPTION account option's value as of the most recent
WHICH IS MATURING 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.
</TABLE>
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.
27
<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>
<CAPTION>
SERVICE DESCRIPTION MINIMUM ACCOUNT LIMITATIONS/NOTES
REQUIREMENTS
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLAR COST AVERAGING Automatic transfers Source of funds must Dollar cost averaging
THERE ARE RISKS from the money market be at least $10,000. transfers may not be
INVOLVED IN SWITCHING Sub-Account to any made to any of the
BETWEEN INVESTMENTS other Sub-Account(s), Minimum transfer per fixed account
AVAILABLE UNDER THE or from the fixed month is $500. When options. The dollar
CONTRACT. DOLLAR COST accumulation account balance of source of cost averaging
AVERAGING REQUIRES option (where funds falls below transfers will take
REGULAR INVESTMENT available) to any $500, entire balance place on the last
CHANGES REGARDLESS OF Sub-Account(s), on a will be allocated Valuation Date of
FLUCTUATING PRICE monthly or quarterly according to dollar each calendar month
LEVELS AND DOES NOT basis. cost averaging or quarter as
GUARANTEE PROFITS OR instructions. requested by the
PREVENT LOSSES IN A owner.
DECLINING MARKET. YOU
SHOULD CONSIDER YOUR
FINANCIAL ABILITY TO
CONTINUE DOLLAR COST
AVERAGING TRANSFERS
THROUGH PERIODS OF
CHANGING PRICE LEVELS.
---------------------------------------------------------------------------------------------
PORTFOLIO REBALANCING Automatically Minimum Account Value Transfers will take
transfer amounts of $10,000. place on the last
between the Valuation Date of
Sub-Accounts and the each calendar
fixed accumulation quarter. Portfolio
account option (where rebalancing will not
available) to be available if the
maintain the dollar cost averaging
percentage program or an
allocations selected interest sweep from
by the owner. the fixed
accumulation account
option is being
utilized.
---------------------------------------------------------------------------------------------
INTEREST SWEEP Automatic transfers Balance of each fixed Interest sweep
NOT AVAILABLE UNDER of the income from account option transfers will take
GROUP CONTRACTS. any fixed account selected must be at place on the last
option(s) to any least $5,000. Valuation Date of
Sub-Account(s). Maximum transfer from each calendar quarter.
each fixed account
option 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>
28
<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 1-800-789-6771. 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 that
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 1-800-789-6771. 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. The restrictions and charges on surrenders are as follows:
<TABLE>
<CAPTION>
TAX-QUALIFIED NON-TAX-QUALIFIED
---------------------------------------------------------------------------------------------
<S> <C> <C>
MINIMUM AMOUNT OF PARTIAL SURRENDER $500
---------------------------------------------------------------------------------------------
MINIMUM REMAINING ACCOUNT VALUE AFTER PARTIAL $500
SURRENDER
---------------------------------------------------------------------------------------------
AMOUNT AVAILABLE FOR SURRENDER (valued as of Account Value subject Account Value
end of Valuation Period in which request for to tax law or subject to employer
surrender is received by the Company) employer plan plan restrictions on
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 $40
---------------------------------------------------------------------------------------------
</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
unless the owner requests that the surrender be withdrawn from a specific
investment option. 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 that 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.
29
<PAGE>
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. 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-qualified 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 Advisor 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 Company's involuntary surrender right as described above.
30
<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 Options section beginning on page 31 of this prospectus.
If the owner has not previously made an election as to the form of settlement
option, the Company will contact the owner to ascertain the form of settlement
option to be paid. If the owner does not select a settlement option, such as a
specific fixed dollar benefit payment, a variable dollar benefit payment, or a
combination of a variable and fixed dollar benefit payment, the Company will
apply the Account Value to a fixed dollar benefit for the life of the annuitant
with 120 monthly payments assured, as described in the Settlement Options
section beginning on page 31 of this prospectus.
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 larger of the following two
amounts:
o The Account Value on the Death Benefit Valuation Date
o The total purchase payment(s) less any partial surrenders
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 Options section beginning on page 31 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 among
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.
31
<PAGE>
FORM OF SETTLEMENT OPTION
The Company will make periodic payments in any form of settlement option that 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.
The dollar amount of benefit payments will vary with the frequency of the
payment interval and the duration of the payments. Generally, each payment in a
stream of payments will be lesser in amount as the frequency of payments
increases, or as the length of the payment period increases, because more
payments will be paid. For life contingent settlement options, each payment in
the stream of payments will generally be lesser in amount as the life expectancy
of the annuitant or beneficiary increases because more payments are expected to
be paid.
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 Internal Revenue Code
("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. Where required by state
law, the Company uses blended tables for all Contracts. The minimum monthly
payments per $1,000 of value for the Company's standard settlement options are
set forth in tables in the Contracts. Upon request, the Company will provide
minimum monthly payments for ages or fixed periods not shown in the settlement
option tables.
32
<PAGE>
CALCULATION OF VARIABLE DOLLAR BENEFIT PAYMENTS
The first variable dollar benefit payment is the amount it would be if it were a
fixed dollar benefit payment calculated at the Company's minimum guaranteed
settlement option factors, reduced by a pro rata portion of the contract
maintenance fee, equal to the amount of the fee divided by the number of
payments to be made over a 12-month period.
The amount of each subsequent variable dollar benefit payment will reflect the
investment performance of the Sub-Account(s) selected and may vary from payment
to payment. For example, because the first benefit payment includes a 3% rate of
interest, subsequent benefit payments will be less than the first payment if the
net investment performance of the applicable Sub Account is less than 3%.
The amount of each subsequent payment is the sum of the payment due for each
Sub-Account selected, less a pro rata portion of the contract maintenance fee,
as described above. The payment due for a Sub-Account equals the shares for that
Sub-Account, which are the Benefit Units, times their value, which is 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 number of Benefit Units for each Sub-Account selected 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) among the
Sub-Account(s) selected in the percentages indicated by the owner (or payee).
The dollar amount allocated to a 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 Benefit Units that the Company will pay for that
Sub-Account at each payment interval. 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. An explanation of how Benefit Unit Values
are calculated is included in the Glossary of Financial Terms on page 37 of this
prospectus.
33
<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 or the owner is a mere agent for a natural person. 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. For
a group nonqualified Contract where the owner has no rights over the separate
interests, this rule is applied to each participant who is not a natural person.
34
<PAGE>
TAX-QUALIFIED PLANS
Annuities may also qualify for tax-deferred treatment, or serve as a funding
vehicle, 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). [In some cases,
tax-deferral may be available under these IRC Sections without the use of an
annuity. Please consult your registered representative.] 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 that 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 individuals to 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 participant'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.
35
<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 ss.401 (Pension and Profit o IRCss.72 only
Sharing)
o IRC ss.403 (Tax-Sheltered
Annuities)
o IRCss.408 (IRA, SIMPLE IRA)
o IRCss.408A (Roth IRA)
o IRCss.457
o Nonqualified Deferred
Compensation
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WHO MAY PURCHASE Natural person, employer, or Anyone. Non-natural person may
CONTRACT employer plan. Nonqualified purchase but will generally lose
deferred compensation plans will tax-deferred status.
generally lose tax-deferred status.
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TAXATION OF SURRENDERS If there is an after-tax Account Value in excess of
"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 ss.408A Roth before August 14, 1982 ("pre-TEFRA
IRA may be completely tax-free. contributions") partial
withdrawals are not taxable until
Surrenders prior to age 59 1/2 the pre-TEFRA contributions have
may be subject to 10% or greater been returned.
tax penalty depending on the type
of qualified plan. The taxable portion of any
surrenders prior to age 59 1/2 may be
Surrenders from tax-qualified subject to a 10% tax penalty.
Contracts may be restricted by the
Internal Revenue Code or by the
terms of a retirement plan.
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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 ss.408A Roth IRA may be completely
tax-free.
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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.
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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.
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WITHHOLDING Eligible rollover distributions Generally, payee may elect to have
from ss.401 and ss.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.
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</TABLE>
36
<PAGE>
GLOSSARY OF FINANCIAL TERMS
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The following financial terms explain how the variable portion of the Contracts
is valued. Read these terms in conjunction with the Definitions on page 4 of
this prospectus.
ACCUMULATION UNIT VALUE: 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. The
initial Accumulation Unit Value for a Sub-Account was established at the
inception date of the Separate Account, or on the date the Sub-Account was
established, if later. The Company establishes distinct Accumulation Unit Values
for Contracts with different Separate Account fee structures, as described in
the Fee Table.
After the initial Accumulation Unit Value is established, 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 UNIT VALUE: 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 by the
Company. The Company will establish distinct Benefit Unit Values for Contracts
with different Separate Account fee structures, as described in the Fee Table.
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
(0.99991789) 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.
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 law.
In other words, the Net Investment Factor represents the percentage change in
the total value of assets invested by the Separate Account in a Portfolio. That
percentage is then applied to Accumulation Unit Values and Benefit Unit Values
as described in the discussion of those terms in this section of the prospectus.
37
<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 333-51955.
OTHER INFORMATION
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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.
38
<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:
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.......................8
Other Performance Measures..............................................9
BENEFIT UNITS--TRANSFER FORMULAS..............................................10
FEDERAL TAX MATTERS...........................................................11
Taxation of Separate Account Income.....................................11
Tax Deferred Status of Non-Qualified Contracts..........................11
FINANCIAL STATEMENTS..........................................................12
Copies of the statement of additional information dated May 1, 2000 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:
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Address:
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City:
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