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ANNUITY INVESTORS VARIABLE ACCOUNT A
of
ANNUITY INVESTORS LIFE INSURANCE COMPANY(REGISTERED)
PROSPECTUS
for the
Commodore Nauticus(SERVICEMARK)
Group Flexible Premium Deferred Annuity
Issued by
ANNUITY INVESTORS LIFE INSURANCE COMPANY
P.O. Box 5423, Cincinnati, Ohio 45201-5423, (800) 789-6771
This Prospectus describes the Commodore Nauticus(SERVICEMARK), a Group
Flexible Premium Deferred Annuity Contract (the "Contract") issued by
Annuity Investors Life Insurance Company(REGISTERED) (the "Company") and
the Certificates of Participation under the Contract ("Certificates").
A Certificate provides for the accumulation of an Account Value on a fixed
or variable basis, or a combination of both. The Certificate also
provides for the payment of periodic annuity payments on a fixed or
variable basis, or a combination of both. If the variable basis is
chosen, annuity values will be held in Annuity Investors Variable Account
A (the "Separate Account") and will vary according to the investment
performance of the mutual funds in which the Sub-Accounts of the Separate
Account invest. If the fixed basis is chosen, periodic annuity payments
from the Company's general account will be fixed and will not vary.
The Separate Account is divided into Sub-Accounts. Each Sub-Account uses
its assets to purchase, at their net asset value, shares of a designated
registered investment company or portfolio thereof (each, a "Fund"). The
Funds available for investment in the Separate Account under the Contract
are as follows: from Janus Aspen Series, (1) the Aggressive Growth
Portfolio, (2) the Worldwide Growth Portfolio, (3) the Balanced Portfolio,
and (4) the Short-Term Bond Portfolio; (5) Dreyfus Variable Investment
Fund-Capital Appreciation Portfolio; (6) The Dreyfus Socially Responsible
Growth Fund, Inc.; (7) Dreyfus Stock Index Fund; and from Merrill Lynch
Variable Series Funds, Inc., (8) the Basic Value Focus Fund, (9) the
Global Strategy Focus Fund, (10) the High Current Income Fund and (11) the
Domestic Money Market Fund.
This Prospectus sets forth the basic information that a prospective
investor should know before investing. A "Statement of Additional
Information" containing more detailed information about the Contract is
available free of charge by writing to the Company's Administrative Office
at P.O. Box 5423, Cincinnati, Ohio 45201-5423. The Statement of
Additional Information, which has the same date as this Prospectus, as it
may be supplemented from time to time, has been filed with the Securities
and Exchange Commission and is incorporated herein by reference. The
table of contents of the Statement of Additional Information is included
at the end of this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES REGULATORY AUTHORITIES NOR
HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Please Read this Prospectus Carefully and Retain It for Future Reference.
The Date of this Prospectus is May 1, 1996.
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THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESMAN, OR
OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
VARIABLE ANNUITY CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED
OR GUARANTEED BY, ANY FINANCIAL INSTITUTION, NOR ARE THEY FEDERALLY
INSURED OR OTHERWISE PROTECTED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY; THEY ARE
SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL
INVESTMENT.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUS
FOR EACH UNDERLYING FUND. BOTH THIS PROSPECTUS AND THE UNDERLYING FUND
PROSPECTUSES SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
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GROUP FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
__________________________________________________________________________
TABLE OF CONTENTS
__________________________________________________________________________
Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
The Contract and Certificates . . . . . . . . . . . . . . . . 9
The Separate Account . . . . . . . . . . . . . . . . . . . . 9
The Fixed Account . . . . . . . . . . . . . . . . . . . . . . 10
Transfers Before the Annuity Commencement Date . . . . . . . 10
Surrenders . . . . . . . . . . . . . . . . . . . . . . . . . 10
Contingent Deferred Sales Charge ("CDSC") . . . . . . . . . . 10
Other Charges and Deductions . . . . . . . . . . . . . . . . 11
Annuity Benefits . . . . . . . . . . . . . . . . . . . . . . 11
Death Benefit . . . . . . . . . . . . . . . . . . . . . . . . 11
Federal Income Tax Consequences . . . . . . . . . . . . . . . 11
Contacting the Company . . . . . . . . . . . . . . . . . . . 12
SUMMARY OF EXPENSES . . . . . . . . . . . . . . . . . . . . . . . 13
Examples . . . . . . . . . . . . . . . . . . . . . . . . . . 16
FINANCIAL STATEMENTS FOR THE COMPANY . . . . . . . . . . . . . . . 18
THE FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Janus Aspen Series . . . . . . . . . . . . . . . . . . . . . 18
Aggressive Growth Portfolio . . . . . . . . . . . . . 18
Worldwide Growth Portfolio . . . . . . . . . . . . . 18
Balanced Portfolio . . . . . . . . . . . . . . . . . 18
Short-Term Bond Portfolio . . . . . . . . . . . . . . 18
Dreyfus Funds . . . . . . . . . . . . . . . . . . . . . . . . 19
Capital Appreciation Portfolio
(Dreyfus Variable Investment Fund) . . . . . . . . 19
The Dreyfus Socially Responsible Growth Fund, Inc. . 19
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GROUP FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
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Dreyfus Stock Index Fund . . . . . . . . . . . . . . 19
Merrill Lynch Variable Series Funds, Inc. . . . . . . 20
Basic Value Focus Fund . . . . . . . . . . . 20
Global Strategy Focus Fund . . . . . . . . . 20
High Current Income Fund . . . . . . . . . . 20
Domestic Money Market Fund . . . . . . . . . 20
Additions, Deletions, or Substitutions . . . . . . . . 21
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . 21
Yield Data . . . . . . . . . . . . . . . . . . . . . 21
Total Return Data . . . . . . . . . . . . . . . . . . 22
ANNUITY INVESTORS LIFE INSURANCE
COMPANY(REGISTERED) AND THE SEPARATE ACCOUNT . . . . . . . 23
Annuity Investors Life Insurance Company(REGISTERED) . 23
Published Ratings . . . . . . . . . . . . . . . . . . 23
The Separate Account . . . . . . . . . . . . . . . . . 23
THE FIXED ACCOUNT . . . . . . . . . . . . . . . . . . . . . . 25
Fixed Account Options . . . . . . . . . . . . . . . . 25
Renewal of Fixed Account Options . . . . . . . . . . . 25
THE CONTRACT . . . . . . . . . . . . . . . . . . . . . . . . . 26
ENROLLMENT AND PURCHASE PAYMENTS . . . . . . . . . . . . . . . 26
Purchase Payments . . . . . . . . . . . . . . . . . . 26
Allocation of Purchase Payments . . . . . . . . . . . 26
ACCOUNT VALUE . . . . . . . . . . . . . . . . . . . . . . . . 27
Fixed Account Value . . . . . . . . . . . . . . . . . 27
Variable Account Value . . . . . . . . . . . . . . . . 27
Accumulation Unit Value . . . . . . . . . . . . . . . 27
Net Investment Factor . . . . . . . . . . . . . . . . 28
TRANSFERS . . . . . . . . . . . . . . . . . . . . . . . . . . 28
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GROUP FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
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Telephone Transfers . . . . . . . . . . . . . . . . . 29
Dollar Cost Averaging . . . . . . . . . . . . . . . . 29
Portfolio Rebalancing . . . . . . . . . . . . . . . . 29
Interest Sweep . . . . . . . . . . . . . . . . . . . . 30
SURRENDERS . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Surrender Value . . . . . . . . . . . . . . . . . . . 30
Suspension or Delay in Payment of Surrender Value . . 31
Systematic Withdrawal Option . . . . . . . . . . . . . 32
CONTRACT LOANS . . . . . . . . . . . . . . . . . . . . . . . . 32
DEATH BENEFIT . . . . . . . . . . . . . . . . . . . . . . . . 32
Death of Participant . . . . . . . . . . . . . . . . . 32
Death Benefit . . . . . . . . . . . . . . . . . . . . 33
Beneficiary . . . . . . . . . . . . . . . . . . . . . 33
CHARGES AND DEDUCTIONS . . . . . . . . . . . . . . . . . . . . 34
Contingent Deferred Sales Charge ("CDSC") . . . . . . 34
Maintenance and Administrative Charges . . . . . . . . 35
Mortality and Expense Risk Charge . . . . . . . . . . 36
Premium Taxes . . . . . . . . . . . . . . . . . . . . 37
Transfer Fee . . . . . . . . . . . . . . . . . . . . . 37
Fund Expenses . . . . . . . . . . . . . . . . . . . . 37
Reduction or Elimination of Contract
and Certificate Charges . . . . . . . . . . . . . . 37
SETTLEMENT OPTIONS . . . . . . . . . . . . . . . . . . . . . . 38
Annuity Commencement Date . . . . . . . . . . . . . . 38
Election of Settlement Option . . . . . . . . . . . . 38
Annuity Benefit . . . . . . . . . . . . . . . . . . . 38
Fixed Dollar Annuity Benefit . . . . . . . . . . . . 39
Variable Dollar Annuity Benefit . . . . . . . . . . . 39
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GROUP FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
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Transfers After the Annuity Commencement Date . . . . 39
Annuity Transfer Formula . . . . . . . . . . . . . . . 40
Settlement Options . . . . . . . . . . . . . . . . . . 40
Minimum Amounts . . . . . . . . . . . . . . . . . . . 41
Settlement Option Tables . . . . . . . . . . . . . . . 41
GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . 42
Non-participating . . . . . . . . . . . . . . . . . . 42
Misstatement of Age . . . . . . . . . . . . . . . . . 42
Proof of Existence and Age . . . . . . . . . . . . . . 42
Facility of Payment . . . . . . . . . . . . . . . . . 42
Transfer and Assignment . . . . . . . . . . . . . . . 42
Annuity Data . . . . . . . . . . . . . . . . . . . . . 42
Annual Report . . . . . . . . . . . . . . . . . . . . 42
Incontestability . . . . . . . . . . . . . . . . . . . 43
Entire Contract . . . . . . . . . . . . . . . . . . . 43
Changes in the Contract . . . . . . . . . . . . . . . 43
Waiver of the Certificate Maintenance Fee . . . . . . 43
Notices and Directions . . . . . . . . . . . . . . . . 43
FEDERAL TAX MATTERS . . . . . . . . . . . . . . . . . . . . . 44
Introduction . . . . . . . . . . . . . . . . . . . . . 44
Taxation of Annuities In General . . . . . . . . . . . 44
Surrenders . . . . . . . . . . . . . . . . . . . . . . 45
Annuity Payments . . . . . . . . . . . . . . . . . . . 45
Penalty Tax . . . . . . . . . . . . . . . . . . . . . 45
Taxation of Death Benefit Proceeds . . . . . . . . . . 45
Transfers, Assignments, or Exchanges of the Contract . 45
Texas Optional Retirement Program . . . . . . . . . . 46
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GROUP FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
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Qualified Pension and Profit Sharing Plans
and H.R. 10 Plans . . . . . . . . . . . . . . . . . 46
Withholding . . . . . . . . . . . . . . . . . . . . . 46
Possible Changes in Taxation . . . . . . . . . . . . . 46
Other Tax Consequences . . . . . . . . . . . . . . . . 46
General . . . . . . . . . . . . . . . . . . . . . . . 46
DISTRIBUTION OF THE CONTRACT . . . . . . . . . . . . . . . . . 47
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . 47
VOTING RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . 47
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . 48
STATEMENT OF ADDITIONAL INFORMATION . . . . . . . . . . . . . 49
APPENDIX A . . . . . . . . . . . . . . . . . . . . . . . . . . 50
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GROUP FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
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DEFINITIONS
__________________________________________________________________________
Account(s): The Sub-Account(s) and/or the Fixed Account
options.
Account Value: The aggregate value of the Participant's
interest in the Sub-Account(s) and the
Fixed Account options as of the end of any
Valuation Period.
Accumulation Period: The period prior to the Annuity
Commencement Date during which the
Participant is eligible for benefits under
the Contract.
Accumulation Unit: The unit of measurement used to calculate
the value of the Sub-Account(s) prior to
the Annuity Commencement Date.
Administrative Office: The home office of the Company or any other
office the Company may designate for
administration.
Age: Age as of most recent birthday.
Annuitant: The Annuitant is the Participant and is the
person on whose life Annuity Benefit
payments are based.
Annuity Benefit: Periodic payments made by the Company under
a Settlement Option, which payments
commence after the Annuity Commencement
Date and continue during the Annuity
Payment Period, for the life of a person or
for a specific period. A Variable Dollar
Annuity Benefit will provide payments that
vary in amount. Fixed Dollar Annuity
Benefit payments remain constant.
Annuity Commencement Date: The date on which Annuity Benefits are to
begin.
Annuity Payment Period: The period commencing with the Annuity
Commencement Date, during which Annuity
Benefits are payable under the Contract
with respect to a Participant s
participation interest.
Annuity Unit: The unit of measurement used to determine
the value of any Variable Dollar Annuity
Benefit payments after the first Annuity
Benefit payment is made by the Company.
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GROUP FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
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Beneficiary: The person or persons entitled to receive
the Death Benefit if the Participant dies
prior to the Annuity Commencement Date.
Certificate Anniversary: An annual anniversary of the Certificate
Effective Date.
Certificate Effective
Date: The date shown on the Certificate
Specifications page.
Certificate Year: Any period of twelve months commencing on
the Certificate Effective Date and on each
Certificate Anniversary thereafter.
Code: The Internal Revenue Code of 1986, as
amended, and the rules and regulations
issued thereunder.
Contract Owner: The person shown as such on the Application
for the Contract, the Participant
Enrollment Form, the Contract
Specifications page and the Certificate
Specifications page.
Due Proof of Death: Any of (1) a certified copy of a death
certificate; (2) a certified copy of a
decree of a court of competent jurisdiction
as to the finding of death; (3) a written
statement by a medical doctor who attended
the deceased; or (4) any other proof
satisfactory to the Company.
Fixed Account: An account which is part of the Company's
general account, the values of which are
not dependent upon the investment
performance of the Sub-Accounts.
Fixed Account Value: The value of a Participant's interest in
all Fixed Account options.
Fund: A management investment company or a
portfolio thereof, registered under the
Investment Company Act of 1940, in which a
Sub-Account of the Separate Account
invests.
Net Asset Value: The amount computed by an investment
company, no less frequently than each
Valuation Period, as the price at which its
shares or units, as the case may be, are
redeemed in accordance with the rules of
the Securities and Exchange Commission.
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GROUP FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
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Participant: The person identified on the Certificate
Specifications page, who participates in
the benefits of the Contract.
Purchase Payment: A contribution after the deduction of
premium tax, if any, made to the Company in
consideration for the Participant's
participation under the Contract.
Separate Account: Annuity Investors Variable Account A (also
referred to as the "Variable Account")
which has been established by the Company
pursuant to the laws of the State of Ohio.
Settlement Option: The option elected by the Participant for
the payment of Annuity Benefits.
Sub-Account: The Separate Account is divided into Sub-
Accounts, each of which invests in the
shares of a designated Fund.
Surrender Value: The amount payable under a Certificate if
the Certificate is surrendered.
Valuation Period: The period commencing at the close of
regular trading on the New York Stock
Exchange on any Valuation Date and ending
at the close of trading on the next
succeeding Valuation Date. "Valuation
Date" means each day on which the New York
Stock Exchange is open for business.
Variable Account Value: The value of a Participant's interest in
all Sub-Accounts.
Written Request: Information provided, or a request made,
that is complete and satisfactory to the
Company and in writing, that is sent to the
Company on the Company's form or in a form
satisfactory to the Company, and that is
received by the Company at the
Administrative Office. A Written Request
is subject to any payment made or any
action the Company takes before the Written
Request is acknowledged by the Company. A
Participant may be required to return his
or her Certificate to the Company in
connection with a Written Request.
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GROUP FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
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HIGHLIGHTS
THE CONTRACT AND CERTIFICATES
__________________________________________________________________________
The Group Flexible Premium Deferred Annuity Contract described in this
Prospectus is designed for use in connection with certain retirement
arrangements that qualify for favorable tax treatment under Sections
401, 403, or 457 of the Code, and for non-tax qualified deferred
compensation arrangements.
The Contract Owner is the person shown as such on the Application for
the Contract, the Participant Enrollment Form, the Contract
Specifications page and the Certificate Specifications page. The
Contract is held by the Contract Owner for the benefit of Participants
and Beneficiaries. Each participant for whom Purchase Payment(s) are
made will participate in the Contract as a Participant. A Participant
account will be established for each Participant. Subject to the
terms of a Certificate, the Account Value, after certain adjustments,
will be applied to the payment of an Annuity Benefit under the
Settlement Option elected by the Participant.
The Account Value will depend on the investment experience of the
amounts allocated to each Sub-Account of the Separate Account elected
by the Participant and/or interest credited on amounts allocated to
the Fixed Account option(s) elected. All Annuity Benefits and other
values provided under the Certificate when based on the investment
experience of the Separate Account are variable and are not guaranteed
as to dollar amount. Therefore, prior to the Annuity Commencement
Date the Participant bears the entire investment risk with respect to
amounts allocated to the Separate Account under the Certificate.
THERE IS NO GUARANTEED OR MINIMUM SURRENDER VALUE WITH RESPECT TO
AMOUNTS ALLOCATED TO THE SEPARATE ACCOUNT, SO THE PROCEEDS OF A
SURRENDER COULD BE LESS THAN THE TOTAL PURCHASE PAYMENTS.
The Separate Account
Annuity Investors Variable Account A is a separate account of the
Company that is divided into Sub-Accounts (See "The Separate Account,"
page 9.) Each Sub-Account uses its assets to purchase, at their Net
Asset Value, shares of a Fund. The Funds available for investment in
the Separate Account under the Contract are as follows: from Janus
Aspen Series, (1) the Aggressive Growth Portfolio, (2) the Worldwide
Growth Portfolio, (3) the Balanced Portfolio, and (4) the Short-Term
Bond Portfolio; (5) Dreyfus Variable Investment Fund-Capital
Appreciation Portfolio; (6) The Dreyfus Socially Responsible Growth
Fund, Inc.; (7) Dreyfus Stock Index Fund; and from Merrill Lynch
Variable Series Funds Inc., (8) the Basic Value Focus Fund, (9) the
Global Strategy Focus Fund, (10) the High Current Income Fund and (11)
the Domestic Money Market Fund. Each Fund has distinct investment
objectives and policies which are described in the accompanying
prospectus for the Fund.
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GROUP FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
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Each Fund pays its investment adviser and other service providers
certain fees charged against the assets of the Fund. The Account
Value of a Certificate and the amount of any Annuity Benefits will
vary to reflect the investment performance of all the Sub-Accounts
elected by the Participant and the deduction of the charges described
under "Other Charges and Deductions," page 11. For more information
about the Funds, see "The Funds," page 18, and the accompanying Funds'
prospectuses.
The Fixed Account
The Fixed Account is an account within the Company's general account.
There are currently four Fixed Account options available under the
Fixed Account: a Fixed Accumulation Account option and three fixed-
term options. Purchase Payments allocated or amounts transferred to
the Fixed Account options are credited with interest at a rate
declared by the Company's Board of Directors, but in any event at a
minimum guaranteed annual rate of 3.0% corresponding to a daily rate
of 0.0081%. (See "The Fixed Account," page 25.)
Transfers Before the Annuity Commencement Date
Prior to the Annuity Commencement Date, the Participant may transfer
values between the Separate Account and the Fixed Account, within the
Fixed Account and between the Sub-Accounts, by Written Request to the
Company or by telephone in accordance with the Company's telephone
transfer rules. (See "Transfers," page 28.)
The Company currently charges a fee of $25 for each transfer
("Transfer Fee") in excess of twelve made during the same Certificate
Year. (See "Transfers," page 28.)
For transfers after the Annuity Commencement Date, see "Transfers
After the Annuity Commence-ment Date," page 39.
Surrenders
All or part of the Surrender Value of a Certificate may be surrendered
by the Participant on or before the Annuity Commencement Date by
Written Request to the Company. Amounts surrendered may be subject to
a Contingent Deferred Sales Charge ("CDSC") depending upon how long
the Purchase Payments to be withdrawn have been held under the
Certificate. Amounts withdrawn also may be subject to a premium tax
or similar tax, depending upon the jurisdiction in which the
Participant lives. Surrenders may be subject to a 10% premature
distribution penalty tax if made before the Participant reaches age 59
1/2. Surrenders may further be subject to federal, state or local
income tax. (See "Federal Tax Matters," page 44.)
Contingent Deferred Sales Charge ("CDSC")
A CDSC may be imposed on surrenders. The maximum CDSC is 7% of
Purchase Payments withdrawn during the first year after that Purchase
Payment is received, decreasing by 1% annually to 0% after year seven.
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GROUP FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
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The CDSC may be reduced or waived under certain circumstances. (See
"Charges and Deductions," page 34.)
Other Charges and Deductions
The Company deducts a daily charge ("Mortality and Expense Risk
Charge") at an effective annual rate of 1.25% of the daily Net Asset
Value of each Sub-Account. In connection with certain Contracts that
allow the Company to reduce administrative expenses, the Company will
offer an Enhanced Contract with a Mortality and Expense Risk Charge at
an effective annual rate of 0.95% of the daily Net Asset Value of each
Sub-Account. The Company may offer an Enhanced Contract to a group of
employees of the Company, its subsidiaries and/or affiliates.
The Company deducts a Certificate maintenance charge each year
("Certificate Maintenance Fee"). This Fee is currently $25 and is
deducted from a Participant's Variable Account Value on each
Certificate Anniversary. The Certificate Maintenance Fee may be
waived under certain circumstances, at the Company's discretion.
The Company does not currently intend to deduct a charge to help cover
the costs of administering the Contract, the Certificates and the
Separate Account ("Administration Charge"); however, the Company
reserves the right to impose an Administration Charge at a future
date. Any such Administration Charge is guaranteed not to exceed a
maximum effective annual rate of .20% of the daily Net Asset Value of
each Sub-Account.
Charges for premium taxes may be imposed in some jurisdictions.
Depending on the applicability of such taxes, the charges may be
deducted from Purchase Payments, from surrenders, and from other
payments made under the Certificate. (See "Charges and Deductions,"
page 34.)
Annuity Benefits
Annuity Benefits are paid on a fixed or variable basis, or a
combination of both. (See "Annuity Benefit," page 38.)
Death Benefit
The Certificate provides for the payment of a death benefit if the
Participant dies prior to the Annuity Commencement Date. The death
benefit may be paid as either a lump sum or pursuant to one of the
Settlement Options offered under the Certificate. (See "Death
Benefit," page 32.)
Federal Income Tax Consequences
A Participant generally should not be taxed on increases in the
Account Value until a distribution under the Certificate occurs (e.g.,
a surrender or Annuity Benefit) or is deemed to occur (e.g., a loan in
default). Generally, a portion (up to 100%) of any distribution or
deemed distribution is taxable as ordinary income. The taxable
portion of distributions is generally subject to income tax
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GROUP FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
__________________________________________________________________________
withholding unless the recipient elects otherwise. In addition, a
federal penalty tax may apply to certain distributions. (See "Federal
Tax Matters," page 44.)
Contacting the Company
All Written Requests and any questions or inquiries should be directed
to the Company's Administrative Office, P.O. Box 5423, Cincinnati,
Ohio 45201-5423, (800) 789-6771. All inquiries should include the
Certificate Number and the Participant's name.
NOTE: THE FOREGOING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE
DETAILED INFORMATION IN THE REMAINDER OF THIS PROSPECTUS AND IN THE
ACCOMPANYING PROSPECTUSES FOR THE FUNDS WHICH SHOULD BE REFERRED TO
FOR MORE DETAILED INFORMATION. THE REQUIREMENTS OF A PARTICULAR
RETIREMENT PLAN, AN ENDORSEMENT TO THE CONTRACT OR CERTIFICATE, OR
LIMITATIONS OR PENALTIES IMPOSED BY THE CODE OR THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, MAY IMPOSE
ADDITIONAL LIMITS OR RESTRICTIONS ON PURCHASE PAYMENTS, SURRENDERS,
DISTRIBUTIONS, OR BENEFITS, OR ON OTHER PROVISIONS OF THE CONTRACT OR
THE CERTIFICATES THEREUNDER. THIS PROSPECTUS DOES NOT DESCRIBE SUCH
LIMITATIONS OR RESTRICTIONS. (SEE "FEDERAL TAX MATTERS," PAGE 44.)
_____________________________________
PAGE 14
<PAGE>
GROUP FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
__________________________________________________________________________
SUMMARY OF EXPENSES
__________________________________________________________________________
Participant Transaction Expenses
SALES LOAD IMPOSED ON PURCHASE PAYMENTS NONE
CONTINGENT DEFERRED SALES CHARGE (AS A PERCENTAGE OF PURCHASE
PAYMENTS WITHDRAWN
CERTIFICATE YEARS SINCE PURCHASE PAYMENT RECEIPT
LESS THAN 1 YEAR 7%
1 YEAR BUT LESS THAN 2 YEARS 6%
2 YEARS BUT LESS THAN 3 YEARS 5%
3 YEARS BUT LESS THAN 4 YEARS 4%
4 YEARS BUT LESS THAN 5 YEARS 3%
5 YEARS BUT LESS THAN 6 YEARS 2%
6 YEARS BUT LESS THAN 7 YEARS 1%
7 YEARS OR MORE 0%
SURRENDER FEES NONE
TRANSFER FEE1 $25
ANNUAL CERTIFICATE MAINTENANCE FEE $25
________________________
1 THE FIRST TWELVE TRANSFERS IN A CERTIFICATE YEAR ARE FREE.
THEREAFTER, A $25 FEE WILL BE CHARGED ON EACH SUBSEQUENT TRANSFER.
_____________________________________
PAGE 15
<PAGE>
GROUP FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
__________________________________________________________________________
<TABLE>
<CAPTION>
Separate Account Annual Janus A.S. Janus A.S. Janus A.S. Janus A.S. Dreyfus V.I.F.
Expenses2 Aggressive World-wide Balanced Short-Term Capital
(as a percentage of average Growth Growth Portfolio Bond Portfolio Appreciation
Separate Account assets) Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C>
Mortality and Expense Risk
Charge 1.25% 1.25% 1.25% 1.25% 1.25%
Administration Charge 0.00% 0.00% 0.00% 0.00% 0.00%
Other Fees and Expenses of
the Separate Account 0.00% 0.00% 0.00% 0.00% 0.00%
Total Separate Account
Annual Expenses 1.25% 1.25% 1.25% 1.25% 1.25%
Fund Annual Expenses3 (as a percentage of Fund average net assets after fee waiver and/or expense
reimbursement, if any)
Management Fees 0.75% 0.68% 0.82% 0.00% 0.73%
Other Expenses 0.11% 0.22% 0.55% 0.70% 0.12%
Total Fund Annual Expenses 0.86% 0.90% 1.37% 0.70% 0.85%
</TABLE>
_____________________________________
PAGE 16
<PAGE>
GROUP FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
__________________________________________________________________________
<TABLE>
<CAPTION>
Separate Account Dreyfus Dreyfus Merrill Merrill Merrill Merrill
Annual Expenses2 Socially Stock Index Lynch Lynch Lynch V.S.F. Lynch V.S.F.
(as a percentage of Responsible Fund V.S.F. V.S.F. High Current Domestic
average Separate Growth Fund Basic Global Income Fund Money Market
Account assets) Value Strategy Fund
Focus Fund Focus Fund
<S> <C> <C> <C> <C> <C> <C>
Mortality and Expense
Risk Charge 1.25% 1.25% 1.25% 1.25% 1.25% 1.25%
Administration Charge 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Other Fees and Expenses
of the Separate Account 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Total Separate Account
Annual Expenses 1.25% 1.25% 1.25% 1.25% 1.25% 1.25%
Fund Annual Expenses3 (as a percentage of Fund average net assets after fee waiver and/or expense reimbursement, if
any)
Management Fees 0.69% 0.25% 0.60% 0.65% 0.50% 0.50%
Other Expenses 0.58% 0.14% 0.06% 0.07% 0.05% 0.05%
Total Fund Annual Expenses 1.27% 0.39% 0.66% 0.72% 0.55% 0.55%
</TABLE>
_____________________________________
PAGE 17
<PAGE>
GROUP FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
__________________________________________________________________________
The purpose of this table is to assist a Participant in understanding
the various costs and expenses that the Participant will bear directly
and indirectly with respect to investment in the Separate Account.
The table reflects expenses of each Sub-Account as well as of the Fund
in which the Sub-Account invests. See "Charges and Deductions" on
page 34 of this Prospectus and the accompanying prospectus for the
applicable Fund, for a more complete description of the various costs
and expenses. In addition to the expenses listed above, premium taxes
may be applicable. The dollar figures should not be considered a
representation of past or future expenses. Actual expenses may be
greater or less than those shown. The $25 Contract Maintenance Charge
is included in the Examples as $1.
__________________________
2 Annual expenses are anticipated to be the same for each Sub-Account.
These expenses are based on estimated amounts for the current fiscal
year.
3 Information regarding each underlying Fund has been provided to the
Company by each Fund, and the Company has not independently verified
such information. Data for each Fund is for its fiscal year ended
December 31, 1995. Actual expenses in future years may be higher or
lower.
Fund expenses are net of management fees and other expenses waived
and/or reimbursed (except for those Funds noted below). In the
absence of such fee waivers and/or expense reimbursements, Management
Fees, Other Expenses and Total Portfolio Expenses would have been as
follows for the fiscal year ended December 31, 1995: 0.82%, 0.11% and
0.93%, respectively, for the Janus A.S. Aggressive Growth Portfolio;
0.87%, 0.22% and 1.09%, respectively, for the Janus A.S. Worldwide
Growth Portfolio; 1.00%, 0.55% and 1.55%, respectively, for the Janus
A.S. Balanced Portfolio; and 0.65%, 0.72% and 1.37%, respectively, for
the Janus A.S. Short-Term Bond Portfolio; 0.75%, 0.12% and 0.87%,
respectively, for the Dreyfus V.I.F. Capital Appreciation Portfolio;
0.75%, 0.58% and 1.33%, respectively, for the Dreyfus Socially
Responsible Growth Fund; and 0.25%, 0.17% and 0.42%, respectively, for
the Dreyfus Stock Index Fund.
Fees and expenses for the Merrill Lynch V.S.F. Basic Value Focus Fund,
the Merrill Lynch V.S.F. Global Strategy Focus Fund, the Merrill Lynch
V.S.F. High Current Income Fund and the Merrill Lynch V.S.F. Domestic
Money Market Fund are based on 1995 fees and expenses but do not take
into account management fee waivers and expense reimbursements because
none were in effect for those Funds in 1995.
_____________________________________
PAGE 18
<PAGE>
GROUP FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
__________________________________________________________________________
Examples2
If you surrender your Certificate at the end of the applicable time
period, you would pay the following expenses on a $1,000 investment,
assuming a 5% annual return on assets:
Sub-Account 1 Year 3 Years
Janus A.S. Aggressive Growth Portfolio $ 93 $122
Janus A.S. Worldwide Growth Portfolio 93 123
Janus A.S. Balanced Portfolio 98 138
Janus A.S. Short-Term Bond Portfolio 91 116
Dreyfus V.I.F. Capital Appreciation 95 130
Portfolio
The Dreyfus Socially Responsible Growth 113 184
Fund, Inc.
Dreyfus Stock Index Fund 87 104
Merrill Lynch V.S.F. Basic Value Focus 91 115
Fund
Merrill Lynch V.S.F. Global Strategy 91 117
Focus Fund
Merrill Lynch V.S.F. High Current 90 112
Income Fund
Merrill Lynch V.S.F. Money Market Fund 90 112
________________________
2 The examples assume the reinvestment of all dividends and distribu-
tions, no transfers among Sub-Accounts or between Accounts, and a 5%
annual rate of return as mandated by the Securities Exchange Commission
regulations. Annual Certificate Maintenance Fees are based on an
estimated amount for the Separate Account's current fiscal year.
_____________________________________
PAGE 19
<PAGE>
GROUP FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
__________________________________________________________________________
If you do not surrender your Certificate, or if you annuitize it, you
would pay the following expenses on a $1,000 investment at the end of
the applicable time period, assuming a 5% annual return on assets:
Sub-Account 1 Year 3 Years
Janus A.S. Aggressive Growth Portfolio $ 23 $ 72
Janus A.S. Worldwide Growth Portfolio 23 73
Janus A.S. Balanced Portfolio 28 88
Janus A.S. Short-Term Bond Portfolio 21 66
Dreyfus V.I.F. Capital Appreciation
Portfolio 25 80
The Dreyfus Socially Responsible Growth
Fund, Inc. 43 134
Dreyfus Stock Index Fund 17 54
Merrill Lynch V.S.F. Basic Value Focus
Fund 21 65
Merrill Lynch V.S.F. Global Strategy
Focus Fund 21 67
Merrill Lynch V.S.F. High Current Income
Fund 20 62
Merrill Lynch V.S.F. Money Market Fund 20 62
The examples should not be considered a representation of past or future
expenses or annual rates of return of any Fund. Actual expenses and
annual rates of return may be more or less than those assumed for the
purpose of the examples.
The fee table and examples do not include charges to Participants for
premium taxes.
_____________________________________
PAGE 20
<PAGE>
GROUP FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
__________________________________________________________________________
FINANCIAL STATEMENTS FOR THE COMPANY
__________________________________________________________________________
The financial statements and report of independent public accountants
for the Company are contained in the Statement of Additional
Information. No financial information is included for the Separate
Account, because as of December 31, 1995, no financial transactions
had occurred within the Separate Account.
THE FUNDS
__________________________________________________________________________
The Separate Account currently has eleven Funds that are available for
investment under a Certificate. Each Fund has separate investment
objectives and policies. As a result, each Fund operates as a
separate investment portfolio and the investment performance of one
Fund has no effect on the investment performance of any other Fund.
There is no assurance that any of these Funds will achieve their
stated objectives. The Securities and Exchange Commission does not
supervise the management or the investment practices and/or policies
of any of the Funds.
The Separate Account invests exclusively in shares of the Funds listed
below (followed by a brief overview of each Fund's investment
objective(s) and policies):
Janus Aspen Series:
Aggressive Growth Portfolio. A nondiversified portfolio that seeks
long-term growth of capital by investing primarily in common stocks,
with an emphasis on securities issued by medium-sized companies. The
Portfolio may invest in debt securities, including junk bonds.
Worldwide Growth Portfolio. A diversified portfolio that seeks long-
term growth of capital by investing primarily in common stocks of
foreign and domestic issuers. The Portfolio may invest in debt
securities, including junk bonds.
Balanced Portfolio. A diversified portfolio that seeks long-term
growth of capital balanced by current income. The Fund 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 may invest in
junk bonds.
Short-Term Bond Portfolio. A diversified portfolio that seeks a high
level of current income while minimizing interest rate risk by
investing in shorter term fixed-income securities. Its average-
weighted maturity is normally less than three years. The Portfolio
may invest in junk bonds.
Janus Capital Corporation serves as the investment adviser to each of
these Funds.
_____________________________________
PAGE 21
<PAGE>
GROUP FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
__________________________________________________________________________
Dreyfus Funds:
Capital Appreciation Portfolio (Dreyfus Variable Investment Fund). The
Capital Appreciation Portfolio's primary investment objective is to
provide long-term capital growth consistent with the preservation of
capital, current income is a secondary goal. It seeks to achieve its
goals by investing principally in common stocks of domestic and
foreign issuers, common stocks with warrants attached and debt
securities of foreign governments.
The Dreyfus Corporation serves as the investment adviser and Fayez
Sarofim & Co. serves as the sub-investment adviser to this Fund.
The Dreyfus Socially Responsible Growth Fund, Inc. The Dreyfus
Socially Responsible Growth Fund Inc.'s primary goal is to provide
capital growth. It seeks to achieve this goal by investing
principally in common stocks, or securities convertible into common
stock, of companies which, in the opinion of the Fund's management,
not only meet traditional investments standards, but also show
evidence that they conduct their business in a manner that contributes
to the enhancement of the quality of life in America. Current income
is a secondary goal.
The Dreyfus Corporation serves as the investment adviser and NCM
Capital Management Group, Inc. serves as the sub-investment adviser to
this Fund.
Dreyfus Stock Index Fund. The Dreyfus Stock Index Fund's investment
objective is to provide investment results that correspond to the
price and yield performance of publicly traded common stocks in the
aggregate, as represented by the Standard & Poor's 500 Composite Stock
Price Index. The Stock Index Fund is neither sponsored by nor
affiliated with Standard & Poor's Corporation.
The Dreyfus Corporation, located at 200 Park Avenue, New York, New
York 10166, acts as the Fund's manager, and Mellon Equity Associates,
an affiliate of Dreyfus, located at 500 Grant Street, Pittsburgh,
Pennsylvania 15258, is the index manager.
Merrill Lynch Variable Series Funds, Inc.:
Basic Value Focus Fund. The investment objective of the Fund is to
seek capital appreciation and, secondarily, income by investing in
securities, primarily equities, that management of the Fund believes
are undervalued and therefore represent basic investment value. The
Fund seeks special opportunities in securities that are selling at a
discount, either from book value or historical price-earnings ratios,
or seem capable of recovering from temporarily out-of-favor
considerations. Particular emphasis is placed on securities that
provide an above-average dividend return and sell at a below-average
price-earnings ratio.
Global Strategy Focus Fund. The investment objective of the Fund is to
seek high total investment return by investing primarily in a
portfolio of equity and fixed income securities, including convertible
_____________________________________
PAGE 22
<PAGE>
GROUP FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
__________________________________________________________________________
securities, of U.S. and foreign issuers. The Fund seeks to achieve
its objective by investing primarily in securities of issuers located
in the U.S., Canada, Western Europe and the Far East. Geographical
allocation of the Fund's investments is not limited, and will be made
on the basis of anticipated total return from investments, considering
various economic, market, and political factors.
High Current Income Fund. The investment objective of the Fund is to
obtain as high a level of current income as is consistent with its
investment policies and prudent investment management, and capital
appreciation to the extent consistent with the foregoing objective.
The Fund seeks to achieve its objective by investing principally in
fixed-income securities that are rated in the lower rating categories
of the established rating services or in unrated securities of
comparable quality, including junk bonds.
Domestic Money Market Fund. The investment objectives of the Fund are
to seek preservation of capital, maintain liquidity and achieve the
highest possible current income consistent with the foregoing
objectives by investing in short-term domestic money market
securities.
Merrill Lynch Asset Management, L.P. serves as the investment adviser
to these Funds.
Meeting Fund objectives depends on various factors, including, but not
limited to, how well the portfolio managers anticipate changing
economic and market conditions.
THERE IS NO ASSURANCE THAT ANY OF THESE FUNDS WILL ACHIEVE THEIR
STATED OBJECTIVES.
INVESTMENTS IN THESE FUNDS ARE NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT OR ANY OTHER ENTITY OR PERSON.
Since each of the Funds is available to separate accounts offering
variable annuity and variable life products of other insurance
companies and certain Funds may be available to qualified pension and
retirement plans, there is a possibility that a material conflict may
arise between the interests of the Separate Account and one or more
other separate accounts or plans investing in the Fund. In the event
of a material conflict, the affected insurance companies will take any
necessary steps to resolve the matter, including stopping their
separate accounts from investing in the particular Fund. See the
Funds' prospectuses for greater detail.
Additional information concerning the investment objectives and
policies of each Fund, the investment advisory services and
administrative services and charges can be found in the current
prospectus for the Fund which accompanies this Prospectus. THE
APPROPRIATE FUNDS' PROSPECTUSES SHOULD BE READ CAREFULLY BEFORE ANY
DECISION IS MADE CONCERNING THE ALLOCATION OF PURCHASE PAYMENTS TO, OR
TRANSFERS AMONG, THE SUB-ACCOUNTS.
_____________________________________
PAGE 23
<PAGE>
GROUP FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
__________________________________________________________________________
Additions, Deletions, or Substitutions
The Company does not control the Funds and cannot guarantee that any
of the Sub-Accounts or any of the Funds will always be available for
allocation of Purchase Payments or transfers. The Company retains the
right to make changes in the Separate Account and its investments.
The Company reserves the right to eliminate the shares of any Fund
held by a Sub-Account, and to substitute shares of another investment
company for the shares of any Fund, if the shares of that Fund are no
longer available for investment, or if, in the Company's judgment,
investment in any Fund would be inappropriate in view of the purposes
of the Separate Account. To the extent required by the Investment
Company Act of 1940, as amended ("1940 Act"), or other applicable law,
a substitution of shares attributable to the Participant's interest in
a Sub-Account will not be made without prior notice to the Participant
and the prior approval of the Securities and Exchange Commission.
Nothing contained herein shall prevent the Separate Account from
purchasing other securities for other series or classes of variable
annuity policies, or from effecting an exchange between series or
classes of variable policies on the basis of requests made by
Participants.
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
Participants on a basis to be determined by the Company. Each
additional Sub-Account will purchase shares in a Fund or in another
mutual fund or investment vehicle. The Company may also eliminate one
or more Sub-Accounts, if in its sole discretion, marketing, tax,
investment or other conditions so warrant. In the event any Sub-
Account is eliminated, the Company will notify Participants and
request a re-allocation of the amounts invested in the eliminated Sub-
Account.
In the event of any substitution or change, the Company may make such
changes in the Contract and Certificate as may be necessary or
appropriate to reflect such substitution or change. Furthermore, if
deemed to be in the best interests of persons having voting rights
under the Certificates, 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 such Act in the event such
registration is no longer required, or may be combined with one or
more separate accounts.
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. For
a description of the methods used to determine yield and total return,
see the Statement of Additional Information.
_____________________________________
PAGE 24
<PAGE>
GROUP FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
__________________________________________________________________________
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 Company may also advertise the effective yield
of the Money Market Sub-Account which is calculated similarly but,
when annualized, the income earned by an investment in that Sub-
Account is assumed to be reinvested. The effective yield will be
slightly higher than the yield because of the compounding effect of
this assumed reinvestment.
The yield of a Sub-Account other than the Money Market Sub-Account
refers to the annualized income generated by an investment in the Sub-
Account over a specified 30-day period.
The yield calculations do not reflect the effect of any CDSC or
premium taxes that may be applicable to a particular Certificate which
would reduce the yield of that Certificate.
Total Return Data
The average annual total return of a Sub-Account refers to return
quotations, assuming an investment has been held in the Sub-Account
for various periods of time including, but not limited to, a period
measured from the date the Sub-Account commenced operations. When a
Sub-Account has been in operation for one, five and ten years,
respectively, the average annual total return presented will be
presented for these periods, although other periods may also be
provided. The average annual total return quotations reflect the
deduction of all applicable charges except for premium taxes. In
addition to average annual total return for a Sub-Account, the Company
may provide cumulative total return and/or other non-standardized
total return for the Sub-Account.
Reports and promotional literature may contain the ranking of any Sub-
Account derived from rankings of variable annuity separate accounts,
or their investment products tracked by Lipper Analytical Services,
Inc., VARDS, IBC/Donoghue's Money Fund Report, Financial Planning
Magazine, Money Magazine, Bank Rate Monitor, Standard & Poor's
Indices, Dow Jones Industrial Average, and other rating services,
companies, publications, or other persons who rank separate accounts
or other investment products on overall performance or other criteria.
The Company may compare the performance of a Sub-Account with
applicable indices and/or industry averages. Performance information
may present the effects of tax-deferred compounding on Sub-Account
investment returns, or returns in general, which may be illustrated by
graphs, charts, or otherwise, and which may include comparisons of
investment return on a tax-deferred basis with currently taxable
investment return.
The Company may also advertise performance figures for the Sub-
Accounts based on the performance of a Fund prior to the time the
Separate Account commenced operations.
_____________________________________
PAGE 25
<PAGE>
GROUP FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
__________________________________________________________________________
ANNUITY INVESTORS LIFE INSURANCE COMPANY(REGISTERED) AND THE SEPARATE
ACCOUNT
__________________________________________________________________________
Annuity Investors Life Insurance Company(REGISTERED)
Annuity Investors Life Insurance Company(REGISTERED) (the "Company"),
formerly known as Carillon Life Insurance Company, is a stock life
insurance company incorporated under the laws of the State of Ohio in
1981. The Company is principally engaged in the sale of fixed and
variable annuity policies.
The Company is a wholly-owned subsidiary of Great American(REGISTERED)
Life Insurance Company which is a wholly-owned subsidiary of American
Annuity Group(SERVICEMARK), Inc., a publicly traded insurance holding
company. That company is in turn indirectly controlled by American
Financial Group, Inc., a publicly traded holding company.
The home office of the Company is located at 250 East Fifth Street,
Cincinnati, Ohio 45202.
Published Ratings
The Company may from time to time publish in advertisements, sales
literature and reports to Contract Owners and Participants, 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 and
should not be considered as reflecting on the investment performance
of assets held in the Separate Account. Each year the A.M. Best
Company reviews the financial status of thousands of insurers,
culminating in the assignment of Best's Ratings. These ratings
reflect their current opinion of the relative financial strength and
operating performance of an insurance company in comparison to the
norms of the life/health insurance industry. In addition, the claims-
paying ability of the Company as measured by Standard & Poor's or Duff
& Phelps may be referred to in advertisements or sales literature or
in reports to Contract Owners and Participants. These ratings are
opinions of those agencies as to an operating insurance company's
financial capacity to meet the obligations of its insurance and
annuity policies in accordance with their terms. Such ratings 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 Variable Account A was established by the Company as
an insurance company separate account under the laws of the State of
Ohio on May 26, 1995, pursuant to resolutions 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.
_____________________________________
PAGE 26
<PAGE>
GROUP FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
__________________________________________________________________________
The assets of the Separate Account are owned by the Company but they
are held separately from the other assets of the Company. The Ohio
Revised Code provides that 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 or not realized, 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.
Under Ohio law, the assets of the Separate Account will be held for
the exclusive benefit of Contract Owners and Participants under the
Contracts offered by this Prospectus and under all other contracts
which provide for accumulated values or dollar amount payments to
reflect investment results of the Separate Account. The obligations
arising under the Contract and Certificates are obligations of the
Company.
The Separate Account has eleven Sub-Accounts, each of which invests
solely in a specific corresponding Fund. (See "The Funds," page 18.)
Changes to the Sub-Accounts may be made at the discretion of the
Company. (See "Additions, Deletions, or Substitutions," page 21.)
THE FIXED ACCOUNT
__________________________________________________________________________
The Fixed Account is a part of the Company's general account. Because
of exemptive and exclusionary provisions, interests in the general
account have not been registered under the Securities Act of 1933, nor
is the general account registered as an investment company under the
1940 Act. Accordingly, neither the general account nor any interest
therein is generally subject to the provisions of these Acts, and the
staff of the Securities and Exchange Commission does not generally
review the disclosures in the prospectus relating to the Fixed
Account. Disclosures regarding the Fixed Account and the general
account may, however, be subject to certain generally applicable
provisions of the federal securities laws relating to the accuracy and
completeness of statements made in the prospectus.
The Company has sole discretion to invest the assets of the Fixed
Account, subject to applicable law. The Company delegates the
investment of the assets of the Fixed Account to American Money
Management Corporation. Allocation of any amounts to the Fixed
Account does not entitle Participants to share directly in the
investment experience of these assets. The Company assumes the risk
of investment gain or loss on the portion of the Account Value
allocated to the Fixed Account. All assets held in the general
account are subject to the Company's general liabilities from business
operations.
_____________________________________
PAGE 27
<PAGE>
GROUP FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
__________________________________________________________________________
Fixed Account Options
There are currently four options under the Fixed Account: the Fixed
Accumulation Account option; and the guarantee period options referred
to in the Certificate as the Fixed Account options One-Year, Three-
Year and Five-Year Fixed, respectively. Additional Fixed Account
options may be offered by the Company at any time. Purchase Payments
allocated and amounts transferred to the Fixed Account options
accumulate interest at the applicable current interest rate declared
by the Company's Board of Directors, and if applicable, for the
duration of the guarantee period selected.
The Company guarantees a minimum rate of interest for the Fixed
Account options. The guaranteed rate is 3% per year. For any Fixed
Account option, the Company's Board of Directors may declare and pay
current interest higher than the guaranteed rate at any time. Once
declared, such rate will be paid until changed by the Company for new
allocations to that Fixed Account option, but such change will not be
applicable with respect to amounts previously allocated to such Fixed
Account option.
Renewal of Fixed Account Options
The following provisions apply to all Fixed Account Options except the
Fixed Accumulation Account option.
At the end of a guarantee period, and for the thirty days immediately
preceding the end of such guarantee period, the Participant may elect
a new option to replace the Fixed Account option that is then
expiring. The entire amount maturing may be reallocated to any of the
then current options under the Certificate (including the various Sub-
Accounts within the Separate Account), except that a Fixed Account
option with a guarantee period that would extend past the Annuity
Commencement Date may not be selected. In particular, in the case of
renewals occurring within one year of the Annuity Commencement Date,
the only Fixed Account option available is the Fixed Accumulation
Account.
If the Participant does not specify a new option in accordance with
the preceding paragraph, the Participant will be deemed to have
elected the same Fixed Account option, so long as the guarantee period
of such option does not extend beyond the Annuity Commencement Date.
In the event that such a period would extend beyond the Annuity
Commencement Date, the Participant will be deemed to have selected the
Fixed Account option with the longest available guarantee period that
expires prior to the Annuity Commencement Date.
THE CONTRACT
__________________________________________________________________________
The Contract is a group flexible premium deferred annuity. The rights
and benefits are described below and in the Certificate and the
Contract. The Company reserves the right to make any modification to
conform the Contract and Certificates thereunder to, or give the
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__________________________________________________________________________
Participant the benefit of, any applicable law. The obligations under
the Contract and Certificates are obligations of the Company.
For each Certificate, a different Account will be established and
Fixed Account Values, Variable Account Values, and benefits and
charges will be calculated separately. The various administrative
rules described below will apply separately to each Certificate,
unless otherwise noted. The Company reserves the right to terminate
any Certificate for which the Account Value is less than $500 and no
Purchase Payment has been received for at least two years.
ENROLLMENT AND PURCHASE PAYMENTS
__________________________________________________________________________
Purchase Payments
All Purchase Payments must be received at the Administrative Office.
Each Purchase Payment will be applied by the Company to the credit of
a Participant's Account. If the Participant Enrollment Form is in
good order, the Company will apply the initial Purchase Payment to an
account for the Participant within two business days of receipt of the
Purchase Payment at the Administrative Office. If the Enrollment Form
is not in good order, the Company will attempt to get the Enrollment
Form in good order within five business days. If the Enrollment Form
is not in good order at the end of this period, the Company will
inform the Contract Owner 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 Enrollment Form is in good order. Once the Enrollment Form
is in good order, the Purchase Payment will be applied to the
Participant's Account within two business days.
Additional Purchase Payments may be made at any time prior to the
Annuity Commencement Date, as long as the Participant is living. Each
additional Purchase Payment is credited to a Certificate as of the
next valuation following the receipt of such additional Purchase
Payment.
No Purchase Payment for any Certificate may exceed $500,000 without
prior approval of the Company.
Allocation of Purchase Payments
Purchase Payments will be allocated to the Fixed Account and/or to the
Sub-Accounts according to the instructions in the Participant
Enrollment Form or subsequent Written Request. Allocations are made
in percentages, and whole percentages must be used.
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__________________________________________________________________________
ACCOUNT VALUE
__________________________________________________________________________
Before the Annuity Commencement Date, the Account Value is equal to
the Fixed Account Value plus the Variable Account Value.
Fixed Account Value
The Fixed Account Value at any time is equal to (a) the Purchase
Payment(s) allocated to the Fixed Account; plus (b) amounts
transferred to the Fixed Account; plus (c) interest credited to the
Fixed Account; less (d) any charges, surrenders, deductions, amounts
transferred from the Fixed Account or other adjustments made in
accordance with the provisions of the Contract.
Variable Account Value
The Variable Account Value for the Certificate at any time is the sum
of the value of each Sub-Account ("Sub-Account Value") selected by the
Participant for the Certificate on the Valuation Date most recently
completed.
Purchase Payments may be allocated among, and Account Values may be
transferred to, the various Sub-Accounts within the Separate Account,
subject to the provisions of the Contract governing transfers. For
each Sub-Account, the Purchase Payment(s) or amounts transferred are
converted into Accumulation Units. The number of Accumulation Units
credited is determined by dividing the dollar amount directed to each
Sub-Account by the Accumulation Unit Value for that Sub-Account at the
end of the Valuation Period on which the Purchase Payment(s) or
transferred amount is received.
The following events will result in the cancellation of an appropriate
number of Accumulation Units of a Sub-Account:
(1) transfer from a Sub-Account;
(2) full or partial surrender of a Participant's Variable Account
Value;
(3) payment of a Death Benefit;
(4) application of a Participant s Variable Account Value to a
Settlement Option;
(5) deduction of the Certificate Maintenance Fee; or
(6) deduction of a Transfer Fee.
Accumulation Units will be canceled as of the end of the Valuation
Period during which the Company received a Written Request regarding
the event giving rise to such cancellation, or Due Proof of Death and
a Written Request regarding payment of the Death Benefit, or the
Valuation Period on which the Certificate Maintenance Fee is due, as
the case may be.
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__________________________________________________________________________
The Variable Account Value for a Certificate at any time is equal to
the sum of the number of Accumulation Units attributable to that
Certificate for each Sub-Account multiplied by the Accumulation Unit
value ("Accumulation Unit Value") for each Sub-Account at the end of
the Valuation Period.
Accumulation Unit Value
The initial Accumulation Unit Value for each Sub-Account, with the
exception of the Money Market Sub-Account, was set at $10 when the
Sub-Account was created. The initial Accumulation Unit Value for the
Money Market Sub-Account was set at $1.00. Thereafter, the
Accumulation Unit Value 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, as described below.
Net Investment Factor
The Accumulation Unit Value for each Sub-Account for any Valuation
Period is determined by the Net Investment Factor. The Net Investment
Factor is a factor applied to measure the investment performance of a
Sub-Account from one Valuation Period to the next. Each Sub-Account
has a Net Investment Factor for each Valuation Period which may be
greater or less than one. Therefore, the value of an Accumulation
Unit may increase or decrease. The Net Investment Factor for any Sub-
Account for any Valuation Period is determined by dividing (1) by (2)
and subtracting (3) from the result, where:
(1) is equal to:
a. the Net Asset Value per share of the Fund held in the Sub-
Account, determined at the end of the current Valuation Period;
plus
b. the per share amount of any dividend or net capital gain
distributions made by the Fund held in the Sub-Account, if the
"ex-dividend" date occurs during the current Valuation Period;
plus or minus
c. a per share charge or credit for any taxes reserved for,
which is determined by the Company to have resulted from the
investment operations of the Sub-Account;
(2) is the Net Asset Value per share of the Fund held in the Sub-
Account, determined at the end of the most recent Valuation
Period; and
(3) is the factor representing the Mortality and Expense Risk Charge
and the Administration Charge deducted from the Sub-Account for
the number of days in the Valuation Period.
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__________________________________________________________________________
TRANSFERS
__________________________________________________________________________
By Written Request prior to the Annuity Commencement Date, the
Participant may transfer amounts in a Sub-Account to a different Sub-
Account and/or one or more of the Fixed Account options. The minimum
transfer amount is $500. If the Sub-Account balance is less than $500
at the time of the transfer, the entire amount of the Sub-Account
balance must be transferred. The Participant may also transfer
amounts from any Fixed Account options to any different Fixed Account
option and/or one or more of the Sub-Accounts. If a transfer is being
made from a Fixed Account option pursuant to the "Renewal" provision
of the "FIXED ACCOUNT" section of this Prospectus, then the entire
amount of that Fixed Account option may be transferred to any one or
more of the Sub-Accounts. In any other case, transfers from any Fixed
Account options are subject to a cumulative limit during each
Certificate Year of 20% of the most recent Certificate Year-end values
of that Fixed Account option, and are not permitted during the first
Certificate Year. However, if the Account Value of the Fixed Account
option being transferred is less than $500 at the time of the
transfer, then the entire balance will be transferred. The Company
may from time to time change the amount available for transfer from
the Fixed Accumulation Account. Amounts previously transferred from
Fixed Account options to the Sub-Accounts may not be transferred back
to the Fixed Account options for a period of at least six months from
the date of transfer.
The Company charges a Transfer Fee of $25 for each transfer in excess
of twelve during the same Certificate Year.
The Company reserves the right, in the Company's sole discretion and
at any time without prior notice, to terminate, suspend or modify the
transfer privileges described above.
See "Transfers After the Annuity Commencement Date," page 39.
Telephone Transfers
A Participant also 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 Certificate. Transfer instructions
are currently accepted on each Valuation Date between 9:30 a.m. and
4:00 p.m. Eastern Time at (800) 789-6771. Once instructions have been
accepted, they may not be rescinded; however, new telephone
instructions may be given the following day.
The Company will not be liable for complying with telephone
instructions the Company reasonably believes to be genuine or for any
loss, damage, cost or expense in acting on such telephone
instructions. The Participant 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
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__________________________________________________________________________
or fraudulent instructions. These procedures may include, among
others, tape recording telephone instructions.
Dollar Cost Averaging
Prior to the Annuity Commencement Date, the Participant may establish
automatic transfers from the Money Market Sub-Account to any of the
other Sub-Accounts, on a monthly or quarterly basis, by submitting to
the Administrative Office a Dollar Cost Averaging Enrollment Form. No
Dollar Cost Averaging transfers may be made to any of the Fixed
Account options. The transfers will begin within 30 days of the
receipt of such Enrollment Form.
In order to be eligible for Dollar Cost Averaging the value of the
Money Market Sub-Account must be at least $10,000 and the minimum
amount that can be transferred is $500 per month.
Dollar Cost Averaging will automatically terminate if any Dollar Cost
Averaging transfer would cause the balance of the Money Market Sub-
Account to fall below $500. At that time, the Company will then
transfer the balance of the Money Market Sub-Account to the other Sub-
Accounts in the same percentage distribution as directed in the Dollar
Cost Averaging Enrollment Form.
Dollar Cost Averaging transfers will not count toward the twelve
transfers permitted under the Certificate without charge.
Before electing Dollar Cost Averaging, a Participant should consider
the risks involved in switching between investments available under
the Certificate. Dollar Cost Averaging requires regular investments
regardless of fluctuating price levels and does not guarantee profits
or prevent losses in a declining market. A Participant should
consider his or her financial ability to continue Dollar Cost
Averaging transfers through periods of changing price levels.
The Participant may terminate Dollar Cost Averaging services, at any
time, by Written Request to the Company. In addition, the Company
reserves the right to terminate, modify or suspend the Dollar Cost
Averaging option at any time. Currently, the Company does not charge
a fee for Dollar Cost Averaging services. However, the Company
reserves the right to impose an annual fee not to exceed $25 for each
Dollar Cost Averaging service performed by the Company.
Portfolio Rebalancing
In connection with the allocation of Purchase Payments to the Sub-
Accounts and/or the Fixed Accumulation Account, the Participant may
elect to have the Company perform Portfolio Rebalancing services. The
election of Portfolio Rebalancing instructs the Company to
automatically transfer amounts between the Sub-Accounts and the Fixed
Accumulation Account in percentage allocations selected by the
Participant.
The Participant may elect Portfolio Rebalancing by Written Request.
In order to elect Portfolio Rebalancing after the Certificate has been
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__________________________________________________________________________
issued, the Participant must submit a Written Request for Portfolio
Rebalancing to the Company and the Participant must have a minimum
Account Value of $10,000. Portfolio Rebalancing will be performed on
a quarterly basis.
The Participant may terminate Portfolio Rebalancing services, at any
time, by Written Request to the Company. In addition, the Company
reserves the right to terminate, modify or suspend the Portfolio
Rebalancing option at any time. Currently, the Company does not
charge a fee for Portfolio Rebalancing services. However, the Company
reserves the right to impose an annual fee not to exceed $25 for each
Portfolio Rebalancing service performed by the Company.
Interest Sweep
Prior to the Annuity Commencement Date, the Participant may establish
automatic transfers of the income from each Fixed Account option
selected on the Interest Sweep Enrollment Form to the Sub-Accounts, on
a quarterly basis. Transfers will begin on the next quarterly
Interest Sweep date that is at least 30 days after receipt of such
Enrollment Form at the Administrative Office. The Company may, at its
sole discretion, set the quarterly Interest Sweep date.
In order to be eligible for the Interest Sweep option the value of
each Fixed Account option selected on the Interest Sweep Enrollment
Form, must be at least $5,000 and the maximum amount that can be
transferred from each Fixed Account option so selected is 20% of such
Fixed Account option's value per year.
Interest Sweep transfers will not count toward the twelve transfers
permitted under the Certificate without charge.
The Participant may terminate participation in the Interest Sweep
option, at any time, by Written Request to the Company. In addition,
the Company reserves the right to terminate, modify or suspend the
Interest Sweep option at any time. Currently, the Company does not
charge a fee for Interest Sweep services. However, the Company
reserves the right to impose an annual fee not to exceed $25 for each
Interest Sweep service performed by the Company.
The Company reserves the right, at any time, to terminate, suspend or
modify the transfer privileges described above without prior notice to
Participants, as permitted by applicable law.
SURRENDERS
__________________________________________________________________________
Surrender Value
The Participant may surrender all or part of the Surrender Value of a
Certificate. Full or partial surrenders of the Surrender Value may be
made by Written Request at any time prior to the Annuity Commencement
Date; the Surrender Value will be the Surrender Value at the end of
the Valuation Period in which the Written Request is received. The
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Surrender Value at any time is equal to the Account Value as of that
Valuation Period less any applicable Contingent Deferred Sales Charge
("CDSC"), less any outstanding loans and less any applicable premium
tax not previously deducted. On full surrender, an annual Certificate
Maintenance Fee also will be deducted as part of the calculation of
the Surrender Value. A full or partial surrender prior to the Annuity
Commencement Date may be subject to a CDSC as set forth in this
prospectus, except that such charge will not apply to: (1) any portion
of the Account Value in excess of total Purchase Payments; (2) any
portion of the Account Value attributable to Purchase Payment(s) that
are no longer subject to the charge; or (3) payment of the Death
Benefit.
The CDSC is calculated separately for each Purchase Payment.
Surrenders will be deemed to be withdrawn first from the portion of
the Account Value in excess of total Purchase Payments and then from
Purchase Payments. For this purpose, Purchase Payment(s) are deemed
to be withdrawn on a "first-in, first-out" (FIFO) basis. Surrenders
will result in the cancellation of Accumulation Units from each
applicable Sub-Account(s) and/or a reduction of the Participant's
Fixed Account Value. In the case of a full surrender, the
Participant's participation interest under the Contract and the
Certificate will be canceled. The CDSC may be waived in whole or in
part under certain circumstances.
The Company reserves the right to terminate a Certificate if a partial
surrender would reduce a Participant's Account Value to less than the
$500 minimum balance and no Purchase Payments have been received by
the Company for at least two years.
The Certificate Maintenance Fee, unless waived, will be deducted from
a full surrender before the application of any CDSC. (See "Charges
and Deductions," page 34.)
Surrenders may be subject to a 10% premature distribution penalty tax
if made before the Participant reaches age 59 1/2, and may further be
subject to federal, state or local income tax. (See "Federal Tax
Matters," page 44.)
Suspension or Delay in Payment of Surrender Value
The Company may suspend or delay the date of payment of a partial or
full surrender of the Variable Account Value for any period if:
(1) the New York Stock Exchange ("NYSE") is closed or trading on the
NYSE is restricted;
(2) an emergency exists (as determined by the Securities and Exchange
Commission) as a result of which (a) the disposal of securities in the
Separate Account is not reasonably practicable; or (b) it is not
reasonably practicable to determine fairly the value of the net assets
in the Separate Account; or
(3) the Securities and Exchange Commission so permits for the
protection of security holders.
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__________________________________________________________________________
The Company further reserves the right to delay payment of any partial
or full surrender of the Fixed Account Value for up to six months.
A surrender request will be effective when all appropriate surrender
request forms are received. Payments of any amounts derived from a
Purchase Payment paid by check may be delayed until the check has
cleared.
SINCE THE PARTICIPANT ASSUMES THE INVESTMENT RISK AND BECAUSE CERTAIN
SURRENDERS ARE SUBJECT TO A CDSC, THE TOTAL AMOUNT PAID UPON SURRENDER
OF THE CERTIFICATE (TAKING INTO ACCOUNT ANY PRIOR SURRENDERS) MAY BE
MORE OR LESS THAN THE TOTAL PURCHASE PAYMENTS.
Since the qualified contracts offered by this Prospectus will be
issued in connection with retirement plans which meet the requirements
of Sections 401, 403 or 457 of the Code, as applicable, reference
should be made to the terms of the particular plans for any additional
limitations or restrictions on surrenders.
Systematic Withdrawal Option
Prior to the Annuity Commencement Date, the Participant, by Written
Request to the Administrative Office, may elect to automatically
withdraw money from the Fixed Account and/or the Sub-Accounts. To be
eligible for the Systematic Withdrawal Option, the Account Value must
be at least $10,000 at the time of election. The minimum monthly
amount that can be withdrawn is $100. Systematic withdrawals will be
subject to the CDSC to the extent the amount withdrawn exceeds the
Free Withdrawal Allowance (See "Charges and Deductions," page 34.)
The Company reserves the right to discontinue offering systematic
withdrawals or to assess a processing fee not to exceed $25 per
service performed upon 30 days' written notice to Contract Owners and
Participants. The Participant may begin or discontinue systematic
withdrawals at any time by Written Request to the Company, but at
least 30 days' notice must be given to change any systematic
withdrawal instructions that are currently in place.
Systematic withdrawals may have tax consequences. (See "Federal Tax
Matters," page 44.)
CONTRACT LOANS
__________________________________________________________________________
Certain Contracts may contain a loan provision issued in connection
with certain qualified plans. Participants under such Contracts may
obtain loans using their interest under such Contract as the only
security for the loan. Loans are subject to provisions of the Code
and to applicable retirement program rules. Tax advisers and
retirement plan fiduciaries should be consulted prior to exercising
loan privileges. Loan provisions are described in the loan
endorsement.
The amount of any loan will be deducted from the minimum death
benefit. In addition, a loan, whether or not repaid, will have a
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__________________________________________________________________________
permanent effect on the Account Value because the investment results
of the investment options will only apply to the unborrowed portion of
the Account Value. 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 amounts held in the loan account 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.
DEATH BENEFIT
__________________________________________________________________________
Death of Participant
If a Participant dies before the Annuity Commencement Date, a death
benefit will be paid to the primary Beneficiary(ies) then living at
the time of the Participant's death. If no primary Beneficiary is
living at the time of the Participant's death or if the primary
Beneficiary dies within 30 days after the Participant's death and no
death benefit has been paid, the death benefit will be paid to the
person(s) named as contingent Beneficiary(ies). If no primary or
contingent Beneficiary is living at the time of the Participant's
death, the death benefit will be paid to the Participant's estate. No
death benefit is payable on or after the Annuity Commencement Date.
Only one death benefit is payable with respect to a Participant's
participation interest under the Contract.
Death Benefit
The Death Benefit will be determined as of the Death Benefit Valuation
Date. The Death Benefit Valuation Date is the Valuation Period during
which the Company receives both Due Proof of Death of the Participant
and a Written Request regarding payment of the Death Benefit. If both
documents are not received at the same time, the Death Benefit
Valuation Date is the Valuation Period during which the Company
receives the latter of Due Proof of Death or a Written Request
regarding payment of the Death Benefit.
If a Participant dies before attaining age 75 and before the Annuity
Commencement Date, the death benefit is an amount equal to the
greatest of:
(1) the Account Value on the Death Benefit Valuation Date, less any
applicable premium tax not previously deducted, and less any
outstanding loans;
(2) the total Purchase Payments, less any applicable premium tax not
previously deducted, less any partial surrenders, and less any
outstanding loans; or
(3) the largest death benefit amount on any Certificate Anniversary
prior to death that is an exact multiple of five and occurs
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__________________________________________________________________________
prior to the Death Benefit Valuation Date, less any applicable
premium tax not previously deducted, less any partial surrenders
after such death benefit was determined and less any outstanding
loans.
If the Participant dies after attaining age 75 and before the Annuity
Commencement Date, the death benefit is an amount equal to the
greatest of:
(1) the Account Value on the Death Benefit Valuation Date, less any
applicable premium tax not previously deducted, and less any
outstanding loans;
(2) the total Purchase Payments, less any applicable premium tax not
previously deducted, less any partial surrenders, and less any
outstanding loans; or
(3) the largest death benefit amount on any Certificate Anniversary
prior to death that is both an exact multiple of five and occurs
prior to the date on which the Participant attained age 75, less
any applicable premium tax not previously deducted, less any
partial surrenders after such death benefit was determined and
less any outstanding loans.
Payment of the death benefit is not subject to a CDSC.
Beneficiary
The primary Beneficiary(ies) and contingent Beneficiary(ies) are named
on the Participant Enrollment Form. The Beneficiaries may be changed
at any time prior to the Participant's death. The Company must receive
a Written Request to change a Beneficiary. Any such change will
relate back to and take effect on the date the Written Request was
signed. The Company will not be liable for any payment it makes
before such Written Request has been received and acknowledged at the
Administrative Office.
In determining the identity or non-existence of any Beneficiary not
identified by name, the Company may rely on an affidavit by any person
whom the Company reasonably believes to be a reliable source for that
information.
CHARGES AND DEDUCTIONS
__________________________________________________________________________
There are two types of charges and deductions. First, there are
charges assessed under the Certificate. These charges include the
CDSC, the Administration Charge, the Mortality and Expense Risk
Charge, Premium Taxes and Transfer Fees. All of these charges are
described below and some may not be applicable to every Certificate.
Second, there are Fund expenses for fund management fees and
administration expenses. These fees are described in the prospectus
and statement of additional information for each Fund.
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__________________________________________________________________________
Contingent Deferred Sales Charge ("CDSC")
No deduction for front-end sales charges is made from Purchase
Payments. However, the Company may deduct a CDSC of up to 7% of
Purchase Payments on certain surrenders to partially cover certain
expenses incurred by the Company relating to the sale of the Contract,
including commissions paid, the costs of preparation of sales
literature and other promotional costs and acquisition expenses.
The CDSC percentage varies according to the number of full years
elapsed between the date of receipt of a Purchase Payment and the date
a Written Request for surrender is made. The amount of the CDSC is
determined by multiplying the amount withdrawn subject to the CDSC by
the CDSC percentage in accordance with the following table.
Surrenders will be applied first to accumulated earnings (which may be
surrendered without charge) and then to Purchase Payments on a first-
in, first-out basis; surrenders will be made from the oldest Purchase
Payment first.
Number of Full Years Elapsed
Between Date of Receipt of Contingent Deferred Sales Charge
Purchase Payment and Date Written as a Percentage of Associated
Request for Surrender Received Purchase Payment Surrendered
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7 0%
In no event shall the CDSC assessed against the Certificate exceed 7%
of the aggregate Purchase Payment(s).
Any Purchase Payments that have been held by the Company for at least
seven years may be surrendered free of any CDSC. In addition, during
any Certificate Year after the first Certificate Year for Certificates
qualified under Section 403(b) of the Code, the CDSC will not be
imposed on the surrender of up to 10% of the Account Value as of the
last day of the previous Certificate Year ("Free Withdrawal
Allowance"). If the Free Withdrawal Allowance is not withdrawn during
a Certificate Year, it does not carry over to the next Certificate
Year.
No CDSC is assessed upon payment of the death benefit. Any applicable
CDSC will be deducted from the amount requested for partial and full
surrenders.
The CDSC arising from a surrender of the Certificate will be waived in
all cases if: (i) all or part of the Account Value is applied to the
purchase of an annuity from the Company for life or for a non-
commutable period of five years or more; or (ii) the Participant is
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__________________________________________________________________________
"disabled" as that term is defined in the Social Security Act of 1935,
as amended.
The CDSC arising from a surrender of the Certificate will be waived
for Certificates held by Participants in plans qualified under Section
403(b) of the Code that are subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and regulations
thereunder, or qualified under Section 401 of the Code, if the
Participant incurs a separation from service.
The CDSC arising from a surrender of the Certificate will be waived
for Certificates held by Participants in plans qualified under Section
403(b) of the Code that are not subject to ERISA if: (i) the
Participant incurs a separation from service, has attained age 55 and
has held the Certificate for at least seven years, provided the
Account Value is not transferred on a tax-free basis to another
insurance carrier; or (ii) the Participant has held the Certificate
for fifteen years or more.
The CDSC also will be waived in all cases if the Participant is
confined in a licensed Hospital or Long-Term Care Facility, as those
terms are defined in the Long Term-Care Waiver Rider, for at least 90
days beginning on or after the first Certificate Anniversary. This
Rider may not be available in all jurisdictions.
The Company may reduce or eliminate the CDSC under the Contract and
Certificates when certain sales of the Contract and Certificates
result in savings or reduction of sales expenses. The entitlement to
such a reduction in the CDSC will be based on: (i) the size and type
of the group to which sales are to be made; (ii) the anticipated total
amount of Purchase Payments to be received; and/or (iii) any prior or
existing relationship with the Company. The CDSC may be reduced or
waived in connection with a Contract offered to a group of 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 expenses. In no event will
reduction or elimination of the CDSC be permitted where such reduction
or elimination will be unfairly discriminatory to any purchaser.
The Company reserves the right to terminate, suspend or modify waivers
of the CDSC, without prior notice to Participants, as permitted by
applicable law.
Maintenance and Administrative Charges
On each Certificate Anniversary, the Company deducts an annual
Certificate Maintenance Fee as partial compensation for expenses
relating to the issue and maintenance of the Certificate, and the
Separate Account. The annual Certificate Maintenance Fee is $25. The
Company reserves the right to increase the Certificate Maintenance Fee
and guarantees that the Certificate Maintenance Fee will not exceed
$40. Any increase in the Certificate Maintenance Fee will apply only
to deductions after the effective date of the change. If the
Certificate is surrendered on any day other than on the Certificate
Anniversary, the Certificate Maintenance Fee will be deducted in full
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__________________________________________________________________________
at the time of such surrender. Before the Annuity Commencement Date
and after the Annuity Commencement Date, if a Variable Annuity Benefit
is elected, the Certificate Maintenance Fee will be deducted on a pro
rata basis from each Sub-Account in which the Participant's Account is
invested.
The Certificate Maintenance Fee may be waived for sales of Contracts
to a trustee, employer or similar entity representing a group where
the Company determines that such sales result in savings of sales
and/or administrative expenses. The Certificate Maintenance Fee also
may be waived with respect to a Contract offered to a group of
employees of the Company, its subsidiaries and/or affiliates.
Currently, the Company imposes no Administration Charge to reimburse
the Company for those administrative expenses attributable to the
Certificate and the Separate Account which exceed the revenues
received from the Certificate Maintenance Fee and any Transfer Fee.
However, the Company reserves the right to impose an Administration
Charge to be deducted at the end of each Valuation Period (both before
and after the Annuity Commencement Date) from the Net Asset Value of
each Sub-Account of the Separate Account at an effective annual rate
guaranteed not to exceed 0.20%. There will be no Administration
Charge imposed unless administrative expenses exceed revenues received
from the Certificate Maintenance Fee and any Transfer Fee.
The Company will provide 30 days written notice in advance of any
change in fees. The Company has not imposed an Administration Charge
and has set the Certificate Maintenance Fee at a level such that the
Company will recover no more than the anticipated and estimated costs
associated with administering the Certificate and Separate Account.
The Company does not expect to make a profit from the actual
administrative costs of a particular Certificate. The Company does
not expect to make a profit from the Certificate Maintenance Fee.
Mortality and Expense Risk Charge
The Company imposes a Mortality and Expense Risk Charge as
compensation for bearing certain mortality and expense risks under the
Certificate. For assuming these risks, the Company makes a daily
charge equal to .003403% corresponding to an effective annual rate of
1.25% of the daily Net Asset Value of each Sub-Account in the Separate
Account. The approximate portion of this charge estimated to be
attributable to mortality risks is 0.75%; the approximate portion of
this charge attributable to expense risks is 0.50%. In connection
with certain Contracts that allow the Company to reduce administrative
expenses, the Company will issue an Enhanced Contract with a Mortality
and Expense Risk Charge equal to an effective annual rate of 0.95%.
This is equal to a daily charge of 0.002590%. The Company estimates
that 0.20% is for expense risks and 0.75% is for mortality risks. The
Company's decision to offer an Enhanced Contract to a particular group
will be based primarily on whether the Company is designated as a
preferred variable annuity contract provider by the employer or by the
trustee of the employee benefit plan. Where the Company is so
designated, the Company anticipates that it will recognize
administrative expense savings from various economies of scale and
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routine operations. In addition, the Company may offer an Enhanced
Contract to a group of employees of the Company, its subsidiaries
and/or affiliates. The Mortality and Expense Risk Charge is imposed
before the Annuity Commencement Date and after the Annuity
Commencement Date if a Variable Annuity Benefit is selected. The
Company guarantees that the applicable charge will never increase for
a Contract. The Mortality and Expense Risk Charge is reflected in the
Accumulation Unit values for each Sub-Account.
The mortality risks assumed by the Company arise from its contractual
obligations to make annuity payments (determined in accordance with
the annuity tables and other provisions contained in the Certificate)
and to pay death benefits prior to the Annuity Commencement Date.
The Company also bears substantial risk in connection with the Death
Benefit before the Annuity Commencement Date, since in connection with
the death of a Participant who dies prior to attaining age 75, the
Company will pay a Death Benefit at least equal to the greatest of:
(i) the Account Value on the Death Benefit Valuation Date, less any
applicable premium tax not previously deducted, and less any
outstanding loans; (ii) the total Purchase Payments, less any
applicable premium tax not previously deducted, less any partial
surrenders, and less any outstanding loans; or (iii) the largest Death
Benefit on any Certificate Anniversary prior to death that is an exact
multiple of five and occurs prior to the Death Benefit Valuation Date,
less any applicable premium tax not previously deducted, less any
partial surrenders after the Death Benefit was determined, and less
any outstanding loans. In connection with the death of a Participant
who dies after attaining age 75, the Company will pay a Death Benefit
at least equal to the greatest of: (i) the Account Value on the Death
Benefit Valuation Date, less any applicable premium tax not previously
deducted, and less any outstanding loans; (ii) the total Purchase
Payments, less any applicable premium tax not previously deducted,
less any partial surrenders, and less any outstanding loans; or (iii)
the largest Death Benefit on any Certificate Anniversary prior to
death that is both an exact multiple of five and occurs prior to the
date on which the Participant attained age 75, less any applicable
premium tax not previously deducted, less any partial surrenders after
the Death Benefit was determined, and less any outstanding loans.
The expense risk assumed by the Company is the risk that the Company's
actual expenses in administering the Certificates and the Separate
Account will exceed the amount recovered through the Certificate
Maintenance Fees and Transfer Fees.
If the Mortality and Expense Risk Charge is insufficient to cover
actual costs and risks assumed, the loss will fall on the Company.
Conversely, if this charge is more than sufficient, any excess will be
profit to the Company. Currently, the Company expects a profit from
this charge.
The Company recognizes that the CDSC may not generate sufficient funds
to pay the cost of distributing the Contracts and Certificates
thereunder. To the extent that the CDSC is insufficient to cover the
actual cost of Contract and Certificate distribution, the deficiency
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will be met from the Company's general corporate assets which may
include amounts, if any, derived from the Mortality and Expense Risk
Charge.
Premium Taxes
Certain state and local governments impose premium taxes. These taxes
currently range up to 5.0% depending upon the jurisdiction. The
Company, in its sole discretion and in compliance with any applicable
state law, will determine the method used to recover premium tax
expenses incurred. 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 to the
Certificate, but no earlier than when the Company has a tax liability
under state law.
Transfer Fee
The Company currently imposes a $25 fee for each transfer in excess of
twelve in a single Certificate Year. The Company will deduct the
charge from the amount transferred.
Fund Expenses
The value of the assets in the Separate Account reflects the value of
Fund shares and therefore the fees and expenses paid by each Fund.
The annual expenses of each Fund are set out in the "Summary of
Expenses" tables at the front of this Prospectus. A complete
description of the fees, expenses, and deductions from the Funds are
found in the respective prospectuses for the Funds. (See "The Funds"
page 18.)
Reduction or Elimination of Contract and Certificate Charges
The CDSC and the administrative charges under the Contract and
Certificates may be reduced or eliminated when certain sales of the
Contract and Certificates result in savings or reduction of sales
expenses. The entitlement to such a reduction in the CDSC or the
administrative charges will be based on the following: (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. There may be other
circumstances, of which the Company is not presently aware, which
could result in fewer sales expenses. In no event will reduction or
elimination of the CDSC or the administrative charge be permitted
where such reduction or elimination will be unfairly discriminatory to
any person.
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SETTLEMENT OPTIONS
__________________________________________________________________________
Annuity Commencement Date
Unless otherwise specified, the Annuity Commencement Date will be the
Participant's 70th birthday. The Annuity Commencement Date may be
changed by the Participant or by the Contract Owner by Written Request
at least 30 days prior to the then-current Annuity Commencement Date.
The Annuity Commencement Date may be changed to any date not later
than such date as may be required or permitted by law or by any
applicable retirement plan.
Election of Settlement Option
If the Participant is alive on the Annuity Commencement Date and
unless otherwise directed, the Company will apply the Account Value,
less premium taxes, if any, according to the Settlement Option
elected.
If the payee of a Settlement Option is not a human being, the Company
may reject the election of a Settlement Option. If payment under a
Settlement Option depends on whether a payee is living, that payee
must be a human being.
If no election has been made on the Annuity Commencement Date and if
the Participant is living and has a spouse, the Company will begin
payments based on the life of the Participant as primary payee and the
spouse as secondary payee, in accordance with Settlement Option 3
(Joint and One Half Survivor Annuity) described below. If no election
has been made on the Annuity Commencement Date and if the Participant
is living and does not have a spouse, the Company will begin payments
based on the life of the Participant in accordance with Settlement
Option 1 (Life Annuity with Payments for at Least a Fixed Period),
described below, with a fixed period of 120 monthly payments assured.
Annuity Benefit
The Annuity Benefit may be calculated and paid: (1) as a Fixed Dollar
Annuity Benefit; (2) as a Variable Dollar Annuity Benefit; or (3) as a
combination of both.
If a Fixed Dollar Annuity Benefit only is elected, the Company will
transfer all of the Separate Account Value to the Fixed Account prior
to the Annuity Commencement Date. Similarly, if a Variable Dollar
Annuity Benefit only is elected, the Company will transfer all of the
Fixed Account Value to the Sub-Accounts prior to the Annuity
Commencement Date. The Company will allocate the amount transferred
among the Sub-Accounts in accordance with a Written Request. No
transfers between the Fixed Dollar Annuity Benefit and the Variable
Dollar Annuity Benefit will be allowed after the Annuity Commencement
Date. However, after the Variable Dollar Annuity Benefit has been
paid for at least twelve months, the Participant may, no more than
once each twelve months, transfer all or part of the Annuity Units
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upon which the Variable Dollar Annuity Benefit is based from the Sub-
Account(s) held to Annuity Units in different Sub-Accounts.
If a Variable Dollar Annuity Benefit is elected, the amount applied
under that benefit is the Variable Account Value as of the end of the
Valuation Period immediately preceding the Annuity Commencement Date.
If a Fixed Dollar Annuity Benefit is elected, the amount applied under
that benefit is the Fixed Account Value as of the Annuity Commencement
Date.
Fixed Dollar Annuity Benefit
Fixed Dollar Annuity Benefits are determined by multiplying the Fixed
Account Value (expressed in thousands of dollars and after deduction
of any premium taxes not previously deducted) by the amount of the
monthly payment per $1,000 of value obtained from the Settlement
Option Table for the Annuity Benefit elected. The Fixed Dollar
Annuity Benefit will remain level for the duration of the Annuity.
Variable Dollar Annuity Benefit
The first monthly Variable Dollar Annuity Benefit payment is equal to
a Participant's Variable Account Value (expressed in thousands of
dollars and after deduction of any fees and charges, loans, or
applicable premium tax or other taxes not previously deducted) as of
the end of the Valuation Period immediately preceding the Annuity
Commencement Date multiplied by the amount of the monthly payment per
$1,000 of value obtained from the Settlement Option Table for the
Settlement Option elected less the pro-rata portion of the Contract
Maintenance Fee.
The number of Annuity Units in each Sub-Account held by a Participant
is determined by dividing the dollar amount of the first monthly
Variable Dollar Annuity Benefit payment from each Sub-Account by the
value of an Annuity Unit ("Annuity Unit Value") for that Sub-Account
as of the Annuity Commencement Date. The number of Annuity Units
remains fixed during the Annuity Payment Period, except as a result of
any transfers among Sub-Accounts after the Annuity Commencement Date.
The dollar amount of the second and any subsequent Variable Dollar
Annuity Benefit payment will reflect the investment performance of the
Sub-Account(s) selected and may vary from month to month. The total
amount of the second and any subsequent Variable Dollar Annuity
Benefit payment will be equal to the sum of the payments from each
Sub-Account less a pro-rata portion of the Contract Maintenance Fee.
The payment from each Sub-Account is found by multiplying the number
of Annuity Units held in each Sub-Account by the Annuity Unit Value
for that Sub-Account as of the end of the fifth Valuation Period
preceding the due date of the payment.
The Annuity Unit Value for each Sub-Account is originally established
in the same manner as Accumulation Unit values. Thereafter, the value
of an Annuity Unit for a Sub-Account is determined by multiplying the
Annuity Unit Value as of the end of the preceding Valuation Period by
the Net Investment Factor, determined as set forth above under
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"Accumulation Unit Value", for the Valuation Period just ended. The
product is then multiplied by the assumed daily investment factor
(0.99991781), for the number of days in the Valuation Period. The
factor is based on the assumed net investment rate of three percent
(3%) per year, compounded annually, that is reflected in the
Settlement Option Tables.
Transfers After the Annuity Commencement Date
After the Annuity Commencement Date, no transfers between the Fixed
Account and the Separate Account are permitted. However, after a
Variable Dollar Annuity Benefit has been paid for at least twelve
months, the Participant may, by Written Request to the Administrative
Office, transfer Annuity Units between Sub-Accounts no more than once
during a twelve month period.
Annuity Transfer Formula
Transfers after the Annuity Commencement Date are implemented
according to the following formulas:
(1) Determine the number of units to be transferred from the Sub-
Account as follows:
= AT/AUV1
(2) Determine the number of Annuity Units remaining in such Sub-
Account (after the transfer):
= UNIT1 - AT/AUV1
(3) Determine the number of Annuity Units in the transferee Sub-
Account (after the transfer):
= UNIT2 + AT/AUV2
(4) Subsequent Variable Dollar Annuity Benefit payments will reflect
the changes in Annuity Units in each Sub-Account as of the next
Variable Dollar Annuity Benefit payment's due date.
Where:
(AUV1) is the Annuity Unit Value of the Sub-Account that the transfer
is being made from as of the end of the Valuation Period in which the
transfer request was received.
(AUV2) is the Annuity Unit Value of the Sub-Account that the transfer
is being made to as of the end of the Valuation Period in which the
transfer request was received.
(UNIT1) is the number of Annuity Units in the Sub-Account that the
transfer is being made from, before the transfer.
(UNIT2) is the number of Annuity Units in the Sub-Account that the
transfer is being made to, before the transfer.
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(AT) is the dollar amount being transferred from the Sub-Account.
Settlement Options
Option 1: Life Annuity with Payments for at Least a Fixed Period.
The Company will make a monthly payment for at least a fixed period.
If the Annuitant lives longer than the fixed period, then the Company
will make payments until the Annuitant's death. The fixed periods
available are reflected in Annuity Table 1.
If, at the death of the Annuitant, payments have been made for less
than the fixed period elected, the Company will continue to make
payments: (i) to the contingent payee designated on the Settlement
Option election form; and (ii) during the remainder of the fixed
period.
Option 2: Life Annuity. The Company will make annuity payments until
the Annuitant's death. Annuity Table 2 applies to this Option.
Option 3: Joint and One-Half Survivor Annuity. The Company will
provide a monthly payment to an Annuitant during his/her lifetime;
thereafter, upon the death of the Annuitant and receipt by the Company
of Due Proof of Death, one-half of the monthly payments will continue
to a designated survivor, if living, and until his/her death. Annuity
Table 3 applies to this Option.
Option 4: Income for a Fixed Period. The Company will make payments
for a fixed period. Payment intervals and amounts are shown in
Annuity Table 4 and are based on a 3% guaranteed interest rate.
If, at the death of the Annuitant, payments have been made for less
than the fixed period elected, the Company will continue to make
payments: (i) to the contingent payee designated on the Settlement
Option election form; and (ii) during the remainder of the fixed
period.
Option 5: Any Other Form. The Company will make payments in the form
of any other annuity which is acceptable to the Company.
Minimum Amounts
If the Participant's Account Value is less than $5,000 on the Annuity
Commencement Date, the Company reserves the right to pay that amount
in one lump sum. If monthly payments under a Settlement Option would
be less than $100, the Company may make payments quarterly, semi-
annually or annually at its discretion.
All elected Settlement Options must comply with current applicable
laws, regulations and rulings issued by any governmental agency. If
at the time a Fixed Dollar Annuity Benefit is elected, the Company has
available options or rates on a more favorable basis than those
guaranteed, the higher benefits shall be applied and guaranteed for as
long as that election remains in force.
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To the extent applicable, all factors, values, benefits and reserves
will not be less than those required by the law of the state in which
the Contract is delivered.
Settlement Option Tables
The Settlement Option Tables in Appendix A reflect the dollar amount
of the monthly payments for each $1,000 applied.
Rates for monthly payments for ages or fixed periods not shown in the
Settlement Option Tables will be calculated on the same basis as those
shown and may be obtained from the Company. Fixed periods shorter
than five years are not available.
GENERAL PROVISIONS
__________________________________________________________________________
Non-participating
The Contract and the Certificates thereunder are non-participating.
Neither the Contract nor the Certificates thereunder are eligible to
share in the profits or surplus earnings of the Company's general
account and will not receive dividends from the general account.
Misstatement of Age
If the age of the Participant has been misstated in the Certificate
Application, Annuity Benefit payments under the Certificate will be
whatever the Account Value on the Annuity Commencement Date would
purchase on the basis of the correct age of the Participant. If the
Company has made underpayments based on any misstatement, the Company
shall promptly pay the amount of any underpayment, with interest, in
one lump sum. Any overpayments made shall be charged, with interest,
against the next Annuity Benefit payment or succeeding Annuity Benefit
payments due under the Certificate. The interest rate used will not
be less than 3% per year.
Proof of Existence and Age
The Company may require proof of age of the Annuitant and, if
applicable, any joint payee, before any Annuity Benefit involving
lifetime payments will be made.
Facility of Payment
If any person receiving payments under a Certificate is incapable of
giving valid receipt of payment, the Company may make such payment to
the person who has legally assumed responsibility for his or her care
and principal support. Any such payment shall fully discharge the
Company to the extent of that payment.
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Transfer and Assignment
Neither any one Participant nor the Contract Owner may transfer, sell,
assign, pledge, charge, encumber or in any way alienate his or her
interest under a Certificate or the Contract, respectively. To the
extent permitted by law, no benefits payable under the Contract or a
Certificate will be subject to the claims of creditors.
Annuity Data
The Company will not be liable for obligations which depend on the
Company receiving information from a Participant until such
information is received by the Company in a satisfactory form.
Annual Report
At least once each Certificate Year prior to the Annuity Commencement
Date, the Participant will be given a report of the current Account
Value allocated to each Sub-Account, and each Fixed Account option.
This report will also include any other information required by law or
regulation, including all transactions which have occurred during the
accounting period shown in the report.
Incontestability
Each Certificate shall not be contestable by the Company.
Entire Contract
The Company issues the Certificate in consideration and acceptance of
the payment of the initial Purchase Payment and, where state law
requires, the Participant Enrollment Form. In those states that
require a written application, a copy of the Enrollment Form will be
attached to and become part of the Certificate and along with the
Certificate constitutes the entire Certificate. All statements made
by the Participant will be considered representations and not
warranties. The Company will not use any statement in defense of a
claim unless it is made in the Participant Enrollment Form (or other
application form) and a copy of the Participant Enrollment Form (or
other application form) is attached to the Certificate when issued.
Changes in the Contract
Only the Company's President, Vice President and Secretary have the
authority to bind the Company or to make any change in the Contract or
the Certificates thereunder and then only in writing. The Company
will not be bound by any promise or representation made by any other
persons.
The Company may not change or amend the Contract or Certificates
thereunder, except as expressly provided therein, without the
Participant's consent. However, the Company may change or amend the
Contract or Certificates thereunder if such change or amendment is
necessary for the Contract or Certificates thereunder to comply with
any state or federal law, rule or regulation.
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Waiver of the Certificate Maintenance Fee
The Company may waive the Certificate Maintenance Fee in certain
situations where the Company expects to realize significant economies
of scale with respect to sales of Contracts and Certificates. This is
possible because sales costs do not increase in proportion to the
Purchase Payments under the Contracts and Certificates sold; for
example, the per dollar transaction cost for a sale of a Contract and
Certificates with $500,000 of Purchase Payments is generally much
higher than the per dollar cost for a sale of a Contract and
Certificates with $1,000,000 of Purchase Payments. Thus, the
applicable sales costs decline as a percentage of the Purchase
Payments as the amount of Purchase Payments increases. In such a
situation, the Company may be designated as a preferred variable
annuity contract provider by the employer or trustee or the employee
benefit plan.
Notices and Directions
The Company will not be bound by any authorization, election or notice
which is not in writing and received at the Company's Administrative
Office.
Any written notice requirement by the Company to the Participant will
be satisfied by the mailing of any such required written notice, by
first-class mail, to the Participant's last known address as shown on
the Company's records.
FEDERAL TAX MATTERS
__________________________________________________________________________
Introduction
The following discussion is a general description of federal tax
considerations relating to the Contract and is not intended as tax
advice. This discussion is not intended to address the tax
consequences resulting from all of the situations in which a person
may be entitled to or may receive a distribution under the Contract.
Any person concerned about tax implications should consult a competent
tax adviser before initiating any transaction. This discussion is
based upon the Company's understanding of the present federal income
tax laws as they are currently interpreted by the Internal Revenue
Service. No representation is made as to the likelihood of the
continuation of the present federal income tax laws or of the current
interpretation by the Internal Revenue Service. Moreover, no attempt
has been made to consider any applicable state or other tax laws.
The ultimate effect of federal income taxes on the amounts held under
a Contract, on Annuity Payments, and on the economic benefit to the
Participant or the Beneficiary may depend on the type of retirement
plan, and on the tax status of the individual concerned. Certain
requirements must be satisfied in purchasing a Contract for a
qualified plan and receiving distributions from such a Contract in
order to continue to receive favorable tax treatment. The Company
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makes no attempt to provide more than general information about use of
the Contracts with the various types of retirement plans.
Participants under retirement plans and Beneficiaries are cautioned
that the rights of any person to any benefits may be subject to the
terms and conditions of the plans themselves, regardless of the terms
and conditions of the Contract issued in connection with such a plan.
Some retirement plans are subject to distribution and other
requirements that are not incorporated in the administration of the
Contracts. Participants are responsible for determining that
contributions, distributions and other transactions with respect to
the Contracts satisfy applicable law. Therefore, purchasers of
Contracts should seek competent legal and tax advice regarding the
suitability of the Contract for their situation, the applicable
requirements, and the tax treatment of the rights and benefits of the
Contract. The following discussion assumes that a Contract is
purchased with proceeds from and/or contributions under retirement
plans that qualify for the intended special federal income tax
treatment ("Qualified Contracts").
The following discussion also is based on the assumption that the
Contract qualifies as an annuity contract for federal income tax
purposes. The Statement of Additional Information discusses the
requirements for qualifying as an annuity.
Taxation of Annuities In General
Section 72 of the Code governs taxation of annuities in general. The
Company believes that the Participant who is a natural person
generally is not taxed on increases in the value of an Account until
distribution occurs by withdrawing all or part of the Account Value
(e.g., surrenders or annuity payments under the Settlement Option
elected). For this purpose, the assignment, pledge, or agreement to
assign or pledge any portion of the Account Value or any portion of an
interest in the qualified plan generally will be treated as a
distribution. The taxable portion of a distribution (in the form of a
single sum payment or an annuity) is generally taxable as ordinary
income.
The following discussion generally applies to a Certificate owned by
a natural person under a group Contract.
Surrenders
In the case of a surrender under a Qualified Contract, including
withdrawals under the Systematic Withdrawal Option, a pro-rata portion
of the amount received is taxable, generally based on the ratio of the
"investment in the contract" to the individual's total accrued benefit
under the retirement plan. The "investment in the contract" generally
equals the amount of any non-deductible Purchase Payments paid by or
on behalf of any individual. For a Contract issued in connection with
qualified plans, the "investment in the contract" is often zero.
Special tax rules may be available for certain distributions from a
Qualified Contract.
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Annuity Payments
Although the tax consequences may vary depending on the Annuity
Payment and Settlement Option elected under the Contract, in general,
only the portion of the Annuity Payment that represents the amount by
which the Account Value exceeds the "investment in the contract" will
be taxed; after the "investment in the contract" is recovered, the
full amount of any additional Annuity Payments is taxable. For
Variable Dollar Annuity Payments, the taxable portion is generally
determined by an equation that establishes a specific dollar amount of
each payment that is not taxed. The dollar amount is determined by
dividing the "investment in the contract" by the total number of
expected periodic payments. However, the entire distribution will be
taxable once the recipient has recovered the dollar amount of his or
her "investment in the contract." For Fixed Dollar Annuity Payments,
in general there is no tax on the portion of each payment which
represents the same ratio that the "investment in the contract" bears
to the total expected value of the Annuity Payments for the term of
the payments; however, the remainder of each Annuity Payment is
taxable. Once the "investment in the contract" has been fully
recovered, the full amount of any additional Annuity Payments is
taxable. If Annuity Payments cease as a result of a Participant's
death before full recovery of the "investment in the contract,"
consult a competent tax adviser regarding deductibility of the
unrecovered amount.
Penalty Tax
In general, a 10% premature distribution penalty tax applies to
distributions unless: (1) made on or after the date on which the
Participant attains age 59 1/2; (2) made as a result of death or
disability of the Participant; (3) received in substantially equal
periodic payments as a life annuity or a joint and one-half survivor
annuity for the lives or life expectancies of the Participant and a
"designated beneficiary;" (4) made to the Participant after separation
from service and attainment of age 55; (5) made under a qualified
domestic relations order; or (6) to the extent they do not exceed the
Participant's allowable deduction for medical care for that year.
Other tax penalties may apply to certain distributions under a
qualified plan.
Taxation of Death Benefit Proceeds
Amounts may be distributed from the Account because of the death of a
Participant. Generally such amounts are includible in the income of
the recipient as follows: (1) if distributed in a lump sum, they are
taxed in the same manner as a full surrender as described above, or
(2) if distributed under a Settlement Option, they are taxed in the
same manner as Annuity Payments, as described above.
Transfers, Assignments, or Exchanges of the Contract
A transfer of ownership of a Contract, the designation of a
Beneficiary who is not also the Participant, or the exchange of a
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Contract may result in certain tax consequences to the Participant
that are not discussed herein.
Texas Optional Retirement Program
Section 36.105 of the Texas Educational Code permits participants in
the Texas Optional Retirement Program ("ORP") to withdraw their
interests in a variable annuity policy issued under the ORP only upon:
(1) termination of employment in the Texas public institutions of
higher education; (2) retirement; or (3) death. Accordingly, a
participant in the ORP (or the participant's estate if the participant
has died) will be required to obtain a certificate of termination from
the employer or a certificate of death before all or part of the
Account Value can be withdrawn.
Qualified Pension and Profit Sharing Plans and H.R. 10 Plans
Code section 401(a) permits employers to establish various types of
retirement plans for employees, and permit self-employed individuals
to establish retirement plans for themselves and their employees.
These retirement plans may permit the purchase of the 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 to their specific needs.
Withholding
Pension and annuity distributions generally are subject to withholding
for the recipient's federal income tax liability at rates that vary
according to the type of distribution and the recipient's tax status.
Federal withholding at a flat 20% of the taxable part of the
distribution is required if the distribution is eligible for rollover
and the distribution is not paid as a direct rollover. In other
cases, recipients generally are provided the opportunity to elect not
to have tax withheld from distributions.
Possible Changes in Taxation
Although as of the date of this prospectus, Congress is not actively
considering any legislation regarding the taxation of annuities issued
in connection with a qualified plan, there is always the possibility
that the tax treatment of such annuities could change by legislation
or other means (such as IRS regulations, revenue rulings, judicial
decisions, etc.). Moreover, it is also possible that any change could
be retroactive (that is, effective prior to the date of the change).
Other Tax Consequences
As noted above, the foregoing discussion of the federal income tax
consequences is not exhaustive and special rules are provided with
respect to other tax situations not discussed in this Prospectus.
Further, the federal income tax consequences discussed herein reflect
the Company's understanding of current law and the law may change.
_____________________________________
PAGE 53
<PAGE>
GROUP FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
__________________________________________________________________________
Federal estate tax consequences and state and local estate,
inheritance, and other tax consequences of ownership or receipt of
distributions under the Contract depend on the individual
circumstances of each Participant or recipient of the distribution. A
competent tax adviser should be consulted for further information.
General
At the time the initial Purchase Payment is paid, a prospective
purchaser must specify whether the purchase is a Qualified Contract.
If the initial purchase payment is derived from an exchange or
surrender of another annuity contract, the Company may require that
the prospective purchaser provide information with regard to the
federal income tax status of the previous annuity contract. The
Company will require that persons purchase separate Contracts if they
desire to invest monies qualifying for different annuity tax treatment
under the Code. Each such separate Contract would require the minimum
initial Purchase Payment stated above. Additional Purchase Payments
under a Contract must qualify for the same federal income tax
treatment as the Initial Purchase Payment under the Contract; the
Company will not accept an additional Purchase Payment under a
Contract if the federal income tax treatment of such Purchase Payment
would be different from that of the Initial Purchase Payment.
DISTRIBUTION OF THE CONTRACT
__________________________________________________________________________
AAG Securities, Inc. ("AAG Securities") is the principal underwriter
and distributor of the Contracts. AAG Securities may also serve as an
underwriter and distributor of other contracts issued through the
Separate Account and certain other Separate Accounts of the Company
and any affiliates of the Company. AAG Securities is a wholly-owned
subsidiary of American Annuity GroupSM, Inc., a publicly-traded
company which is an indirect subsidiary of American Financial Group,
Inc. AAG Securities 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 AAG Securities for acting as underwriter under a
distribution agreement.
AAG Securities has entered into sales agreements with other broker-
dealers to solicit applications for the Contracts through registered
representatives who are licensed to sell securities and variable
insurance products. These agreements provide that applications for
the Contracts may be solicited by registered representatives of the
broker-dealers appointed by the Company to sell its variable life
insurance and variable annuities. These broker-dealers are registered
with the Securities and Exchange Commission and are members of the
NASD. The registered representatives are authorized under applicable
state regulations to sell variable annuities.
Under the agreements, Contracts will be sold by registered
representatives which will receive commissions from AAG Securities of
_____________________________________
PAGE 54
<PAGE>
GROUP FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
__________________________________________________________________________
up to 8% of any Purchase Payments. From time to time the Company may
pay or permit other promotional incentives, in cash or credit or other
compensation.
LEGAL PROCEEDINGS
__________________________________________________________________________
There are no pending legal proceedings affecting the Separate Account
or AAG Securities. 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.
VOTING RIGHTS
__________________________________________________________________________
To the extent required by applicable law, all Fund shares held in the
Separate Account will be voted by the Company at regular and special
shareholder meetings of the respective Funds in accordance with
instructions received from persons having voting interests in the
corresponding Sub-Account. If, however, the 1940 Act or any
regulation thereunder should be amended, or if the present
interpretation thereof should change, or if the Company determines
that it is allowed to vote all shares in its own right, the Company
may elect to do so.
The person with the voting interest is the Participant. The number of
votes which are available to a Participant will be calculated
separately for each Sub-Account. Before the Annuity Commencement
Date, that number will be determined by applying his or her percentage
interest, if any, in a particular Sub-Account to the total number of
votes attributable to that Sub-Account. The Participant holds a
voting interest in each Sub-Account to which the Account Value is
allocated. After the Annuity Commencement Date, the number of votes
decreases as Annuity Payments are made and as the number of
Accumulation Units for a Certificate decreases.
The number of votes of a Fund will be determined as of the date
coincident with the date established by that Fund for shareholders
eligible to vote at the meeting of the Fund. Voting instructions will
be solicited by written communication prior to such meeting in
accordance with procedures established by the respective Funds.
Shares as to which no timely instructions are received and shares held
by the Company as to which Participants have no beneficial interest,
will be voted in proportion to the voting instructions which are
received with respect to all Certificates participating in the Sub-
Account. Voting instructions to abstain on any item will be applied
on a pro-rata basis to reduce the votes eligible to be cast.
Each person or entity having a voting interest in a Sub-Account will
receive proxy material, reports and other material relating to the
appropriate Fund.
_____________________________________
PAGE 55
<PAGE>
GROUP FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
__________________________________________________________________________
It should be noted that the Funds are not required to hold annual or
other regular meetings of shareholders.
AVAILABLE INFORMATION
__________________________________________________________________________
The Company has filed a registration statement (the Registration
Statement) with the Securities and Exchange Commission under the
Securities Act of 1933 relating to the Contract and Certificates
thereunder offered by this Prospectus. This Prospectus has been filed
as a part of the Registration Statement and does not contain all of
the information set forth in the Registration Statement and exhibits
thereto, and reference is hereby made to such Registration Statement
and exhibits for further information relating to the Company, the
Contract and the Certificates. Statements contained in this
Prospectus, as to the content of the Contract, the Certificates and
other legal instruments, are summaries. For a complete statement of
the terms thereof, reference is made to the instruments filed as
exhibits to the Registration Statement. The Registration Statement
and the exhibits thereto may be inspected and copied at the office of
the Commission, located at 450 Fifth Street, N.W., Washington, D.C.
_____________________________________
PAGE 56
<PAGE>
GROUP FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
__________________________________________________________________________
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 that Statement:
TABLE OF CONTENTS
__________________________________________________________________________
Page
ANNUITY INVESTORS LIFE INSURANCE COMPANY(REGISTERED) . . . . . . . 2
General Information and History . . . . . . . . . . . . . . 2
State Regulation . . . . . . . . . . . . . . . . . . . . . . 2
SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Safekeeping of Separate Account Assets . . . . . . . . . . . 2
Records and Reports . . . . . . . . . . . . . . . . . . . . 2
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . 2
DISTRIBUTION OF THE CONTRACTS . . . . . . . . . . . . . . . . . . 2
CALCULATION OF PERFORMANCE INFORMATION . . . . . . . . . . . . . . 3
Money Market Sub-Account Yield Calculation . . . . . . . . . 3
Other Sub-Account Yield Calculation . . . . . . . . . . . . 4
Standardized Total Return Calculation . . . . . . . . . . . 4
Hypothetical Performance Data . . . . . . . . . . . . . . . 4
Other Performance Data . . . . . . . . . . . . . . . . . . . 5
FEDERAL TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . 6
Taxation of the Company . . . . . . . . . . . . . . . . . . 6
Tax Status of the Contract . . . . . . . . . . . . . . . . . 6
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . 7
_____________________________________
PAGE 57
<PAGE>
GROUP FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
__________________________________________________________________________
Copies of the Statement of Additional Information dated May 1, 1996
are available without charge. To request a copy, please clip this
coupon on the dotted line above, enter your name and address in the
spaces provided below, and mail to: Annuity Investors Life Insurance
Company(REGISTERED), P.O. Box 5423, Cincinnati, Ohio 45201-5423.
Name: . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Address: . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
City: . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State: . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Zip: . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
_____________________________________
PAGE 58
<PAGE>
GROUP FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
__________________________________________________________________________
APPENDIX A
Settlement Option Tables
The Settlement Option Tables show the guaranteed dollar amount, based
on unisex rates, of the monthly payments under various Settlement
options for each $1,000 applied.
OPTION 1 TABLES - LIFE ANNUITY
With Payments For At Least A Fixed Period
60 120 180 240
Months Months Months Months
Age
55 $4.55 $4.51 $4.44 $4.33
56 4.65 4.61 4.52 4.39
57 4.76 4.71 4.61 4.46
58 4.87 4.81 4.70 4.53
59 4.99 4.92 4.79 4.60
60 5.12 5.04 4.89 4.67
61 5.25 5.16 4.99 4.74
62 5.40 5.29 5.09 4.81
63 5.55 5.42 5.19 4.87
64 5.72 5.56 5.30 4.94
65 5.89 5.71 5.40 5.00
66 6.08 5.86 5.51 5.06
67 6.27 6.02 5.62 5.11
68 6.48 6.19 5.72 5.17
69 6.71 6.36 5.83 5.22
70 6.95 6.54 5.93 5.26
71 7.20 6.72 6.03 5.30
72 7.46 6.90 6.12 5.34
73 7.75 7.08 6.21 5.37
74 8.04 7.27 6.30 5.40
_____________________________________
PAGE 59
<PAGE>
GROUP FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
__________________________________________________________________________
OPTION 2 TABLE - LIFE ANNUITY
60 120 180 240
Months Months Months Months
Age Age Age Age
55 $4.65 60 $5.14 65 $5.95 70 $7.08
56 4.67 61 5.28 66 6.14 71 7.36
57 4.77 62 5.43 67 6.35 72 7.66
58 4.89 63 5.59 68 6.58 73 7.98
59 5.01 64 5.76 69 6.82 74 8.33
<TABLE>
<CAPTION>
OPTION 3 TABLE - JOINT AND ONE-HALF SURVIVOR ANNUITY
Monthly payments for each $1,000 of proceeds by ages of persons named*.
Secondary Age
Primary 60 61 62 63 64 65 66 67 68 69 70
Age
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
60 $4.73 $4.75 $4.78 $4.80 $4.83 $4.85 $4.87 $4.89 $4.92 $4.93 $4.95
61 4.81 4.84 4.87 4.90 4.92 4.95 4.97 5.00 5.02 5.04 5.06
62 4.90 4.93 4.96 4.99 5.02 5.05 5.08 5.11 5.13 5.16 5.18
63 4.99 5.03 5.06 5.09 5.13 5.16 5.19 5.22 5.25 5.28 5.30
64 5.09 5.12 5.16 5.20 5.23 5.27 5.30 5.34 5.37 5.40 5.43
65 5.18 5.22 5.26 5.31 5.35 5.38 5.42 5.46 5.49 5.53 5.56
66 5.28 5.33 5.37 5.42 5.46 5.50 5.54 5.58 5.62 5.66 5.70
67 5.38 5.43 5.48 5.53 5.58 5.62 5.67 5.72 5.76 5.80 5.84
68 5.49 5.54 5.59 5.65 5.70 5.75 5.80 5.85 5.90 5.95 5.99
69 5.60 5.65 5.71 5.77 5.82 5.88 5.93 5.99 6.04 6.10 6.15
70 5.71 5.77 5.83 5.89 5.95 6.01 6.07 6.13 6.19 6.25 6.31
</TABLE>
*Payments after the death of the Primary Payee will be one-half of the
amount shown.
_____________________________________
PAGE 60
<PAGE>
GROUP FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
__________________________________________________________________________
OPTION 4 TABLE - INCOME FOR A FIXED PERIOD
Payments for fixed number of years for each $1,000 applied.
Terms of Semi-
Payments Annual Annual Quarterly Monthly
Years
6 $184.60 $ 91.62 $ 45.64 $ 15.18
7 160.51 79.68 39.68 13.20
8 142.46 70.70 35.22 11.71
9 128.43 63.74 31.75 10.56
10 117.23 58.18 28.93 9.64
11 108.08 53.84 26.72 8.88
12 100.46 49.85 24.84 8.26
13 94.03 46.67 23.25 7.73
14 88.53 43.84 21.89 7.28
15 83.77 41.57 20.71 6.89
16 79.61 39.51 19.68 6.54
17 75.95 37.70 18.78 6.24
18 72.71 36.09 17.98 5.89
19 69.61 34.65 17.26 5.74
20 67.22 33.36 16.62 5.53
Rates for monthly payments for ages or fixed periods not shown in the
above tables will be calculated on the same basis as those shown and may
be obtained from the Company. Fixed periods shorter than five years are
not available.
_____________________________________
PAGE 61
<PAGE>
This page left blank intentionally
<PAGE>
GROUP FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
__________________________________________________________________________
We attach the following prospectuses:
Fund Edgar Accession
---- Number
---------------
Janus Aspen Series 906185-96-31
May 1, 1996
Dreyfus Variable Investment Fund - 813383-96-9
Capital Appreciation Fund
May 1, 1996
Dreyfus Socially Responsible Growth Fund 890064-96-9
May 1, 1996
Dreyfus Stock Index Fund 846800-96-5
May 1, 1996
The Merrill Lynch Variable Series Funds, Inc. 889812-96-401
Basic Value Focus Fund
Domestic Money-Market Fund
Global Strategy Focus Fund
High Current Income Fund
_____________________________________
PAGE 62
<PAGE>
ANNUITY INVESTORS VARIABLE ACCOUNT A
of
ANNUITY INVESTORS LIFE INSURANCE COMPANY[REGISTERED]
STATEMENT OF ADDITIONAL INFORMATION
for the
Commodore Nauticus[ServiceMark]
Group Flexible Premium Deferred Annuity Issued by
ANNUITY INVESTORS LIFE INSURANCE COMPANY
P.O. Box 5423, Cincinnati, Ohio 45201-5423, (800) 789-6771
The Statement of Additional Information expands upon subjects discussed in
the current Prospectus for the Commodore Nauticus, a Group Flexible
Premium Deferred Annuity Contract ("Contract") offered by Annuity
Investors Life Insurance Company[Registered] and the Certificates of
Participation under the Contract ("Certificates"). A copy of the
Prospectus dated May 1, 1996, as supplemented from time to time, may be
obtained free of charge by writing to Annuity Investors Life Insurance
Company, Administrative Office, P.O. Box 5423, Cincinnati, Ohio 45201-
5423. Terms used in the current Prospectus for the Contract are
incorporated in this Statement of Additional Information.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE
READ ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE CONTRACT.
May 1, 1996
<PAGE>
TABLE OF CONTENTS
__________________________________________________________________________
Page
ANNUITY INVESTORS LIFE INSURANCE COMPANY[Registered] . . . . . . 2
General Information and History . . . . . . . . . . . . . 2
State Regulation . . . . . . . . . . . . . . . . . . . . . 2
SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Safekeeping of Separate Account Assets . . . . . . . . . . 2
Records and Reports . . . . . . . . . . . . . . . . . . . 2
Experts . . . . . . . . . . . . . . . . . . . . . . . . . 2
DISTRIBUTION OF THE CONTRACTS . . . . . . . . . . . . . . . . . 2
CALCULATION OF PERFORMANCE INFORMATION . . . . . . . . . . . . . 3
Money Market Sub-Account Yield Calculation . . . . . . . . 3
Other Sub-Account Yield Calculation . . . . . . . . . . . 4
Standardized Total Return Calculation . . . . . . . . . . 4
Hypothetical Performance Data . . . . . . . . . . . . . . 4
Other Performance Data . . . . . . . . . . . . . . . . . . 5
FEDERAL TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . 6
Taxation of the Company . . . . . . . . . . . . . . . . . 6
Tax Status of the Contract . . . . . . . . . . . . . . . . 6
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . 7
The following information supplements the information in the Prospectus
about the Contract and Certificates. Terms used in this Statement of
Additional Information have the same meaning as in the Prospectus.
_________________________________________________________________________
PAGE 1
<PAGE>
ANNUITY INVESTORS LIFE INSURANCE COMPANY[REGISTERED]
________________________________________________________________________
General Information and History
Annuity Investors Life Insurance Company[Registered] (the "Company"),
formerly known as Carillon Life Insurance Company, is a stock life
insurance company incorporated under the laws of the State of Ohio in
1981. The name change occurred in the state of domicile on April 12,
1995. The Company is principally engaged in the sale of fixed and
variable annuity policies.
The Company was acquired in November, 1994, by American Annuity
Group[ServiceMark], Inc. ("AAG") a Delaware corporation that is a publicly
traded insurance holding company. Great American[Registered] Insurance
Company ("GAIC"), an Ohio corporation, owns 80% of the common stock of
AAG. GAIC is a multi-line insurance carrier and a wholly-owned subsidiary
of Great American Holding Company ("GAHC"), an Ohio corporation. GAHC is
a wholly-owned subsidiary of American Financial Corporation ("AFC"), an
Ohio corporation. AFC is a wholly-owned subsidiary of American Financial
Group, Inc. ("AFG"), an Ohio corporation. AFG is a publicly traded
holding company which is engaged, through its subsidiaries, in financial
businesses that include annuities, insurance and portfolio investing, and
non-financial businesses that include food products and television and
radio operations.
State Regulation
The Company is subject to the insurance laws and regulations of all the
jurisdictions where it is licensed to operate. The availability of
certain Contract rights and provisions depends on state approval and/or
filing and review processes in each such jurisdiction. Where required by
law or regulation, the Contract will be modified accordingly.
SERVICES
________________________________________________________________________
Safekeeping of Separate Account Assets
Title to assets of the Separate Account is held by the Company. The
Separate Account assets are kept separate and apart from the Company's
general account assets. Records are maintained of all purchases and
redemptions of Fund shares held by each of the Sub-Accounts.
Title to assets of the Fixed Account is held by the Company together with
the Company's general account assets.
Records and Reports
All records and accounts relating to the Fixed Account and the Separate
Account will be maintained by the Company. As presently required by the
_________________________________________________________________________
PAGE 2
<PAGE>
provisions of the Investment Company Act of 1940, as amended ("1940 Act"),
and rules and regulations promulgated thereunder which pertain to the
Separate Account, reports containing such information as may be required
under the 1940 Act or by other applicable law or regulation will be sent
to each Participant semi-annually at the Participant's last known address
of record.
Experts
The statutory-basis financial statements of the Company included in this
Statement of Additional Information have been audited by Ernst & Young
LLP, independent auditors, to the extent indicated in their report thereon
also appearing elsewhere herein. Such statutory-basis financial
statements have been included herein in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
DISTRIBUTION OF THE CONTRACTS
________________________________________________________________________
The offering of the Contracts is expected to be continuous, and the
Company does not anticipate discontinuing the offering of the Contracts.
However, the Company reserves the right to discontinue the offering of the
Contracts.
CALCULATION OF PERFORMANCE INFORMATION
________________________________________________________________________
Money Market Sub-Account Yield Calculation
In accordance with rules and regulations adopted by the Securities and
Exchange Commission, the Company computes the Money Market Sub-Account's
current annualized yield for a seven-day period in a manner which does not
take into consideration any realized or unrealized gains or losses on
shares of the Money Market Fund or on its portfolio securities. This
current annualized yield is computed by determining the net change
(exclusive of realized gains and losses on the sale of securities and
unrealized appreciation and depreciation) in the value of a hypothetical
account having a balance of one unit of the Money Market Sub-Account at
the beginning of such seven-day period, dividing such net change in the
value of the hypothetical account by the value of the hypothetical account
at the beginning of the period to determine the base period return and
annualizing this quotient on a 365-day basis. The net change in the value
of the hypothetical account reflects the deductions for the Mortality and
Expense Risk and Administration Charges and income and expenses accrued
during the period. Because of these deductions, the yield for the Money
Market Sub-Account of the Separate Account will be lower than the yield
for the Money Market Fund or any comparable substitute funding vehicle.
The Securities and Exchange Commission also permits the Company to
disclose the effective yield of the Money Market Sub-Account for the same
_________________________________________________________________________
PAGE 3
<PAGE>
seven-day period, determined on a compounded basis. The effective yield
is calculated according to the following formula:
365/7
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1) ] - 1
The yield on amounts held in the Money Market Sub-Account normally will
fluctuate on a daily basis. Therefore, the disclosed yield for any given
past period is not an indication or representation of future yields. The
Money Market Sub-Account's actual yield is affected by changes in interest
rates on money market securities, average portfolio maturity of the Money
Market Fund or substitute funding vehicle, the types and quality of
portfolio securities held by the Money Market Fund or substitute funding
vehicle, and operating expenses. IN ADDITION, THE YIELD FIGURES DO NOT
REFLECT THE EFFECT OF ANY CONTINGENT DEFERRED SALES CHARGE ("CDSC") (OF UP
TO 7% OF PURCHASE PAYMENTS) THAT MAY BE APPLICABLE ON SURRENDER.
Other Sub-Account Yield Calculation
The Company may from time to time disclose the current annualized yield of
one or more of the Sub-Accounts (other than the Money Market Sub-Account)
for 30-day periods. The annualized yield of a Sub-Account refers to the
income generated by the Sub-Account over a specified 30-day period.
Because this yield is annualized, the yield generated by a Sub-Account
during the 30-day period is assumed to be generated each 30-day period.
The yield is computed by dividing the net investment income per
Accumulation Unit earned during the period by the price per unit on the
last day of the period, according to the following formula:
6
YIELD=2[ (a-b + 1) - 1]
---
cd
Where:
a = net investment income earned during the period by the Portfolio
attributable to the shares owned by the Sub-Account.
b = expenses for the Sub-Account accrued for the period (net of
reimbursements).
c = the average daily number of Accumulation Units outstanding during the
period.
d = the maximum offering price per Accumulation Unit on the last day of
the period.
Net investment income will be determined in accordance with rules and
regulations established by the Securities and Exchange Commission.
Accrued expenses will include all recurring fees that are charged to all
Contracts. The yield calculations do not reflect the effect of any CDSC
that may be applicable to a particular Contract. CDSCs range from 7% to
_________________________________________________________________________
PAGE 4
<PAGE>
0% of the Purchase Payments withdrawn depending on the elapsed time since
the receipt of such Purchase Payments.
Because of the charges and deductions imposed by the Separate Account, the
yield for a Sub-Account will be lower than the yield for the corresponding
Fund. The yield on amounts held in a Sub-Account normally will fluctuate
over time. Therefore, the disclosed yield for any given period is not an
indication or representation of future yields or rates of return. The
Sub-Account's actual yield will be affected by the types and quality of
portfolio securities held by the Fund and its operating expenses.
Standardized Total Return Calculation
The Company may from time to time also disclose average annual total
returns for one or more of the Sub-Accounts for various periods of time.
Average annual total return quotations are computed by finding the average
annual compounded rates of return over one, five and ten year periods that
would equal the initial amount invested to the ending redeemable value,
according to the following formula:
n
P(1 + T) = ERV
Where:
P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = "ending redeemable value" of a hypothetical $1,000 payment made at
the beginning of the one, five, or ten-year period at the end of the one,
five, or ten-year period (or fractional portion thereof).
All recurring fees that are charged to all Contracts are recognized in the
ending redeemable value. The average annual total return calculations
will reflect the effect of any CDSCs that may be applicable to a
particular period.
Hypothetical Performance Data
The Company may also disclose "hypothetical" performance data for a Sub-
Account, for periods before the Sub-Account commenced operations. Such
performance information for the Sub-Account will be calculated based on
the performance of the corresponding Fund and the assumption that the Sub-
Account was in existence for the same periods as those indicated for the
Fund, with a level of Contract charges currently in effect. The Fund used
for these calculations will be the actual Fund in which the Sub-Account
invests.
_________________________________________________________________________
PAGE 5
<PAGE>
This type of hypothetical performance data may be disclosed on both an
average annual total return and a cumulative total return basis.
Moreover, it may be disclosed assuming that the Contract is not
surrendered (i.e., with no deduction for a CDSC) or assuming that the
Contract is surrendered at the end of the applicable period (i.e.,
reflecting a deduction for any applicable CDSC).
Other Performance Data
The Company may from time to time disclose non-standardized total return
in conjunction with the standardized performance data described above.
Non-standardized data may reflect no CDSC or present performance data for
a period other than that required by the standardized format.
The Company may from time to time also disclose cumulative total return
calculated using the following formula assuming that the CDSC percentage
is 0%:
CTR = (ERV/P) - 1
Where:
CTR = the cumulative total return net of Sub-Account recurring charges for
the period.
ERV = ending redeemable value of a hypothetical $1,000 payment at the
beginning of the one, five, or ten-year period at the end of the one, five
or ten-year period (or fractional portion thereof).
P = a hypothetical initial payment of $1,000.
All non-standardized performance data will be advertised only if the
requisite standardized performance data is also disclosed.
The Contracts may be compared in advertising materials to Certificates of
Deposit ("CDs") or other investments issued by banks or other depository
institutions. Variable annuities differ from bank investments in several
respects. For example, variable annuities may offer higher potential
returns than CDs. However, unless you have elected to invest in only the
Fixed Account Options, the Company does not guarantee your return. Also,
none of your investments under the Contract, whether allocated to the
Fixed Account or a Sub-Account, are FDIC-insured.
Advertising materials for the Contracts may, from time to time, address
retirement needs and investing for retirement, the usefulness of a tax-
qualified retirement plan, saving for college, or other investment goals.
Advertising materials for the Contracts may discuss, generally, the
advantages of investing in a variable annuity and the Contract's
particular features and their desirability and may compare Contract
features with those of other variable annuities and investment products of
other issuers. Advertising materials may also include a discussion of the
balancing of risk and return in connection with the selection of
investment options under the Contract and investment alternatives
generally, as well as a discussion of the risks and attributes associated
_________________________________________________________________________
PAGE 6
<PAGE>
with the investment options under the Contract. A description of the tax
advantages associated with the Contract, including the effects of tax-
deferral under a variable annuity or retirement plan generally, may be
included as well. Advertising materials for the Contracts may quote or
reprint financial or business publications and periodicals, including
model portfolios or allocations, as they relate to current economic and
political conditions, management and composition of the underlying Funds,
investment philosophy, investment techniques, the desirability of owning
the Contract and other products and services offered by the Company or AAG
Securities, Inc. ("AAG Securities").
The Company or AAG Securities may provide information designed to help
individuals understand their investment goals and explore various
financial strategies. Such information may include: information about
current economic, market and political conditions; materials that describe
general principles of investing, such as asset allocation,
diversification, risk tolerance and goal setting; questionnaires designed
to help create a personal financial profile; worksheets used to project
savings needs based on assumed rates of inflation and hypothetical rates
of return; and alternative investment strategies and plans.
Ibbotson Associates of Chicago, Illinois ("Ibbotson") provides historical
returns of the capital markets in the United States, including common
stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury
bills, the U.S. rate of inflation (based on the Consumer Price Index), and
combinations of various capital markets. The performance of these capital
markets is based on the returns of different indices.
Advertising materials for the Contracts may use the performance of these
capital markets in order to demonstrate general risk-versus-reward
investment scenarios. Performance comparisons may also include the value
of a hypothetical investment in any of these capital markets. The risk
associated with the security types in any capital market may or may not
correspond directly to those of the Sub-Accounts and the Funds.
Advertising materials may also compare performance to that of other
compilations or indices that may be developed and made available in the
future.
In addition, advertising materials may quote various measures of
volatility and benchmark correlations for the Sub-Accounts and the
respective Funds, and compare these volatility measures and correlations
with those of other separate accounts and their underlying funds.
Measures of volatility seek to compare a sub-account's, or its underlying
fund's, historical share price fluctuations or total returns to those of a
benchmark. Measures of benchmark correlation indicate how valid a
comparative benchmark may be. All measures of volatility and correlation
are calculated using averages of historical data.
_________________________________________________________________________
PAGE 7
<PAGE>
FEDERAL TAX MATTERS
________________________________________________________________________
The Contract and Certificates thereunder are designed for use by
individuals in retirement plans which qualify for special tax treatment
under Sections 401, 403, or 457 of the Code, and for non-tax qualified
deferred compensation arrangements. The ultimate effect of federal taxes
on the Account Value, on Annuity Benefits, and on the economic benefit to
the Participant or the Beneficiary may depend on the type of retirement
plan for which the Contract is purchased, on the tax and employment status
of the individual concerned and on the Company's tax status. THE
FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. Any
person concerned about tax implications should consult a competent tax
adviser. This discussion is based upon the Company's understanding of the
present federal income tax laws as they are currently interpreted by the
Internal Revenue Service. No representation is made as to the likelihood
of continuation of present federal income tax laws or of the current
interpretations by the Internal Revenue Service. Moreover, no attempt has
been made to consider any applicable state or other tax laws.
Taxation of the Company
The Company is taxed as a life insurance company under Part I of
Subchapter L of the Code. Since the Separate Account is not an entity
separate from the Company, and its operations form a part of the Company,
it will not be taxed separately as a "regulated investment company" under
Subchapter M of the Code. Investment income and realized capital gains
are automatically applied to increase reserves under the Contracts. Under
existing federal income tax law, the Company believes that the Separate
Account investment income and realized net capital gains will not be taxed
to the extent that such income and gains are applied to increase the
reserves under the Contracts.
Accordingly, the Company does not anticipate that it will incur any
federal income tax liability attributable to the Separate Account and,
therefore, the Company does not intend to make provisions for any such
taxes. However, if changes in the federal tax laws or interpretations
thereof result in the Company being taxed on income or gains attributable
to the Separate Account, then the Company may impose a charge against the
Separate Account (with respect to some or all Contracts) in order to set
aside provisions to pay such taxes.
Tax Status of the Contract
In certain circumstances, participants under group variable annuity
contracts may be considered the owners, for federal income tax purposes,
of the assets of the separate accounts used to support their contracts.
In those circumstances, income and gains from the separate account assets
would be includible in the variable contract owner's gross income. The
Internal Revenue Service has stated in published rulings that a variable
contract owner will be considered the owner of separate account assets if
the contract owner possesses incidents of ownership in those assets, such
_________________________________________________________________________
PAGE 8
<PAGE>
as the ability to exercise investment control over the assets. The
Treasury Department has also announced, in connection with the issuance of
regulations concerning diversification, that those regulations "do not
provide guidance concerning the circumstances in which investor control of
the investments of a segregated asset account may cause the investor
(i.e., the participant), rather than the insurance company, to be treated
as the owner of the assets in the account." This announcement also stated
that guidance would be issued by way of regulations or rulings on the
"extent to which policyholders may direct their investments to particular
subaccounts without being treated as owners of the underlying assets." As
of the date of this Statement of Additional Information, no guidance has
been issued.
The ownership rights under the Contract are similar to, but different in
certain respects from, those described by the Internal Revenue Service in
rulings in which it was determined that contract owners were not owners of
separate account assets. For example, the Participant has additional
flexibility in allocating Purchase Payments and Account Value. These
differences could result in a Participant's being treated as the owner of
a pro rata portion(s) of the assets of the Separate Account and/or Fixed
Account. In addition, the Company does not know what standards will be
set forth, if any, in the regulations or rulings which the Treasury
Department has stated it expects to issue. The Company therefore reserves
the right to modify the Contract as necessary to attempt to prevent a
Participant from being considered the owner of a pro rata share of the
assets of the Separate Account.
FINANCIAL STATEMENTS
________________________________________________________________________
The Company's audited statutory-basis financial statements for the years
ended December 31, 1995 and 1994, are included herein.
The financial statements of the Company included in this Statement of
Additional Information should be considered only as bearing on the ability
of the Company to meet its obligations under the Contract. They should
not be considered as bearing on the investment performance of the assets
held in the Separate Account.
_________________________________________________________________________
PAGE 9
<PAGE>
Statutory Financial Statements
ANNUITY INVESTORS LIFE INSURANCE COMPANY[Registered]
Years ended December 31, 1995 and 1994
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Annuity Investors Life Insurance Company[Registered]
We have audited the accompanying statutory-basis balance sheets of Annuity
Investors Life Insurance Company[Registered] ("the Company") as of
December 31, 1995 and 1994, and the related statutory-basis statements of
operations, changes in capital and surplus, and cash flows for the years
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
The Company presents its financial statements in conformity with the
accounting practices prescribed or permitted by the Insurance Department
of the State of Ohio. The variances between such practices and generally
accepted accounting principles and the effects on the accompanying
financial statements are described in Notes A and I.
In our opinion, because of the materiality of the effects of the variances
between generally accepted accounting principles and the accounting
practices referred to in the preceding paragraph, the financial statements
referred to above are not intended to and do not present fairly, in
conformity with generally accepted accounting principles, the financial
position of Annuity Investors Life Insurance Company at December 31, 1995
and 1994, or the results of its operations or its cash flows for the years
then ended. However, in our opinion, the supplementary information
included in Note I presents fairly, in all material respects, capital and
surplus at December 31, 1995 and 1994 and net income for the years then
ended in conformity with generally accepted accounting principles.
Also, in our opinion, the statutory-basis financial statements referred to
above present fairly, in all material respects, the financial position of
Annuity Investors Life Insurance Company at December 31, 1995 and 1994,
and the results of its operations and its cash flows for the years then
ended, in conformity with accounting practices prescribed or permitted by
the Insurance Department of the State of Ohio.
Ernst & Young LLP
February 29, 1996
_________________________________________________________________________
PAGE 10
<PAGE>
<TABLE>
<CAPTION>
ANNUITY INVESTORS LIFE INSURANCE COMPANY[Registered]
BALANCE SHEETS
STATUTORY BASIS
December 31,
-------------------------------
1995 1994
---- ----
<S> <C> <C>
ASSETS
Cash and investments:
Bonds - at amortized cost
(market value: $8,648,412 and $7,545,390) $ 8,554,641 $ 8,291,079
Short-term investments 15,169,930 425,660
Cash 93,584 79,862
------------ ------------
Total cash and investments 23,818,155 8,796,601
------------ ------------
Investment income due and accrued 220,028 150,193
Federal income tax recoverable 0 23,181
------------ ------------
Total assets $ 24,038,183 $ 8,969,975
============ ============
LIABILITIES, CAPITAL AND SURPLUS
Annuity reserves $ 2,842,013 $ 2,684,376
Interest maintenance reserve 8 0
Commissions due and accrued 966 0
General expenses due and accrued 7,000 3,445
Taxes, licenses and fees due and accrued 3,000 0
Federal income tax payable 8,952 0
Asset valuation reserve 2,848 0
Payable to parent and affiliate 58,415 11,264
------------ ------------
Total liabilities 2,923,202 2,699,085
Common stock, $100 par value:
- 25,000 shares authorized
- 20,000 shares issued and outstanding 2,000,000 2,000,000
Gross paid in and contributed surplus 18,050,000 3,350,000
Unassigned surplus 1,064,981 920,890
------------ ------------
Total capital and surplus 21,114,981 6,270,890
------------ ------------
Total liabilities, capital and surplus $ 24,038,183 $ 8,969,975
============ ============
See notes to statutory financial statements.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
ANNUITY INVESTORS LIFE INSURANCE COMPANY[Registered]
SUMMARY OF OPERATIONS
STATUTORY BASIS
Year Ended December 31,
-------------------------------
1995 1994
---- ----
<S> <C> <C>
Revenues:
Premiums and annuity considerations $ 58,695 $ 219,308
Deposit type funds 16,107 0
Net investment income 552,141 432,932
--------- ---------
Total revenue 626,943 652,240
Benefits and expenses:
Increase in aggregate reserves 157,637 61,627
Policyholders' benefits 109,607 280,517
Commissions and expense allowances on
reinsurance assumed 49,655 47,023
General insurance expenses 34,588 25,630
Taxes, licenses and fees 53,577 38,951
--------- ---------
Total benefits and expenses 405,064 453,748
--------- ---------
Income from operations before federal income taxes 221,879 198,492
Provision for federal income taxes 74,941 69,000
--------- ---------
Net income after federal income taxes before 146,938 129,492
net realized capital gains
Net realized capital gains:
Pretax 15 0
Capital gains tax (5) 0
Interest maintenance reserve transfer (net of tax) (8) 0
--------- ---------
Net realized capital gains transferred to IMR 2 0
--------- ---------
Net income $ 146,940 $ 129,492
========= =========
See notes to statutory financial statements.
</TABLE>
_________________________________________________________________________
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<PAGE>
<TABLE>
<CAPTION>
ANNUITY INVESTORS LIFE INSURANCE COMPANY[Registered]
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
STATUTORY BASIS
Year Ended December 31,
-------------------------------
1995 1994
---- ----
<S> <C> <C>
Common stock:
Balance at beginning and end of period $ 2,000,000 $ 2,000,000
=========== ===========
Gross paid-in and contributed surplus:
Balance at beginning of year $ 3,350,000 $ 3,350,000
Surplus paid in 14,700,000 0
----------- -----------
Balance at end of year $18,050,000 $ 3,350,000
=========== ===========
Unassigned funds:
Balance at beginning of year $ 920,890 $ 791,398
Net income 146,940 129,492
Change in asset valuation reserve (2,849) 0
----------- -----------
Balance at end of year $ 1,064,981 $ 920,890
=========== ===========
Total capital and surplus $21,114,981 $ 6,270,890
=========== ===========
See notes to statutory financial statements.
</TABLE>
_________________________________________________________________________
PAGE 13
<PAGE>
<TABLE>
<CAPTION>
ANNUITY INVESTORS LIFE INSURANCE COMPANY[REGISTERED]
STATEMENTS OF CASH FLOWS
STATUTORY BASIS
Year Ended December 31,
-------------------------------
1995 1994
---- ----
<S> <C> <C>
Operating activities:
Premiums and annuity considerations $ 58,695 $ 219,308
Deposit type funds 16,107 0
Net investment income 512,777 398,729
Surrender benefits paid (109,607) (280,517)
Commissions, expenses and premium and other taxes paid (128,854) (111,604)
Federal income tax paid (42,813) (76,483)
Increase (Decrease) in payable to parent and affiliate 47,151 (29,837)
----------- -----------
Total operating activities 353,456 119,596
Investing activities:
Sale, maturity or repayment of bonds 1,167,103 0
Purchase of bonds (1,462,567) (2,637,891)
----------- -----------
Total investing activities (295,464) (2,637,891)
Financing activities:
Surplus paid in 14,700,000 0
----------- -----------
Total financing activities 14,700,000 0
----------- -----------
Net increase (decrease) in cash and short-term 14,757,992 (2,518,295)
investments
Cash and short-term investments at beginning of year 505,522 3,023,817
----------- -----------
Cash and short-term investments at end of year $15,263,514 $ 505,522
=========== ===========
See notes to statutory financial statements.
</TABLE>
_________________________________________________________________________
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<PAGE>
ANNUITY INVESTORS LIFE INSURANCE COMPANY[REGISTERED] NOTES TO STATUTORY
FINANCIAL STATEMENTS
-------------------------------------------------------------------------
A. ACCOUNTING POLICIES
BASIS OF PRESENTATION Annuity Investors Life Insurance Company[Registered]
("AILIC"), a life insurance company domiciled in the State of Ohio, is an
indirectly owned subsidiary of American Annuity Group[ServiceMark],
Inc.,("AAG"), a publicly traded financial services holding company of
which American Financial Group, Inc. ("AFG") owns 81%. On November 29,
1994, AILIC, formerly Carillon Life Insurance Company, was purchased from
Great American[Registered] Insurance Company, a wholly-owned subsidiary of
AFG.
The accompanying financial statements have been prepared in conformity
with accounting practices prescribed or permitted by the National
Association of Insurance Commissioners ("NAIC") and the Insurance
Department of the State of Ohio, which vary in some respects from
generally accepted accounting principles ("GAAP"). The more significant
of these differences are as follows: (a) annuity receipts are accounted
for as revenues versus liabilities; (b) an Interest Maintenance Reserve
("IMR") is provided whereby interest related realized gains and losses are
deferred and amortized into investment income over the expected remaining
life of the security sold; (c) Asset Valuation Reserves ("AVR") are
provided which reclassify a portion of surplus to liabilities; and (d)
investments in bonds considered "available for sale" (as defined under
GAAP) are generally recorded at amortized cost versus market.
The preparation of the financial statements of insurance companies
requires management to make estimates and assumptions that affect amounts
reported in the financial statements and accompanying notes. Such
estimates and assumptions could change in the future as more information
becomes known, which could impact the amounts reported and disclosed
herein.
Short-term investments having original maturities of three months or less
when purchased are considered to be cash equivalents for purposes of the
financial statements.
INVESTMENTS Asset values are generally stated as follows: Bonds not
backed by other loans, where permitted, at amortized cost using the
interest method, all others at association values as determined by the
NAIC Securities Valuation Office ("association value"); loan backed bonds
and structured securities, where permitted, at amortized cost using the
interest method, including anticipated prepayments at the date of
purchase; significant changes in estimated cash flows from the original
purchase assumptions accounted for on a prospective basis, all others at
association value; short-term investments at cost.
As prescribed by the NAIC, the market value for investments in bonds is
determined by the values included in the Valuations of Securities manual
published by the NAIC's Security Valuation Office. Those values generally
represent quoted market value prices for securities traded in the public
_________________________________________________________________________
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<PAGE>
marketplace or analytically determined values by the Securities Valuation
Office.
The carrying values of cash and short-term investments approximate their
fair values.
ANNUITY RESERVES Annuity reserves are developed by actuarial methods and
are determined based on published tables using statutorily specified
interest rates and valuation methods that will provide, in the aggregate,
reserves that are greater than or equal to the minimum amounts required by
law. The fair market value of the reserves approximates the statement
value.
REINSURANCE Reinsurance premiums, benefits and expenses are accounted for
on a basis consistent with those used in accounting for the original
policies issued and the terms of the reinsurance contracts.
B. INVESTMENTS
At December 31, 1995, fixed maturity investments in U.S. Government and
government agencies and authorities had a carrying value and market value
of $7.3 million, gross unrealized gains of $74,700 and gross unrealized
(losses) of ($45,100). All other corporate fixed maturity investments at
December 31, 1995 had a carrying value of $1.3 million, market value of
$1.4 million, gross unrealized gains of $64,700 and gross unrealized
(losses) of ($600). At December 31, 1994, all fixed maturity investments
consisted entirely of publicly traded U.S. Treasury bonds with a carrying
value of $8.3 million, market value of $7.5 million, gross unrealized
gains of $1,000 and gross unrealized (losses) of ($746,000).
Proceeds from sales of fixed maturity investments were $1.2 million in
1995. There were no sales of fixed maturity investments in 1994.
U.S. Treasury Notes with a carrying value of $6.0 million at December 31,
1995, were on deposit as required by the insurance departments of various
states.
C. FEDERAL INCOME TAXES
AILIC's amount of federal income taxes incurred for recoupment in the
event of future losses are approximately $75,000 in 1995, $69,000 in 1994
and $57,000 in 1993.
D. RELATED PARTY TRANSACTIONS
On December 30, 1993, AILIC entered into a reinsurance agreement with
Great American Life Insurance Company[Registered] ("GALIC"), an affiliated
Ohio domiciled insurance company, which became AILIC's immediate parent in
1995. As a result of the transaction, AILIC assumed $2.6 million in
deferred annuity reserves and received an equivalent amount of assets.
AILIC will continue to assume premiums, surrenders and other transactions
on certain policies directly written and administered by GALIC. The
majority of premium income in 1995 and all premium income in 1994
_________________________________________________________________________
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<PAGE>
consisted of assumed reinsurance from GALIC in accordance with the
agreement.
Certain investment, administrative, management, accounting and data
processing services are provided to AILIC through the use of shared
facilities and personnel or under agreements between AILIC and affiliates.
E. DIVIDEND RESTRICTIONS
The amount of dividends which can be paid by AILIC without prior approval
of regulatory authorities is subject to restrictions relating to capital
and surplus and net income. AILIC may pay approximately $1.1 million in
dividends in 1996 based on capital and surplus, without prior approval.
F. ANNUITY RESERVES
At December 31, 1995, 99% of AILIC's annuity reserves were subject to
discretionary withdrawal without adjustment.
G. OTHER ITEMS
The increase in the number of insurance companies that are under
regulatory supervision has resulted, and is expected to continue to
result, in increased assessments by state guaranty funds to cover losses
to policyholders of insolvent or rehabilitated insurance companies. Those
mandatory assessments may be partially recovered through deduction in
future premium taxes in certain states. GALIC is responsible for payment
of all assessments relating to premiums earned in accordance with the
reinsurance agreement discussed in Note D.
_________________________________________________________________________
PAGE 17
<PAGE>
Annuity Investors Life Insurance Company(REGISTERED TRADEMARK)
STATEMENT OF CASH FLOWS
STATUTORY BASIS
H. SELECTED FINANCIAL DATA
The following tables present selected statutory-basis financial data as of
December 31, 1995 and 1994 and for the years then ended for purposes of
complying with paragraph 9 of the Annual Audited Financial Reports in the
General section of the National Association of Insurance Commissioners'
Annual Statement Instructions and agrees to or is included in the amounts
reported in AILIC's 1995 and 1994 Statutory Annual Statements as filed
with the insurance department of the State of Ohio:
<TABLE>
<CAPTION>
1995 1994
----------- ------------
<S> <C> <C>
Gross investment income earned:
Bonds $ 447,488 $ 431,170
Short-term investments 72,980 18,168
Cash on hand and on deposit 41,582 0
Aggregate write-ins for investment income 0 106
---------- -----------
562,050 449,444
=========== ===========
Bonds by class
Class "1" 8,444,399 8,291,079
Class "2" 110,242 0
----------- -----------
$ 8,554,641 $ 8,291,079
=========== ===========
Total bonds publicly traded $ 8,554,641 $ 8,291,079
=========== ===========
Short-term investments (book value) $15,169,930 $ 425,660
=========== ===========
Cash on deposit $ 93,584 $ 79,862
=========== ===========
Group annuities not fully paid--account $ 2,842,013 $ 2,684,376
balance =========== ===========
</TABLE>
_________________________________________________________________________
PAGE 18
<PAGE>
Annuity Investors Life Insurance Company(REGISTERED TRADEMARK)
STATEMENT OF CASH FLOWS
STATUTORY BASIS
1995 1995
Carrying Value Market Value
-------------- -------------
Total Bonds by maturity:
Due within 1 year or less $ 100,137 $ 101,687
Over 1 year through 5 years 4,372,211 4,366,586
Over 5 years through 10 years 3,796,802 3,870,899
Over 10 years through 20 years 139,901 150,719
Over 20 years 145,590 158,521
---------- ----------
Total bonds by maturity $8,554,641 $8,648,412
========== ==========
I. VARIANCES FROM GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
These financial statements have been presented in conformity with the
accounting practices prescribed or permitted by the insurance department
of the State of Ohio. The following table summarizes the differences
between net income and surplus as determined in accordance with statutory
accounting practices and GAAP for the years ended December 31, 1995 and
1994:
<TABLE>
<CAPTION>
Net Income Capital and Surplus
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
As reported on a statutory basis $146,940 $129,492 $21,114,981 $6,270,890
Commissions capitalized to DAC
and amortized 954 0 954 0
Capital gains transferred to IMR,
net of tax 8 0 8 0
Federal income taxes (3,051) 0 (3,051) 0
Unrealized gain (loss) adjustment 0 0 38,109 (485,000)
AVR adjustment 0 0 2,848 0
-------- -------- ----------- ----------
Total GAAP adjustments (2,089) 0 38,868 (485,000)
-------- -------- ----------- ----------
GAAP basis $144,851 $129,492 $21,153,849 $5,785,890
======== ======== =========== ==========
</TABLE>
_________________________________________________________________________
PAGE 19
<PAGE>
