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ANNUITY INVESTORS (SERVICEMARK) VARIABLE ACCOUNT A
of
ANNUITY INVESTORS LIFE INSURANCE COMPANY(REGISTERED)
PROSPECTUS
for the
Commodore Mariner(SERVICEMARK) and Commodore Americus(SERVICEMARK)
Individual Flexible Premium Deferred Annuities
Issued by
ANNUITY INVESTORS LIFE INSURANCE COMPANY
P.O. Box 5423, Cincinnati, Ohio 45201-5423, (800) 789-6771
This Prospectus describes the Commodore Mariner and Commodore Americus
Individual Flexible Premium Deferred Annuity Contracts (each, the
"Contract") issued by Annuity Investors Life Insurance Company (the
"Company").
The Commodore Americus is available in connection with arrangements that
qualify for favorable tax treatment ("Qualified Contract(s)") under
sections 401, 403 and 408 of the Internal Revenue Code of 1986, as amended
(the "Code"). The Commodore Mariner is available for non-tax-qualified
annuity purchases ("Non-Qualified Contract(s)"), including Contracts
purchased by an employer in connection with a Code Section 457 or non-
qualified deferred compensation plan.
The Contract provides for the accumulation of an Account Value on a fixed
or variable basis, or a combination of both. The Contract 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: (1) Janus Aspen Series Aggressive Growth Portfolio; (2)
Janus Aspen Series Worldwide Growth Portfolio; (3) Janus Aspen Series
Balanced Portfolio; (4) Janus Aspen Series 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; (8) Merrill Lynch Variable Series Funds, Inc., Basic Value Focus
Fund; (9) Merrill Lynch Variable Series Funds, Inc., Global Strategy Focus
Fund; (10) Merrill Lynch Variable Series Funds, Inc., High Current Income
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Fund; and (11) Merrill Lynch Variable Series Funds, Inc., 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 August 16, 1996.
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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TABLE OF CONTENTS
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Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
The Contract . . . . . . . . . . . . . . . . . . . . . . . . . . 9
The Separate Account . . . . . . . . . . . . . . . . . . . . . . 9
The Fixed Account . . . . . . . . . . . . . . . . . . . . . . . . 9
Transfers Before the Annuity Commencement Date . . . . . . . . . 10
Surrenders . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Contingent Deferred Sales Charge ("CDSC") . . . . . . . . . . . . 10
Other Charges and Deductions . . . . . . . . . . . . . . . . . . 10
Annuity Benefits . . . . . . . . . . . . . . . . . . . . . . . . 11
Death Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Federal Income Tax Consequences . . . . . . . . . . . . . . . . . 11
Right to Cancel . . . . . . . . . . . . . . . . . . . . . . . . . 11
Contacting the Company . . . . . . . . . . . . . . . . . . . . . 11
SUMMARY OF EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Owner Transaction Expenses . . . . . . . . . . . . . . . . . . . 12
Examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
FINANCIAL STATEMENTS FOR THE COMPANY . . . . . . . . . . . . . . . . . 16
THE FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Janus Aspen Series . . . . . . . . . . . . . . . . . . . . . . . 17
Aggressive Growth Portfolio . . . . . . . . . . . . . . . . 17
Worldwide Growth Portfolio . . . . . . . . . . . . . . . . . 17
Balanced Portfolio . . . . . . . . . . . . . . . . . . . . . 17
Short-Term Bond Portfolio . . . . . . . . . . . . . . . . . 17
Dreyfus Funds . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Capital Appreciation Portfolio (Dreyfus Variable
Investment Fund) . . . . . . . . . . . . . . . . . . . 17
The Dreyfus Socially Responsible Growth Fund, Inc. . . . . . 17
Dreyfus Stock Index Fund . . . . . . . . . . . . . . . . . . 17
Merrill Lynch Variable Series Funds, Inc. . . . . . . . . . . . . 18
Basic Value Focus Fund . . . . . . . . . . . . . . . . . . . 18
Global Strategy Focus Fund . . . . . . . . . . . . . . . . . 18
High Current Income Fund . . . . . . . . . . . . . . . . . . 18
Domestic Money Market Fund. . . . . . . . . . . . . . . . . 18
Additions, Deletions, or Substitutions . . . . . . . . . . . . . 19
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PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 19
Yield Data . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Total Return Data . . . . . . . . . . . . . . . . . . . . . . . . 20
ANNUITY INVESTORS LIFE INSURANCE COMPANY(REGISTERED)
AND THE SEPARATE ACCOUNT . . . . . . . . . . . . . . . . . . . . 20
Annuity Investors Life Insurance Company(REGISTERED) . . . . . . 20
Published Ratings . . . . . . . . . . . . . . . . . . . . . . . . 21
The Separate Account . . . . . . . . . . . . . . . . . . . . . . 21
THE FIXED ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Fixed Account Options . . . . . . . . . . . . . . . . . . . . . . 22
Renewal of Fixed Account Options . . . . . . . . . . . . . . . . 22
THE CONTRACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Right to Cancel . . . . . . . . . . . . . . . . . . . . . . . . . 23
PURCHASE PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Purchase Payments . . . . . . . . . . . . . . . . . . . . . . . . 23
Allocation of Purchase Payments . . . . . . . . . . . . . . . . . 23
ACCOUNT VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Fixed Account Value . . . . . . . . . . . . . . . . . . . . . . . 24
Variable Account Value . . . . . . . . . . . . . . . . . . . . . 24
Accumulation Unit Value . . . . . . . . . . . . . . . . . . . . . 24
Net Investment Factor . . . . . . . . . . . . . . . . . . . . . . 24
TRANSFERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Telephone Transfers . . . . . . . . . . . . . . . . . . . . . . . 25
Dollar Cost Averaging . . . . . . . . . . . . . . . . . . . . . . 26
Portfolio Rebalancing . . . . . . . . . . . . . . . . . . . . . . 26
Interest Sweep . . . . . . . . . . . . . . . . . . . . . . . . . 26
Changes By the Company . . . . . . . . . . . . . . . . . . . . . 27
SURRENDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Surrender Value . . . . . . . . . . . . . . . . . . . . . . . . . 27
Suspension or Delay in Payment of Surrender Value . . . . . . . . 28
Free Withdrawal Privilege . . . . . . . . . . . . . . . . . . . . 28
Systematic Withdrawal . . . . . . . . . . . . . . . . . . . . . . 28
CONTRACT LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
DEATH BENEFIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
When A Death Benefit Will Be Paid . . . . . . . . . . . . . . . . 29
Death Benefit Values . . . . . . . . . . . . . . . . . . . . . . 29
Death Benefit Commencement Date . . . . . . . . . . . . . . . . . 30
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Form of Death Benefit . . . . . . . . . . . . . . . . . . . . . . 30
Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
CHARGES AND DEDUCTIONS . . . . . . . . . . . . . . . . . . . . . . . . 31
Contingent Deferred Sales Charge ("CDSC") . . . . . . . . . . . . 31
Maintenance and Administrative Charges . . . . . . . . . . . . . 33
Mortality and Expense Risk Charge . . . . . . . . . . . . . . . . 33
Premium Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Transfer Fee . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Fund Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SETTLEMENT OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Annuity Commencement Date . . . . . . . . . . . . . . . . . . . . 35
Election of Settlement Option . . . . . . . . . . . . . . . . . . 35
Benefit Payments . . . . . . . . . . . . . . . . . . . . . . . . 35
Fixed Dollar Benefit . . . . . . . . . . . . . . . . . . . . . . 35
Variable Dollar Benefit . . . . . . . . . . . . . . . . . . . . . 36
Settlement Options . . . . . . . . . . . . . . . . . . . . . . . 36
Minimum Amounts . . . . . . . . . . . . . . . . . . . . . . . . . 37
Settlement Option Tables . . . . . . . . . . . . . . . . . . . . 37
GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Non-participating . . . . . . . . . . . . . . . . . . . . . . . . 38
Misstatement . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Proof of Existence and Age . . . . . . . . . . . . . . . . . . . 38
Discharge of Liability . . . . . . . . . . . . . . . . . . . . . 38
Transfer of Ownership . . . . . . . . . . . . . . . . . . . . . . 38
Non-Qualified Contract . . . . . . . . . . . . . . . . . . . 38
Qualified Contract . . . . . . . . . . . . . . . . . . . . . 38
Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Non-Qualified Contract . . . . . . . . . . . . . . . . . . . 38
Qualified Contract . . . . . . . . . . . . . . . . . . . . . 39
Annual Report . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Incontestability . . . . . . . . . . . . . . . . . . . . . . . . 39
Entire Contract . . . . . . . . . . . . . . . . . . . . . . . . . 39
Changes -- Waivers . . . . . . . . . . . . . . . . . . . . . . . 39
Notices and Directions . . . . . . . . . . . . . . . . . . . . . 39
FEDERAL TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Taxation of Annuities In General . . . . . . . . . . . . . . . . 40
Surrenders . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Qualified Contracts . . . . . . . . . . . . . . . . . . . . 40
Non-Qualified Contracts . . . . . . . . . . . . . . . . . . 41
Annuity Benefit Payments . . . . . . . . . . . . . . . . . . . . 41
Penalty Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
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Taxation of Death Benefit Proceeds . . . . . . . . . . . . . . . 41
Transfers, Assignments, or Exchanges of the Contract . . . . . . 41
Qualified Contracts - General . . . . . . . . . . . . . . . . . . 41
Texas Optional Retirement Program . . . . . . . . . . . . . . . . 41
Individual Retirement Annuities . . . . . . . . . . . . . . . . . 42
Tax-Sheltered Annuities . . . . . . . . . . . . . . . . . . . . . 42
Corporate Pension and Profit Sharing Plans and H.R. 10 Plans . . 42
Certain Deferred Compensation Plans . . . . . . . . . . . . . . . 42
Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Possible Changes in Taxation . . . . . . . . . . . . . . . . . . 42
Other Tax Consequences . . . . . . . . . . . . . . . . . . . . . 43
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
DISTRIBUTION OF THE CONTRACT . . . . . . . . . . . . . . . . . . . . . 43
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
VOTING RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 45
STATEMENT OF ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . 46
APPENDIX A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
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DEFINITIONS
Account(s): The Sub-Account(s) and/or the Fixed Account options.
Account Value: The aggregate value of the Owner's interest in the Sub-
Account(s) and the Fixed Account options as of the end of any Valuation
Period. The value of the Owner's interest in all Sub-Accounts is the
"Variable Account Value," and the value of the Owner's interest in all
Fixed Account options is the "Fixed Account Value."
Accumulation Period: The period prior to the applicable Commencement
Date.
Accumulation Unit: The unit of measure used to calculate the value of the
Sub-Account(s) prior to the applicable 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.
Annuity Benefit: Periodic payments under a settlement option, which
commence on or after the Annuity Commencement Date.
Annuity Commencement Date: The first day of the first period for which an
Annuity Benefit payment is to be made under a settlement option.
Benefit Payment: The Annuity Benefit or Death Benefit payable under a
settlement option. Variable Dollar Benefit payments may vary in amount.
Fixed Dollar Benefit payments remain constant except under certain joint
and survivor settlement options.
Benefit Payment Period: The period commencing with the Commencement Date
during which Benefit Payments are to be made under the Contract.
Benefit Unit: The unit of measure used to determine the dollar value of
any Variable Dollar Benefit payments after the first Benefit Payment is
made by the Company.
Commencement Date: The Annuity Commencement Date if an Annuity Benefit is
payable under the Contract, or the Death Benefit Commencement Date if a
Death Benefit is payable under the Contract.
Contract Anniversary: An annual anniversary of the Contract Effective
Date.
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Contract Effective Date: The date shown on the Contract Specifications
page.
Contract Year: Any period of twelve months commencing on the Contract
Effective Date and on each Contract Anniversary thereafter.
Code: The Internal Revenue Code of 1986, as amended, and the rules and
regulations issued thereunder.
Death Benefit Commencement Date: The first day of the first period for
which a Death Benefit payment is to be made under a settlement option.
Death Benefit Valuation Date: The date that Due Proof of Death has been
received by the Company and the earlier to occur of:
(1) the Company's receipt of a Written Request with instructions as
to the form of Death Benefit; or
(2) the Death Benefit Commencement Date.
Due Proof of Death: Any of the following: (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) any other proof
satisfactory to the Company.
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.
Owner: The person or persons identified as such on the Contract
Specifications page.
Person Controlling Payments:
Non-Qualified Contracts: The "person controlling payments" means the
following, as the case may be:
(1) with respect to Annuity Benefit payments,
(a) the Owner, if the Owner has the right to change the payee;
or
(b) in all other cases, the payee; and
(2) with respect to Death Benefit payments,
(a) the Beneficiary, or
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(b) if the Beneficiary is deceased, the payee.
Qualified Contracts: The "person controlling payments" means the
following, as the case may be:
(1) with respect to Annuity Benefit payments, the Owner; and
(2) with respect to Death Benefit payments,
(a) the Beneficiary, or
(b) if the Beneficiary is deceased, the payee.
Payment Interval: The timing and frequency of Benefit Payments under a
settlement option.
Purchase Payment: A contribution made to the Company in consideration for
the Contract, after the deduction of any and all of the following that may
apply:
(1) any fee charged by the person remitting payments for the Owner;
(2) premium taxes; and/or
(3) other taxes.
Separate Account: An account, which may be an investment company, which
is established and maintained by the Company pursuant to the laws of the
State of Ohio.
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 Contract if the Contract 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.
Written Request: Information provided, or a request made, that is
complete and satisfactory to the Company, 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. An Owner may be required
to return his or her Contract to the Company in connection with a Written
Request.
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HIGHLIGHTS
The Contract
The Commodore Mariner(SERVICEMARK) contract described in this
Prospectus is designed for use in connection with certain individual
non-tax-qualified annuity purchases, including Contracts purchased by
an employer in connection with a Code Section 457 or non-qualified
deferred compensation plan. The Commodore Americus(SERVICEMARK) is
available for arrangements that qualify for favorable tax treatment
under Sections 401, 403 or 408 of the Code.
The Owner is the person or persons designated as such on the Contract
Specifications page. Subject to the terms of the Contract and unless
the Owner dies before the Annuity Commencement Date, the Account
Value, after certain adjustments, will be applied to the payment of
an Annuity Benefit under the Settlement Option elected by the Owner.
The Account Value will depend on the investment experience of the
amounts allocated to each Sub-Account of the Separate Account elected
by the Owner and/or interest credited on amounts allocated to the
Fixed Account option(s) elected. All Annuity Benefits and other
values provided under the Contract when based on the investment
experience of the Separate Account are variable and are not
guaranteed as to dollar amount. Therefore, the Owner bears the entire
investment risk with respect to amounts allocated to the Separate
Account under the Contract.
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(SERVICEMARK) Variable Account A is a Separate
Account of the Company that is divided into Sub-Accounts. (See "The
Separate Account," page 21.) 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: (1) Janus Aspen Series Aggressive Growth Portfolio;
(2) Janus Aspen Series Worldwide Growth Portfolio; (3) Janus Aspen
Series Balanced Portfolio; (4) Janus Aspen Series 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; (8) Merrill Lynch Variable Series Funds
Inc., Basic Value Focus Fund; (9) Merrill Lynch Variable Series Funds
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Inc., Global Strategy Focus Fund; (10) Merrill Lynch Variable Series
Funds Inc., High Current Income Fund; and (11) Merrill Lynch Variable
Series Funds Inc., Domestic Money Market Fund. Each Fund has
distinct investment objectives and policies which are described in
the accompanying prospectus for the Fund.
Each Fund pays its investment adviser and other service providers
certain fees charged against the assets of the Fund. The Account
Value of a Contract and the amount of any Annuity Benefits will vary
to reflect the investment performance of all the Sub-Accounts elected
by the Owner and the deduction of the charges described under
"CHARGES AND DEDUCTIONS," page 31. For more information about the
Funds, see "THE FUNDS" page 16, 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 21.)
Transfers Before the Annuity Commencement Date
Prior to the Annuity Commencement Date, the Owner 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 25.)
The Company currently charges a fee of $25 for each transfer
("Transfer Fee") in excess of twelve made during the same Contract
Year. (See "TRANSFERS," page 25.)
Surrenders
All or part of the Surrender Value of a Contract may be surrendered
by the Owner 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 Contract.
Amounts withdrawn also may be subject to a premium tax or similar
__________________________________________________________________________
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
_________________________________________________________________________
tax, depending upon the jurisdiction in which the Owner lives.
Surrenders may be subject to a 10% premature distribution penalty tax
if made before the Owner reaches age 59 1/2. Surrenders may further
be subject to federal, state or local income taxes or significant tax
law restrictions. (See "FEDERAL TAX MATTERS," page 40.)
Contingent Deferred Sales Charge ("CDSC")
A CDSC may be imposed on amounts surrendered. The maximum CDSC is 7%
for each Purchase Payment. That percentage decreases by 1% annually
to 0% after year seven.
The CDSC may be reduced or waived under certain circumstances. (See
"CHARGES AND DEDUCTIONS," page 31.)
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
where the Company incurs reduced sales and servicing expenses, such
as Contracts offered to active employees of the Company or any of its
subsidiaries and/or affiliates, the Company may offer a 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. (See
"CHARGES AND DEDUCTIONS," page 31.)
The Company also deducts a Contract maintenance charge each year
("Contract Maintenance Fee"). This Fee is currently $25 and is
deducted from an Owner's Variable Account Value on each Contract
Anniversary. The Contract Maintenance Fee may be waived under certain
circumstances. (See "CHARGES AND DEDUCTIONS," page 31.)
The Company does not currently intend to deduct a charge to help
cover the costs of administering the Contract 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 0.20% 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 Contract. (See "CHARGES AND DEDUCTIONS,"
page 31.)
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
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Annuity Benefits
Annuity Benefits are paid on a fixed or variable basis, or a
combination of both. (See "Benefit Payments," page 35.)
Death Benefit
The Contract provides for the payment of a Death Benefit if the Owner
dies prior to the Annuity Commencement Date. The Death Benefit may
be paid in one lump sum or pursuant to any available settlement
option offered under the Contract. (See "DEATH BENEFIT," page 29)
Federal Income Tax Consequences
An Owner generally should not be taxed on increases in the Account
Value until a distribution under the Contract 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
withholding unless the recipient elects otherwise. In addition, a
10% federal penalty tax may apply to certain distributions. (See
"FEDERAL TAX MATTERS," page 40.)
Right to Cancel
An Owner may cancel the Contract by giving the Company written notice
of cancellation and returning the Contract before midnight of the
twentieth day (or longer if required by state law) after receipt.
(See "Right to Cancel," page 23.)
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 Contract Number and the Owner'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 AN ENDORSEMENT TO
THE CONTRACT OR LIMITATIONS OR PENALTIES IMPOSED BY THE CODE MAY
IMPOSE ADDITIONAL LIMITS OR RESTRICTIONS ON PURCHASE PAYMENTS,
SURRENDERS, DISTRIBUTIONS, BENEFITS, OR OTHER PROVISIONS OF THE
CONTRACT. THIS PROSPECTUS DOES NOT DESCRIBE SUCH LIMITATIONS OR
RESTRICTIONS. (SEE "FEDERAL TAX MATTERS," PAGE 40.)
__________________________________________________________________________
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
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SUMMARY OF EXPENSES
Owner Transaction Expenses
Sales Load Imposed on Purchase Payments None
Contingent Deferred Sales Charge (as a percentage of Purchase Payments
surrendered)
Contract Years elapsed since
receipt of Purchase Payment
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 Contract Maintenance Fee $25
1 The first twelve transfers in a Contract Year are free. Thereafter,
a $25 fee will be charged on each subsequent transfer.
__________________________________________________________________________
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
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<TABLE>
<CAPTION>
Dreyfus
V.I.F.
Separate Account Annual Janus A.S. Janus A.S. Janus A.S. Capital
Expenses2 (as a Aggressive Worldwide Janus A.S. Short-Term Appre-
percentage of average Growth Growth Balanced Bond ciation
Separate Account assets) Portfolio Portfolio 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 0.86% 0.90% 1.37% 0.70% 0.85%
Expenses
</TABLE>
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
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<TABLE>
<CAPTION>
Merrill Merrill
Lynch Lynch Merrill
The Dreyfus Merrill V.S.F. V.S.F. Lynch
Separate Account Annual Socially Dreyfus Lynch V.S.F. Global High V.S.F.
Expenses2 (as a Responsible Stock Basic Strategy Current Domestic
percentage of average Growth Index Value Focus Focus Income Money Market
Separate Account assets) Fund, Inc. Fund Fund Fund Fund 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 1.27% 0.39% 0.66% 0.72% 0.55% 0.55%
Expenses
</TABLE>
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
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The purpose of this table is to assist an Owner in understanding the
various costs and expenses that the Owner 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 31 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.
Currently, the Company imposes no charge for participation in the
Dollar Cost Averaging, Portfolio Rebalancing, Interest-Sweep and
Systematic Withdrawal programs. The Company reserves the right to impose
an annual fee not to exceed $25 for participation in each of the foregoing
programs. (See "TRANSFERS," page 25.) The Company deducts a $25 Contract
Maintenance Fee from an Owner's Variable Account Value on each Contract
Anniversary. The Company reserves the right to increase the annual
Contract Maintenance Fee up to $40. (See "CHARGES AND DEDUCTIONS," page
31.) The Company imposes no Administration Charge but reserves the right
to impose an annual Administration Charge not to exceed 0.20% of the Net
Aset Value of each Sub-Account.
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 are 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;
__________________________________________________________________________
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
_________________________________________________________________________
3/ (continued)
0.75%, 0.58% and 1.33%, respectively, for the Dreyfus Socially Responsible
Growth Fund, Inc.; 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.
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
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Examples4
If the Owner surrenders his or her Contract at the end of the
applicable time period, the following expenses will be charged on
a $1,000 investment, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
Sub-Account 1 Year 3 Years
<S> <C> <C>
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 Portfolio $ 95 $130
The Dreyfus Socially Responsible Growth Fund, Inc. $113 $184
Dreyfus Stock Index Fund $ 87 $104
Merrill Lynch V.S.F. Basic Value Focus Fund $ 91 $115
Merrill Lynch V.S.F. Global Strategy Focus Fund $ 91 $117
Merrill Lynch V.S.F. High Current Income Fund $ 90 $112
Merrill Lynch V.S.F. Domestic Money Market Fund $ 90 $112
</TABLE>
4 The examples assume the reinvestment of all dividends and
distributions, no transfers among Sub-Accounts or between Accounts and a
5% annual rate of return as mandated by Securities and Exchange Commission
regulations. Annual Contract Maintenance Fees are based on an estimated
average Account Value for the current fiscal year.
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
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If the Owner does not surrender his or her Contract, or it is
annuitized, the following expenses would be charged on a $1,000
investment at the end of the applicable time period, assuming a
5% annual return on assets:
<TABLE>
<CAPTION>
Sub-Account 1 Year 3 Years
<S> <C> <C>
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. Domestic Money Market Fund $ 20 $ 62
</TABLE>
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 the Owner
for premium taxes.
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
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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. Because the Contracts registered by this
Prospectus had not yet been issued as of the date of this
prospectus, no financial information for the Separate Account is
provided.
THE FUNDS
The Separate Account currently has eleven Funds that are
available for investment under the Contract. 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. For further discussion of the risks
associated with investment in junk bonds, please see the attached
Janus Aspen Series prospectus.
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. For further discussion
of the risks associated with investment in junk bonds, please see
the attached Janus Aspen Series prospectus.
Balanced Portfolio. A diversified portfolio that seeks long-term
growth of capital balanced by current income. The Fund normally
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
_________________________________________________________________________
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 debt securities, including junk bonds. For further
discussion of the risks associated with investment in junk bonds,
please see the attached Janus Aspen Series prospectus.
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. For further discussion of
the risks associated with investment in junk bonds, please see
the attached Janus Aspen Series prospectus.
Janus Capital Corporation serves as the investment adviser to
each of these Funds.
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 investment
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.
__________________________________________________________________________
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
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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 manager and Mellon Equity
Associates, an affiliate to 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 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. For further discussion of the risks associated with
__________________________________________________________________________
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
_________________________________________________________________________
investment in junk bonds, please see the attached Merrill Lynch
Variable Series Fund, Inc. prospectus.
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 of
other insurance companies offering variable annuity and variable
life products, 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 and plans 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 of each Fund and charges of each Fund can
be found in the current prospectus for each Fund which accompany
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.
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
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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 Owner's interest in a Sub-Account will not be
made without prior notice to the Owner 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 Owners.
New Sub-Accounts may be established when, in the sole discretion
of the Company, marketing, tax, investment or other conditions so
warrant. Any new Sub-Accounts will be made available to existing
Owners on a basis to be determined by the Company. 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
Owners 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 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 Contracts, the Separate Account may be operated as a
management company under the 1940 Act or any other form permitted
by law, may be de-registered under such Act in the event such
registration is no longer required, or may be combined with one
or more separate accounts.
__________________________________________________________________________
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
_________________________________________________________________________
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.
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 Contract
which would reduce the yield of that Contract.
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. Total return data that does not
reflect the CDSC and other nonrecurring charges will be higher
__________________________________________________________________________
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
_________________________________________________________________________
than the total return realized by an investor who incurs the
charges.
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.
ANNUITY INVESTORS LIFE INSURANCE COMPANY(REGISTERED) AND THE SEPARATE
ACCOUNT
Annuity Investors Life Insurance Company
Annuity Investors Life Insurance Company (the "Company"),
formerly known as Carillon Life Insurance Company, is a stock
life insurance company. It was incorporated under the laws of
the State of Ohio in 1981. The Company is principally engaged in
the sale of 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.
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Published Ratings
The Company may from time to time publish in advertisements,
sales literature and reports to Owners, the ratings and other
information assigned to it by one or more independent rating
organizations such as A.M. Best Company, Standard & Poor's, and
Duff & Phelps. The purpose of the ratings is to reflect the
financial strength and/or claims-paying ability of the Company
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 Owners.
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(SERVICEMARK) 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.
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
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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 Owners of, and the persons entitled
to payment under, the Contracts offered by this Prospectus and
under all other contracts which provide for accumulated values or
dollar amount payments to reflect investment results of the
Separate Account. The obligations arising under the Contracts
are obligations of the Company.
The Separate Account is divided into Sub-Accounts, each of which
invests solely in a specific corresponding Fund. (See "THE
FUNDS," page 16.) Changes to the Sub-Accounts may be made at the
discretion of the Company. (See "Additions, Deletions, or
Substitutions," page 19.)
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 Owners 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.
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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 Contract as the Fixed Account Options
One-Year, Three-Year and Five-Year Guarantee Period,
respectively. Different 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, compounded
annually.
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 Owner
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 Contract (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
such Commencement Date, the only Fixed Account option available
is the Fixed Accumulation Account option.
If the Owner does not specify a new Fixed Account option in
accordance with the preceding paragraph, the Owner will be deemed
to have elected the same Fixed Account option as is expiring, 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
Owner will be deemed to have selected the Fixed Account option
with the longest available guarantee period that expires prior to
the Annuity Commencement Date, or, failing that, the Fixed
Accumulation Account Option.
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THE CONTRACT
The Contract is an individual flexible premium deferred annuity.
The rights and benefits are described below and in the Contract.
The Company reserves the right to make any modification to
conform the Contracts to, or give the Owner the benefit of, any
applicable law. The obligations under the Contracts are
obligations of the Company.
Fixed Account Values, Variable Account Values, benefits and
charges will be calculated separately for each Contract. The
various administrative rules described below will apply
separately to each Contract, unless otherwise noted. The Company
reserves the right to terminate any Contract at any time the
Account Value is less than $500. Upon the termination of a
Contract, the Company will pay the Owner the Surrender Value.
Right to Cancel
The Owner may cancel the Contract by giving the Company written
notice of cancellation and returning the Contract before midnight
of the twentieth day (or longer if required by state law)
following the date the Owner receives the Contract. The Contract
must be returned to the Company, and the required notice must be
given in person, or to the agent who sold it to the Owner, or by
mail. If by mail, the return of the Contract or the notice is
effective on the date it is postmarked, with the proper address
and with postage paid. If the Owner cancels the Contract as set
forth above, the Contract will be void and the Company will
refund the Purchase Payment(s) plus or minus any investment gains
or losses under the Contract as of the end of the Valuation
Period during which the returned Contract is received by the
Company, or as otherwise required by law.
PURCHASE PAYMENTS
Purchase Payments
The minimum initial Purchase Payment for Qualified Contracts is
$50, and the minimum initial Purchase Payment for Non-Qualified
Contracts is $5,000. Tax-free transfers and rollovers to the
Contracts must be at least $5,000. Both Contracts require
subsequent Purchase Payments of at least $50 per month. Purchase
Payments and tax-free transfers or rollovers may be sent to the
Company at its Administrative Office at any time before the
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Annuity Commencement Date so long as the Contract has not been
fully surrendered.
Each Purchase Payment will be applied by the Company to the
credit of the Owner's Account. If the application form is in
good order, the Company will apply the initial Purchase Payment
to an account for the Owner within two business days of receipt
of the Purchase Payment at the Administrative Office. If the
application form is not in good order, the Company will attempt
to get the application form in good order within five business
days. If the application form is not in good order at the end of
this period, the Company will inform the 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 application form is in
good order. Once the application form is in good order, the
Purchase Payment will be applied to the Owner's Account within
two business days.
Each additional Purchase Payment is credited to a Contract as of
the next Valuation Date following the receipt of such additional
Purchase Payment.
No Purchase Payment for any Contract may exceed $500,000 without
prior approval of the Company.
Allocation of Purchase Payments
The Company will allocate Purchase Payments to the Fixed Account
options and/or to the Sub-Accounts according to instructions
received by Written Request. Allocations must be made in whole
percentages.
ACCOUNT VALUE
The Account Value is equal to the aggregate value of the Owner's
interest in the Sub-Account(s) and the Fixed Account options as
of the end of any Valuation Period. The value of the Owner's
interest in all Sub-Accounts is the "Variable Account Value," and
the value of the Owner's interest in all Fixed Account options is
the "Fixed Account Value."
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Fixed Account Value
The Fixed Account Value for the Contract 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
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 value of
the Accumulation Unit 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 the Variable Account Value;
(3) payment of a Death Benefit;
(4) application of the Variable Account Value to a Settlement
Option;
(5) deduction of the Contract Maintenance Fee; or
(6) deduction of any Transfer Fee.
Accumulation Units will be canceled as of the end of the
Valuation Period during which the Company receives a Written
Request regarding the event giving rise to such cancellation, or
an applicable Commencement Date, or the end of the Valuation
Period on which the Contract Maintenance Fee or Transfer Fee is
due, as the case may be.
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The Variable Account Value for a Contract at any time is equal to
the sum of the number of Accumulation Units for each Sub-Account
attributable to that Contract multiplied by the Accumulation Unit
value ("Accumulation Unit Value") for each Sub-Account at the end
of the preceding 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.
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 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 for each Sub-Account
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 applicable
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
applicable 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 immediately preceding
Valuation Period; and
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(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 applicable Valuation
Period.
TRANSFERS
Prior to the applicable Commencement Date, the Owner 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 $1,000 at the
time of the transfer, the entire amount of the Sub-Account
balance must be transferred. The Owner may also transfer amounts
from any Fixed Account option to any other 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 of
Fixed Account Options" provision of the "THE FIXED ACCOUNT"
section of this Prospectus, then the entire amount of that Fixed
Account option subject to renewal at that time may be transferred
to any one or more of the Sub-Accounts. In any other case,
transfers from any Fixed Account option are subject to a
cumulative limit during each Contract Year of 20% of the Fixed
Account option's value as of the most recent Contract
anniversary. Fixed Account transfers are not permitted during
the first Contract Year. The minimum transfer amount from any
Fixed Account option is $500. 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 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 Contract Year.
Telephone Transfers
An Owner may place a request for all or part of the Account Value
to be transferred by telephone. All transfers must be in
accordance with the terms of the Contract. Transfer instructions
are currently accepted on each Valuation Date between 9:30 a.m.
and 4:00 p.m. Eastern Time at (800) 789-6771. Once instructions
have been accepted, they may not be rescinded; however, new
telephone instructions may be given the following day.
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The Company will not be liable for complying with telephone
instructions which the Company reasonably believes to be genuine,
or for any loss, damage, cost or expense in acting on such
telephone instructions. The Owner or person controlling payments
will bear the risk of such loss. The Company will employ
reasonable procedures to determine that telephone instructions
are genuine. If the Company does not employ such procedures, the
Company may be liable for losses due to unauthorized or
fraudulent instructions. These procedures may include, among
others, tape recording telephone instructions.
Dollar Cost Averaging
Prior to the applicable Commencement Date, the Owner may
establish automatic transfers from the Money Market Sub-Account
to any other Sub-Account(s), on a monthly or quarterly basis, by
submitting to the Administrative Office a Dollar Cost Averaging
Authorization Form. No Dollar Cost Averaging transfers may be
made to any of the Fixed Account options. The Dollar Cost
Averaging transfers will take place on the last Valuation Date of
each calendar month or quarter as requested by the Owner.
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 may be transferred is $500.
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-Account(s) in the same percentage distribution as
directed in the Dollar Cost Averaging Authorization Form.
Dollar Cost Averaging transfers will not count toward the twelve
transfers permitted under the Contract without a Transfer Fee
charge.
Before electing Dollar Cost Averaging, an Owner should consider
the risks involved in switching between investments available
under the Contract. Dollar Cost Averaging requires regular
investments regardless of fluctuating price levels and does not
guarantee profits nor prevent losses in a declining market. An
Owner should consider his or her financial ability to continue
Dollar Cost Averaging transfers through periods of changing price
levels.
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The Owner may terminate Dollar Cost Averaging services at any
time, but must give the Company at least 30 days notice to change
any automatic transfer instructions that are currently in place.
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 participation in the
Dollar Cost Averaging program.
Portfolio Rebalancing
In connection with the allocation of Purchase Payments to the
Sub-Accounts, and/or the Fixed Accumulation Account, the Owner
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 to maintain the
percentage allocations selected by the Owner.
Prior to the applicable Commencement Date, the Owner may elect
Portfolio Rebalancing, by submitting to the Administrative Office
a Portfolio Rebalancing Authorization Form. In order to be
eligible for the Portfolio Rebalancing program, the Owner must
have a minimum Account Value of $10,000. Portfolio Rebalancing
transfers will take place on the last Valuation Date of each
calendar quarter.
Portfolio Rebalancing transfers will not count toward the twelve
transfers permitted under the Contract without a Transfer Fee
charge.
The Owner may terminate Portfolio Rebalancing services at any
time, but must give the Company at least 30 days notice to change
any automatic transfer instructions that are already in place.
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 participation in the
Portfolio Rebalancing program.
Interest Sweep
Prior to the applicable Commencement Date, the Owner may elect
automatic transfers of the income from each Fixed Account option
to the Sub-Account(s), by submitting to the Administrative Office
an Interest Sweep Authorization Form. Interest Sweep transfers
will take place on the last Valuation Date of each calendar
quarter.
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In order to be eligible for the Interest Sweep program, the value
of each Fixed Account option selected must be at least $5,000.
The maximum amount that may be transferred from each Fixed
Account option selected is 20% of such Fixed Account option's
value per year. Any amounts transferred under the Interest Sweep
program reduce the 20% maximum otherwise allowed.
Interest Sweep transfers will not count toward the twelve
transfers permitted under the Contract without a Transfer Fee
charge.
The Owner may terminate the Interest Sweep program, at any time,
but must give the Company at least 30 days notice to change any
automatic transfer instructions that are already in place. The
Company reserves the right to impose an annual fee not to exceed
$25 for participation in the Interest Sweep program.
Changes By the Company
The Company reserves the right, in the Company's sole discretion
and at any time, to terminate, suspend or modify any aspect of
the transfer privileges described above without prior notice to
Owners, as permitted by applicable law.
SURRENDERS
Surrender Value
The Owner may surrender a Contract in full for the Surrender
Value, or, partial surrenders may be made for a lesser amount, by
Written Request at any time prior to the Annuity Commencement
Date. The amount of any partial surrender must be at least $500.
A partial surrender cannot reduce the Surrender Value to less
than $500. Surrenders will be deemed to be withdrawn first from
the portion of the Account Value that represents accumulated
earnings and then from Purchase Payments. For purposes of the
Contract, Purchase Payments are deemed to be withdrawn on a
"first-in, first-out" basis.
The amount available for surrender will be the Surrender Value at
the end of the Valuation Period in which the Written Request is
received.
The Surrender Value at any time is an amount equal to:
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(1) the Account Value as of the end of the applicable
Valuation Period; less
(2) any applicable CDSC; less
(3) any outstanding loans; and less
(4) any applicable premium tax or other taxes not
previously deducted.
On full surrender, a full Contract Maintenance Fee will also be
deducted as part of the calculation of the Surrender Value.
A full or partial surrender may be subject to a CDSC as set forth
in this prospectus. (See "Contingent Deferred Sales Charge
("CDSC")," page 31.)
Surrenders will result in the cancellation of Accumulation Units
from each applicable Sub-Account(s) and/or a reduction of the
Fixed Account Value. In the case of a full surrender, the
Contract will be terminated.
Surrenders may be subject to a 10% premature distribution penalty
tax if made before the Owner reaches age 59 1/2, and may further
be subject to federal, state or local income tax, as well as
significant tax law restrictions in the case of Qualified
Contracts. (See "FEDERAL TAX MATTERS," page 40.)
Suspension or Delay in Payment of Surrender Value
The Company has the right to suspend or delay the date of payment
of a partial or full surrender of the Variable Account Value for
any period:
(1) when the New York Stock Exchange ("NYSE") is closed or
trading on the NYSE is restricted;
(2) when 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) when 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 after the receipt of a Written Request.
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 OWNER ASSUMES THE INVESTMENT RISK AND BECAUSE CERTAIN
SURRENDERS ARE SUBJECT TO A CDSC, THE TOTAL AMOUNT PAID UPON
SURRENDER OF THE CONTRACT (TAKING INTO ACCOUNT ANY PRIOR
SURRENDERS) MAY BE MORE OR LESS THAN THE TOTAL PURCHASE PAYMENTS.
When Contracts offered by this Prospectus are issued in
connection with retirement plans which meet the requirements of
Sections 401, 403, 408 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.
Free Withdrawal Privilege
Subject to the provisions of the Contract, the Company will waive
the CDSC, to the extent applicable, on full or partial surrenders
as follows:
(1) during the first Contract Year, on an amount
equal to not more than 10% of all Purchase
Payments received; and
(2) during the second and succeeding Contract Years,
on an amount equal to not more than 10% of the
Account Value as of the last Contract
Anniversary.
If the Free Withdrawal Privilege is not exercised during a
Contract Year, it does not carry over to the next Contract Year.
Systematic Withdrawal
Prior to the applicable Commencement Date, the Owner, 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 program, 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
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withdrawn exceeds the Free Withdrawal Privilege (See "CHARGES AND
DEDUCTIONS," page 31.) The Owner 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.
The Company reserves the right to discontinue offering systematic
withdrawals or to impose an annual fee not to exceed $25 for
participation in the Systematic Withdrawal program.
Systematic withdrawals may have tax consequences or may be
limited by tax law restrictions. (See "FEDERAL TAX MATTERS,"
page 40.)
CONTRACT LOANS
If permitted under the Contract, an Owner may obtain a loan using
his or her interest under such Contract as the only security for
the loan. Loans are subject to provisions of the Code. A tax
adviser should be consulted prior to exercising loan privileges.
Loan provisions are described in the loan endorsement to the
Contract.
The amount of any loan will be deducted from any Death Benefit.
In addition, a loan, whether or not repaid, will have a 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
When A Death Benefit Will Be Paid
A Death Benefit will be paid under the Contract if:
(1) the Owner or the joint owner, if any, dies before the
Annuity Commencement Date and before the Contract is
fully surrendered;
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(2) the Death Benefit Valuation Date has occurred; and
(3) a spouse does not become the Successor Owner.
If a Death Benefit becomes payable:
(1) it will be in lieu of all other benefits under the
Contract; and
(2) all other rights under the Contract will be terminated
except for rights related to the Death Benefit.
Only one Death Benefit will be paid under the Contract.
Death Benefit Values
If the Owner 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 or other taxes not
previously deducted, less any partial surrenders, and
less any outstanding loans;
(2) the total Purchase Payment(s), less any applicable
premium tax or other taxes not previously deducted, less
any partial surrenders, and less any outstanding loans;
or
(3) the largest Death Benefit amount on any Contract
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 or other taxes not
previously deducted, less any partial surrenders after
such Death Benefit was determined, and less any
outstanding loans.
If the Owner 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 or other taxes not
previously deducted, less any partial surrenders, and
less any outstanding loans;
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(2) the total Purchase Payment(s), less any applicable
premium tax or other taxes not previously deducted, less
any partial surrenders, and less any outstanding loans;
or
(3) the largest Death Benefit amount on any Contract
Anniversary prior to death that is both an exact multiple
of five and occurs prior to the date on which the Owner
attained Age 75, less any applicable premium tax or other
taxes not previously deducted, less any partial
surrenders after such Death Benefit was determined, and
less any outstanding loans.
In any event, if the Contract is issued after any Owner has
attained age 75, and any Owner dies before the Annuity
Commencement Date, the amount of the Death Benefit will be the
greater of:
(1) the Account Value on the Death Benefit Valuation Date,
less any applicable premium tax or other taxes not
previously deducted, less any partial surrenders, and
less any outstanding loans; or
(2) the total Purchase Payment(s), less any applicable
premium tax or other taxes not previously deducted, less
any partial surrenders, and less any outstanding loans.
Death Benefit Commencement Date
The Beneficiary may designate the Death Benefit Commencement Date
by Written Request within one year of the Owner's death. If no
designation is made, then the Death Benefit Commencement Date
will be one year after the Owner's death.
Form of Death Benefit
Death Benefit payments will be Fixed Dollar Benefit payments made
monthly in accordance with the terms of Option A with a period
certain of 48 months under the "SETTLEMENT OPTIONS" section of
this prospectus. (See page 34.)
In lieu of that, the Owner may elect at any time before his or
her death to have Death Benefit payments made in one lump sum or
pursuant to any available settlement option under the "SETTLEMENT
OPTIONS" section of this prospectus. If the Owner does not make
any such election, the Beneficiary may make that election at any
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time after the Owner's death and before the Death Benefit
Commencement Date.
Beneficiary
Non-Qualified Contracts may be jointly owned by two people. If
there is a joint owner and that joint owner survives the Owner,
the joint owner is the Beneficiary, regardless of any designation
made by the Owner. If there is no surviving joint owner, and in
the case of Qualified Contracts, the Beneficiary is the person or
persons so designated in the application, if any, or under the
Change of Beneficiary provision of the Contract. If the Owner has
not designated a Beneficiary, or if no Beneficiary designated by
the Owner survives the Owner, then the Beneficiary will be the
Owner's estate.
CHARGES AND DEDUCTIONS
There are two types of charges and deductions. First, there are
charges assessed under the Contract. 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
Contract. 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.
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 applies to and is calculated separately for each
Purchase Payment. 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
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charge) and then to Purchase Payments on a first-in, first-out
basis.
<TABLE>
<CAPTION>
Number of Full Years Elapsed Between Date of Receipt of Contingent Deferred Sales Charge
Purchase Payment and Date Written Request for Surrender as a Percentage of Associated Purchase
Received Payment Surrendered
<S> <C>
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7 or more 0%
</TABLE>
In no event shall the CDSC assessed against the Contract 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. The CDSC
will not be imposed on amounts surrendered under the Free
Withdrawal Privilege. (See "Free Withdrawal Privilege," page
28.)
No CDSC is assessed upon payment of the Death Benefit.
The CDSC will be waived upon surrender 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 noncommutable period of five years or
more; or (ii) the Contract is modified by the Long-Term Care
Waiver Rider and the Owner is confined in a licensed Hospital or
Long-Term Care Facility, as those terms are defined in the Rider,
for at least 90 days beginning on or after the first Contract
Anniversary. This Rider may not be available in all
jurisdictions.
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The CDSC may be reduced or waived in connection with certain
Contracts where the Company incurs reduced sales and servicing
expenses, such as Contracts offered to active employees of the
Company or any of its subsidiaries and/or affiliates.
For Qualified Contracts only, the CDSC will be waived if the
Owner has been determined by the Social Security Administration
to be "disabled" as that term is defined in the Social Security
Act of 1935, as amended.
In addition, for Contracts qualified under Section 403(b) of the
Code, the CDSC will be waived if (i) the Owner incurs a
separation from service, has attained age 55 and has held the
Contract for at least seven years; or (ii) the Owner has held the
Contract for fifteen years or more.
The Company reserves the right to terminate, suspend or modify
waivers of the CDSC, without prior notice to Owners, as permitted
by applicable law.
Maintenance and Administrative Charges
On each Contract Anniversary, the Company deducts an annual
Contract Maintenance Fee as partial compensation for expenses
relating to the issue and maintenance of the Contract, and the
Separate Account. The annual Contract Maintenance Fee is $25.
The Company reserves the right to increase the Contract
Maintenance Fee and guarantees that the Contract Maintenance Fee
will not exceed $40. Any increase in the Contract Maintenance
Fee will apply only to deductions after the effective date of the
change. If the Contract is surrendered in full on any day other
than on the Contract Anniversary, the Contract Maintenance Fee
will be deducted in full at the time of such surrender. If a
Variable Annuity Benefit is elected, a portion of the $25 Annual
Fee will be deducted from each Benefit Payment.
The Company will waive the Contract Maintenance Fee if the
Account Value is equal to or greater than $30,000 on the date of
the assessment of the Charge. The Contract Maintenance Fee may
also be waived in connection with certain Contracts where the
Company incurs reduced Contract issuance and maintenance
expenses, such as Contracts offered to active employees of the
Company or any of its subsidiaries, and/or affiliates.
Currently, the Company imposes no Administration Charge to
reimburse the Company for those administrative expenses
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attributable to the Contract and the Separate Account which
exceed the revenues received from the Contract 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
Contract Maintenance Fee and any Transfer Fees.
The Company will provide 30 days written notice in advance of any
change in fees. However, the Company reserves the right to
terminate, suspend or modify waivers of the Contract Maintenance
Fee, without prior notice to Owners, as permitted by applicable
law.
The Company has not imposed an Administration Charge and has set
the Contract Maintenance Fee at a level such that the Company
will recover no more than the anticipated and estimated costs
associated with administering the Contract and Separate Account.
The Company does not expect to make a profit from the
administrative charges of a particular Contract. The Company
does not expect to make a profit from the Contract 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 Contract. 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 Company estimates that
the mortality risk component of this charge is 0.75% of the daily
Net Asset Value of each Sub-Account and the expense risk
component is 0.50%. In connection with certain Contracts where
the Company incurs reduced sales and servicing expenses, such as
Contracts offered to active employees of the Company or any of
its subsidiaries and/or affiliates, the Company may offer a
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 for these Contracts,
the mortality risk component of this charge is 0.75% of the daily
Net Asset Value of each Sub-Account and the expense risk
component is 0.20%. The Mortality and Expense Risk Charge is
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imposed before the Annuity Commencement Date and after the
Annuity Commencement Date if a Variable Annuity Benefit is
selected. The Company guarantees that the Mortality and Expense
Risk 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 Contract) 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
certain circumstances the Company may be obligated to pay a
larger Death Benefit amount than the then-existing Account Value
of the Contract.
The expense risk assumed by the Company is the risk that the
Company's actual expenses in administering the Contracts and the
Separate Account will exceed the amount recovered through the
Contract Maintenance Fees 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. To the
extent that the CDSC is insufficient to cover the actual cost of
Contract distribution, the deficiency 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
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are made to the Contract, 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 Contract 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 16.)
SETTLEMENT OPTIONS
Annuity Commencement Date
The Annuity Commencement Date is shown on the Contract
Specifications page. The Owner may change the Annuity
Commencement Date by Written Request made at least 30 days prior
to the date that Annuity Benefit payments are scheduled to begin.
In no event can the Annuity Commencement Date be later than the
Contract Anniversary following the 85th birthday of the eldest
Owner, or 5 years after the Contract Effective Date, whichever is
later.
Election of Settlement Option
If the Owner 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 no election has been made on the Annuity Commencement Date,
the Company will begin payments based on Settlement Option B
(Life Annuity with Payments for at Least a Fixed Period),
described below, with a fixed period of 120 monthly payments
assured.
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Benefit Payments
Benefit Payments may be calculated and paid: (1) as a Fixed
Dollar Benefit; (2) as a Variable Dollar Benefit; or (3) as a
combination of both.
If only a Fixed Dollar Benefit is to be paid, the Company will
transfer all of the Account Value to the Company's general
account on the applicable Commencement Date, or on the Death
Benefit Valuation Date (if applicable). Similarly, if only a
Variable Dollar Benefit is elected, the Company will transfer all
of the Account Value to the Sub-Accounts as of the end of the
Valuation Period immediately prior to the applicable 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 Benefit and the Variable Dollar Benefit
will be allowed after the Commencement Date. However, after the
Variable Dollar Benefit has been paid for at least twelve months,
the person controlling payments may, no more than once each
twelve months thereafter, transfer all or part of the Benefit
Units upon which the Variable Dollar Benefit is based from the
Sub-Account(s) then held, to Benefit Units in different Sub--
Account(s).
If a Variable Dollar Benefit is elected, the amount to be applied
under that benefit is the Variable Account Value as of the end of
the Valuation Period immediately preceding the applicable
Commencement Date. If a Fixed Dollar Benefit is to be paid, the
amount to be applied under that benefit is the Fixed Account
Value as of the applicable Commencement Date, or as of the Death
Benefit Valuation Date (if applicable).
Fixed Dollar Benefit
Fixed Dollar Benefit payments are determined by multiplying the
Fixed Account Value (expressed in thousands of dollars and after
deduction of any fees and charges, loans, or applicable premium
tax not previously deducted) by the amount of the monthly payment
per $1,000 of value obtained from the Settlement Option Table for
the settlement option elected. Fixed Dollar Benefit payments
will remain level for the duration of the payment period.
If at the time a Fixed Dollar 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 shall not
change for as long as that election remains in force.
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Variable Dollar Benefit
The first monthly Variable Dollar Benefit payment is equal to the
Owner's Variable Account Value (expressed in thousands of dollars
and after deduction of any fees and charges, loans, or applicable
premium tax not previously deducted) as of the end of the
Valuation Period immediately preceding the applicable
Commencement Date multiplied by the amount of the monthly payment
per $1,000 of value obtained from the Settlement Option Table for
the Benefit Payment option elected less the pro-rata portion of
the Contract Maintenance Fee.
The number of Benefit Units in each Sub-Account held by the Owner
is determined by dividing the dollar amount of the first monthly
Variable Dollar Benefit payment from each Sub-Account by the
Benefit Unit Value for that Sub-Account as of the applicable
Commencement Date. The number of Benefit Units remains fixed
during the payment period, except as a result of any transfers
among Sub-Accounts after the applicable Commencement Date.
The dollar amount of the second and any subsequent Variable
Dollar Benefit payment will reflect the investment performance of
the Sub-Account(s) selected and may vary from month to month.
The total amount of the second and any subsequent Variable Dollar
Benefit payment will be equal to the sum of the payments from
each Sub-Account less a pro-rata portion of the Contract
Maintenance Fee. Where an Owner elects a Variable Dollar
Benefit, there is a risk that only one Benefit Payment will be
made under any settlement option, if: (i) at the end of the
applicable Valuation Period, the Owner's Variable Account Value
has declined to zero; or (ii) the person on whose life Benefit
Payments are based dies prior to the second Benefit Payment.
The payment from each Sub-Account is found by multiplying the
number of Benefit Units held in each Sub-Account by the Benefit
Unit Value for that Sub-Account as of the end of the fifth
Valuation Period preceding the due date of the payment.
The Benefit Unit Value for each Sub-Account is originally
established in the same manner as Accumulation Unit values.
Thereafter, the Benefit Unit Value for a Sub-Account is
determined by multiplying the Benefit Unit Value as of the end of
the preceding Valuation Period by the Net Investment Factor,
determined as set forth above under "Accumulation Unit Value",
for the Valuation Period just ended. The product is then
multiplied by the assumed daily investment factor (0.99991781),
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for the number of days in the Valuation Period. The factor is
based on the assumed net investment rate of 3% per year,
compounded annually that is reflected in the Settlement Option
Tables.
Settlement Options
Option A: Income for a Fixed Period
The Company will make periodic payments for a
fixed period. The first payment will be paid as
of the last day of the initial Payment Interval.
The maximum time over which payments will be made
by the Company or money will be held by the
Company is 30 years. The Option A Table applies
to this Option.
Option B: Life Annuity with Payments for at Least a Fixed
Period
The Company will make periodic payments for at
least a fixed period. If the person on whose
life Benefit Payments are based lives longer than
the fixed period, then the Company will make
payments until his or her death. The first
payment will be paid as of the first day of the
initial Payment Interval. The Option B Table
applies to this Option.
Option C: Joint and One-Half Survivor Annuity
The Company will make periodic payments until the
death of the primary person on whose life Benefit
Payments are based; thereafter, the Company will
make one-half of the periodic payment until the
death of the secondary person on whose life
Benefit Payments are based. The Company will
require Due Proof of Death of the primary person
on whose life Benefit Payments are based. The
first payment will be paid as of the first day of
the initial Payment Interval. The Option C Table
applies to this Option.
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Option D: Any Other Form
The Company will make periodic payments in any
other form of settlement option which is
acceptable to us at the time of an election.
Minimum Amounts
Presently, the minimum amount of a Benefit Payment under any
settlement option is $50. If an Owner selects a Payment Interval
under which a Benefit Payment would be less than $50, the Company
will advise the Owner that a new Payment Interval must be
selected so that the Benefit Payment will be at least $50.
Generally, monthly, quarterly, semi-annual and annual Payment
Intervals are available. From time to time, the Company may
require Benefit Payments to be made by direct deposit or wire
transfer to the account of a designated payee.
Minimum amounts, Payment Intervals and other terms and conditions
may be modified by the Company at any time without prior notice
to Owners, as permitted by applicable law. If the Company
changes the minimum amounts, the Company may change any current
or future payment amounts and/or Payment Intervals to conform
with the change. More than one settlement option may be elected
if the requirements for each settlement option elected are
satisfied. Once payment begins under a settlement option, the
settlement option may not be changed.
All factors, values, benefits and reserves under the Contract
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 show the payments that
the Company will make at sample Payment Intervals for each $1,000
applied at the guaranteed interest rate.
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, except as a
Death Benefit Settlement Option.
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GENERAL PROVISIONS
Non-participating
The Contract does not pay dividends or share in the Company's
divisible surplus.
Misstatement
If the age and/or sex of a person on whose life Benefit Payments
are based is misstated, the payments or other benefits under the
Contract shall be adjusted to the amount which would have been
payable based on the correct age and/or sex. If the Company made
any underpayments based on any misstatement, the amount of any
underpayment with interest shall be immediately paid in one sum.
In addition to any other remedies that may be available at law or
at equity, the Company may deduct any overpayments made, with
interest, from any succeeding payment(s) due under the Contract.
Proof of Existence and Age
The Company may require proof of age and/or sex of any person on
whose life Benefit Payments are based.
Discharge of Liability
Upon payment of any partial or full surrender, or any Benefit
Payment, the Company shall be discharged from all liability to
the extent of each such payment.
Transfer of Ownership
Non-Qualified Contract
The Owner of a Non-Qualified Contract may transfer ownership at
any time during his or her lifetime. Any such transfer is
subject to the following:
1) it must be made by Written Request; and
2) unless otherwise elected or required by law, it
will not cancel a designation of an Annuitant or
Beneficiary or any settlement option election
previously made.
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Qualified Contract
The Owner of a Qualified Contract may not transfer ownership.
Assignment
Non-Qualified Contract
The Owner of a Non-Qualified Contract may assign all or any part
of his or her rights under the Contract except rights to:
(1) designate or change a Beneficiary;
(2) designate or change an Annuitant;
(3) transfer ownership; and
(4) elect a settlement option.
The person to whom an assignment is made is called an assignee.
The Company is not responsible for the validity of any
assignment. An assignment must be in writing and must be
received at the Administrative Office of the Company. The
Company will not be bound by an assignment until the Company
acknowledges it. An assignment is subject to any payment made or
any action the Company takes before the Company acknowledges it.
An assignment may be ended only by the assignee or as provided by
law.
Qualified Contract
The Owner of a Qualified Contract may not assign or in any way
alienate his or her interest under the Contract.
Annual Report
At least once each Contract Year, the Company will provide a
report of the Contract's current values and any other information
required by law, until the first to occur of the following:
1) the date the Contract is fully surrendered;
2) the Annuity Commencement Date; or
3) the date a Death Benefit becomes payable under
the Contract.
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Incontestability
No Contract shall be contestable by the Company.
Entire Contract
The Company issues the Contract in consideration and acceptance
of the payment of the initial Purchase Payment. In those states
that require a written application, a copy of the application
will be attached to and become part of the Contract. Only
statements in the application, if any, or made elsewhere by the
Owner in consideration for the Contract will be used to void the
Owner's interest under the Contract, or to defend a claim based
on it. Such statements are representations and not warranties.
Changes -- Waivers
No changes or waivers of the terms of the Contract are valid
unless made in writing by the Company's President, Vice
President, or Secretary. The Company reserves the right both to
administer and to change the provisions of the Contract to
conform to any applicable laws, regulations or rulings issued by
a governmental agency.
Notices and Directions
The Company will not be bound by any authorization, election or
notice which is not made by Written Request.
Any written notice requirement by the Company to the Owner will
be satisfied by the mailing of any such required written notice,
by first-class mail, to the Owner'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 advisor before initiating any
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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 Contract may be purchased on a tax-qualified or non-tax-
qualified basis. Qualified Contracts are designed for use in
connection with plans entitled to special income tax treatment
under Section 401, 403, or 408 of the Code. The ultimate effect
of federal income taxes on the amounts held under a Contract, on
Benefit Payments, and on the economic benefit to the Owner or the
Beneficiary may depend on the type of Contract and the tax status
of the individual concerned. Certain requirements must be
satisfied in purchasing a Qualified Contract and receiving
distributions from such a Contract in order to continue to
receive favorable tax treatment. The Company makes no attempt to
provide more than general information about use of Contracts with
the various types of tax-qualified arrangements. Owners and
Beneficiaries are cautioned that the rights of any person to any
benefits may be subject to the terms and conditions of the
tax-qualified arrangement, regardless of the terms and conditions
of the Contract. Some tax-qualified arrangements are subject to
distribution and other requirements that are not incorporated in
the administration of the Contract. Owners are responsible for
determining that contributions, distributions and other
transactions with respect to Qualified Contracts satisfy
applicable law. Therefore, purchasers of Qualified 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 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 Owner 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.) The taxable portion of a
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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 Contract owned by
a natural person.
Surrenders
Qualified Contracts
In the case of a surrender under a 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 annuity. The "investment in the contract" generally
equals the amount of any non-deductible Purchase Payments
paid by or on behalf of any individual. Special tax
rules may be available for certain distributions from a
Qualified Contract.
Non-Qualified Contracts
In the case of a surrender under a Non-Qualified
Contract, the amount recovered is taxable to the extent
that the Account Value immediately before the surrender,
reduced by any applicable charges, exceeds the
"investment in the contract" at such time.
Annuity Benefit Payments
Although the tax consequences may vary depending on the
Settlement Option elected under the Contract, in general, only
the portion of a Benefit 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 Benefit Payments is
taxable. For Variable Dollar Benefit 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 Benefit Payments,
in general there is no tax on the portion of each payment which
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represents the same ratio that the "investment in the contract"
bears to the total expected value of the Benefit Payments for the
term of the payments; however, the remainder of each Benefit
Payment is taxable. Once the "investment in the contract" has
been fully recovered, the full amount of any additional Benefit
Payments is taxable. If Benefit Payments cease as a result of an
Owner'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
the taxable portion of a distribution from a Contract prior to
age 59 1/2. Exceptions to this penalty tax are available to
distributions made on account of disability, death, and certain
payments for life and life expectancy. Certain other exceptions
may apply depending on the tax-qualification of the Contract
involved.
Taxation of Death Benefit Proceeds
Amounts may be distributed under a Contract because of the death
of an Owner. Generally such amounts are includable 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 Benefit Payments, as
described above.
Transfers, Assignments, or Exchanges of the Contract
A transfer of ownership or an assignment of a Contract, the
designation of a Beneficiary who is not also the Owner, or the
exchange of a Contract may result in certain tax consequences to
the Owner that are not discussed herein.
Qualified Contracts - General
The Qualified Contract is designed for use with several types of
retirement plans. The tax rules applicable to Owner and
Beneficiaries in retirement plans vary according to the type of
plan and the terms and conditions of the plan.
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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.
Individual Retirement Annuities
Code sections 219 and 408 permit individuals or their employers
to contribute to an individual retirement program known as an
"Individual Retirement Annuity" or "IRA". Under applicable
limitations, certain amounts may be contributed to an IRA that
are deductible from an individual's gross income. Employers also
may establish Simplified Employee Pension (SEP) Plans to provide
IRA contributions on behalf of their employees.
Tax-Sheltered Annuities
Section 403(b) of the Code permits the purchase of "tax-sheltered
annuities" by public schools and certain charitable, educational
and scientific organizations described in Section 501(c)(3) of
the Code. These qualifying employers may make contributions to
the Contracts for the benefit of their employees. Such
contributions are not includable in the gross income of the
employee until the employee receives distributions under the
Contract.
Corporate Pension and Profit Sharing Plans and H.R. 10 Plans
Code section 401 permits employers to establish various types of
retirement plans for employees, and permits self-employed
individuals to establish retirement plans for themselves and
their employees. These retirement plans may permit the purchase
of the Contracts to accumulate retirement savings under the
plans.
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Certain Deferred Compensation Plans
Under Section 457 of the Code, governmental and certain other
tax-exempt employers may invest in annuity contracts in
connection with deferred compensation plans established for the
benefit of their employees. Other employers may invest in
annuity contracts in connection with non-qualified deferred
compensation plans established for the benefit of their
employees. Under these plans, contributions made for the benefit
of the employees will not be includable in the employees' gross
income until distributed from the plan.
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
There is always the possibility that the tax treatment of
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. 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 circumstances of each Owner or recipient of the
distribution. A competent tax adviser should be consulted for
further information.
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General
At the time the initial Purchase Payment is paid, a prospective
purchaser must specify whether the purchase is a Qualified
Contract or a Non-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 will 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"), an affiliate of the
Company, 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 Group(SERVICEMARK), 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 will sell Contracts through its registered
representatives. In addition, AAG Securities may enter 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
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
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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.
AAG Securities may pay commissions of up to 8% of the Purchase
Payments made under the Contracts. In addition, certain
production, persistency and managerial bonuses may be paid. 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 Owner, or the person
controlling payments, if different from the Owner. The number of
votes which are available will be calculated separately for each
Sub-Account. Before the Annuity Commencement Date, that number
will be determined by applying the Owner's percentage interest,
if any, in a particular Sub-Account to the total number of votes
attributable to that Sub-Account. The Owner, or the person
controlling payments, if different from the Owner, 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 Contract decreases.
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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 Owners have no beneficial
interest will be voted in proportion to the voting instructions
which are received with respect to all Contracts 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.
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 Contracts 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 or the Contracts. Statements contained in this
Prospectus, as to the content of the Contracts 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.
__________________________________________________________________________
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
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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 . . . . . . . . . . . 3
Records and Reports . . . . . . . . . . . . . . . . . . . . 3
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . 3
DISTRIBUTION OF THE CONTRACTS . . . . . . . . . . . . . . . . . . . . 3
CALCULATION OF PERFORMANCE INFORMATION . . . . . . . . . . . . . . . 3
Money Market Sub-Account Standardized Yield Calculation . . 3
Other Sub-Account Standardized Yield Calculation . . . . . . 4
Standardized Total Return Calculation . . . . . . . . . . . 5
Hypothetical Performance Data . . . . . . . . . . . . . . . 5
Other Performance Data . . . . . . . . . . . . . . . . . . . 6
FEDERAL TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . 7
Taxation of the Company . . . . . . . . . . . . . . . . . . 8
Tax Status of the Contract . . . . . . . . . . . . . . . . . 8
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 9
__________________________________________________________________________
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- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Copies of the Statement of Additional Information dated August
16, 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:______________________________________________________________________
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
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APPENDIX A
Qualified Contracts
OPTION A TABLE -- INCOME FOR A FIXED PERIOD
Payments for fixed number of years for each $1,000 applied.
<TABLE>
<CAPTION>
Terms of Annual Semi- Quarterly Monthly Terms of Annual Semi- Quarterly Monthly
Payments Annual Payments Annual
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Years Years
6 184.60 91.62 45.64 15.18 11 108.08 53.64 26.72 8.88
7 160.51 79.66 39.68 13.20 12 100.46 49.86 24.84 8.26
8 142.46 70.70 35.22 11.71 13 94.03 46.67 23.25 7.73
9 128.43 63.74 31.75 10.56 14 88.53 43.94 21.89 7.28
10 117.23 58.18 28.98 9.64 15 83.77 41.57 20.71 6.89
</TABLE>
<TABLE>
<CAPTION>
Terms of Annual Semi- Quarterly Monthly
Payments Annual
<C> <C> <C> <C> <C>
Years
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 5.98
19 69.81 34.65 17.26 5.74
20 67.22 33.36 16.62 5.53
</TABLE>
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OPTION B TABLES - LIFE ANNUITY
With Payments For At Least A Fixed Period
60 Months 120 Months 180 Months 240 Months
Age
55 $4.42 $4.39 $4.32 $4.22
56 4.51 4.47 4.40 4.29
57 4.61 4.56 4.48 4.35
58 4.71 4.65 4.56 4.42
59 4.81 4.75 4.64 4.49
60 4.92 4.86 4.73 4.55
61 5.04 4.97 4.83 4.62
62 5.17 5.08 4.92 4.69
63 5.31 5.20 5.02 4.76
64 5.45 5.33 5.12 4.83
65 5.61 5.46 5.22 4.89
66 5.77 5.60 5.33 4.96
67 5.94 5.75 5.43 5.02
68 6.13 5.91 5.54 5.08
69 6.33 6.07 5.65 5.14
70 6.54 6.23 5.76 5.19
71 6.76 6.41 5.86 5.24
72 7.00 6.58 5.96 5.28
73 7.26 6.77 6.06 5.32
74 7.53 6.95 6.16 5.35
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<TABLE>
<CAPTION>
OPTION C TABLE - JOINT AND ONE-HALF SURVIVOR ANNUITY
Monthly payments for each $1,000 of proceeds by ages of persons named*.
Primary Secondary Age
Age
60 61 62 63 64 65 66 67 68 69 70
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
60 $4.56 $4.58 $4.61 $4.63 $4.65 $4.67 $4.69 $4.71 $4.73 $4.75 $4.76
61 4.63 4.66 4.69 4.71 4.73 4.76 4.78 4.80 4.82 4.84 4.86
62 4.71 4.74 4.77 4.80 4.82 4.85 4.87 4.90 4.92 4.94 4.96
63 4.79 4.82 4.85 4.88 4.91 4.94 4.97 5.00 5.02 5.05 5.07
64 4.88 4.91 4.94 4.98 5.01 5.04 5.07 5.10 5.13 5.15 5.18
65 4.96 5.00 5.03 5.07 5.11 5.14 5.17 5.20 5.24 5.27 5.30
66 5.05 5.09 5.13 5.17 5.21 5.24 5.28 5.32 5.35 5.38 5.42
67 5.14 5.18 5.23 5.27 5.31 5.35 5.39 5.43 5.47 5.51 5.54
68 5.23 5.28 5.33 5.37 5.42 5.46 5.50 5.55 5.59 5.63 5.67
69 5.33 5.38 5.43 5.48 5.53 5.57 5.62 5.67 5.72 5.76 5.81
70 5.43 5.48 5.53 5.59 5.64 5.69 5.74 5.80 5.85 5.90 5.95
*Payments after the death of the Primary Payee will be one-half of the amount shown.
</TABLE>
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Non-Qualified Contracts
<TABLE>
<CAPTION>
OPTION A TABLE - INCOME FOR A FIXED PERIOD
Payments for fixed number of years for each $1,000 applied.
Terms of Annual Semi- Quarterly Monthly Terms of Annual Semi- Quarterly Monthly
Payments Annual Payments Annual
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Years Years
6 184.60 91.62 45.64 15.18 11 108.08 53.64 26.72 8.88
7 160.51 79.66 39.68 13.20 12 100.46 49.86 24.84 8.26
8 142.46 70.70 35.22 11.71 13 94.03 46.67 23.25 7.73
9 128.43 63.74 31.75 10.56 14 88.53 43.94 21.89 7.28
10 117.23 58.18 28.98 9.64 15 83.77 41.57 20.71 6.89
</TABLE>
<TABLE>
<CAPTION>
Terms of Annual Semi- Quarterly Monthly
Payments Annual
<C> <C> <C> <C> <C>
Years
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 5.98
19 69.81 34.65 17.26 5.74
20 67.22 33.36 16.62 5.53
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</TABLE>
OPTION B TABLES - LIFE ANNUITY
With Payments For At Least A Fixed Period
Male 60 Months 120 Months 180 Months 240 Months
Age
55 $4.68 $4.62 $4.53 $4.39
56 4.78 4.72 4.61 4.45
57 4.89 4.82 4.69 4.51
58 5.00 4.92 4.78 4.58
59 5.12 5.03 4.87 4.64
60 5.25 5.14 4.96 4.71
61 5.39 5.26 5.06 4.78
62 5.53 5.39 5.16 4.84
63 5.69 5.52 5.26 4.90
64 5.85 5.66 5.36 4.96
65 6.03 5.81 5.46 5.02
66 6.21 5.96 5.56 5.08
67 6.41 6.11 5.66 5.13
68 6.62 6.28 5.76 5.18
69 6.84 6.44 5.86 5.23
70 7.07 6.61 5.96 5.27
71 7.32 6.78 6.05 5.31
72 7.58 6.96 6.14 5.34
73 7.85 7.14 6.23 5.37
74 8.14 7.32 6.31 5.40
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OPTION B TABLES (CONTINUED)
Female 60 Months 120 Months 180 Months 240 Months
Age
55 $4.25 $4.22 $4.18 $4.10
56 4.33 4.30 4.25 4.17
57 4.41 4.38 4.32 4.23
58 4.50 4.47 4.40 4.30
59 4.60 4.56 4.48 4.37
60 4.70 4.66 4.57 4.44
61 4.81 4.76 4.66 4.51
62 4.93 4.86 4.75 4.58
63 5.05 4.98 4.85 4.65
64 5.18 5.10 4.95 4.72
65 5.32 5.22 5.05 4.79
66 5.47 5.36 5.16 4.86
67 5.63 5.50 5.26 4.93
68 5.80 5.65 5.37 5.00
69 5.98 5.80 5.49 5.06
70 6.18 5.96 5.60 5.12
71 6.39 6.14 5.71 5.18
72 6.62 6.31 5.83 5.23
73 6.86 6.50 5.94 5.28
74 7.12 6.69 6.04 5.32
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<TABLE>
<CAPTION>
OPTION C TABLE - JOINT AND ONE-HALF SURVIVOR ANNUITY
Monthly payments for each $1,000 of proceeds by ages of persons named*.
Male Female Secondary Age
Primary
Age
60 61 62 63 64 65 66 67 68 69 70
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
60 $4.70 $4.73 $4.76 $4.79 $4.82 $4.85 $4.88 $4.91 $4.94 $4.96 $4.99
61 4.78 4.81 4.84 4.88 4.91 4.94 4.97 5.00 5.03 5.06 5.09
62 4.86 4.89 4.93 4.96 5.00 5.03 5.07 5.10 5.13 5.16 5.19
63 4.94 4.97 5.01 5.05 5.09 5.13 5.16 5.20 5.24 5.27 5.31
64 5.02 5.06 5.10 5.14 5.18 5.23 5.27 5.31 5.34 5.38 5.42
65 5.10 5.15 5.19 5.24 5.28 5.33 5.37 5.41 5.46 5.50 5.54
66 5.19 5.24 5.28 5.33 5.38 5.43 4.84 5.52 5.57 5.62 5.66
67 5.28 5.33 5.38 5.43 5.48 5.53 5.59 5.64 5.69 5.74 5.79
68 5.37 5.42 5.48 5.53 5.59 5.64 5.70 5.75 5.81 5.86 5.92
69 5.46 5.52 5.57 5.63 5.69 5.75 5.81 5.87 5.93 5.99 6.05
70 5.55 5.61 5.67 5.74 5.80 5.86 5.93 5.99 6.06 6.12 6.19
*Payments after the death of the Primary Payee will be one-half of the amount shown.
</TABLE>
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_________________________________________________________________________
<TABLE>
<CAPTION>
Monthly payments for each $1,000 of proceeds by ages of persons named*.
Male Female Primary Age
Secondary
Age
60 61 62 63 64 65 66 67 68 69 70
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
60 $4.46 $4.54 $4.62 $4.71 $4.79 $4.88 $4.98 $5.07 $5.17 $5.27 $5.38
61 4.48 4.56 4.65 4.73 4.82 4.91 5.01 5.11 5.21 5.31 5.42
62 4.50 4.58 4.67 4.75 4.85 4.94 5.04 5.14 5.25 5.36 5.47
63 4.52 4.60 4.69 4.78 4.87 4.97 5.07 5.17 5.28 5.40 5.51
64 4.53 4.62 4.71 4.80 4.90 5.00 5.10 5.21 5.32 5.44 5.56
65 4.55 4.63 4.72 4.82 4.92 5.02 5.13 5.24 5.35 5.48 5.60
66 4.56 4.65 4.74 4.84 4.94 5.05 5.16 5.27 5.39 5.51 5.64
67 4.57 4.66 4.76 4.86 4.96 5.07 5.18 5.30 5.42 5.55 5.68
68 4.59 4.68 4.78 4.88 4.98 5.09 5.21 5.33 5.45 5.59 5.72
69 4.60 4.69 4.79 4.89 5.00 5.11 5.23 5.36 5.48 5.62 5.76
70 4.61 4.70 4.80 4.91 5.02 5.13 5.25 5.38 5.51 5.65 5.80
*Payments after the death of the Primary Payee will be one-half of the amount shown.
</TABLE>
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<PAGE>
INDIVIDUAL 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
__________________________________________________________________________
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<PAGE>
ANNUITY INVESTORS(SERVICEMARK) VARIABLE ACCOUNT A
of
ANNUITY INVESTORS LIFE INSURANCE COMPANY(REGISTERED TRADEMARK)
STATEMENT OF ADDITIONAL INFORMATION
for the
Commodore Mariner(SERVICEMARK) and Commodore Americus(SERVICEMARK)
Individual Flexible Premium Deferred Annuities 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 Mariner(SERVICEMARK) and
Commodore Americus(SERVICEMARK), Individual Flexible Premium Deferred
Annuity Contracts (each, the "Contract") offered by Annuity Investors Life
Insurance Company(REGISTERED TRADEMARK). A copy of the Prospectus dated
August 16, 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.
Dated August 16, 1996
<PAGE>
TABLE OF CONTENTS
Page
ANNUITY INVESTORS LIFE INSURANCE COMPANY(REGISTERED
TRADEMARK) . . . . . . . . . . . . . . . . . . . . . . . . . . 2
General Information and History . . . . . . . . . . . 2
State Regulation . . . . . . . . . . . . . . . . . . . 2
SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Safekeeping of Separate Account Assets . . . . . . . . 2
Records and Reports . . . . . . . . . . . . . . . . . 3
Experts . . . . . . . . . . . . . . . . . . . . . . . 3
DISTRIBUTION OF THE CONTRACTS . . . . . . . . . . . . . . . . 3
CALCULATION OF PERFORMANCE INFORMATION . . . . . . . . . . . . 3
Money Market Sub-Account Standardized Yield
Calculation . . . . . . . . . . . . . . . . . . . . . 3
Other Sub-Account Standardized Yield Calculation . . . 4
Standardized Total Return Calculation . . . . . . . . 5
Hypothetical Performance Data . . . . . . . . . . . . 6
Other Performance Data . . . . . . . . . . . . . . . . 7
FEDERAL TAX MATTERS . . . . . . . . . . . . . . . . . . . . . 8
Taxation of the Company . . . . . . . . . . . . . . . 9
Tax Status of the Contract . . . . . . . . . . . . . . 9
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . 10
REPORT OF INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . 11
ANNUITY INVESTORS LIFE INSURANCE COMPANY . . . . . . . . . . . 16
A. ACCOUNTING POLICIES . . . . . . . . . . . . . . . . . . . 16
INVESTMENTS . . . . . . . . . . . . . . . . . . . . . 16
ANNUITY RESERVES . . . . . . . . . . . . . . . . . . . 16
REINSURANCE . . . . . . . . . . . . . . . . . . . . . 16
B. INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . 17
C. FEDERAL INCOME TAXES . . . . . . . . . . . . . . . . . . . 17
D. RELATED PARTY TRANSACTIONS . . . . . . . . . . . . . . . . 17
E. DIVIDEND RESTRICTIONS . . . . . . . . . . . . . . . . . . 17
F. ANNUITY RESERVES . . . . . . . . . . . . . . . . . . . . . 17
G. OTHER ITEMS . . . . . . . . . . . . . . . . . . . . . . . 18
H. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . 18
I. VARIANCES FROM GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES . . . . . . . . . . . . . . . . . . . . . . 19
The following information supplements the information in the Prospectus.
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 TRADEMARK)
General Information and History
Annuity Investors Life Insurance Company(REGISTERED TRADEMARK) (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 TRADEMARK)
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.
PAGE 2
<PAGE>
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
provisions of the Investment Company Act of 1940, as amended ("1940 Act"),
and rules and regulations promulgated thereunder which pertain to the
Separate Account, reports containing such information as may be required
under the 1940 Act or by other applicable law or regulation will be sent
to each Owner semi-annually at the Owner's last known address.
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 Standardized Yield Calculation
In accordance with rules and regulations adopted by the Securities and
Exchange Commission, the Company computes the Money Market Sub-Account's
current annualized yield for a seven-day period in a manner which does not
take into consideration any realized or unrealized gains or losses on
shares of the Money Market 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.
PAGE 3
<PAGE>
The Securities and Exchange Commission also permits the Company to
disclose the effective yield of the Money Market Sub-Account for the same
seven-day period, 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 Standardized 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
Where: YIELD = 2[a-b+1) - 1]
---
cd
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
PAGE 4
<PAGE>
that may be applicable to a particular Contract. CDSCs range from 7% to
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, such as the Contract Maintenance Fee and the Mortality
and Expense Risk Charge, which 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 other 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
PAGE 6
<PAGE>
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
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
PAGE 7
<PAGE>
comparative benchmark may be. All measures of volatility and correlation
are calculated using averages of historical data.
FEDERAL TAX MATTERS
The Contract is designed for use by individuals as a non-tax-qualified
annuity (including Contracts purchased by an employer in connection with a
Code Section 457 or non-qualified deferred compensation plan), and with
arrangements which qualify for special tax treatment under Sections 401,
403 or 408 of the Code. The ultimate effect of federal taxes on the
Account Value, on Annuity Benefits, and on the economic benefit to the
Owner and/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
Section 817(h) of the Code requires that with respect to Non-Qualified
Contracts, the investments of the Funds be "adequately diversified" in
PAGE 8
<PAGE>
accordance with Treasury regulations in order for the Contracts to qualify
as annuity contracts under federal tax law. The Separate Account, through
the Funds, intends to comply with the diversification requirements
prescribed by the Treasury in Reg. Sec. 1.817-5, which affect how the
Funds' assets may be invested.
In certain circumstances, Owners of individual 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 as
the ability to exercise investment control over the assets. The Treasury
Department has also announced, in connection with the issuance of
regulations concerning diversification, that those regulations "do not
provide guidance concerning the circumstances in which investor control of
the investments of a segregated asset account may cause the investor
(i.e., the Owner), 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 Owner has additional flexibility
in allocating Purchase Payments and Account Value. These differences
could result in an Owner being treated as the owner of a pro-rata portion
of the assets of the Separate Account and/or Fixed Account. In addition,
the Company does not know what standards will be set forth, if any, in the
regulations or rulings which the Treasury Department has stated it expects
to issue. The Company therefore reserves the right to modify the Contract
as necessary to attempt to prevent an Owner 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
Years ended December 31, 1995 and 1994
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Annuity Investors Life Insurance Company(REGISTERED TRADEMARK)
We have audited the accompanying statutory-basis balance sheets of Annuity
Investors Life Insurance Company(REGISTERED TRADEMARK) ("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 TRADEMARK)
BALANCE SHEETS
STATUTORY BASIS
Year Ended December 31,
--------------------
ASSETS 1995 1994
---- ----
<S> <C> <C>
Cash and investments:
Fixed Maturities - at amortized cost $ 8,554,641 $8,291,079
(market value: $8,648,412
and $7,545,390)
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>
PAGE 11
<PAGE>
<TABLE>
<CAPTION>
ANNUITY INVESTORS LIFE INSURANCE COMPANY(REGISTERED TRADEMARK)
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 net realized capital gain 146,938 129,492
Net realized capital gains (losses):
Gross Realized Capital Gains 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>
PAGE 12
<PAGE>
<TABLE>
<CAPTION>
ANNUITY INVESTORS LIFE INSURANCE COMPANY(REGISTERED TRADEMARK)
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 TRADEMARK)
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)
Payments From (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 investments 14,757,992 (2,518,295)
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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ANNUITY INVESTORS LIFE INSURANCE COMPANY(REGISTERED TRADEMARK)
NOTES TO STATUTORY FINANCIAL STATEMENTS
ANNUITY INVESTORS LIFE INSURANCE COMPANY(REGISTERED TRADEMARK)
A. ACCOUNTING POLICIES
BASIS OF PRESENTATION Annuity Investors Life Insurance Company(REGISTERED
TRADEMARK) ("AILIC"), a life insurance company domiciled in the State of
Ohio, is an indirectly owned subsidiary of American Annuity Group, 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 TRADEMARK) 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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ANNUITY INVESTORS LIFE INSURANCE COMPANY(REGISTERED TRADEMARK)
NOTES TO STATUTORY FINANCIAL STATEMENTS - CONTINUED
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(REGISTERED TRADEMARK) Life Insurance Company ("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
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ANNUITY INVESTORS LIFE INSURANCE COMPANY(REGISTERED TRADEMARK)
NOTES TO STATUTORY FINANCIAL STATEMENTS - CONTINUED
in 1994 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.
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ANNUITY INVESTORS LIFE INSURANCE COMPANY(REGISTERED TRADEMARK)
NOTES TO STATUTORY FINANCIAL STATEMENTS - CONTINUED
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
=========== ===========
$ 2,842,013 $2,684,376
Group annuities not fully paid - account balance =========== ===========
See notes to statutory financial statements.
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<PAGE>
ANNUITY INVESTORS LIFE INSURANCE COMPANY(REGISTERED TRADEMARK)
NOTES TO STATUTORY FINANCIAL STATEMENTS - CONTINUED
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
---------- ----------
$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:
Net Income Capital and Surplus
1995 1994 1995 1994
---- ---- ---- ----
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>
See notes to statutory financial statement.
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